Rising flood insurance rates could hurt real estate market
Flood insurance rates are scheduld to increase in areas prone to repeated flooding like the Shore Acres area of Pinellas County. TRIBUNE FILE PHOTO
BY JOSH BOATWRIGHT Tribune staff
Published: September 3, 2013
Updated: September 3, 2013 at 06:53 AM
TREASURE ISLAND — There were gasps in the packed City Hall chambers last week when a slide flashed on screen showing how much flood insurance rates could rise over the next year.
An older home, like many in Treasure Island, with its lowest floor six-feet below base flood elevation has cost about $2,500 to insure through the federal government’s flood insurance program. That rate could leap to $15,000.
Up until a few weeks ago, many insurance agents, Realtors and homeowners knew little about imminent changes to the National Flood Insurance program that will drastically change what people pay for coverage. Now, they’re trying to get a handle on potential impacts in the real estate market, just as prices and sales are starting to rebound.
The changes to the flood insurance program will phase out so-called subsidies that have kept rates low for insurance on older homes built before flood maps were redrawn to make them accurately reflect financial risk.
Most homeowners in their primary residences will see 10- to 20-percent rate increases for the time being. Second homes, commercial properties and those that have suffered repeated flood losses will start to see 25-percent annual hikes.
The biggest immediate impact will be on homebuyers, as new policies would trigger dramatic jumps, with premiums ranging from $6,000 to $20,000 a year.
Public officials, Realtors and residents across the Tampa Bay area and the state have begun lobbying congressional leaders to stop or, at least, delay the new law.
An amendment that would put a moratorium on rate hikes for a year has passed the U.S. House of Representatives and is expected to go to the Senate for a vote before many of the increases go into effect on Oct. 1.
Should the existing law be implemented, local officials warn it could have disastrous effects on the slowly recovering real estate market and trickle down to area’s tourism industry.
“It has been the beaches that have led the resurgence of the market for residential property, and it’s been the resurgence of the tourism economy on the beaches that has helped our economy in Pinellas County recover,” Pinellas County Property Appraiser Pam Dubov said at the recent flood insurance forum in Treasure Island.
“The very areas that have helped us start to recover from the detriment of the last five or six years are the areas that are likely to be affected most.”
Congress passed the Biggert-Waters Flood Insurance Reform Act in 2012, ordering the Federal Emergency Management Agency to fill a $20 billion deficit in the flood insurance program created by large-scale disasters, such as hurricanes Katrina and Sandy.
To make the program fiscally sound, the agency is removing a subsidy on about 20 percent of policies nationwide on many homes built prior to 1975, before communities joined the program and began drafting accurate flood maps.
The law is being implemented in stages. Many Realtors and new homeowners didn’t know until recent weeks that the first stage had already begun.
People who bought a home in a high-risk area after the law was passed in July 2012 may have received the same flood insurance rate as the previous owners. When they renew their policies, though, they’ll be required to get elevation certificates, likely exploding their premiums.
St. Pete Beach city commissioner and area Realtor Melinda Pletcher said a family she knows bought a small home near the Don CeSar hotel and got minimal flood coverage for about $1,000 while doing renovations. The family recently received a notice from its insurer that full coverage next year will be $23,000, she said.
Much of the potential rate increase is tied to a home’s height versus base flood level. A home at 3 feet below base flood elevation may see rates go up to $6,500 versus $15,000 for a property at 6 feet.
“We’ve already seen real estate signs that instead of saying 3/2 with a pool, they say no flood insurance required,” Pletcher said.
With its large stock of older homes, Pinellas County has the highest number of properties in the nation that could be affected by the law, a total of 51,000 parcels, Dubov said.
Hillsborough and Sarasota counties made the Top 12 list, too, she said.
With home sales on the beach up 9 percent so far this year, it appears few buyers are aware of what’s happening, Dubov said.
“Clearly, these effects are not understood by the buyers or we have a whole lot more buyers out there with a whole lot more money than I imagined,” she said.
There appears to be even less awareness in other communities that likely will see changes.
“I think people are just now, once they’re getting their insurance renewals, starting to really look at their policies and giving us calls,” said Pasco County Economic Development Director Cindy Jolly.
Many of the county’s coastal communities west of U.S. 19 were developed prior to the flood insurance program, she said.
While the county gets discounts for implementing flood-mitigation measures, a significant rate increase could make many older homes unaffordable for low- to middle-income residents in Pasco, Jolly said.
South Tampa Realtor John Lum said he’s seen buyers back out of sales in flood-prone neighborhoods after they see insurance estimates running up to $10,000 in their loan documents.
“It’s hurting deals, and it’s going to kill a lot of deals for homes that are in those areas,” said Lum, co-owner of Century 21 List.
Once more people become aware of the changes, home values will begin to drop, said Brad Monroe, a former president of the Greater Tampa Association of Realtors.
“The prices we’ve heard quoted for flood insurance is going to effect how willing people are to buy them and then how much they’re willing to pay,” he said.
The industry group Florida Realtors is lobbying congressional leaders to delay the rate increases and restructure the program.
The Tampa Bay Beaches Chamber of Commerce is also circulating a petition calling for Congress to stall its implementation.
U.S. Rep. Bill Young has written a letter to FEMA Administrator Craig Fugate, the former head of Florida’s Division of Emergency Management, urging him to visit Pinellas County and consider the negative impact of the rate hikes.
“An increase of this magnitude could devastate the fragile real estate market in many of the beach communities I represent, a market that is just now beginning to recover,” Young wrote in his Aug. 15 letter.
The House amendment that would delay the rate increases for a year is expected to go before the Senate this month as part of the 2014 Department of Homeland Security funding bill. What happens from there is uncertain.
U.S. Sen. Bill Nelson’s press secretary Ryan Brown said Nelson is concerned about keeping flood coverage affordable and that he is “looking closely” at legislation that would delay implementing the rate changes. Sen Marco Rubio has said he doesn’t want to see rates become unaffordable but also wants to keep the flood insurance program viable.
At the Treasure Island flood insurance forum last month Mayor Bob Minning urged the crowd of several hundred people to put political pressure on congressional leaders.
“We’re small, but we’re mighty,” he said. “We need, we need, we need for all of you to contact your elected officials at the federal level.”
For information about the changing flood insurance rates, call your insurance agent, or visit www.floodsmart.gov.