Only recently are these price signals starting to shift under the NFIP’s new pricing methodology, Risk Rating 2.0, which determines premiums based on individual assessments of flood risk and rebuilding costs for each property 16, and as mortgage lenders begin to insulate themselves from credit risk associated with exposure to flood risk 17, 18, 19, 20. Additionally, subsidization of National Flood Insurance Program (NFIP) premiums and climate-agnostic mortgage lending practices have created distorted price signals by transferring flood-related costs away from property owners 15. Misperceptions of natural hazards and climate change further limit homebuyers’ ability to rationally price flood risk, as a range of systemic biases may lead to underestimation of the probability and severity of being affected by flooding 14. In many cases, potential buyers may be unaware of a property’s risk because of deficiencies in the Federal Emergency Management Agency (FEMA)’s flood insurance rate maps (FIRMs) 12, as well as inconsistent state-level flood risk disclosure laws 13. Incomplete pricing of flood risk may be driven by lack of information about potential flood losses, cognitive biases in risk perceptions and/or socialization of flood-related costs (that is, transferred to taxpayers). Despite these concerns, the magnitude, distribution and potential social and economic consequences of overvaluation in US housing markets remain uncertain. This unpriced flood risk could perpetuate perverse incentives for continued development in floodplains and underinvestment in hazard mitigation, further inflating the housing bubble. One study estimated that properties in the 100 yr flood zone could be overvalued by an average of 8.5% of their current value 9, not accounting for increasing damages from climate change. While empirical studies have observed an average discount of 4.6% for properties located in the 100 yr flood zone 10, recent evidence suggests that this price discount does not fully capture the expected costs of flooding 7, 11. The increasing burden of flooding under climate change has led to growing concerns that housing markets are mispricing these risks, thus causing a real estate bubble to develop 7, 8, 9. 5) and average annual losses (AALs) by at least 26% by 2050 under Representative Concentration Pathway (RCP) 4.5 6, presenting substantial costs to property owners, insurers, mortgage lenders and the federal government. Increasing frequency and severity of flooding under climate change is predicted to increase the number of properties exposed to flooding by 11% (ref.
Currently, more than 14.6 million properties in the United States face at least a 1% annual probability of flooding 5, with expected annual damages to residential properties exceeding US$32 billion 6.
Adaptation responses will not only determine the magnitude of total costs, but alsowhether these costs become increasingly borne by American taxpayers, or alternatively become internalized by those who are directly exposed to physical climate impacts 3.Īmong the natural hazards exacerbated by climate change, flooding is the deadliest, costliest and most widely experienced in the United States 4. These risks stem not only from the physical impacts of climate change, but also from how property owners, private companies and public institutions respond to growing climate hazards. Climate change poses a range of financial and economic risks to households, communities and market sectors across the United States 1, 2.
0 kommentar(er)
