NYC’s Housing Cost Myth
Constantine Valhouli

The Hidden Costs of Floods

The most affordable real estate locations in NYC could also harbor the highest flood risks

Mr. Valhouli’s article entitled NYC’s Housing Cost Myth posted January 7 in the Medium re:form blog space provides some really striking visualizations of the distribution of housing costs in New York City, and takes a great step towards dispelling the myth that all areas within the city are prohibitively expensive when considering a home purchase. It also provides prospective home shoppers a few areas in which to begin their search. However, as the author notes in the conclusion, “[real estate] pricing data alone do not tell the whole story of a neighborhood.” Among others, costs associated with flooding risk are expenses often overlooked when shopping for a home in flood prone areas like New York City — overlooked at least until the bank informs a home owner or buyer about a flood insurance purchase requirement, the FEMA floodplains are revised or, even worse, until a storm is imminent. For homes in many of the neighborhoods mentioned in the article, the cost associated with risk of flooding over the span of a standard mortgage can rival the cost of buying the home!

In more conservative estimates, expenses to mitigate flooding risk include primarily those associated with getting flood insurance such as ordering an elevation certificate with associated survey costs, and paying for flood insurance premiums. Often this list can unfortunately grow to include expenses like water-proofing, adding flood vents, costs to elevate a home if substantial improvements are being made, and of course repairs in the event of a flood. In the past, obtaining a comprehensive understanding of flood risk to a property (and associated cost impacts), was next to impossible using existing tools. Even after suspecting a potential flooding risk, to take action current and prospective property owners have to wade through flood industry jargon that is not user friendly (see image below). Superstorm Sandy highlighted just how often these risks were overlooked in the absence of readily accessible and easily understandable data. Six months after the storm hit, a Wharton School of Business survey identified that 91% of New Yorkers living in flood-prone areas miscategorized their flood probability and underestimated the flood damage they could suffer during a flooding event.

Detail of NYC Effective Flood Insurance Rate Map (FIRM)

There are a few online tools that address the communication gap by interpreting the FEMA maps. There are however several other criteria that should be assessed in order to get a comprehensive understanding of flood risk for a given property. With that intent, Beyond Floods puts current and prospective property owners in touch with potential flood related costs throughout the course of property ownership at an individual property and neighborhood level. Beyond Floods is a unique tool that provides users with a comprehensive flood risk assessment for properties both inside and outside of the FEMA floodplains by analyzing over 25 risk factors. The application details a Flood Outlook Score which provides an overall assessment of flood related risks to a property, as well as estimates of potential full risk flood insurance premiums. This information empowers users to make more informed decisions throughout the home buying process by alerting them to the presence of high risk areas.

Neighborhood Flood Outlook
Property Level Flood Outlook

The first steps in a prospective property owner’s investigation might lead them to narrow down their search area to specific neighborhoods. At this point, they might have already considered insight into baseline property costs provided by real estate web sites, or analyses such as that provided in Mr. Valhouli’s article. A sobering fact is that, of New York City’s ~260 neighborhoods more than 100 have a Beyond Floods Flood Outlook Score of 50 or lower ( i.e., a ‘Poor’ or ‘Below Average’ Flood Outlook). In fact a full quarter of New York City’s neighborhoods have ‘Poor’ Flood Outlook. The costs of living in those neighborhoods in particular can be much higher than the buying price of the property over the term of a mortgage.

NYC Neighborhoods Flood Outlook distribution

As an example, lets consider the neighborhoods mentioned in the article. While some of the neighborhoods with affordable property market value (reported using a price per sq.ft. metric) have ‘Above Average’ Flood Outlook Scores (Bayside, Brownsville, Bronxdale, Jamaica Hills), many of them have ‘Below Average’ or ‘Poor’ Flood Outlook Scores including Broad Channel, Far Rockaway, and Travis-Chelsea (SI). Additional costs associated with insurance premiums in these areas alone can be significant.The average estimated full risk flood insurance premiums for structures in these neighborhoods range from $1,300 to more than $10,000 per year. On top of this, insurance premiums are set to increase each year throughout the life of a mortgage. Recent legislation has limited the extent of steep increases which were set to take effect after a law passed in 2012. However, the potential annual growth rate is significant enough to warrant consideration along with the current flood insurance premium costs when budgeting for home ownership Money spent on these ever growing premiums could have been used for other home related expenses, or better yet saved.

For homes in neighborhoods listed above with an average Flood Outlook Score below 50, the net cost of having to pay for flood insurance for a home worth $250,000 over the life of a 30 year mortgage could be up to $235,000+!

This when considering annual premiums paid for flood insurance and how that money might have otherwise appreciated over that time frame. That represents a conservative estimation of both annual premium increases and potential interest lost, but it highlights well the magnitude of the impacts of premium expenditures alone on the real cost of a home.

Super Storm Sandy flooding on 49th Ave. at 5th St. Photo by Rachel (CC BY 2.0)

As mentioned before, the potential expenses to consider unfortunately do not end with premiums alone. In protecting your property from the effects of flooding the total amount you might have to spend varies greatly and can be difficult to accurately predict. The understanding most property owners might have about flood risk up to this point is centered solely on whether a given property is ‘in’ or ‘out’ of the FEMA’s Special Flood Hazard Area. What most people don’t realize is that the boundary of this area is essentially just a theoretical line that doesn’t represent the comprehensive impact of flooding to a property on either side of this boundary. Also, how we define this boundary is constantly evolving due to changes in the following:

  • Methodology (e.g., Better Topographic Data, Better Observed Data, Better Engineering Models, etc.),
  • Land Development (e.g., New Construction, Flood Control Structures, Road Development, Deforestation, etc.)
  • Climate Change (e.g., Sea Level Rise, Increased Rainfall, etc.)

Even the best studies have acknowledged levels of error in current methodologies applied to map the floodplains. This makes a comprehensive understanding of flood risk to properties, regardless of FEMA’s regulated floodplain, very important when making an educated home buying decision. Beyond Floods is one place to start.