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Jens 'n' Frens
Idle thoughts of a relatively libertarian Republican in Cambridge, MA, and whomever he invites. Mostly political.
"A strong conviction that something must be done is the parent of many bad measures."
-- Daniel Webster
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Tuesday, June 04, 2013 :::
From May 11, a NYTimes article on flood insurance and Sandy recovery.
... their first floor is still gutted, but they can continue to live on the top floor of their three-bedroom raised ranch. Their insurance premiums will increase sharply, however, unless they elevate their home five feet, which she said could cost more than $100,000 because their home sits on a concrete slab instead of a foundation with a crawl space.
How much would it cost to fill in the first floor with concrete?
I'm not quite clear at places to what extent flood insurance is (intentionally) not paying for the immediate damages (along the lines of costs of fixing and rebuilding to what existed before), and to what extent the problem is that peoples' property values have gone down (which isn't covered). They've gone down both because of a higher assessment of future risks, but also because
subsidies on these older properties started phasing out for vacation and second homes at the beginning of the year, and will rise by 25 percent annually until the rates reflect the actual risks. Homes with “severe and repeated” flooding will start to see the higher rates on Oct. 1, and also face 25 percent increases each year.
In other words, your tax dollars are no longer inflating the values of their homes.
The article makes various references to people not knowing how to pay for the costs of raising their homes, and I'm not quite sure to what extent this is strategic ("can I get someone else to pay the cost? If I do it on my own now, is it likely I'll lose out on a chance to get someone else's (probably taxpayers') money to do it instead?"), to what extent these are homes that cannot economically be saved, and to what extent there are financial frictions, by which I mean that, in theory, where it is worth the expense of raising or otherwise improving a home, a home improvement loan would be a logical source of funds. Where this "theory" might fall short are traditional asymmetric information and agency frictions in the lending market, exacerbated by the perhaps higher-than-usual riskiness of the enterprise, not to mention that the market for housing finance has been more than usually awry in different ways for the past ten years now.
::: posted by dWj at 12:47 PM
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