New HUD Rule to Safeguard Flood Risk Areas

The U.S. Department of Housing and Urban Development (HUD) has published a Federal Flood Risk Management Standard (FFRMS) final rule in the Federal Register to help communities prepare for and reduce flood damage.

This rule aims to protect communities from flood risk, heavy storms, increased frequency of severe weather events and disasters, changes in development patterns, and erosion. By implementing the FFRMS, communities can grow more resilient to flooding, protect lives and properties, minimize damage to households, reduce insurance costs, and safeguard federal investments–ensuring that federally funded construction projects are built to withstand current and future flood risks.

This year’s spring flooding season is projected to place approximately 122 million people at risk.

“Across the country, I’ve seen firsthand the devastating impact flooding disasters have had on families and communities–especially those least equipped to handle the emotional and financial burden of recovery. HUD’s announcement today lessens the burden these disasters have on people,” said HUD Acting Secretary Adrianne Todman. “As climate change progresses, flooding disasters will continue to become more frequent, more severe, and more costly for families and taxpayers. This final rule will increase awareness for renters and homeowners, saving lives and reducing costs for years to come.”

Re-defining floodplains

The final rule implements the FFRMS required by Executive Order 13690 by updating two of HUD’s regulations: Part 55, Floodplain Management and Protection of Wetlands and Part 200, Minimum Property Standards. This rule strengthens standards by increasing elevations and flood proofing requirements of properties in areas at risk of flooding, where federal funds are used to develop or provide financing for new construction within the now defined FFRMS floodplain. It also applies to substantial improvement to structures financed through HUD grants, subsidy programs, and applicable multifamily programs. The update to Minimum Property Standards only applies to FHA-insured new construction within the 100-year floodplain.

“In updating flood risk standards, HUD is providing communities the flexibility to calculate their true risk. People of modest means are more likely to live in a flood-prone place and have a longer time recovering when disaster strikes,” said Marion McFadden, Principal Deputy Assistant Secretary for Community Planning and Development. “This rule will ensure HUD supported properties have the best chance of being undisturbed when flooding occurs. It is the responsibility of the federal government to ensure that taxpayer investments are built to withstand foreseeable risk–and has the added benefit of reducing the cost of flood insurance for property owners.”

Pockets most impacted

A recent study by HouseFresh examined areas most at-risk of damage from weather events, and other conditions brought on by global warming. U.S. homes exposed to flood risk are overvalued by $121–$237 billion, and that lower-income households suffer “greater risk of losing home equity from price deflation.”

The study identified the cities and states with the highest proportion of home listings at substantial risk from climate change-related to fire, flood, wind, or heat in the next 30 years.

HouseFresh found that Wyoming was the state with the highest proportion of listings with a major fire risk, by a significant leap. Not only are many houses built with high-risk materials in high-risk areas, but Wyoming has a “significantly disproportionate land-to-resource ratio,” meaning a low proportion of firefighters and other resources compared to the extent of the fires it suffers. The study found that 62% of listed properties in Cheyenne, Wyoming were considered high-risk. However, Riverside, California was not far behind at 59.2%.

The mounting costs of flooding

HUD estimates approximately 10% of new Federal Housing Administration (FHA) single-family homes constructed annually are within the 100-year floodplain, and many of those homes are already located in areas where state or local standards are higher than HUD’s previous standard. The updated standard reduces FHA homeowners’ exposure to losses caused by flooding, reduces insurance costs, and most importantly, protects the risk to life faced in areas of greater flood risk.

Flooding is the most common and costly weather-related disaster in the U.S. costing taxpayers billions of dollars a year in economic losses, health impacts and funding to recover damages and rebuild or repair property. In 2023, the Congressional Budget Office (CBO) estimated that the expected annual flood damages in 2020 to homes with federally backed mortgages were $9.4 billion and projected to increase to $12.8 billion annually by 2050. The impact on individual and multifamily homeowners is estimated to be equally staggering, with just one inch of floodwater resulting in losses ranging from $10,000 to $27,000 depending on the size of the home. When the elevation and floodproofing standards required by the rule are applied, HUD estimates the total combined benefits for each year of construction will result in approximately $56.4 million to $324.3 million of savings over the lifetime of the properties (40 years). These savings are a result of cost reductions due to decreased flood insurance premiums, reduced flood damage to buildings, cost avoided for homeowners and tenants, reduced expenses associated with relocation or temporary housing, and loss of income due to flooding events.

The rising price of home insurance

According to Redfin, home insurance is top of mind for homeowners in the states of Florida and California where many homeowners have seen their premiums skyrocket, and some have lost coverage altogether due to intensifying natural disaster risk, which has prompted many insurers to stop doing business in those states altogether. Redfin’s study determined that seven of California’s largest property insurers have recently opted to limit new policies in the Golden State amid increasing wildfire risk. And in the Sunshine State, 11 insurers have liquidated amid growing flood and storm risk.

Mounting insurance costs and natural disasters are even prompting some to relocate. In Florida, 11.9% of Redfin’s survey respondents who plan to move in the next year cited rising insurance costs as a reason—roughly twice the national share of 6.2%. And in California, 13.1% of people who intend to relocate in the coming year cited concern for natural disasters or climate risks as a reason, compared with 8.8% of respondents nationwide.

“Homeowners living in areas where insurance premiums are surging are at-risk of seeing their properties gain less value than homeowners in areas with stable premiums—and in some cases, they may even lose money,” said Redfin Chief Economist Daryl Fairweather. “Homes with low disaster risk and low insurance costs will likely become increasingly popular, and thus more valuable, as the dangers of climate change intensify.”

Benefits to the final rule

According to the National Institute of Building Sciences, investments in elevation of structures more than pay for themselves when flooding occurs. Building to higher elevations is cost-effective when subsequent flooding occurs, providing a benefit of $6 in damages avoided for every $1 invested in elevation (Natural Hazard Mitigation Saves report). Underserved communities are disproportionately impacted by flooding events. Research from Redfin found that formerly redlined neighborhoods face a 25% greater risk of flooding than non-redlined neighborhoods.

There are several examples where communities have benefited from the standards outlined in this final rule. For example, as part of its 2008 flood recovery efforts, the City of Cedar Rapids, Iowa worked closely with state officials to increase their resilience to inland flooding. They implemented a variety of measures, including reassessing flood risks. In 2016 when the city experienced the second-highest flooding on record, their efforts proved successful, and they suffered less damage. After Hurricane Katrina, the State of Louisiana and the City of New Orleans used HUD funding to replace damaged public housing with new homes elevated beyond the minimum requirements at the time. When subsequent flooding occurred a decade later, because of the increased elevation of the homes, water never breached the first floor and therefore caused no property damage sparing residents the burden and expense they would have otherwise had to endure.

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Eric C. Peck

MortgagePoint Managing Digital Editor Eric C. Peck has 25-plus years’ experience covering the mortgage industry. He graduated from the New York Institute of Technology, where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career in New York City with Videography Magazine before landing in the mortgage finance space. Peck has edited three published books, and has served as Copy Editor for
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