How to fix FEMA’s flood buyout program — before flooding gets more frequent

FEMA can take lessons from state and local buyout programs as it updates its buyout program for a more flood-prone world.

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Myles Ma, CPFCMyles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a senior reporter and certified personal finance counselor at Policygenius, where he covers insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Flood insurance is meant to cover the cost if your home is damaged by flooding. The vast majority of flood insurance policies are sold through the National Flood Insurance Program, which is run by the federal government. But the program is on shaky ground. Its funding is up for reauthorization on Friday, [1] and its debts are growing due to increased flooding.

One of the NFIP’s biggest problems is rebuilding insured homes multiple times after repeated floods. One solution is buyouts administered by the Federal Emergency Management Agency’s Hazard Mitigation Grant Program, which provides federal funds to buy flood-prone properties and demolish them rather than rebuilding them over and over again.

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But, as a study published in the journal Climatic Change described, federal buyout programs are often “inaccessible and inequitable” — which will be even more of a problem if buyouts become more frequent. 

But there are solutions, says Linda Shi, an assistant professor in the Cornell University Department of City and Regional Planning. She and her co-authors looked to smaller buyout programs for potential lessons. State, county, and local buyout programs have more flexibility in how they operate, since they augment their federal money with state and local funds. Shi and her co-authors looked at what the FEMA buyout program can take from these local efforts.

Where the FEMA buyout program falls short

One big issue with FEMA’s program is that many people who own a flood-prone property are not eligible for a FEMA buyout. To qualify, you must have insurance through the NFIP. But hundreds of thousands of people are dropping flood insurance policies because of rising premiums. [2] Locally funded programs have more flexibility to offer buyouts to people who don’t carry policies.

For example, Charlotte-Mecklenburg County Storm Water Services in North Carolina funds its $4 million annual budget for buyouts mostly with a stormwater fee. 

“In Charlotte they decided to create their own funding program because the people they were helping to get out of the flood plain didn’t meet FEMA’s criteria for buyouts,” Shi says.

FEMA’s buyout program tends to favor certain kinds of people, namely single-family homeowners who are U.S. citizens and have the resources to go through the long bureaucratic process of securing buyout funds. That tends to leave out renters, immigrants, people in multigenerational or multifamily housing, and those who are behind on their mortgages or are in otherwise financially precarious situations. The Harris County Flood Control District, which includes Houston, explicitly prioritizes vulnerable populations in its buyout program, which is the country’s largest. 

Another problem with FEMA buyouts is the issue of where displaced people go after their homes are purchased. Especially in hot housing markets, accepting a buyout means being forced to leave your community. That’s why programs like the Austin Watershed Protection Department in Texas provide enhanced relocation benefits to help homeowners find new homes.

Lessons from local buyout programs

Rather than imposing a top-down approach, Shi says local communities should have more leeway in implementing their buyout programs. 

“Greater flexibility for communities to figure out what they most need is going to be more helpful than a rigid set of criteria and standards,” she says.

What FEMA can do is help clear the way for local programs: In New Jersey, the state’s Blue Acres buyout program had to negotiate with multiple parties, from mortgage lenders to government-sponsored mortgage buyers Fannie Mae and Freddie Mac, to offer buyouts to people with homes underwater mortgages (meaning their mortgage debt exceeds the pre-disaster value of their home). 

Increasing federal funding for state and county programs, giving them the flexibility they need to address flooding issues in their communities, and ensuring they do so in equitable ways are urgent and massive problems: While 43,000 houses have been bought out in the past 30 years, as many as 25 million households will be affected by a predicted six feet of sea level rise. 

But buyouts are only one aspect of adapting to a wetter climate, Shi says. 

“You can make buyouts more equitable and plenty of places have, but that has a very limited impact on the overall equity of vulnerability in a flood plain,” Shi says.

It starts with deciding where to build housing — and especially where to build affordable housing. If you’re going to move millions of people out of flood zones, they need places to live.

“That’s a much broader conversation of land use planning and housing infrastructure development,” Shi says.

Image: JohnGollop / Getty