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Comment by elteto | Hacker News Reader

There already is a federal program for uninsurable properties (for flooding only, I believe). They take whatever insurers reject. By my understanding, people just keep building on the same spot, even if it floods constantly, therefore they are a huge drain on the program.

I don’t see a solution honestly. With global warming large parts of the world will become uninsurable. And we shouldn’t expect insurance companies/the government to carry that burden just because someone decided to live there.

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A lot of these people are stuck in the situation. While they can get flood insurance to rebuild the property, they can't afford to abandon the property, and they can't find anyone to sell it to. So they are in a cycle of rebuilding the property, waiting for a flood, then rebuilding it again.

There is a pretty obvious solution in my mind: The federal government offers homeowners a buyout for them to move out of that property. If they choose not to take the buyout, they are removed from the flood insurance program.

This would save the government a lot of money over time, even if they made the buyout significantly higher than the property value.

So rather than having insurance customers in other states subsidize Floridian homeowners so they can replace their property after damage, you'd rather have taxpayers in all states subsidize Floridian homeowners to buy out their homes? That's the same thing with extra steps, except now people who bought bad properties walk away with a nice bag of cash.

Eventually, we're going to have to abandon much of the vastly overpriced property along the seashore. Parts of Hollywood and Miami are already below sea level. We aren't willing to build the sort of dykes that one sees in Netherlands (homeowners will sue because it blocks their view of the sea), and we're too car-centric to let cities turn into Venice.

So we're going to buy those folks out anyway. This year, next year, 20 years from now. Eventually. It would be better to start now. New Orleans should have been abandoned already.

Why should we buy them out? Nobody forced them to buy beachfront property in the first place. If the property ends up being abandoned, it's abandoned, and the owner should lose their investment.

You're acting like a buyout is inevitable when it's not. The last thing we should do as a society is a multi-hundred-billion / trillion dollar buyout of beachfront hotels and luxury property.

> You're acting like a buyout is inevitable when it's not.

The wealthy beachfront property owners will point the media's cameras at the also-destroyed properties of the poor and elderly in the area, saying "How can the USA let these poor people lose everything!" We, the stupid taxpayers, will fall for it and bail everyone out.

I agree in an ideal world; but in the real world there is a 0% chance Obama is taking a loss on his Martha’s Vineyard property.

What the perso you are responding to is saying is that we should start in incentivizing people out of such properties now versus it happening over a longer period at a higher cost. Either way some people are going to probably have to move so we may as well get ahead of it

"Some people overpaid for seaside property." "Oh wow, I'm sorry they made such a terrible decision."

"Now you need to reach into your pocket and pay them back." "Nah; fuck off. They can live with their decision."

How would you handle sales of the property? Some of these are desirable beachfront properties.

Personally I'd remove it from the National Flood Insurance Program. If the buyer can get a private company to insure it then the sale can go through. If the buyer cannot get a private company to insure it then the sale can only go through if they are not using a mortgage (mortgaged properties legally have to carry flood insurance). Couple this with plenty of disclosures so the buyer is aware they are taking on significant risk.

Any property bought by the government under these conditions would be condemned.

Doesn't matter if it's beachfront - there shouldn't be a home on a beach that sees significant hurricane damage every year.

Yes, I am saying that it could be desirable for the owner to refuse a buyout and sell it to someone other than the government.

Yeah, we'd have to condemn the home as part of the process to avoid that. Or at least flag it as uninsurable, so any buyer would have to bring cash and be willing to eat a total loss.

I'm not sure the federal government has the power to do anything other than refuse to insure it under their program.

I'm no free-market zealot, but in this case it seems like the market has spoken. They shouldn't live there!

Of course, there are ways to be humane about this, given that tearing people apart from their communities is bad for society. The government could taper off the program slowly, giving communities time to relocate. Or they could provide damage payouts with the stipulation that they are used to relocate somewhere else with lower risk, not rebuild in the same spot.

But to indefinitely subsidize building in doomed places? Doesn't seem right. I'm sure there's nuance I'm missing, happy to be enlightened.

I don’t think you are missing any nuance at this point.

If the amount of uninsurable properties is (comparatively) small, it’s way easier to throw some money at them and keep everyone happy. I think that’s the basic premise of the program.

Everything changes when, for example, a large chunk of South Florida becomes uninsurable or inhabitable, potentially displacing hundreds of thousands. I don’t think we have anything in place for that scenario.

Can’t we pay to put them on busses or something? That seems to be the approach to the displaced which is favoured by Florida politicians after all.

People will always be willing to pay a premium to live near the ocean. There are some places where that premium will be too high except the very very wealthy - living on a barrier island - for example.

In order to enjoy living in places where nature exact a larger toll - near the ocean, on a mountain that gets dry and doesn't have a fire station nearby - homeowners will need to invest in hardening their homes, invest in buying more expensive insurance and will need to make sure they have the financial buffer to rebuild if their home is damaged by the weather.

As the ocean rises, we will need to move more inland.

Of course. This is all common sense and I'd wager that most people feel this way.

That's why I'm surprised that the government provides subsidized insurance for folks in extremely flood-prone areas.

I would think that the market would also adjust towards building more hurricane resistant housing like earthquake proof buildings in San Francisco and Tokyo

Read the act 1 section, or listen to the podcast. This has been tried and it's basically impossible in a capitalist system with local democracy. https://www.thisamericanlife.org/762/transcript

That federal program is broke as a joke, and it generally comes with extremely high deductibles and poor payouts.

It’s easy for states to regulate insurance companies for political points, which you’re seeing in California and Florida. However, insurance markets collapse slowly and then very very quickly when the math stops working out.

The national flood insurance program shows one of the downsides with government participating in the private market (there are some plusses as well) - their rates were set too low, and that created a group of people who were politically motivated to agitate to keep them low. It's very hard to find the political will to raise insurance prices on those people, even though the majority of people/voters understand that it's a subsidy that doesn't make sense - first because its not fair, second because it encourages outsizes risk taking.

That federal program, even with high deductibles, completely subsidizes their customers at the cost of taxpayers. They massively underprice the hazards, at the taxpayers ends up being on the hook at the cost of people who decided to built (and rebuilt) "their house on the sand"

IIRC, it’s broke because only a small handful of properties account for a disproportionate amount of the claims.

Isn't the essence of pooled-risk insurance that a vast minority of policies will represent a disproportionate number of the claims in any given time period?

Yes. But not from the same group of people over and over again. At least not in the laissez faire style systems where the market would stop assuming uniform risk and increase insurance rates to the expected values based on the probabilities of the specific circumstance. In a dirigiste economy, state would choose certain social factors to protect and keep the distribution of costs uniform for the betterment of the whole society. But even in those systems, I am not sure we should have beachfront properties or similar as factors. (Sorry about my lack of proper vocabulary and jargon in this comment, I seem to have forgotten all of my vocabulary relating to sociology and economics.)

> even in those systems, I am not sure we should have beachfront properties or similar as factors

If beachfront properties have substantial risks that inland properties don't (such as flooding from storm surge*), then not using is_beachfront? as a factor will end up being a subsidy to the owners of beachfront properties.

* - https://www.nhc.noaa.gov/surge/

Which ends up being the issue with any insurance programs for the uninsurable. 100 percent of the time, it will end up being a subsidy to the policy holder. If it weren’t, they’d be insurable.

Exactly. And a market in general wouldn't ever create those programs themselves if they don't provide any direct or indirect profits. So these would be state directed. I am not sure we have any disagreement anywhere. :)

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