Best incentives to get homeowners to move out of floodplains

Massive flooding in Quebec has shined the spotlight on suitable incentives that may get homeowners to move out of floodplains.

Quebec Premier François Legault said recently that the province will offer a maximum of $100,000 to homeowners dealing with flood damage, according to media reports. Beyond that, the government would offer to buy the home at a maximum cost of $200,000, as opposed to homeowners having to pay constantly for costly water damage repairs.

Residents Lawrence Courville (left) and Andie Goulet carry out belongings down a flooded street in Ste-Marthe-sur-le-Lac, Que., Sunday, April 28, 2019. THE CANADIAN PRESS/Ryan Remiorz

It isn’t known how many Quebec homeowners have accepted the province’s offer. Some have publicly refused, telling media that their homes are worth more than $200,000.

“I personally believe that: 1) the buyout needs to be mandatory in order to work, and 2) fair market value for the home should be given,” Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR), told Canadian Underwriter Friday.

“The discussion in Quebec is finally heading in the right direction, but if peoples’ homes are worth more than $200,000, that creates anger and resentment,” McGillivray added. “They still won’t be happy with having to move, but at least fair market value will be equitable.”

Some U.S. jurisdictions offer homeowners higher-than-market value to move them out of floodplains. For example, in post-Sandy buyouts, the state of New York offered modest payout bonuses above market price as incentive to improve participation rates and program success. Properties with the highest flood risk and properties that could serve as buffers following ecosystem restoration were eligible for bonuses between 5% and 15% above pre-storm price. The state also offered 10% bonuses to each member of a group of adjacent property owners that volunteered their properties for acquisition.

One frequent challenge facing local government officials is that offering post-disaster housing buyout programs can result in lost property tax revenue. If residents relocate into other jurisdictions and properties are kept as vacant lots, tax revenue falls.

At least four potential strategies are available for local governments to lower the tax burden of buyouts, according to the Risk Management and Decision Processes Center at the University of Pennsylvania’s Wharton School:

• Offering financial incentives for buyout participants to re-settle in the same municipality
• Building new housing developments in non-flood prone areas to accommodate displaced residents and to encourage them to stay in the jurisdiction
• Maximizing recreational benefits of properties post-buyout to increase local amenities and thus nearby property values
• Creating comprehensive pre-disaster/hazard mitigation plans that integrate with long-term land-use and adaptation planning to ensure buyouts are part of a strategy that brings value to the community.

Without a mandatory buyout and conversion of land into green space, there is a risk that homeowners might leave and simply sell their properties to somebody else.

“I think we need to get the right info into people’s hands,” McGillivray said.

As an example, McGillivray said it’s important to have up-to-date flood maps that are readily accessible to all, but it wouldn’t be fair to expect the average person to be able to read and understand a flood map. “So, I think we need an open portal where people can go online, enter their postal code, and get a simple risk rating,” he said, noting that there is such a system in North Carolina.

McGillivray would also like to see it mandatory that flood risk data is included in real estate deals. “A buyer of a property should be able to find out easily whether a property is at high risk,” he said. “This should be available early in the transaction so the buyer can opt out of the deal.”