Still, Berman said the initiative was an important one. “Anything that they can do to improve people’s understanding of flood risk compared to binary 100-year flood plain is good for consumers and good for investors in the long run, even if it raises premiums,’’ he said.
Increasing the cost of flood insurance tends to depress home values for two reasons, according to Asaf Bernstein, an economist at the University of Colorado at Boulder whose research includes asset pricing and household finance. Not only do higher premiums raise the cost of owning a home; they also act as a warning to potential buyers about the likelihood that a house will flood.
R. J. Lehmann, director of insurance policy at the R Street Institute, which advocates for market-based solutions to climate change, said that even if FEMA’s new approach caused home values to fall in some areas, the shift was necessary.
Updated Look
“Adapting to climate change is never going to be a cost-free exercise,” Lehmann said in a phone interview. “We absolutely need a more granular and more updated look at what flood risk is.”
A spokesman for the National Association of Realtors, Wesley Shaw, declined to comment on what the change could mean for homes values in areas with the greatest flood risk.
“We need to wait and see what FEMA comes out with before we can evaluate the market impact,” Shaw said by email. “We welcome FEMA’s efforts to modernize and improve the fairness of its ratings methods.”
FEMA said the way the law is written on flood insurance gives it the authority to change the way it sets rates without action from Congress. The agency said it hadn’t yet decided when the new rates would take effect, and how quickly.
“We will take an agile approach to share information transparently about the release of this new system with all stakeholders,’’ Maurstad said.
This article provided by Bloomberg News.