Everyone expects that North Carolina coasts will be hit by hurricanes at least once each season, and in some seasons the coast takes repeated hits. The consequences of extreme weather take their toll at the beach, as everywhere. But beachfront properties have a compensating difference that everyone doesn’t enjoy in the face of harsh weather—the Federal Emergency Management Agency, or FEMA.
The purpose of FEMA is to mitigate the effects of a natural disaster or damage due to severe weather. The prototype of FEMA was created in the Congressional Act of 1803, in response to a New Hampshire fire disaster. Until the 1930s, however, disaster-relief legislation was enacted on a case-by-case basis. The Reconstruction Finance Corporation, Flood Control Act, U.S. Army corps of Engineers, and other Depression-era works projects eventually became the Federal Disaster Assistance Administration, and in 1979, FEMA.
Disaster relief through FEMA became focused on flood relief after a series of damaging hurricanes pounded coastal regions during the 1960s and 1970s. FEMA’s primary mission became “flood protection for homeowners,” even though it has intervened in many non-flood and inland emergencies as well.
The idea of flood protection through FEMA is a misnomer, since the agency can do nothing to shield property from damage due to storms or a natural disaster. Flood protection under FEMA means lessening the financial losses, and therefore the risk, associated with owning property and buildings exposed to severe weather damage. Oceanfront properties along coastal beaches are prime examples of these exposed locations.
A predictable and perverse result of insulating beachfront property owners from the consequences of a decision to buy into a risky investment is the fact that more high risk property is purchased, and developed, as a result. Without an assurance from FEMA that the value of homes on the beach will be covered in the event of a disaster, many potential buyers would think twice about plunking down money for a gorgeous ocean view at Hatteras or a similar location.
The prospect of rebuilding at one’s own expense would be enough to cause many buyers to locate at a safer distance from the wind and waves, which is what a realistic risk assessment would dictate. Instead, FEMA creates a moral hazard in these areas, leading more people, not fewer, to buy and build on beachfronts subject to severe erosion as well as flooding. When their home collapses into the sea, they can often rebuild at a fraction of the true cost, thanks to taxpayer dollars.
In protecting what are mostly vacation homes through disaster insurance, FEMA also transfers wealth from ordinary taxpayers to at least somewhat wealthier taxpayers—those who can afford vacation homes. Naturally, vacation homeowners will engage in more of the activity that is subsidized, namely, building homes where they are most exposed to storm damage.
A market approach to this problem would allow for at least one of the following; private ownership and management of sections of beachfront, full homeowner liability for damage to property and structures when building in a storm zone, and/or an insurance rate structure that fully incorporates the probability of severe damage or destruction in high-risk locations.
Even the experts are still trying to discover exactly how beach erosion and other risk factors for oceanfront building interact. Until these processes are understood, and government agencies clear the way for a realistic approach to waterfront land management, taxpayers will continue to be on the hook for vacation properties and ocean views they will never use or even see.