Given our discussions of people who build in fire prone areas, I thought it was interesting to compare to a blog post about building in flood prone areas. The post is by Stéphane Hallegatte, Senior Economist, Sustainable Development Network, Office of the Chief Economist, The World Bank, and is on Roger Pielke Jr.’s blog here.
Here’s a quote:
There are limits to what coastal defenses and land regulations can achieve. Some like the idea that we build in risky areas because of “wrong incentives”, namely flood insurance subsidies through the National Flood Insurance Program. According to them, removing these incentives would solve the problem.
“Wrong incentives” exist and play a role – this is obvious – but unfortunately they cannot explain the current trend in risk exposure alone. Flood losses are on the rise in almost all countries, including those that have no flood insurance system (5). And if insurance claims help pay for rebuilding, they cannot compensate for all the losses. Getting flooded is a tragedy, with or without insurance.
People move toward risky areas because this is where better jobs and higher incomes are. And they are there because growing sectors are in coastal areas – driven by harbors and global trade – and in cities – that are usually located next to rivers and coasts and thus in flood prone areas. Would financial sector professionals quit their high-wage jobs in Manhattan in the absence of flood insurance? Would their employers move their headquarters to the Great Plains? Would the beach club owner in New Jersey move her business two miles inside the country?
Better land regulations may be able to decrease flood exposure, but they cannot do so in a significant manner – in the absence of a large-scale buys-out and house destruction program that appears extremely unlikely (6).
Flood exposure will not disappear anytime soon, even if land regulations are improved and bad incentives are removed.
Clearly, people don’t move to the rural interior West for better jobs and higher incomes. Still, people tend to move or agglomerate places that are beautiful and/or near coasts. And whether low or high density, the more people, there is likely to be more potential insurance payout required. Not to speak of the tornado prone, or the earthquake prone.