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Comment by brudgers | Hacker News Reader

What the fine article does not mention is that the Federal Flood Insurance Program is what allows people to get mortgages on homes in flood zones. While Federal Flood Insurance is not cheap it is a small fraction of the cost of private flood insurance -- the number I heard when flood insurance was part of my professional life was 10% of market value per year (and that was 20 years ago when rates were probably lower than today).

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What’s the justification for the government subsidizing homes in areas that repeatedly flood? Admittedly I don’t know very much about this, but it just seems like simultaneously wasting money and increasing human suffering.

Florida used to be a swing state, and money buys votes.

Participation in the Federal Flood insurance Program is available to all local governments everywhere in the US. It completely bypasses state governments and hence state politics.

The federal taxpayer subsidy to landowners in flood prone areas disproportionately benefits voters in some states, and the voters of some states have a disproportionate effect on national elections.

Of course, that turned out to be a poor bet by Democrats.

I guess that’s an opinion.

Perhaps a better framing is to consider whether there is a relationship between "actions the government focuses on" and "people who own waterfront property or benefit from developing underutilized flood plains"

Like most of these things it's advocacy and mission creep. It probably started off as a niche thing but as it expanded there are all sorts of groups that would lose if it disappeared: Realtors, title companies, local municipalities (police, teachers, etc...), mortgage companies, insurance companies (for all the other insurance). If they got rid of the subsidy people would move away and money would fly away from those locations.

Nope, it was pretty straight forward. It was the 1968 National Flood Insurance Act. Flood prone communities get flood insurance in exchange Gov gets to manage building standards to reduce damage caused by flooding. It was pretty similar to what we are seeing today. There was a hurricane and the Mississippi river flooded. Private insurance started pulling out so the Government decided to step up.

Concentrated benefits, diffuse costs. The people who benefit from subsidized insurance fight like hell to keep it, while everyone else shrugs because to them it’s just one more budget line item.

Well, for one, Florida is one of the largest states and an economic powerhouse. It's business environment is completely driven by residential and vacation real estate. They have a regulatory and tax environment that is attuned to extract money from migrating old people and vacationers.

Flood insurance has allowed proximity to water = $$$. Water is desirable, but banks dislike risk. People are attracted to the place to avoid income taxation. Anything that slows down the real estate flywheel is a political death issue, and Florida's unique position as an election kingmaker at the federal level gives it alot of power.

There isn’t a good one. The city of East Grand Forks, MN moved entirely after the 1997 floods when they realized that fighting nature is impossible, particularly on the Red River, which flows northward and virtually always floods due to ice dams downstream in Canada.

The old town of East Grand Forks that was built on the floodplain is now a park, which is the best use for most river floodplains.

Meanwhile, when government tried to hit Camp Mystic (in Texas, where 27 people died in July) with a flood zone finding, they fought back in court to get the finding removed...

... and now, with one camper still officially missing, no body recovered, the Camp is eager to assure the public that they will be opened again for next summer ...

You can’t move Gulfport. Pinellas County is among the most built out counties in the country.

Eventually the risk will be priced into homeowners insurance and nobody will be able to afford to live there anyways. It will happen faster than most homeowners in that area think.

Home owner’s insurance does not cover flood.

As I said elsewhere, twenty years ago the rule of thumb was private flood insurance ran 10% of insured value per year. That’s why the Federal Flood Insurance Program was created in the Nixon administration.

Of course home owner insurance in Florida has been astronomical and hard to get for a long time because it covers wind damage and that’s most of the damage from hurricanes. The solution was a State pool (insurer of last resort) which by law had to be more expensive than any private option. The results were economically rational…remember banks require home owner insurance as a condition of mortgages.

Or to put it another way, pricing risk is just table stakes. Pricing in profit is where the money is.

Without flood insurance banks won’t write mortgages and home ownership has been a Federal policy objective since at least the 19th century, e.g. the homestead act.

To be clear, banks once wrote mortgages without flood insurance and that’s how places like Gulfport were originally built out.

Not saying any of this is good. Not saying it is bad. Just saying it is.

reminds me of the recently enacted FAIR plan in California for last-resort wildfire insurance. It got state dispensation to carry otherwise-disallowed, lopsided balance sheets to cover more people -- but if a small fraction of those people do experience wildfire it'll go bust!

edit: see below, I was wrong about FAIR being newly enacted

The California FAIR Plan was created in 1968 so I’m not sure where you’re getting your information.

It was entirely self funded by premiums until the Eaton and Palisade fires and unlike the NFIP, still hasn’t been bailed out by the federal government.

thanks - I was wrong about the plan being new.

However as of this year it's got ~$600B of exposure and $400MM in funds. at 3MM/residence that's 133 homes before they're bust, right?

see:

https://ains.assembly.ca.gov/system/files/2025-05/assembly-f...

https://calmatters.org/economy/2025/02/homeowners-insurance-...

> However as of this year it's got ~$600B of exposure and $400MM in funds.

The California FAIR plan only has $377 million in liquid funds because it pays premiums for $5.75 billion worth of reinsurance. Roughly 1% of their clientele (by value) would have to lose their homes to put the plan under strain. That's what may happen with the Palisade/Eaton fires, for the first time in nearly sixty years. Current estimates are $5-9 billion in claims, so the current worst case scenario is a multibillion dollar bailout by the state (not federal!) which is well within the state's budget.

Also a nitpick: (almost?) no one is receiving $3 million on a FAIR plan even in the Palisades or Malibu. That's the theoretical maximum but since it doesn't cover the value of the land, the actual coverage is much lower.

I have a lot more to say about the circumstances of these latest fires (several of my friends lost their homes in both neighborhoods) but suffice it to say I don't think this disaster is representative of future liabilities.

Oh and next time I'll be sure to quote your entire original post because this:

> It got state dispensation to carry otherwise-disallowed, lopsided balance sheets to cover more people -- but if a small fraction of those people do experience wildfire it'll go bust!

is shit you edited in after you were called out on your ignorance on when the FAIR plan's origins.

You don't know the first thing about how insurance works in California and it shows.

Have some dignity. It's a lot cheaper than California fire insurance.

Sorry, I was a bit drunk on this reply. Should have deleted it but its too late

in fact, I did not edit the original contents of my first message at all, out of respect for the reader. The edit merely acknowledged your point.

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