Costly flood insurance expected to devalue many city properties
The city’s tax assessor doesn’t question that the soaring cost of flood insurance will negatively impact the value of waterfront homes, but until that can be quantified, she can’t see how the city could lower these assessments, and thus taxes.
That’s not what Ward 5 Councilman Edgar Ladouceur wants to hear.
Last week, Ladouceur said he has received numerous calls from constituents who are reporting dramatic increases in their insurance premiums. Some say they will be forced to sell, although they wonder if they can find buyers.
With the elimination of government subsidies, and depending on the elevation and the flood zone where a house is located, some premiums are projected to go from $800 to $25,000 a year for $250,000 in building and $100,000 in content coverage.
Ladouceur says the law ending subsidies should be changed. He’s talked to representatives in the offices of Senators Jack Reed and Sheldon Whitehouse and Congressman James Langevin.
“Roll it back,” he said of the law. “How can you dump this on people?”
With 39 miles of shoreline and 1,871 homeowners with flood insurance, Ladouceur predicts the city will see a “mass exodus” if some sort of relief isn’t provided to homeowners.
Last week, he appealed to Tax Assessor Evelyn Spagnolo to extend the deadline for property owners to contest their property valuations. The deadline was Oct. 15.
But Spagnolo said the deadline is set by state legislation.
Even if the deadline could be extended, Spagnolo says, it’s premature to determine how flood insurance will impact home values. She said rates are unknown at this point.
Nonetheless, she’s certain they will have an impact.
“We do know they will affect values,” she said.
She pointed out that the higher rates will translate into higher overall monthly costs for homeowners.
“It may mean that only millionaires can buy waterfront property,” she said.
But even if that is the case, Spagnolo can’t justify altering values now.
“It has to happen before we can adjust for it,” she said.
The end of subsidized insurance also has realtors concerned.
Donald Morash of Abbott Properties reported he received two flood insurance quotes on a North Kingstown property he had listed. One was $10,000 and the second was $29,000.
“That’s absurd,” said Morash.
When potential buyers learned of the quotes, they backed away from a deal. The property has subsequently been taken off the market.
“I think ramifications of this is going to be devastating for anyone in a flood zone,” Morash said.
He speculated that virtually all of Oakland Beach is in a flood zone. One of those already feeling effects of the legislation is Jody King, who lives on Ottawa Avenue. His flood insurance has always cost more than his homeowner’s, a fact he finds difficult to accept. He said he paid about $1,300 for flood insurance this year but expects it to double next year.
When told some property owners are being quoted premiums of $25,000, he was incredulous.
“You’re going to pay more than the house is worth,” he said. King argues that the premium should be based on actual experience. In the 20 years he has lived in Oakland Beach, King said he used flood insurance only once and that was in 2010 when heavy March rains flooded his basement. Although the contents of his basement were lost, he received only $1,900.
With six years of mortgage payments left, King said he would entertain paying off his mortgage and self-insuring.
Morash concludes that the high insurance rate will render many lower-cost homes worthless. He thinks deductibles should be built into the program so that, in effect, the homeowner is assuming a portion of the losses.
On the other hand, he doesn’t see the higher rates as dramatically impacting multi-million dollar properties.
Although, he added, “Anything like that is going to have a detrimental effect on property values.”
Lawrence Yun, chief economist for the National Association of Realtors, touched on the issue in an interview prior to speaking at the Rhode Island Real Estate Expo on Oct. 17.
He said homeowners shouldn’t be faced with the “sudden shock” of premium increases and it would be best to have some “time out.”
“You can’t expect homeowners to manage this,” he said, calling for a proper balance of what is affordable and the need for the government to get out of the business of subsidizing insurance of properties in flood prone areas. He said limits should be placed on building where homes are susceptible to flooding.
Without naming names, Ladouceur said he learned from one realtor that a buyer backed out of a sales agreement when the projected cost of flood insurance came to light. He also talked of a constituent who recently bought a 1,600-square-foot house on the water whose premium is now $26,800. He said he doesn’t know what the family will do since they can’t afford the insurance, which is required in order to have a mortgage.
From Ladouceur’s perspective, the premiums are arbitrary as many of the properties they affect haven’t been flooded in decades, if ever. And, he’s angry that there wasn’t notice of the effects of the law.
“I just found out about it in June,” he said. “I still don’t think they are doing an adequate job getting the word out.”