Long Island coastal homeowners are getting hit with flood insurance cost increases of up to 18 percent a year, and they face uncertainty as a Sept. 30 deadline approaches for Congress to extend the National Flood Insurance Program or allow it to expire.
The rising premiums are intended to gradually stabilize the finances of the 49-year-old federal program, which is almost $25 billion in debt due to major storms such as Sandy and Katrina. But the soaring costs are straining the budgets of Long Island households, and real estate experts say they could put a damper on coastal home prices because they make high-risk homes less affordable.
Many homeowners are already trying to bring down their insurance costs. Some are enduring months of construction and six-figure expenditures to raise their homes out of floodwaters’ reach. Others are trying to get carved out of the riskiest zones by proving to the federal government that their homes are elevated enough to be protected from future storms. Such measures can take premiums down from $5,000 or more annually to less than $500 a year, or even allow homeowners to drop their flood policies.
On Long Island, more than 85,000 homeowners and businesses had coverage under the federal flood program last year. Nationwide, the program had 5.1 million policyholders. Nearly half are in high-risk flood zones. Roughly one-fifth of policyholders received federal subsidies that are intended to encourage homeowners at risk of flooding to buy insurance.
The subsidies — which are now being phased out — apply primarily to homes built before their communities adopted flood maps, and to homes that were added to high-risk zones when maps were updated.
The average premium is about $700 nationwide, and $1,111 in New York, according to the Federal Emergency Management Agency, which oversees the federal flood insurance program.
For low-lying homes in waterfront areas that do not receive subsidies, annual premiums of $1,800 to $7,000 are common, but premiums can exceed $25,000 for beachfront homes at risk of being hit by waves, local insurance brokers said. Most mortgage lenders require flood insurance for homes in areas at high risk of storm damage.
The cost increases are causing “sticker shock” for families, said Michael Raab, who works for Nassau County as Sandy storm recovery liaison.
“We are finally paying for the risk of our homes, and it is a devastating addition to a family’s budget,” Raab said. “A lot of Long Island families live month to month. . . . There are people that are honestly going to have to rethink living in their homes.”
Home prices, values can take hit
The high price of owning a low-lying home also could cause some buyers to think twice, said Jonathan Miller, chief executive of Manhattan-based appraisal company Miller Samuel.
“If there’s a higher cost associated with homeownership, that tempers home price growth,” Miller said.
A $500 increase in flood insurance premiums causes a $10,000 decrease in home value, according to a report by Manhattan-based Legal Services NYC.
A typical house with high flood premiums can sit on the market for months, said Nick Sakalis, a real estate agent with Coldwell Banker Residential Brokerage in Syosset. “What happens when the seller needs to sell is, they start to drop the price almost every month until they can find a buyer,” he said.
Mortgage lenders take flood premiums into consideration, too.
“Higher insurance premiums will certainly impact a borrower’s qualifying debt-to-income ratio, effectively reducing their borrowing power in some cases,” said Michael Bocelli, a division manager at Quontic Bank in Melville. “It’s definitely something for home buyers to consider.”
The desire to avoid rising premiums — and make it easier to sell their homes — is prompting some homeowners to endure the hardships that come with elevating a home.
New York Rising, the state program that is providing funds for residents to rebuild after Sandy, has committed more than $585 million to elevate 3,475 homes on Long Island. The program also funds upgrades such as flood vents and flood-resistant materials.
Such changes “make structures more resilient,” Lisa Bova-Hiatt, executive director of the Governor’s Office of Storm Recovery, which runs the recovery program, said in a statement. “This translates to more favorable flood insurance rates which enable people to remain in the neighborhoods they love.”
In Baldwin Harbor, homeowners Wayne and Mala Goonan said their flood insurance premiums have increased from about $1,100 a year when they bought their home in 2006, to more than $2,400 last year, and insurance agents “promised it was going to go way higher,” said Wayne Goonan, 55, an operations manager at Kennedy Airport.
In October 2012, Sandy’s floodwaters knocked out the front door, destroyed the first floor and left splash marks on the chandelier, roughly 12 feet above the floor.
Two years after the couple rebuilt, Wayne Goonan learned that they could get help paying for an elevation from New York Rising. He recalled, “I didn’t want to elevate. I didn’t think the house could take it.”
But Mala Goonan, 41, a teacher’s aide, worried about increasing premiums and the risk of future storms.
“If we need to sell this house, who’s going to buy it with that kind of flood insurance? That was the final straw,” Wayne Goonan said. Eventually the couple hired Ben Jackson of Ben’s Contracting Corp. in Freeport to elevate their 90-ton house.
All went smoothly, and the Goonans expect that New York Rising will pay $161,000 for the elevation. However, the couple paid more than $90,000 out of pocket for the elevation and associated expenses, and now their property taxes have increased by $7,000 a year. “It’s a shock to the system,” Wayne Goonan said.
Despite those costs, Jackson said, with flood insurance rates climbing — to more than $8,000 a year for one architect he works with — it makes more financial sense to raise a house instead of paying sky-high flood premiums every year. Plus, he said, most homeowners who elevate get grants from New York Rising.
An agonizing decision
Even without grants, some homeowners are taking out private loans to fund elevations.
It’s an agonizing decision for coastal homeowners, many of whom are just scraping by.
“The vast majority of people we do work for are not wealthy people, even though they live by the water,” said Derek Miller, owner of Ironmen House Lifting, which he said has elevated more than 400 homes since Sandy. “I’ve been in the homes of elderly people crying through the process, just salt of the earth, blue-collar people trying to get back on their feet after a devastating storm.”
Miller is lifting the home of Edna Flood, 54, a computer programmer who lives in Long Beach. Flood said she hopes to get help from New York Rising, but while she waits, she has taken out a second mortgage and a federal Small Business Administration loan and borrowed against her retirement account, even as she faces college bills for her 19-year-old daughter and 20-year-old son.
“It’s taking a risk, but I really didn’t even have a choice, because the premiums were going up,” Flood said.
She is not the only homeowner to make that calculation.
“We are seeing more homeowners inquire about financing to elevate their home to potentially qualify for reduced flood insurance rates,” said Kevin Friedlander, a spokesman for Wells Fargo & Co. “Customers are looking to either finance the complete elevation of their home or for financing that supplements government grant assistance they have received.”
Not everyone needs to take such extreme measures.
Some homeowners can obtain an elevation certificate showing their home is located above the reach of a so-called 100-year storm. If they’re elevated enough, they can submit a “letter of map amendment” petitioning the Federal Emergency Management Agency to take them out of the flood zone, said Garrett Guttenberg, executive vice president with the Denis A. Miller Insurance Agency in Long Beach.
His client Brian Zummo, a consultant who lives in Merrick, had been paying $1,800 a year. Zummo said he recently got his flood zone change approved, so his insurance costs will fall to less than $500.
In some cases, owners of low-lying homes who don’t want to elevate have abandoned the lowest level of their homes — essentially turning them into storage spaces not covered by flood insurance — and moved their heating and cooling equipment up to a higher floor, Jackson said. Some have filled in below-ground basements and crawl spaces, said Margaret Becker, director of disaster recovery for Legal Services NYC.
As homeowners look for novel ways to bring down their flood insurance costs, Congress is preparing to decide the federal flood program’s future.
Whether it will continue in its current form after this year is open to question. In 2012, Congress voted to reauthorize it for five years, but it is due to expire Sept. 30. Lawmakers are expected to debate the program’s future by this summer, amid intense scrutiny of federal spending and promises of tax-cutting by Republican lawmakers and President Donald Trump.
In 2010, Congress allowed the federal flood program to lapse four times because lawmakers were debating what to do about its financial distress. The lapses delayed 47,000 home sales because buyers could not obtain required flood policies, according to the National Association of Realtors.
This year, an umbrella group of insurance, housing, taxpayer, environmental and other organizations, called SmarterSafer.org, is urging federal lawmakers to overhaul the program by allowing premiums to reflect the full risk for most flood-prone homes. That would make it easier for private insurers to compete with the federal government.
SmarterSafer.org also supports encouraging more storm-resilient upgrades to homes and infrastructure and using more detailed data to determine the risks faced by each property, among other changes. The group’s proposal would keep subsidies for low-income homeowners — those making up to about $85,000 for a family of four on Long Island — but phase them out for most properties.
The program is not sustainable in its current form, said Jenn Fogel-Bublick, a spokeswoman for SmarterSafer.org. “If the program is not bringing in enough in premiums, it can’t pay its claims,” she said.
The federal government established the flood program in 1968, when private insurers weren’t equipped to offer affordable flood insurance. Now, private insurers can use high-tech mapping to obtain more accurate data about risk, enabling them to compete with the federal government, she said. In Florida, she said, 17 companies have written about 10,000 private flood insurance policies.
The pressure to end subsidies stems from major losses such as more than $16 billion in claims after the 2006 Hurricane Katrina, according to the Insurance Information Institute.
In 2012, the 2012 Biggert-Waters Flood Insurance Reform Act increased premiums up to 25 percent a year for many properties, and ended subsidies altogether when homes were sold.
A few months later, Sandy devastated the mid-Atlantic coast, resulting more than $8 billion in flood claims. Homeowners struggling to rebuild protested against their rapidly rising insurance premiums.
In 2014, Congress slowed the rise in premiums for most homes, limiting increases to 5 percent to 18 percent — with some exceptions, such as second homes and those that repeatedly suffered severe floods — and allowed homes to keep their subsidized rates even when they changed owners.
Not everyone facing higher flood insurance premiums is willing to endure being displaced for months during an elevation, or taking a chance that their home could be damaged, especially if they just finishing rebuilding.
Island Park resident Fred Buldrini said his annual flood premiums have increased by nearly 60 percent in four years, to $3,914. He also owns a home in Long Beach whose premiums have nearly tripled, to $4,407, he said. He expects those increases will continue, he said. “The outlook is a little bit grim,” he said.
Even so, he said, having spent three years and roughly $75,000 out of pocket to rebuild his Island Park home after Sandy wrecked it, he said he would rather pay the higher premiums than endure a home elevation, which would force him to move out of the house and redo much of the repair work.
“If I raise the house, everything I did will get destroyed,” Buldrini said. “To be honest, I don’t think I have it in me to go through that again.”