- The Washington Times - Tuesday, September 13, 2005

The huge costs of devastating storms such as Ivan and Katrina have done little to slow a rush to build and buy homes on the hurricane-prone Gulf and Atlantic coasts in recent years.

Despite suffering through a record four hurricanes last year, Florida coastal property remains the hottest second-home market in the United States.

Since last year’s devastation, Florida home prices have soared 33 percent, and the building boom has intensified. Currently in Miami, eight times more condominiums are planned or under construction than were built there in the previous decade.

Not far behind are such popular beach resorts as Myrtle Beach, S.C.; Gulf Shores, Ala.; the Outer Banks of North Carolina; and Ocean City, where property values have been soaring despite regular visits or near misses by dangerous hurricanes.

Gulf Shores was ground zero when the eye of Hurricane Ivan came ashore last September, wiping out apartment buildings and knocking out critical infrastructure while submerging the entire resort.

But a condo investor who visited with an eye toward picking up a bargain a few months later reported that prices had not dropped at all. Beachfront condos that had hurricane damage and no water or sewer service were still selling for a half-million dollars.

Economists say a major reason Americans and foreigners flock to the beach towns despite the obvious risks is because much of the cost for cleaning up and recovering from hurricane disasters is borne by the federal government.

Congress makes an annual ritual out of bailing out storm-struck communities. And despite much finger-pointing and large and escalating price tags, lawmakers benefit politically from the lavish distribution of aid to grateful constituents.

The generous federal bailout of Florida a year ago is credited with helping President Bush win that critical state in the fall election.

Congressional leaders say the cost to the federal government for rescuing and rebuilding after Katrina will be the largest ever — between $100 billion to $200 billion — eclipsing even the cost of responding to the September 11 terrorist attacks four years ago.

While no one would dispute the federal government needed to become involved to ease traumas caused by Katrina, some economists and budget analysts are alarmed at the trend toward ever-larger bailouts with taxpayers picking up the tab for risky decisions made by private homeowners, businesses and investors.

“We are subsidizing risky behavior and should not be surprised at the result,” said Massachusetts Institute of Technology hurricane researcher Kerry Emanuel.

“The most important hurricane problem we face is demographic and political,” he said. “Katrina, as horrible as it was, was by no means unprecedented, meteorologically speaking. More intense storms have struck the U.S. coastline long ago.

“The big problem is the headlong rush to tropical coastlines, coupled with federal and state policies that subsidize the risk incurred by coastal development,” he said.

All of the flood insurance available in the United States is provided by the federal government, and in some areas is being offered for as little as 38 percent of the real cost of such insurance, according to the Committee for a Responsible Federal Budget.

The result is underfunding of the federal insurance program, which faces the possibility of bankruptcy in the wake of the unprecedented flooding of New Orleans, the committee says.

In addition, the private insurance obtained by beach dwellers also often is below cost, Mr. Emanuel said. State insurance regulators often assert “political pressure to keep rates low in high-risk regions like tropical coastlines, thus encouraging people to build flimsy structures there,” he said.

An example of the pressure on insurers to bear more than their budgeted share of costs came this week when a Mississippi regulator publicly urged insurance companies to give storm victims the “benefit of the doubt” by covering losses even when damage might have been caused by flooding excluded by their policies.

Insured losses from the hurricane are estimated to reach a record $60 billion. As with the federal bailouts, people who live outside the devastated regions are the ones who end up paying through higher premiums, Mr. Emanuel said.

While news stories often focus on poor and destitute people dislocated by the storms, many of the people buying into coastal condos and housing developments are far from poor.

More than one-third of home purchases in Florida last year were second homes and investments for well-to-do Americans and wealthy Europeans, Canadians and Latin Americans, Florida real estate agents say.

Despite these well-publicized facts, for political leaders, the pleas for help at the time a disaster strikes, leaving thousands of victims in its wake, can be irresistible.

Often, a president’s or lawmaker’s political career depends on rushing aid to the region, and a kind of one-upmanship develops in Congress over who can deliver the most aid the fastest.

Congress within three days of Katrina’s impact approved the first installment of $10.5 billion in emergency aid, and last week capped that with another $51.8 billion in funds for rebuilding and recovery.

That’s only the beginning, lawmakers promise.

While it may be impossible to stop the rush to provide aid, Congress ought to start making room for disaster spending in its budget each year, so the costs and benefits can be weighed and it can be offset by lower spending in other areas, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

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