An Overview of Flood Risk to the Housing Finance Ecosystem

Michael Craig
U.S. Department of Housing and Urban Development

The views expressed in this article are those of the author and do not represent the official positions or policies of the Office of Policy Development and Research, the U.S. Department of Housing and Urban Development, or the U.S. Government.

A previous version of this article with minor differences was released as a public response to the Federal Housing Finance Agency’s Request for Input on the topic of Climate and Natural Disaster Risk to the Regulated Entities.

Climate change is increasing both the intensity and frequency of natural disasters, leading to higher economic costs. In an annual report, the National Oceanic and Atmospheric Administration (NOAA) documents the incidence of weather and climate disasters resulting in over $1 billion in damage per event, so called “billion-dollar disasters.” The 2019 report shows that over the last decade there were 119 such events, a stark increase compared with the previous three decades (29, 53, and 62 from the 1980s, 1990s, and 2000s, respectively) (NOAA, 2019). The changing risk of natural disasters, flooding in particular, is further demonstrated by the increasing frequency of presidential disaster declarations, of which more than 80 percent have been in response to floods and flood-related events such as hurricanes (Kousky et al., 2018). Although some of the increased costs can be attributed to new and higher value developments in vulnerable areas (Wing et al., 2018), recent research on flood events indicates that historical precipitation changes have contributed to roughly one-third of cumulative flood damages from 1988 to 2017 (Davenport is Davenport, Burke, and Diffenbaugh, 2021). Windstorms, rain events, wildfires, sea level rise, and tropical cyclones all pose risk to the United States housing stock, although flooding poses the most widespread threat (NOAA, 2020). NOAA in 2013 estimated that 40 percent of the U.S. population lives in coastal regions (NOAA, 2013; Owens, 2020), with an additional 40 million (12 percent) living in areas that face fluvial or riverine flood risk (Wing et al., 2018). Therefore, this discussion focuses specifically on climate change-induced increases in flood risk to the housing finance ecosystem.