We will all be paying for Harvey (or the cost of laissez-fare)

The Thinker by Rodin

Did government fail the people of Houston? Or did Texans get the second-class government they voted for? Or was Hurricane/Tropical Storm Harvey truly a “no one could have predicted” event, beyond reasonable mitigation by government?

“Don’t mess with Texas” I hear from my Texan friends and it is something they are passionate about. They like doing things the Texan way: all sort of laissez-fare (abstention by governments from interfering in the workings of the free market because government is not to be trusted). It was heartwarming to see fellow Texans come to the aid of those unable to evacuate, although many from the “Cajun Navy” came from nearby Louisiana. The “Cajun Navy” was pretty ad-hoc and poorly coordinated, but Harvey was clearly a storm beyond the resources of federal, state and local government, at least as we taxpayers chose to fund them.

Some compared it with the evacuation of Dunkirk during World War Two where pretty much every vessel available along the coast of Britain headed to this coast in France to evacuate British soldiers stationed there. Thankfully no one was firing live explosives at this “navy”. Now with floodwaters receding we are getting a better picture of the damage. So far loss of life has been minimal considering the scale of the storm. The property damage though looks horrific: hundreds of thousands of homes in need of repair, replacement or abandonment and an estimated 500,000 automobiles totaled. Estimates of repairing all the damage exceed $100 billion.

Only about 20% of these flooded homes had federal flood insurance. You would think getting this insurance would be a no-brainer for Houstonians, who are used to flooding but not quite on this scale. Except flood insurance is hardly cheap. Most of these homeowners figured they could not afford it, so they rolled the die. Most of them lost this bet.

The federal government through an act of beneficence could pay for their catastrophic losses. It’s unclear how much the federal government will rush to Texans’ aid. There would be quite a lot of hypocrisy if Texans accepted too much flood aid, given their hostility toward the federal government in general and the unwillingness of many of their legislators to fund Hurricane Sandy relief.

So it appears that most of these homeowners are on the hook for rebuilding their houses, should they choose to do so. It’s likely that most of these homeowners don’t own their homes outright, i.e. they have a mortgage on the property. Insurance companies won’t pay for flood damages, so the principal victims of this storm will be property owners. They will have to fund the rebuilding of their homes out of their own pockets. This means finding lenders who will loan them money to rebuild. Of course they are also on the hook for the balance of their mortgage. It’s unclear whether they could borrow the money to rebuild, as it may be more than they can afford to pay back.

It’s not too hard to predict then that barring some extraordinary largess from the federal government many if not most of these property owners will walk away from their investment. If they do they will ruin their credit and likely lose any equity they have in the property too. Lenders will take them to court to try to make them pay anyhow for houses they cannot afford to rebuild. Most of these lenders will eventually write off these losses. This will shift at least some of these costs to taxpayers, since when these lenders report losses they are not paying income taxes on the loss and may get money back. These flooded homeowners too will write off their losses if they can. In short whether we like it or not a lot of these losses will be socialized on you, the American taxpayer through decreased revenues to the federal government and increased borrowing costs. Perhaps the economic growth from rebuilding will mitigate some of these costs to taxpayers.

So we are all paying for Harvey, whether we know it or not and whether we like it or not. In theory taxpayers could stem their losses. It is possible to write legislation to not allow these lenders or taxpayers to write off these losses. After all, they were stupid enough to put up housing in a flood zone. That won’t happen. It’s also possible, as Senator Ted Cruz wanted to do after Hurricane Sandy, for the federal government not to come to the financial rescue of Houstonians. That won’t happen either.

However, if these unlikely events happened, the impact might be pretty profound. Texans might realize that the cost of their bad financial decisions will really be totally borne by them. This might encourage Texans to write laws that mitigate many of the preventable costs of floods. It might incentivize Houstonians to implement zoning and prioritize funding for flood mitigation. It might result in laws and ordinances to require new housing to be built outside of likely flood plains or at least raised above the floodplain.

It won’t happen. Instead, Texans will get to pretend that no one will mess with Texas. Because Texas allows cities like Houston to have no zoning laws, and because we admitted Texas into the United States knowing that federalism would make it hard to force Texas to implement common sense measures like not building houses in flood zones, we all get to pay the costs of Harvey. Certainly Houston homeowners will shoulder huge losses, and the lenders of these flooded houses will shoulder a share of these losses too. But in reality we all are paying for this mess, and we’ll continue to pay for similar messes like this in the future.

All we can really do is pass common sense legislation to minimize our liabilities when these events occur. But that requires government to work as a fiduciary, which will seem Big Brotherish. There is little likelihood of that happening, particularly in good old Laissez-faire Texas. Our own obstinacy about the so-called evil of too much government is in fact bleeding us dry.

Climate change: is it time to head for the hills?

The Thinker by Rodin

I’d like to say from watching the effects of Hurricane/Tropical Storm Harvey on the Houston area that Mother Nature must be sending us a message. Mother Nature of course does not exist, but nature is sending us yet another message about climate change anyhow. It just doesn’t appear that we are listening quite yet.

Harvey is not a thousand year flood. This is the sort of storm likely to become much more frequent. My bet is that you will see one of these events about once a decade now in the United States, and probably more often. While it is impossible to attribute this particular storm to climate change, given that global warming has made the Gulf of Mexico a hotter body of water in general, it’s going to make any storms that form more likely to be severe. In this case, its arrival in Houston was particularly bad because of its huge population. Houston and environs is roughly the same size as New Jersey, and it is both densely populated and low-lying. Add a storm that doesn’t move much due to warmer Gulf of Mexico atmospheric conditions feeding it and it feels like we need Noah and his ark. Unfortunately at 300 x 50 x 30 cubits, it’s not going to hold the population of the Houston area, estimated at around 6.7 million people.

The reality is there is not a whole lot Houstonians could do to survive this flood other than just hang on and hope or head for the hills. Actually, heading for the hills was tried before, which is why Houston’s mayor didn’t order a mass evacuation. Over 100 people died in 2005 fleeing Hurricane Rita’s approach to Houston, mostly stuck in traffic trying to get out of the city. Maybe when Harvey’s casualties are totaled up, a mass evacuation will look sensible, even if those casualties are replicated again.

Of course evacuation is not always an option, particularly for the poor and displaced. Houston’s form of governance makes evacuation more difficult: the city has no zoning laws! Rita proved that its highways could not quickly empty the city but any transportation engineer could have told you that. A better-managed evacuation might have worked. If you didn’t have a car though you were largely out of luck. Houston is typical of most cities, which do second-class jobs at best of managing growth. If our cities were properly engineered people would not be allowed to move into the city until the infrastructure was there to ensure the safety of its inhabitants. Cities constantly play a losing game of catch up. In reality though they cannot afford to pay for every contingency or even the most likely ones. So when you move to places like Houston you must accept the downsides that storms like Harvey are going to wreak havoc on your life from time to time. Only now these events are going to feel more routine than exceptional.

All cities like Houston can really do are to try to mitigate the effects of storms like Harvey. Some people will throw in the towel after this event, seeking opportunities on higher and drier ground. Most residents won’t have that option. You go where you can find work. Cities will continue to be the best bets for finding good jobs. However, the internet does make it possible for many of us teleworkers to relocate if our bosses will allow it. Harvey will give many of those with this option incentive to head for the hills.

Eventually even Texans are going to have to acknowledge they can no longer deny climate change. There are actions government can and should take. One big change could be that the federal government stops issuing flood insurance in areas that are most prone to flooding, or at least new flood insurance policies in those areas. It’s rather harsh, but it does recognize reality and shifts the cost for those living in flood prone areas from the government to these residents. FEMA already produces flood maps so you can assess your vulnerability prior to moving somewhere. Some home insurers require federal flood insurance to issue policies.

Ideally no government would allow new houses to be built on likely flood plains. I used to live in Endwell, New York, a small village on the bank of the Susquehanna River. Floods in recent years have pushed the Susquehanna twice over its flood stage. It’s gotten so bad that pretty much all the properties close to the river have been abandoned or demolished. These floods twice reached the Catholic elementary school I used to attend, making it uninhabitable. This year the county finally got around to demolishing it. Expect to see more berms along rivers and coastal areas. They can reduce the likelihood of floods but not mitigate the risk to lives and property altogether.

With sea level rise though this simply buys time, necessary time hopefully for people to relocate to higher ground. Cities like Houston can’t relocate. Massive pumping stations like New Orleans has might help but it’s unclear that there is any safe place to discharge any water collected with Houston being inland. San Antonio is used to flooding and has adapted by constructing flood tunnels. I don’t think Houston has anything like this, but it should be studied.

As I noted two years ago, you don’t want to become road kill on the global climate change super highway. Climate change is here, coming at us quickly but not so quickly that most of us can’t make sensible long term plans to rearrange our lives to be minimally impacted by it. Think of Harvey as a harbinger of worse things to come. You want to avoid the rush because at some point climate change will become so undeniable that massive migrations to safer areas will start. So the sooner you pack up and leave the better off you will be and the less expensive it will be as well. You are also more likely to escape our climate crisis alive. Dead men tell no tales. If we could read the minds of the casualties from Harvey they probably would have wished that they had headed for the hills long ago.