Sand castles on Jersey Shore: a risky US property boom

Barbara Montone walks barefoot through a house built on the New Jersey shore, leaving her spiky heels outside to avoid scratching the hardwood floors. It has a turreted roof, a kidney-shaped swimming pool and a six-burner Thermador stove. But one reason alone explains why it is listed for $2.2m: the back garden is on Barnegat Bay. “This is what you want to see,” the estate agent says, gazing through a window. “The water.”

Five years ago the water was the last thing people wanted to see. A storm surge several feet high barrelled across the borough of Lavallette, destroying the house that had stood on this spot. It was the work of Sandy, the 1,000-mile-wide “superstorm” that made landfall in the area on October 29, 2012.

Sandy exposed the perils of shoreline living, as the climate warms and sea levels creep higher. In the US alone it left 162 dead, laid waste to 650,000 homes and cost $65bn — the second most expensive weather disaster in history.

This year’s record-breaking battery of Atlantic hurricanes have once again reminded Americans of the 6.9m homes at risk of damage from coastal storm surges, and what they cost the federal taxpayer. After approving $50bn in aid in the wake of Sandy, lawmakers have passed bills to spend tens of billions more to help victims of Harvey, Irma and Maria. The National Flood Insurance Program — $30bn in debt because of Sandy and earlier catastrophes — last week received a $16bn federal bailout to pay claims from the latest storms.

Retreat may be the most economical solution but it is seen as surrender for property owners and government officials financially and emotionally invested in the coastal way of life. Nearly one in three housing units added in the US this century were in counties adjacent to the shoreline in states such as Texas, Florida and North Carolina, according to the National Ocean Economics Program. By doubling down on the coasts, residents risk magnifying the impact of storms forecast to grow stronger in the years ahead.

Map showing the threat of flooding to to New Jersey's coastal properties

On New Jersey’s fragile barrier islands, the response to Sandy has not been to withdraw inland but rather to build bigger. “They did not rebuild bungalows. They knocked those down and built McMansions,” says Walter LaCicero, Lavallette’s mayor.

After killing scores in the Caribbean, Sandy meandered up the US east coast, finally landing in Brigantine, New Jersey. The scars endure in cities such as New York, whose train tunnels were corroded with brine. At the Jersey shore, a beloved summer getaway, the ocean met the bay on the other side of the barrier islands and stacked houses like cars in a highway crash.

Improbably, the disaster created a once-in-a-lifetime buying opportunity. Older families unable to pay for repairs sold properties. “You have Wall Street coming in with their bonuses. People are leaving the Hamptons to come to the Jersey Shore,” says Ms Montone.

In neighbouring Ortley Beach, the ocean levelled a swath of homes lining the boardwalk. Now, builders are including lifts and rooftop hot tubs in three- and four-storey houses. “An elevator is a staple now. It’s like a telephone,” says Perry Beneduce, a colleague of Ms Montone.

Walter LaCicero, the mayor of the town of Lavalette

House prices in the worst-hit communities cratered after Sandy. In Lavallette, the median sale price of $532,500 in October 2012 had more than halved to $225,000 by February 2013, according to New Jersey Realtors. This past summer, median prices reached $660,000 and were higher by the beach.

The startling recovery has been underwritten by federal taxpayers. In a beneficial display of bipartisanship, President Barack Obama and New Jersey Governor Chris Christie walked the post-storm wasteland in early November 2012, helping seal Mr Obama’s re-election and the generous aid package for New Jersey and other north-east states.

The Federal Emergency Management Agency has paid out more than $25bn in New Jersey and New York alone, reimbursing towns for the cost of removing debris, repairing roads and bridges, and renting emergency equipment. Gaps in local tax revenue lost when assessed property values collapsed were filled with federal money. The agency granted $1.4bn to 179,000 people and households in the region to cover their costs of shelter and rebuilding.

A swift transition from devastation


© Getty


FEMA also manages the federal insurance programme, covering policyholders in flood-prone areas. Already deeply indebted to the Treasury when Sandy hit, it borrowed another $6.25bn as premiums fell short of policyholders’ $8.6bn in insured losses. Hundreds of properties on the New Jersey coast have received serial flood claim payouts, according to an analysis of FEMA data by the Natural Resources Defense Council, an environment group. In Lavallette, claims were filed 159 times for 37 properties between 1978 and 2015, with the flood programme awarding $5.2m.

Lawmakers also approved $5bn for US Army Corps of Engineers projects such as “beach nourishment”, or pumping sand from the ocean floor to build artificial dunes and widen beaches. This month, a dredge ship and tugboats began depositing sand at Mantoloking, New Jersey, a town temporarily severed by Sandy when the Atlantic spilled into Barnegat Bay.

Critics say federal policy rewards local officials for hazardous coastal development. “If someone told you you’re going to get a new beach every time the oceans washed yours away, you’re probably going to feel more secure allowing high-priced homes to be built there,” says Rob Moore, senior policy analyst at the NRDC.

The aid has strings attached: all new and rebuilt houses must now rest on stilts at least one foot above the estimated crest of a once-in-a-100-year flood. The $2.2m house Ms Montone is marketing complies.

Yet the state’s barrier islands — long strips that serve as Atlantic breakwaters — face an uncertain future. Their streets are often just two or three feet above sea level, that is rising because of warming oceans and melting polar ice.

On the Jersey shore the rate has been faster than the global average because the land is subsiding. “Nuisance flooding”, when high tides gurgle up through sewer drains and on to streets, is more frequent. In Atlantic City it increased eightfold to 25 days a year between 1963 and 2013, according to a National Oceanic and Atmospheric Administration report.

Bob Kopp, director of the Institute of Earth, Ocean and Atmospheric Sciences at Rutgers University, says there is more to come: “There’s 1ft-2ft of sea level rise in store for the first half of the century, and there are going to be some shore communities that experience significant changes from that.” Projections for rises in sea levels vary for 2100, depending on the ability to rein in greenhouse gas emissions, but range from 2ft to 10ft, he says. At 2ft higher, some blocks on Barnegat Bay would be inundated at high tide, according to NOAA simulations. At 4ft, the western half of the barrier islands would be under water.

Barbara Montone, a real estate agent who works in Lavallette, New Jersey

Changes could come long before 2100. Some models suggest that it will take less intense storms than Sandy to cause equally destructive surges. Research published last week by Prof Kopp and others in the journal Proceedings of the National Academy of Sciences projected that in New York City — just north of the Jersey shore — floods more than 7ft above sea level could arrive an average of every five years as early as 2030.

“Coastal communities are facing a looming [sea level rise] crisis, one that will manifest itself in the increased frequency of Sandy-like inundation disasters in the coming decades along the mid-Atlantic and elsewhere,” say the authors of a 2013 paper in the Bulletin of the American Meteorological Society.

The prospect of higher and more frequent floods driven by climate change comes as the Trump administration unravels US commitments to rein in carbon emissions, including pulling out of the Paris agreement and abandoning an initiative to factor climate risks into infrastructure spending. As Irma bore down on Florida last month Scott Pruitt, administrator of the Environmental Protection Agency, said the time to discuss the causes and effects of the storm was “not now”.

Possible extent of inundation due to 6ft rise in sea level or a storm surge like Superstorm Sandy. This map shows how a 6ft rise in the sea level could devastate properties in US coastal cities

“Resilience” rather than retreat, has been the guiding principle of the rebuilding push. But efforts may fall short. Elevating houses above flood lines is a “good thing”, Prof Kopp says, but houses are not islands: “Your home depends on infrastructure. You could end up in a situation where your home isn’t flooded but you’re cut off from electricity and transportation.”

Federal disaster relief tends to be haphazardly disbursed. The Government Accountability Office, a congressional auditor, reported that in one state officials who received post-Sandy federal funds for flood control in a small town’s business hub used it instead to elevate beachfront properties, as “political considerations trumped their experience and professional judgment”.

Relatively cheap schemes such as hazard zoning and land purchases have typically received about 5 per cent of disaster relief funds, according to a report by the National Research Council, an expert body. Washington is also picking up a bigger tab from coastal disasters, covering 75 per cent of the damages from Sandy compared with 6 per cent for Hurricane Diane in 1955.

“Developers, builders and state and local governments reap the rewards of coastal development but do not bear equivalent risk, because the federal government has borne an increasing share of the costs of coastal disasters,” the council’s study said.

Beach replenishment work at Mantoloking, where engineers are pumping sand from the ocean floor to build up defences against the sea

Beach nourishment has attracted criticism that it’s a Sisyphean fight. The project begun in Mantoloking will cover a 14-mile stretch with 11m cubic yards of sand at a cost of at least $92m. After the Army Corps is finished, constant erosion will necessitate dumping a further 1.4m cu yd of sand every four years, according to an environmental assessment of the project.

Robert Young, director of a programme for the study of developed shorelines at Western Carolina University, says trying to freeze beaches in place is a fantasy. “Coastal storms do not destroy beaches, they move beaches,” he says. “The beach just wants to be where your houses are.”

Local officials say the spending is worth it. Some greet talk of climate change with a shrug. Thomas Kelaher, mayor of Toms River, New Jersey, which includes Ortley Beach, says his town received $33m in federal grants to supplement the hole Sandy blew in its tax base.

Thomas Kelaher in his office in Toms River, New Jersey

A gravel-voiced former prosecutor and US Marine Corps officer, Mr Kelaher says asking people to give up their beach homes is not feasible.

“If I went over to Ortley Beach with a loudspeaker on top of a fire engine and said ‘Everybody has to go,’ I would not be alive by the time I got to the end of the street,” he says. “Fifty years from now, if there’s truth to all this stuff about rising sea levels and everything, then they’ll have to deal with it then.”

Mr LaCicero, who stayed at home during Sandy as the waters lapped at his doorstep, says sea level rise is not a topic most residents want to discuss, adding that many are “non-believers in man’s contribution to global warming”.

“People love the coast,” he says. “You can’t all live in the mountains. They have mudslides and fires. In the middle of the country they’ve got tornadoes. All the rivers flood. There’s danger no matter where you live. This is a great place. Why not be here and just run the risk?”

Making federal flood insurance fit for purpose

If there is one issue on which President Donald Trump and environmentalists might share some common ground, it is flood insurance.

The National Flood Insurance Program is broke. It was already $24.6bn in debt to the Treasury before hurricanes Harvey, Irma and Maria deluged coasts this year. Claims from the storms pushed the programme to its $30.4bn borrowing limit.

Mr Trump last week signed a disaster relief bill that included wiping out $16bn in the programme’s debts. Amid debate over the bill, Mick Mulvaney, the budget director, outlined 15 reforms in a letter to Congress. Among them werer refusing policies for new houses in flood plains and cutting coverage for policyholders who file repeated claims for the same property. The reforms did not make it into the legislation but they signalled Mr Trump’s priorities.

Those goals are consistent with the aims of environmentalists and government watchdog groups, who say the programme has morphed into a subsidy for the wealthy to occupy sensitive land.

Rob Moore, senior policy analyst at the Natural Resources Defense Council, says: “Frankly, some things in the letter [to Congress] were not what I would expect from our real estate-developer president.”

Congress established flood insurance in 1968. It covered structures already on flood plains but required towns to restrict future development, says Bob Hunter, who ran the programme in the 1970s.

“The dream of the programme got lost in the implementation,” Mr Hunter says. Flood maps were not updated for years, shaping a false view of risks. When they did change the government froze existing premiums.

In July 2012, a bipartisan Congress reformed the programme, ending the premiums freeze and most subsidised rates. For some, premiums were to have gone up by 25 per cent a year.

Four months later, Sandy hit. Storm victims outraged by premium increases, backed by the real estate lobby, persuaded lawmakers to roll back the reforms in 2014.

The programme is due to expire on December 8 without reauthorisation, offering Congress another chance at reform. The trend towards more powerful hurricanes suggests it is needed. As Mr Mulvaney wrote: “Put plainly, the NFIP is not designed to handle catastrophic losses like those caused by Harvey, Irma and Maria.”

This post originally appeared on Financial Times

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