Houston, The Floods and Diving Underwater

My cab driver from the hotel to the convention center reminded me that he technically does not live in Houston. That no one in their right mind actually lives in downtown Houston. Due to the effects of the floods over the last few years. My next question to him was ‘what counts as downtown in a city where there is no zoning and a strip mall can be located right beside a condo building around the corner from a dentist office and gas station? He laughed but never answered my question. I was attending the annual convention of the Texas chapter of the American Water Works Association. This trip wasn’t within the same year as the flood but the damage was still fresh in the cab drivers mind as he pointed to lines on buildings to indicate the flood levels. He wasn’t too worried though, he told me, his home (and the largest source of his personal wealth) was outside of the flood zone. 

In their Nature paper titled ‘Unpriced climate risk and the potential consequences of overvaluation in US housing markets’, Gourevitch et al do not bury the lede on their findings that suggest my cab driver (and almost all of the rest of the US) is in for a shock in terms of the decline we should all expect to see in the value of residential properties. The research suggests that US homes are overpriced by between $121-$237 Bn due to flood risk not being properly captured in home values. The rise in home prices during the pandemic (in ‘hot’ cities like Austin, Houston, Miami etc.) further worsened this overvaluation, estimated at about 69% of total overvaluation of homes in the 100-year floodplain as defined by FEMA. The desire, by a certain swathe of the populace, for the American Dream is still expressed in the ability to buy and own a home. It’s too deeply embedded in how Americans born before the 2000s still think about how to climb up the wealth ladder. Unfortunately, the achievement of that dream will be hampered by the looming correction. Houston, with a population of ~2.3M people and a household median income of $52k, actually has a lower homeownership rate (~40%) compared to the top 300 cities in the US (52% ownership). A lot of people who have their wealth tied up in homeownership will be heavily impacted by this inevitable washaway.

Fig 1: Flood Risk Capitalization, Image from Nature “Unpriced Climate Risk and The Potential Consequence of Overvaluation in US Housing Market.

Due to it’s heavy reliance on taxes from the energy industry, which is also facing a reckoning with the advent of renewable energies, tax revenues for the city of Houston will not be as badly impacted when the decision is finally made to stop building homes (and buildings period) in the flood plains. Proper analysis of the flood plains will also have to be carried out to ensure that the determination of what is a ‘flood zone’ is updated. Like most static data in government, the current data is outdated and poorly managed. Houston will have to grant funding to buy back property that is already in flood plains to make the owners whole. City planners will have to finally start to zone in a way that recognizes the dangers that lie ahead. This does not mean there will be no ongoing construction though. There should, and hopefully will be, a lot of infrastructure construction (and consequently revenue) in the building of levees, seawalls, drainage systems and all the flood mitigation infrastructure that Houston (and many other cities/towns across the US) will need to address the increasing flood issues. Priority should be placed on currently underserved communities with low-income earners who will be most impacted by the equity lost due to these changes. There is no real way around these steps or we are barreling down towards a (no pun intended) flood of value deflation.

I’m normally quick to tell people what I think but, as I got out of the cab and said my goodbyes to the cab driver, a middle-aged man who said he’d had a good career as a logistics driver for one of the big oil companies, I held my tongue. Unless his city (and Harris county as a whole) accelerates the work laid out above, my cabbie friend is about to be in a whole world of pain at a point in his life when he can least afford it. I’m rooting for him (and Houston).