Southern Alberta may have dried out from its record June floods, but as the damages continue to be tallied and residents consider how to proof themselves against a similar disaster in the future, the costs of replacing possessions and battling mould may be the least of their financial concerns.
Billions of dollars have been earmarked for flood relief. The feds have pledged an initial $1 billion with more to come. The province has announced a $50 million to $60 million program that will provide financial aid to small businesses to cover uninsured losses, as well as a $120-million program to provide low-interest loans of up to $1 million to flood-damaged small businesses, agricultural operations and non-profits.
But the immediate recovery is one thing, the stigma that will persist is quite another.
Few of us want to own a property in an area that is likely to flood. Calgary’s real estate board has already reported a surge in market activity unheard of for the summer months. People are looking for higher and drier housing options even before their current residences are repaired; renters are jumping into the market on the expectation that an already tight housing market is about to become even tighter.
Residents of the Alberta community of High River are up in arms because their flood-damaged homes are still not, in the government’s opinion, in a flood zone, which means they are unlikely to benefit from a government buyout that would assist with the costs of relocation. Property owners in this situation are then faced with two choices: do what they can to flood-proof their properties and grit their teeth every time the spring floods come, or attempt to sell and hope that buyers have short memories.
Buyers often do have short memories, but a local or provincial government will not, especially a government under pressure from irate voters and its political opposition to take definitive action. A natural outcome of such a severe natural disaster is to impose a greater burden on property owners to flood-proof their properties by relocating wiring, sealing basements against seepage, installing sewer backup prevention devices and so forth to qualify for any kind of government assistance or relief. Another is to redraw existing flood zone maps to dissuade or prevent development in certain areas, thereby ensuring that the public purse will not take such a hit should there be a “next time,” and there will be a next time.
Oh those insurers
The other variable is insurance coverage. The Calgary flood has already proven to be a cautionary tale about failing to read the fine print in your policy and ensuring you’re covered for flood and water damage. Damage to, or loss of, personal possessions due to a sewer backup is likely to be covered, but policies usually do not cover flood-related water damage unless a property owner specifically purchased that option.
Those insurance companies which have sold such coverage and are then left smarting from the expense of paying out tens, if not hundreds, of millions of dollars in claims may not be that eager to extend coverage again to property owners they subsequently consider to be in a high-risk area. At a minimum, prudent insurers will not provide coverage against flood damage at the same premium as it would for property located on high and dry land. There is only one source of money to pay damage claims – insurance premiums – and premiums have to be long-term sustainable in relation to anticipated losses. An insurance company will make its own determination of which areas are at risk, regardless of what government authorities may indicate on their revised flood zone maps.
Local taxpayers may also be on the hook in the future if insurance companies that work in the complex world of municipal insurance decide it is in their best interests to impose higher premiums on the municipality.
If no one will buy it, it’s worth nothing
What all this means is that some areas which until June were considered to be appropriate for development may become undevelopable. Land has value only if it has a buyer. Anyone who owns land in these areas may be in for a substantial financial loss, unless they are a homeowner who can benefit from a government buyout.
A reduction in the inventory of property or developable land in Calgary and the other hard-hit areas of southern Alberta will also distort both the residential and commercial real estate markets by driving up demand for higher land, which will of course inflate prices for sites not subject to flooding.
It’s difficult to find any winners in this scenario. The best anyone can hope for is that this “flood of the century” was a singular event that isn’t likely to repeat itself before some decades have passed. If there is a lesson to be learned it is this: Stay out of a flood zone and if a property is in an adjacent area deemed “flood fringe,” “overland flow,” or even “under review,”. Do your due diligence and research the historical record carefully before committing to a purchase.
No matter how high a river has flooded before, there is always a chance it could go higher. What’s certain is that this will happen again. It’s just a question of when.
And don’t forget that fine print in your insurance policy.
To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.