Overview
On April 22, 2024, the Department of Housing and Urban Development (HUD) published its final rule regarding updated flood insurance requirements in certain areas of the country: Floodplain Management and Protection of Wetlands; Minimum Property Standards for Flood Hazard Exposure; Building to the Federal Flood Risk Management Standard. The new rule implements the Federal Flood Risk Management Standard (FFRMS), which HUD says is aimed at helping communities become resilient to flooding, protecting lives and properties, minimizing damage to households, reducing insurance costs, and ensuring that federally funded construction projects are built to withstand current and future flood risks.
The new rule represents HUD’s attempt to align flood management standards with President Joe Biden’s directive to address climate change and the damage it adds to flooding and other disasters. Specifically, Executive Order 13690 requires buildings and facilities built or renovated with federal money to be elevated above flood levels.
The new rule and public comments make clear HUD’s intent to address climate change issues with “climate informed science,” including the use of a Climate Informed Science Approach (CISA) as the preferred approach to determine the new floodplain. The revisions, according to HUD’s rulemaking summary, “will improve the resilience of HUD-assisted or financed projects to the effects of climate change and natural disasters and provide for greater flexibility in the use of HUD assistance in floodways under certain circumstances.”
Background and Features of the New Rule
According to the Federal Emergency Management Agency, flooding is the most common and costly natural disaster in the United States. The Congressional Budget Office anticipates that in the 2020 projection period, homes with federally backed mortgages face expected annual damage of $9.4 billion. That amount is expected to rise by about one-third to $12.8 billion (in 2020 dollars) in the 2050 projection period.
HUD estimates approximately 10% of new Federal Housing Administration (FHA) single family homes constructed each year are within the Special Flood Hazard Area (100-year floodplain), and many of those homes are located in areas where HUD’s standards lag behind state or local standards.
The new rule increases the required elevation for HUD-assisted new construction, the standard of elevation within the FHA Minimum Property Standards and, for grant and subsidy programs and multifamily FHA-insured projects, substantially improved structures within the FFRMS floodplain. Under the new rule’s updated standards, as applied to HUD’s mortgage insurance and low-rent public housing programs located within the 1-percent-annual-chance floodplain, the lowest floor in newly constructed one-to-four-unit housing must be built at least two feet above the base flood elevation. The new rule revises several existing definitions, adopts a three-tiered process for determining the extent of the FFRMS floodplain, and also clarifies and strengthens public notice and flood insurance requirements, emphasizing the importance of providing notice as early in the process as possible.
In this way, the new standards will presumably protect communities from flood risk, heavy storms, increased frequency of severe weather events and disasters, changes in development patterns, and erosion. HUD projects that these changes will result in approximately $56.4 million to $324.3 million of savings over the lifetime of the covered properties (40 years) by decreased flood insurance premiums, reduced flood damage to buildings, cost avoided for homeowners and tenants, reduced expenses associated with relocation or temporary housing, and loss of income due to flooding events.
Similar reassessments at the state and local level have, according to HUD data, generated successful results. For example, after Hurricane Katrina, the State of Louisiana and the City of New Orleans used HUD funding to replace damaged public housing with new homes elevated beyond the minimum HUD elevation requirements at the time. When subsequent flooding occurred, water never breached the first floor of the properties and therefore caused no property damage.
While the new rule has an effective date of May 23, 2024, after reviewing public comments, HUD determined that required compliance will be delayed until June 24, 2024. New construction where building permit applications are submitted on or after January 1, 2025, must be in compliance with the new rule’s amendments to 24 CFR part 200 (Minimum Property Standards). This, HUD says, is in order to provide homebuilders ample opportunity to adapt and prepare for the requirements of this rule, including the increased elevation standards.
Takeaways
Critics of the new rule assert that the elevation policy will increase building costs and could be particularly detrimental as housing markets already suffer from supply shortages, rising insurance costs, and affordability issues from outside economic forces such as interest rates and inflation. However, HUD counters that affordable housing is increasingly at risk from both extreme weather events and sea level rise, with coastal communities especially at risk, citing Climate Central’s projections that affordable housing units at risk from flooding in coastal areas will triple by 2050.
HUD also contends that underserved communities are disproportionately impacted by flooding events, citing research that formerly redlined neighborhoods face a 25% greater risk of flooding than non-redlined neighborhoods: “Development of equitable strategies to protect low- to moderate-income persons and businesses serving communities disproportionately impacted by climate change is at the core of HUD’s mission to create strong, sustainable, inclusive communities.”
HUD intends to provide additional guidance to practitioners regarding application of the new rule to existing HUD-insured projects or federally funded projects seeking refinancing or acquisition, and HUD will provide additional detail for all HUD multifamily housing programs that are expected to comply. Going forward, “HUD will rely on project-by-project technical assistance to help grantees find and utilize best available data to make their determinations,” indicating that CISA tools will be regularly updated with best available climate and topographic data.
Practitioners should monitor changes to local rules, as it is expected that states, counties and municipalities may adopt stronger elevation requirements to conform with HUD’s new standard.
While the new rule does not require flood insurance outside of the Special Flood Hazard Area, HUD strongly encourages that flood insurance be obtained and maintained for all structures within the FFRMS floodplain to mitigate financial losses.