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Montz, Burrell Elizabeth.
h [electronic resource] :
b their impact on property values following flooding in Liberty, Texas /
by Burrell E. Montz and Graham A. Tobin.
[Boulder, Colo. :
Natural Hazards Center, University of Colorado],
1 online resource ( p.)
Quick response research report ;
Description based on print version record.
Tobin, Graham A.
University of Colorado, Boulder.
Natural Hazards Research and Applications Information Center.
t Natural Hazards Center Collection
MARKET TH.IR I Mf'AC."T ON 'PROPERTY VA folLoWI1J6 FLCOb 1'0<; I t-J LIBt:.'RT( C.OUNTY) \..XAS Bu..V"V"e \ \ MoY\-t 'e G raha\f(\ A, Tob in 1ln \ \leY's o( ColoV"'ad.o) TVI':. "Ut..Llte. ot "B e. 'n Ol \J lor a I <;; c.i W aJ:.u. Y'a \ \4 4"!. a 'Res e a.rc.h a.nd Ap F I i c. 5 1: nform at lOll 'ley-1992-
MARKET GATEKEEPERS: THEIR IMPACT ON PROPERTY VALUES FOLLOWING FLOODING IN LIBERTY COUNTY, TEXAS By Burrell E. Montz Binghamton University & Graham A. Tobin University of Minnesota, Duluth QUICK RESPONSE RESEARCH REPORT #52 1992 The views expressed in this report are those of the authors and not necessarily those of the Natural Hazards center or the University of Colorado.
Final Field Report MARKET GATEKEEPERS: THEIR IMPACT ON PROPERTY VALUES FOLLOWING FLOODING IN LIBERTY COUNTY, TEXAS Introduction Burrell E. Montz, Binghamton University Graham A. Tobin, University of Minnesota, Duluth In December and January 1991/92, sixteen subdivisions along the Trinity River in Liberty County, Texas were flooded. This was the fourth flood in three years and affected more than 270 residences. While many of the houses were elevated above the flood level, the disruption caused by flooding was both widespread and long lasting. When the County was visited in January, approximately three weeks after initial flooding, some of the subdivisions were accessible only by boat, and the extent of damage had not been fully assessed. The Trinity Valley is an area of frequent flooding (see Table 1), and these particular subdivisions have been flooded four times during the last three years. The flooding is linked, in part, to operation of Lake Livingston Dam that stores water for the City of Houston. The data in Table 2 detail characteristics regarding capacity and operation of Lake Livingston Dam. Flooding is particularly severe when large water releases are required to preserve the integrity of the dam. Typically, management of such facilities is predicated on one of two strategies: release of water in anticipation of extreme precipitation levels or release of water during and following such precipitation events. Since the former is dependent on th'e certainty of occurrence of needed precipitation, the latter management option has been used. Thus, flooding of low-lying areas is expected to recur. Given the frequency, magnitude, and duration of flooding (see Table 3), Liberty County provides a useful case study for analyzing the extent to which market gatekeepers (eg., realtors, insurance agents, and mortgage lenders) influence property values and sales. Thus, during our visit to the County, we toured several of the flooded subdivisions (two by car, one by boat) and spoke to realtors, appraisers, and residents, as well as the Emergency Management official. We subsequently developed and distributed a questionnaire to real estate companies, insurance brokers, and banks. This report presents our findings in two sections, the first dealing with the results of our visit and the second focusing on questionnaire results. Results from the Site Visit While in Liberty, in addition to touring several of the affected subdivisions, we spoke to the head of Emergency Services, local residents, realtors and appraisers. Field reconnaissance showed that those houses elevated on stilts suffered little or no
damage to structures or contents while houses remaining at ground level or those raised only minimally suffered to a great extent. Nonetheless, disruption to the community and to the regional economy was considerable, as many residents were relocated in shelters, motels, and with friends for the duration of the flood. Certainly this continual disruption is expected to playa major role in devaluing properties. There was a wide range of property types found in the floodplain, with expensive houses interspersed with very poor quality structures. In addition, some housing consists of second homes (weekend retreats) built to take advantage of the riverfront or the lakefront locations that dot the floodplain. As a result, disruption, though significant for some, is not an issue for other owners of what is locally termed the "river bottom." Attitudes of local residents toward the flooding and its impact on property values varied. However, all residents we talked to expected to experience more flooding in the future. One resident, who fully expected to see a decrease in property values, suggested that it was possible to blame two floods on someone else, but by the time a third one came, he had to begin looking at why he, or anyone else, would live in such an area. Because of the timing of our visit (around a weekend), it was difficult to contact many gatekeepers. However, we were able to develop at least anecdotal evidence of attitudes toward flooding. It is clear from the evidence collected that average house values both within and between subdivisions varied considerably from a few inhabited predominantly by higher income groups and others predominantly by lower income groups. Changes have occurred over time as well. For example, one subdivision (Old Snake River) was originally developed as weekend homes. However, once Lake Livingston was built, those who could afford property on the "big" lake moved there, and the housing in Old Snake River Subdivision filtered down in value. Thus, some of the changes are clearly not related to the flood problem, although flooding may have influenced decisions to move. According to our sources, realtors are generally reluctant to list houses in the flooded subdivisions. These properties were thought to be too much trouble for the effort involved. Our sources also reported that houses in the subdivisions are estimated at 50% lower in value than comparable non-flooded property. In addition, some realtors have the perception that residents believe their houses to be worth 50-70% more than they actually are. However, the agents stated that these are people who "like that kind of living." When asked about relocation as a possible adjustment to frequent flooding, a realtor responded quite negatively. He suggested that residents would benefit considerably because FEMA would have to purchase alternative property well above the current value of their homes. Consequently flooded residents would be trading low value dwellings for upmarket property because housing in non-flood areas is not available at the same price.
Questionnaire Results A total of thirty-nine questionnaires was distributed, with seventeen going to real estate firms, seventeen to insurance companies and five to banks. All companies and banks listed in the Liberty County telephone book were included. Response results vary significantly, with four out of five banks responding and seven out of seventeen (41 %) insurance brokers responding. Unfortunately only two usable questionnaires were received from realtors, so they are not included in the analysis. In fact, information gleaned from these two questionnaires was no different than the information we obtained during our visit to Liberty County. Mortgage Lenders. All of the banks grant mortgages on floodprone properties, though these properties account for less than 10% of mortgages granted. In addition, all take a property's location relative to the River into account in their lending decisions. Nonetheless, the banks do not limit the size of loans, based on location in the floodplain. All of the mortgage lenders who responded believe that floodplain properties are lower in value than houses outside the floodplain. Three out of four attributed this difference solely to the flood hazard. On the other hand, these bankers do not believe that the depreCiating effect of flooding extends beyond the immediate hazard area, such that nonfloodplain properties are affected by the local disamenity. It appears, then, that mortgage lenders recognize value differences between floodprone and nonfloodprone properties. While this does not mean they will not invest in floodprone properties through mortgage loans, it does suggest that the level of investment will be low. That 75% of the bankers attribute the differences solely to flooding suggests that the flood risk depreciates values, irrespective of other contributing factors. Insurance Agents. Of the seven insurance companies responding to our questionnaire, six reported that they sell flood insurance. These agents estimate that they sell between 10 and 30 flood insurance policies per year, with one noting that he had sold only three policies up until the 1991/92 floods. At that time he sold more than 40. All agents report an increase in the number of people asking about flood insurance in the past three years, and all say this comes from people living in flooded areas. However, one suggested that 10% of the increase came from outside the flooded areas. The agents were asked to estimate the costs of policies as well as the amounts of coverage that are common. The results are presented in Table 4. There is wide variation in both costs and coverage; however an average policy costs approximately $260 per year. The wide range in coverage on structures (from a high of $185,000 to a
low of $7,000) and on contents (with a high of $75,000 and a low of $2,000) speaks to the variety of housing types and values in the floodprone subdivisions. The agents differ somewhat on the number of policy holders making flood insurance claims. One reported only three claims out of ten policies in 1991, while others spoke of 80%. It appears, however, that virtually 100% of all flood insurance policy holders have made claims since 1988. The agents also provided somewhat different estimates of the number of floodprone properties that are insured. Two out of six reported that 25-50% of the houses in flooded subdivisions are insured, while three estimate an adoption rate of 10-25%. One agent suggested that less than 10% have purchased it. Perhaps even more illustrative of these agents' views of floodprone lands are their comments about flood insurance. While certainly not scientifically nor statistically sound, the comments suggest a similar attitude as that of realtors to the people who live in the subdivisions along the Trinity River. As an example, one insurance agent wrote: "People move into the river bottoms so they can apply for aid after the next flood." A similar statement is "Most people in flood areas do not purchase flood insurance because they know they will get some assistance from the government." This, however, is contrary to Federal regulations which require that post-flood disaster assistance be withheld for homeowners in the 1 OO-year floodplain without flood insurance. Finally, several insurance agents suggested that residents seek flood insurance just "".before the River rises." Summary and Conclusions The results of our research, both on-site and from questionnaires, indicate that all three groups of "gatekeepers" view the floodprone subdivisions as lower-valued properties. While mortgage lenders did not exhibit a reluctance to handle these properties, realtors certainly did. The fact that some real estate agents admitted avoiding handling these properties speaks to the value agents put on them. Further, insurance agents seem to be cynical about floodplain residents' motives for insuring their houses against flooding. It is clear that houses in the subdivisions along the Trinity River are, for the most part, of lower value than nonfloodprone houses. Whether the market gatekeepers we studied had a role in the development of this difference, or whether they are merely reflecting the difference, is not entirely clear. However, there is a distinction, both economically and socially, between floodprone and nonfloodprone properties in Liberty County, and both public and private actions have served to perpetuate that distinction. This research addresses private actions, as seen in the actions and attitudes of real estate agents, insurance agents, and mortgage lenders. What needs to be evaluated now is the role of public actions, particularly the decision to elevate 200+ houses
rather than relocate .the residents. While this certainly minimizes property damage from flooding, it does nothing to minimize disruption caused by three weeks of high water. This is the direction of the next phase of our research on Liberty County.
Table 1 MAJOR FLOOD EVENTS AT LIBERTY, TEXAS MAY 1942; 29 38 l-----1 I MAY 1990 I I APR 1945 J HAY 1957 I MAY 1944 MAY 1958 MY 1953 JAN 1961 -_. -30.03 .-.-29.72 28.8 29.26 27.81 28.35 --28.02 28.28 l '-1 , I --I -4-I I I -+I I DISCHARGE (cfs) 114,000 107,000 N/A 104,000 88,100 64,000 58,000 53,200 52,400 28.32 46,700 28.6 N/A -1 --+-_. 1 1-1 F_E_B_19_20_---jI _____ 28.4 ____ -1 I, _____ N_I_A ____ -I MAY 1914 i 28.3 I N/A JUN 1929 I 28.3 N/A !:::::JUN==l=908=-==::' __ _'. N/A NOTE: Data collected from various sources but based on USGS statistics. Return periods not calculated because of incomplete data. Figures based on annual Maximum series.
LAKE LIVINGSTON DAM EARTHFILL DAM TOP DES I GN FLOOD MEAN ANNUAL DISCHARGE DRAINAGE BASIN AREA Table 2 14,400 (ft) 145 (ft) 135 (ft> 20,000 (cfs) 16,600 (miles)2 STORAGE AND DISCHARGE MAY 23rd 1990: LIBERTY DAM DAM STORAGE 107,000 (cfs) 103,600 (cfs) (acre feet) DAM STORAGE (max) (acre feet) DAM (MAR 30th) (acre feet) .'
Table 3 SEASONALITY OF FLOODING IN LIBERTY, TEXAS JAN I'IAR r 21% I APR -JUN I bbX--' --IJUL SEP I 5X I I OCT---8X --; DURATION OF FLOODING IN LIBERTY, TEXAS (1990) ;::,: JAN (cfs') "-----27th __ J __ .19,300 I JAN 30th FEB 2nd MAR 17th APR 2nd APR 23rd ... APR 28th MAY 15th MAY 23rd JUN 8th JUN 25th i 22,300 (cfs) 17,300 (cfs) -------... -1 20,800 (CfS)-J 1-45,900 (cfs) ---I I 18,700 (cfs) -L J 20,100 (cfs) -I 44,300 1107,000 cfs) 41,700 (cfs) 18,800 (cfs) -----------'::---=====--==-==NOTE: In calendar year 1990, discharge exceeded bankfull for 100 days and serious flooding levels for 23 days. DURATION OF FLOODING .IN LiBERTY, TEXAS (1991-92) DEC 27th 28.25 (ft) JAN 1st 29.70 (ft) JAN 3rd 29.72 (ft) JAN 5th 29.72 (ft) JAN 12th (1) MIA -NOTE: Incomplete data on when flood finally subsided. There were fluctuations in discharge during January 1992.
Policy Costs AY.!J Min 1m 275 250 250 350 300 150 375 400 350 600 600 125 115 110 150 75 Table 4 Insurance Costs and Coverage Levels Structure Coverage AY.!J Min 50,000 60,000 40,000 20,000 15,000 50,000 125,000 10,000 90,000 7,000 185,000 7,000 80,000 11,000 140,000 7,000 175,000 30,000 Contents Coverage AY.!J Min 1m 10,000 30,000 25,000 10,000 5,000 12,000 75,000 2,000 30,000 4,500 60,000 4,000 35,000 4,500 45,000 3,000 50,000 2,000