The missing piece of America’s new housing strategy

Earlier this month, landmark housing legislation became law, marking the most significant federal housing reform in decades. The 21^st Century ROAD to Housing Act rightly seeks to lower the cost of housing by building more homes and expanding access to financing. The next challenge is ensuring those homes remain affordable to own long after closing day. 

For too long, housing affordability has been defined primarily by the cost of building and purchasing a home rather than the longer-term cost of owning one. We must measure success not only by how many homes we build, but by how well they withstand the risks that steadily increase the cost of owning them.

Severe weather is already making homes expensive to own

Simply building more homes without accounting for severe weather would be a costly mistake. Homes unprepared for severe weather can cost far more to own than buyers anticipate at the time of purchase. This is not limited to coastal states: insurance costs have risen by 72% in Nebraska and 96% in Iowa in recent years. Insurance deductibles are rising too, increasing a homeowner’s share of a claim. These rising costs are reshaping the economics of homeownership. 

Severe weather even undermines the Act’s focus on housing supply. One study concluded that “disasters effectively wipe out…one month of every year’s new construction.” At the same time, physical risk is beginning to undermine a bedrock assumption of housing finance: that homes will remain insurable, financeable and marketable over the life of a mortgage. Physical risk and financial risk are becoming increasingly intertwined.

Why resilient construction needs to be part of the housing supply solution

The Act’s largest commitment to resilience is the three-year authorization of HUD’s Community Development Block Grant–Disaster Recovery program and associated minimum construction standards. But resilience should not begin only after disasters strike. Public investments in housing should prioritize housing built or retrofitted to withstand known severe weather risks, through stronger new construction, resilient retrofits and housing finance policies that recognize verified resilience.

Verifiable resilience standards create a foundation for this policy shift. Decades of research and real-world testing have shown that modest improvements in construction and retrofitting can dramatically reduce losses from hurricanes, hail, wildfire and flooding.

Programs such as  FORTIFIED and Wildfire Prepared translate this research into practical, verifiable standards that make homes more insurable and less likely to suffer catastrophic damage. In California, some builders are developing Wildfire Prepared Neighborhoods. In the Southeast, others are using FORTIFIED to protect homes from hurricanes.

With its focus on housing supply, the Act understandably emphasizes new housing. But more than 90% of the homes Americans will occupy over the next decade have already been built. That makes resilient retrofits just as important as new construction. Take Louisiana. The state has invested tens of millions of dollars in FORTIFIED retrofit grants, helping to make insurance more affordable while fueling a growing private market for resilient roofs.

As risk reprices housing, verified resilience becomes a financial asset

The long-term affordability of homeownership will increasingly depend on whether homes can survive the hazards they will face. Physical risk has already repriced insurance; it will increasingly reprice housing as well. One recent study of the Florida market found that for every 10% increase in insurance costs, home prices declined by nearly 5%. This challenge should be met by housing finance that recognizes and rewards verified resilience.

The 21st Century ROAD to Housing Act should be viewed as the beginning, not the end, of a national housing strategy. Expanding housing supply and access to finance are essential first steps. The next step is ensuring that the homes Americans buy today remain affordable to own. That means investing in stronger construction and resilient retrofits, anchored by verifiable resilience standards.

In the years ahead, the most affordable home may not be the one that costs the least to buy—it may be the one built to survive.

Michael Newman is the General Counsel & Managing Director of Partnerships at the Insurance Institute for Business & Home Safety. 

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.