Connecting the dots: Storm water, flood control, HOAs, and affordable housing

A trio of DESTRUCTIVE hurricanes have thrust the related issues of flood control and storm water management into the limelight


By Deborah Goonan, Independent American Communities


Regular readers of IAC know I emphasize the fact that financial burdens of storm water management and flood control systems are heaped upon property owners and residents of association-governed and common interest communities.

Admittedly, though I have written dozens of articles on the topic, they tend to garner less interest than other HOA issues.

Neverthesless, I have continued to inform and educate readers about the hidden risks they sign up for when they buy into a community with private or public/private water management.

Then three back-to-back hurricanes (Harvey, Irma, and Maria) took directs hits to portions of Texas and Louisiana, most of Florida, and Puerto Rico.

And, though it has not been emphasized in mainstream media, most residential properties affected by floods were located in water front condominiums or planned communities (governed by HOAs and/or special districts) built on low-lying former wetlands and prairies.

Even though FEMA has been tasked with mapping flood risk for 5 decades, influential real estate industry lobbies – particularly National Association of Home Builders (NAHB) – have managed to circumvent the presumed original intent of the National Flood Insurance Program (NFIP): to provide catastrophic coverage for homeowners, so they can rebuild or relocate following a flood.


Several recent investigative reports shed light on important facts:



  • Attempts to update flood maps have faced stiff political opposition.


  • As a result, many properties damaged by flood waters were not covered by flood insurance prior to hurricane and tropical storm force winds and rains pummelled hundreds of counties and thousands of homes and businesses.


NAHB says building homes in modified flood plains keeps housing affordable

NAHB has been one of the most vocal opponents of adjusting flood maps, so that NFIP’s underwriters can issue insurance policies at premiums that more accurately reflect flood risk.

Much to the dismay of NAHB, President Trump has proposed an overhaul to NFIP, eliminating the availability of flood insurance for new construction in flood-prone areas as of 2020.

Existing property owners would still be able to purchase flood insurance.

However, if new home buyers are unable to purchase flood insurance, lenders will not provide mortgages to purchase homes in a flood plain, even if land developers undertake measures – such as building levees, retention ponds, and pumping systems – to help manage flood risk.

NAHB claims that denying flood insurance for high risk homes would deter developers from building “affordable” housing in high-hazard flood zones.

To put things into proper perspective, it is important to understand the true probability of flood risk faced by millions of homeowners in the U.S.

As you can see from the following table published by Bloomberg L.P., a home in a 100-year flood zone has a 26% chance of flooding in 30 years, the term of a typical mortgage.

FEMA / USGS flood risks table (Source Bloomberg L.P.)


That is a 1-in4 chance. Surprised?

Did you incorrectly assume that the risk of a flood in a 100-year flood zone is once every century?

If so, you are not alone.


Misleading home buyers

To sell a home at an affordable sale price, only to expose that homeowner to costly undisclosed risk of loss due to flooding is misleading.

To tell the home buyer that a home is not in a flood zone, leading the owner and lender to believe that flood insurance is not necessary, is downright deceptive.

To issue flood insurance policies based upon inaccurate FEMA maps, at artificially low premiums, conveys to the homeowner a false sense of security.

And yet, NAHB wants to continue to build homes on relatively cheap land, building flood mitigation systems that have been proven ineffective, exposing potentially millions of future homebuyers to flood hazards and financial loss.


HOAs, MUDs and other schemes to shift risks to homeowners

Keep in mind that, according to the U.S. Census Survey of Construction, in 2015, 73% of new single homes built nationwide were located in homeowners’ associations.

And most of those new homes were priced between $200,000 – $750,000.

In Texas, many communities in the Houston to Galveston corridor are governed by Municipal Utility Districts (MUDs) as well as HOAs. MUDs are primarily established as political subdivisions to maintain stormwater management facilities. HOAs are financially responsible for maintenance of common areas and, in many cases, a broad array of recreational amenities.

From the start, community developers have entered into agreements with local governments (counties or municipalities) to ensure that all costs for new construction and future maintenance are paid by owners of property within their respective MUDs and HOAs.

Because MUDs issue tax exempt bonds to finance new development of infrastructure, developers no longer have to wait to sell most of their new homes to recoup their construction costs. Local governments love the arrangement, too, because it eliminates the need to use tax dollars to prepare raw land for brand new homes.

The problem, of course, is that special districts such as MUDs, Community Development Districts (CDDs), and similar public-private governance models, enable private for-profit developers to issue essentially unlimited bond debt, without any government oversight or consent of homeowners.

Future homeowners are then obligated to repay bond debts issued by the developer-appointed board of supervisors.

In other words, between artificially created communities that are marketed as “not in a flood zone,” and developer assurance that future homeowners will foot the bill for construction and maintenance costs, developers and home builders bear virtually no financial responsibility for building new homes on land at high risk for flooding. Similarly, it is challenging to hold a developer financially responsible for storm water drainage and flood mitigation systems that cannot handle high water volumes in severe storm events.

Not only will homeowners in Texas, Florida, and Puerto Rico and other states end up paying to rebuild water management controls in their communities, by way of increased HOA assessments, they will also bear the costs of restoring common areas and amenities, to the extent owners are willing and able to rebuild common assets.

That’s why recent announcements by the U.S. Treasury are discouraging.


NAHB convinces U.S. Treasury to backtrack on proposed policy that would have limited establishment of development districts

According an announcement from the office of the U.S. Treasury on October 4, 2017:

Treasury also plans to withdraw proposed Section 103 regulations on the definition of political subdivision. The proposed regulations would have added new requirements to be considered a “political subdivision” for purposes of issuing tax-exempt municipal bonds. The new requirements would have imposed enhanced standards to show a governmental purpose and governmental control.

As explained in a news release by NAHB, Section 103 would have required development districts to meet qualifications of a ‘political subdivision’ in order to issue tax exempt bonds.

Apparently, the home builders’ lobby recognizes the challenge in characterizing MUDs, CDDs, and similar schemes as serving a purely ‘governmental purpose.’ Obviously, NAHB is not in favor of developers relinquishing any control of development districts to local elected officials.


Treasury to Withdraw Two Regs that Would Hinder Home Building
Filed in Codes and Regulations, Home Building on October 4, 2017 • 0 Comments

Two wins for reducing unnecessary roadblocks for home builders came out of the U.S. Department of the Treasury today, as it announced plans to withdraw two proposed regulations that NAHB has said would be costly and burdensome.

In its announcement, the Treasury said it plans to withdraw proposed regulations under Section 2704 that would have hurt family-owned and operated businesses by limiting valuation discounts. The regulations would have raised taxes on family businesses when an owner passes away and chooses to leave the business to the next generation. NAHB and others warned that the valuation requirements of the proposed regulations were not sensible from an economic standpoint, were unclear and could not be meaningfully applied.

Treasury also plans to withdraw proposed Section 103 regulations on the definition of political subdivision. The proposed regulations would have prohibited most development districts, which are used in many states to finance the construction of sewer systems, water lines and other infrastructure necessary to incorporate a new development into a city, from issuing tax-exempt municipal bonds.

Read more:

See the Treasury report for full details on the decision to withdraw the current regulatory proposal. (Start on page 3)

In short, developers want purchasers of bonds issued by their development districts to remain tax exempt. Therefore, NAHB is opposed to a proposed regulatory requirement of ‘government control’ in order to designate a development district as a ‘political subdivision’ that would qualify for tax exemption of interest earned on bonds.

These recent regulatory attempts and pubic comment periods highlight the fact that development districts blur the lines between public and private governance, posing significant political challenges at the federal level.

As Mnuchin’s report states, important concerns must be addressed, and the issue will likely be reconsidered in the future.


Source articles:

Outdated and Unreliable: FEMA’s Faulty Flood Maps Put Homeowners at Risk

Houston drainage grid ‘so obsolete it’s just unbelievable’

Trump Wants to Curtail Flood Insurance in Flood-Prone Areas



1 thought on “Connecting the dots: Storm water, flood control, HOAs, and affordable housing

  1. Absolutely true on all points, this is why I did not buy a home on or in any flood area and that is prone to flooding especially the coast lines of Florida. But still I do worry as I do have two canal’s built for stromwater run off behind my home that belongs to the developer in name but the association is respondable to keep them dug out and clean out they do not do that. As for FEMA flood maps they are so out of date, but these are the maps that the county/cities use along with banks. But these developers/homebuilders do not build the ground up high enough they are not required to by the standards of these comprehensive land development plans govern my state laws that are also out of date and base on old information. People just do not want to listen until it is too late for many now.

Comments are closed.

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close