Reduce public incentives for risky coastal development
As everyone is acutely aware Hurricane Sandy recently caused widespread and extensive damage to property and life in the Northeast. In addition, the storm has ignited a familiar debate that ensues after each costly coastal storm. In an article in The New York Times titled “We Need to Retreat from the Beach,” Orrin Pilkey, a well-known professor emeritus in earth sciences at Duke University, reiterated his well-established position on discouraging building close to the sea.
As his article reveals, Pilkey thinks we should “discourage the reconstruction of destroyed or badly damaged beachfront homes in New Jersey and New York,” move some buildings back from the beach and elevate the remaining buildings. He is also opposed to most erosion control projects such as sand replenishment. The bottom line is that he is advocating a “retreat from the ocean's edge.”
It is hard to argue with some of Pilkey's facts. Storms do cause enormous and expensive damage to shoreline property. And there is no guarantee that replaced property will not be damaged or destroyed in the future. But, we believe that his solution is one-sided.
Are not all things threatened by something at one time or another? Houses slide into the ocean in California, catch fire almost anywhere and are eaten by termites. Roofs wear out from rain, wind and sun, boards rot and obsolescence renders houses and commercial buildings impaired or worthless, requiring them to be renovated or razed and replaced. Roads fall apart, requiring maintenance, machines and vehicles wear out and land erodes. Even human beings get sick and die.
What is the point of recalling these obvious facts? Is it foolish to build a house or factory, buy a car or build a road knowing that constant maintenance will be required and eventually a replacement may be required?
The answer is: It depends.
In making personal decisions, human beings have inherent proclivities toward benefit-cost considerations. If a new television set yields greater benefit to a buyer than its cost over the life of the television set, it is not an irrational decision to buy it, even though the television may require having someone repair it at some point or throwing it away entirely when it no longer works. The same thing can be said for buying almost anything — house, car, computer, machine or factory. And the same can be said for a house located close to the sea, in tornado alley or in the fire-prone California hills.
If a person is voluntarily willing to buy a house anywhere and pay for repairs and replacement costs if it is damaged or destroyed by wind, hail, flood or fire, it must mean that it gives that person more value than the cost of living there, which also means that it is a perfectly rational choice.
The problem with this analysis arises when the benefits of the acquired property accrue to the owner, but the cost of maintenance or replacement falls on someone else. This is what is going on today in many places, including New Jersey and New York. Much of the cost of property replacement, cleanup and beach nourishment falls to the Army Corps of Engineers, FEMA and other federal, state and local government agencies. Indeed, Congress approved a $9.7 billion aid package and is considering an additional $51 billion for recovery expenses in the aftermath of Sandy.
Replacing boardwalks in New Jersey alone will run into millions of dollars with FEMA picking up 75 percent of the cost.
This means that much of the cost associated with living close to the sea and in other hazardous places is paid for by taxpayers who do not live in such areas. This amounts to a subsidy for those living in harm's way and consequently encourages building in such areas. If individuals choosing to locate close to the sea bore all of the cost of lost property associated with storms, there would be less incentive to build there in the first place, and less incentive to replace damaged property once a storm hits.
And those who do build there would do so with “eyes wide open” and presumably must expect to receive greater benefits in the form of beautiful sunrises and sunsets, walks on the sandy shore, and swimming in the surf than the cost associated with the higher risk of property loss.
Rather than have the government ban building close to the sea, which seems to be what Pilkey is suggesting, wouldn't it make more sense to remove the subsidies to those who choose to locate there?
Residents given the option of building in places that are susceptible to severe damage, but bearing the cost of the damage, may choose to retreat and locate in safer locations.
Following Hurricane Sandy, discussions have arisen about building a sea barrier around New York City at a cost of more than $10 billion in order to help protect against future storm damage.
While the various costs (including costs such as marred vistas) and benefits of such a major project should be considered, most important should be whether the residents and businesses that would be protected by the barrier would be willing to bear the cost.
If, as many believe, climate change will increase the likelihood of damaging storms such as Sandy, it becomes more important that those who choose to live in hazardous coastal areas bear the costs of living there.
James Rinehart and Jeffrey Pompe are professors emeriti of economics at Francis Marion University.