Following Mayor Sylvester Turner’s lead, Houston City Council recently approved new Houston floodplain regulations for the first time in decades. Sylvester Turner first proposed these changes in January to reduce future disasters. “To do nothing is not an option,” argued Turner.
The vote passed by a 9-7 margin, and the new regulations will take effect September 1. They will have a big impact on the city’s real estate industry, presenting new opportunities for investors.
Houston Floodplain Regulations
Currently, homeowners in the 100-year floodplain are required to have flood insurance and to build new homes at least one foot above the floodplain. The new regulations will increase that to two feet and expand it to homes in the 500-year floodplain, meaning that many new properties will be affected.
Investors will naturally be curious about what these changes will mean for real estate projects. For that reason, it is important to note that the new regulations only apply to new construction and any home that has expanded by 33% or more in total square footage. Homes that have already been built are “grandfathered” in, so the new regulations will not affect homes that have already been built.
Could this have been prevented?
The new regulations are clearly a response to the natural disasters that have plagued Houston in recent years and placed the city in national headlines for massive flooding. During Hurricane Harvey, 1/3 of the homes in Houston’s 500-year flood plain were flooded. A study conducted by the City of Houston found that 84% of the homes in the 100-year and 500-year floodplains could have been saved from damage if the new Houston floodplain regulations were in place.
Clearly, investors are operating in a very different Houston political climate. Yet even after three consecutive years of flooding, the new regulations only passed by a 9-7 vote. The Greater Houston Builders Association argued that the new regulations will add more than $32,000 to the cost of the average home, while City of Houston officials counter that the cost will be offset by insurance savings. A 2017 report from property information company CoreLogic found that more than half of Houston’s moderate- to high-risk homes for flooding are located outside of FEMA-designated flood zones and are not required to have flood insurance.
Next steps for investors
For investors, what do these changes mean? First, you have three months to start your project before the new regulations come into effect. Many projects can be completed and put on the market under the old regulations. Next, we now know the uncertainty is over. The city has acted, and everyone knows what will be required. No one will have to worry about special requirements emerging. This will help the real estate values for the entire city grow stronger.
Ultimately, investors will now be operating in a Houston political climate that is more amenable to regulations. For investors working with companies that understand the new Houston floodplain regulations, the financial payoffs could be more lucrative than ever in a market already known for big profit margins.
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