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Disaster relief
The racial disparities of flood buyouts
After a flood, homeowners are often faced with a difficult choice: Rebuild and risk a repeat disaster or move away. The federal government’s efforts to nudge them toward the second option have resulted in more than 43,000 buyouts in recent decades for damaged and at-risk homes, which are destroyed or moved.
But new research has unearthed a troubling racial gap in what homeowners are paid for their properties, which are sold through the Federal Emergency Management Agency’s Hazard Mitigation Grant Program, an initiative that was started in 1988 and is intended to help with long-term disaster recovery and prevent future losses.
From 1989 to 2017, buyout compensation for Black homeowners was at least 6 percent lower than it was for white households, according to a new working paper published by the National Bureau of Economic Research that has not yet undergone peer review.
That difference may be part of the reason Black homeowners who received a FEMA buyout tended to move to homes in worse neighborhoods with as much or more flood risk as their previous homes, whereas white homeowners tended to move into better neighborhoods with less flood risk, the paper found.
“There’s nothing in the flood buyout program that’s explicitly racist like there was in government programs in the 1930s and 40s,” said Christopher Timmins, economics professor at the Wisconsin School of Business who worked on the study. “But that doesn’t mean that the way the systems operate don’t lead to those kinds of outcomes.”
FEMA did not immediately respond to a request for comment on the study.
Unequal payouts
The FEMA buyout process starts with an independent appraiser who calculates the fair market value of a home. If the home has been damaged in a recent flood, they rely on the market value before the disaster, which determines the buyout offer to the homeowner.
Then, the homeowner has three choices: Accept the offer, appeal the price, or refuse to move. It’s not clear which parts of this process contribute to the compensation gap, said Lala Ma, an associate professor of economics at the University of Kentucky who also worked on the paper.
Some of the problem could lie in the broader housing market. For example, researchers have found widespread racial bias in home appraisals.
But Dr. Ma said bias wouldn’t explain the trend in full.
Another possible explanation is the appeal process. It could be that white homeowners tend to appeal their appraisals more often, and that they successfully petition for higher compensation. The researchers did not have data about which homeowners appealed their offers.
Some homeowners may also feel like they can’t say no to an offer, even if it’s for a lower price than they’d like. A 2012 survey of four cities with buyout programs found that a third of the homeowners felt like they had been forced to participate. Previous research has found that FEMA “offers white disaster victims more than people of color, even when the amount of damage is the same,” my colleague Chris Flavelle has reported.
Policymakers have considered expanding buyout programs and purchasing homes before disaster hits. If they don’t fix the payment gap, “these unequal impacts are going to be magnified,” Dr. Ma said.
There are other possibilities that could explain some of the gap the researchers found. Most of the homeowners in the data set were white, and the sample size of Black homeowners was relatively small. Also, in some cases, insurance payouts and other disaster aid are subtracted from buyout purchase offers, and these subtractions are not reported in the figures the researchers used.
After the buyout
The researchers were able to follow the movements of some of the buyout participants as they settled into new neighborhoods. This tracking revealed another divergence.
White sellers tended to move to better neighborhoods with lower flood risks than their prior homes, but Black sellers tended to move to worse neighborhoods that had higher flood risk. (For the purposes of the study, neighborhoods were considered to be “better” or “worse” based on factors like poverty rates, the percentage of renters and single parents, and environmental risk factors like pollution.)
These outcomes seemed to flow from the payment gaps: The lower a Black homeowner’s payment relative to the predicted fair market value of their property, the worse their new neighborhood.
The paper will undergo peer review before it can be published in a journal, a process that could recast or soften some of the findings.
Climate relocation is still a relatively new phenomenon, and policymakers are trying to understand what works and what doesn’t. Still, the research suggests that buyout participants could use more support during the relocation process, Dr. Timmins said.
“What we need to do is think harder about what happens when you give people a pile of money and say, go find a better place to live,” he added.
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