Institute for Policy Integrity logo


Flooding the Market

The Distributional Consequences of the NFIP

The government’s flood insurance program gives discounts to homeowners who build in flood-prone areas, often causing significant environmental damage. In its analysis, the Institute for Policy Integrity finds that this practice can benefit wealthy owners of expensive homes at a cost to the average taxpayer.

The National Flood Insurance Program (NFIP), a division of the Federal Emergency Management Agency (FEMA) provides low cost insurance rates for homes and businesses. The cheap policies encourage development in risky, low-lying and coastal areas—the same areas that tend to be ecologically sensitive. When disaster strikes, the government (and ultimately taxpayers) must pay the bills.

Policy Integrity’s analysis, Flooding the Market, finds that middle-income areas are least likely to benefit from the program. Instead, the program’s subsidies help wealthy Americans with large beachfront properties or vacation homes, and individuals lower down the income distribution during severe weather events. The cost of these policies—and the associated environmental and economic risks of building in floodplains—are borne by all taxpayers.