When the residents of the Bolivar Peninsula in Texas returned home after Hurricane Ike in 2008 they were met by a landscape that bore little resemblance to the one they had left just a few days earlier. What was once a community of rustic vacation homes was now a wasteland of cement slabs, pilings, and crumpled asphalt. Survivors picked through the rubble to try to recover what they could, but for most of them, it was a lost cause: Almost everything that was not bolted down had been washed into Galveston Bay. It was hard to imagine that life could ever return to what it was before.
Yet it did, and far more quickly than most would have imagined. Within two years the debris had been cleared away, and new construction was already beginning to appear. By 2015, real estate developers were bragging about how the Bolivar Peninsula was back, and in a big way.101 What were once small cabins had given way to new $750,000 luxury beach homes. To further reinforce the idea that Ike was a thing of the past, millions of cubic yards of sand had been piped in to restore the beach. Visitors to the area today would have a hard time imagining the destruction that occurred there just eight years ago.
The story of the rebuilding of the Bolivar Peninsula is, of course, a heartening one that demonstrates the remarkable resilience of people to disasters, something that is often seen after similar events worldwide. But we suggest that these outward signs of recovery are something of an illusion. While houses were indeed rebuilt, little has been done to lower the fundamental risk that caused the destruction. Homes there today are just as much at risk from destruction by the sea as before, with perhaps even more value being placed in harm’s way. It is just a matter of time before another Ike hits the area, inducing another cycle of destruction, another cycle of government recovery aid, another cycle of rebuilding.
Up to this point in the book we have focused on explaining why individuals often make poor decisions about protection, and have outlined the steps that can be taken to overcome these errors. Yet, by studying decisions solely at the level of the individual, we overlook a major piece of the protection puzzle: the fact that the responsibility for safety lies in the hands not just of individuals, but also elected officials concerned with disasters’ impacts on the general public. To achieve greater safety in places such as the Bolivar Peninsula, decisions need to be made at scales that extend beyond the time horizons and control of individuals: legislation restricting development on barrier islands, improved building codes, and investment of public funds in the construction of protective infrastructure (such as seawalls). These collective decisions reflect society’s willingness to think about risk in both the short and long run, make the investments needed to manage it, and understand the public welfare implications of these decisions.
In this concluding chapter, we discuss preparing for risks at a societal level, with a focus on the long-run benefits and costs of these actions. Using a hazard on the horizon that has proven particularly challenging, sea level rise, we’ll explore how to encourage communities to embrace cultures of protective action.
Among the many possible negative consequences of climate change, sea level rise is the least controversial. Since reliable records began in the 1800s, sea levels have been steadily rising worldwide, something that poses an obvious risk to the trillions of dollars in real estate that now sit at our coastlines. Yet, sea level rise is also a deceptively subtle hazard. While sea levels are indeed steadily rising, that rise is at such a slow rate, about three millimeters a year, that it would likely go unnoticed by all but the sharpest of eyes. The Miami and New York City waterfronts today, for example, look pretty much the same as they did a century ago. Ships still land at the same ports, waterfront parks are as reliably dry today as they were in the past.
Yet there are strong indications that this is about to change. The consensus among climate scientists is that we are soon approaching an irreversible “tipping point” in the rate of sea level rise, such that by the turn of the next century, sea levels may be three feet (or more) higher than they are today.102 Such an increase would not just require the relocation of vast numbers of people and infrastructure currently adjacent to the coast, but also create a wide range of spillover effects, including amplification of the effects of storm surges and, in the case of South Florida, seawater intrusion into the local fresh groundwater supply.
While this threat is a very real one, the good news is that we have plenty of time, at least in principle, to prepare for it. In South Florida, for example, there is ample time for builders and city planners to start the slow process of elevating streets and buildings, installing pumping technologies, and planning for the construction of desalination plants to deal with saltwater intrusion in the water supply. Better yet, because in Florida the money for such preventive actions needs to come from real estate tax revenue, the fact that the threat is some years off should allow the area to sustain its appeal to tourists and investors, filling the coffers with the money needed to pay for it all. Unlike the highly uncertain hazards that most of our book has focused on, one might think sea level rise would be an easy risk to manage: We know it’s coming, and we have the time and resources to deal with it preemptively.
But if you have been paying attention to the lessons of this book, what we are about to say won’t surprise you: None of this is happening. Planners in coastal cities are sounding the alarms, but the pleas to take action are widely falling on deaf ears. The City of Miami Beach, for example, recently invested $400 million to build pumps to deal with the increase in nuisance flooding that has been seen in recent years, but the investment is designated only to remedy the problem as it exists today, not the much larger problems that will come as the century wears on.103 The City of New York has approved spending to prepare for sea level rise, but all in anticipation of a two-foot rise by the end of the century, not the three-foot rise that most climate scientists warn about.104
Why the apparent lack of concern? To some degree this is another example of the harmful effects of the six biases we have been exploring in this book, but now applied at a societal level. It is hard for politicians to see wisdom in large capital outlays for benefits that will be realized long after they have left office (myopia); the uncertainty that exists in the exact magnitude of sea level rise breeds a bias toward the status quo of doing nothing (inertia); and the fact that most cities are taking a similar wait-and-see approach is misconstrued as evidence that the officials in those other cities know what they are doing (a destructive herd effect).
Yet there is something more at work here, a factor that makes overcoming these biases in this case potentially even more intractable. Community-level adaptations to the future effects of sea level rise will require substantial inflows of new capital, and that can happen only if individuals see short-term personal benefits emerging from such investments—enough to support increases in property taxes, enough to undertake costly adaptations on their own. Yet a resident who sits down with pen and paper and tries to calculate the economic return on such investment—the kind of deliberative System 2 thinking that we would normally advocate—will likely find that the numbers just don’t add up. The effects of sea level rise are just too far off, the parameters too unknowable. Persuasion in this case would seem to require appeals to morality more than money, conscience more than calculation. Needless to say, this can be a hard ask.
This conundrum, of course, is by no means limited to sea level rise. Climate change poses a broad range of other threats whose consequences lie beyond the planning horizons of current residents, and our society faces long-term social and economic risks that are similarly difficult to fathom. Yet ignoring these risks is clearly an unacceptable option. We have a moral responsibility to care for future generations, even in the absence of immediate paybacks to ourselves.
How might we achieve this? We argue for collective agreement on a set of higher-level guiding principles for risk management that are accepted both by policy makers and the affected public.
To illustrate, a resident might normally be hard-pressed to favor a tax hike to pay for improvements in infrastructure in her community if the threat is perceived to be decades into the future. She is more likely to see the merits of these improvements if they are tied to achieving the long-term preservation of the human species, a goal to which she subscribes.
We propose four guiding principles as an umbrella for how societies should approach the management of long-term risk:
Guiding principle 1: Commit to long-term protective planning as a major priority. This principle, of course, is fundamental; decision makers in the public and private sector need to place reduction in future losses and the required investments in protection near the top of their agendas, and provide rationales for individuals to support their proposals.
Guiding principle 2: Commit to policies that discourage individual and community actions that increase their exposure to long-term risks. The simplest means of managing risk is to avoid it. Policies regulating land use, building codes, and insurance need to be designed to reflect the expected benefits and costs associated with exposure to future risks. Insurers should be permitted to price their coverage to reflect the nature of the risk and encourage those at risk to invest in loss-reduction measures. Building codes could complement insurance by requiring structures to meet specific standards.
Guiding principle 3: Create policies that consider the cognitive biases that inhibit adoption of protective measures. Regulatory policies designed to dissuade risk exposure will be effective only if they are widely adopted and enforced. The key lesson of this book is that people are naturally prone to a range of biases that inhibit long-term thinking. Therefore, policies have to be designed in ways that recognize and overcome these biases.
Guiding principle 4: Commit to addressing problems equitably. A transformative shift toward long-term protection will lead to costs that will differentially impact different groups in society. Long-term protective policies must be designed with these inequalities in mind, addressing the hardships faced by low- and middle-income households facing budget constraints, so that those households have economic incentives to adopt the protective measures.
To illustrate how these guiding principles might be used to develop strategies for dealing with truly long-term risks such as sea level rise, let’s return to the problems faced by the Bolivar Peninsula and other coastal communities in Texas. As we have seen, this is an area that has long been prone to periodic hurricane hazards, but rising seas will make the problem measurably worse over the coming decades. Whereas in the past it took a severe hurricane such as Ike to impose major flood damage, in the coming decades even the smallest of storms could induce severe flooding, increasing the likelihood from an every-50-years problem to one that occurs every five years.
How should Texas deal with this increase in the odds of severe flooding? Any set of policies that relies on people adapting to sea level rise on their own will likely prove ineffective. Even when risks are well known and relatively close at hand, such as the risk of hurricanes as it exists today, people have a hard time seeing beyond the next year or two (myopia), and underestimate the likelihood that they themselves will suffer harm. Yet here we are dealing with a much more ambiguous risk, one that is perhaps 30 years or more off—beyond the time horizons of home mortgages and even beyond some lifetimes. As such, many of the nudges that we suggest in the previous chapter for encouraging people to better prepare for the flood risk they currently face (such as better communication) are unlikely to be sufficient for dealing with a hazard that is truly distant. For example, it could be that if we fully educate Texas residents about the current best estimates on the timing and scale of sea level rise, it might simply reinforce their intuition that it is a distant threat best left for the next generation of homeowners to deal with.
A closer review of the problem would suggest another path: design policies that create decision environments that foster protection (guiding principle 2), but where individuals do not need to make personal decisions about the value of protection.
We are naturally led to protective decisions by the latter three of our six major biases: inertia, simplification, and herding. Such decision environments might be marked by four major features.
The idea that people have difficulty seeing the benefits of voluntary investment in long-term residential safety is hardly a new one, and this forms the basis of the most widely adopted protective measures: well-enforced regulations and standards by either the private or public sector that ensure safety, with any violations subject to penalties or fines. In the case of natural disasters, for example, banks and financial institutions require homeowners’ insurance that covers wind damage from tornados and hurricanes as a condition for borrowers’ obtaining a mortgage. Likewise, as pointed out in chapter 8, the federal government requires insurance to cover flood damage through the National Flood Insurance Program (NFIP) if the property in the affected floodplain has a federally insured mortgage.
But such regulations are hardly universal. In the case of earthquakes, the private sector determined that it could not continue to offer coverage against this risk after suffering severe losses from the Northridge earthquake in 2004. The California Earthquake Authority now offers insurance. But banks do not require this coverage as a condition for obtaining a mortgage.
Building codes are another common way to make safety a default, but they come with a downside: They are of little help if they are not rigorously enforced. Prior to Hurricane Andrew in Florida in 1992, for example, the state had a strong building code in place, but tremendous damage still occurred due to the lack of enforcement, particularly in newer homes in the area. Likewise, building codes typically require property owners to meet standards on new structures, but normally do not require them to retrofit existing structures. Often such codes are necessary, particularly when property owners are not inclined to adopt mitigation measures on their own due to their misperception of the expected benefits and/or their inclination to underestimate the probability of a disaster occurring.
To address such problems, building codes need to be accompanied by policies that oversee their scope and rigor. One current example is the Building Code Effectiveness Grading Schedule (BCEGS), a community-level mitigation rating system administered by the Insurance Services Office (ISO). The BCEGS assesses the building codes in effect in a particular community and how the community enforces building codes, putting special emphasis on mitigation of losses from floods, hurricanes, tornadoes, and earthquakes. The BCEGS score is based not only on the building code in place, but also on field inspector staffing and qualifications.
The BCEGS ratings received by communities are provided to insurers to use as an underwriting tool. Few insurance companies are using the BCEGS report to provide premium discounts. The one notable exception is Florida, where insurers are required by law to offer discounts on wind protection premiums based on a community’s BCEGS rating. Communities that do not participate in the program are assessed a 1% surcharge on wind protection premiums.105
One of the more vexing problems facing policy makers after major catastrophes is whether to permit reconstruction in areas that have been damaged. Knowing that sea level rise will only make flood events more common, it would seem prudent to limit rebuilding. Unfortunately, this is easier said and proposed than done. Both after Hurricane Ike in the Bolivar Peninsula and after Hurricane Katrina in New Orleans and other areas, there was strong political support for rebuilding homes in the same places where they were damaged or destroyed. Indeed, not to do so somehow seems to show a lack of empathy for those who have lived part of if not all their lives in the area. As the argument goes, they have family and social connections there; for many of them, nowhere else could be home.106
What exacerbates this problem is that when rebuilding occurs, there is a tendency for it to happen in a way that removes all signs that might communicate to new and prospective residents the inherent risks posed by the location. As with the rebuilding that occurred after Hurricane Ike, visitors to the Mississippi Gulf Coast today will find little evidence of the complete devastation the area suffered from Hurricane Katrina in 2005. Attractive mansions are once again strung along Route 90, and sandy beaches offer little clue as to this being perhaps the most hazard-prone section of coastline in the United States.107
One tool for combating this tendency to rebuild in areas prone to recurrent losses is buy-back programs that award owners with cash for destroyed properties on the condition that the lots not be rebuilt. After Hurricane Ike devastated Texas, for example, FEMA spent $103 million on such a program, buying back 756 destroyed homes and converting the remaining land to parkland.108
The challenge of such programs, of course, is securing compliance from homeowners. In cases where the properties are second homes, vacation residences, this might be easy, but when the homes are primary residences, it can be challenging, as individuals may be loath to move away from a community of neighbors with whom they’ve lived for years. To illustrate, a 2013 survey conducted among residents in New York and New Jersey who had just experienced the devastation of Hurricane Sandy indicated that most believed that federal aid was best spent on rebuilding homes rather than buying them.109 Given such resistance, decisions to accept buyouts requires community-level support, where residents agree to relocate as a group rather than as individuals.
A good example of such an effort occurred in Staten Island after Hurricane Sandy in 2012. Two weeks after the storm, Joseph Tirone, who owned a rental property in Oakwood Beach, decided to get everyone to agree to leave their damaged homes and relocate elsewhere. Almost all the residents who attended the meeting he organized indicated that they would be interested in selling and leaving if they could get a fair price for their houses and be assured that their homes would not be given to rich people or be redeveloped into new homes.
In January 2013, only four months after Sandy, New York State governor Andrew Cuomo praised the community for coming together, and committed to using home relocation funds from FEMA’s Hazard Mitigation Grant Program (HMGP), which mandates that the land be returned to open space—the same program that had funded land-reclamation projects after Hurricane Ike five years earlier.110 Similar programs were authorized by New Jersey governor Chris Christie on an even larger scale: The state’s “Blue Acres” buyout program allocated $300 million to acquire 719 severely damaged properties across several municipalities, and by 2015, more than 500 offers had been accepted by homeowners, all carrying the agreement that the lots not be rebuilt.111
It is difficult enough to convince residents in a community to relocate to safer areas after a disaster unless there is a funded program such as those put in place by FEMA after Ike and Sandy. An even more difficult challenge is convincing them to move prior to a disaster, when there are no funds available and few incentives for them to do so, either at a social level (leaving friends and neighbors) or an economic one (selling their property at a price that enables them to buy a new home).
A final example of how communities might encourage forward-looking building practices is through the provision of long-term tax incentives. Much in the same way that cities often use tax abatements to encourage development of blighted areas, abatements (and possibly surcharges) can be used to steer development away from high-risk barrier islands to safer areas farther inland. Tax incentives might also be used to persuade individuals to invest in adaptation on their own. For example, if a homeowning taxpayer installs a mitigation measure that would reduce the likelihood of losses from a flood or other disaster, he would get a rebate on state taxes to reflect the lower cost of disaster relief, or his property taxes could be reduced.
While tax incentives might help spur adaptation, care needs to be taken to ensure that they don’t generate externalities that discourage it. As an example, a property owner who improves a home by making it safer may well have the property reassessed at a higher value and would thus be faced with a higher rather than a lower tax bill. California has recognized this problem, and in 1990 voters in that state passed Proposition 127, which exempts buildings that have undergone seismic rehabilitation improvements from reassessments that would increase property taxes.
Berkeley has taken an additional step to encourage homebuyers to retrofit newly purchased homes by instituting a transfer tax rebate. The city has a 1.5% tax levied on property transfer transactions; up to one-third of this amount can be applied to seismic upgrades during the sale of a property. Qualifying upgrades include foundation repairs or replacement, wall bracing in basements, shear wall installation, water heater anchoring, and securing of chimneys.112
While it might be possible to create safer environments through a cocktail of stronger building codes, risk-based insurance pricing, and zoning restrictions, this has to be done in a way that does not impose differential hardships on residents with more limited means—the last of our four guiding principles for taking preventative action. For example, if one demands that flood insurance be priced in a way that reflects the true risk of a location (guiding principle 2), then some low- and middle-income residents whose insurance is currently subsidized will be unable to obtain coverage against that risk. To illustrate the impact of risk-based insurance on homeowners’ ability to pay, consider the owner of a single-family home in Tottenville, Staten Island, who currently has a subsidized annual insurance premium of $1,400. If the premium were risk-based, it would jump to $9,500, and that homeowner might be hard-pressed to pay for this coverage.113 This example raises challenges for developing strategies for dealing with issues of inequality and affordability.
One way to maintain risk-based insurance premiums while at the same time addressing issues of affordability is to offer means-tested vouchers or tax credits that cover part of the cost of insurance.114 Several existing programs could serve as models for developing such a voucher system: the Supplemental Nutrition Assistance Program (SNAP, also known as food stamps), the Low Income Home Energy Assistance Program (LIHEAP), and the Universal Service Fund (USF). The value of the voucher or tax credit would be based on current income and would be determined by a specific set of criteria as outlined in a recent study by the National Research Council.115
Of course, the dilemma posed by such subsidies, however humane, is that, by definition, they do little to achieve the long-term goal of reducing collective risk exposure. Indeed, some might see them as creating a different kind of inequity: Those with higher incomes, who do not get subsidies, receive clear signals about the risk of their locations, while those with lower incomes are implicitly encouraged to remain in harm’s way. As such, need-based means-tested voucher programs and the like must be viewed as transitional repairs, eventually to be coupled with incentives to relocate to areas that face lower risk, particularly as disaster risks escalate in the coming decades.