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INSIGHTS > TAKEAWAYS FROM HURRICANE HARVEY

SITE SELECTION STRATEGY AND LOCATION ANALYTICS

Takeaways from Hurricane Harvey

The need for flood risk due-diligence has never been greater in Houston.

BY MICHAEL BLOUNT JR   |   SEPTEMBER 2017

SUMMARY

  • Property may be sold, without disclosure, that carries elevated flood risk.

  • Three 500-year floods have occurred in three consecutive years.

  • In our current weather cycle, significant rain events are expected to continue.

  • Properties can be analyzed, with reasonable confidence, to evaluate real flood risk.

  • Not all flood risk comes from rivers or streams.

Hurricane Harvey exposed a dirty secret of the real estate industry.  Many developers, cities, and other entities can (and will) sell you properties that are at-risk for flooding without disclosure.  In Texas, disclosure of flood risk is only required if the property is in the 100-year flood zone.

 

FEMA and most flood agencies only consider and publicly report 100-year and 500-year flood plains.  If you buy a home in a 500-year flood plain, you will likely not even know unless your broker has the understanding, skills, and tools to investigate the latest maps.

 

FLOOD RISK

 

Flood risk is explained as an event that would only occur every XXX years, so buyers assume this is very rare.  Flood risk ratings are actually statistically based though and the 100-year risk is more simply explained as a 1% chance of occurrence in any given year.  A 500-year flood plain risk is a 0.2% chance, and a 1000-year flood plain risk is a 0.1% chance of occurrence.  Further to the point, the probability of a storm event occurring is completely independent of the probability of another one.  Multiple 100-year events can occur in a 100-year period, so the fact that one has occurred this year does not mean you are safe for the next 99 years.

Harvey's Aftermath: 68% of the flooded structures were OUTSIDE the 100-year floodplain.  Buyer's in this area have a good chance of not knowing they have added flood risk.  Even worse, 25% of the flooded structures were considered no-risk.

How big is the problem?  Over the last 3 years, 3 separate 500-year floods have occurred in Houston:  the Memorial Day flood of 2015, the Tax Day flood of 2016, and Hurricane Harvey in 2017.  Hurricane Harvey was statistically a 1000-year flood overall and a 40,000-year flood in an area of east Houston where 51 inches fell.

THE AUTHOR

Michael Blount Jr

Managing Broker and Analyst

Panoptic [pan-op-tic] -

 

considering all parts or elements; all inclusive.

Figure 1: Doppler Radar Estimated Rainfall During Harvey

As climate cycles ebb and flow, we enter periods of heavy rainfall and periods of drought.  Over the past 17 years, Houston has experienced roughly a 40% greater occurrence of extreme events as reported by NOAA.  These “heavy precipitation events” are defined as five-year rain events, or events that have a 20% chance of occurring in any given year.

 

A SYSTEMATIC FAILURE: EXPECT THE UNEXPECTED

 

Certain events cannot be planned for.  While the city has worked to create a network of bayous, drainage canals, and detention ponds, they are not enough for certain amounts of rain.  A level of economic calculus is applied when designing systems to handle rainwater runoff.  The general idea is to provide for the average expected needs in the case of water runoff.  In most engineering circles, this means a 2-year event or one that has a 50% chance of occurrence in any given year.  Most of our infrastructure is designed with these constraints in mind.  The driving factors are cost and probability.  The amount of money required to engineer, construct, and maintain a system that is able to effectively manage a 1000-year or more event like Harvey would be enormous.  A plan like this would also likely displace residents from their homes in areas with flood risk through the use of eminent domain.

 

This brings us to plan B - hedge the risk.  The National Flood Insurance Program established in 1968 was created to insure those in areas with flood risk against catastrophic loss.  It greatly diminished the financial risk of development within the areas with high flood risk.  As previously mentioned though, only those within the most risky areas are made aware.  Those within areas of “reasonably acceptable risk” are commonly not aware of their risk (see Figure 2).

Figure 2: Specialized Flood Hazard Analysis and Modeling, 500-Year Flood Plain in Orange Color

Those who never flooded before Hurricane Harvey, or even the Tax Day flood of 2016, are most likely in the 500-year flood plain.  This area lies just above the 100-year flood plain in elevation and residents were not likely to know they had added risk.  As water seeks the most efficient route back to the ocean, it will inundate the 500-year flood plain once enough precipitation falls.

 

A few other cases of low risk areas that flooded deserve noting as well.  Those other areas include the Addicks and Barker reservoirs on the west side of town and various levee-protected developments near rivers and streams.  Both flood control designs are purposed to greatly reduce flooding risk, but as with any design, there is a point of failure than can be reached.  The levee-protected areas can be difficult to discover, but not impossible.  Much of the land around the reservoirs is not classified as affected by flood risk, but through elevation studies and modeling, the risk can nonetheless be evaluated.

 

THE TAKEAWAY

 

While the future is an unknown, flood risk can be predicted with reasonable accuracy.  Water will follow the most efficient path in return to the ocean.  Those lower-lying areas the water follows, known as watersheds, can be found and mapped with sophisticated computer software (see Figures 3 and 4).

Figure 3:

Computer-Modeled Watershed Analysis - Houston

Figure 4:

Computer-Modeled Watershed Analysis - Spring Creek

While it may cost considerably less to purchase land within an area of elevated flood risk, the economic and emotional trade-offs must be considered.  Flood insurance can help offset, but likely not fully compensate for the loss.  From a business perspective, specific considerations regarding business operations and continuity must be evaluated.  If a flood-prone area must be selected due to proximity, clients, or cost, we highly recommend business interruption insurance be considered.  This insurance can help offset cost in the case of lost time due to flooded premises or a simple loss of access into the premises due to flooded roads.

 

LET US HELP YOU

 

We understand the complicated nature of evaluating property for purchase, whether it is for commercial or residential use.  Our goal at Panoptic Realty is to provide the very best in service by enabling you with the right tools for the task.  Only a very small percentage of those in the real estate industry possess the tools required and ability to interpret these types of analysis.  Location matters: we can give you the advantage whether you are seeking to lease, purchase, or develop real estate.

 

 

Data compiled from multiple sources including Costar, Harris County Flood Control District, FEMA, and ESRI

DISCLOSURES

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular property, strategy or investment. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Past performance is no guarantee of future results.  No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. ©2017, Panoptic Realty Group.

Copyright Panoptic Realty Group © 2017.  All Rights Reserved.

 

Panoptic Realty Group is Managed by Michael Blount Jr, a Real Estate Broker Licensed in the State of Texas Under the Texas Real Estate Commission.

 

Panoptic Realty Group 7 Switchbud Place, Suite 192-258, The Woodlands, TX 77380