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Building Boom Puts Millions in Irma's Path

The Wall Street Journal logo The Wall Street Journal 9/11/2017 Laura Kusisto and Nicole Friedman
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Hurricane Irma’s turn up the west coast of Florida imperiled a region that has undergone major development in recent decades, from wealthy enclaves such as Naples to middle-class subdivisions in Tampa Bay and nearby Pinellas County.

Like many cities in Florida, parts of Tampa are built on filled-in marshland. Many homes, apartment buildings and even a major trauma center are close to sea level.

A 2015 report by catastrophe-modeling firm Karen Clark & Co. found that Tampa is the most vulnerable city in the U.S. to storm-surge flooding. The ranking was based on losses to residential, commercial and industrial property by a once-in-100-years hurricane. It estimated such a storm would cause $175 billion of damage to Tampa.

The hurricanes that hit New Orleans and Houston showed the enormous risk of building homes in low-lying areas.

Florida real-estate developers ramped up construction over the past five years as the state rebounded from the housing crash, propelled in part by an aging U.S. population seeking warmer climes.

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Tampa posted a 25% increase in new building permits for single-family homes during the first seven months of this year compared with the same period a year earlier, according to U.S. Census data compiled by the National Association of Home Builders. That was one of the largest upticks in construction activity in the U.S.

Home prices have shot up 10% in Tampa over the past year, according to real-estate data firm Zillow, faster than in pricier locales such as Naples and Miami and in the rest of the nation overall. They remain 13% below the peak touched during the housing boom a decade ago, better than Miami’s 17% deficit.

Tampa’s population has increased 12% since 2010, according to U.S. Census data. Roughly 50% of the population lives on ground less than 10 feet above sea level, according to the Karen Clark report.

“You have this gigantic exposed area that is very low-lying and pretty crowded, pretty dense,” said Mark Hafen, assistant director of the school of public affairs at the University of South Florida, who lives in Tampa.

The westerly shift of Irma, which weakened to a Category 2 storm on Sunday, might have spared Florida bigger property losses. Florida’s west coast up to Tampa has property valued at about $1 trillion, as determined by replacement cost rather than market value, according to catastrophe modeling firm AIR Worldwide. In comparison, the eastern counties of Palm Beach, Broward and Miami-Dade have property worth about $1.5 trillion, according to AIR.

Last week, catastrophe modelers said a major hurricane directly hitting Miami could cause more than $100 billion in insured losses. While the insured losses could still reach the tens of billions, the worst-case scenarios likely have been avoided, said Karen Clark, chief executive of the modeling company bearing her name.

The total value of residential property in Hillsborough County, which includes Tampa, is some $111 billion, according to Zillow, much less than Miami-Dade county’s roughly $382 billion.

Building codes across the state were strengthened in the wake of Hurricane Andrew, which battered south Florida in 1992. Resiliency experts predicted this storm will offer a test of whether they have been made strong enough—and, they hope, confirm that they are needed.

Irma’s westward shift means that most of the damage from the hurricane could come from a storm surge rather than high winds. That means less of the economic damage will be covered by insurance. Storm surges cause flooding, which isn’t covered under standard homeowners insurance policies.

Maria Ilcheva, a senior researcher at the Metropolitan Center at Florida International University, said her surveys revealed that a declining number of homeowners in Tampa have been purchasing flood insurance over the past five years because the area hasn’t been hit by a major hurricane in most people’s lifetimes.

Within flood zones, most homeowners are required to buy flood insurance, which is usually provided by the federal government’s National Flood Insurance Program. Those who purchase a home in cash or have paid off their mortgage aren’t always required to have insurance. The NFIP pays up to $250,000 to repair a home and $100,000 for personal possessions. Businesses also buy national flood insurance.

In Florida, 1.7 million government policies were in force as of June 30. More Floridians own the policies than do residents in any other state, including more-populous California and Texas. But the 1.7 million works out to only about 19% of housing units in the state, down from 2 million policies, or 23% of a smaller number of housing units, in 2012.

Florida International University’s Ms. Ilcheva said developers have pushed back against having to build structures and install windows that are strong enough to withstand a Category 4 or 5 hurricane, saying they are hampering the building of more-affordable housing in the state.

“I’m not as confident as others that those buildings codes are enough,” she said. “If there is one positive thing that may come out of this is it is that the cost of building up to code [is necessary] in order to ensure safety of residents.”

William Hardin, director of the Hollo School of Real Estate at Florida International University, said the hurricane is likely to somewhat damp demand for real estate in the state. It may also increase interest in newer properties, assuming that they fare better, he said.

Florida “attracts people who can live anywhere,” Mr. Hardin said. “I think it’s going to have some repercussions.”

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