Association for Public Policy Analysis & Management

Recent decades have seen a steady increase in the frequency and costs of natural disasters. Among all, flooding is one of the most prevalent and costliest natural hazards in the United States. As climate change unfolds and economic development exposes more assets to climatic risk, how to effectively mitigate disaster losses and facilitate climate adaptation is an important question for both researchers and policymakers.

This research focuses on the government-funded voluntary buyouts of floodplain properties (also known as managed retreat), which has been a traditional yet controversial policy approach for flood management. Buyouts are an alternative to rebuilding damaged homes following a major disaster. A property owner can sell their flood-prone properties to the government (often in a political process that involves the federal, state, and local governments) and relocate permanently. In turn, the purchased land is converted into open space and potentially maintained for recreational purpose. It is estimated that FEMA has spent over $4 billions on buyout projects since 1993.

Despite the federal financial support, government-funded buyout program is laden with social and political difficulties. Buyouts are often a difficult decision for homeowners to make because the purchase takes time and it is hard for them to find affordable housing nearby. Buyouts also raise concerns for local governments, because relocation can cause a loss of tax revenues and have an impact on the local budget. Nonetheless, there has been little empirical research on the factors that influence voluntary buyouts. In this paper, we examine the drivers of federally-funded buyouts of floodplain properties, using FEMA’s property acquisition projects funded through the Hazard Mitigation Grant Program. We are interested in understanding how local socioeconomic characteristics, housing prices, fiscal stance, and political factors jointly affect buyout decisions and receipt of federal grants at the community level. We also examine the effect of local flood control infrastructure and community participation in the National Flood Insurance Program (NFIP), considering that they may have a perverse effect on the local residents’ incentive to relocate.

Our study contributes to the existing disaster policy and climate adaptation literature. It is one of the first studies to empirically examine the drivers of voluntary buyout decisions following major flood shocks. Our results shed light on some of the key challenges for government buyout as a long-term adaptation strategy. They also provide important insights into the potential improvement of this program for both federal and subnational governments.