Climate Transition Relief: Federal Buyouts for Underwater Homes

Abstract

As rising water from climate change causes unprecedented dislocation from flooding and sea-level rise, a new legal regime for climate retreat (i.e., shifting human settlement from severe climate risk zones) is developing. Buyout laws, such as the federal FEMA Hazard Mitigation Grant program, fund government acquisitions of severely flood-impacted homes at pre-flood fair market value that enable owners to relocate and then rezone the acquired land as open space. Despite the growing interest in flood buyouts as a tool for climate change adaptation, there has been no serious attention by policymakers or scholars to the capacity of buyouts to incentivize “buy ins” to high-risk locations by creating another layer of flood risk subsidy—a problematic irony given buyouts’ increasing role in climate retreat. In this Article, I reconceptualize buyouts from their current focus on compensation for dispossession to a model of climate transition relief that balances incentive effects against individual losses. In the process, I consider the scholarship on regulatory transition relief in law and economics, which describes how government compensation distorts incentives and promotes over-investment. Building from a reconceptualized model of climate transition relief, I advocate as a starting place a presumption against buyouts for flooded homeowners in order to curb incentives for high-risk housing choices. However, I carve out a significant exception for low-income residents of floodplains. In the face of severely constrained housing choice, unaffordable flood insurance, and high marginal costs from property loss, this group is less vulnerable to incentive distortion from compensation and more likely to experience severe negative consequences. This Article focuses on federal flood buyouts, however, the model of climate transition relief I advance can inform residential climate compensation and retreat policies more broadly.

Keywords: environmental law, climate adaptation, water law, sea-level rise, disaster law, property law, housing, flooding, buyouts

JEL Classification: K32, K11, K10, R31, R38