A program in New York State aimed to help areas impacted by Hurricane Sandy recover and become resilient against future disasters—and yielded local economic benefits.
The United States has experienced 25 weather-related disasters that have exceeded one billion dollars in damage so far in 2023—the record for a single year. The average number of billion-dollar disasters per year has increased in recent history, too. Experts point to two drivers of this increase: climate change (which can exacerbate events such as hurricanes and wildfires) and sustained property development in areas that have high risk of impact (such as coastal communities).
One major set of policy responses to these increasing damages falls under the category of adaptation, which refers to efforts that prepare communities for the effects of climate change. Adaptation can include investments that improve the resilience of infrastructure in risk-prone communities, for example, or getting residents out of harm’s way. However, not much research has examined the economic effects of adaptation efforts in the communities where officials have implemented such policies.
In this Q&A, Yanjun (Penny) Liao, a fellow at Resources for the Future, discusses these economic outcomes in areas of New York State that were impacted by Hurricane Sandy in 2012, including how adaptation policies affected nearby properties and local businesses. Liao and coauthors recently published a working paper that examines these effects.
Resources: What policies did New York State implement in the wake of Hurricane Sandy to incentivize resilience in impacted communities, and what were the goals of these policies? Could you explain the difference between a buyout and an acquisition?
Yanjun (Penny) Liao: Soon after Hurricane Sandy in 2012, New York State implemented a series of programs under the umbrella of NY Rising Housing Recovery Programs. These programs were supported primarily by the US Department of Housing and Urban Development Community Development Block Grant Disaster Recovery funds through the Hurricane Sandy Supplemental Appropriation and administered by the New York State Governor’s Office of Storm Recovery.
In particular, the NY Rising Buyout and Acquisition Program is designed to provide grants for the purchase of properties in communities that are impacted by storms. This program serves the dual purposes of helping households and communities recover from storms while incentivizing relocation out of harm’s way and enhancing community resilience against future storms.
The program consists of two components: buyout and acquisition. While these terms sometimes are used interchangeably, they refer to different actions in the context of this program. In a buyout, the government purchases properties that are substantially damaged or destroyed, with the intention of converting the land into natural buffers. This land typically is not used for redevelopment; instead, the land is preserved for environmental or recreational purposes.
In an acquisition, properties are purchased with the intention of redevelopment that is determined by state and local officials. Oftentimes, these properties are auctioned with the aim of redeveloping them to a higher standard of resilience. Redevelopment allows for the land to be reused in a way that is considered more resilient to future disasters.
How did buyouts and acquisitions affect businesses, housing prices, and the job market in the areas that were damaged by Hurricane Sandy? How did the economic benefits of the program compare with the costs of the program?
The buyouts and acquisitions program had significant positive impacts on local housing markets, businesses, and the job market.
Both buyouts and acquisitions contributed to the recovery of housing markets in surrounding neighborhoods. Property values increased by almost 3.7 percent on average within 1,000 meters of properties that participated in the program, compared to similar areas. The effect of acquisitions was larger and persistent, while the effect of buyouts was smaller and more transitory. Mortgage applications for homes also increased by almost 30 percent in the census tracts that experienced acquisitions and buyouts. In addition, acquisitions stimulated substantially more applications for loans for home improvement and mortgage refinancing.
The program also benefited the growth of local businesses, primarily by helping businesses survive after Hurricane Sandy. Employment opportunities expanded in these areas due to business growth, as well: job growth was 3.7 percent higher in areas with the program, compared to other similar areas.
We find the program to be cost-effective, too. We combined the numbers related to benefits with some existing estimates in a back-of-the-envelope calculation, and our findings suggest that acquisitions yielded $2.88 billion in benefits, while buyouts yielded $2.01 billion in benefits. The benefits of both significantly exceeded their respective costs—the estimated benefit-cost ratio of the overall program was 7.7. While these figures depend on simplified assumptions and should be interpreted as rough estimates, the figures suggest that the program likely generated benefits that were several times larger than the costs of the program.
How did the NY Rising Buyout and Acquisition Program affect the demographics of local populations and local housing markets? How equitable were the outcomes of the program?
The program influenced the demographics of new homebuyers. It attracted relatively more mortgage applications from higher-income households and racial minorities, who more frequently moved into neighborhoods that contained participating properties.
Understanding the equity of the impacts of the program is very important, though this understanding would require information that is beyond the scope of our new paper. Two major considerations can relate to equity: the distribution of direct aid to participating households, and indirect economic benefits.
First, the program provides aid to participating households by purchasing their damaged properties at pre-disaster values. To assess the distribution of such aid, we need to know the demographics of participating households, their need for aid, and the offers made to them by state officials through the program. Overall, we see that participating properties suffered particularly severe damage and were located in neighborhoods that experienced disproportionately large impacts from Hurricane Sandy, which suggests that the program generally focused on recovery. However, we won’t be able to determine whether certain demographic groups are overrepresented or underrepresented, unless we have detailed information on the socioeconomic conditions of participating households.
Second, in terms of the indirect economic benefits, our findings show a mixed picture. On the one hand, census tracts with participating properties are over 85 percent white on average, and new mortgage applicants also tend to have higher incomes, which suggests that these benefits disproportionately accrue to groups that are less socially vulnerable. On the other hand, these census tracts also became more diverse, because a larger share of racial minorities were among the mortgage applicants.
Two other factors also affect the equity of buyouts and acquisitions: where participating households move, and the fate of the properties that are bought out or acquired. Whether these outcomes differ based on the socioeconomic characteristics of participating households and communities is an important question for future research.
What factors may policymakers want to consider when comparing buyouts and acquisitions as options for helping communities in vulnerable areas adapt to climate change?
Some important trade-offs are involved in weighing the buyouts and acquisitions in terms of their effects on land use, local economies, community acceptance, and in terms of their overall resilience against future disasters.
Buyouts and acquisitions have distinct land use objectives and can lead to different effects on local communities. Buyouts often involve converting purchased properties into public spaces or natural flood buffers, both of which can improve local environmental amenities and reduce human exposure to future disasters. However, buyouts also may signal a loss of community and have negative impacts on the local economy and tax base.
In contrast, acquisitions allow for the retention of local housing stock and can stimulate further investments in the surrounding neighborhood. Acquisitions also are less costly, because the government can recoup part of the cost of the acquisition through the subsequent auction of the properties. However, acquisitions also create more uncertainties regarding future damages from weather-related disasters, because acquired properties and related investments still might be in harm’s way.
Ultimately, policymakers should incorporate long-term land use planning in buyout and acquisition programs. Buyouts are more suitable for properties in low-lying areas that are flooded repeatedly and where resilience improvement becomes too costly. Acquisitions are appropriate for reviving disaster-struck neighborhoods where cost-effective risk-mitigation investments are available.
The design and implementation of these programs also can significantly affect outcomes. For example, we find that a cluster of buyouts is more likely to generate positive effects than a standalone buyout. If multiple adjacent homeowners can be incentivized to accept the buyout offer, these buyouts can complement each other and collectively generate more benefits. Land also needs to be properly maintained after bought-out properties are demolished to yield the intended benefits. Also important is to ensure that the higher resilience standard applies to all neighboring properties that are remodeled; otherwise, acquisitions may increase the value of neighboring properties that continue to be at risk, and whose resilience does not improve.
What implications do your research findings have for policymakers? How does the availability of home insurance in vulnerable areas affect your thinking?
Overall, we find that buyouts and acquisitions have a high benefit-cost ratio, which suggests that more opportunities exist for cost-effective actions that encourage relocation away from risky areas. Several home insurers have withdrawn recently from areas in which climate change has exacerbated the risk of weather-related disasters; this trend illustrates that insurers consider these homes less insurable. This reduced availability of insurance in risky areas might help catalyze stronger adaptation efforts or strengthen the case for relocation—but any such efforts would require a greater level of coordination among insurers, developers, and community leaders.