Markets & Finance

Storm Risk Fails to Deter Buyers of Oceanfront Homes


Storm Risk Fails to Deter Buyers of Oceanfront Homes

Photograph by Noah Rabinowitz

In a house on New Jersey’s Long Beach Island, the wallpaper ends about four feet from the floor, where the wall has been hacked down to the studs to prevent mold. “This,” says Nathan Colmer, “is what you do after a flood.” Colmer, a real estate agent, stands in a robin’s egg blue Cape Cod-style home a block from the water. Despite the damage from Superstorm Sandy, this property is hot. Within a week of listing the house, the owner received seven serious offers—a sign, he says, of the “ferocity” of interest buyers have in scooping up beach property despite the threat of natural disaster.

Three months have passed since Sandy walloped the East Coast, causing $50 billion in damage and taking at least 100 lives. Even as some residents in hard-hit areas struggle without heat and permanent shelter, early anecdotal evidence suggests prospective buyers are looking past the dangers. While it’s too soon for conclusive data, “the longer-term effect on prices typically from a big disaster is that prices go up because some housing stock is destroyed, but there is still demand among people to live in that area,” says Jed Kolko, chief economist at the real estate website Trulia.

Even in the immediate aftermath of the storm, coastal purchases never fully stopped. On Long Beach Island, or LBI, as it’s known locally, November was marked by weeks without power, a nightly curfew—and the sale of eight homes and condos. Things quickly picked up from there, and in December, while pending home sales fell 4.3 percent nationwide, on Long Beach Island 33 single-family homes were sold, making it the busiest month since June, according to Colmer. The average price of $1.1 million was a rise of 35 percent from a year earlier.

LBI isn’t an anomaly. In the Hamptons, where oceanfront houses escaped relatively unscathed, home prices hit a record high in the fourth quarter of 2012, averaging $2.13 million, according to appraisal firm Miller Samuel. Kelly Ann Blum, a realtor in New Jersey’s Sea Isle City, says Sandy “hasn’t deterred anyone.” In the past two weeks a few of her new beachfront listings have had about 10 showings each, she says, a level “rare for this season.” Anthony Franzese, a realtor in south Brooklyn, says that in heavily hit areas like Sea Gate and Gerritsen Beach, residents are still coping with destruction and real estate deals are few. In less damaged areas like Bath Beach, “it’s amazing how it’s back to business as usual,” he says. It was probably “the biggest December we’ve ever had.”

Billy Stinson with his daughter Erin on the steps of his Nags Head (N.C.) house destroyed by Hurricane Irene in 2011Photograph by Scott Olson/Getty Images; Courtesty Erin StinsonBilly Stinson with his daughter Erin on the steps of his Nags Head (N.C.) house destroyed by Hurricane Irene in 2011

On LBI, some older homes built at ground level suffered severe flood damage or were knocked off their foundations. They’re now selling at a discount. The Cape Cod is under contract to sell for close to the asking price of $389,000—about $130,000 less than it would fetch in good condition, says Colmer, adding that it will cost about $40,000 just to lift the structure up to meet code. A few sales have closed in even harder-hit areas of the Northeastern coast, including Sandy Hook in the Rockaways and the Staten Island shore, albeit with steep price cuts.

LBI also has plenty of survivors. The streets are dotted with homes that resemble shore birds, perched on pylons. The houses were built with living spaces on upper floors and special ground-level walls that break away in a flood and can be quickly rebuilt. Some neighborhoods on higher ground, or protected by dunes, survived Sandy virtually unharmed. Two miles south of the damaged Cape Cod, Colmer points out a modern all-white oceanfront home that, thanks to a new dune system built by the federal government, was protected from the storm surge. The home’s owners raised the price $100,000, to $2.1 million, less than a month after Sandy.

The Stinson house was mostly rebuilt by the end of last yearPhotograph by Simon Dawson/BloombergThe Stinson house was mostly rebuilt by the end of last year

More price hikes could come in the future because disasters spur renovations and upgrades. “A silver lining is that everything will be redone,” says Colmer. “The whole area gets rejuvenated.” Colmer, a fourth-generation Long Beach Islander, says his own home took on a few inches of water—and rather than make just the necessary repairs, he’s renovating the house so his fiancée can make her mark on it.

Bob Anderson, who lives in Northern New Jersey, says he still wants to buy on or near LBI, where he spent summers as a child. He was “absolutely shocked” at some of the destruction of older homes and now is looking for a house he can tear down and replace with an elevated structure. “You have to go in with your eyes open,” he says. “You are building on a barrier island.” Anderson, who works in green energy finance, says he knows that big storms will inevitably hit LBI again, but no place is free of risk, be it from earthquakes, tornadoes, or fires. “If I was concerned about it, believe me, I am conservative enough that I wouldn’t be looking,” he says.

Barry Rabe, a public policy professor at the University of Michigan, says surveys he conducted just before and after Sandy didn’t show much change in public opinion regarding climate change—about 70 percent of Americans believe the earth is warming. After Sandy, more of the believers saw major storms as evidence of climate change. Still, knowing the earth is warming and choosing where to live are two different things. “Even if you believe climate change is occurring,” Rabe says, “there is no certainty that the risk is going to hit you, or that the proverbial lightning will strike you twice.” Add to that the deep social connections people can have to a place, and the implicit government support through subsidized insurance and emergency funds, and people are willing to take the risk.

Land-use experts question the wisdom of public policy that encourages risky waterfront living through expensive beach and dune engineering. Rob Young, director of the Program for the Study of Developed Shorelines, says he loves vacationing at the beach but believes local communities—not federal taxpayers—should be responsible for maintaining and rebuilding their shoreline. “People would be thinking about the science of sea level rise and coastal vulnerability if there was really a free market out there,” he says.

Young and Rabe think that as major storms become more frequent, severe, and expensive, individuals and policymakers will reach a tipping point in their behavior. “I’m not sure we’re there yet,” says Rabe. Katy Anastasio, a realtor on Long Island’s North Shore, says while storm-conscious buyers may now look for homes that are elevated or sit on higher ground, “the waterfront buyer wants waterfront homes, no matter what.”

The bottom line: In December, a month after Sandy, 33 homes were sold on Long Beach Island at an average price of $1.1 million.

Weise_190
Weise is a reporter for Bloomberg Businessweek in New York. Follow her on Twitter @kyweise.

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