[A-HW23] Hydrology & Water Environment

[AHW23-P08] Life cycle benefit-cost analysis of optimizing freeboard of new, single-family residences for flood hazard mitigation

*Rubayet Bin Mostafiz¹, Ehab Gnan¹, Carol J. Friedland¹, Robert V. Rohli¹, Md Adilur Rahim¹ (1.Louisiana State University)

Keywords:Flood hazard mitigation, Net benifit cost ratio (NBCR), Average annual loss (AAL), Freeboard construction cost, Insurance premium, National Flood Insurance Program

Construction with freeboard – vertical height of a structure above the minimum required – is commonly accepted as a sound investment for flood hazard mitigation. However, determining the optimal height of freeboard poses a major decision problem. This research introduces a life-cycle benefit-cost analysis (LCBCA) approach for optimizing freeboard height for a new, single-family residence, while incorporating uncertainty, and, in the case of insured homes, considering the costs from losses, insurance, and freeboard (if any) to the homeowner and National Flood Insurance Program (NFIP) separately. Results suggest that adding a reasonable amount of freeboard at the time of construction is a wise investment for the individual, community, and NFIP. For example, a case study analysis of a 2,000 square foot home in Metairie, Louisiana, shows that adding two feet of freeboard at an investment cost of $10,403, or 4.5% of the at-BFE construction cost of the home, optimizes the total life-cycle net benefit (NB) at $53,377, with a 7:1 net benefit cost ratio (NBCR) in the loan option, assuming the baseline real discount rate of 7%. The cost associated with adding such freeboard would be offset in less than four years. The corresponding NB from annual flood premium savings alone is $15,536 with a 2:1 NBCR. This optimal two feet of freeboard would add only $49 to the monthly payment of the 30-year mortgage with a fixed rate of 3.375%. Even if the value of flood loss reduction is neglected, the savings in annual premiums alone are sufficient to offset the freeboard costs paid. These avoided losses and savings will be realized by the owner through the life span of the structure. While results send a strong signal for the value of freeboard, some limitations of the research must be considered. Life-cycle benefit-cost estimations are impacted by high uncertainty since they rely on uncertain variables related to the unpredicted nature of flood occurrence and generality of flood loss functions. Moreover, LCBCA requires future projections of variables such as discount rates that are highly uncertain. While acknowledging the limitations, the methodology proposed in this study offers an improvement to the topic of establishment of the economically optimal elevation of single-family residences through LCBCA. Furthermore, flood risk reduction and savings in premiums are only some of the apparent gains from including a modest amount of freeboard at the time of construction. Other lifetime benefits that are either unquantifiable or not addressed here include the reduction of inconvenience, health impacts, and suffering, reduced loss of items of sentimental value and other intangible losses such as the environmental and social costs, and faster recovery time from flood disaster, along with increased curb appeal and therefore property values. Also, because this work neglected the possible future effects of climate change and increase in asset values, the estimates are considerably conservative and underrepresent the true benefits of adding freeboard. The savings at the community level are also substantial, as communities can receive further reductions in insurance premiums from Community Rating System (CRS), where elevation increase is one of the conditions for reduced premiums. Yet despite these evident benefits, many homeowners and communities do not take mitigation into account, suggesting that the benefits are not communicated effectively. Collectively, these results based on conservative assumptions suggest that at the time of construction, even a small amount of freeboard provides a huge savings for the homeowner and (especially) for the financially-strapped NFIP. For community planners, the results suggest that wise planning with reasonable expectations on the front end makes for a more sustainable community.