California Has A New Idea For Homes At Risk From Rising Seas: Buy, Rent, Retreat

At a normal tide on a normal day on the Southern California coast, ankle-high waves glide over a narrow strip of gold sand. On one side sits the largest body of water in the world. On the other, a row of houses with a cumulative value in the hundreds of millions of dollars, propped on water-stained stilts.

Property value ebbs and flows, but when it comes to coastal real estate "the trend lines are pretty clear," says California state Sen. Ben Allen, squinting in the sun. "And they're not pretty."

Within the span of a 30-year mortgage, more than $100 billion worth of American homes is expected to be at risk of chronic flooding. As the climate warms and oceans rise, narrow strips of sand such as the one Allen is standing on, will be submerged, leaving coastal communities — affluent and not — with the torturous question of how to adjust. Build sea walls? Dump sand? For how long and at what cost?

"It's becoming a really serious resource question for a lot of local governments," says Allen, who represents coastal communities in the greater Los Angeles area that are spending millions to keep their beaches intact.

It's expensive to fight the sea. It's expensive not to do so. When property values plummet, so do property taxes. But right now property values here are still high, and Allen wants to put that value to use before it's gone.

That's why the 43-year-old Democrat has proposed legislation to create a revolving loan program, allowing California counties and communities to purchase vulnerable coastal properties. The goal would then be to rent those properties out, either to the original homeowner or someone else, and use that money to pay off the loan until the property is no longer safe to live in.

Think of it like a city-run Airbnb, where the profits go to making sure nobody is left picking up the full tab when the Pacific comes to collect.

It's a strategy that's never been tried at such a large scale, and its implementation would come with plenty of questions, policy experts say. But there's hope in various parts of the country that the legislation passes, putting to test a buy-to-rent strategy that could offer a more permanent solution to a growing problem.

"Not a conversation ... communities want to have"

At its core, Allen's proposal is a buyout program — a government-subsidized effort to limit the state's longer-term exposure to sea level rise.

Within the next 30 years $8 billion to $10 billion of existing property in California is expected to be underwater, according to the state's nonpartisan Legislative Analyst's Office. An additional $6 billion to $10 billion will be at risk during high tide.

"The magnitude of the potential impacts mean that the state cannot afford to indefinitely delay taking steps to prepare," the report warns. "Waiting too long to initiate adaptation efforts likely will make responding effectively more difficult and costly."

Communities have three options for dealing with that threat: They can defend those properties using sea walls and buffering beaches; they can learn to live with higher waters; or they can retreat, moving to higher ground.

The last option is often the least popular, says Julia Stein, a project director at the Emmett Institute on Climate Change and the Environment at UCLA School of Law.

"That's just not a conversation that a lot of coastal communities want to have," she says.

And when the conversation does come up, one of the first questions to arise is cost.

Take Del Mar, a low-lying, upscale community north of San Diego. Residents there have been in a years-long fight with the state over the term "managed retreat." The state wants the city to consider retreating from a particularly vulnerable area. Problem is: The combined market value of the homes in that area is more than $1.5 billion.

"There's a whole lot of research out there that indicates the market value of coastal property just really doesn't account for sea level rise in a meaningful way right now, and in the ways that it maybe should," Stein says. "But at some point, the market is going to realize the problem. And at that point, it may be too late."

That's why Stein helped Allen draft his novel legislation. She thinks the state needs to get ahead of the problem before it becomes another money pit like wildfires. Thousands of California homes are becoming uninsurable due to wildfire risk despite expensive, ever-expanding efforts to fight them.

"I think that's kind of a vision of the future for some coastal properties," she says.

Rent out now, save money later

Over the last 30 years, the Federal Emergency Management Agency has supported buyouts of more than 43,000 U.S. homes, according to an analysis by the Natural Resources Defense Council. Most are in the more flood-prone East. A few patterns have emerged.

"It's usually homeowners who are in good standing on their mortgage, after a disaster, who probably can speak pretty good English and are well-off enough to navigate a really complicated, bureaucratic process for three to five years," says Miyuki Hino, an assistant professor of city and regional planning at the University of North Carolina at Chapel Hill.

Just because a property owner is willing to sell a home doesn't mean the resources exist to carry it out. Demand already exceeds supply, and demand is only going to grow.

"We are facing some really unprecedented difficulties, and we need to be willing to experiment and try new things and see what works and what doesn't," Hino says. The California proposal fits that bill, even if she has questions about how it would work.

Governments have long played landlord for public housing projects, but coastal real estate would be another beast altogether. There's no guarantee that homeowners would want to participate. And there are questions of equity. Who would get prioritized for buyouts? Is potentially spending public money to buy multimillion-dollar homes the best use of those funds?

Andy Keeler, an economist at East Carolina University's Department of Coastal Studies, believes the answer is yes.

Keeler has spent years studying buy-to-rent strategies similar to that proposed in California, and he thinks they could be a useful tool for disrupting a pervasive problem when it comes to coastal real estate.

The value of a coastal home is hugely dependent on the public sector, he says. If a city or state invests in protecting properties by building sea walls or nourishing beaches, it signals to homeowners that their property values will stay intact, so they continue to invest in their property. More investment means more reason to protect down the road.

"It's a positive feedback loop that strings out how much longer you're going to be there," Keeler says. "All it buys you, which is really valuable, is time."

From a purely economic perspective though, it doesn't add up. A community pays on the front end, pays again, and again, and then is left with the cleanup and emergency response in the end.

Keeler says that link can be broken by taking properties out of the hands of private homeowners, who are getting mixed messages about the value of their homes, and putting them in the hands of the public, which has an interest in not being stuck with all of those bills.

Communities can then plan for the eventual phasing out of those properties as sea levels rise. They can plan for the decline in property taxes, and the cleanup costs associated with homes falling into the sea.

"We're going to be looking at really massive relocation sometime in the next couple of hundred years and probably much sooner," Keeler says. If we don't manage the timing of that, he fears, it will manage us.

Nothing is forever

His eyes shadowed from the bright California sun by the brim of his blue Dodgers cap, Allen pulls out his phone and opens the Zillow app.

The $8.3 million house just up the beach has a monthly rental estimate of $12,500. Assuming the house could be rented at that rate, it would take about 55 years to pay off — 55 years to make back the money he's proposing the state loans to local communities.

It's the most expensive house on this stretch of beach though, and Allen says it may not be worth investing in. But it's also the kind of property that a homeowner would fight to protect, lobbying for public investment in sea walls and other defenses.

Allen's bill passed unanimously through the state's Senate Natural Resources and Water Committee last week, and he says he's hopeful it will receive similar support in the broader Legislature.

"Nobody wants to come to terms with what's happening," he says, watching as people stroll the beach barefoot and smiling. "We want this to be here forever. We want to be able to walk along this beach and enjoy these beautiful houses and this beautiful view forever."

But, he says, "you can't beat the sea."

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