Fighting Rising Floods Means Rising Costs For Developers
When Camden Property Trust CEO Ric Campo began evaluating a piece of land in Houston’s Texas Medical Center to build a new mid-rise multifamily property, he had high hopes. The site, occupied by a single restaurant, had never flooded.
It was 2018, and Harris County had just approved the first significant overhaul of county flood elevation requirements in nearly two decades.
After just one month of engineering analysis, it became evident that Camden’s plans for a five-story apartment complex on top of a two-story parking garage simply couldn’t work. The new rules meant the building would require an extra level, pushing the development into the high-rise category. The economics of the project no longer made sense.
“If we had the old rules in place, then we would have developed it,” Campo told Bisnow. “We would have bought the land and developed it, and built 300 apartment units there — probably a $100M transaction, plus or minus. And now, today, it's a closed restaurant.”
In the three years since Hurricane Harvey made landfall, Houston’s flood regulations have become tougher at both the city and county levels. While developers acknowledge the importance of those regulations, they say the new rules have increased the difficulty of getting projects off the ground. With flood mitigation requirements adding as much as 12% to the upfront cost of a new development, some are choosing to simply walk away.
The introduction of stricter flood regulations in Houston followed back-to-back years of record-breaking flood events across the city. From May 2015 to Hurricane Harvey in August 2017, there were three floods outside of Houston’s 500-year flood plain, which usually has a 0.2% chance of flooding in any given year.
A 2018 study by the National Oceanic and Atmospheric Administration, dubbed Atlas 14, found that average rainfall volumes have increased across much of Texas. In Houston, 100-year estimates increased from 13 inches to 18 inches, and values previously classified as 100-year events are now considered 25-year events.
“The results of that effort showed that the rainfall that we've been using to design all of our infrastructure was too low, and that's been born out of these last flood events,” Harris County Flood Control District Deputy Director Matt Zeve told Bisnow.
Harris County adopted the Atlas 14 rainfall averages in 2019. That set a new standard for flood mitigation design, including higher water detention requirements for both new development and redevelopment sites.
Houston City Council also approved new flood plain regulations in April 2018, changing the building requirements for new construction. As part of that revision, new developments that once fell within the 100-year flood plain are now required to build to standards that were previously enforced in the 500-year flood plain.
HCFCD is actively working on more flood plain mapping efforts. The agency received funding from the Federal Emergency Management Agency for its Modeling, Assessment and Awareness Project, known as MAAPnext. The project will conclude with HCFCD creating new flood hazard communications tools, and FEMA releasing new preliminary Flood Insurance Rate Maps. Those maps should be finalized and signed off by 2024.
Flood regulations vary at the city and county levels. Because Harris County encompasses a large swath of Houston, HCFCD tends to take the lead in setting new standards. But developers must still meet requirements from HCFCD, the Harris County Engineering Department and the city of Houston, each of which makes its own decisions.
“Conditions and standards are changing on almost a month-to-month basis right now, within the city of Houston and Harris County,” U.S. Army Corps of Engineers Natural Resource Management Specialist Richard Long said.
Changing flood regulations and standards are not only a problem for developers but the engineers hired by them to do the analysis work.
“When I have changing criteria, and I'm trying to talk to my client about what we need to do, and I can't tell them what the rules are going to be next year, then that becomes a problem,” Walter P. Moore Director of Civil Engineering Charlie Penland said during a Bisnow webinar July 30.
“Probably the biggest challenge we have right now is just being nimble enough so that we can change on the fly and help our clients out so they actually can develop or redevelop some of these pieces of property that they need to.”
Changing flood mitigation requirements and flood plain boundaries over the last 12 to 24 months have made development very challenging, particularly in high-density areas within Houston’s inner core, according to Edifis Group CEO Josh Aruh. The company develops retail, office, mixed-use and multifamily properties in the greater Houston area.
“The latest regulations, where the 500-year [flood plain has become] so restrictive, I believe have made a huge impact on the viability of construction for our product type,” Aruh said.
Among the biggest challenges posed by flood mitigation requirements is the amount of land that has to be utilized to address water detention. Campo told Bisnow the new regulations have doubled the size of water detention that was required even a few years ago for his developments in Houston.
Wolff Cos. CEO David Wolff said that for his upcoming Beacon Hill development, a master-planned, mixed-use community, about 20% of the 600 acres will be utilized for drainage or flood plain mitigation. That means less space to build and sell homes and a smaller return on investment.
Houston’s flood regulations also mean that projects cost more money upfront, timelines are longer and it can be more difficult to build affordable housing in the region.
“It takes a longer time. It costs more money. That, of course, has an effect on how you have to price your sites when they [are] developed. And these are all good things to be doing, but they do have a price,” Wolff said.
Campo said the cost of stricter flood regulation is ultimately shouldered by people on the low-income end of the spectrum. That, in turn, may be contributing to Houston’s affordable housing problem.
“As you increase these regulations, you've now increased the cost and the entry-level for a home,” Campo said. “That's one of the trade-offs [with] new regulation, is that it puts more pressure on the lower-income folks than it does on higher-income folks.”
For Camden, the overall cost of implementing flood mitigation on a new property in Houston is about 3% of the total development cost. That isn’t a deal-breaker for building market-rate apartments in neighborhoods with premium pricing, but it can make a big difference if a developer is trying to build an affordable housing complex.
“When you add up the cost of everything, including regulation, you can't develop affordable housing on a large-scale basis, the way we used to in the ‘50s,” Campo said.
The relative costs associated with flood mitigation for smaller infill urban development can be even more expensive. Aruh said for his projects, flood mitigation can now be as much as 10% to 12% in additional cost, compared with the 5% it used to be in the mid-’90s.
Houston’s development legacy has created a patchwork of properties that meet a wide range of historical flood mitigation standards. New developments are equipped to handle increasing rainfall volumes, but older properties are not, still posing heightened flood risk to their neighbors. Unless those properties flood, there’s limited incentive for developers to take expensive, proactive action.
Aruh said Edifis Group has not proactively created underground flood detention for existing urban properties that have been grandfathered under the rules.
“It would be economically unfeasible to do it,” Aruh said.
Wolff and Campo also told Bisnow they have not gone back to install additional flood mitigation for their older properties.
Critics like Residents Against Flooding Chair Ed Browne say the city of Houston has still not implemented nearly enough safeguards to offset flood risk, and described the city as “a developer’s dream.”
“I don't think Houston's going to be able to solve their flooding problem. I think the city doesn't have much money, the city bends over backwards to make sure that developers have as much leeway as possible because they want the tax money,” Browne said.
“They're not as concerned about preventing flooding as they are concerned about getting the tax money, and that's been evident for a long time.”
The efforts to remap flood plains also have limited usefulness, according to Texas State climatologist John Nielson-Gammon at Texas A&M University. Even for a large city like Houston, it’s difficult to adjust flood plain maps frequently enough to reflect changing rainfall patterns. The other problem is, even if new estimates and calculations are performed regularly, climate change means there isn’t a single, stagnant flood plain.
“It's not appropriate to think of it that way because there's a flood plain for 2020. There's a flood plain for 2025, which is going to be bigger, and a flood plain for 2030, which is going to be bigger still,” Nielson-Gammon said.
Commercial real estate developers and engineers need to take into account not just what the flood risk is now, but where it could be in 20 or 30 years, he said.
“What's done for cities and counties, producing a single flood plain, doesn't address that issue at all,” he added.
Despite all the regulatory efforts to mitigate flood risk at the city and county level, there are some who believe that the best solution is to simply get out of the water’s way.
“I think our basic concept is a failure. We basically assume you can develop everywhere. It's merely a matter of what do I need to do to make it right. You could pass the most incredible regulation and still have a mess,” Rice University professor and environmental lawyer Jim Blackburn said.
“I think we still have a bit of a mindset that we can engineer our way out of all the problems that we have facing us. And I'm not sure that's a valid assumption.”