Lethal Developments


As an economist I have watched with interest as North Florida developers misuse property rights arguments to pass costs associated with their developments on to existing homeowners and future generations.

Economists tend to see greed as a positive force that ensures the efficient allocation of resources. However, this point of view has merit only if all costs associated with the activity are internalized to the project and borne by those who organize it. In the real world, greed often works to externalize costs and to impose them on others. The most effective way market participants can impose costs on others is by using the political process.

Developers’ attempts in North Florida to repeal density restrictions on floodplain development are a good example of the use of the political process to externalize costs.

Walton County, a Gulf front and bay front county in the panhandle of Florida between Panama City Beach and Destin, offers a textbook example. Long an undeveloped paradise, development has exploded in recent years. Having run out of elevated waterfront property, developers are now turning to the floodplain.

Current law restricts development in floodplain to one house per 20 acres. Developers claim that floodplain restrictions are discriminatory, unfair, and violate their private property rights.
Uplands not subject to flooding are permitted a maximum density of 8 housing units per acre. Developers argue that floodplain should have the same density as uplands.

In December 2004 the Walton County Commission voted to remove floodplain density limitations. The state of Florida refused to approve the irresponsible proposal, which would have increased floodplain density from one unit per 20 acres to 160 units per 20 acres.

The devastating impact of Gulf coast hurricanes during 2005 underlined the irresponsibility of floodplain and wetlands development. Tidal surges demolished waterfront homes built at low elevations. Low lying areas away from the coast were devastated by flooding. People thought the experience would be sobering for developers and politicians, but they underestimated the power of greed.

Developers have discovered that they can circumvent floodplain density restrictions by appealing to FEMA for a permit to fill their parcels until they raise them above the floodplain level. FEMA grants fill permits with the county’s authorization, and Walton County “has been very liberal in granting such authorization,” to quote the South Walton Community Council.

Floodplain fill is environmentally unsound, and the permitting process is bothersome. Therefore, the Walton County Commission has resurrected its proposal to remove density restrictions in floodplain. It is unclear why the county commission believes the state will approve this year what it rejected last year. Perhaps more intense lobbying by developers will be successful.

Property rights activists might cheer the removal of a regulation that suppresses the market price of floodplain. But what we are really observing is an effort to externalize costs associated with profit maximization by developers and floodplain landowners.

The greater the floodplain density, the greater the casualty losses and the higher the insurance premiums on other properties. Moreover, coverage for wind and water damages is often government provided.
Thus, losses can be pushed off onto taxpayers generally.

The most important cost externalized by floodplains development is the cost associated with the destruction of floodplain and loss of its environmental functions. Floodplains and accompanying wetlands provide erosion control and prevent flood damage by absorbing flood waters. They also provide filtration of pollution and habitat for animal, plant, and aquatic life. The development of floodplain destroys these valuable benefits and imposes a huge external cost that is born in perpetuity by future generations. It is difficult to generalize, but the market value of developed floodplain is unlikely to be sufficient to bear a mitigation tax necessary to internalize the cost of floodplain destruction.

There are many other costs that are externalized by real estate developers. Overdevelopment in storm-vulnerable areas imposes on taxpayers infrastructure costs to enable evacuation. Views enjoyed by existing property owners and trees and vegetation that provide buffers against noise and wind are destroyed. The increase in impervious surfaces from more roofs and paved surfaces diverts water onto existing properties. Few of these costs are internalized by profit-maximizing developers.

If restraints on floodplain density are removed in Walton County, a precedent will be created for developers in other counties. In Louisiana scientists who pointed out the protective functions of floodplain and wetlands were ignored. Katrina proved how correct they were. Where these natural protections still exist, they must not be converted into developers’ profits.

PAUL CRAIG ROBERTS has held a number of academic appointments and has contributed to numerous scholarly publications. He served as Assistant Secretary of the Treasury in the Reagan administration. His graduate economics education was at the University of Virginia, the University of California at Berkeley, and Oxford University. He is coauthor of The Tyranny of Good Intentions. He can be reached at: paulcraigroberts@yahoo.com


Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is The Neoconservative Threat to World Order.