New Independent Research Finds IBHS’ FORTIFIED
Resilient Building Standard Increases Home Value
WASHINGTON, DC, August 3, 2016 – Property loss mitigation – past, present, and future – was the theme of one panel during today’s White House Forum on Smart Finance for Disaster Resilience, which included the Insurance Institute for Business & Home Safety (IBHS).
“During the past eight years, committed leadership from the White House has effectively framed and advanced the issue of mitigation throughout the public and private sectors. Today, as the result of their efforts, and the persistence of the insurance industry and our allies who have been working to identify and promote effective ways to increase the resilience of homes, businesses, and communities, there is much greater focus on mitigating damage from a variety of weather-related risks than ever before,” said Debra Ballen, IBHS general counsel and senior vice president, public policy.
When asked what successful mitigation looks like, Ballen noted strong, well-enforced building codes are the starting point, but codes are limited because they apply overwhelmingly only to new construction; meanwhile, there is a need to improve the resilience of many millions of existing structures. She also noted about a dozen states do not currently have statewide codes in place, and many locations with codes do not enforce them effectively.
As a result, “IBHS developed the voluntary, market-based FORTIFIED Home™ program, which is a set of engineering and building standards designed to help strengthen new and existing homes through upgrades to minimum code requirements that can reduce damage from specific natural hazards,” explained Ballen.
A new independent research study (https://culverhouse.ua.edu/uploads/ckeditor/attachments/31/FORTIFIEDReport_V2__2_.pdf), sponsored by the Alabama Center for Insurance Information and Research (ACIIR) at the University of Alabama, about the effect of IBHS FORTIFIED Home™ designations on home values in Mobile and Baldwin counties in Alabama conducted by several universities found the following:
Results show that switching from a conventional construction standard to a Fortified designation increases the value of a home by nearly 7% holding all other variables constant. Our findings suggest that building Fortified houses or retrofitting houses to meet Fortified standards is an economically sound investment. The additional cost of building or retrofitting is frequently less than 7% of home value; therefore, the benefit of a Fortified designation is very likely to outweigh cost. This is without considering other direct benefits such as insurance premium discounts, potential uninsured rebuilding costs, and the inconvenience of temporary housing following a disaster. In addition, given the robustness of statistical results, we believe it is appropriate for appraisers and financial institutions to reflect Fortified designations in appraisals for use in the mortgage process.
In addition to the ACIIR, the report is co-authored by professors from Auburn University and the University of Mississippi with expertise in finance and real estate.
“This report is a great example of the practical application of academic research methods. We are very confident in the results and hope they will affect public and private behavior to make exposed communities more resilient to natural disasters,” noted Lawrence S. Powell, PhD, director, ACIIR.
“This is more tangible evidence that FORTIFIED homes are not only better able to resist disasters, they also are being valued higher in the marketplace,” Ballen stated.
“We need only look at the FORTIFIED homes that survived Hurricane Ike in 2008 on the Bolivar Peninsula in Texas, while virtually all others around them were demolished, to know FORTIFIED is a robust and effective resilient construction standard. Thanks to Dr. Powell’s research, we now know FORTIFIED also increases the financial value of homes,” Ballen stated.
“Today’s White House Forum on Smart Financing for Disaster Resilience reminds us that we know resilient communities fare better following disasters than those that have not prepared. Resilient communities have built and retrofitted stronger, safer buildings that can stand up to Mother Nature, and they have disaster recovery plans in place. As a result, they are better able to withstand severe weather events because there are fewer lives lost, fewer personal injuries, and fewer buildings damaged, including both homes and businesses.
“The local economies in resilient communities recover quicker because businesses can remain open or reopen fairly quickly, which means jobs are not lost, services are available, the local income tax base is maintained, and less post-disaster government aid is required. When homes are not destroyed, employees and customers can get to those businesses, which helps maintain the local property and sales tax bases,” said Ballen.
“It is increasingly apparent that investing in pre-disaster mitigation to reduce post-disaster spending is sound fiscal policy. Further, it is part of good health care policy because it prevents both physical and psychological injury. It is also thoughtful environmental policy to invest in pre-disaster mitigation because it will greatly reduce post-disaster debris from damaged and destroyed communities.
“Going forward, we need to incentivize businesses, individuals and communities to invest in pre-disaster mitigation. Government grants may be the starting point but should not be the only point. Nonprofit building organizations should emulate Habitat for Humanity and other nonprofits that include resilience in their builds. Insurance incentives already make resilience more attractive to policyholders, but other financial sector incentives need to be brought into this discussion that have been largely absent to date,” Ballen stated.