Building Codes Cost. But What is Resiliency Actually Worth?

A Conversation With Jon Schneyer

As the frequency and severity of natural catastrophes intensify, the need to strengthen the resiliency of communities against these perils is increasingly urgent. Building codes are a critical tool in this endeavor. However, their adoption and enforcement vary significantly across states. A recent report from the Insurance Institute for Business and Home Safety (IBHS) underscores the lack of uniformity in building code implementation among states vulnerable to hurricanes.

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Jon Schneyer:

If we’re not going to move away from the coast and we’re not going to stop building in these beautiful areas, well, at the very least, let’s strengthen the homes so that when these disasters do happen, we can move right back in, go back to our normal lives, and we don’t have to rebuild and spend billions rebuilding after a hurricane.

Maiclaire Bolton Smith:

Welcome back to Core Conversations: A CoreLogic podcast where we tour the property market to investigate how economics, climate change, governmental policy, and technology affect everyday life. I am your host Maiclaire Bolton Smith, and I’m just as curious as you are about everything that happens in our industry. There’s a reason why weather is a perpetual topic of conversation. It’s one of those things that is constantly changing and very much worth paying attention to, especially if you are an insurer or a property owner. But when weather becomes a natural catastrophe, then the conversation becomes even more serious. From hurricanes to wildfires and severe convective storms to flooding, natural catastrophes are becoming more frequent and more severe thanks to climate change. This trend has accelerated the need to build resilience in communities. One way to be more resilient is through building codes. However, not every state is focusing on this opportunity with the same intensity.

A new report from the Insurance Institute for Business and Home Safety, the IBHS, rates building code adoption and enforcement in states vulnerable to hurricanes. The report found that since 2008, none of the states studied has adopted a new residential code or enacted uniform statewide enforcement of that code. In absence of statewide codes, local jurisdictions must fill the gap. This patchwork of code adoption leads to even greater inconsistencies in construction and leaves some communities far more vulnerable to extreme weather than others. So to talk about natural hazard risk and the importance of building codes and building resilience, we’re once again welcoming CoreLogic’s director of Catastrophe response, Jon Schneyer. Jon, welcome back to Core Conversations.

JS:

Thanks for having me back. Great to be here.

MBS:

Okay, so just to get going today, let’s just start talking about why building codes are so important and how they can help make communities more resilient.

Erika Stanley:

Before we get too far into this episode, I wanted to remind our listeners that we want to help you keep pace with the property market. To make it easy, we curate the latest insight and analysis for you on our social media where you can find us using the handle @CoreLogic on Facebook and LinkedIn, or @CoreLogicinc on X, formerly known as Twitter, and Instagram. But now let’s get back to Maiclaire and Jon.

JS:

So the beauty of building codes is it inherently puts in a system that is going to make new construction less vulnerable to natural disasters, and it’s proven to be incredibly effective for certain perils in certain states. We’ve seen plenty of examples of new construction in areas of Florida that have performed really well after hurricanes relative to older ones. So we’ve seen the effectiveness of these building codes.

MBS:

Okay, so key thing that you said there is new construction. So building code comes out, new buildings are built to this new building code. That makes sense. What about all the old buildings? What happens to them?

JS:

It’s a lot tougher with older buildings because either retrofitting is more expensive to go back, it’s very difficult. And there’s fewer mandates out there about going back and retrofitting. You’re more or less grandfathered into the old system, so it’s not as required.

MBS:

Yeah, I know on the earthquake side after in particular the 1994 Northridge earthquake in Los Angeles area, there was this huge initiative to retrofit all the buildings, get everything up to code. Is that something that happens on the hurricane side? I know after, especially Andrew, some of the big ones, Andrew, Charlie, the ones that Florida has seen, even Ian in the last couple of years. I mean, it’s fundamentally changed the building code, but do we have any idea of how many people change their building code on those older buildings, or that really is, it’s not mandated?

JS:

Of the good things about hurricanes relative to earthquakes, so for earthquake retrofitting, you’re doing some pretty substantial, but not total restructural. You’re not redoing the actual structure, the materials used to rebuild the home. Usually you can kind of fit in around it, brace and bolt kind of thing.

For hurricanes, it actually might be a little bit easier for the most part, because a lot of things you can just sort of add or change to your home that can make a pretty big difference, that I’m not going to say they’re cheap or free. We could talk about new roof materials or replacing your roof, adding hurricane shutters to your house to prevent any damage to the glass if it breaks the glass. Essentially disrupts the envelope of your house.

And if air or wind from hurricane can get into your home, that actually does a lot of damage, it can blow the roof right off your house. So these sort of things are actually pretty easy to enact to your home, even if you have an older home, and that can still do a fair amount of good when it comes to mitigating hurricane damage. That being said, if you have a home that’s built from a material, say a wood frame home and an older wood frame home, you’re probably not going to knock down your home and rebuild it with a stronger material. That’s a pretty substantial lift, obviously. But yeah, in terms of retrofitting, there are certainly changes you can make to your home that will prevent future hurricane damage.

MBS:

So I mean, I guess very simplistically built to a stronger or newer building code, less risky structure than something with an older building code.

JS:

That’s a great way to think about it. And the best example was probably with Hurricane Ian that we saw recently. So Hurricane Ian made landfall in a part of Florida that was just back in 2004 impacted by Hurricane Charlie. And a lot of homes were destroyed during Hurricane Charlie were built back. So after 2004 or five, six, seven, eight, a lot of those homes, which still experienced category three or four wind speeds, didn’t sustain all that much damage. A significant number, and actually was probably lowering that in final insured bill from Hurricane Ian.

MBS:

Right. I think one of the most famous examples of this was Hurricane Michael, which I believe was Mexico Beach when there was one home that was still standing and the rest of the homes on the beach were gone, and it really just showed the power of building code. And it was the most famous picture that came out of that hurricane, and it really showed the power of strong building codes, and that really is what resilience is all about. So okay, going back to this IBHS report, ultimately it’s suggesting that there’s still room for improvement across many of the states. Do you think that it’s valuable for communities to continue to really push forward on building codes to be more resilient, especially at the local jurisdiction level where it sounds like that maybe could be a broader impact?

JS:

Absolutely. And I think that, like you said, at the community level, the effectiveness of mitigation, not just building codes, but mitigation in general, is the most pronounced. I know for wildfire, for example, we focus a lot in California on mitigation and mitigating wildfire damage. And a lot of the individual home kind of things that people can do to their home to prevent wildfire damage are good, but what can be done at the community level is actually way more effective, like the Firewise community meeting those mandates. So both are obviously very important. But yeah, there’s always room to grow on this front. We can always be more resilient. The downside, of course, is when it comes to the costs to enact some of this stuff. What we want to say is that the long-term benefit outweighs the short-term impact of having to pay for this stuff.

ES:

It’s that time again. Grab a cup of coffee or your favorite beverage, we’re going to do the numbers in the housing market. Here’s what you need to know. For the fifth month in a row, U.S year-over-year home price gains remained above 5%. They are projected to stay in that general range for most of the next 12 months. Home prices increased 5.3% from March 2023 to March 2024. The CoreLogic HPI forecast indicates that home prices will rise by 3.7% over the next year ending March 2025. Northeastern states continue to post the nation’s largest gains as more Americans migrate to the bedroom communities of major cities in job hubs. Markets with more homes for sale like Florida and Texas are now experiencing slower home price appreciation. States like Idaho, Washington, and Utah where some Americans migrated to escape the brunt of the pandemic, are now the furthest from their price peaks. However, no states posted annual home price declines. The highest year-over-year increases were New Jersey, 12.2%, South Dakota, 11.5%, and New Hampshire, 10.6%. And that’s the sip. See you next time.

MBS:

I guess when we think about hurricanes specifically, two states really do come to mind. Obviously it’s everywhere from the Gulf up through the Northeast that are impacted here in the U.S most commonly. But Texas and Florida really are the ones with the big population with the highest risk. Hurricane Ian, you’ve talked about most recently, Hurricane Harvey back in 2017. These are the ones in recent memory that really did have a big impact. My brain instantly goes to talking with Molly Basil from The Office of the Chief Economist.

She and I chat a lot on this podcast, and one thing that commonly comes up is the shortage of houses, is that there’s a housing shortage, there’s a boom of new construction happening specifically because of the migration to Texas and Florida. So that’s why those two states really do kind of stand out in my mind. But in this IBHS report, they do kind of point out that the approaches that those two states are taking are very different. So can you talk a little bit about how building codes in those two states are different and with all this new construction, what we might be looking at?

JS:

One of the great things that Florida does is how strong their building code development and enforcement is. I mean, as I say, it is a state that gets hit by more hurricanes than any other state from a probability standpoint. There’s more likely to be a hurricane in Florida. And they have developed incredibly stringent and effective building codes. Not all the states have developed codes to the same level as Florida. Maybe you could argue that they’re less risky and they don’t have to. But I would argue that anywhere where a hurricane could make landfall is a place where you should start thinking about more stringent building codes.

And a lot of states along the Gulf are starting to think about that. Louisiana is making huge pushes to increase the stringency of their building codes. They’re doing a bit better on the enforcement and training of their contractors and the people who are actually building these, using the new materials, new practices, and training them to make sure they’re doing it correctly. And states like Texas and the same thing. They’re getting a lot better and they’re getting up to where I would say Florida is probably in my mind, is the gold standard when it comes to hurricane wind and building codes.

MBS:

Sure. So here’s another interesting angle on this, is also when we talk about housing and new construction, cost is always a big thing right now with inflation being sky-high and construction material costs and labor being so high right now. If you’re building something to a stronger building code, it’s going to be more expensive. So how does that come into play here? Is there any research done on that?

JS:

Yeah, it is going to be a fact when you have to build, developers are going to have to build to a more stringent building code. It’s going to cost a little bit more. It’s different materials, different practices, more expensive stuff. The argument is always that I think the old adage is for every dollar you spend up front, you’re going to save yourself $7 in the future in terms of the losses. So you are Mitigating future losses by spending more up front. Now there’s obviously an inherent kind of bias in how people think. We’re trying to weigh out the return on their investment, and it’s hard to imagine that $7 saved in the future, I would hope, it’s always my hope that people see that, especially if they live in these particularly risky states. It’s wildfire in California or it’s hurricane along the gulf.

There’s obviously enormous benefit just in terms of saving preventing damage. In addition, if we talk about maybe insurance costs, a lot of insurance companies are starting to credit policyholders for mitigation practices, whatever they’re building in there. So you’ll save on your premium because the insurer is going to save on whatever losses they have to pay out in the future. There’s a lot of companies out there that are working with soon-to-be policyholders saying, “Hey, if you do this and this, you’re going to get a better deal on your insurance policy.”

MBS:

Right. I’m glad you went in that direction because I think a lot of times with many things, we think about what’s the immediate return on our investment, but this is something that, especially from an insurance perspective and from a growing resiliency perspective, it’s a long-term strategy. And you called out specifically Louisiana, and I know this IBHS report does talk about Louisiana specifically on how they’ve come a long way from 2012 through 2024. And Louisiana’s had some really bad, I look back to 2020 with Hurricane Laura and Delta, and they were just pummeled that particular region of Louisiana. So it’s good to see that Louisiana has improved the score ranking, the strength of building code increased quite substantially in Louisiana. So can you talk a little bit about this? Are we seeing those effects in the performance of buildings during hurricanes?

JS:

Yeah. In Louisiana, their scores have increased substantially in the last three years, and they haven’t had a major hurricane to test it. But we’ve seen the effectiveness in other parts of the country going back to Florida, where building codes [inaudible 00:14:22] stringent building codes are great at mitigating the damage.

MBS:

That’s great to see.

JS:

Would lead us to believe that, yeah, Louisiana is probably going to be sitting in a much better spot the next time they’re hit by a major hurricane.

ES:

Before we end this episode, let’s take a break and talk about what’s happening in the world of natural disasters. Corelogic’s Hazard HQ command central reports on natural catastrophes and extreme weather events across the world. A link to their coverage is in the show notes. From April 26th, April 27, tornadoes swept across Oklahoma, Southwestern Iowa, and the cities of Lincoln and Omaha, Nebraska. Reports indicated extensive damage to residential, commercial, and industrial facilities within the tornado paths. These storm systems came less than two months after an extensive hail outbreak across the Midwest where one inch or greater hail fell on more than 500,000 homes. The storms also followed a year of record-breaking hail. To read about how Texas recorded a record-breaking year for insured loss in 2023, check out the report in the show notes. Speaking of Texas, late May brought a derecho to central Texas. Wind gusts over 100 miles per hour blew through the Houston metro area, and CoreLogic identified nearly 200,000 residential properties impacted by winds of 90 miles per hour or greater.

MBS:

So moving over to Texas, I know that Texas did not perform very well on this list, and they were close to the bottom, third from the bottom with only Alabama and Delaware scoring lower than them. And I’m sure people are going, “Delaware has a hurricane risk?” But up there in the Northeast, people don’t necessarily think of it because it is not as common, but it is true. But in Alabama, the part of the Gulf that probably doesn’t get hit quite as much as Louisiana, Mississippi, and Texas. But Texas is a big one. So what do you think this could mean for the at-risk buildings in Texas if we did see a big hurricane, a strong hurricane hit Texas this year?

JS:

Yep. So one of the things about Texas is it’s what they call a home-world state. So it doesn’t actually require mandatory adoption of building codes. Back in 2001, the Texas State Legislature adopted the 2000 edition, year 2000 edition of the International Residential Building Code or IRC. The problem is, and a lot of the incorporated areas in Texas have adopted to that code or even more recently released, and therefore more stringent building codes. But that’s not the case of the non-incorporated cities in towns in Texas. And there’s a lot of areas that are non-incorporated and therefore are not adopting these building codes. Some of these could be coastal areas, it’s all up and down the state. So there’s a lot of areas where there’s a high degree of vulnerability. They’re not adopting to the more modern building codes. They don’t have to, so they aren’t. This goes back to the sort of risk reward cost standpoint.

If they don’t feel the need to do so, they won’t. And it leaves it to be that if there was a hurricane, we would expect more damage in these areas because they’re not adopting the more stringent building codes. So it’s not a problem across the state. It’s just that in Texas, there are a lot of areas that are unincorporated and enforcement isn’t mandatory. But a lot of the more developed, incorporated cities have adopted building codes, some even more modern building codes than the 2000 edition that was mandated at the state level.

MBS:

Okay. Hurricane season is just around the corner, so we need to talk about this peril. Hurricane risk is more common in the US counties with higher risk. So we’ve talked a lot about specifically the Gulf Coast from Texas, but Texas all the way up through the Northeast. But we have focused a lot on the Gulf Coast, Texas where there’s been an influx of migration. More people means more properties. So I mean, this is where if there’s more properties, there’s more potential for loss. So I guess with this high risk, increasing risk, and more people there, and I guess too, people that may be new to the region and not understand that this is a risk as well. So the importance for this compounding trend of needing to understand your hurricane risk and potential options for mitigation to protect yourself. Can you talk a little bit about that?

JS:

Yeah, of course. So like you said, the more that people are moving to the coastal areas in the Gulf or in Florida, or even on the East Coast, building new homes, building bigger homes, more expensive homes, means that there’s a greater amount of risk to perils like hurricanes, which is why it’s imperative to have things like building codes in place to mitigate some of that damage. We see that it’s effective in Florida. It would be great if we had the same standards in place in Texas to mitigate some of that damage. And that’s just looking at hurricane risk today.

If we start thinking about hurricane risk in the future, we did a lot of analysis here at CoreLogic when we built out our suite of climate risk analytics, when we took the IPCC’s sixth assessment report, and we used that information to look at how hurricane patterns will change into the future out into, say, 2030, 2040, or to the mid-century, 2050. And hurricanes are one of those perils that we have a higher amount of confidence that climate change is going to increase the proportion of more severe hurricanes. When we see a higher proportion of cat fours and fives relative to one twos and threes, not necessarily to be more hurricanes total, but a lot of stronger ones. Maybe a little bit more rapid intensification prior to landfall. So it is of the utmost importance to start thinking about mitigation now.

It’s going to be applicable to hurricane risk today. It’s going to be incredibly applicable to future hurricane risk. If we’re not going to move away from the coast and we’re not going to stop building in these beautiful areas, well, at the very least, let’s strengthen the homes so that when these disasters do happen, we can move right back in, we can go back to our normal lives, and we don’t have to rebuild and spend billions rebuilding after a hurricane.

MBS:

Know your risk. Accelerate your recovery.

JS:

Exactly.

MBS:

Jon, thank you so much for being here. Not going to be the last time we hear from you this year, I know. So thank you so much for joining us today on Core Conversations: A Core Logic Podcast.

JS:

Thank you so much for having me.

MBS:

And thank you for listening. I hope you’ve enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life. Producer Jessi Devenyns, editor, and sound engineer, Romie Aromin, our facts guru Erika Stanley, and social media duo Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.

ES:

You still there? Well, thanks for sticking around. Are you curious to know a little bit more about our guest today? Well, Jon Schneyer is the director of Catastrophe Response here at CoreLogic. Jon aims to keep CoreLogic clients informed of weather risks by monitoring potential events, determining the scope of the response, coordinating with internal stakeholders, and providing up-to-date content. You can read more of his event response coverage at hazardhq.com. The link is in the show notes.

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