Destruction of these properties, even if uninsured, may not impose a serious financial hardship on the owner. Mortgage lenders may respond by requiring larger down payments, which means that fewer potential buyers exist but also that the community may take on an even more exclusive character. What ought to be of greater concern to us are the large cities that have grown up in areas increasingly prone to one or more of the disasters mentioned above. Millions of households live in extremely vulnerable housing, and have little or no savings to fall back on in the event of a material loss. There is no easy way to mitigate these problems, so we just seem to hope that whatever happens will not impose too stiff a penalty on us for our foolhardiness.
People are more risk adverse when the risk is direct.
The private sector imposes direct costs on risk-takers, but politics has reduced or even eliminated the penalties. Readers of GroundSwell know that allowing the private appropriation of location rent has played a major role in unwise development across the U.S. and around the globe. Federal or state insurance programs that protect owners from the risk of loss due to floods or hurricanes or earthquakes act to increase the rental value of locations in areas prone to these disasters. The quid pro quo for such programs must be the full collection of the location rent. There have been a few stories of entire towns relocating to higher ground as rivers changed course or more frequently flooded.