Flood insurance is quietly pushing buyers out of coastal real estate markets, creating a major affordability barrier that often goes unaddressed. Joseph DeNaro, a realtor at Realty ONE Group Emerge who specializes in New Jersey’s beach communities, says flood insurance has become a third major cost factor — alongside mortgage rates and property taxes — that systematically removes buyers from the market.
“You put those three together, and sometimes it actually takes people out of the game completely. They can’t even afford it if they wanted to,” DeNaro explains.
This issue is particularly acute in coastal areas where all properties are located in flood zones and flood insurance is mandatory unless the purchase is made in cash. The costs can be especially steep for homes that do not meet specific height requirements, and the impact on buyer decisions is significant.
Height Requirements and Escalating Costs
Flood insurance premiums are closely tied to whether a property meets height requirements set to reduce flood risk. Homes that fall short of these standards face much higher insurance costs, often making them unaffordable for buyers already stretched by high mortgage rates and property taxes.
DeNaro points out that flood insurance, not standard homeowners coverage, is the real obstacle. “All these homes are in a flood zone, so you have to have flood insurance unless you buy outright. It’s very expensive if the house doesn’t meet certain height requirements, and that really drives up the cost,” he says.
These height rules are part of a larger set of building code changes that gained urgency after the 2021 collapse of the Champlain Towers South condominium in Surfside, Florida. While that disaster primarily affected condominium regulations, it also prompted a broader reassessment of building codes and insurance requirements nationwide in coastal markets.
As a result, flood insurance costs have climbed for properties that do not comply with updated standards. For buyers already facing high costs elsewhere, the added expense of flood insurance can make a property unattainable.
Buyer Awareness Gaps
A major complication is that many buyers do not learn about flood insurance costs until late in the buying process. “People either don’t realize the flood insurance cost, or when they hear it, they get scared away,” DeNaro says.
This lack of awareness is especially common among buyers new to coastal markets or purchasing a second home. These buyers often focus on the purchase price, mortgage rate, and property taxes, neglecting to factor in flood insurance until they receive a quote. The surprise can be large enough to derail a transaction, with buyers who thought they could afford a home suddenly finding that the total cost exceeds their budget.
Complicating matters, flood insurance premiums can vary widely based on the specific property and its location within the flood zone. Buyers comparing multiple homes may not realize that insurance costs are a moving target and need to be evaluated for each property.
Overestimation Keeps Buyers Out
On the other side, some buyers overestimate flood insurance costs so drastically that they eliminate themselves from the market before even speaking to a realtor. “They do realize it, but they think it’s even worse than what it really is, and it makes them not even have an initial conversation,” DeNaro says.
This problem is particularly common among buyers who have heard about steep flood insurance costs in states like Florida and assume New Jersey’s coastal markets are just as expensive. While regulatory changes have raised costs in both states, DeNaro notes the impact in New Jersey is less severe. Still, the perception of high costs is enough to deter some buyers from considering properties they could actually afford if they received an accurate quote.
Because this overestimation happens before buyers engage with realtors, it is difficult to correct. DeNaro emphasizes that education and early outreach are needed to help buyers understand real costs and avoid self-eliminating based on inaccurate assumptions.
Market Elimination
The combined effect of these awareness gaps and overestimations is that flood insurance is knocking buyers out of the market before they ever have a conversation with a real estate professional. DeNaro describes how buyers, deterred by either the reality or the perception of high flood insurance costs, never even start the process.
This elimination effect is especially pronounced among price-sensitive buyers who are already stretching to afford a home. For them, the additional cost of flood insurance — real or assumed — can make a coastal property unattainable. But the impact is not limited to lower-priced homes. Even buyers in the luxury segment, particularly those considering second homes or investment properties, are wary of the total cost of ownership once flood insurance is factored in.
As a result, flood insurance acts as a hidden affordability barrier, shrinking the pool of potential buyers and creating challenges for sellers who may not realize how much insurance costs influence buyer decisions.
A Structural Barrier
Flood insurance represents a structural barrier to market entry that is unlikely to be resolved in the near future. Unlike mortgage rates, which may decline, or property taxes, which can stabilize, flood insurance premiums are driven by building code requirements and risk assessments that are not subject to short-term market changes.
DeNaro stresses that this barrier’s structural nature means it will require policy changes or new market solutions to address. Possible remedies could include subsidies for flood insurance, adjustments to building code standards, or new insurance products that offer more affordable coverage for flood zone properties.
In the meantime, DeNaro says realtors and other professionals must educate buyers about actual flood insurance costs early in the process, rather than letting assumptions or secondhand information dictate decisions. “People either don’t realize the flood insurance cost, or when they hear it, they get scared away,” he says.
Realty ONE Group Emerge is addressing the problem by providing buyers with accurate flood insurance information early in the transaction process. This helps buyers make informed decisions about whether a coastal property is truly affordable. As flood insurance costs continue to influence buyer decision-making, the ability to guide clients through this hidden affordability barrier will be essential for success in coastal real estate markets.
Looking Ahead
The rising prominence of flood insurance as a barrier to homeownership on the coast comes at a time when high interest rates and property taxes already strain affordability. For many, flood insurance is the tipping point that determines whether they can buy at all.
Sellers and their agents must now recognize that flood insurance is not just a technical requirement but a central factor in whether a home moves or sits. Properties that do not meet updated standards or that carry especially high premiums may require more aggressive pricing or additional incentives to attract buyers.
For buyers, the lesson is clear: flood insurance costs can’t be ignored or guessed at. Early, accurate information is essential to avoid both unpleasant surprises and missed opportunities. As long as current building codes and risk assessments remain in place, flood insurance will continue to shape who can buy, what sells, and how coastal markets function.
In today’s environment, understanding and addressing the true impact of flood insurance is not just a detail; it’s a defining factor in the future of coastal real estate.
