Abstract
Eligibility for participation in the National Flood Insurance Program (NFIP) requires communities to enter into an agreement with the federal government to adopt and enforce a floodplain management program to reduce the risk of future flood damage in Special Flood Hazard Areas (SFHAs). A key component of these agreements is the Federal Emergency Management Agency’s (FEMA) “50 Percent Rule,” which limits the amount that property owners can spend on repairs or renovations of existing properties in SFHAs to 50 percent of the depreciated value of the improvements without triggering the requirement to bring the existing improvements into full compliance with current building codes. The purpose of this teaching note is to provide a format for helping students understand how the regulation alters the incentives of the different constituencies associated with the renovation, repair and replacement of residential property improvements in SFHAs. The 50 Percent Rule effectively caps the dollar amount of upgrades and repairs allowed on existing structures to avoid triggering the requirement to bring the existing structure into compliance with the current building code. A numerical example of the FEMA 50 Percent Rule and a Concept Application exercise are provided .
