(Dec. 26, 2014) Ocean City government would have an avenue, if it so chose, to ease up on a federal building requirement that has reportedly caused problems for homeowners in a declining-value housing market.
The city’s Planning and Zoning Commission spent time at its last meeting discussing with city staff ways to allow owners to continue to upgrade their properties without triggering the “substantial improvement” clause set by the Federal Emergency Management Agency.
“I am, at some point in time, going to go before the mayor and City Council to change this standard for substantial improvements to be a 10-year period,” said city Chief Building Official Kevin Brown.
“When the [property] values went down, that’s when we saw an increase in substantial improvements because the value no longer balanced it out,” Brown said.
Under FEMA’s guidelines for the National Flood Insurance Program, applicable communities such as Ocean City can maintain their favorable insurance rating even if older structures are not brought up to the current flood protection code.
Ocean City currently receives a townwide 15 percent discount on all flood insurance purchased through the national program, the highest discount level FEMA awards.
These noncompliant, grandfathered structures are allowed to remain sub-standard, with no effect on the city’s rating, as long as there have been no “substantial improvements” to the property. If such improvements are being made, the structure must be brought up to code.
FEMA defines substantial improvement as having occurred once structural improvement has been done to 50 percent or more of the property’s value. This threshold is cumulative.
“Substantial improvement is commenced when the first alteration to the structural part of the building has begun,” Brown said. “Once that first structural improvement is done, any improvement – structural or not – goes toward the tally of improvement.”
This means that, over time, many property owners have accumulated improvements up to the 50 percent mark, and are unwilling to do any further work on their property, lest they have to conform to current flood codes. For many older buildings, this could mean raising the entire structure several feet, at great cost.
“We want people to improve their property and keep things up, and it seems at times that we’ve been hearing its hard to do that with the codes that are in place,” said Commissioner Peck Miller.
“What we’re talking about are structures where the owner just wants to make maintenance repairs and replacements,” said Commissioner Lauren Taylor. “As it is, we’re driving people to let things get worse.”
In the past, the value of improvements to a property was often outpaced by the growth in value in the market.
For instance, Miller said, a person could make $30,000 of improvements to a $60,000 property, after which he or she would need to stop to avoid having to bring everything up to FEMA code.
But if the value of their property later grew to $90,000, the threshold would increase to $45,000, giving that person an extra $15,000 of headroom for work.
In a flat or declining real estate market, however, no additional headroom is coming, and owners are running up against the hard choice of delaying work, or shelling out for massive flood improvements.
Brown’s solution, to allow the tally of improvements to reset after 10 years, or whatever length the city finds appropriate, is likely the only one that would squeak by FEMA.
“I think what Kevin was talking about with the 10 years makes a lot of sense,” said Glenn Irwin, executive director of the Ocean City Development Corporation, a non-profit that finances redevelopment in the downtown area.
“Downtown, where the assessed values of the buildings are so much lower than the land, it creates a problem.”
There are two ways, currently, to work around the FEMA system. Improvements that result from a recorded building code violation don’t count toward the total.
Further, variances to the flood code can be given via the city’s Board of Adjustments and Appeals, although Brown stressed that such appeals may not be made on the basis of financial hardship, but rather due to physical constraints.
“So the way to work through this right now is to go to the Board of Adjustments and Appeals and get a variance through them, or to call in a safety violation,” Miller said.
Appeals through the adjustment board cannot put the structure below base flood elevation, but a waiver can be granted for the freeboard requirements that the city has put in place in order to get the full 15 percent discount rating.
Roughly 20 such appeals have been done in the past four years, Brown said.