THE PRICE OF SPRAWL INSTITUTE REPORT

Florida’s wetlands are more than undeveloped land waiting for a subdivision. They are part of the state’s natural stormwater infrastructure—absorbing, storing and slowly releasing rainfall before it reaches homes, roads and businesses.

For decades, Florida has allowed wetlands to be drained, filled and developed, often under a mitigation system that permits developers to destroy wetlands in one location while purchasing credits to preserve or restore wetlands somewhere else. The problem is that a wetland replaced miles away cannot provide the same flood protection to the neighborhood where the original wetland was destroyed.

A new study by Massachusetts Institute of Technology economists Daniel Aronoff and Will Rafey provides a striking measure of that hidden cost. Their research found that Florida’s wetland offset system generated substantial private economic gains for developers and mitigation banks, but also created hydrological impacts that increased flood damages. The researchers estimate that a properly designed, locally targeted tax could have prevented approximately $1.6 billion in flood damage while preserving more than two-thirds of the private economic gains created by wetland offset trading.

That $1.6 billion is the Price of Sprawl—a cost that was not necessarily paid by the developers who destroyed the wetlands. It was paid through flood damage to homeowners and communities.

Florida’s Natural Flood Protection System

Florida has lost more than 9 million acres of natural wetlands over the past 200 years, according to the Florida Department of Environmental Protection. Much of that loss has resulted from drainage and filling.

Florida DEP describes wetlands as natural flood-storage areas. During heavy rainfall, wetlands give water somewhere to go, allowing it to spread out and slow down rather than immediately rushing toward developed areas. Wetlands also filter pollutants, stabilize shorelines and provide other ecological functions.

Development changes that system.

When wetlands are filled and replaced with houses, roads, parking lots and other impervious surfaces, rainfall runs off faster and in greater volumes. DEP notes that urbanization alters wetlands, floodplains and natural depressions while increasing the volume and speed of stormwater runoff. The result can be increased flooding, degraded water quality and reduced groundwater recharge.

In other words, when developers remove natural stormwater infrastructure, someone has to replace it.

Too often, that replacement comes in the form of retention ponds, drainage pipes, pumps, canals and other engineered infrastructure—and taxpayers and homeowners ultimately help pay for it.

The Hidden Cost of “No Net Loss”

Florida's wetland mitigation system was designed around an understandable concept: if wetlands are destroyed for development, the environmental functions should be replaced elsewhere.

But location matters.

The MIT research examined Florida’s wetland mitigation market from roughly 1995 through 2020. Developers could purchase credits from mitigation banks rather than preserve the wetlands on or immediately around their development site. The research found that this system created significant economic gains from trading environmental offsets, but also produced what economists call a hydrological externality—the flood-protection benefits of the original wetland were lost locally even when another wetland was protected or restored somewhere else.

The researchers estimate that wetland offset trading produced approximately $2.4 billion in net private gains, but the resulting loss of localized flood protection generated approximately $1.6 billion in additional flood damage.

This is the fundamental problem with treating wetlands as interchangeable commodities:

One acre of wetland restored 20 or 30 miles away cannot protect a homeowner from the stormwater that used to be absorbed by the wetland behind that homeowner's neighborhood.

What Does This Cost the Homeowner?

The $1.6 billion figure is particularly important because it puts a dollar value on something that is often missing from development decisions: the cost imposed on existing property owners.

When wetlands are lost, homeowners can face several layers of costs.

1. Flood Damage

The most direct cost is damage to homes and personal property.

A study published in the Journal of the American Planning Association examined 383 non-hurricane flood events in Florida and found that alteration of naturally occurring wetlands significantly increased property damage from flooding. The researchers estimated that wetland permits were associated with approximately $30.4 million in additional flood damage per year statewide during the study period.

That research is older, but its central finding remains important: land-use decisions can increase the financial damage caused by flooding.

2. Higher Insurance Exposure

Flood damage is not normally covered by a standard homeowners insurance policy. Florida's Office of Insurance Regulation warns that flooding is a serious statewide risk and that homeowners generally must purchase separate flood insurance to protect against rising water.

As development increases exposure to flooding, homeowners bear more of the financial risk.

That means the cost of destroying wetlands doesn't necessarily show up on the developer's balance sheet. It can show up later in:

• flood insurance premiums;
• uninsured losses;
• deductibles;
• property repairs;
• lost personal property;
• temporary housing costs; and
• declining confidence in the safety and value of a neighborhood.

3. Higher Local Government Costs

When natural flood protection disappears, communities have to build something to take its place.

That can mean larger drainage systems, stormwater ponds, culverts, pumps, canals, roadway improvements and flood-control projects.

Florida DEP acknowledges that when local governments have to make expensive temporary fixes to drainage systems, Florida taxpayers bear the burden.

The homeowner therefore can pay twice:

First through the increased risk created by development, and again through taxes, assessments and utility fees used to fix the resulting drainage problems.

The Developer Gets the Profit. Who Gets the Bill?

This is the central question Florida policymakers should be asking.

A developer purchases land, obtains development approvals, constructs homes and sells them. The developer can capture the economic value created by converting land into residential or commercial property.

But the costs associated with lost flood protection can extend far beyond the development site.

Existing homeowners may experience:

More runoff → more flooding → more damage → higher insurance exposure → greater public infrastructure costs.

Those costs are spread across homeowners, taxpayers, insurers and local governments.

This is the Price of Sprawl.

It is the difference between the price a developer pays to develop a piece of land and the much larger cost that development can impose on everyone else.

Florida's Wetlands Are Infrastructure

Florida routinely spends billions of dollars on traditional infrastructure—roads, bridges, water systems, wastewater systems and stormwater projects.

But wetlands provide infrastructure without requiring concrete, pumps or electricity.

They store water.

They slow water.

They filter water.

They protect downstream property.

And they do it every day.

Florida DEP's own stormwater guidance recognizes that natural depressions, floodplains and wetlands perform functions that are lost when development alters the landscape.

The question should therefore not simply be:

“Can this wetland be mitigated?”

The better question is:

“What flood-protection function will be lost here, who will be affected, and who will pay for replacing it?”

A Better Approach for Florida

The Price of Sprawl Foundation believes Florida should reconsider how it values wetlands in development decisions.

1. Protect High-Value Urban Wetlands

Wetlands located within or immediately adjacent to growing communities should receive greater protection because their flood-storage value can be particularly high.

2. Make Growth Pay for Growth

If development increases stormwater and flood risk, the development should bear the cost of mitigating that additional risk—not existing homeowners.

3. Account for Flood Protection in Mitigation

Wetland mitigation should measure more than ecological acreage.

It should account for the economic value of the flood protection being removed.

4. Protect Existing Homeowners

Growth-management decisions should consider the people who already live in a community—not simply the economic benefits of the next subdivision.

Conclusion: Florida Cannot Afford Cheap Development

Florida's wetlands are often treated as obstacles to development.

They should be treated as natural infrastructure.

Destroying a wetland may make a development project more profitable, but that does not mean the development is cheaper for society.

The real bill can arrive years later when a storm floods homes, a neighborhood needs a new drainage system, insurance costs rise, roads have to be rebuilt or taxpayers are asked to finance another flood-control project.

The new MIT research puts a remarkable number on that hidden bill:

$1.6 BILLION.

That is the estimated flood damage associated with the hydrological consequences of Florida's wetland offset system over the study period.

And the most important lesson is not simply that wetlands have value.

It is that when government allows development to destroy natural flood protection without charging for the risk it creates, someone else pays.

In Florida, that someone is often the homeowner.

The Price of Sprawl isn't just the cost of building another subdivision.

It is the cost of what we lose to build it—and the bill that gets passed on to everyone who comes afterward.

Sources

• Massachusetts Institute of Technology economists Daniel Aronoff and Will Rafey, Conservation Priorities and Environmental Offsets: Markets for Florida Wetlands, American Economic Review.
• Florida Department of Environmental Protection, Environmental Resource Permitting—Dredging and Filling and Stormwater Programs.
• Florida Department of Environmental Protection, Florida wetlands assessment and historical wetland-loss data.
• Florida Office of Insurance Regulation, Flood Insurance information.
• Brody, Zahran, Maghelal, Grover & Highfield, The Rising Costs of Floods: Examining the Impact of Planning and Development Decisions on Property Damage in Florida.
• Tampa Bay Times, “Developers drained Florida cities’ wetlands. It cost homeowners $1.6B, new report says.”