The Neighborhood Homes Investment Act: A Tool for Disaster Mitigation and Disaster Recovery
Rebuilding Homes, Strengthening Communities, and Closing the Post-Disaster Appraisal Gap
The Construction Challenge
Building new homes and retrofitting current homes to better withstand today’s natural disasters can add significant costs for developers and homeowners, including: installing impact resistant windows and a sealed roof deck; building to fire resistant standards; elevating a home on stem walls or piers to withstand flooding and storm surges; and using “advanced materials” to replace wood, brick, and glass to better fortify homes and also make them more energy efficient. It is well understood that these additional costs will save homeowners significant money in the form of reduced utility costs, reduced insurance costs, and reduced or avoided repair costs in the event a major weather event does occur, but with basic costs of construction materials, labor and home loans all at peak levels, it is difficult if not impossible to incur these extra costs and sell or rehab the home at a price that is affordable to a working family.
The Rebuilding Challenge
Natural disasters destabilize entire housing markets and make rebuilding unrealistic for many families and communities. Many communities that are frequently impacted by natural disasters already struggle with relatively low home values, as weather-related risks and insurance costs lower the value of the home. But after a natural disaster strikes, home values are likely to plummet even further – exacerbating the difference between the repair and construction costs and the value of the home. There are several key drivers of this post disaster financing gap:
CONSTRUCTION COSTS EXCEED HOME VALUES
Post-disaster demand spikes cause construction costs to surge — escalating by more than 40% since 2020 — while home values remain stagnant or decline. This creates a severe appraisal gap in lower-cost or rural markets, where property values lag behind construction costs even under normal conditions.
INCOMPLETE INSURANCE AND AID
Insurance coverage is often incomplete due to underinsurance and rising deductibles in high-risk areas. Combined with minimal Federal Emergency Management Agency (FEMA) grants that average around $10,000 per homeowner, these resources rarely cover total reconstruction costs.
PERMANENT DISPLACEMENT
When rebuilding is financially unviable, families are forced to relocate permanently. Major disasters can cause local population losses of 10–20% or more, weakening local economies and housing markets.
THE COST OF RESILIENCE
As noted previously, modern building codes and resilience measures (e.g., elevating homes in flood zones or using fire-resistant materials) can add an additional 10–30% to upfront construction costs. Because these vital upgrades are not reflected in immediate appraised values, homeowners often cannot afford to build back stronger without additional support.
RESTRICTED FINANCING
Lenders are often unwilling to finance reconstruction when the cost of building exceeds the home’s expected value. Impacted homeowners also face reduced equity or damaged credit, leaving properties vacant or abandoned.
The Solution: The Neighborhood Homes Investment Act
Congress should enact the bipartisan Neighborhood Homes Investment Act (NHIA), which would create a tax credit that can be used to offset up to 40% of the costs of developing or substantially rehabilitating for sale homes, and up to 50% of the costs of owner occupied rehabilitation. The program prioritizes development and rehabilitation in communities of higher distress – where developers and homeowners would otherwise struggle to incur the additional costs needed to build resilient homes and retrofit existing homes in a way that would “pencil out” for starter homes and working families to afford. Just as importantly, states are given additional flexibility to use the credits to support new development and substantial rehabilitation of homes in communities that have been designated as a federal disaster areas - meaning NHIA can become an essential tool for housing and economic recovery in the wake of a federal disaster.
How NHIA Supports Disaster Recovery
CLOSING THE REBUILDING GAP
NHIA provides a tax credit to cover the difference between total development costs and a home’s final market value — a gap that can reach up to tens of thousands of dollars per home and halt un-subsidized recovery.
SUPPORTING RESILIENT RECONSTRUCTION
The credit absorbs the extra 10–30% cost of resilience upgrades, ensuring communities build back stronger to withstand future risks rather than just replacing what was lost.
UNLOCKS PRIVATE CAPITAL
By mobilizing private investment, NHIA scales up rebuilding velocity, prevents neighborhoods from sitting partially vacant, stabilizes property values, and restores local tax bases.
PREVENTS DISPLACEMENT
By making rebuilding affordable, NHIA allows displaced families to return home, preserving community networks, school enrollment, and local workforce capacity.
COMPLEMENTS EXISTING AID
NHIA works alongside insurance, FEMA, and other potential federal funds by filling the final remaining financing gap, maximizing federal investments and reducing stalled or abandoned projects.
A Targeted, Efficient Tool for Long-Term Recovery
Disaster recovery requires more than long-term aid — it also requires addressing structural housing market challenges. NHIA directly addresses the mismatch between high construction costs and lower home values, which is one of the biggest barriers to building storm resilient homes, retrofitting existing homes to better withstand storms, and rebuilding homes in the wake of a natural disaster. In addition, by expanding program eligibility to include disaster-impacted communities in addition to other distressed communities, NHIA can support faster and more resilient recovery for families and communities nationwide.