If Joel hypothesis that "You want to look at each pixel which is mostly water, and assign a distance from the pixel to all surrounding pixels that are not water" is true (we still haven't add a proper explanation!), then as I said in a comment, this can be achieved in just one line. This is called the distance transform and is achieved in matlab with bwdist.
If all zeros pixels in coast are to be replaced by their euclidean distance to the nearest non-zero pixel, it's simply:
dist = bwdist(coast ~= 0);
coast(coast == 0) = dist(coast == 0);