US home insurers are leaving climate risk areas. We need affordable housing now

When the US housing crisis meets the looming insurance crisis, only government intervention will avert catastrophe

By Chrissy Stroop. Published 9-27-2023 by openDemocracy

The Creek Fire burns vegetation near a road on Camp Pendleton, California, Dec., 24, 2020. Photo: Public Domain

Most Americans are aware that with housing costs on the rise, more and more of us are experiencing periods of homelessness. Based on the relative dearth of national coverage, I presume far fewer of us are aware that major insurance companies have begun pulling out of areas identified as being at heightened risk due to climate change, leaving homeowners in the lurch. I wrote about the impact on Florida in July, but it turns out the problem is much larger than a single state, with California also heavily affected.

Over the next few years, it seems likely these two problems – unaffordable housing and unaffordable insurance in at-risk areas – will spiral into a potentially catastrophic cycle. Not only will some Americans be forced to abandon their homes, but the housing in these areas at high risk of damage from storms or wildfires will likely stand empty (as long as homes continue to stand at all), all of which will further drive demand up in a housing market that already prices out far too many people.

Homelessness in the United States increased 6% between 2017 and 2022, according to Department of Housing and Urban Development data analysed by nonprofit the National Alliance to End Homelessness. Notably, though, homelessness rose by a modest 0.3% from 2020 to 2022, a period marked by both pandemic-related economic disruptions and robust investments of federal resources in the American population, including direct aid cheques.

In other words, government investment in people whose lives were disrupted by the pandemic slowed the increase of homelessness in the country.

That investment, along with the possibility of remote work, also helped many millennials to buy homes of their own. Pundits had previously derided their generation for ‘failing’ to do so, even though millennials faced economic hardships previous generations had not.

More recently, however, the Federal Reserve Bank has aggressively raised interest rates to counter unusually high inflation, once again making it more difficult for Americans to buy houses. Now, according to analysis by Forbes: “Housing supply remains at near historic lows – especially entry-level supply – consequently propping up demand and sustaining higher home prices.” But low supply, a problem caused in part by the “not in my backyard” folks who object to the construction of low-income housing near them, is only one factor keeping home prices at historic highs.

Another is the high mortgage interest rates that have resulted from the Federal Reserve’s recent spate of interest rate hikes, which in turn has caused homeowners with locked-in low rates to stay put rather than sell. Another rate hike is expected by the end of the year.

Things are also bad for renters. With the average rent now at 30% of the median US income, the average American renter is considered rent-burdened, according to standard metrics.

For those of us who, like me, struggle to pay high rent in a city that is relatively safe from right-wing attacks on the rights of women and trans people, and for whom homeownership in a place where we feel more or less safe remains a distant dream, it can be difficult to empathise deeply with problems homeowners face. But according to a new report by First Street Foundation, a climate-change focused nonprofit based in New York, America is headed for a climate insurance bubble that most of us seem to be ignoring.

According to the report, which focuses largely on California, since 2009, that state has seen “a 270% increase in the cost of wildfires and a 335% increase in the number of structures destroyed by wildfires.” First Street’s modelling predicts further significant increases by 2053.

Insurers are taking note, and many homeowners in high-risk areas – also including parts of the south, west, and midwest – are now finding themselves without access to affordable insurance. The report observes that between 2015 and 2021 some of the most at-risk zip codes in California have seen a near 800% increase in the number of policies insurers refused to renew.

These non-renewals often leave homeowners with no options but state programmes, which are prohibitively expensive and considered a last resort. The report also notes that flood and wind insurance policies across many parts of the US are becoming increasingly unaffordable.

While the research suggests some of the wildfire insurance problems might be mitigated by insurers offering discounts as incentives for homeowners to take protective measures – such as clearing flammable debris and using flame-retardant building materials – this hardly seems an adequate solution.

First Street also highlights the likelihood of these conditions resulting in climate-driven migration.

“In high-risk areas, decreased demand for properties might result in declining real estate values, and, conversely, urban centers experiencing an influx of residents may experience increased demand for housing, leading to rising property values,” it states.

In Oregon, where I live, locals already complain about Californians moving north to escape their state’s astronomical housing costs, thereby driving up housing costs here. When the issue of insurers refusing to cover homes in areas at heightened risk due to climate change leads to further migration to already high cost-of-living urban centres like Portland, the impact will undoubtedly be to price more residents out of housing, resulting in increased homelessness.

This is a sobering thing to think about in the wake of the devastating wildfires in Maui, as well as both the hottest July and the hottest August globally on record.

But it seems to me when the climate insurance bubble bursts amid already harsh housing conditions, Americans will be facing an outright catastrophe.

The best way to mitigate the damage would be for municipal and state governments to start working with the federal government now toward sustainable, high-density development, and for the federal government to prepare to bail out not (or not just) the ‘too big to fail’ banks and insurers that will be affected by the looming crisis, but also the ordinary Americans who will be most devastatingly affected.

Direct cash payments from the federal government improved millions of Americans’ lives during the pandemic. We can only hope the political will to directly provide housing and cash will be there when the climate shit really starts to hit the fan.

This article is published under a Creative Commons Attribution-NonCommercial 4.0 International licence.

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