Climate Change's Threat to Home Values

The American dream has long been connected to home ownership.  This dream is now threatened by climate change on two fronts. First, as sea levels rises and storms become more intense housing prices will drop in certain areas of the country. Second, for these same reasons, homeowner insurance policy prices will surge or go away altogether, leaving homeowners on their own.  The trickle down impact of this on homeowners makes perfect economic sense.  If homes are uninsurable, they become less marketable and the value of the home diminishes. This is a finding of First Street, a research firm that studies climate threats to the housing market.  The First Street analysis predicts an extraordinary reversal in housing fortunes for Americans—nearly $1.5 trillion in asset losses over the next 30 years. 

The implications are staggering.  Homeownership has long been the bedrock of the American economy.  Almost two-thirds of American adults are homeowners and the median price of a home has appreciated 58 percent over the past two decades.  Across the country, homes are the largest asset held by families, accounting for 67 percent of their assets. Owning a home is already becoming increasingly unattainable for younger generations. Climate change is the great multiplier, and it will amplify this trend.

The biggest factor in reduced home values is the cost of insurance.  Average premiums have risen 31 percent since 2019, and they are higher in certain climate zones.  Rates are expected to rise another 29 percent over the next 30 years, according to First Street, while rates in Miami could quadruple and in Sacramento, Ca., they could increase 100 percent.  Homeowners insurances rates have historically been about 8 percent of the overall monthly mortgage premium.  This has been too low to cover the increasing severe weather events we have experienced with Hurrican Helene in North Carolina, Hurricane Milton in Florida and the devastating wildfires in Los Angeles.  Let me say it plainly, “Homeowners insurance has been too cheap.”  State and federal government cannot continue to subsidize this discrepancy, giving homeowners a false sense of protection from brutal market forces.    The insurance actuaries are making the necessary adjustments, and we are now moving into an era where the insurance costs will become 20 percent of the monthly mortgage payment. 

The practical impact of this paradigm shift is already underway.  Only the wealthy will be able to afford homes.  Unsympathetic investment companies will scoop up these homes because they have the economic bandwidth to absorb these large insurance rates.  This will make homeownership for families more of a fantasy than a dream.  Americans will be driven into the rental market which already has insufficent units, driving up rental prices for them as well. 

This shift will accelerate the gap between upper and lower economic classes in the country.  The middle class will weaken and shrink, while the rich get richer and the poor get poorer.  The reduced value of primary residences and the increase of homeowner's insurance is one of the more hidden costs of climate change.  And like usual, it is the poor and the lower classes that are harmed the most.  The wealthy homeowners of Pacific Palisades will be able to rebuild their homes after the Los Angeles fires.  The middle and lower economic homeowners and renters who lost their homes in the mountains of North Carolina, will not fare so well.

As Christians and followers of Jesus Christ, we are to have our antennas up for the needs of vulnerable people.  That antenna is sending us signals that we need to learn about the impact of climate change on our neighbors and work on their behalf to keep them safe and healthy.  If we fail to acknowledge and address climate change, it will be like the priest and Levite that walked on the other side of the road, ignoring the plight of their wounded neighbor. Their always seem to be more priests and Levites than Samaritans. The parable indicts those religious people who shut down their antennas to the needs of the vulnerable. We can justify our negligence by dismissing the science or distracting those watching us with cries of "wasteful government spending." But the end result is the same as in the days of Jesus telling it. The question remains, "Which of these was a good neighbor to the man on the side of the road?"

And which one will we be?