© Earth.org

By Ed Maurer

Regardless of how the next administration in Washington, D.C., feels about global warming, its impact on housing costs, and on inflation, have been apparent for a while. Home insurance and the cost of home mortgages are especially vulnerable to the risks posed by climate change.

Last summer, the chairman of Swiss Re (a global re-insurance company that acts as a backstop for insurance companies by transferring risk, reducing capital requirements, and lowering claimant payouts), made this shocking statement: “US home insurance is still priced too low for climate risk.” He added that homes are still being built in places where they shouldn’t be.[1]  California’s heavily regulated insurance market has seen major insurance companies abandon the state because we are not moving away from fossil fuels quickly enough. Higher premiums may lure some insurers back to California, but over time, homes in the wildland urban interface (e.g.: Orange Heights) will become uninsurable. In December 2024, Farmers Insurance announced it will write 9,500 new homeowners policies each month.[2]

It's no surprise that home insurance rates have risen the most along the Gulf Coast and in the western United States. A neat visualization of our home insurance problems has been prepared and published by The Guardian on December 5. The article quotes Ben Keys, an economist at the University of Pennsylvania’s Wharton School of Economics and co-author of the research: “You can deny climate change for whatever motivations you have, but when insurance is going up because you live in a risky area, that’s hard to deny.”[3]

Add to the increasing home insurance cost the growing recognition in the financial markets that increasing floods and fires are a problem. Lydia DePillis wrote in the New York Times on December 7, 2024, that “financial regulators seemed to recognize the risk, identifying the mortgage market as one of the main channels through which climate change could destabilize the financial system.” This is because homes in high-risk areas are losing value, leaving mortgage holders holding the bag. Moreover, there’s a big climate injustice looming here as “pricing climate risk has an additional complication: Many of the areas in most jeopardy are also populated by lower-income homeowners of color. Raising mortgage fees in those places could immediately hurt home values by making it more expensive to borrow to buy property.”

Finally, the rapidly increasing costs of home construction and repair are reflected in higher premiums. Jonathan Lansner reports in the Los Angeles Daily News on December 11, 2024, that “typical California repair is up 40% in the past five years, compared with a 16% jump in the previous five years.”[4] 

These three factors will make any stabilization or reduction of home prices and rents unlikely. During the recent presidential campaign, climate change was barely mentioned, but its effect on our pocketbooks may soon focus Americans attention on this existential threat. After all, post-election research shows that voters were drawn to Trump because of economic issues, such as the cost of shelter.