Climate Change Pushes Up Home Insurance Premiums

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(Photo by Tom Brenner / AFP) (Photo by TOM BRENNER/AFP via Getty Images)

The study, conducted by Policygenius, found that Florida experienced the largest jump with premiums increasing by 35%. The steep increases in homeowner’s insurance costs contribute to the already intractable housing affordability crisis, as homeowners must allocate more of their incomes to their monthly housing costs.

Natural Disaster Risk Drives Up Insurance Costs

When State Farm stopped offering new policies in California, they blamed wildfire risk and construction costs for their inability to operate profitably in the Golden State. Farmers Insurance, who also left California, cited hurricane risk for their decision to leave Florida. As climate change increases the severity and frequency of natural disasters, more homeowners and homebuyers will likely lose coverage or face increased insurance costs.

Homebuyers Prefer Homes With Lower Climate Risks

Homes that experience the largest jumps in insurance costs will likely experience lower home price appreciation than comparable homes with stable premiums. Homebuyers will prefer homes that have lower insurance costs and climate risks. A Redfin

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The study found that homebuyers who have access to flood data are more likely to make offers for homes with lower risks. Redfin users that viewed homes with extreme or severe flood risks before the experiment made offers on homes with 54% lower risk than those who did not receive the risk data. Redfin customers in flood-prone Cape Coral, Florida, Houston, Texas, and Baton Rouge, Louisiana, were the most likely to click into the flood-risk portion of home listings.Housing Affordability Will Worsen Without Government Action

Although homebuyers prefer homes not at risk of natural disasters, affordability remains the first consideration for homebuyers. Homebuyers in expensive cities like New York or Los Angeles are moving to Florida because of the relatively low cost of living and low tax rates. In the last two decades, about 60,000 people have moved to Lee County, FL. This county includes Fort Myers, Cape Coral and was devastated last September by Hurricane Ian. But now that Florida insurance premium prices have increased 35% in just one year, Florida cities like Cape Coral may become a less attractive location for homebuyers.

We already have a shortage of affordable housing in the United States, and rising home insurance costs will worsen the problem. Local and state governments should prioritize building resilient housing where disaster risks are low and insurance costs are low. Climate change will cost more if we delay action.