The Growing Impact of Climate Change on Home Insurance
A recent report from the First Street Foundation reveals that climate change is significantly affecting the affordability of home insurance, deepening economic disparities in U.S. cities. The foundation, which focuses on the intersection of climate change and real estate, suggests that rising insurance premiums are turning home insurance into a luxury item for many. Regions along the Gulf and Atlantic coasts are particularly vulnerable, with insurance rates expected to increase by three to five times in some areas. This surge in costs is expected to drastically reduce home values, particularly in regions where homes are the primary source of wealth for most Americans.
The report suggests that the rising cost of home insurance could lead to a $1.5 trillion decline in property values nationwide over the next 30 years. However, it also predicts that some properties, particularly those in wealthier, better-protected areas, will experience a gain in value, resulting in a widening gap between the wealthy and the rest of the population. This discrepancy in property values highlights a future of economic inequality driven by climate change, where affluent neighborhoods may remain relatively untouched, while disaster-stricken regions see a loss in value and quality of life.
The Unequal Impact on Property Values and Migration Patterns
The report also indicates that property values will not be uniformly affected across the country. While some areas may experience a decline, others will see growth. For example, the Gulf Coast cities of Miami, Tampa, and New Orleans are predicted to see premiums rise by over four times their current levels by 2055, making them less affordable for many homeowners. In contrast, areas like Sacramento, California, are expected to see a doubling of insurance premiums, driving down property values in these regions as well.
As insurance premiums climb, a mass relocation of Americans is expected, with an estimated 55 million people moving to less climate-vulnerable areas by 2055. Despite this, many Americans continue to flock to the country’s most climate-risk-prone cities, driven by economic opportunities in areas such as Austin, San Antonio, and Houston. This paradox suggests that, while climate change poses risks to these cities, the economic opportunities and historical growth factors in these regions are still drawing people in, contributing to a rise in their GDP and home values.
The Emergence of Climate Gentrification and the Future of U.S. Cities
The First Street Foundation’s data also points to the rise of climate gentrification, where only the wealthy can afford to remain in disaster-prone areas or protect their homes from climate impacts. In cities like Los Angeles, the Palisades area may rebuild to resemble its pre-disaster state, while neighborhoods like Altadena, once home to working-class residents, will likely be repopulated by those able to afford rising insurance rates. This trend is expected to occur in cities across the U.S., where the rich can afford to fortify their homes, while lower-income residents are increasingly forced out.
At the same time, cities like Fresno, California, are facing rising insurance rates and falling property values. In these neighborhoods, where fewer amenities and desirable features exist, climate risks are playing a more prominent role in people’s decisions to leave. As a result, these areas could enter a financial death spiral, where declining property values and rising insurance costs create a cycle that’s hard to break.
While many cities in the U.S. are expected to adapt to climate change through private investments and government infrastructure projects, the report suggests that there will come a point where these investments no longer yield returns. However, that turning point may still be decades away, and the effects of climate change on real estate markets are likely to continue compounding, widening the economic divide in American cities.
