A recent study from PolicyGenius found that quoted homeowner’s insurance premiums increased by 21% nationally from May 2022 to May 2023. 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 has pulled out of California and Florida and pointed to hurricane risk as an explanation for exiting 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. Homes where wildfire, flood, storm, or other natural disaster risks are increasing, will become less attractive to buyers who prefer homes with lower climate risks and insurance costs. A Redfin experiment found that homebuyers with access to flood risk data make offers on homes with lower risk. Redfin users who viewed properties with severe and/or extreme flood risk before the experiment bid on homes with 54% less risk after receiving access to risk data than users who were not shown the risk data. Redfin customers in flood-prone Cape Coral, FL, Houston, and Baton Rouge, LA, 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. This explains why homebuyers from expensive places like New York and Los Angeles continue to move to disaster-prone Florida, which offer relatively affordable homes and low taxes. Over the last two years, on net, approximately 60,000 relocated to Lee County, FL, which contains Fort Myers and Cape Coral, and was devastated by Hurricane Ian last September. 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 must prioritize building resilient housing in places with low disaster risks and insurance costs. Delaying action will only make the consequences of climate change costlier.