It’s called Climate Gentrification.
Another great DeutscheWelle video above, below, Columbia and Harvard Business School scholars weigh in .
Parinitha R. Sastry and Ishita Sen in the New York Times:
In theory, insurance prices quantify the risks of living in a certain place. Of course it should be more expensive to insure a home in an area buffeted by disaster. But in practice, states vary widely in their willingness to allow insurance premiums to increase, with some making it far harder than others for insurers to raise prices. California is one of the most resistant, and until recently refused to let insurers raise premiums or reflect climate-catastrophe risks in their pricing.
Insurers doing business in such heavily regulated states, finding themselves unable to raise premiums when needed, wind up shifting some of the costs to homeowners who happen to live in states that are more accommodating to premium increases. That is, in part, how middle-class communities, such as Enid, Okla., can end up subsidizing the owners of million-dollar houses in Malibu. And under our current regulatory regime, that dynamic is only expected to strengthen as climate losses continue to cut into insurance companies’ bottom line.
The voices loudly criticizing California for its rigid control of insurance pricing are ignoring numerous similar examples from the rest of the country. In 2023, after the federal flood insurance program began to adjust its premiums to better reflect climate realities, 10 states across the political spectrum — including reliably red Louisiana, Florida and Texas and moderate blue Virginia — sued the program. And California isn’t the only state that failed to raise premiums to properly fund its FAIR plan, the state-sponsored insurer of last resort often relied on by those living in climate-vulnerable areas; Florida did as well.
Home insurance is just one way our financial system encourages Americans to move to flood-prone sections of Florida or parched, air-conditioning-dependent Arizona. The government mortgage giants Fannie Mae and Freddie Mac, which guarantee about 70 percent of mortgages on single-family homes, charge the same feesregardless of climate risk. Nobody intends to move into harm’s way. Many people settle in places like Texas because housing is generally more affordable. But that affordability is a mirage: Their mortgage and insurance risks are being subsidized by everyone else. This system, and the continual building in risky areas, portends ever-rising disaster losses.
We get why change is hard. Losing one’s home can be economically and emotionally devastating. Rising insurance premiums can stress homeowners who are already struggling. For households that have their entire life savings tied to their homes, hefty premiums combined with lower home values tied to the cost of insurance could even lead them to default on their mortgages.
Dr. Sastry is an assistant professor of finance at Columbia Business School. Dr. Sen is an assistant professor of finance at Harvard Business School.
One aspect of “haven-hunting” is the stability of the municipality, county or state government. Austin, for instance, is a pretty well-run city, but vengeful* Texas legislatures work to override any new restriction or requirement that makes bidniz owners complain, like banning flimsy plastic grocery bags, disallowing gas plumbing in new buildings and—horror of horrors—mandating 10 minute breaks for laborers every four hours on hotter days.
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*Many Texas legislators have expressed loathing of the population and leadership of their capital city.