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The Money with Katie Show
How Home Insurance and Climate Change are Upending the Real Estate Market
01:08:25
Are rising insurance rates the canary in the coal mine of the American Dream?
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This episode is brought to you by Amazon Business. We could all use more time Amazon Business offers smart business buying solutions so you can spend more time growing your business and less time doing the admin. I can see why they call it smart. Learn more At AmazonBusiness.com.
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We ask people, how are you dealing with climate change? And people move to Florida, they know there's hurricanes, they know there's flooding, they know there's heat. And they'll say, you know, climate change, floods here, we knew it flooded here. And then we say, well, how about the insurance? And people say, well, the insurance is killing me. And that's when you, you know, there's also a place where people aren't really making the connection. I think between the two that insurance is the way that climates is making its way into the real estate.
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If you want good news about the future of home values in your town, ask a local national association of Realtors rep. And if you want the truth, ask your insurance company. Actually, you probably don't have to ask them, just check your rate. It might be the best harbinger of the future of American real estate values that we have. Because unlike the lenders and agents, the actuaries employed by companies like State Farm and Allstate have no reason to paint a rosier picture than necessary about the future and their businesses survival is contingent upon pricing their risk as accurately as possible. They don't have an incentive to pander to the politics of a region. As Christopher Flavell and Mira Rojanoskol wrote in the New York Times last month, nature doesn't really care whether people are living in a blue state or a red state or another state, or whether you do or don't believe in climate change. End quote. The hurricanes that pummel red states like Florida or Louisiana and the wildfires that blaze in blue California or Colorado do not hold partisan loyalties while committing their crimes of opportunity. And for years, insurance companies have been slowly quiet, quitting their coverage in these places or just making it prohibitively expensive to carry. Welcome back to the Money with Katie Show. I'm Katie Gadytasian and today we are talking about home insurance and property values on a warming planet. You see, I learned this the hard way in mid 2023 when we moved to the west coast for my husband's job. And our geographic proximity to Paradise California, a town which was destroyed by the campfire in 2018 that killed 85 people 80 miles north of our Sacramento suburb, taught me this lesson firsthand when we attempted to transfer our renters policy from the Front Range of Colorado to the California desert. Now, anyone who has ever attempted to buy insurance knows that insurance salespeople live in their inboxes like they are the queens and the kings of hey, I'm just following up on this, but I could hardly get a reply. People were ghosting me. When I talked to my Colorado agent about transferring our policy, she wrote, we would love to help you transfer your insurance. Unfortunately, State Farm is not writing any new renters or umbrella policies in California, even if they are transfers from another state. I remember frantically telling my husband, well, our lease requires us to have renters insurance, so what are we supposed to do if nobody will sell this to us? And it turns out State Farm had, quote, made the difficult decision to stop selling new home insurance policies in California just through three months before I had begun searching for it in May 2023. Effective today, state Farm is no longer accepting applications for business or personal property insurance policies, citing California's catastrophe exposure and spiking construction costs. The move doesn't impact current home policy holders or auto insurance. Around the same time, Allstate announced the same it is getting increasingly more difficult to get homeowner insurance in California. As Allstate announces they are going to be limiting their services. They will no longer sell new home, condo or commercial insurance policies in California. This is similar to State Farm. They made the announcement last week. What I didn't know at the time was that this was a relatively drastic shift for these major insurers. According to reporting from the Wall Street Journal, for years, State Farm aggressively pursued business in California by undercutting competitors and offering premiums that were priced far below what their risk assessors were indic they needed to charge in order to crowd out other business. That was the strategy. But a leadership change in 2023 is what finally shifted that strategy, when it became obvious that the company had taken on an enormous amount of risk. Since then, some of this business has returned, by the way, but only after the California state insurance regulator agreed to allow rate increases of between 20 and 40%. After the most recent LA fires in January 2025, State Farm asked California's insurance regulators to approve an urgent 22% average rate increase. The fire, which generated 8,700 claims to state Farm alone and was estimated to cause around a quarter of a trillion dollars in damage overall, came on the heels of the company dropping around 30,000 California homeowner policies in 2024, about a third of which protected homes that burned last month. And it's here that you begin to see the tension between regulators and insurance companies most clearly. The companies will claim they need to raise prices to match the risk of an area post disaster as their historical data becomes less and less predictive. But the state regulators might claim they're just using the disaster to justify raising prices anyway. But critics say State Farm refuses to provide proof it needs the hike. This request is really outrageous. To this point, State Farm has only delayed and refused to respond to requests both from Consumer Watchdog and the Department of Insurance to prove the rate increase at SALT was justified. Carmen Balber, the executive director of Consumer Watchdog, argues records show State Farm has plenty in the bank reporting the company made $1.4 billion in homeowners insurance from 2020-20. And she says State Farm's parent company has $135 billion in the bank. And if anyone should be bailing out State Farm in California, it's the parent company who's profited. Now, making matters more complicated, as you just heard, these large insurers have mostly spun off subsidiaries to operate separately in these high risk states to insulate the national insurers, funds and premiums in other parts of the country, which state regulators say allows these companies to claim that they're out of money when they really aren't. State Farm in California is technically State Farm General. In Florida, it's State Farm Florida Insurance Company. Now for our part, USAA eventually did grant our wish for renters insurance, but it was a harrowing reminder of the risk that we were taking on by living in an area where fires weren't exactly commonplace but proximate. The situation is even more immediate for owners who typically need insurance to get a mortgage. But Californians and their wildfires are not alone. Living with too much of the opposite water will produce similar problems for you. After four hurricanes in four years, Florida is the second most expensive state in the nation to insure your home. According to Bankrate, the average Premium for a $300,000 home in California is 1004, $429 per year. But in Florida, it's nearly four times as high. It's $5,488 per year, or around 1.8% of the property's value annually. Now this is, give or take, about three times the national average. As an aside, number one surprise to me, it was Nebraska of all places, because of wind and hail damage to roofs. And in a thread on the Nebraska subreddit, one person remarked that they were surprised that their rates were higher than Florida's. And someone was like, yeah, that's because people in Florida can't get insurance at all, which lol sob. But it's easy if you live inland, I think to brush off these trends as the problems of people who insist on living near a coast. You might be like, ah, just move to Ohio, whatever. But some experts are warning that the problems faced by Florida and California are merely a sign of what's coming as our climate continues to change and more and more areas in the US Become unlivable, whether because they're underwater too much or they're on fire too often, or they're just unbearably hot. If you live in North Dakota, you might assume you're in the clear. But the reality is that all the Arizonans and Houstonians and Tallahassians are going to need somewhere to live, which according to my guest today, might indicate that we may be entering a multi decade shakeup in the United States real estate market. And I as a personal finance nerd, would add a bit of a reckoning for the wealth of the middle class, which holds an average of 67% of their net worth in a primary residence. According to Abraham Lustgarten, a journalist working for ProPublica and author of the book on the How Climate Disasters Are Changing Where We Live, quote, the implications are staggering. Many Americans could face a paradigm shift in the way they save and how they define their economic security. Climate change is upending the basic assumption that Americans can continue to build wealth and financial security by owning their home. In a sense, it's upending the American dream, end quote. So today we are going to talk with Dr. Jeremy Porter, an expert in environmental health sciences and the head of climate implications research at First Street, a company that provides climate risk data for United States real estate. Now, its data is used by homeowners, investors, governments and real estate professionals alike. So he's going to come help us understand what some of their most recent analyses show and what sort of national and global migration patterns are likely if trends hold. Now this report has been the bedrock of almost all of the recent reporting that I've read on this topic. So we are going straight to the source, its author. And I should warn you up front, there will not be any easy answers in today's episode. It does not conclude with advice like so that's why you should switch to geico. And since there aren't any easy answers, I guess I want to make sure that we're asking the right questions. Those that take us out of the minutiae of return on investment and rent versus Buy the questions that ask how did we get into this mess in the first place? And how do we think we're most likely to find our way out of it? And maybe even what are the fundamental assumptions of American society that would need to change for this problem to be solved? Aside from the regrettable truth that we are all going to have to stop dunking on Ohio if we want the town of Columbus to let us move there when half the country is 125 degrees in May? I know. I think that's pretty sad too. We'll start digging into that question and more right after a quick break. When you're looking to buy your dream home, should you sell your current digs and use the equity or should you rent your space and utilize the rental income? That's the situation that Kris and Dan found themselves in and after working with Domain Money, they learned their best option was to sell their home. It even set up Chris to pursue their dream consulting business and not rely on a W2 job anymore, which we love to see. Whatever big life events you have coming up, whether that's the dream home, planning for kids or an upcoming wedding, working with a certified financial planner can ensure you're making the right decisions. I started working with an incredible flat fee CFP Katie Song at the beginning of this year and you can hire her too. Get started by booking a free strategy session with Domain Money. You can then select Katie or anybody else on her team of CFPs that she's trained herself and your advisor will create a step by step financial plan to help you achieve your goals. And you only pay a one time flat fee. Check out Domain Money and start building your financial plan today@moneywithkatie.com domainmoney that's moneywithkatie.com domain money. I'm a real client of domain money via money with Katie. I receive compensation and have an incentive to promote Domain Money. These stories are based loosely on real scenarios of actual clients of Domain Money. We have changed some facts and circumstances for privacy reasons. Similar outcomes are not guaranteed. See Important disclosures at DMN Mny Co X let's talk about how states are currently dealing with this risk. So first, a personal finance aside, recall that insurance is one of those, quote, unrecoverable costs of owning your home. It is a cost that's associated with ownership that does not build equity in the same way that paying down the principal on your mortgage builds equity. So even people who own their homes outright carry insurance. And many of these people live on fixed incomes because they are retired now. This means these people are probably going to have a pretty hard time absorbing 20%, 30%, 40% increases in their insurance costs year over year. And according to the first street report, insurance premiums, which used to make up about 8% of the average mortgage payment, have jumped to around 20% of the average mortgage payment, outpacing inflation and even the appreciation rates of the homes themselves. And I think that that's really saying something when you consider how much higher mortgage payments are today than they were just five years ago. So the states, it might be most obvious in these stereotypically disaster stricken states. Like I mentioned California, I've talked about Florida. But at the national level, in 2022, insurers canceled at least 10% of policies because homeowners didn't pay their premiums. Cancellation rates were highest in coastal areas in the Carolinas, including Hilton Head, Charleston, Myrtle Beach. They were also high in places like Arizona and West Virginia. But those states hit hardest, California and Florida. So far, the primary solution has been creating insurers of last resort. These are state provided insurers that step in when private insurance companies basically deem an area too expensive or too risky to insure. So in essence, what's happening here is an attempt to more widely socialize risk in the face of what's basically a market failure. The state government, recognizing the private market's inability to fill a need in an affordable manner, is stepping in to insure those who cannot get insurance from anyone else, because it's in the state's best interest for those people to continue living there and working there and importantly, paying taxes there. There's just one problem. Operating an insurance scheme in this way doesn't work. It would be like offering a health insurance plan that's only for cancer patients who require the most expensive care. It's the payments from healthy people, or in this analogy, homes that are not at constant risk of being washed away to sea, that provide the funds to absorb the risk created by those who are more likely to file claims. So if you're taking everybody deemed most uninsurable by private companies and then moving them to a public plan, it doesn't really produce numbers that work out very well. And in this sense, journalist Hamilton Nolan writes that these state insurers of last resort are a little bit of a comforting fiction, he says, because state governments do not have enough money to actually pay out the claims in the event of a serious disaster in a highly populated area. What we are really dealing with is sort of the paper fiction of insurance. Just Enough to keep the real estate market pumping and stave off immediate exodus. With the implicit knowledge that in the worst case scenario, these red socialist loathing states will run to the federal government for a bailout and then keep on doing the same thing. It's emblematic of our general response to the problem of climate change itself. Ignore it, paper over it, and then pray that the bill does not come due while it's our responsibility to pay it, end quote. Hamilton always cooks, I swear. So in Florida, this state run firm is called Citizens and at this point it is the largest insurer in the state. But consider the fact that in 2022 Hurricane Ian caused around $100 billion in damage. That is the total annual budget for the entire state of Florida. So in other words, this insurance, it's a little bit of an illusion. And what would likely happen if a real worst case scenario hit would be a federal bailout in California. It's called the California Fair Plan. And in a guest essay by the former insurance commissioner of California in the New York Times, we learned that most people who have lost their coverage because of earlier wildfires end up in this California Fair Plan. But the claims from the recent LA fires will exceed its reserves and those of its reinsurance. Or get this, okay, the insurance that insurance companies carry, is this a pyramid scheme? I jury's out, they write, quote. When that happens under recent policy changes in California, all policyholders in the state will end up footing the bill through an assessment on top of their rising insurance rates, end quote.
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California's Fair Plan has now been given the go ahead to charge private insurers $1 billion to help cover the shortfalls and the premiums that it collected. The state insurer of last resort works on a cash in, cash out basis and it's just exhausted its reserves. The number of properties the Fair Plan covers in California has just soared as private insurers work to lower their exposure in the state. In large part because you had the state insurance department that would not permit the carriers to charge enough to cover the risk. And so now you have State Farm Farmers, Allstate Travelers, Chub and lots of other companies that were working actively to lower their risk to lower their exposure in California and they're going to end up paying for the losses anyway when they weren't even collecting the premiums. But that is permitted by state law and then they can turn around and pass on half of that to consumers.
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So I don't know, sounds kind of bleak. And that's in part because it is, but it's not like we don't have any solutions, it's just that the real solutions are becoming increasingly narrow. To put it simply, we're in a pickle. And this pattern is likely to expand its reach and create unexpected second and third order effects. Throughout the country. Extreme weather events make it riskier and more expensive to own a home. Rising costs of insurance make homes worth less because the increased costs to insure eat away at what buyers can afford. And so how does that play out over time? Well, when people can't afford homeowners insurance, this means they really can't afford to live in that house anymore. So that drives the prices down. And then when prices go down, property tax revenues go down. And then when property tax revenues go down, communities suffer because property tax dollars fund local infrastructure. Schools, firefighters, you get the picture. So on the surface, rising insurance costs might not seem like that big of a deal, but they can set off a chain of events that doesn't just change local communities, but the national real estate market at large. In that sense, we basically have two medium term options. We either keep the insurance markets operating privately, we allow them to accurately price their risk, and we accept that those higher prices will push people inland from the coasts when they can no longer afford the risk of living there. Now, over time, the values will go down in these areas because fewer people will be interested in living there. Eventually, these towns will die out because there will be no tax revenue, no jobs, the businesses will have no customers, and boom. Well, technically you fixed your problem because nobody can afford to seek insurance in a high risk area anymore. You have now theoretically avoided the economic fallout of major disasters because there's nothing of value in those places that needs to keep being rebuilt. And depending on which climate scientists you listen to, this will buy us some time as people migrate in and up. Or we can nationalize the insurance companies and we can allow a disproportionate amount of federal dollars to be funneled to continuously rebuilding areas of our country that will increasingly be pummeled by fires, wind, hurricanes, flooding, and just in general, more extreme weather. The irony is that some of these places are already expensive because the weather is paradoxically also enjoyable. And I can tell you already how it's going to go over politically if a bunch of federal funds are constantly being sent to the owners of demolished beach houses. And the answer is not very. Well, it's not like that trend would be new. I mean, the three largest sun belt states, Texas, Florida and California, have already absorbed more than 40% of the nation's 2.8 trillion in natural disaster costs since 1980. But still, it's an interesting window into this set of solutions that we're going to be left with and how we might have no choice but to turn to socializing policies just out of necessity. So, in summary, the real free market solution to this problem is allowing the insurers to price policies in whatever manner they feel is necessary and then eventually sawing off the state of Florida and letting it float into the ocean. But what'll probably happen is more of the same, which is ignoring the problem, hoping the feds are there to bail them out, when inevitably a big enough hurricane comes and the state of Florida can't pay to fix it. Now, there are other creative solutions, to be sure. After the devastating fires in paradise, insurers essentially sued PG&E, also known as my arch nemesis, for $11 billion for its role in the devastation as an energy company which failed to adequately maintain its lines and that helped offset the rising price of premiums. And then PG and E just passed all the costs on to me, and now my bill is $700 a month. But it's fine. It's fine. As the effects of climate change become harder to face and eventually impossible to ignore, some say the same litigious approach could be taken elsewhere too. Several states and local governments are already suing oil and gas companies for damages caused by climate driven extreme weather, which on one hand actually makes kind of a lot of sense, and on the other hand is such a hilariously American way to address climate change. Like, oh, what are we gonna do? Litigation.
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Governor Gavin Newsom in New York City for the annual Climate Week nyc. And right off the bat, he did not shy away from going after oil companies he accuses of being dishonest. The issue is fossil fuels and the issue is the deceit from these companies. The Governor over the weekend announcing this lawsuit against some of the largest oil and gas companies in the state and the world, arguing they deceived the public about fossil fuel risks and their contributions to climate change.
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I've had enough and I'm sick and.
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Tired of this, their deception and their lies.
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Over the course of 50, 60, 70.
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Years, they've been lying to you. The state of New Jersey announced a major lawsuit today against five oil and gas companies, as well as a petroleum trader association. The New Jersey Attorney General says the companies listed here chose profit over the environment.
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Maine just became the latest state to sue major fossil fuel companies over climate change. The state wants damages dating back to the 1960s. It's also seeking money for climate adaptation. It all begs the question, who should bear the risk? Who will ultimately be held responsible, and who gains from continuing to ignore the problem? Americans love the idea of ownership. They love personal responsibility. But who's going to bear the responsibility when a wildfire destroys your home or a mudslide causes half of it to slide down a hill? Theoretically, if you privately gain from its value going up, you should probably bear the burden of its value diminishing too, right? I hate to bring up the my profits are losses meme again, but it's kinda true. We can't keep pretending that we can have it both ways. The selective application of private gain and public loss will only serve to exacerbate inequality as we face a problem that is so, so much bigger than just about anything else. When we come back from this quick break, we will talk to Dr. Jeremy Porter. This message is brought to you by Apple Card Choosing the right credit card can be daunting. Among the countless credit card options, Apple Card stands apart. You get up to 3% daily cash back on your purchases every day. That daily cash can automatically earn interest when you open a High Yield Savings account through Apple Card. Apply for Apple Card in the Wallet app on iPhone and see a credit limit offer in minutes subject to credit approval. Savings is available to Apple Card owners subject to eligibility. Savings in Apple Card by Goldman Sachs Bank USA Salt Lake City Branch Member FDIC terms and more@applecard.com you work hard to earn and save. Don't spend all your cash on sky high wireless bills or unexpected overages. Give overpriced wireless plans the boot and check out mint mobile. Mint mobile's premium wireless plans start at just 15 bucks a month. Yep, you heard that right. And all plans come with high speed data and unlimited talk and text delivered on the nation's largest 5G network. Plus you can bring your own phone, phone number and all of your existing contacts to any Mint Mobile plan. If you like your money. Mint Mobile is for you. Shop plans@mintmobile.commwk that's mintmobile.commwk upfront payment of $45 for 3 month 5 gigabyte plan requ wired equivalent to $15 per month new customer offer for first 3 months only. Then full price plan options available, taxes and fees extra. C Mint Mobile for details. And now a conversation with Dr. Jeremy Porter from First Street. Well Jeremy, welcome. Your research focuses on, among other things, the way climate change will impact real estate values and how where we live in the United States. But I could see someone Listening to this episode and going, well, I don't know what these folks are talking about because I live in California, Texas, Florida, et cetera, and houses have never been more expensive than they are now. So how do we reconcile the numbers that we see on Zillow with climate data like this that suggests that we actually might be approaching a major shakeup in values in the coming years?
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Yeah, I think that one of the really key findings from the research was that we looked at the relationship between climate change, climate risk, and past population change, past observed patterns of population change, along with the macroeconomic context in which those changes occurred. And what we found was that there are places that have a lot of climate risk and also have a lot of people leaving because there's not job opportunities. Maybe the school quality is not very good, maybe the crime rates are high, and all these amenities and disammunities that generally drive people into and out of communities. What we found was in places that were sort of amenity heavy and they had a lot of opportunities, maybe you're close to the coast, people are drawn into those areas, and the amenities of the area actually outweigh the disamenity of climate. And there is a kind of a slide in scale there. Right. If the climate risk gets too strong, then we end up seeing those amenities being not quite as impactful. Impactful. And as the climate risk changes into the future, we start to see that calculus change a little bit and see people leave the areas, which leads to things like declining property values, declining GDP of the market, and all those macroeconomic indicators we were measuring.
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So I wanted to ask you a clarifying question about those different categories that you created in the report. It looked like about 26% of the neighborhoods studied fit into that category of climate abandonment. And I assume that means at some point in the next 30 years, this is not going to be like a reasonable place to live. Is that a fair characterization?
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Yeah. Ultimately it means that people are leaving this area and climate is one of the reasons why they're leaving. There are other reasons why people could be leaving, but from our statistical models, we found a clear significant relationship with the climate exposure. So there are also places like in the Midwest where people are leaving because there's not job opportunities. But if you also have increasing heavy precipitation events, people are saying, you know, I, I, there's no job opportunities. There's other opportunities, other places that'll pull me out of the community. And my basement floods every two or three months. So there's like this additional layer of climate exposure that's showing up in the statistical model. I think that's the important point is that when you model it, you're seeing these relationships exist. And then what we're doing is we're projecting that out into the future. And what we're saying is that climate's going to get to the point in some of these places where their macroeconomic character, that sort of risk profile lends itself to them becoming these climate abandonment areas where we're going to see net negative population and some of it's going to be driven by the fact that there's climate risk in the area.
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What would you say is the epitome of. Of that category right now?
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I think historically it really is places like the upper Mississippi River Delta, places where we've seen increases in flooding, we've seen small towns where people are leaving as jobs have left the area. We're starting to see it within markets. In places like Houston and in places like Miami, in places like la, we're actually seeing there are neighborhoods themselves. So it's important to note that those units or those places are neighborhoods. So There are about 85,000 of them across the country. What we're seeing is that within a market, people are understanding what their unique climate risk is. But then this market, they don't want to leave. They have family in the area, their jobs in the area, their social networks in the area, but they also don't want to live in a place that's prone to tidal flooding or more likely to see storm surge during a hurricane. So what they do is when they go on the job market, they start thinking about, you know, how many bedrooms, how many bathrooms, what's the square footage and what's the elevation of the property. All of a sudden, you know, they're looking for high ground as part of the amenities on the. On the housing market. So those that. I think the shift that we're seeing is that a lot of this is really happening within markets and people are sort of prioritizing areas in markets where they want to stay that are more safe. And a lot of that's because now people have access to this data in the way they haven't before with the data on sites like Zillow, Redfin, Realtor, places like that.
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Fascinating. So what I'm hearing you say is somebody who's in. What we might see first is that somebody who lives in the south side or south portion of Houston might actually just be moving to the north portion of Houston. That that might be the first step of this sort of migratory pattern.
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Yeah. And we've already seen it in Houston. People leaving the southeast portion of Houston around like Buffalo Bayou, an area like, notorious for flooding, and moving closer to like the northwestern portion of the city. And so there are other examples in Miami, people leaving some coastal, really coastal Miami, south beach area, places like that, and moving to Little Haiti, some of the highest ground that exists in the Miami Dade metro area. So we, we, we've seen this happen in recent years and a lot of it's due to raised awareness around local risk from flooding in those two cases.
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Interesting. I wonder how much of that is then driven by people reacting not just to experiences that they have had with a flooded basement, but maybe the insurance in that neighborhood going up because their neighbor's basement keeps flooding. And so they're like, oh gosh, I'm on a fixed income, I can't afford these 20 to 40% increases every year.
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Yeah. And it's both due to the kind of the increased awareness of actually seeing flooded roads, hearing about flooded basements in the neighborhood. But then the insurance issue is absolutely something that's driving people out of communities. And oftentimes what we see is that people get an increase in their insurance costs. As a homeowner, you'll just eat the cost, you'll put up with it for a year, two years, and eventually you work your way out of the property. And as you move into the transaction stage to actually sell the property, we're seeing people that are buying the homes, they understand the price and negotiating down the price because of that. And we're seeing essentially property value make its way into the historic record based on that process.
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So the non expert way to put that is because people are now selling homes that they are leaving because they cannot afford the insurance, that those higher insurance rates are actually driving down the value of the home when it comes time to sell, it's not just forcing them to move, but it's causing them to sell for less.
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Right. People are aware of it. People, as we know, like 85% of all moves annually are within markets. They tend to be, people tend to move to another apartment, to another house, but within the same community, they know that insurance is higher in these areas and they're factoring that into their negotiation process.
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We just talked about climate abandonment neighborhoods. Another 58% were either risky growth or tipping point. And then around 11% were economic decline is what they had been categorized by. And Then only about 5% were classified as what you deemed climate resilient. And so you include this great map in the report. That kind of color codes these areas around the country. And in doing some very unscientific examination of this map, it looked to me primarily like the region around Michigan with Wisconsin, Ohio, Indiana, Illinois, that that was the part of the country that looked like it was going to fare best. And I'm curious, do you think that this means we're all going to have to stop making fun of Michigan accents so they will let us move there when the rest of the country is uninhabitable?
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They'll have something to hold over the rest of us and people from Michigan will be able to, to do that. But I think the key is that if you look at climate risk across the country, it's relatively lower in that area and climate change is manifesting itself in that area through more extreme precipitation events. We are seeing flooding from rainfall across the Midwest, across the Northeast. So there's really no place that's immune from climate risk. But it's relatively low in the Midwest and in parts of the Northeast compared to the rest of the country. So when we build out the models, ultimately what we see is people aren't making climate informed decisions in that region unless they're moving to that region from another place. But we're not seeing people leave the region based on climate. So that's really where you get the kind of climate resilience metric. And then the economic decline again, are just places that a lot of rural Midwestern places, a lot of that Rust Belt connotation comes to play where people have been leaving those towns for decades, looking in search of jobs and things like that. So they're both relatively low climate risk, but they have differential patterns in terms of population growth moving into the future.
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It's funny, this conversation about people leaving places like the Rust Belt because of a lack of jobs. You know, I think about people who live now in places like Texas, Louisiana, Alabama, Arizona, Nevada, New Mexico, places in the country that have seen tremendous growth over the last, I don't know, century, but are becoming very, very hot. These are places that have attracted many Americans in the past because housing was cheap, land was affordable, there were jobs, it was sunny. And there's one reporter I really like, Hamilton Nolan, who described what he feels like watching these housing booms continue recently because he says, quote, these cities have served as a valve that releases all of the pent up pressure of a growing population in the midst of a punishing national housing shortage. Many of the metro areas permitting and building the most new homes are the same places most exposed to the life threatening new Normal of heat. It is possible for politicians and developers and wealthy home buyers to plug their ears and cover their eyes and continue flocking to Miami beach in defiance of hurricane risk. But the heat is going to change things. It is going to change the entire US of A. I'm curious Jeremy, what you think about that. I have long felt like building golf courses in the state of Arizona is the most glaring sign of hubris that exists. But when you see those trends and when you see people moving to these areas and you see all this new development, do you have a similar reaction?
- [39:49]
B
Yeah. And I think that what was really interesting from our research was that there it really is the quality of life exposure that is driving people away. When you start to think about longer term moves, things like wildfire smoke showed up as having a really significant impact in our models. Heat drought in pockets of places like Arizona, Southern California, places like that is showing up also. And those are. And even in flood, we're not Talking about the 100 year and 500 year floods that are driving people away. It's the tidal flooding, it's the five year flooding. It's the flooding that happens all the time, persistently. That people are responding to heat is the foundational indicator of climate change. It is the increasing atmospheric temperatures are what are driving the increases in flooding or what are driving increases in wildfire. What are driving increases in wildfire smoke as a result of that? So I do think that the increased exposure to the quality of life issue of heat, we'll adapt to it for as long as we can. People stay inside, they'll have air conditioning, those types of things. But how long can certain industries operate in places where maybe some of the workers have to work outside? They're going to have to leave, leave the area. And if jobs leave areas because it's a labor issue, people will follow the jobs as well. So there still is this close tie between chronic climate risk and sort of economic opportunity. But I do believe that it's the persistent sort of exposure that erodes away the well being and the desirability of an area versus a shock event which we usually recover from. And people go on about their business like it didn't occur.
- [41:27]
A
That's fascinating. It's also interesting to think about shock event versus more of a chronic thing. I used to live in Dallas and there were stretches of the year where your whole day was just spent trying to get from one air conditioned area to another. Like you wanted to spend as little time outside as possible. So when we talk about heat, I'm Like, I know what that is like to be so miserable every time you leave your home that you're like, oh God, I can't do this anymore. So it's crazy to think about areas like Dallas just that. That continue. I don't know how it could get much worse, but I feel like what I'm hearing is it's going to.
- [42:05]
B
Yeah, the temperature is going to increase and what we're going to see are longer stretches of. Of the year where temperature and humidity make the. Feels like temperature very dangerous in some areas for what could amount to months worth of days out of the year. So there, there are going to be increases in that exposure over time. And I'm with you. I went to college in the South. I lived in Houston for a while. There are tunnel systems under downtown for a reason, to get from building to building because people don't in the heat.
- [42:39]
A
Well, I want to talk about property values a little bit more. There is a television show, it's a legal drama called Goliath. Are you familiar with it? Billy Bob Thornton?
- [42:48]
B
Yeah, I was streaming it with my wife not too long ago, actually.
- [42:51]
A
Really? Okay, so on Goliath, there is an episode or it's a whole season about. And I think it's like a corrupt almond farmer in Southern California and they're like using all the water and the people in the area who now no longer have running water in their homes are stuck. And I was like, well, why wouldn't they just leave? Then it's like, oh, yeah, because you can't sell a house that doesn't have running water and that house is now worthless. So when we think about real estate, we think about what drives the value of a home. There's that saying, location, location, location. Well, normally for people in LA and San Francisco, New Jersey, Miami, that's a good thing. I think in your report you say in LA, 68% of an average property's value is actually the land it sits on. It's 70% in San Francisco, almost 50% in Miami, nearly 60% in Cape May, New Jersey. But in the report you say communities facing declining property values due to climate risks confront multiple economic threats. Falling home equity reduces household wealth and borrowing capacity, constraining consumer spending and local economic activity. And then this sort of triggers a cycle. Right. Does this mean that we will ultimately have really no choice but to abandon places like these?
- [44:19]
B
This is one of the really difficult things that happens when you think about this cycle that you're talking about is those that can afford to leave the area, leave the area and those that can't afford to leave the area, those that have all of their wealth wrapped up in their property and their properties start to decline in value. That becomes the community. The sort of, the fabric of that community changes as people start to leave some of these communities due to chronic climate risk and even, even acute climate risk. But it makes its way into the whole system. So you end up seeing property values, property value decreases than for your average American is where most of our wealth is tied up in our properties. All of a sudden, you know, our nest egg, all of our wealth is starting to decrease. As that property value decreases, it makes its way into tax revenues which also decrease as a part of that. So then the community has less money to protect the individuals that are in those communities. As the socio demographic characteristics of those communities change, then you also see commercial viability decrease. So you start to see commercial buildings can't demand the same amount of rent, so they'll pull out of the area. So now you don't have jobs in the area as well. So there really is this sort of long string of interconnected indirect effects of climate risk that are directly tied to potential population change.
- [45:40]
A
It reminds me a little bit of the LA fires that just happened because there has been a lot of focus in the news on the Pacific Palisades neighborhood and aftermath, partially because the homes in that neighborhood were so expensive. And so it's very notable when a neighborhood full of multimillion dollar homes burns down. But I read somewhere that people were essentially arguing that actually the fate of those in Altadena is the true premonition of how most people will experience the cost of climate change. Because the people who live in the Pacific Palisades, not all of them to be sure, but compared to your general population, are going to be more able to afford to rebuild either through their personal savings, their investments, their income, perhaps insurance coverage, if they had it, hopefully the California Fair plan kicks in for them. But the people in Altadena, by and large, by comparison, were not wealthy. And this makes those folks more likely to be bought out by investors who are going to swoop in and probably offer the low prices that they think they can get from these folks who, I mean, that's going to change the makeup of that neighborhood. And I'm curious if you've given any thought to the role of large real estate funds, firms, investors in this changing climate, no pun intended.
- [47:06]
B
I mean, to your point, very unfortunate, but there almost is a natural experiment that we're seeing there in Altadena versus The Pacific Palisades area. The Pacific Palisades are going to look a lot like they did before the fire once everything is rebuilt. And Altadena, unfortunately, it's going to end up looking a lot like the Pacific Palisades after it's rebuilt. I mean, you're going to lose the character that's there today. Nationally, most people are only insured for about 80% of the rebuild cost of the property. After a big shock event like what we saw in la, construction materials have a premium placed on them, so you're adding another 20% on top of the rebuild cost. People just aren't going to be able to rebuild their home with the money that they're going to get from the insurance company based on the premium and the policy that they had for the property. So what, what I've heard is that, I mean, there are, there are places where real estate investors are swooping and buying the lot for like a hundred thousand dollars more than the property was worth before it burned down. And so you're seeing these institutional investors and know that this is going to have a long term increase in property value. They can build a property. The entire character of the community is going to change just based on who's able to rebuild. And you're going to end up seeing that a lot of people that live there before the fire in Altadena aren't going to be able to rebuild. And very unfortunately, the sort of socioeconomic character is going to change.
- [48:34]
A
On the flip side of that, I think we're going to see a lot of places that have maybe historically been really good places to own property. And I, when I say good place, I'm thinking specifically of the fact that I think it was in the 1990s that real estate in Detroit appreciated at a higher rate than real estate in the Bay Area, which is kind of unthinkable to my 2025 brain living in Northern California. But I'm wondering if what this signals more broadly at the national level is a sort of reversal potentially of some of those trends. Is it possible that segments of the US that have been mostly left behind by this growth that has occurred in the Southeast, on the coasts, places like Kalamazoo or Cleveland are going to like, experience a resurgence because they are relatively safe, safe places by comparison. They're cold and dry rather than hot and wet. Though it does sound like there have been more precipitation events, as you called them. But could a shifting climate change which regions of the United States are considered desirable? Is there someone listening to this in their house? In Cleveland right now that's like, hell, yeah, I'm about to be. I'm about to be a millionaire because my house is going to be worth so much more in 15 years from now.
- [49:55]
B
Yeah. The primary drivers of location desirability are quality of life and cost of living. And those two things together. There's a lot of components that are built into it. As the quality of life goes down in the southern tier of the country due to increased exposure to things like extreme heat, as we mentioned earlier, drought conditions, wildfires, hurricanes, floods, those are going to drive people out of. Of those communities. And the other, the other side of that is cost of living. That's where we're seeing the biggest increases in insurance cost. So people, in a lot of ways, people move to the south because the amenities were so strong, the cost of living was so low. There's this great quality of life, and we are seeing a reversal of that. I don't know that in the next couple decades we're going to see any mass migrations out of. Out of the south into the Midwest. I think first we're going to see kind of this within market redistribution, taking advantage of what's in the market. But I think in the long term, we are going to see people move to. And you mentioned a couple places, but places like Columbus and Indianapolis and Cincinnati, some of the places that were popping up as higher areas on our list as our kind of top 10 winners, they're there because they're metro areas that have a lot of amenities, a lot of job opportunities, a lot of economic investments, but that we also are projecting really minor increases in insurance in those places over the next 30 years. So the cost of living isn't increasing there relative to the way it is in other places.
- [51:28]
A
So to clarify the timeline here, because I could imagine someone listening to this and being like, how imminent is this really when we talk about the next 30 years? Are you saying that y'all are projecting or your models, your statistical models are projecting that sort of of in market moving around in the next couple decades? And then beyond that, we'll see these more regional migrations, or are we talking regional migrations within the next couple decades?
- [51:58]
B
I think we'll start to see regional migrations. I think most of it's going to be within market, though. I think one of the things that we're finding even, you know, our. Our first paper that we published was 10 years ago on, on sort of the property value impacts of tidal flooding. And we've seen relatively minor responses in terms of larger Kind of regional moves since then. The housing market and migration trends are really stubborn. They're sort of built into the way we think about different regions. People still want to move to Florida. We're just now starting to see homes sit on the market longer, sale to list prices lower. But it's been something that's been difficult to sort of get the market to respond to. I think that it is a long arc to get to the point to where we're actually going to see people respond and see macro levels of migration. But we're already seeing internal market climate informed moves really driven by the fact that for the first time in history, people have access to this data on the real estate portals when they're searching for properties.
- [52:57]
A
That's really interesting. The most recent report found that insurance companies are currently underpricing the climate risk for approximately a quarter of American homes. Which tells me that some of these more recent price jumps that we've seen that have been reported on as kind of oh my God, breaking news moments are actually representative of these companies playing catch up and like not actually getting them where they need to be necessarily. And so, I don't know, it's strange strikes me that the, the rising costs of insurance are sort of the forcing mechanism here. They're going to be, or they already are the canary in the coal mine of if you do want to plug your ears or say, well, I don't believe in climate change, well, it kind of doesn't matter because your insurance company believes in it and eventually those costs are not going to make sense anymore.
- [53:52]
B
Yeah, the insurance industry is absolutely the first industry to price climate into the real estate market market. And we, we've seen it over the last about five years really increasing in terms of that the rate at which the pricing climate into the real estate market. One of the big issues is that insurance markets are heavy, heavy, heavily regulated across the country. So in California, for instance, you can only raise insurance by 7% at a max. And if you want to raise about more than that, you have to ask for special permission from the insurance commissioner. Because of that, insurance rates have been suppressed to the point to where they can't keep up with actual climate damages. And insurance companies are private companies, they want to make a profit. And so because they want to make a profit, they'll pull out of an area, they won't renew insurance policies, and ultimately people then don't have to go what are called residual insurance markets, which oftentimes, like in California, the state fair plan is about three times more expensive on Average than what their insurance cost was.
- [54:56]
A
Is it really three times?
- [54:58]
B
Yeah, on average is about two, two and a half to three times more expensive than what they were paying.
- [55:05]
A
And my assumption is that it's not as good a coverage.
- [55:09]
B
Right. It's much more limited in terms of what it's able to cover. It definitely is not as good as a. Your, you know, name that insurance company. Home. Home insurance policy.
- [55:19]
A
There are two ways that I see this going, or rather two arguments that I think somebody might make. I'm a renter, so I actually did have a hard time finding a renter's insurance policy in Northern California. But that is a much easier task and a much less stressful task than finding a homeowner's policy. If you are buying a house and got your mortgage and everything's good, but then it's like, oh, wait, no one will insure this house. So when I look at all this reporting and I kind of zoom out, take it all in, and I think specifically about the investors moving into places like Altadena going, all right, cool, we're going to offer these families money that we know they need, and then we're going to put two lots together and build a mansion for one of the Kardashian teenagers. Are we headed for a future where only the very richest people own their homes and then the renters just end up paying their monthly land tax to their PE feudal overlord that is better suited to manage and capitalize all this risk at scale? Or is it going to be one of these things where I guess if you have increasing risks and cost of insurance, that actually that's going to act as a deterrent to some of these investment companies that are like, well, Blackstone isn't going to want to deal with the basement flooding in their new building every six months. So maybe they're actually going to move out of these areas and prices will go down? But then you're in that kind of ouroboros of like, if you're already in that vicious cycle, that property isn't worth much or it's going to be declining in value anyway. So I kind of look at this and I'm like, how does this change the rent versus buy calculus, if at all? Is this going to make more people owners or push more people into the rental market?
- [57:04]
B
I think there's two ways in which we've kind of seen it play out. One is insurance in some places becomes a luxury good. Only certain people can afford to buy insurance. Only certain people can afford to live in certain areas and you start to see sort of a driver of economic inequality and sort of place segregation in a lot of way based on economics. But it's like one of those things where only certain people can live, can afford to live in certain areas. And then on the other hand, where you have multifamily housing and you end up having a lot of renters, the property owners are going to see increases in their own insurance, they're going to pass it on to renters, and you're going to see increases in the cost of rent that are tied directly to the additional costs for the property owner. And maybe they're getting their insurance through the commercial real estate market because they have some kind of multifamily or mixed use property or something like that. But ultimately they're not just going to take on the additional insurance costs either. They're going to figure out a way to sort of disperse it to the people that are renting.
- [58:06]
A
I know that the reporting and the modeling that you all do is used by governments, investors, a lot of different groups. How do you find people are kind of reacting to this? Like do you, do you see changes in some of their real estate portfolios? Do you see them reacting to this data or does it feel like it's still people aren't taking it seriously?
- [58:29]
B
When we started, it was about, about eight years ago and our primary mission was let's quantify and communicate climate risk. And that was our primary goal. We got the data onto, onto realtor.com, then, then we got it onto Redfin, we got it onto homes.com we just integrated on Zillow. So for me, I was a researcher before joining First Street. My number one goal was to get this data out there, get it in front of people, let people understand what they're risk is. By accident. We started having all of these inbound calls where people were like, hey, you have property level risk data? We'd love to start taking a look at it and think about how it could integrate into our own products. So we spent the last three or four years really building products for people that are thinking about the data in that way. Really they're thinking about risk management. They're thinking about the fact that this data didn't exist 10, 15 years ago when they took on mortgages or when they made investments. And they want to understand what their portfolio risk looks like today so they can protect their assets and protect their portfolio. The people that are really thinking using it to make kind of future decisions, I find that most of them are still Trying to figure out what to do with the data. They're trying to figure out how it plugs into their framework. They're trying to figure out at what point in the process is it important to flag climate risk and understand the cost of that climate risk. But what's really encouraging to me is the fact that over the last four or five years we've seen a tremendous amount of growth in that area at your banks, at your mortgage companies, at your institutional investors, companies where people are really taking it seriously and they're trying to figure out how do I understand climate for my current holdings, but also how can I integrate it into ways of thinking about future risks that maybe in areas that I potentially want to invest in.
- [60:16]
A
Interesting. Well, it's good to hear, I guess, that there is acknowledgement of it and that there is interest in it. That feels like a step in the right direction. I couldn't help but notice when I was reading through your report that you had cited noaa, the national oceanic and Atmospheric Administration, and I know via Scientific American reporting and a couple other outlets that the Trump administration is currently in the process of asking Noah to make lists of climate related grants and cutting staff and budgets. So I don't know how else to ask you this, but are we, are these organizations about to, that are doing this work going to be less valuable over the next four years?
- [61:01]
B
I would say from our perspective, and I suspect a lot of other companies doing the same work we do, we rely heavily on noaa, on the usgs, on the Federal Reserve. I mean, all the data, all the public data that's created by all of these different government agencies drives a lot of the models that we end up building. I mean, there is a huge amount of data. You don't have private companies collecting data at that scale, much less making it available for researchers to use and build models off of. So it does support a lot of research and a lot of work and a lot of these models and, and insights and understanding that we're able to create definitely at first street, but I would suspect across the entire industry. So the hope is that the data remains available, that they're able to keep collecting it, able to keep sharing the data that they're collecting with taxpayer dollars. We're bringing it into a lot of these models to develop our own insights. But I'm certainly downloading as much of it as I can early because I know that, that you always worry about access and you don't want to lose access to that data.
- [62:08]
A
You sound remarkably calm. I feel like the Dog in the burning house meme. That's like, this is fine. Oh my gosh. I kid you not. In the last two minutes that we have been talking, I just got a text from a friend who lives in one of these frequently flooding places that said, I just found out that I have to pay $30,000 for mold removal in our house. I'm like, wow, that is a perfectly timed message for like, oh, gosh. Okay, cool. Well, there it is. I guess that's the other, the other element of it. If insurance is not going to cover just kind of the costs of living somewhere very humid. Oh, man.
- [62:54]
B
And that's when you wonder, you know, do I fix the home and then get out of here? I don't want to have to do that again, you know. So I think it does make its into the calculus of cost of living and, you know, location desirability.
- [63:07]
A
Yeah, I read through a lot of Florida subreddits when I was working on this episode and I did see somebody, more than one kind of anecdote. And again, it's anonymous on Reddit. Who knows if these people are real, but that was not an uncommon thing of like, oh, after this last hurricane, like, that was the straw that broke the camel's back for us. We just don't want to deal with this anymore. We're moving back north. So I do think that at least anecdotally, those types of stories are becoming more common. But I think that as with most things, man, money talks. So I have a feeling it's going to be primarily driven by frequently increasing insurance rates. The disturbance or inconvenience of dealing with these things when you have to pay to fix them or you are displaced for a period of time. And man, my heart just goes out to the people in Los Angeles. I can't imagine what it would be like to lose everything like that.
- [64:05]
B
Yeah. To your point, around Florida, we, we ask people, how are you dealing with climate change? People move to Florida, they know there's hurricanes, they know there's flooding, they know there's heat. And they'll say, you know, climate change, it. It floods here. We knew it flooded here. And then we say, well, how about the insurance? And people say, well, the insurance is killing me. There's also a place where people aren't really making the connection, I think, between the two that insurance is the way that climates is making its way into the real estate market.
- [64:32]
A
Oh, my God. Well, thank you so much for joining us. We really appreciate your time and your expertise. It was a pleasure to chat with you about these very terrifying topics.
- [64:41]
B
Well, I appreciate you having me on and allowing me to talk about our work. We do First Street.
- [64:50]
A
So as I mentioned at the outset, I knew producing this episode would not make for easy answers. It's not exactly easy listening. We were not going to conclude with some recommendation for switching your insurance provider and like living happily ever after. So in that sense, I guess it's kind of a portrait and miniature of trying to solve systemic long term problems with short term individualist thinking. Can you haggle to save a little on your homeowner's insurance this year? I mean, sure, but if you're living in Miami beach, eventually that bill's coming due. You know what I mean? It's also a topic that's illustrative of a broader set of assumptions about how one can reliably build wealth in America. Over the last hundred years, it's been investing in the United States stock market and owning a home in what you hope is a desirable enough part of the country. Climate change is a reminder that nothing is permanent and all of these assumptions should be questioned. The economic status quo that has sustained this country for its first quarter millennia may not be the same formula that people are going to be using moving forward to prosper. And that, like most things, is going to require imagination and tenacity to face off with directly. So I want to close with a quote from an essay by Sally Rooney that feels appropriate here on a few levels. She writes, what gives multinational corporations the right to pollute the air we breathe, drain our groundwater, and exhaust our planet's dwindling resources and deprives us of the right to stop them? One powerful idea. Private property. Because the rich own things and the poor do not, it is legal for the rich to destroy earth and illegal for the poor to stop them. In his 2021 book, how to Blow Up a Pipeline, the Swedish theorist and academic Andreas Malm wrote, property does not stand above the earth. There is no technical or natural or divine law that makes it inviolable. In this emergency, either we confront the system that is threatening our civilization or property will cost us the Earth. Every year, every month, the argument grows more and more difficult to refute. We know what's already happening around us and we know what's coming next. When are we going to have the courage to stop it? That is all for this week. We will. We'll see you next next week on the Money with Katie Show. I promise one of these days we're gonna do a far more uplifting topic. I guess Home Values at the End of the World is not that weak, but I promise we will get there. Our show is a production of Morning Brew and is produced by Hannah Velez and me, Katie Aditasan with our audio engineering and sound design from Nick Torres. Devin Emery is the President of Morning Brew. Content Additional Additional fact checking comes from Scott Wilson.