Understanding the Interconnectedness of Climate Hazards and Housing Market Instability.
By Rose Morrison, managing editor of Renovated
People worldwide are becoming aware of how the climate crisis impacts more than temperatures. It deepens inequalities, changes corporate priorities and demands many to change their lifestyles. What are some of the unseen costs of climate change and the lesser-known side effects of living alongside a worsening climate, primarily when looking at households?
Understanding Climate Risk and Its Impact on Housing
Climate risks are negative impacts of the climate crisis on communities, environments and people. These are split into two categories — physical and transition. Physical risks include natural disasters and dangerous, tangible natural phenomena like rising sea levels.
Transition risks are problems associated with shifting to a more eco-friendly world, typically when related to businesses and governments. These include issues like slow policy creation or volatile markets.
Each risk impacts housing for all, though most are more concerned with protecting their home equity from severe weather like floods, wildfires and tornadoes. Secondary weather events like hail or heavy rains are also increasing in intensity. Sea level rise and deforestation are also concerns because these dangers creep into neighborhoods gradually, causing tiny but mighty struggles in land maintenance and pollution control.
The real danger for homeowners lies in a lack of legislative attention. Failure to quickly adopt climate-friendly policy and action creates more transition risks globally. The slow pace mounts financial and practical burdens on citizens — notably those in marginalized communities — to afford safe and suitable housing. All climate risks are changing the housing market, resulting in ballooning costs and low availability in a growing mortgage crisis.
The Rising Costs of Insurance Due to Climate Change
Corporations like insurance companies notice how vulnerable properties are to nature’s destructive tendencies. So, they are changing insurance underwriting based on climate data. They understand climate risks will only become more frequent in the future, so they are business-proofing their models by making protective insurance policies more expensive and harder to obtain.
This reactivity places burdens on current and future homeowners because they are now navigating higher insurance prices while adapting to a changing climate. Such costs rose an average of 13% from 2020 to 2023, though the number does not reflect the immense variances across geographies.
Consider wildfire-prone California or hurricane-prone Florida — property or disaster insurance in these areas is inaccessible to most. Insurance challenges for homeowners in flood-prone areas are many, but the most prominent is the majority of these policies do not have flood coverage, even though 90% of all disasters in the U.S. include flooding.
If homeowners are able to afford rising insurance costs due to climate change, they must overcome rigid risk assessments and underwriting criteria. This is a practice called bluelining, in which insurance companies discriminate against high-risk areas based on climate or withdraw services entirely. Corporations are canceling policies for holders in states like Louisiana — known for its hurricane history — which will produce coverage gaps for the most vulnerable populations.
The need to be a policyholder is greater than ever, yet it is out of more people’s reach.
Real Estate Market Trends and the Mortgage Crisis
The cost of living continues to rise, home availability is scarce and insurance premiums are a luxury. This is a perfect recipe for generating global climate insecurity and eco-anxiety. There was a crash in 2008 and COVID-19 raised diverse concerns, such as a slowdown in new constructions.
The mortgage crisis has changed over the years, defining periods of high interest rates and minimal housing for competitive prices. Generally, it sparks during a time of widespread financial instability that leads to market downturns. This is why some considerate lenders are issuing interest-free and forgivable down-payment loans. Sometimes, these real estate trends indicate a future market crash, but this is not always the case.
Delinquency and foreclosure rates tend to rise during these periods, and this is no different as climate emergencies persist. Additionally, high insurance has correlated with 20% spikes in mortgage delinquencies. These impacts leave long-lasting implications on local and national economies.
As people are driven out of price-gouged or vulnerable areas, once-thriving geographies become barren. Migrations could also overpopulate areas unable to support the influx, depleting resources or leading to even more housing inaccessibility.
Underinsured and uninsured circumstances accounted for 30% of natural disaster-related claims in 2023. This paints a picture of how insurance inaccessibility affects more than those without policies because communities and nations are unable to recover effectively.
The Interconnection Between Climate Risk, Insurance and Mortgages
Climate risks also impact how mortgage lenders undergo business. Lending criteria is often based on risk assessments, which prevents people from getting into the few houses that are available. This real estate trend also places an immense amount of power on financial institutions to determine the futures of prospective borrowers and current homeowners.
Obtaining homeowners insurance is also a contractual and financial prerequisite for purchasing. Sky-high monthly insurance premiums could make homeownership impossible on top of a high-interest mortgage, especially when it accounts for a large percentage of the monthly budget in many states. Therefore, climate risk creates a domino effect for families. A failure to have insurance prevents homeownership, which eliminates feelings of security against climate stressors.
Advocating for legislation to reduce the amount of control these enterprises have on citizens is critical for housing equality and helping more get access to home equity and security. The most guilty organizations are private insurers, which can withdraw coverage almost at will.
Some initiatives are establishing new expectations, such as California’s Fair Access to Insurance Requirements Plan. Even though the state experiences more wildfires and earthquakes, it should not disqualify anyone from safety. The program has experts to help find additional coverage solutions for those having issues obtaining a standard policy.
Another example is Florida’s Citizens Property Insurance Corporation, which gets citizens into a plan but sometimes at a higher cost. While some coverage is better than none, these organizations must make progress to assist more people.
Strategies for Homeowners and Policymakers
What can each party do to make the planet better protected against both types of climate risks?
Homeowners
Engaging in climate-resilient renovations is one of the best ways to stay guarded against disasters. While it does not replace the comprehensiveness and peace of mind offered by an insurance policy, it’s better than nothing.
If families are fortunate enough to own their homes, reinforcing the structure could act like partial insurance while increasing its value. As much as affordable housing is a necessity in these times, green homes are equally important for establishing a sturdier economy. This could help if attempting to relocate from high-risk locations.
One example of a lucrative yet smart improvement would be a new roof, which could be made of materials to withstand impacts and resist moisture. Homeowners typically recover between 60% to 66% of the installation’s cost when selling, and this may be higher with a green roof. Here are some other things homeowners can do to make houses withstand the elements more gracefully:
- Use durable, sustainable building materials.
- Install renewable energy and battery backups.
- Retrofit insulation.
- Employ water recycling systems.
- Adjust landscaping.
If people are looking for more financially accessible ways to overcome these problems, the best way is to engage in community support. Local activism, vocalizing needs to stakeholders and sharing resources can help neighborhoods feel stronger in the face of any natural disaster. Developing resilience strategies at a smaller level is a free way to establish security without a financial institution dictating a household’s worth.
Policymakers
Policymakers could establish incentives to make it more justifiable for insurance companies to pay for climate resiliency in homes, such as energy-efficient technologies or retaining walls to guard flood plains. The National Association of Insurance Commissioners established a first-of-its-kind program in 2024 all about climate resiliency strategies. It provided regulators and insurers better tools for reducing risk so obtaining insurance would be less challenging for the masses.
Efforts like this better educate insurance and governmental professionals how to empower homeowners. This includes providing informative resources to fund building-hardening assets to stay safe from storms. The organization uses catastrophe modeling so it can give targeted information to specific communities and inspire even more thorough projects and laws worldwide.
A law could also encourage lenders to help those disproportionately affected by climate-related stressors in the house hunt, making it easier to apply for homeowner assistance programs and financial aid. Governments could also provide tax credits toward premiums, similar to how the Affordable Care Act in the U.S. helps people pay for health insurance premiums.
The Unseen Cost of Climate Change and Housing Market Instability
Climate risk, insurance prices, home availability and housing equity are inextricably linked. The most influential parties in leveling extreme prices and promoting widespread climate-resilient planning are legislators and corporations.
Citizens must voice concerns to these entities to expedite action preventing price hikes and housing insecurities for all. Solving these issues simultaneously will advance global sustainable development and keep humanity safe from intensifying climate stressors.
About the Author
Rose is the managing editor of Renovated and has been writing in the construction industry for over five years. She’s most passionate about sustainable building and incorporating similar resourceful methods into our world. For more from Rose, you can follow her on Twitter.