The Financial Times has an extremely informative new article, Meltdown: How the Next Financial Crisis Starts, on the certainty of the loss of considerable financial wealth due to insurers becoming unable to provide coverage for heretofore routine property risks as a result of climate change. I urge you to read it in full. It confirms our earlier coverage on this subject.
However, the title misrepresents the piece. Experts aren’t close to the “I begin to discern the profile of my death” phase.1 The story features experts who are highly confident that huge swathes of the US real estate market are certain to suffer a major price plunge as mortgages become unattainable due to the inability to get insurance. They further posit that this will lead to a collapse of other services, particularly banking, since with mortgages a major source of branch profits, banking services are no longer profitable and many locations will be shuttered. The article does not discuss commercial property, but there are similar obvious concerns about what happens to retail and office space in a world where their value is also drastically lower due to the inability to sell them to anyone other than a cash buyer….who also is exposed to the risk of climate change incidents and routine “shit happens” fires.
One of the big questions is how fast the implosion happens. While the article starts by envisioning the possibility of a 2008-level implosion, they don’t deliver much of a case as to why. Recall that Japan had far bigger (relative to GDP) real estate and stock market bubbles in the late 1980s, yet did not have a market seizure. It instead had zombification. Then many years into the crisis (1997), it tried going into “Mission Accomplished” mode, relaxing some constraints, and then some financial institutions did fall over.
As we explained long form in ECONNED, the sudden shock of the Lehman crash was not the result of a real estate bubble deflating (which if that were the driver, would have created a savings & loan and half level seize-up) but a derivatives crisis. Derivatives written on the riskiest tranches of subprime securitizations were 4-6x the value of those instruments. And unlike losses on mortgages, where recoveries historically were about 70%, most of these tranches went to zero, and so to did the derivatives. Oh, and those exposures were significantly on the balance sheets of systemically important, overleveraged finance giants.
However, a variant of Japan in the 1990s is plausible: a slowly accelerating decline, and then a plunge from there, in classic Hemingway bankruptcy form.
We’ll turn after looking at the “profile of the death” issue to a discussion of whether interventions to try to make things less bad will make them worse. The default answer on topics like this is “yes”. We’ve regularly discussed the concept of obliquity, which in simple terms is the finding that when dealing with highly complex, adaptive systems, trying to cut simple paths through them generally takes you in the wrong direction.
Keep in mind also that the authors presume that this “meteor hitting Planet Earth and killing all the dinosaurs” level event is the driver of a coming crash, whether slow motion or not. There is so much overvaluation and excess leverage, with financial asset prices in the main not adequately pricing that in, that there are many other proximate causes for a financial crash: an emerging markets crisis rolling through exposed economies and having a measure of contagion to the advanced world; resumption of Israel/US aggression against Iran leading to an oil price spike (or perhaps even an embargo), Trump escalating his tariff war one times too many (and/or even the impact of his supposedly interim tariffs leading to contractions and failure that start to lead to defaults, for instance among highly leveraged private equity/private debt plays).
So while the coming real estate crisis is poised to eventually become The Mother of All Financial Crises, it may not be the first to get going in a big way.
First to the pink paper’s experts forecasting how this decline will unfold:
In January, the Financial Stability Board, which was set up to keep an eye on the global financial system after the 2008 crisis, said insurance was becoming more costly and scarce in disaster-prone areas and “climate shocks” could set off wider market turmoil. In early February, US Federal Reserve chair Jay Powell warned that the Fed was also seeing banks and insurers pull out of risky areas. “If you fast forward 10 or 15 years, there are going to be regions of the country where you can’t get a mortgage. There won’t be ATMs [and] banks won’t have branches,” he told Congress. “….
Then, as Europe experienced its hottest March on record, Günther Thallinger, a management board member at Germany’s insurance giant Allianz, warned global temperatures were fast approaching levels where insurers would no longer be able to operate, creating “a systemic risk that threatens the very foundation of the financial sector”.
“If insurance is no longer available, other financial services become unavailable too,” he wrote in a LinkedIn post that made headlines. “The economic value of entire regions — coastal, arid, wildfire-prone — will begin to vanish from financial ledgers,” he added. “Markets will reprice, rapidly and brutally.”..
There is no single scenario…But here is one that has emerged…
It begins with the number of insurers pulling back from US states swelling from a stream to a flood…homeowners face soaring premiums or an inability to renew their cover…
Cash-strapped governments try to plug the gaps with more last-resort insurance schemes. But these plans typically cost more and cover less, raising a chilling new reality for thousands of homeowners. The value of their family home, which had risen year after comforting year, instead begins to sink.
We wrote in January how this pattern has started in Florida and California. Notice that part of the pattern is to try to socialize risks of badly-exposed areas (which by a cold calculus should either be insurable only at nosebleed prices or not at all) to ones that at least as of now don’t seem much to be in harm’s way. So there is also a simmering political question of why exactly should those live inland, for instance, subsidize properties near the coast?
And these patchwork schemes are already starting to come unglued. As we wrote:
As with the odds of success of the West against Russia in Ukraine or America in a military contest with China, there’s rampant denial of the impact of climate change on property values (commercial as well as residential) in at-risk areas. Along with that is undue fixation of trying to tinker with property insurance as if that could somehow combat the fact that losses are sure to swamp the ability of anyone but perhaps governments to pick up the tab. And that’s not a viable solution.
Socialization of risk on this level, particularly given the lack of precedents, is already intensely political and will become only more so. And there’s no consensus on what to do. There are still quite a few who regard talk of global warming as a World Economic Forum “eat your bugs” plot. Climate cognoscenti argue for relocating people and communities to more “sustainable” places. But many are unwilling to move. So as things get more dire, what draconian measure will be imposed to dislodge them? Condemning entire communities with the required eminent domain payoffs? Or resorting to cheaper forms of coercion, like cutting off power or water or garbage services?
Or consider what is happening in Los Angeles. We’ve pointed out that allowing rebuilding with wooden homes is asking for more of the same. But wood-framed houses are likely the cheapest option. But new construction is going to be beyond the means of most, even in the wealthiest neighborhoods…
And there’s been resistance by burnt-out residents to the idea of rebuilding the less affluent Altadena area as apartments. But there’s no other realistic option given the typical financial situation.
And this points to a second general problem as to what to do next. No one seems willing to lower the hammer and change zoning requirements in climate-whacked neighborhoods so as to greatly reduce their vulnerability….
In other words, there’s widespread rejection of a new normal: that a downward reset in living standards and/or wealth that many (most?) Katrina victims suffered is in store for all but the wealthiest climate change housing casualties. And as climate damage to real property accumulates, those values will similarly reset in a big way. But due to the way the US property and casualty insurance industry operates, and the problem we flagged above, that the kick-the-can approach is to try to forestall the inevitable with insurance, it will happen on a state-by-state level as opposed to community level.
In other words, as we’ll describe, the inertial path is that in states with large climate change exposed regions, the entire states will have unaffordable or barely affordable home insurance. That means property values will fall. Even cash only buyers face high insurance costs or bearing the risks themselves. For buyers that can’t stump up a purchase price, their ability to borrow will be greatly constrained because they have to be able to afford the insurance premiums, and that will eat up so much from a monthly housing budget that very little would be left for mortgage payments. Much lower mortgage borrowings means much lower housing prices…..
We recently cited an article from Dissent which focused on what has become the three card Monte of Florida’s insurance market to argue for a public model. But as much as that scheme is internally coherent, it foresees a level of government intervention in housing that’s not workable in America, even before getting to the Trump libertarian takeover effort underway. But what is happening in Florida looks all too likely to happen in some form in other afflicted states, particularly California. Remember the key fact that insurance is state regulated and each insurer writes policies via an entity in that state. So insurers fail on a state-by-state basis. They can also stop operating in that state. Home insurance policies are typically renewed annually, which is when price increases occur.
It’s not hard to see that a death spiral has begun. From Dissent:
More than a dozen insurance companies have exited the Florida market in recent years, and just since 2022 at least six insurers in the state have become insolvent—leaving homeowners scrambling to find new providers, typically at drastically increased prices.
Florida’s political leadership has attempted to address these problems with market deregulation and financial incentives. Several public institutions also help to prop up the private insurance market, including Citizens Property Insurance Corporation, a nonprofit public company created as an insurer of last resort in 2002, and the Florida Insurance Guaranty Association, a state-run fund that pays policyholder claims in the event that an insurer goes bankrupt.
Despite these efforts, Florida is having trouble retaining large, national, diversified insurance companies, which are more financially stable and often more affordable. The private insurance companies still operating in Florida are primarily newer, smaller companies that conduct almost all of their business in Florida; some have an even narrower focus, such as one company that primarily sells wind-only policies in South Florida….
Policymakers in the state have responded with measures to raise Citizens’ premium rates and further encourage depopulation. These measures mean not only that Citizens rates are going up in several parts of the state—one analysis found that Citizens will have to raise rates in Miami-Dade County by 80 percent in order to comply with a state law that forbids it from competing with private insurers—but also that private insurers can easily obtain a swath of new customers who will have to pay higher rates. Meanwhile, with Citizens now responsible for a tenth of the states’ policies, it may not have enough capital to fully pay out claims after major disasters.
To address this issue, state leaders have permitted Citizens to levy emergency fees on nearly all statewide property insurance policies for as long as is required to repay debt. This means that a serious financial loss for Citizens and other Florida insurers could result in additional fees for residents already dealing with a catastrophe. The Florida Hurricane Catastrophe Fund (a state-run provider of insurance for insurers) and the Florida Insurance Guaranty Association are backed up by yet more emergency fees on policyholders, meaning they could face multiple stacking fees during a devastating hurricane season.
Forgive the detail, but you can see the drift of the gist. More insurers are leaving Florida. Some have gone bankrupt, with the costs imposed on the surviving insurers, meaning in the end their policy holders. The new entrants aren’t all that strong, financially. Citizens is already imposing what amounts to an emergency levy on all policy-holders (not clear if the surcharges are higher in higher climate exposure areas or not).
Back to the current post. With the cracks in the current system becoming fissures in at-risk jurisdictions, it’s not hard to see why expert freakout is starting to go mainstream.
The Financial Times curiously skips over the problem we just recapped, of how trying to shore up property insurance market is destined to fail because these risks are becoming too large and frequent to be insurable. It turns to a different matter, that the fight over climate remediation (the Green New Deal and all that) can also become destabilizing. Erm, to me this is arguing about whether rearranging the deck chairs on the Titanic impeded getting passengers into lifeboats. Yes, at the margin, some moves are better than others, but the policy/governing “we” can do perilously little to change the direction of travel. We are way past the point where Band-Aid level interventions based on the fantasy that over the next 40 years, it will be possible to preserve modern living standards on their current scale.
The article contends that the size of climate events themselves could induce a crisis and are abandoning old-think that “transition risk”, from creating fossil fuel stranded assets (which is coming to include internal-combustion-engine auto operations), was a more serious hazard than climate-created damage:2
Meanwhile, signs of the physical climate risks that initially seemed more remote than transition threats have grown ever more apparent. Monster rains brought Dubai to a standstill in April last year and forced thousands to evacuate in China. Hundreds died a few months later when Typhoon Yagi roared into south-east Asia. In October, authorities in Florida were still dealing with the wreckage left by two enormous hurricanes that slammed into the state within an unusually short 13 days of each other when disaster hit the Spanish province of Valencia. More than 200 people died after a deluge dumped a year’s worth of rain in hours.
Less than three months later, the world watched as enormous wildfires brought chaos to the Los Angeles area, killing dozens and razing thousands of homes including the mansions of Hollywood celebrities.
The pace of destruction has continued this year. In March, South Korean leaders said deadly wildfires sweeping the country were the worst in the nation’s history, while Japan ordered thousands to evacuate from its worst wildfires in decades. Massive wildfires have forced thousands of Canadians to evacuate, and Australia has faced a disastrous set of floods that officials say hit economic growth. This month, authorities issued extreme heat warnings across North America, Europe and Asia….
“My thinking has always been that transition risk is a bigger risk for the financial system because it can take the form of very sudden shifts that lead to huge financial losses,” says finance professor Patrick Bolton…“But I think what we’ve seen with the LA fires and other unexpectedly destructive disasters is that we’re already now in the territory where physical risks could be a threat to the financial system.”
Banks have had a similar rethink, says a financial services strategist who has worked on climate stress testing for nearly a decade.
Again, this “too little, too late” recognition of rapidly advancing ugly realities is painful to watch and difficult to explain, save via the Upton Sinclair saying, “It is difficult to get a man to understand something when his salary depends him on not understanding it.” But the reason soi disant leaders get the big bucks and special privileges is that they are supposed to be somewhat resistant to those incentives and more oriented to preserve the systems which allow them to wield power. But forty plus years of neoliberalism and libertarianism have crushed whatever was left of those impulses.
I am reminded of a scene in the great movie, The Lives of Others, which focuses on the police state in East Germany right before the fall of the USSR. After the end of East Germany, playwright Georg Dreyman encounters former East German Minister of Culture Bruno Hempf. Hempf’s abuse of his surveillance and coercive powers in his unsuccessful pursuit of Dreyman’s muse and lover, actress Christa-Maria Sieland, led to her death.
In this conversation, Hempf reveals his thuggishness, depicting Dreyman as unable to satisfy Sieland based on intense monitoring of the couple, which was news to Dreyman.
Dreyman keeps his composure and says, “To think that men like you once ran a country.”
This is the fix we are in collectively, except the corruption and incompetence are very much in progress.
____
1 From Marguerite Yourcenar’s Memoirs of Hadrian.
2 Lordie, it must have taken a lot of indoctrination to believe that (destined to be not effective enough) “transition” policies were a bigger hazard than the baked-in climate crisis.
Thank you for this. Very helpful. Typo- ‘soi distant’.
Grr, spell check override I did not catch. Fixing.
My apologies for nitpicking.
Similar to Martin’s Law, named for its originator, the American economist Steve Martin:
“I get paid for doing this.”
It explains so much in western economics, politics, and economic and political commentary.
I see commentators on that commentary asking questions like “How could he b so stupid as to believe …?”. Answer, he’s not that stupid. We’re supposed to be that stupid.
I think one of the knock-on effects that will become more apparent as this ball gets more speed is a serious hit to consumer spending. With an aging population more and more spending is going to be coming from people retiring or already retired. If a significant chunk of their wealth evaporates because it’s locked up in a home that is now worth a whole lot less or underwater, they are likely to cut their spending as they downsize their lives in accordance with their downsized wealth. This secondary effect could get legs of its own too which will only speed up the circling of the drain, absent some serious counter-cyclical government spending which our neoliberal elite are loath to support.
Regarding: no mortgages > no banks > no ATM’s.
Post Office banking, anyone?
The first policy act by the incoming Postmaster General David Steiner will be to open banking in all post offices. His second official policy act will be to privatize the Post Office. /s
Not to get too picky on a significant topic but regarding “It is difficult to get a man to understand something when his salary depends on him not understanding it.”….isn’t that an Upton Sinclair quote?
Aargh, I have to stop trying to occasionally multi-task while writing. Someone sent me a piece on conspicuous consumption…..cross contamination results!
Clarifying. Breathtakingly.
See also
>Michael T. Klare ‘All Hell Breaking Loose: The Pentagon’s Perspective on Climate Change.’
for an adjacent reality-based assessment.
Daily Surface Air Temperature: All-time second place, trailing only last year.
Daily Sea Surface Temperature: All-time third place, trailing only the last two years.
Thanks. I’ve only known to check Climate Reanalyzer’s globe. Usually start with Today’s Weather.
Always reckoned that insurance companies are the canary in the coal mine of climate change as they have balance sheets that they have to answer to. As a guess how this will play out, it may be that governments will enact legislation that will force insurance companies to cover areas that are being hammered by climate change – but with the back door where the Federal government (for the US) will backstop insurance claims from such regions. In other words, taxpayers will be on the hook for those costs in the same way that they are to bail out Wall Street firms that blow themselves up through greed and incompetence. The alternative is to let whole States and even region be denied insurance which will have massive knock-on effects. No States will have the financial resources to really do this so it will have to be done on a Federal level as they have access to the money-printing machines and can’t go broke.
Indeed, the insurance companies are canaries as evidenced by their handling of asbestos exposure in the last century.
The life insurance companies knew about the dangers of asbestos for a long time before asbestos dangers were common knowledge.
https://centerjd.org/content/faq-asbestos-%E2%80%93-awful-truth
“As far back as 1918, U.S. and Canadian insurance companies like Prudential (the nation’s wealthiest life insurer) stopped issuing life insurance policies to asbestos workers because they were dying at such high rates. By 1928, other life insurers (Penn Mutual, John Hancock) were charging asbestos workers extra premiums because their mortality rate was 50 percent higher than everyone else’s.”
So, the insurer’s are the first wing of Capital to suffer from the externalities long suffered by the poor, workers and natural systems? Which might be next?
We perhaps can see the attitude of the Gov. here in how it has approached vehicles. Electric vehicles are very expensive to insure if they were to be insured in their own market alone, due to the high cost of repairs etc. Many relatively lightly damaged cars become write-offs as a result.
The German solution to this is to spread the higher premium costs across all car owners, which definitely happened here in Germany last year.
When asking a pal who works for a big insurer here, why my insurance had gone up 25% last January, that was the explanation he gave.
So they will very probably force everyone to pay.
JB
The impossible exponential growth speculation bubble and derivatives traders walking off a cliff like the Coyote was a problem we’ve seen coming for decades. So glad we can blame climate change so we can maintain our entire way of life that relies on speculation.
Bought my cabin in Mineral King in 2012 and almost as an aside asked the owner if he had insurance on it and could he transfer it over to my name?
And voila!
It was done, and I paid in the low $900’s for a number of years and it creeped up a bit to last year’s $1479 yearly payment, a fair increase I’d say.
And then Whammo!, $4532 this year.
They sent me the 20 page double sided insurance agreement, and it has more easy outs than Sandy Koufax pitching a perfect game, exclusions up the wazoo!
I shared it with a friend and after reading it, she asked what exactly was I covered for? with a not so funny ha ha look on her countenance.
Nobody has a mortgage on their cabin, and about a third of them have no insurance, and one old timer cabin built in 1932 and shared by many generations as far flung now as Miami, was quoted $10k, and they decided that if they just saved that $10k a year for a number of years, that would help pay for the rebuilding of their cabin should a fire come ripping through, with a couple of contractors in the family figuring to build it from scorched earth, and one heck of a view, as the trees in the distance really grew substantially since 1932.
The financially savvy part of me almost screams ‘Sell the cabin now, before something wickedly hot comes this way!’
To get nirvana rebuilt would be quite the task, as a contractor would have to be up there most of the time and going up and down the mountain to get more stuff (the fellow I bought my cabin from was a contractor and related that over a decade of building his place for me, he burned out 3 work trucks full of building materials, driving up Mineral King road) is not what most contractors would aspire to do with their time.
There’d be 55 cabins (including the 14 at the resort) that needed to be rebuilt from scratch. most of them previously nowhere near up to building code, and everybody would want to get theirs rebuilt sooner than later, yikes!
And I’d end up with money, but lose my version of a Cheers neighborhood, where everybody knows your name, and stories get tossed around and never is heard a discouraging word, except for the NPS mules who sometimes bray.
That’s a helluva quandary that. Good thing that you weren’t paying $4532 insurance a year since 2012 or by now you would have paid in nearly $60,000 for just insurance. I can see why so many people just let insurance go, especially if it only covers you for a meteor hitting your home and only for the month of October – and then in only leap years.
With nary a claim in 13 years…
1 cabin had half of its roof cave in from snow load in the winter of record 2022-23, and a number of decks were somewhat wrecked from what was around 12 feet of snow on the ground @ 7,000 feet.
And an interesting thing in that there are no short term rentals in Mineral King, they are prohibited on cabins on Federal land and nobody wants to do it in Silver City either, that is aside from the resort which has 14 cabins and predates AirBnB by opening in 1929
And then there’s Cali’ insane building permits system.
“It is too damn hard to build anything in California,” said Assemblymember Buffy Wicks (D-Oakland), who chairs the committee. “Our broken permitting system is driving up the cost of housing, the cost of energy, and even the cost of inaction on climate change. If we’re serious about making California more affordable, sustainable, and resilient, we have to make it easier to build housing, clean energy, public transportation, and climate adaptation projects. This report makes it clear: the system isn’t working, and it’s on us to fix it.”
https://davisvanguard.org/2025/03/californias-broken-permitting-system-faces-scrutiny-in-assembly-select-committee-report/
Waiting for Godot? / ;)
One might wonder just how insane the CA building permit system is.
As desirable land is built over and new homeowners purchase, they have a desire for their costly investment to increase in value, which seems opposed to increasing housing affordability for new prospective homebuyers.
How does one make affordable housing in a increasing price housing market that existing homeowners prefer?
One way for housing to be both increasing in investment value (for existing homeowners) and become more affordable (for new prospective homeowners) to have wages increase faster than house prices.
But CA businesses won’t like that.
I’d hazard the existing permitting system arose because many groups wanted a voice, and CA has sprawl, crowded roads and environmental damage anyway.
I only live in CA, so maybe I am jaundiced about politicians claiming easy fixes.
I have an extremely jaundiced view of zoning ordinances, without particular jaundice toward California zoning. As I understand the rationale for zoning, it is intended to assure the construction of safe, well-designed housing, while also advancing whatever fad has gripped the local planning. I believe much of the suburban sprawl is a result of past concerns for employment and industry: “The cities will be part of the country. I shall live 30 miles from my office in one direction, under a pine tree; my secretary will live 30 miles away from it too, in the other direction, under another pine tree. We shall both have our own car. We shall use up tires, wear out road surfaces and gears, consume oil and gasoline. All of which will necessitate a great deal of work . . . enough for all.” – Swiss architect Le Corbusier from The Radiant City (1935). I would attribute the crowded roads and environmental damage you bemoan, to the actions of the u.s. automobile, steel, rubber, and glass cartels in dismantling existing mass transit together with the very effective efforts of consolidated construction corporations to turn construction projects into bloated cash cows they could milk for public tax monies, … and do not forget the local interests that cripple small developers and construction companies while promoting the interests of the large local landowners and the construction companies building rows of little boxes made of ticky-tacky, little boxes all the same.
I suspect a little investigation of the ownership patterns of undeveloped land parcels, the members and supporters of county boards of supervisors, and city councils, and the patterns of land development and housing construction might offer some unpleasant surprises. What little I noticed while poking through the land books in an area of Southern California, back before computerized land books suggested something fishy about the county’s construction of sewer and water lines into undeveloped areas of the county. [I admit having a very suspicious nature.]
As for your proposal that somehow wages might be increased faster than house prices — that sounds like a dog chasing its tail. Given a fixed supply of housing, I think increased wages would act in a way similar to a decrease in the interest rates on mortgages. I believe zoning ordinances, planning commissions, and the ownership and allegiance of county and city government align with the interests of large developers and construction companies.
I suggest you visit where I am and see what happens with no zoning. It’s not pretty. Far too many bars and weed shops, as well as bizarre retail deserts in affluent neighborhoods. Too much casual violation of what little theoretical zoning there is, like building height limits v. proximity to water line.
What zoning we have is by virtue of moneyed (and corrupt) interests here wanting to keep the hard core sex district (one block in from the beach) contained so as to preserve shore-front real estate values.
Everyone hates zoning until you buy property in an area, then they learn to love it.
There are many issues with zoning – even quite small tweaks in how it operates can result in very different urban forms. Both Japan and Korea more or less copied the US zoning system, but different manners in how it was implemented resulted in their cities looking, and operating, in a totally different manner. A core problem of course in much of the US is that zoning is intended to protect residential property values and keep minorities out, and little else.
Henry George of course proposed an alternative a long time ago, but for quite obvious reasons he’s been memory holed, even within the economics profession.
What too say Jeremy … Calif gave us the model of RE as a financial asset and equity ATM = RE/MBS. All ideologically sold as individuals buying primary and investment properties too gain wealth/social status and retirement funding income streams.
Zoning ordinances follow industry standards as they set them and politicians like brown paper bags, right parties, and campaign funding.
That said after some earthquakes during the 80s things were improved for surviveablity, both human and RE due to insurance dramas and financial flows. Yet none of it will matter when the big one hits.
I too have seen what happens where there are no zoning laws or existing zoning laws are selectively enforced. I have seen a few cities in Mexico and the Orient where anything goes. Though I take a dim view of existing zoning ordinances, that view is based on my sense of a level of corruption that I believe favors large real estate and commercial interests and works to make variances, approvals, permits, and inspections an expensive hurdle for small ventures. I am especially bothered by the protective conservatism that restrains innovation and experiments in building design. I believe buildings adequate to yesterday’s climate are a poor fit to the future climate. The ticky-tacky woodstick frame, chip and glue plywood, sheetrock, insulation, moisture barrier, vinyl sheet construction [I am ignorant of the correct order of some of these items in the standard building envelope design] of many newer homes seems a flimsy match to future climates. Older construction often has issues with rot, termite damage, hazardous materials, sinking foundations, sagging floors, and location in areas of potential flooding, fire, wind, and hail damage in today’s storms. Older rural homes tend to be located in towns and cities whose economic justifications left with the railroad, or the closing of factories, or left when the mine played out. I feel present housing and construction will not prove fit for purpose in the climate that is fast arriving.
The rationale for zoning laws and construction approvals is solid. Their application and enforcement in practice has deviated from that solid rationale as they have warped to serve other purposes.
I live in San Diego. I’d like to know where those stringent building permits are. In our 1960s core subdivision, they’ve scrapped the single family building code and have OK’d high density with up to 5 units on a parcel. So quit repeating far right talking points about how commy Cali doesn’t allow any building. It’s a tired trope that has no basis for what is being presently practiced by our state and local govts.
Perhaps things are improving?
I left California almost four decades ago. Before I left, I worked briefly as a real estate sales agent and had an opportunity to peruse printed landbooks and look into little issues like obtaining a lot split in Santee. Obtaining approval for a lot split involved much of the same cost and expense that went into obtaining approvals for a subdivision — where a subdivision was defined as any lot split into 5 or more parcels. The cost and difficulty for obtaining approval for a subdivision creating 5 parcels was similar to the cost and difficulty of obtaining approval for a subdivision creating 1000 parcels. The local politics and economics heavily favored the big players. The inspections process for a large subdivision tended to scrutinize the building and permitting of the initial units of a subdivision much more carefully than later units. An entire subdivision in Santee contained numerous cracked slabs detected more than a decade after the subdivision had been completed and sold out. Many of the slabs had been poured with too little cement, too thin nearing the center. There was a subdivision on Clairemont Mesa that became famous in the early 1970s for houses that slid off their foundations toward a canyon below. My parents lived in a custom home in Eucalyptus Hills in Lakeside they had built in the middle 1960s on a lot they owned. Once when I visited in the early 1990s, I asked why so many of the newer homes in their area were built using pre-fab house sections delivered and installed on a building site. The cost of parcels in that area had grown so high that I expected they would have swamped construction costs for all but the most lavish custom construction. My parents explained that the costs and delays for approvals and permits had made most custom construction too expensive.
The single family building code in your 1960s core subdivision was changed and now allows higher densities of up to 5 units on a parcel? Investigate who requested and obtained the variance, who they know, and who they probably support with $$$ in either the city or the county that controls your zoning. Cui buono? I believe you might find a more sorted provenance for allowing the zoning variance than simple right wing versus left wing politics. After taking a few peaks at local politics I left with the impression that local politics supports local oligarchies and mediates their feuds while largely ignoring the needs and concerns of local helots. I reached that conclusion after working for a governor’s campaign in Florida and after joining and participating in a local democratic party organization in New Jersey [yes, I have moved that much in my life].
For especially interesting zoning and approvals processes check on the scene in Santa Barbara. I lived there in the middle 1970s for a couple of years. The costs for real estate were already well beyond even my dreams by then and renting there, even in Goleta, was steep and ever steeper. I made no investigations of local real estate practices, having allowed my sales license to lapse, but I did catch a lingering reek to the local real estate.
Maybe that’s the way to solve for this. A world without mortgages, without insurance, presumably without banks or finance, and oh wouldn’t it be so nice to finally get rid of real estate agents. And every neighbourhood becomes a Cheers neighbourhood, where everyone knows your name.
To Serve and Protect. And Mitigate? Certainly because how else? We’ve got the Space Force, the Air Force, the Army and the Navy. And most recently the ghastly Cyber. So what if they are all decapitated by climate disasters? Clearly we need to prevent that. So a new branch of the military is needed. Gee, it’s such a shame that we can’t just go out and bomb the evil climate to smithereens. Somehow we are smart enough to know that that will just accelerate all our disasters. So what shall we call this new service branch? Keeping in mind that it will rapidly expand to meet all the economic needs of this country. It will become the anchor of national finance, just like the MIC has done. Only this time it could really be a good thing. It boggles the mind.
It has been a long while, but I recall mission statements from some decades or so ago, for the U.S. Army’s SOUTHCOM, and I thought NORTHCOM also, which included providing water, food, shelter, medical care and communications assistance to areas affected by hurricanes, floods, and other weather and climatic events. I doubt present mission statements from TRADOC include those missions, although I have not tried to locate and read any of TRADOC’s current mission statements. A lot changed with Obama’s Pivot to the East.
The mission you seem to be proposing for a new military command strikes me as similar to what I thought were one of the implicit missions of the Civilian Conservation Corps [CCC]. I know the u.s. can only spend money on defense which usually means DoD but I would feel more comfortable with a new civilian service unallied with the military or our militarized police forces.
Call it Casino Force.
the G.S.B.
Gates’ smokestack brigade, or Gates’ smokestack builders
?
So, pursuing a Capitalist Economic Model as our future is both causing americans to go broke and to help kill humanity through harvesting and burning fossil fuel?
1 Timothy 6:10
The Capitalist Economic Model and its neoliberal evolution has doomed the u.s. empire. I believe that same ideology has been spread and promoted to become a basis for the world civilization, including the civilization of the BRICS countries. The world is finite, and though rich in resources, those resources are finite. Capitalism/neoliberalism promotes the extraction, exploitation, even wanton waste of resources at the fastest profitable [in the very short term] rate. The world civilization is dependent on a continuous, and accelerating rate of resource extraction, exploitation, and wanton waste. Climate change, which I think is by far the largest and most serious threat to world civilization appears to lag behind the exhaustion of resources.
Insurance: the canary down the mine for the end of capitalism.
I’d love to find out about the Fukushima Daiichi nuclear power plant, when was that, 2011? What are the residential real estate issues – insurance, values – in the now livable zones close to the disaster site.
Yep, 2011. Here’s a detailed breakdown of the land prices in Fukushima Prefecture:
https://tochidai.info/fukushima/
You need to drill down at a local level, because the prefecture is quite large and many areas were not impacted.
Several towns were pretty much wiped out, and filed lawsuits against TEPCO, e.g.:
https://japanpropertycentral.com/2012/03/town-in-fukushima-demands-19-2-billion-yen-in-compensation-for-lost-real-estate/
The prefectural govt later used a form of eminent domain to take an area of this town for storage of earth contaminated by fallout when the reactor buildings blew up.
https://mainichi.jp/english/articles/20151210/p2a/00m/0na/020000c
It’s called “temporary” storage but of course rain washes through the bags of contaminated earth and will contaminate the land beneath.
In 2022, a court found Tokyo District Court found four former TEPCO executives responsible, and on the hook for ¥13.32 trillion ($90 Billion):
https://beale-law.com/article/former-executives-ordered-to-pay-80-billion-in-damages-over-fukushima-nuclear-disaster-an-example-of-what-could-come-for-those-at-the-frontline-of-managing-risk/
But earlier this month, the Tokyo High Court overturned the decision:
https://www.jurist.org/news/2025/06/japan-high-court-overturns-fukushima-disaster-compensation-ruling/
“More than 30,000 people displaced by the Fukushima disaster are still designated as internally displaced persons (IDPs) and face persistent human rights violations.”
Some of the local real estate web-lists of properties for sale include ways to show the flood risks for an area. I have been looking for a home inland in the Catskills. The updated flood map overlays show a lot of the existing homes as serious flood risks. I believe a large part of the existing housing stock is similarly threatened.
Houses need some way to provide the basic utilities water, sewer, and electricity. Many of the existing homes in more rural areas were built more than a century ago in the age of outhouses, candles and oil lamps, when I believe that access to fresh water was a primary driver determining where houses and communities were located. Waterways also served as avenues for transportation, and later as passages ways for railroads. Consequently much of the existing housing in places like Upstate New York was built near streams and rivers. I conjecture that the placement of wells similarly tends to follow surface waterways and water accumulations like lakes and ponds. While much of the concern about insurance tends to center on the coasts and areas currently threatened with wildfires, the threats of flooding in rural areas should not be ignored.
I hope to find more information on the severity of weather events the climate models predict for the future as the climate change evolves. While it may be difficult to predict local climate effects I suspect predicting the strength and probability of strong events is less problematic. Fire and flood hold the interest of the moment. I believe the intensity and frequency of the — storms of our grandchildren — to steal some of Hansen’s words, should not be ignored and there is too little information to gauge their threats and temporal proximity. Though global transoceanic trade appears to be diminished by various forces of the ongoing declines and self-destruction of the u.s. empire, future hurricanes and typhoons, and so-called rogue waves may pose far more serious threats to globalism.
There are 6.3m homes in England alone which are vulnerable to flooding, with over 100,000 of those … errr …ever so sensibly ….. built on flood plains in the last decade or so.
That is about 25% of all English residential property, with flood risks highest in the SE and East Anglia, though most major river basins have frequent flooding somewhere.
The boundaries of Flood Zone 3, the highest category, are far from fixed and flood events are inevitably going to increase both in frequency and severity.
Insurance companies, who tend to respond in Pavlovian fashion to claims, rather than predict risks through an informed knowledge of geomorphology, are not expert hydrologists.
However, even experts cannot fully predict how those areas of highest flood risk might expand in future with unknown precipitation patterns, or what new coastal areas are going to become vulnerable either.
The prospects of land and housing values falling throws economists and politicians into cold sweats, but not enough to be seriously funding climate change mitigation – about a quarter of English flood management infrastructure is estimated as in poor condition and not fit for purpose. Government funding is pathetically inadequate.
The FT might focus on climate change risks within their perception, but its not just housing – 2024 was the second worst harvest on record in England – wheat harvest 21% down,. Winter barley 26% down, and oilseed rape down 32%. The best arable land tends to be on flood plains, and in the English fens. Food security is a political issue post Brexit.
This all leads back to Tory cuts ten to fifteen years ago which involved 50% of the Department of Environment’s budget under austerity. Environmental regulation has been slashed, and is not going to be restored by Labour.
Departmental cuts were so severe that there is now an inability to even measure the frequency and volume of raw sewage discharges into rivers, very frequently in breach of the privatised water companies legal duties.
Yes, climate change adaptation and mitigation really is a shit show in England.
Good luck Stateside…..
Today’s Sacramento Bee has a story about how even the state’s backup insurance (“FAIR”) is denying claims….a lawsuit ensues, etc.
The joke is that it’s socialism when the firemen put out a fire at your house, but capitalism when the insurance company denies your claim.
Rainfall amounts have been steadily increasing in the Florida county in which my family’s home is. In the past five years, flooding events have been occurring.
Residents are quick to focus on the new developments while ignoring the increased rainfall. There is an increase in runoff (perhaps 10%?) due to the change from native vegetation to medium density housing. But they do not accept that the volume of rain in the past five years has been increasing. It’s very possible that we are on the curve of a hockey stick graph.
From a strictly stormwater perspective, local government can take two actions. Buying out property, and constructing stormwater infrastructure. One project involves constructing retention ponds and pump stations. The cost is up to ten million dollars which could be more than the value of the ten properties which are affected. There is probably also value in preventing flooding on the local roadway as well.
If the amount of heat in the atmosphere continues to cause the rainfall amount to go parabolic, there will not be enough funding locally. The other sources include FEMA programs from the Federal government, but that seems more uncertain than ever.
From my reckoning, the insurance costs are rising everywhere, even in areas not affected by fires or floods. The Munich REs of the world likely is increasing the price of reinsurance and the losses of course are socialized…
From the FT article:
For an example of what happens when the government and/or the financial sector decides that a whole region or suburb is uninsurable or unsafe for human habitation generally, use Google Maps to look up Avonside, Christchurch (New Zealand) and switch on satellite view.
That’s what happened. If you zoom in, you can still see the property boundaries and remnants of driveways and the like.
There were a few that stayed on anyway for a while, managing without services like water, power, sewage etc. and through the support of family and social workers (possible because the area was very limited and it’s still pretty close to civilization, neither of which is likely to be the case in the FT scenarios). I think the last of them have now either died or moved away due to health or security problems.
I think the point that sometimes gets lost in the FT story (because of its focus, perhaps) is that this isn’t just a failure of constructed financial instruments like the 2008 crisis – it’s a real thing that’s happening in the physical world. If you can expect your home to burn down or be catastrophically flooded every five years on average, you don’t have a home in the normal sense. Even if you are willing to take the risk of staying, and have enough private wealth to rebuild or repair every time, most of your neighbors won’t, and government and financial providers are not going to continue investing in services like utilities, mortgage facilities, fire protection, etc. You’ll be on your own in a (temporarily) urban wilderness.
This is very useful, thanks a lot! The earthquake was 2011, so the depopulation of the area did not take all that long, even with the advantage of being near communities with all the modern amenities.
Yes, it’s quite surprising how quickly it happened. You can even use Google Street View to ‘walk’ around and see what it looks like. Mostly it’s either reverting to wilderness or being maintained as parkland. It’s actually rather pleasant and it’s become a popular walking spot for those nearby, but nobody lives there.
In this case the government made a clear call early on that the area was to be abandoned, and also made offers on the homes (many of which were heavily earthquake damaged). I think the combination of those two led to pretty good compliance, although there was most definitely resistance at the time, and the minister responsible was persona non grata in parts of Christchurch for years. There are a few news articles floating around about the ones who tried to stick it out, the challenges they faced, and what got them out in the end.
The X factor in this here version of the latest and greatest housing bubble is short term vacation rentals, which didn’t exist in the 2007-8 meltdown.
I don’t think many of them were bought for cash, and are lightly held and easy to show were there a rush to the exits of would be Hilton types, said garage mahals being pre-staged for sale essentially.
I feel as if we’ll be lucky to see the insurance market fail given how trigger happy our leaders appear to be. I also feel like the supply and demand issues with housing will work themselves out as we continue to encourage our citizens to handle themselves in the face of long covid, brutal temperatures, and water shortages. A big story around us in the DC/MD area from the latest heat wave was all the local utilities whi had smart meter and smart thermostat arrangements with customers choosing to reset the house temps of people to 87 F during the day. People with relatives living at home, or pets, were furious.
So given how hostile we’ve made living and how onerous we’ve made owning a house, insurance may be the least of our worries.
The impacts of climate change on insurance markets have been well understood since the 1980’s – I recall back in my student days the Economist Magazine did a special article on the topic, much prized by us students in those pre-internet days when it took a long time (i.e. you had to wait for your library to order in books and journals) to explore topics which crossed various disciplines. It often overlapped with other insurance concerns – to this day, many government agencies suppress information on topics like coal mining subsidence specifically to thwart insurance company blacklists for certain areas. Of course, in some countries – Japan is a notable example – insurance companies are well used to pricing in potential large scale and permanent catastrophes.
There are of course many hidden problems in this, but one is the various levels of opaqueness between the calculations made by various governmental and private agencies in assessing flood/fire and other catastrophic risk in their infrastructure investments and various forms of planning regulation, and how they interact with the insurance market. Insurance companies rarely open up about the multiple layers of differential pricing and de facto blacklists that operate (and always have operated) in property insurance markets. On the flip side, there are underlying assumptions made by regulators and engineers about risk which don’t always match up with reality (or the assumptions of insurance companies). A personal bugbear of mine is a lot of ‘on the ground’ engineers calculating flood risks are based on climate model projections which are simply not intended to provide such micro-level assumptions.
Just to illustrate the way in which reality has a habit of not matching the real world – a few years back a flood assessor told me an anecdote about a case he dealt with in England:
A very expensive house had been built on an area which had become flood vulnerable due to upstream changes. After the second catastrophic flood in 10 years, the insurance company refused further cover. After much discussion between the local Council (keen to prevent blacklisting) and the owner, the insurance company agreed to cover provided the ground floor was fully water sealed to protect against a flood level of up to 1 metre (the maximum expected). This was done, at great expense to the homeowner, who then sold the house.
A year later, the river burst its banks, and sure enough, the house was flooded. The assessor was called in to see what went wrong. It took two minutes for him to establish why the sealing had failed. The new owner had cut a cat flap into the rear kitchen door.
While the human tragedies that this process will bring are very real and I am suitably aggrieved, there is a part of me which relishes the dawning realization (as slow in coming as it may be to neoliberal encrusted minds) that the ultimate backstop for all insurance ends up being, wait for it — government.