This article is co-published with ProPublica, a nonprofit newsroom that investigates abuses of power.
Houses in the Altadena and Pacific Palisades neighborhoods were still ablaze when talk turned to the cost of the Los Angeles firestorms and who would pay for it. Now it appears that the total damage and economic loss could be more than $250 billion. This, after a year in which Hurricanes Milton and Helene and other extreme weather events had already exacted tens of billions of dollars in American disaster losses.
As the compounding impacts of climate-driven disasters take effect, we are seeing home insurance prices spike around the country, pushing up the costs of owning a home. In some cases, insurance companies are pulling out of towns altogether. And in others, people are beginning to move away.
One little-discussed result is that soaring home prices in the United States may have peaked in the places most at risk, leaving the nation on the precipice of a generational decline. That’s the finding of a new analysis by the First Street Foundation, a research firm that studies climate threats to housing and provides some of the best climate adaptation data available, both freely and commercially. The analysis predicts an extraordinary reversal in housing fortunes for Americans — nearly $1.5 trillion in asset losses over the next 30 years.
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 own home. In a sense, it is upending the American dream.
Homeownership is the bedrock of America’s economy. Residential real estate in the United States is worth nearly $50 trillion — nearly double the size of the entire gross domestic product. Almost two-thirds of American adults are homeowners, and the median house here has appreciated more than 58 percent over the past two decades, even after accounting for inflation. In Pacific Palisades and Altadena, that evolution elevated many residents into the upper middle class. Across the country homes are the largest asset for most families — who hold approximately 67 percent of their savings in their primary residence.
That is an awful lot to lose: for individuals, and for the nation’s economy.
The First Street researchers found that climate pressures are the main factor driving up insurance costs. Average premiums have risen 31 percent across the country since 2019, and are steeper in high-risk climate zones. Over the next 30 years, if insurance prices are unhindered, they will, on average, leap another 29 percent, according to First Street. Rates in Miami could quadruple. In Sacramento, Calif., they could double.
And that’s where the systemic economic risk comes in. Not long ago, insurance premiums were a modest cost of owning a home, amounting to about 8 percent of an average mortgage payment. But insurance costs today are about one-fifth the size of a typical payment, outpacing inflation and even the rate of appreciation on the homes themselves. That makes owning property, on paper anyway, a bad investment. First Street forecasts that three decades from now — the term of the classic American mortgage — houses will be worth, on average, 6 percent less than they are today. They project that decline across the vast majority of the nation, affirming fears that many economists and climate analysts have held for a long time.
Part of the problem is that many people were coaxed into living in the very high-risk areas they call home precisely by the availability of insurance that was cheaper than it should have been. For years, as climate-driven floods, hurricanes and wildfires have piled up, so have economic losses. Insurance companies canceled policies, but in response, states redoubled support for homeowners, promising economic stability even if that insurance — required by most mortgage lenders — one day disappeared. It kept costs manageable and quelled anxiety, and economies continued to hum.
But those discounts “muffled the free market price signals,” according to Matthew Kahn, an economist at the University of Southern California who studies markets and climate change. They also “slowed down our adaptation,” making dangerous places like Florida’s coastlines and California’s fire-prone hillsides seem safer than they are. First Street found that today, insurance underprices climate risk for 39 million properties across the continental United States — meaning that for 27 percent of properties in the country, premiums are too low to cover their climate exposure.
No wonder costs are rising. Insurers are playing catch-up. But it means Americans are playing catch-up, too, in terms of evaluating where they live. And that leads to the potential for large numbers of people to begin to move. First Street, in fact, correlates the rise in insurance rates and dropping property values with widespread climate migration, predicting that more than 55 million Americans will migrate in response to climate risks inside this country within the next three decades, and that more than five million Americans will migrate this year. First Street’s analysts posit that climate risk is becoming just as important as schools and waterfront views when people purchase a home, and that while property values are likely to drop in most places, they will rise — by more than 10 percent by midcentury — in the safer regions.
There are many reasons to be cautious about these projections. Precise estimates for climate migration in the United States have remained elusive in large part because modeling for human behavior in all its diverse motives is nearly impossible. First Street’s economic models also don’t capture the immense equity many Americans have accumulated in those properties as home values have lurched upward over the past two decades, equity that gives many people a cushion larger than the relatively modest projected losses. The models assume that all the past patterns of reckless building and zoning will continue, and they don’t account for the nation’s housing shortage, nor the difference between longtime homeowners and a new generation trying to buy now.
However imprecise, First Street’s work “plays the role of Paul Revere, of the challenge we could face if we fail to adapt,” said Mr. Kahn. Climate-driven costs and climate risk may drive sweeping change in both homeownership and migration, at the same time that both of those factors are expected to continue to increase.
It means that homeowners will need to be far wealthier, or renters will have to pay much more. Like many aspects of the climate challenge, this one will also drive climate haves and have-nots further apart, especially as relatively safe regions emerge, and discerning buyers flock to their appreciating real estate markets.
No one is abandoning Los Angeles. Its wealth, density and government support make it far more resilient than places like Paradise, Calif., the New Jersey shore or Florida. But it will be economically and physically transformed. Pacific Palisades will probably be rebuilt to its past splendor: Its homeowners can afford it. Altadena, a middle-class neighborhood, may face a different fate: Its properties are more likely to be snatched up by investors, gentrified and made unaffordable by both the cost of rebuilding, insurance and upscaling of new homes as they are rebuilt.
In that way, Altadena may prove to be the true harbinger ⎯ of a future in which no one but the rich owns their own homes, where insurance is a luxury good, and where renters pay a monthly toll to large private equity landowners who may be better suited to manage that risk.
Abrahm Lustgarten is an environmental reporter for ProPublica and the author of “On The Move: The Overheating Earth and the Uprooting of America.”
Graphics by Sara Chodosh
The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.
Follow the New York Times Opinion section on Facebook, Instagram, TikTok, WhatsApp, X and Threads.