A new study by First Street projects that climate-driven extreme weather could cause a 380% increase in U.S. foreclosures over the next decade, with up to 30% of all foreclosures by 2035 linked to flooding, wind, and related events. These risks pose significant financial threats not only to low- and moderate-income homeowners, whose wealth is often tied to property, but also to lenders, who may face $5.4 billion in annual credit losses by 2035.
I was reflecting on this as for many in California, their home is their biggest asset. This might be particularly true given the stock market of late. While some have proposed tax credits to aid in the "hardening of homes" against climate change, as with most remodeling projects, the costs could easily outstrip the provided credit. This could leave some folks in a financial pinch as they approach retirement.
Some of the key findings from the First Street study include:
Many lenders don’t account for climate risk in mortgage underwriting.
Rising insurance premiums, and insurers pulling out of high-risk markets, leave homeowners more vulnerable.
Areas most at risk include Florida, Louisiana, California, and inland states due to underinsurance and flawed FEMA flood maps.
Only 3.1 million homes carry flood insurance, though 18 million are at risk.
Homes outside FEMA flood zones saw 52% higher foreclosure rates after floods.
First Street suggests integrating climate risk into lending, though it may raise home prices and interest rates, making buying harder for some. I particularly ponder home prices in California going up. The average home price in San Francisco, for example, is $1.5 million the last time I looked. Raising prices can make home ownership even more out of reach of anyone but the wealthy. Hmm, climate-change causing further wealth inequality?
The Parting Glass
I must admit my head is a whirl of solutions in this one. More affordable housing? Mandated building codes that account for climate change (but who will bear the costs of these homes on stilts?)? Regulations as to where homes may or may not be built? While free-market proponents may groan at these ideas, the status-quo seems to be a lose-lose for homeowners and ultimately taxpayers who may need to fund the cleanup efforts. Doing nothing is not an answer.