Climbing temperatures are sharpening economic divides in American communities, a new report has found.
Rising insurance rates are increasingly making broad swaths of the country’s biggest cities unaffordable, according to the new findings from First Street Foundation, which analyzes the impacts of climate change on real estate.
In many regions, “home insurance is becoming a luxury good,” said Jeremy Porter, head of climate implications at First Street.
Some of the most threatened regions along the Gulf and Atlantic coasts are on track for three- to fivefold increases in their insurance rates — which would drive a massive drop in value for homes, the main source of wealth for most Americans, the report from First Street found.
But not all homeowners are expected to suffer losses. The First Street findings suggest that over the next 30 years, property values across America as a whole will fall by nearly $1.5 trillion dollars — while certain properties will gain $244 billion.
These findings point toward a complex climate future for America — one not so much of fully collapsing cities but rather of inequality growing as fortified, wealthy enclaves rise in the middle of disaster-impacted cities.
From Los Angles and Houston to Atlantic City, N.J. and Tampa, Fla., Porter said, American cities are being divided into two broad buckets. “There will be communities in which only the rich can afford to stay — and those where only the rich can afford to leave,” Porter said.
The report comes amid a burgeoning crisis in home insurance markets. According to the First Street data, home insurance costs as a share of mortgage have tripled nationwide over the past 15 years.
This rise in prices has not staunched the bleeding for insurers as disasters — and the property damage that comes along with them — mount. In 2023, home insurers paid out 10 percent more in claims than they took in in premiums — the most recent impacts of nearly $3 trillion in disaster impacts since 1980.
Those premiums, Porter said, “will keep rising until the business is actuarily sound.”
In some regions, that rise and its impacts will be particularly stark, according to the data. While insurance rates are already at crisis levels in many cities, the data projects sharper rises yet. By 2055, the First Street data projects a more than fourfold rise in premiums over current levels in Miami, a tripling in Jacksonville and Tampa, Fla. and New Orleans and a doubling in Sacramento, Calif.
As it drives up mortgage rates, that rise will zero out or decrease the increase in property values across much of the rapidly growing Sunbelt, with some Florida, California and Texas counties seeing net drops of 10 to 40 percent in their property values by 2055, the data indicates.
That fall will be reflected in the decision by tens of millions of Americans to relocate over the coming decades, First Street projects. Their data suggests that 55 million will relocate to safer areas by 2055 — starting with more than 5 million this year.
But that projection come amid a broader paradox, Porter noted: Americans are still streaming to the nation’s most climate threatened cities. Over the next 30 years, counties in or around some of the country’s most climate-threatened areas — particularly Austin, San Antonio and Houston — are expected to see their gross domestic products (GDPs) rise by as much of a third, and home values rise by as much as 10 percent, the report found.
In part, Porter said, this is the result of a historical accident. For a variety of reasons, America’s biggest and fastest growing cities — which are still vast economic engines — tend to be its most climate-threatened.
For one, a historic need for access to shipping means many lie alongside riverbanks and coastlines, where they face a heightened vulnerability to flood and storm. Others have sprawled into surrounding timberlands, with the accompanying the risk of fire. And the advent of air-conditioning and the post-World War Two industrial boom saw the rapid growth of the Sunbelt, a region vulnerable to extreme heat, drought and — depending on the region — hurricanes and fires as well.
For these economically potent cities, rising climate risk is still outweighed by the factors drawing people to them, even as that mounting risk slows their growth beyond what it otherwise might have been under a stable climate, Porter said. He compared the dynamic to what sociologists call “demographic momentum,” a term that describes how total populations can keep rising even after fertility rates — or in this case, migration — begin to decline.
Past First Street data has shown that while people are increasingly factoring climate risk into their home-buying decisions, that consideration is generally impacting their choices about where to live within an area rather than whether to buy in a different area — or region — entirely. In a similar way to how home buyers use the school rankings that have long been integrated into home searching tools, those findings found, they now use climate risk data to find safer neighborhoods within cities that are, in broad strokes, getting riskier.
The combination of rising risk and rising economic growth helps explain why America’s most desirable cities — or the regions within them that can best be defended against disasters — will increasingly be home only to those who can afford to pay for insurance and protecting their homes, First Street found.
A good example of this dynamic is Miami Beach, Fla., Porter said — or, for that matter, the newly fire-ravaged neighborhoods of Los Angeles. Taken as a whole, he said, “Los Angeles is going to be fine.”
When rebuilding is complete, he said, the Palisades, once a region of mansions, “will look like it did before.” By contrast, he predicted that similarly devastated Altadena — once a vibrant middle- and working-class neighborhood — will be repopulated by those who can afford to pay the rising insurance rates, which would mean “a lot of institutional investment” by big banks and real estate trusts, and ultimately a form of climate gentrification. Those in the working class who stay, he said, are likely to be renters.
That pattern — which Porter sees recurring in places like Houston, New Orleans and Miami — may mean potential GDP increases for the county as a whole. But that rise in value, or home prices, won’t necessarily be captured by the people living there now, he said.
Altadena — a recently devastated neighborhood within a highly desirable city — is only one side of the emerging climate dichotomy indicated by the First Street data, however. On the other side are cities like Fresno, Calif., where insurance rates are rising in tandem with declining property values, or the coastal New York City neighborhood of South Jamaica Bay.
In those places, Porter said, “people get trapped.” Where there are fewer amenities and less neighborhood desirability to dampen the climate risks, he said, those risks play a predominant role in people’s decisions on where to live: “If a neighborhood is not pulling people in, and it’s not a status symbol — people with means are going to move.”
That could mark the beginning of a financial death spiral for cities driven by climate change — in which increasing disaster risk drives declining property values in in self reinforcing feedback loop — but at the level of the neighborhood, rather than the city.
When he began researching climate impacts on real estate at mid-century, Porter told The Hill, he predicted that rising temperatures, higher sea levels and more powerful firestorms were an “urgent” problem that would drive rapid, large-scale decline of some of America’s biggest cities.
Now, he said, he sees the problem as more “stubborn,” in the sense that it is likely to continue compounding over time rather than arising and prompting a sudden change in behavior. Even as storms batter Charleston, Miami, New Orleans and Houston, “we’re not going to all-out abandon major cities in the south,” he said.
Instead, he projects private investment and federal and state infrastructure dollars to keep pouring into ever riskier cities. “We’re going to adapt, adapt, adapt — until we reach a point where there is no return on that investment.”
When will that point come? He doesn’t know. “But that isn’t going to happen in the next 30 years.”
