Yes, you might. But that doesn't mean you have the right lens on the situation.
I agree with the reply. One adjustment is to make people pay for the actual risk of their homes. Today, we don't. And, that means that some folks with waterfront properties will need to pay a lot more, or move elsewhere. Same thing in wildfire-exposed areas.
That said, this article points to home insurance in the title, but I think it should be something like: "Homeowners Face Many Significant Financial Hurdles In Ownership."
Not as catchy, I know. However, insurance is just one component of the problem. Climate trends are another. Regulation (not insurance) at the state and municipal level another. I could go on.
Very informative read - would love to know what you think is going to happen with insurance companies pulling out of FL, CA, and LA. What are the chances the government might do something similar to what they did with ACA and say, "You can't deny home insurance" the same way they say you can't deny health insurance coverage to people based on preexisting conditions?
Regina - this already happens but through another mechanism. In short, the state steps in to provide insurance. In California, it's the FAIR plan. In Florida, Citizens Property Insurance. No one thinks these are the right long term solutions.
They can force insurers to not deny risks with certain characteristics (loss history, roof condition, home age) but they can't force insurers to offer coverage in their state.
Health insurance encourages treatment, which has a far stronger economic and social rationale than does encouraging people to live where everyone wants to live.
That is, there are positive externalities--societal benefits, etc.--to making people healthier. Apart from the moral reasons, which are foremost, it's cheaper, meaning there are more resources to do other cool stuff with. So government-backed health insurance is defensible, whether or not you think it's the best approach.
Subsidizing people living where they want to live doesn't have these benefits. It's better handled by the market--there's a reason beachfront property is so expensive. There's a limited amount of it and just about everyone enjoys it. To then pay for certain people to live there by subsidizing their risk promotes inequality and subsidizes externalities better assumed by the people living there. In short, if you can afford to live in Debordieu, you can afford to rebuild if your house gets flattened by the hurricanes everyone warned you about.
Besides, you must *never* reward bad behavior in a system. Encouraging building in unsafe, unstable areas (leaving aside the effect on the environment) is a prime example of rewarding bad behavior. So government-backed home insurance is not defensible, I think.
(Writing before reading) This is the post I have been waiting for since Kamala announced her plan late last week. Very much looking forward to your breakdown, and thank you for writing!
Housing demands and the underpricing of risk— a perfect example of a complex systems problem where each “solve” by a different constituent blows and rocks the entire interconnected mobile-like picture of parts.
Kyla, this is seriously one of the most well-written overviews on this for someone like me who knows a little but not a lot. And I was especially intrigued by the policy prescriptions here!
No one, but especially the government and taxpayers, should be subsidizing waterfront homeowners. And yet we do. This is a large part of the climate change industry - get others to pay for your luxury housing.
I've spent the past few months studying insurers, primarily P&C, and understanding the concepts behind insurance market, thank you for adding to my understanding. I observe this within the small town in the woods of NorCal where I have recently moved to. It is becoming increasingly less attractive to own homes out here despite having some of the cheapest home prices in the state due to said wildfires. I wish people understood insurance as the critical infrastructure it is for markets to exist. The hard market has plenty of momentum and we can only hope reinsurers are properly assessing risk.
Hope still exists here, though it is hard to find. You mentioned the Florida market litigation situation, to my understanding that has been improving. One can observe the same phenomenon happening with auto-insurance costs rising and accident lawyers on every billboard adjacent to any highway.
Thank you for writing this, I'll be sending it to my sister who just bought a home in Florida. Could I ask why you think a tax on unrealized capital gains is a bad idea?
Can you ask why a tax on unrealized capital gains is not a bad idea? It doesn’t even make sense logistically. What money are you using to pay the tax when you haven’t realized any gains yet?
If you were attempting to put forth a single policy to destroy the middle class this would be a strong contender.
The US is not suffering from a lack of tax revenue, and if they were, they could amend that by simplifying the existing tax code, not adding more layers of bureaucracy. Consider that in order for the government to tax your unrealized earnings they have to be constantly monitoring every asset you own.
The gains are certainly realized in the form of using them as collateral for loans. To be clear, I'm not talking about taxing unrealized gains in someone's Roth IRA, but gains on income already over a certain threshold, say 50 million. Also, I'm very green to all this. I'm looking to be educated. But for the time being, I don't understand what someone making $50 million does with their money, or why they need that much in the first place.
Ryan the problem is that those unrealized gains could quickly become unrealized losses with a market downturn. This could in turn cause massive tax selling to pay the tax on the unrealized gains, further exacerbating market volatility at the end of the year.
There are two kinds of money: your money and rich money.
Your money is used to buy shoes, vacations, even a Lamborghini.
Rich money is used to buy companies, or any other very very valuable object that may be even more valuable in the future.
This is a type of consumption too, is what people don't get. It's just not tangible. And you can't tell those consumers "stop doing that" just as you can't tell your kid to stop wanting a PlayStation...or tell yourself to stop wanting shoes over a piece of truck tire with rope tied to it.
It seems like this should eventually result in pressure to live in smaller, less expensive homes? If they're cheaper to build (or replace), they're cheaper to insure. But the feedback process for that seems very slow.
Why are we living on places that are clearly more risky ? Florida, some part of California and Texas should simply pay more to live in a place that it’s higher risk.
Super weird how no one who looks at the lack of adequate will ever consider, for even one second, the totally uncontrolled flow of illegal immigration into the country.
Ma’am, price is a function of supply and demand. If supply cannot keep up with demand to maintain a stable price level, then the price of the product will rise. A constant new supply of labor, absent some huge new demand for labor, by the same logic means that uncontrolled immigration will depress the price of labor, that is to say, wages. Both of those factors make it more difficult for citizens to afford housing.
Absolutely this is at the root of this housing problem. Otherwise the population is shrinking. Today the federal govt provides $ billions to sanctuary cities to house and feed these poor people who shouldn’t be here in the first place.
I don’t think there is a conflict between owners and renters over “prices”. I’ve never met anyone that supported a zoning ordinance because they thought it would raise their home value.
I have met a lot of people that support zoning and other laws in order to preserve some aspect of their way of life. These reasons vary with every place and policy, but they have nothing to do with home prices (in a very indirect sense something like building section 8 housing next door might reduce home prices, but as a secondary affect if changing the lived experience of the neighborhood).
Singapore (and Japan) work on housing in large part because they have minimized the negative externalities of “bad neighbors”. If Singapore slaps down a cheap HBD flat, you don’t have to worry about how it’s going to affect the crime or schools in your neighborhood. You can expect the demographics to stay pretty constant. You can expect public services to remain top notch. There really is no underclass to speak of.
That’s the hard part of the equation. One reason red states have less zoning is they do better on that stuff. Sacramento can pass all the zoning reform it wants, but as long as people perceive their communities quality of life at threat they will find ways to stop building. You gotta address the problems head on.
Yep. Biggest challenge is that we, as a species, are exceptionally sensitive to differences in group status, and have evolved a whole complex of biological and sociocultural equipment to assist with that.
It's not about what you can afford, it's about what you think your neighbors can afford. And what they think you can afford.
The comment about down payment on properties is not true, FTH can get into properties with as little as 3% down. I may be misunderstanding the context, though.
The solution is to let insurers price to risk everywhere. It doesn’t matter what your rate was last year. Regulators need to get out of the way.
If that means less beachfront property, so be it.
When your house slides into the ocean you might be thinking otherwise
Is this a reply? What does it mean?
Do you think it's fair to force people to pay more to subsidize other peoples beachfront property?
You had a good comment. +1
Yes, you might. But that doesn't mean you have the right lens on the situation.
I agree with the reply. One adjustment is to make people pay for the actual risk of their homes. Today, we don't. And, that means that some folks with waterfront properties will need to pay a lot more, or move elsewhere. Same thing in wildfire-exposed areas.
That said, this article points to home insurance in the title, but I think it should be something like: "Homeowners Face Many Significant Financial Hurdles In Ownership."
Not as catchy, I know. However, insurance is just one component of the problem. Climate trends are another. Regulation (not insurance) at the state and municipal level another. I could go on.
That’s the solution to many of our problems, but when has the government ever shrunk?
Very informative read - would love to know what you think is going to happen with insurance companies pulling out of FL, CA, and LA. What are the chances the government might do something similar to what they did with ACA and say, "You can't deny home insurance" the same way they say you can't deny health insurance coverage to people based on preexisting conditions?
Regina - this already happens but through another mechanism. In short, the state steps in to provide insurance. In California, it's the FAIR plan. In Florida, Citizens Property Insurance. No one thinks these are the right long term solutions.
They can force insurers to not deny risks with certain characteristics (loss history, roof condition, home age) but they can't force insurers to offer coverage in their state.
Health insurance encourages treatment, which has a far stronger economic and social rationale than does encouraging people to live where everyone wants to live.
I'm not sure I understand what you're saying
That is, there are positive externalities--societal benefits, etc.--to making people healthier. Apart from the moral reasons, which are foremost, it's cheaper, meaning there are more resources to do other cool stuff with. So government-backed health insurance is defensible, whether or not you think it's the best approach.
Subsidizing people living where they want to live doesn't have these benefits. It's better handled by the market--there's a reason beachfront property is so expensive. There's a limited amount of it and just about everyone enjoys it. To then pay for certain people to live there by subsidizing their risk promotes inequality and subsidizes externalities better assumed by the people living there. In short, if you can afford to live in Debordieu, you can afford to rebuild if your house gets flattened by the hurricanes everyone warned you about.
Besides, you must *never* reward bad behavior in a system. Encouraging building in unsafe, unstable areas (leaving aside the effect on the environment) is a prime example of rewarding bad behavior. So government-backed home insurance is not defensible, I think.
I'd like to learn more about how insurance is propping up oil and gas.
That is how they make their money so as defossilization happens the burden falls on premium generation
Phenomenal. One of the best explainers of the insurance crisis crippling the South I've seen. Great job.
(Writing before reading) This is the post I have been waiting for since Kamala announced her plan late last week. Very much looking forward to your breakdown, and thank you for writing!
Housing demands and the underpricing of risk— a perfect example of a complex systems problem where each “solve” by a different constituent blows and rocks the entire interconnected mobile-like picture of parts.
Kyla, this is seriously one of the most well-written overviews on this for someone like me who knows a little but not a lot. And I was especially intrigued by the policy prescriptions here!
Great article!!
No one, but especially the government and taxpayers, should be subsidizing waterfront homeowners. And yet we do. This is a large part of the climate change industry - get others to pay for your luxury housing.
I've spent the past few months studying insurers, primarily P&C, and understanding the concepts behind insurance market, thank you for adding to my understanding. I observe this within the small town in the woods of NorCal where I have recently moved to. It is becoming increasingly less attractive to own homes out here despite having some of the cheapest home prices in the state due to said wildfires. I wish people understood insurance as the critical infrastructure it is for markets to exist. The hard market has plenty of momentum and we can only hope reinsurers are properly assessing risk.
Hope still exists here, though it is hard to find. You mentioned the Florida market litigation situation, to my understanding that has been improving. One can observe the same phenomenon happening with auto-insurance costs rising and accident lawyers on every billboard adjacent to any highway.
Thank you for writing this, I'll be sending it to my sister who just bought a home in Florida. Could I ask why you think a tax on unrealized capital gains is a bad idea?
Can you ask why a tax on unrealized capital gains is not a bad idea? It doesn’t even make sense logistically. What money are you using to pay the tax when you haven’t realized any gains yet?
If you were attempting to put forth a single policy to destroy the middle class this would be a strong contender.
The US is not suffering from a lack of tax revenue, and if they were, they could amend that by simplifying the existing tax code, not adding more layers of bureaucracy. Consider that in order for the government to tax your unrealized earnings they have to be constantly monitoring every asset you own.
The gains are certainly realized in the form of using them as collateral for loans. To be clear, I'm not talking about taxing unrealized gains in someone's Roth IRA, but gains on income already over a certain threshold, say 50 million. Also, I'm very green to all this. I'm looking to be educated. But for the time being, I don't understand what someone making $50 million does with their money, or why they need that much in the first place.
Ryan the problem is that those unrealized gains could quickly become unrealized losses with a market downturn. This could in turn cause massive tax selling to pay the tax on the unrealized gains, further exacerbating market volatility at the end of the year.
Ok that's starting to make sense. Thank you.
There are two kinds of money: your money and rich money.
Your money is used to buy shoes, vacations, even a Lamborghini.
Rich money is used to buy companies, or any other very very valuable object that may be even more valuable in the future.
This is a type of consumption too, is what people don't get. It's just not tangible. And you can't tell those consumers "stop doing that" just as you can't tell your kid to stop wanting a PlayStation...or tell yourself to stop wanting shoes over a piece of truck tire with rope tied to it.
Because it requires "cash out" to the Gov, but there is no offsetting "cash in". It's a cash flow mismatch.
It seems like this should eventually result in pressure to live in smaller, less expensive homes? If they're cheaper to build (or replace), they're cheaper to insure. But the feedback process for that seems very slow.
Why are we living on places that are clearly more risky ? Florida, some part of California and Texas should simply pay more to live in a place that it’s higher risk.
Super weird how no one who looks at the lack of adequate will ever consider, for even one second, the totally uncontrolled flow of illegal immigration into the country.
No, no it’s because you personally aren’t sacrificing enough to change the weather.
Maybe you should lay off the FOX addiction.
I swear, no matter WHAT the problem is, you people think some immigrant caused it.
Ma’am, price is a function of supply and demand. If supply cannot keep up with demand to maintain a stable price level, then the price of the product will rise. A constant new supply of labor, absent some huge new demand for labor, by the same logic means that uncontrolled immigration will depress the price of labor, that is to say, wages. Both of those factors make it more difficult for citizens to afford housing.
Absolutely this is at the root of this housing problem. Otherwise the population is shrinking. Today the federal govt provides $ billions to sanctuary cities to house and feed these poor people who shouldn’t be here in the first place.
I don’t think there is a conflict between owners and renters over “prices”. I’ve never met anyone that supported a zoning ordinance because they thought it would raise their home value.
I have met a lot of people that support zoning and other laws in order to preserve some aspect of their way of life. These reasons vary with every place and policy, but they have nothing to do with home prices (in a very indirect sense something like building section 8 housing next door might reduce home prices, but as a secondary affect if changing the lived experience of the neighborhood).
Singapore (and Japan) work on housing in large part because they have minimized the negative externalities of “bad neighbors”. If Singapore slaps down a cheap HBD flat, you don’t have to worry about how it’s going to affect the crime or schools in your neighborhood. You can expect the demographics to stay pretty constant. You can expect public services to remain top notch. There really is no underclass to speak of.
That’s the hard part of the equation. One reason red states have less zoning is they do better on that stuff. Sacramento can pass all the zoning reform it wants, but as long as people perceive their communities quality of life at threat they will find ways to stop building. You gotta address the problems head on.
Yep. Biggest challenge is that we, as a species, are exceptionally sensitive to differences in group status, and have evolved a whole complex of biological and sociocultural equipment to assist with that.
It's not about what you can afford, it's about what you think your neighbors can afford. And what they think you can afford.
First off! I love all your work.
The comment about down payment on properties is not true, FTH can get into properties with as little as 3% down. I may be misunderstanding the context, though.