Opinion | Florida. Arizona. Climate Change Is Coming for Home Values.

Why are so many home buyers putting themselves in harm’s way? The simplest explanation is that they are choosing to focus on the short-term benefits of sunny weather rather than the longer-term problems. A defining feature of the pandemic housing boom has been Americans, particularly retirees, moving southward. And with about 10,000 Americans turning 65 each day, this pattern could continue for years to come.

It’s hard to make decisions based on things we haven’t experienced. But by ignoring the growing consequences of climate change, we are investing too much in potentially hazardous areas in a way that’s hard to unwind. In 50 years, the result could be miles of unlivable homes along waterfronts and in deserts. The financial consequences of these choices will be enormous, causing ripple effects through insurance markets and ultimately undermining home values.

Climate risks are difficult to forecast and are increasingly correlated: From insurers’ perspectives, it’s “Everything Everywhere All at Once,” with heightened risks of floods, droughts, wildfires and more. To have the necessary buffer to pay out claims after catastrophic losses, insurers will need more reserves and more reinsurance, and they will pass those costs on to policyholders in the form of higher premiums. That includes policyholders who live well out of harm’s way. The year after the Marshall fire destroyed over 1,000 homes and caused over $2 billion in damage near Boulder, Colo., average premiums rose over 17 percent statewide.

While insurers can choose to stop offering insurance, the homeowners and governments they leave behind will still have to deal with the risks. And as the costs go up, more households may decide to reduce their coverage or may choose to go without insurance entirely. It’s estimated that only one-third of households in flood zones have flood insurance — with many risking financial ruin if the “big one” hits.

Then there’s the housing market. There is $30 trillion in housing equity in the United States, and the most important source of wealth for most American households is the home. If homeowners have to pay more in premiums, can’t obtain insurance at all or can’t find buyers because of fears about climate change, property values can erode or collapse even without a hurricane making landfall. This dynamic has already started: My research partner Philip Mulder and I found that low-lying housing markets in coastal Florida began to price sea level risk in the 2010s, leading to a roughly 5 percent discount relative to houses in similar, but less exposed, communities. Climate risks are disproportionately borne by lower-income groups and racial minorities, who may already live in riskier areas, are less likely to be insured, and may lack access to resources for pre-disaster preparation or post-disaster repairs.