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Los Angeles fires expose inflated US home prices
- jmugan 2y agoI don't see the link to why home prices would be inflated. Maybe they are or maybe they aren't, but it doesn't have anything to do with fires. People still have to live places, even if risk from climate change is increasing. Very strange editorializing from Reuters.
- jmugan 2y agoI guess you could argue that climate risk isn't sufficiently priced in for some particular places, such as LA or Miami, but the article didn't seem to get that detailed.
- slt2021 2y agoJust ask yourself would you buy $4 mln house on a 30 year mortgage, that you cannot insure against fire hazard, and then have a risk of loaing it in a fire every year ????
- crazygringo 2y agoIf you can't insure it against fire, no bank is going to give you a mortgage to begin with. Banks aren't in the habit of letting their collateral burn to a crisp.
- notatoad 2y agoand this is the real reason why house prices are inflated in these areas - once the insurers and the banks catch up, prices on millions of homes are going to plummet as the only people able to buy them will be the people who are able to self-finance.
- quantified 2y agoWon't those people have more money than the plebes who finance. I too thought the linkage was more implicit. Even if you have insurance covering everything, it's a serious inconvenience to lose all your stuff and live elsewhere for however long while your neighborhood gets rebuilt.
- notatoad 2y agoThey have more money. Doesn’t mean they want to spend it on uninsurable houses - or at least, not unless the price of the house drops enough to make it worth their while.
- Rebelgecko 2y agoCan you even get a mortgage without insurance?
- jarsin 2y agoNot for the majority of people. I've even heard it's becoming a common practice for HOA's to require homeowners insurance so even if you are cash buyer you could still be forced to buy insurance.
- ty6853 2y agoNear LA I imagine the land itself is valuable enough to get a loan on and still valuable if it burns.
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- fulafel 2y agoIs there a reason to believe there will be no fire insurance available, vs it being very expensive? In principle you can have insurance against things that are likely to happen, as long as it's priced accordingly.
- ty6853 2y agoThe insurance only needs to cover cost to rebuild. Houses in LA are largely econo shitholes built on $1M worth of land. The land is still there after a fire.
- tptacek 2y agoCalifornia has a regulatory rulemaking process for insurance rate-making, which prevents insurers from setting the rates they'd need to stay solvent in California's wacky combination of ultra-high property prices and ultra-high exposure to catastrophic risk. The result is insurers leaving the market.
- MattGaiser 2y agoI am not sure whether relatively rare events (your specific area burning is still a relatively rare event) get priced in by individuals. Lots only discover insurance problems after they have signed on a home.
- noirbot 2y agoThat's only really the case for cash buyers though, right? If you have a mortgage, the bank will demand you have sufficient insurance. There's a case to be made that places like SoCal and Florida having State/Federal discounted fire or flood insurance is an obvious problem. I can understand the "we don't have a way to kick everyone out of this dangerous and potentially historic area" zone, but it ends up being a subsidy of taxes from people living in more sensible areas to pay for the predictable damages to more risky areas. If you're rich enough to buy anything in LA in cash, you're likely rich enough to eat the loss if your house burns. If you needed a mortgage then you're constrained by the insurance companies that increasingly are pulling out of areas like this for exactly this reason.
- HarryHirsch 2y agoIt's scandalous, though, that the public will pay for firefighting efforts in areas that are unsafe to build in. It's insane to build on a slope or in a canyon that's plagued by katabatic winds.
- noirbot 2y agoThere's some of that, for sure, but isn't the issue that folks have been living in that area for ages? There's a lot of towns and areas that were founded 100 years ago when it either wasn't as bad of an idea, or we just didn't know how bad of an idea it was. It's not trivial to just go "yea, you all need to move to somewhere new".
- xnx 2y ago> It's not trivial to just go "yea, you all need to move to somewhere new". Definitely true. Insurance rates and property tax can incentivize this as they have in places like Florida. After this, California will probably catch up.
- bb88 2y agoThere are two (I mean three) reasons that home prices are inflated. 1. There are a lot of people trying to buy homes vs the supply of available homes on the market. 2. Rich people are looking for investments in real estate and buying up property to lease or rent it back out at even a higher market rate. Edited to add: 3. Zoning restricted to keep new construction of high density housing from being built.
- davidw 2y agoAlso the same rich people fight tooth and nail when someone wants to build housing near them - and especially if the homes being built are something besides a single detached unit.
- bb88 2y agoThanks for pointing that out.
- ty6853 2y agoIt's the same problem as asking some crypto bro or stock holder if they want to mint new tokens/shares, why would they? It's a difficult problem to solve. Land in many places has almost all its value as a license token to build a constrained set of things. In the extreme, if density could reach infinity at a point it would render everyone else's land close to worthless for residential purposes. Once you start to look at real estates as tokens instead of land you start to realize what an intractable problem zoning is, as all the stakeholders have every reason to sabotage it.
- bb88 2y agoI think the ability to own property should be a fundamental right. More so than you're ability to convince a zoning board to not build high density housing.
- chii 2y ago> prices are inflated the word 'inflated' presumes that the price is higher than _it should be_. The underlying assumption is that homes _should_ cost less, and the current price is artificially high. It isn't. The price if a house is not artificially high - it is high for market driven reasons. Therefore, it is a market price. Nobody is inflating the price via some nefarious scheme.
- faramarz 2y ago1. High risk regions will pay much higher premiums to live in those areas 2. They may continue to live in those areas because of the large demand and desirability 3. Higher insurance, higher risk, contentious demand for property in the area: inflationary housing market even if initially the impacted areas see a slow growth compared to neighbouring areas.
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- arcticbull 2y agoHouse prices aren't inflated. House prices are high because there's not enough supply in and around the jobs. There's not enough supply because of zoning regulations. Zoning regulations were put in place to keep house prices as high as possible. As long as there's not enough supply to meet demand house prices will trend up towards the maximum the market can afford. When the opposite happens house prices tend towards the cost of construction. Until just a few months ago over 90% of all the residential land in California was zoned single-family exclusive.
- philip1209 2y agoI think the argument is that house prices are high because the government backs housing loans, so they don't represent a free market. Easy access to government creates more demand than supply.
- arcticbull 2y agoThe reality is that the government backs house prices by preventing construction via zoning rules. Japan shows us that 0% central bank interest rates do not affect pricing so long as supply meets or exceeds demand. [1] [1] https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI
- ty6853 2y agoIf Japan fixed everyone's house at 0% for 30 years than jacked the rates, the owners would be idiots to sell for anything but a hefty added premium as they're sitting on a money printing machine of negative real interest rates. Unless something else is going on like the property having weird upkeep laws that make it tough to just use as is for decades.
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- gjsman-1000 2y ago
- smaili 2y ago> Nine of the Golden State’s 10 largest infernos since 1932 have occurred during the past decade, according to the local forestry and fire protection department. With how far technology has come since 1932, I personally believe incompetence is being exposed not inflated home prices
- zzzbra 2y agowhat incompetence is that? Having a hard time seeing the link between technological progress and thebsize of wild fires.
- tatersolid 2y agoThere have been plenty of wild fires in California for millennia. The incompetence is draining the LA river wetlands to build houses, building millions of houses where fires occur, building where water is in short supply, and not building fire breaks and fire suppression systems because they’re “ugly”.
- csomar 2y agoYou mean building a house with wood inside a forest area and have it surrounded by big and large trees. I get the aesthetics of it but don't complain about your house burning in a large fire. I've seen some footage and the trees have fared better than the houses. Tells you something about not preparing for any of this.
- tptacek 2y agoThe question has come up several times on the thread so far, and just to add my read to it: the claim that Los Angeles housing prices are inflated seems to rest in part on the fact that they're about to get a lot more expensive to insure. The annual costs of ownership of a house --- taxes, insurance, and upkeep, probably in that order --- work against the market value of a house. I live in an extremely high-tax inner-ring suburb of Chicago, and the conventional wisdom is that our taxes knock double-digit percentages off our home market value. Maybe the article is saying the same effect could hit markets around the country more broadly as insurers everywhere jack rates up in response to climate change? As mismanagement and environmental issues unfold, in the narrative I play in my head to keep myself sane, insurers are kind of heroic. I know they aren't really, but: one thing you can say for them, they're some of the only players in our economy that are required to price externalities. Political bodies and residents can delude themselves about risks indefinitely, but an insurer that ignores them will be insolvent. You could write a state statute capping insurance rates, but, as you've seen, that just forces insurers to leave the market. They don't have a choice. It's kind of wonderful.
- chii 2y ago> are required to price externalities wait until the property owners there start demanding socialized property insurance!
- tptacek 2y agoThey already are, but that's kind of besides my point. I don't doubt that California can throw billions of dollars at subsidizing housing built on parcels so dangerous no insurer can underwrite there. I don't live or die based on whether people can afford to live in Pacific Palisades. But it's somehow sanity-preserving for me to watch insurers exit markets (or drastically increase rates). At least one party to this system has to acknowledge reality, and no organizing or speechifying gets you around it.
- bwhiting2356 2y agoCan we fight fires with a fleet of AI powered drones? I've watched water bombers [like this](https://www.youtube.com/watch?v=JrOESRoD1Jk https://www.youtube.com/watch?v=JrOESRoD1Jk) near my hometown. It seems like a lot of the water could be better targeted, and round trips to a body of water and back are long.
- evo 2y agoI feel like the thrust-to-weight dynamics on multicopter drones don’t really lend themselves to heavy payloads like water bombing in the quantities needed. An additional issue is that, due to wanting to maximize power density for the high amperage motors, you often end up using lithium-polymer battery formulations that are less than adequately shielded for the possible impacts the drone might incur. I would be concerned that the risk of a drone failure itself igniting a new fire in a remote area would outweigh the potential.
- klodolph 2y agoI tried doing some back of the envelope math but it doesn’t come out in favor of drones. The CL-415 that you shared in the link has a reported capacity around 6100 kg of water. When I searched for “heavy lift drones” I got the Draganfly Heavy Lift, which can reportedly carry 30 kg but only for 18 minutes of flight time (according to the company’s web site). I think the plane’s flight time is around 3 hours but obviously the math is a little more complicated than that.
- bwhiting2356 2y agoMy thinking is that maybe * there aren't enough pilots * pilots understandably don't want to fly too close to the fire But a drone might be able to get away with carrying less water and do more of a targeted squirt.
- klodolph 2y agoWe’re talking, like, $10 million in drones to replace one pilot for 18 minutes. I don’t see any reason to believe there’s a pilot shortage, and I don’t understand what’s wrong with the current targeting, or how that could be improved. There’s a whole strategy to fighting fires of this scale. I don’t think the strategies are obvious to people on the ground.
- aaroninsf 2y agoThe word required was "high," not "inflated." Markets gonna market amiright
- redeux 2y agoThe article is talking about the relationship between insurance and housing prices. When insurance premiums go up, housing prices fall. When insurance is more difficult to get or not available at all, housing prices fall a lot. > Assume a typical California home is worth $1 million and insuring it costs $5,000 annually. If the equivalent rent is $70,000, doubling the premium would reduce the house’s value by 7% > State Farm cancelled most of its policies in Pacific Palisades last year; the median sale price there fell 16% So, it follows that since the risk of natural disasters is increasing across the US, that insurance premiums will rise and thus home prices are inflated because they don’t account for that yet.
- k310 2y agoI see not one mention of home flipping, unless somewhere in this thread is mention of big investors flipping homes by another name. Radio is inundated by ads offering to buy homes in a 10 minute process,(or some other short interval) sight unseen. And as an average Joe, how else am I able to make $250,000 tax-free? The "desirable" places to live are near the ocean, where there are mountain ranges, probably due to earthquake faults (how soon we forget) and dangerous winds, plus the dry summers. Most of the Central Valley is cheap, for a reason/reasons. The other side of the valley is both mountainous and wooded. But low density, because most of the jobs and culture are by the coast.
- robofanatic 2y agoWhy do they build wooden houses in LA? Use concrete!
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