4 ms·

I 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

by jmugan 2y ago

I 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 ago
Just 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 ago
  If 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 ago
    and 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 ago
      Won'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 ago
        They 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 ago
  Can you even get a mortgage without insurance?
  - jarsin 2y ago
    Not 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 ago
    Near LA I imagine the land itself is valuable enough to get a loan on and still valuable if it burns.
    - thworp 2y ago
      But is it actually that valuable if no potential buyer could insure a house on it? This is the gist of the article.
      - ty6853 2y ago
        It just means the value of the house without the land has to be captured in the down payment so the bank can't take a loss on it.
- deleted 2y ago
  [deleted]
- fulafel 2y ago
  Is 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 ago
    The 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 ago
    California 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 ago
I 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 ago
  That'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 ago
    It'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 ago
      There'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.

by jmugan 2y ago

I 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 ago

Just 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 ago
If 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 ago
  and 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 ago
    Won'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 ago
      They 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 ago
Can you even get a mortgage without insurance?
- jarsin 2y ago
  Not 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 ago
  Near LA I imagine the land itself is valuable enough to get a loan on and still valuable if it burns.
  - thworp 2y ago
    But is it actually that valuable if no potential buyer could insure a house on it? This is the gist of the article.
    - ty6853 2y ago
      It just means the value of the house without the land has to be captured in the down payment so the bank can't take a loss on it.
deleted 2y ago
[deleted]
fulafel 2y ago
Is 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 ago
  The 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 ago
  California 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 ago

I 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 ago
That'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 ago
  It'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 ago
    There'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.