I 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.
Property Taxes in CA are determined based on the time of purchase. They are only allowed to go up 2% per year, while the rise in market value increases much faster. Meaning that you are highly incentivized to hold on to property, thereby reducing supply more so than other property markets in the US.
This kinda distorts 3) as well, since you also want to protect that investment and then you get NIMBY stuff too. CA is trying to fix things by disallowing cities from blocking new construction, but it's slow going. on the legal side.
Maine, New Hampshire, Tennessee, and Vermont are the only states that don't have any limits on the increase in property taxes. California may be on the low end at 3%, but most are limiting to less than 10% growth. You can read more here https://www.kiplinger.com/taxes/property-tax-cap-by-state
Also 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.
It'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.
I 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.
The problem with freedom in California, is that they see freedom as the freedom to not have high density housing near you. I literally think until those people have no where to live, will the politics change.
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.
If housing feels expensive, and there are a lot of people who would like to buy a house, then under a free market, a greedy landlord simply needs to build a 6-plex or an apartment complex to make lots of money. More people living on one plot of land should reduce costs for the individuals living there, and the landlord should still make tons of money because they are renting to, say, six families instead of one. Another greedy landlord sees this success and does something similar - the market price has been suppressed a tiny bit, but the demand is so huge and supply so low, it is barely a blip. Do this many times over, though, and we'd expect to see denser and cheaper housing over time. Landlords and developers should essentially be competing for customers by offering an attractive product (ideally, some healthy balance between good prices and good quality).
Why don't we see that happening at a meaningful scale? Because the housing market is not free - it's regulated very very badly. Where developers can build, there is a huge amount of red-tape and often a crushing process of input from neighbors - neighbors who, mind you, already own their own houses, so this new development would never be used by them. And these neighbors are also strongly incentived to keep their property values as high as possible, as owning a house has very much become an investment. It's no wonder that home owners find all kinds of reasons to say no to denser developments near their homes.
And then there's the fact that huge swathes of attractive neighborhoods are zoned for single-family homes. Developers cannot even legally consider building in such areas (and I encourage you to look into this for a city near you, it's shocking). In LA, of all the land that is zoned for residential use at all, about 75% is zoned as single-family housing. Los Angeles!
I'm not a strong proponent of the "free" market, but bad regulation is a nightmare.
> More people living on one plot of land should reduce costs for the individuals living there
But it also reduces the value of existing homes and changes the environment in a negative way, which is why people that already own homes there dislike this idea.
It's easy for someone to say that someone else should be good with this for the greater good, but regulation and zoning is everywhere and most people actually want it that way.
The people that move in your 6-plexes will probably not like when they start stacking up 50 unit apartment buildings between their 6-plexes either.
"But it also reduces the value of existing homes..."
Yes! Homes should be a place to live, not a financial investment. But this is exactly why neighbors would oppose denser development.
"... and changes the environment in a negative way."
Denser development is much more environmentally friendly than sprawling low density. Less acreage can be devoted to housing, and more devoted to nature (and to be clear, a lawn of grass is not "nature"). Additionally, low density sprawl makes it necessary to use a car and drive longer distances, because you are physically further away from stuff. In a high density area, public transit is more effective, or one can just simply walk around the corner to the grocery store or whatever.
> Homes should be a place to live, not a financial investment
Maybe they shouldn't be investments, but they are, and you can't expect people to ignore this.
I will agree that the government shouldn't incentivise this behavior, but even without the government's help they will continue to be a large portion of household wealth, like it or not.
> Denser development is much more environmentally friendly
Sorry when I said "the environment" I meant the living environment, as in: the common preference to live in a quiet low density neighborhood rather than a loud dense urban environment with all of the problems that come with it. I don't know where you live, but ignoring money and housing/rental values, if the population of your block increased 10x would you be happy about it? Even if you would be excited by that, not everyone will agree with you that stacking ourselves on top of eachother is the pinnacle of human civilization.
> Maybe they shouldn't be investments, but they are, and you can't expect people to ignore this.
exactly. Anything that cost time and effort to create is an investment. To have homes not be an investment is to say it's not going to take time nor effort to make.
People can choose to ignore this reality, but it only hurts them financially.
You're not wrong, but I don't think I made my point clear. "Financial investment" is a phrase I use to mean investing money with the expectation of receiving more money in the future. For example, a car or a computer are "investments" in the sense you used the term in that they cost money, and a person must decide if they are worth the high cost. But no one expects a car or computer to be worth more money later. The value they provide is something other than financial.
But housing is treated almost like stocks or gold, in that they are "financial investments." People buy a house and they expect, even depend, on the house being worth more money in the future.
My point is that a house should be treated like a car or computer, not a tool for growing financial assets.
>Nobody is inflating the price via some nefarious scheme.
Lol I built a house from scratch including all labor and legal aspects. Almost the whole system is designed as a nefarious scheme to grandfather in the prior generation while kicking anyone in the teeth who wants to build a place the way the voters had their own houses built 50 years ago.
Housing is one of the most highly regulated markets there are. There are all kinds of rules and regulations - primarily zoning codes - that have the effect of limiting the amount of housing in a given area.
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.
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.
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.
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".
> 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.
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 ????
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.
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.
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.
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.
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.
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.
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.
1. 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.
