Mark Gongloff: Why homeowners pay more for insurance than for property taxes

A stubborn misconception in climate debates is that efforts to keep the planet from turning into a scorched wasteland somehow clash with the cost of everyday life. But a world on fire is hardly cheap. When essentials become scarce, prices usually rise.

Housing offers a clear example. In many parts of the U.S., home insurance is already extraordinarily costly, pushing an essential part of the American dream further out of reach. Premiums have climbed more than 46% since 2021, about triple the pace of inflation, largely because climate change is intensifying natural disasters. As with so many necessities, the environment is now directly shaping affordability.

According to new research from Bloomberg Intelligence analyst Andrew John Stevenson, home-insurance premiums now exceed property taxes in two-thirds of U.S. counties. If auto insurance for extreme-weather damage is included, that share rises to 75% of counties. Unlike property taxes, homeowners also cannot deduct insurance premiums on their income-tax returns, so they must absorb the full cost.

By county, Stevenson estimated that these climate-related insurance costs average $3,160 a year, compared with $2,423 for property taxes. Nationally, property taxes still come out higher on average at $4,594. But in low-tax, disaster-prone places such as the Deep South, insurance can cost four times as much as property taxes.

As insurance makes housing less affordable and slows home sales, it also threatens the property-tax base in those counties. The result could be fewer public services, higher property taxes, or both.

Severe convective storms now cause more insured damage annually than any other disaster in the United States, according to the Insurance Information Institute. Those losses have surged from less than $10 billion in 2015 to $52 billion last year.

At the same time, insurers are raising deductibles to keep premiums from climbing even faster. That leaves homeowners paying a larger share of repair costs, adding to their affordability burden. In some of the hardest-hit areas, uninsured property losses can amount to 5% or more of total county GDP, Stevenson found. One estimate puts the gap between home-insurance payments and potential flood and wildfire losses alone at as much as $2.7 trillion, a figure large enough to weigh on the housing market.

Across the world, policymakers often seem to treat affordability and climate stability as if they were locked in a zero-sum struggle. A common response to rising fossil-fuel prices has been to make it easier to consume more fossil fuels, backed by more than $1 trillion in government subsidies, on top of the roughly $7 trillion a year those fuels already receive.

That approach is not just environmentally damaging; it is also economically questionable. Subsidizing the purchase of a scarce commodity does not make it any less scarce. A better strategy would be to provide direct help to families that need it while accelerating the shift to energy sources that are not vulnerable to chokepoints such as the Strait of Hormuz and do not warm the planet. In the same way, addressing the insurance crisis means preserving housing affordability without encouraging more construction and rebuilding in disaster-prone areas.

In the long run, moving away from the fossil fuels that heat the planet would solve many of these problems. But the transition can be costly in the short term and can push electricity bills higher, creating another affordability challenge. Even in places that call themselves climate-friendly, such as New York and Canada, the usual response is often to spend more on fossil-fuel infrastructure and less on renewables.

That mistakes the symptom for the disease. When the environment becomes more dangerous, access to shelter, water, food, energy and other essentials is put at risk. Making those necessities more affordable and accessible, like confronting the climate crisis itself, can be politically and logistically difficult. But they are ultimately part of the same problem.