Why homeowners often pay more for insurance than for property taxes

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A stubborn misconception in climate debates is that trying to prevent the planet from becoming dangerously unlivable somehow conflicts with keeping everyday life affordable. But a world in which disasters, shortages and damage become more common is hardly a bargain; scarcity tends to drive prices higher.

Housing shows that clearly. In many parts of the country, home insurance has become extremely expensive, and the rising cost is pushing a basic necessity of life even farther out of reach for many Americans. The main driver of the increase in premiums since 2021 has been the effect climate change is having on natural disasters, with rates rising far faster than inflation. In housing, as in other essentials, the environment has a direct impact on affordability.

In two-thirds of U.S. counties, home insurance now costs more than property taxes, according to new research from Bloomberg Intelligence analyst Andrew John Stevenson. When auto insurance for extreme-weather damage is included, that share rises to 75% of counties. And unlike property taxes, insurance premiums cannot be deducted from federal income taxes, leaving homeowners to absorb the cost themselves.

By county, the average annual total of these climate-related premiums is estimated at $3,160, compared with $2,423 for property taxes. Nationally, property taxes remain higher on average, at $4,594, but that is largely because of high-tax states such as California and New York. Insurance is a much heavier burden in low-tax, disaster-prone regions such as the Deep South and the Plains, where premiums can run four times higher than property taxes.

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

States such as Alabama, Colorado and Oklahoma are not as closely associated with disasters as wildfire-prone California or hurricane-prone Florida. Yet a warming climate is intensifying the bad weather these places do get, especially thunderstorms that bring tornadoes, destructive winds and large hail. According to the Insurance Information Institute, these severe convective storms now cause more insured losses each year than any other disaster in the United States. Those losses climbed from less than $10 billion in 2015 to $52 billion last year.

At the same time, insurers are raising deductibles in an effort to prevent premiums from becoming even more unaffordable. That leaves homeowners paying a larger share of damage out of pocket, adding to their financial strain. In some of the hardest-hit areas, uninsured property losses can equal 5% or more of total county GDP, according to Stevenson’s measure. One estimate puts the gap between what people pay for home insurance and the potential damage from floods and wildfires alone at as much as $2.7 trillion, a burden large enough to shake the broader housing market.

Policymakers around the world often act as if affordability and climate stability are locked in a zero-sum battle. A common response to rising fossil-fuel prices has been to encourage even more fossil-fuel use, with governments providing more than $1 trillion in subsidies on top of the roughly $7 trillion a year those fuels already receive.

That approach is not only environmentally damaging but economically questionable: Paying people to buy more of a scarce resource does not make it less scarce. A better strategy would be to provide direct assistance to families that need help while speeding up the shift to energy sources that are not vulnerable to geopolitical chokepoints and do not warm the planet. In the same way, addressing the insurance crisis means balancing housing affordability with discouraging construction and rebuilding in disaster-prone places.

Phasing out the fossil fuels driving climate change would eventually solve many of these problems. But that transition can be expensive in the short run and can raise electricity bills, adding pressure to another affordability problem. Too often, even places that present themselves as climate-friendly, such as New York and Canada, respond by investing more in fossil-fuel infrastructure and less in renewable energy.

That confuses the symptom with the disease. When the environment becomes more dangerous, access to shelter, water, food, energy and other essentials is threatened. Making those necessities more affordable and more available, like confronting climate change itself, can be politically and logistically difficult. But the two challenges are really parts of the same problem.

Mark Gongloff is a Bloomberg Opinion editor and columnist covering climate change. He previously worked for Fortune.com, the Huffington Post and the Wall Street Journal.