CALIFORNIA’S HOUSING IS TRAPPED IN LA’S INSURANCE TAR PIT
The LA fires have not only consumed large swaths of Los Angeles; they are set to scorch home prices everywhere in California. This will happen through premium increases for homeowners’ insurance throughout the state. Those premiums will then be topped up with mandatory assessments on all policyholders to bail out the (effectively insolvent) state insurance program, called FAIR.
The higher payments for homeowners’ insurance — which is required by mortgage lenders—mean less take-home income will be available to support property values. So, most California housing—- not just in LA— will be worth noticeably less than it was just a few weeks ago. And the homeowners and future buyers will not have the benefit of low interest rates or a hot national housing market.
In my view, this will lead to an even more severe political reaction against the state’s solidly Democratic leadership. As if they needed that in the age of Trump. Voters do not like to have their largest asset devalued.
The political leadership’s response has been that the LA fires and other California wildfires are due to global climate change, i.e., not their fault. But global climate trends happen over decades. California has well-documented regional climate cycles of rainfall and drought that increase wildfire risks. Past California politicians and developers have won elections and profits from climate adaptation for well over a century. See Chinatown and read Cadillac Desert.
This crop of politicos should have done better than they have.
The good news, if that’s the right term, is that it is possible to reform California’s insurance system so that the FAIR plan is recapitalized, and that the insurance industry will provide homeowners coverage for LA’s rebuilding. All that will be expensive and will probably require a controversial statewide referendum.