Hurricane Ian has traumatized Floridians. He also wiped out their nest eggs.
As climate change makes natural disasters more frequent and severe — and threatens the viability of life across much of the country — Ian offered new evidence that Americans’ retirement funds and assets are at risk in the vulnerable areas.
“It’s a huge wealth shock,” said Benjamin Keys, a professor at the University of Pennsylvania’s Wharton School of Business, who has studied the effects of climate-induced sea-level rise on the Florida real estate market.
It is a problem without easy political solutions.
The Federal Housing Finance Agency, which regulates the government-controlled companies behind about half of the $12 trillion residential mortgage market, has begun to assess the risks that climate change poses to the mortgage and real estate market. .. But it has historically allowed the Federal Emergency Management Agency’s flood insurance program to take the lead in protecting borrowers from flood damage – although independent analyzes show that flood maps of FEMA underestimate the number of homes facing the danger of flooding.
Home ownership is the primary means by which most Americans create wealth. For decades, federal policy has prioritized getting more Americans into homeownership, seeing it as the clearest path to lasting financial security and generational prosperity. But climate change is putting all of that at risk.
The risks revealed by Ian are most pressing for retirees. People over the age of 65 make up 29% of the population in Lee County, Florida — ground zero for Ian’s damage — according to census data. Among medium-sized cities, creation of the business research firm AdvisorSmith that the Lee County communities of Cape Coral and Fort Myers have seen the sixth and seventh largest increases nationally in the number of people over the age of 65 in 2019. These populations have increased further since the start of the coronavirus pandemic.
Most of the Fort Myers and Cape Coral neighborhoods that Ian has beaten are middle-income, blue-collar areas, not at all like the multimillion-dollar mansions just down the coast in Naples, Dave Stevens said. , former CEO of the Mortgage Bankers Association. and Commissioner of the Federal Housing Administration. They are also homes for retirees who had “their life savings wrapped up in real estate” and are now living on a fixed income, he added.
“It’s a big asset – obviously not replaceable unless you’re part of the wealthy class,” said Stevens, who is now CEO of consulting firm Mountain Lake Consulting.
Retirees whose homes were destroyed also lost an important part of their wealth planning, said Jesse Keenan, professor of sustainable real estate at Tulane University’s School of Architecture. The market for reverse mortgages, which allow a person with a fully paid-off house to borrow against the house in exchange for cash, is “very strong” in Cape Coral, he said. But without this real estate asset, there is no way to leverage this equity for daily living.
If those people already had a reverse mortgage, they’re likely using those funds to make repairs now, especially if they were uninsured, Keenan added.
Scientific climate studies have shown that warmer temperatures make hurricanes faster and stronger each time they form. Ian’s early analyzes showed that human-caused climate change likely caused the hurricane to drop 10% more precipitation than a world without warming. This follows other recent hurricanes such as Harvey in 2017, which devastated the Houston area with more than 51 inches of rain as it stalled on the city for three days.
Climate and natural disaster risk modeling firm RMS estimated that Ian had inflicted between $53 billion and $74 billion in insured losses in the private market, with a best estimate of $67 billion. That would make Ian the second-costliest hurricane in U.S. history, behind Hurricane Katrina’s nearly $90 billion in insured losses in 2021 dollars. according to the Insurance Information Institute.
Ian will result in between $30 billion and $42 billion in insured damage from wind alone, not including flood damage, according to an estimate by CoreLogic, a property data and analytics firm.
Homes with federally guaranteed mortgages in the 100-year floodplain are required to carry flood insurance, but that only covers up to $250,000. In contrast, the average mortgage borrower in the area spanning Cape Coral and Fort Myers has $316,499 of equity in their home, according to CoreLogic.
Increased flood insurance would protect homeowners against serious losses. But many owners failing to keep abreast of the legal requirements to purchase this protection – a topic that has been part of congressional investigations and Government Accountability Office reports. And FEMA, despite administering the federal flood insurance program, maintains that it lacks the ability to enforce those requirements.
Homes that are fully paid off do not need flood insurance, and many choose to forego it. And even homes outside the 100-year floodplain, where this insurance isn’t required, suffer flood damage. In Lee County, take-up of federal flood insurance was well above the national average, but still only reached 30% of households, according to FEMA data.
“Flood insurance issues are convoluted and frustrating, and Hurricane Ian has brought these issues to the forefront, which the state will likely soon address,” Donalds said in his emailed statement.
Even people with insurance have to spend up to their deductibles before their claims are covered, which can be difficult for retirees on fixed incomes.
“For retirees, it’s a double whammy because many retirees on fixed income buy their homes with cash, and even though they’re in the flood zone, they don’t have coverage because the [National Flood Insurance Program] applies through mortgages,” said Tom Larsen, associate vice president for hazard and risk management at CoreLogic.
“Flood damage can go from zero to very high numbers very quickly,” he said.
Fort Myers is far from the only place where personal safety nets and legacies are under siege.
Rising temperatures in cities like Orlando and Phoenix could start to drive down real estate values and Americans’ ability to depend on their homes as a safety net.
Investment research firm RisQ, real estate firm Climate Core Capital and Harvard Graduate School of Design explored how quickly some of the nation’s most desirable real estate markets would warm beyond the tolerable human life point in what they called it a ‘Death Valley Index’. ” They measured how quickly the climates of certain regions mimic Death Valley’s historic climatethe site of the hottest temperature on record, where between 1981 and 2010 daily temperatures reached 95 degrees Fahrenheit on an average of 161 days each year.
The exercise concluded that Miami and Houston will hit that mark by 2026 when high temperatures and humidity are taken into account. Austin would reach it by 2027, Tampa by 2029 and Phoenix by 2038. Orlando has already done it.
This climate would pose health risks from being outdoors even for a few hours, raising questions about the desirability of such locations in the future, said Owen Woolcock, partner at Climate Core Capital. People who bought homes in those areas — many of which are retirement havens — could end up with properties worth less than what they were bought for, Woolcock said.
“People need to look at climate change as a wealth destruction event,” he said. “It’s going to make these huge incisions in net worth at the household level and at the level of the regional or local economy.”