People will eventually move away from the most climate-threatened areas. The proudest and most anchored citizens will only wrestle for so long with frequent and more destructive hurricanes, floods, wildfires, droughts, and the accompanying social and economic damage before they’ll want to pack up and leave.

It’s worth considering what might convince them to go. Will there be any single trigger, or an identifiable breaking point, that causes the exodus? It matters because their movement, en masse, stands to upend real estate markets and shift regional demographics to a degree that can’t be overstated. It’s a major opportunity for climers, but for many that fail to plan in advance, this shift will have disastrous consequences.

My first thought was that skyrocketing property insurance costs would drive people out. I figured insurance underwriters would eventually increase rates to cover increased risks, and in many areas higher rates would eventually price out policyholders. Declines in demand for expensive-to-insure and uninsurable properties would naturally follow.

I’ll admit to having been enamored with the idea of insurance premiums causing climate migration. The allure was in the seeming purity of insurance calculations—they’re not distorted by political, environmental, or philosophical lenses. While actuarial science can be complex, there’s a compelling simplicity in the idea of applying it to the murkiness that is climate risk. Insurance companies are competitively incentivized to cut through climate change noise to reach the most realistic assessment of risk, and then price premiums in a way that maximizes profits by optimizing policy sales revenue with expected payouts. Insurance companies, I presumed, would gain the firmest understanding of our new reality, and insurance-induced migration would be the effect.

BUT, in my desire for a clean, orderly answer, I didn’t consider that insurance companies only need to anticipate risks through their policy periods, which usually run just a single year. Thought of differently, insurers get to renegotiate the terms of their property interests annually (unlike property owners, insurers aren’t incentivized to forecast or care about catastrophes in ten or twenty years. They can also move to better markets, they don’t need to make that sale in that area). With that in mind, it’s likely that policy costs will increase only in proportion with, or maybe even lag slightly behind, increases in near-term climate-driven risks, meaning that in most places insurance won’t go from affordable to outrageous at the end of any given policy year. Rates probably won’t change so sharply and suddenly to be the explosive migratory catalyst I’d initially expected. Assuming incremental cost increases, insurance may be just one among a myriad of factors getting considered when people move. So, if insurance rates won’t be the primary driver of migration, what will be? Will there even be a primary driver? And what’s the play for the individual owner, investor, and climer?

First, let’s consider how this shift could play out: While insurance costs steadily creep up, property prices in flood, wildfire, drought, and storm risk areas fall primarily because the pool of buyers and mortgage lenders gradually dries up (whether it’s caused by insurance rates or an absence of buyers, the effect is the same; but the mechanism is different, and so the investor process changes). Prospective buyers frequently hope to own and protect their new house for ten or more years, and after that they’ll need the next round of buyers to expect the property to retain value through their hold period. The mere expectation of increased insurance costs during prospective buyers’ hold periods will diminish prices fetched at sale, causing markets to shift. Since buyers run the gamut from astute to naïve, over the short-term sellers may only take small, manageable hits to their equity. Later, they’ll suffer significant losses. Properties will eventually become financially underwater (in some cases, literally) and it’s at this late stage that properties face short sales and abandonment. In some unfortunate cases residential owners won’t leave because they’ll have lost too much equity and can no longer afford to move elsewhere. In other cases, the less well-advised might actually be attracted to these areas by dirt cheap prices. While churn increases, at this phase the population might appear relatively steady, so the “migration” might be better defined as an outflow of wealth counterbalanced by an influx of a much lower socio-economic order. This will result in ever-increasing insurance and repair costs being borne by local economies that have suffered the loss of educated citizens and high wage jobs. Options for local and state governments, burdened by successive, frequent disasters, dwindle further as their property or income tax base decreases, putting them in even more precarious fiscal positions, creating a vicious cycle. In these areas, education, municipal services, infrastructure, etc., face steep decline. Mortgage holders, foreclosing at increasing rates, might be forced to write off significant expected income streams, which causes losses in their stocks (Fannie, Freddie, private investors). Amid this financial, social, and infrastructural decay, the sharks start circling. Unsavory firms salivate at the opportunity to swoop in and set up temporary, ultra-low-cost work centers where they can pay the climate-stranded next-to-nothing to work call centers, do assembly, packaging, etc., boosting the bottom lines of far-away shareholders. Desperate politicians become willing to remove workplace protections to attract jobs, and a new serfdom is born. 

Maybe that projection gets a bit out of scope, but it certainly drives the point that you don’t want to get stuck holding immovable assets in the most climate-threatened areas.

In summary: Insurance prices will be a laggard for climate risk. It will likely be the market (comprised of both the savvy and the stupid) and its collective expectation of higher insurance costs that reprices real estate assets, and in a sporadic fashion. Since we don’t know the timeline, it’s probably wise to sell out of higher risk areas earlier (now), and entirely forego ownership of that dream cabin in California’s wildfire country. AirBnB seems the more prudent option.