Housing Affordability Crisis Deepens in Fire-Prone Parts of California
October 28 2020 - 9:29AM
Dow Jones News
By Nicole Friedman
Insurance companies retreated from selling home insurance in
wildfire-prone parts of California in 2019, new state data shows,
making it more difficult and expensive for homeowners in those
areas to protect their homes.
The availability of standard home insurance in fire-prone areas
could shrink further after another round of wildfires struck the
state earlier this year. New fires in Southern California prompted
the evacuation of thousands of homes on Monday.
At the same time, the Covid-19 pandemic has prompted city
dwellers to take advantage of the ability to work remotely and move
to more remote and cheaper parts of California, real-estate agents
say. This new wave of demand has pushed up home prices around the
state.
The combination is worsening the housing affordability crisis in
some fire-prone parts of California, especially the Sierra Nevada
region, real-estate agents say.
For a first-time home buyer, "it's kind of like you're getting
hit from all angles," said Erik Segerstrom, president of the
Tuolumne County Association of Realtors, in the Sierra Nevada area.
"They're having to budget more money towards insurance rather than
their loan, and there's few options [of homes to buy] in the
affordable range for them."
Insurance companies declined to renew about 235,000
home-insurance policies in 2019, a 31% increase from the prior
year, the state insurance regulator said. In ZIP Codes with
moderate to high fire risk, nonrenewals rose by 61%. They increased
by 203% in the top 10 counties for wildfire risk.
As traditional insurers have pulled back in those regions, more
Californians have bought coverage from the state's insurer of last
resort, the California FAIR Plan. The number of FAIR Plan policies
grew 36% statewide in 2019 to about 190,000. In ZIP Codes with
moderate to high fire risk, the number of FAIR Plan policies more
than doubled, the state said.
FAIR Plan policies are typically more expensive than standard
insurance policies and don't include some standard coverages like
liability.
Insurance companies reduced their wildfire exposure in recent
years after paying more than $24 billion for California wildfire
losses in 2017 and 2018. This year's wildfires in Northern
California caused an estimated $3 billion to $5 billion in insured
losses as of Sept. 20, according to catastrophe modeler RMS.
The California Association of Realtors found in a survey of its
members last year that 27% had issues with fire insurance either
personally or with their clients.
"The disruption that nonrenewals cause in communities following
the wildfires is just one more stress that Californians cannot
afford," said Ricardo Lara, the state's insurance commissioner, at
a state investigatory hearing Oct. 19.
Since 2012, median home prices in ZIP Codes in California,
Oregon and Washington with low wildfire risk have increased by
101%, while median prices in high wildfire-risk ZIP Codes in the
three states rose by 88%, according to analysis by real-estate
brokerage Redfin Corp.
The faster price growth in low-risk ZIP Codes has pushed more
people into fire-prone areas, a trend that has accelerated in
recent months, said Daryl Fairweather, Redfin's chief
economist.
"People are migrating more and more into these high-risk areas,"
Ms. Fairweather said. But "the thing that's going to make it less
desirable is insurance costs, the fact that people realize it's not
more affordable when you factor in insurance."
The insurance industry is calling for changes to California's
regulatory process for approving insurance prices. "We want the
price of the insurance to reflect the risk of the property that
we're covering," said Mark Sektnan, vice president for state
government affairs for the American Property Casualty Insurance
Association.
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
October 28, 2020 09:14 ET (13:14 GMT)
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