How to Safeguard Latino Homeownership Opportunities as Climate Change Fuels Rising Insurance Costs

Climate change is imperiling opportunities to expand Hispanic homeownership, the primary engine of Latino wealth building, due to rising homeowners’ insurance costs in disaster-prone areas where many Latinos reside. Promoting Latino homeownership in a warming world will require a robust effort to educate Latino homebuyers about climate risks and to support them in obtaining comprehensive, affordable homeowners’ insurance. Beyond education, there is also a critical need for state and federal investments and regulation to backstop insurance markets and to bolster the climate resiliency of Latino homes and neighborhoods.

During the last six months, hundreds of thousands of Americans experienced first-hand the tragic pattern of intensifying, climate-driven natural disasters. The human costs of the Los Angeles wildfires and Hurricanes Helene and Milton — the loss of life, the destruction of communities — are devastating and immeasurable. Climate-related disasters are also producing massive property damage and staggering economic loss — as much as $164 billion in the case of the LA wildfires, and hundreds of billions for Helene and Milton.

The mounting risk and economic damages generated by climate-driven disasters are upending insurance markets. Adjusted for inflation, there were nearly six times as many billion-dollar disasters over the past decade as there were in the 1980’s. To cover escalating payouts, insurance companies have ramped up premiums by 31% since 2019; and in some states and regions, they have stopped offering coverage entirely. For example, major insurers have stopped writing new policies in California and Florida, as more frequent and destructive wildfires and hurricanes have battered those states. Even areas of the country with less conspicuous threats have seen an exodus of insurers, such as in the upper Midwest, where storm intensity and damages have been increasing.

Rising insurance rates and inadequate coverage are impeding Hispanic homeownership and financial well-being.

Rising insurance premiums pose a growing financial barrier to Latino homeownership. Insurance now comprises one fifth of mortgage payments, more than double what it was in 2013. And Latinos are more likely to live in disaster-prone areas that are experiencing the steepest increases in insurance premiums. For example, California, Texas and Florida — the three states with the largest Hispanic populations in the country — are especially vulnerable to climate-related disasters, incurring more than 40% of total U.S. costs related to natural disasters since 1980. Unsurprisingly, they are also among the states with the largest increases in insurance premiums. Texas’s average premiums increased by 60% from 2017 to 2023.

Mounting insurance premiums combined with high home prices are putting homeownership out of reach for many Latinos. And rising insurance costs are not only a barrier to aspiring Hispanic homeowners: they are also a hardship for Latinos who already own their homes. 14% of Latino homeowners are uninsured — more than double the proportion of uninsured white homeowners. Collectively, these Latino households had $339 billion in uninsured home equity in 2021. Latinos who cannot afford growing insurance premiums face potential foreclosure if they drop their insurance plans, and financial catastrophe if a disaster damages or destroys their home. Those Latinos who do carry insurance in high-risk areas are being offered increasingly porous coverage, as insurers shift costs and risks onto homeowners.

Climate change is forecast to reduce Hispanic property values, a critical component of Hispanic wealth.

Latino homeowners have 26 times the net worth of Latino renters; and home equity in a primary residence represents a third of total Hispanic wealth. But climate change is putting Hispanic home wealth at risk. Over the next few decades, climate change will reduce property values in vulnerable areas, undermining home equity for Latino homeowners.

The climate-related financial risks and hardships that impact Latinos in the housing and insurance markets are layered on top of the community’s long-standing economic vulnerabilities. On average, Latinos have less household wealth and lower incomes than whites and therefore fewer financial resources to absorb rising insurance premiums or withstand the economic shocks of a natural disaster. And the communities in which Latinos reside are often less resilient to climate-related disasters, with inadequate or poorly maintained infrastructure, older housing stock and poor communications networks.

Failure to reckon with the economic effects of climate change on Hispanic homeowners and homebuyers will deepen inequality in the U.S. Fewer than half of Latinos own their own homes, compared to nearly three quarters of whites. But safeguarding and expanding Hispanic homeownership is not solely an equity issue. The nation’s Latinos contribute $3.7 trillion in annual economic output to the U.S. economy. Over the next two decades, the Urban Institute forecasts that Latinos will comprise 70% of net new homebuyers. Their prosperity is vital to building a strong economic future for all Americans.

Recommendations

To protect the promise of homeownership as a vehicle for Hispanic family stability and generational wealth, we must increase Latinos’ awareness of climate risks in the housing market, promote a stable, affordable and fair insurance marketplace for homeowners of all incomes, and strengthen community resiliency to the natural disasters and extreme weather events that are fueling rising insurance costs and threatening home wealth.

Latino homeowners and homebuyers need guidance and support to navigate insurance markets and climate risk.

HUD-certified housing counselors support individuals and families every year with the homebuying process and are an important channel for educating homeowners about insurance and disaster risks. For Latinos, the most effective counseling programs are rooted in Hispanic community-based organizations that have networks, credibility and trust among the community. For example, the UnidosUS Wealth and Housing Alliance includes more than 50 Latino community-based organizations that provide housing counseling services reaching tens of thousands of households every year.

In recent years, HUD has provided tools and support for housing counselors to integrate disaster preparedness and recovery education into their programs. Some housing counseling agencies in high-risk areas, spurred by the growing frequency of natural disasters, are dedicating time and energy to helping homeowners understand the importance of being insured, identifying the best insurance options for the properties they own or purchase, what is and isn’t covered, and avoiding insurance providers pushing inadequate — and sometimes fraudulent — plans. They are also HUD has created a Natural Hazard Map with data on county-level risks and resilience levels, and some states mandate disclosure of a property’s prior flood damage claims.

One Stop Career Center (OSCC), a UnidosUS Affiliate based in Puerto Rico, incorporates disaster preparedness into its housing counseling workshops on the island — work that has become more and more critical over the last decade.

“We have had a series of catastrophes in Puerto Rico,” explains Jorge Negron, a certified housing counselor at OSCC. “We had Hurricane Irma, Maria. Then we had earthquakes, and another hurricane, Fiona, which brought a lot of water. And at one point there were a couple of places where we had tornadoes, and we never had tornadoes here before.”

Amid these intensifying disasters, Jorge has made it a year-round practice to advise homeowners and buyers on how to be prepared for natural disasters. He emphasizes the importance of insurance — which many folks on the island lack — and uses FEMA flood maps to help home buyers understand the risks associated with specific properties.

Safeguarding opportunities for Latino homeownership in the face of increasing climate risk is a systemic challenge that requires public investment and regulatory change.

Education and information can only go so far in solving this challenge: there is also a critical need for state and federal policies to ensure the availability and affordability of homeowners insurance as more insurers retreat from high-risk areas, and to address the underlying risks that are fueling spiraling insurance costs.

For example, states can strengthen last-resort insurance programs for homeowners in risky areas who cannot find insurance in the regular market. Thirty states have Fair Access to Insurance Requirements (FAIR) plans, which are mandated by state law and typically financed through premiums and fees on private insurance companies operating in the states. However, FAIR plans typically provide more limited coverage to homeowners at relatively high fees, as they cover only the highest-risk residences.

Restructuring these state-mandated insurance programs could result in better coverage at lower cost. For example, last-resort insurance programs are hindered because of their failure to pool risk broadly. Expanding programs so that they include residents in lower-risk areas as well as high-risk areas would spread costs across a more diversified risk pool and lower individual premiums.

Instead of relying on premiums to finance such programs, states could also subsidize them through taxes and fees. Some advocates have floated the idea of gathering fees from mortgage brokers, whose profits depend on stable insurance markets (though such fees could be passed on to homebuyers), or on fossil fuel companies, whose pollution has created the climate risks that are fueling high insurance premiums. While subsidizing last-resort insurance programs through taxes and fees can lower premiums for those in high-risk areas, policymakers should target subsidies to low- and moderate-income homeowners — who are often in vulnerable neighborhoods by necessity and not choice — and avoid socializing the financial risks incurred by wealthy homeowners who choose to live in high-risk areas.

Beyond backstopping insurance for homeowners, there is a need to address the underlying risk that is driving rising costs by investing in climate resiliency initiatives. Flood control and wildfire risk reduction measures, housing resiliency retrofits, and other investments in infrastructure can harden communities to the impacts of natural disasters and mitigate economic losses when disasters strike.

For example, Boulder, Colorado, a city that is highly susceptible to flooding, has invested heavily in flood plain management and mitigation efforts that have successfully reduced risk and lowered insurance premiums for Boulder residents. Hacienda CDC, a UnidosUS Affiliate based in Portland, Oregon, has piloted a modular home building program called Mass Casitas, which employs prefabricated, fire-resistant mass timber construction. The Mass Casitas model has multiple potential benefits: it can facilitate the rapid and affordable construction of new housing units that are more resilient to wildfires, help address the state’s housing affordability crisis and enable rapid rebuilding following natural disasters.

Currently, there are a number of federal and state programs that provide funding and grants for climate resiliency projects, including FEMA’s Building Resilient Infrastructure and Communities, HUD’s Community Development Block Grant – Disaster Recovery program and California’s Wildfire Resilience Program. As the risks of climate-driven natural disasters escalate, we must expand public investment in programs like these to harden communities to disasters’ impacts.

Climate change will continue to generate extreme weather and natural disasters that drive up insurance costs and exact a steep economic toll on affected communities. But there are steps we can take to mitigate the damage, spread the costs equitably and support the wealth-building opportunities of homeownership for the Hispanic community.