As a Californian, the ballot measure that limits the ability of insurance companies to increase and tailor rates to reflect risk is absurd. I hope someone funds a ballot measure to repeal the statute.
In its “best” form, it’s requiring those who have bought homes in safer areas statewide to subsidize those in more dangerous areas, which is already absurd, considering those more dangerous areas are already predominately wealthy coastal and hillside areas that can and should pay their own full cost of insurance.
My annual payment with a different insurer nearly doubled after our insurer had to drop the entire zip code purely because half of my zip code is in a high fire hazard zone, even though my property and half of zip code is rated one of the lowest fire hazard zones in the state.
At its most extreme, because of the provisions limiting risk adjustment based on and within zip codes (originally, for redlining, which I understand, but for fire risk it makes no sense considering different locations are inherently riskier), it will and has caused insurance companies to exit the state entirely, and then we’re all screwed.
I do wonder if SCOTUS will revisit this and declare the original ballot measure limiting risk an unconstitutional “taking” from those in safer locations (or insurers themselves), given my understanding is Florida has the same issues too…
> I hope someone funds a ballot measure to repeal the statute.
It's a ballot measure that's easily defeated as no one wants to pay more for insurance, and no one wants their property values to decrease. But no one wants to face the reality either.
It's likely that as insurance companies drop out, more Californians will find themselves on the state-sponsored FAIR insurance plan, which may already be insolvent. And the state will bankrupt itself and its citizens since no one can make any hard decisions.
We have FAIR. It’s not state-sponsored. It’s a state mandated syndicate of insurance companies (if you want to sell insurance you have to buy in).
Every time I interact with them, they find a new way to break the law. The big one is that they refused to pay for covered damage to our house. After fighting it for about a year, they sent us a lowball check that was less than 25% what they owed.
Our premiums are 4-5x what neighbors with more expensive, higher risk houses pay.
It all depends on exactly how the ballot measure is phrased. After all, Prop 19 recently passed which partially repealed Prop 13 (1970s property tax-basis freeze at point of every sale) because enough people realized that now-$20m homes by the beach paying taxes on a valuation of $100k since the 1970s is bankrupting the state. Still a lot to do to fully repeal Prop 13, but at least now the tax basis can’t be passed down across generations (yeah, California voters really did codify aristocracy into law in the 1970s. It’s mind-boggling).
That was a real case of voters voting against their individual interest (near-guaranteed higher property taxes) for their collective wellbeing (the solvency of the state)
We’re no stranger to ballot measures here, for better or worse. I think most Californians will agree with insurance reform when they realize they won’t be able to get insurance otherwise— also the fact that many people in safer areas probably would see rates decrease.
It might reduce property prices, but affordability would be adversely affected. The change would require the same cash flow from buyers. Instead of the costs being on a basis of mostly on high-stability mortgage loan rates, some of the required cash flow moves to a basis of insurance rates which are annually bumped (as proposed, now with less or no regulation).
Affordability would be adversely affected in the short term, yes. In the long term, more housing production would be incentivized in less-risky areas. The reduced property prices to come out of this would also mean insurance rates would decrease for them proportionally— insuring for $600k is cheaper than insuring $6m, all else being equal.
On the other hand, affordability will also be adversely affected in the short and long term if nothing changes. Once the moratorium for insurance companies to leave the state is up in about 1 year, and no one can get a mortgage because no insurance providers are left. Banks will not take on the implicit roles of insurers in a no-recourse loan state.
Doing nothing is not an option. The writing is on the wall.
There are no less risky areas left to build into in the Los Angeles area. To build more you have to fight nimbys to change neighborhoods from mostly single family residences and build for density increases.
I agree that doing nothing is an increasingly unviable option
Yes. I live in Los Angeles. Huge swaths of our entire city are ripe for development— the safest areas are often some of the least densely populated, and that needs to change.
And of course, maybe property values in fire-prone areas should fall ! In fact, by not subsidizing them, perhaps the market would eventually restabilize these homes at saner insurance premiums to cover the reduced property value due to the risk.
A $600k home that is sure to burn within 20 years will have a much lower premium than a $6m home in the same location, after all.
Houses are insured for replacement value, not market value.
So, if it costs $6M to rebuild a $600K house due to construction labor shortages and permitting bullshit, you still need to insure for $6M.
It’s basically never a financially good idea to build a house in California, since market value will be below construction cost. (Otherwise, we’d have a housing boom instead of a housing shortage!)
So, decreasing the supply of buildable land (as your proposal would do) will only make housing prices go up.
Worse, all the major cities are prone to flooding and hurricane-force storms thanks to climate change, so we’d need to disallow building there too. That’s on top of earthquake risk.
The market value of almost every single home in the Palisades, as someone with family from there, is due to the location, not the homes themselves.
If the land loses its intrinsic value because it is inherently unsafe, it will be cheaper to buy. Maybe only modest homes get rebuilt because decreased land value cannot support estates anymore, but that is the situation.
> It’s basically never a financially good idea to build a house in California, since market value will be below construction cost
No, I can assure you as someone who has both built and remodeled in Los Angeles, this is not the case. This region is so housing starved that even spending $200k to a convert a 500sqft garage into an ADU (which is extremely high cost per square foot, compared to national averages) immediately increased the property value by almost $400k. The reason Los Angeles has a housing shortage and not a housing boom is entirely self-inflicted: this city has a terrible zoning and NIMBY problem, and the city refuses to meaningfully fix it. Developers would _love_ to build here, if only they could: projects that take 60 days to get permitted in Dallas, TX take 3-5 years here.
> It’s basically never a financially good idea to build a house in California, since market value will be below construction cost.
If that were true, there would be no new construction in California. There is still plenty, although it might not be where you're looking. And much construction isn't happening where you're looking because 1/the land isn't suitable for construction, or 2/zoning rules forbid building housing in such a way that it would be profitable.
In its “best” form, it’s requiring those who have bought homes in safer areas statewide to subsidize those in more dangerous areas, which is already absurd, considering those more dangerous areas are already predominately wealthy coastal and hillside areas that can and should pay their own full cost of insurance.
My annual payment with a different insurer nearly doubled after our insurer had to drop the entire zip code purely because half of my zip code is in a high fire hazard zone, even though my property and half of zip code is rated one of the lowest fire hazard zones in the state.
At its most extreme, because of the provisions limiting risk adjustment based on and within zip codes (originally, for redlining, which I understand, but for fire risk it makes no sense considering different locations are inherently riskier), it will and has caused insurance companies to exit the state entirely, and then we’re all screwed.
I do wonder if SCOTUS will revisit this and declare the original ballot measure limiting risk an unconstitutional “taking” from those in safer locations (or insurers themselves), given my understanding is Florida has the same issues too…