Los Angeles fires expose inflated US home prices
reuters.com
reuters.com
Banks aren't in the habit of letting their collateral burn to a crisp.
Lots only discover insurance problems after they have signed on a home.
There's a case to be made that places like SoCal and Florida having State/Federal discounted fire or flood insurance is an obvious problem. I can understand the "we don't have a way to kick everyone out of this dangerous and potentially historic area" zone, but it ends up being a subsidy of taxes from people living in more sensible areas to pay for the predictable damages to more risky areas.
If you're rich enough to buy anything in LA in cash, you're likely rich enough to eat the loss if your house burns. If you needed a mortgage then you're constrained by the insurance companies that increasingly are pulling out of areas like this for exactly this reason.
Definitely true. Insurance rates and property tax can incentivize this as they have in places like Florida. After this, California will probably catch up.
1. There are a lot of people trying to buy homes vs the supply of available homes on the market.
2. Rich people are looking for investments in real estate and buying up property to lease or rent it back out at even a higher market rate.
Edited to add:
3. Zoning restricted to keep new construction of high density housing from being built.
the word 'inflated' presumes that the price is higher than _it should be_. The underlying assumption is that homes _should_ cost less, and the current price is artificially high.
It isn't.
The price if a house is not artificially high - it is high for market driven reasons. Therefore, it is a market price. Nobody is inflating the price via some nefarious scheme.
Lol I built a house from scratch including all labor and legal aspects. Almost the whole system is designed as a nefarious scheme to grandfather in the prior generation while kicking anyone in the teeth who wants to build a place the way the voters had their own houses built 50 years ago.
Why don't we see that happening at a meaningful scale? Because the housing market is not free - it's regulated very very badly. Where developers can build, there is a huge amount of red-tape and often a crushing process of input from neighbors - neighbors who, mind you, already own their own houses, so this new development would never be used by them. And these neighbors are also strongly incentived to keep their property values as high as possible, as owning a house has very much become an investment. It's no wonder that home owners find all kinds of reasons to say no to denser developments near their homes.
And then there's the fact that huge swathes of attractive neighborhoods are zoned for single-family homes. Developers cannot even legally consider building in such areas (and I encourage you to look into this for a city near you, it's shocking). In LA, of all the land that is zoned for residential use at all, about 75% is zoned as single-family housing. Los Angeles!
I'm not a strong proponent of the "free" market, but bad regulation is a nightmare.
But it also reduces the value of existing homes and changes the environment in a negative way, which is why people that already own homes there dislike this idea.
It's easy for someone to say that someone else should be good with this for the greater good, but regulation and zoning is everywhere and most people actually want it that way.
The people that move in your 6-plexes will probably not like when they start stacking up 50 unit apartment buildings between their 6-plexes either.
Yes! Homes should be a place to live, not a financial investment. But this is exactly why neighbors would oppose denser development.
"... and changes the environment in a negative way."
Denser development is much more environmentally friendly than sprawling low density. Less acreage can be devoted to housing, and more devoted to nature (and to be clear, a lawn of grass is not "nature"). Additionally, low density sprawl makes it necessary to use a car and drive longer distances, because you are physically further away from stuff. In a high density area, public transit is more effective, or one can just simply walk around the corner to the grocery store or whatever.
Maybe they shouldn't be investments, but they are, and you can't expect people to ignore this.
I will agree that the government shouldn't incentivise this behavior, but even without the government's help they will continue to be a large portion of household wealth, like it or not.
> Denser development is much more environmentally friendly
Sorry when I said "the environment" I meant the living environment, as in: the common preference to live in a quiet low density neighborhood rather than a loud dense urban environment with all of the problems that come with it. I don't know where you live, but ignoring money and housing/rental values, if the population of your block increased 10x would you be happy about it? Even if you would be excited by that, not everyone will agree with you that stacking ourselves on top of eachother is the pinnacle of human civilization.
exactly. Anything that cost time and effort to create is an investment. To have homes not be an investment is to say it's not going to take time nor effort to make.
People can choose to ignore this reality, but it only hurts them financially.
But housing is treated almost like stocks or gold, in that they are "financial investments." People buy a house and they expect, even depend, on the house being worth more money in the future.
My point is that a house should be treated like a car or computer, not a tool for growing financial assets.
Property Taxes in CA are determined based on the time of purchase. They are only allowed to go up 2% per year, while the rise in market value increases much faster. Meaning that you are highly incentivized to hold on to property, thereby reducing supply more so than other property markets in the US.
This kinda distorts 3) as well, since you also want to protect that investment and then you get NIMBY stuff too. CA is trying to fix things by disallowing cities from blocking new construction, but it's slow going. on the legal side.
What do you suppose are the fixes?
But I see your point, I think.
> Assume a typical California home is worth $1 million and insuring it costs $5,000 annually. If the equivalent rent is $70,000, doubling the premium would reduce the house’s value by 7%
> State Farm cancelled most of its policies in Pacific Palisades last year; the median sale price there fell 16%
So, it follows that since the risk of natural disasters is increasing across the US, that insurance premiums will rise and thus home prices are inflated because they don’t account for that yet.
And as an average Joe, how else am I able to make $250,000 tax-free?
The "desirable" places to live are near the ocean, where there are mountain ranges, probably due to earthquake faults (how soon we forget) and dangerous winds, plus the dry summers.
Most of the Central Valley is cheap, for a reason/reasons.
The other side of the valley is both mountainous and wooded. But low density, because most of the jobs and culture are by the coast.
House prices are high because there's not enough supply in and around the jobs. There's not enough supply because of zoning regulations. Zoning regulations were put in place to keep house prices as high as possible.
As long as there's not enough supply to meet demand house prices will trend up towards the maximum the market can afford. When the opposite happens house prices tend towards the cost of construction.
Until just a few months ago over 90% of all the residential land in California was zoned single-family exclusive.
Why the anger at immigrants lately? Hint: 11.2 million illegal immigrants need to live somewhere. (Personally, I think the smaller regional banks have more responsibility to answer for this.)
If Trump is successful in his deportation efforts, house prices will likely fall through the floor, and (huge surprise) the poorer and younger ends of society will be extremely grateful, possibly even electing his successor figure. This could have been easily avoided if adequate housing had been constructed.
Are they really buying this extremely expensive real estate with their low wages? Seems impossible. More likely, they will lower the already very cheap housing in the middle of nowhere.
> If Trump is successful in his deportation efforts, house prices will likely fall through the floor, and (huge surprise) the poorer end of society will be extremely grateful, possibly even electing his successor figure.
Far more Americans live in owned-homes than not. That's exactly why this problem has been so intractable in the first place. Those folks will not be happy.
Boomers are 21% of the population, but 38% of the homes. Only 54% of Millennials are homeowners. It's great if you're in the wealthy populous old generation; if you're young and hungry or even just an average person in their 30s, you're angry.
> Are they really buying this extremely expensive real estate with their low wages? Seems impossible.
No; [illegal immigrant] families pool multiple low wages together and buy houses together.
2/3 of Americans own homes.
> No; families pool multiple low wages together and buy houses together.
So the whole family will be mad when their home equity goes down.
You keep saying this like it's a good thing. That's a disaster - China has 93%. Romania has 95%. Russia has 92%. India has 86%. A 2/3s homeownership rate is an embarrassment, and shows we haven't addressed this problem sufficiently.
> So the whole family will be mad when their home equity goes down.
"Don't fix the system; better think of those short term equity values! Even better, don't build housing!"
I'm specifically responding to the idea that "most Americans" would love to see house prices drop. Only 1/3 of Americans would like to see house prices drop, the rest would be mad. That's why this hasn't been addressed in the past.
> "Don't fix the system; better think of those short term equity values! Even better, don't build housing!"
I'm advocating for building more houses, and am pointing out that the immigration axis is irrelevant to the cost of housing in HCOL areas.
Note that "homeowner" in China means leaseholder. So strictly speaking, they aren't really homeowners. Land in cities is owned by the state as per the Chinese constitution, and then pieced up and handed out to citizens via temporary (decades long) leases.
Of the remaining 234, 38% are boomers, who almost never sell homes.
There are now only 146 people. How many want to sell homes? Only 8.7% of people move each year, so only 12 of those people are open to the possibility.
Now it's 1 out of 12. That's significant. That's not even considering other factors, like Gen X becoming increasingly hesitant over time to the prospect of moving, while being the second largest generation to own homes. They own 24% of the homes and are very "sticky", so it might easily be more like 1 in 9 in terms of actual sales.
It's actually even more amazing than that - we don't even need the above napkin math. 4.62 million homes were sold in 2024, 4.09 million in 2023, 5.03 million in 2022. Add a million homes, increase supply by 20% (1 in 5), that's going to leave a dent. After all, according to Redfin, only 2.5% of homes change hands every year.
Getting rid of immigrants will make houses a bit cheaper, and everything else more expensive.
Increasing property taxes so it isn't so cheap to carry underutilized housing, and getting rid of zoning regulations written with the intention of artificially limiting housing supply, will actually cause housing prices to fall through the floor, without ruining the rest of our economic output and supply of CPI basket goods.
To buy them out of their negative real rate mortgage you must compensate them handsomely for losing such a loan that essentially lets them take from everyone else via fed induced inflation. This is why prices have been so sticky despite the now higher rates.
[edit] Look at the chart of housing CPI and the chart of interest rates. They're basically uncorrelated.
So you're saying lowering interest rates raises house prices and raising interest rates 5X ... also raises house prices, and therefore monetary policy is responsible for house prices? Are you sure it's not supply and demand? Because to me, when you do X and Y happens, then you do ~X and Y still happens, X and Y are uncorrelated.
It would seem like a more reasonable assessment is that we're 5M houses short in the US [2], mostly in and around major metros where the jobs are [3], and that changes to interest rates symmetrically impact both supply and demand.
[1] https://fred.stlouisfed.org/series/CSUSHPINSA
[2] https://zillow.mediaroom.com/2024-06-18-The-U-S-is-now-short...
[3] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage
The summation of supply and demand for the materials and land as well as the financial products attached to them are all considerations. But the most notable recent supply change is those tied to monetary policy.
Zoning, codes, regulations and trades licensing have been the steadier hands on the noose but less so impulses on the accumulator. The truth is you can get around all of those if you pay cash ( I built an uninspected shithole to live in for $30k that is uninsurable and unloanable and i cant get a certificate of occupancy) but the main market is mortgagable properties tied to monetary policy.
Just stating your theory again doesn't make it true.
[1] https://www.bostonglobe.com/2024/07/05/business/housing-cons...
The median home price in Los Angeles tripled from 2010. The population in Los Angeles has declined since 2010.
The CL-415 that you shared in the link has a reported capacity around 6100 kg of water. When I searched for “heavy lift drones” I got the Draganfly Heavy Lift, which can reportedly carry 30 kg but only for 18 minutes of flight time (according to the company’s web site). I think the plane’s flight time is around 3 hours but obviously the math is a little more complicated than that.
* there aren't enough pilots
* pilots understandably don't want to fly too close to the fire
But a drone might be able to get away with carrying less water and do more of a targeted squirt.
I don’t see any reason to believe there’s a pilot shortage, and I don’t understand what’s wrong with the current targeting, or how that could be improved. There’s a whole strategy to fighting fires of this scale. I don’t think the strategies are obvious to people on the ground.
Being prepared for this scale of operation means either having specialty firefighting planes and drones in reserve, or having other vehicles - general purpose drones or cropdusters or, heck, a Globemaster with a big ballon full of water in its belly - that can be repurposed and sent to this emergency from all over. Airships would be nice for the volume, but they aren't exactly friendly to the turbulent conditions near a fire.
Maybe the article is saying the same effect could hit markets around the country more broadly as insurers everywhere jack rates up in response to climate change?
As mismanagement and environmental issues unfold, in the narrative I play in my head to keep myself sane, insurers are kind of heroic. I know they aren't really, but: one thing you can say for them, they're some of the only players in our economy that are required to price externalities. Political bodies and residents can delude themselves about risks indefinitely, but an insurer that ignores them will be insolvent. You could write a state statute capping insurance rates, but, as you've seen, that just forces insurers to leave the market. They don't have a choice. It's kind of wonderful.
wait until the property owners there start demanding socialized property insurance!
Markets gonna market amiright
With how far technology has come since 1932, I personally believe incompetence is being exposed not inflated home prices