Here's how natural disasters are shaping the buy-versus-rent decision in vulnerable states like Florida

• Owning a home in high-climate risk states like Florida is becoming tougher amid rising costs.
• Still, owning may be preferable as renters have significantly less policy support than homeowners.
• Experts say the next few years will be crucial for housing policy in the wake of severe climate disasters.

In states at high risk of climate-related events, both homeowners and renters face difficulties in the wake of natural disasters, but there are important things to consider in each case.

On the one hand, buyers are facing rising costs as insurance premiums skyrocket. Renters could bear some of that burden, too, as rental properties face rising property insurance costs that could drive up rents in the future.

But when a natural disaster hits, like this week's Hurricane Milton, the stakes are different.

Both renters and homebuyers face an immense loss of stability if their homes are damaged or destroyed, but homebuyers lose a huge investment.

Here are key factors at play when deciding to rent or to own a home in a state where climate risks are rising and natural disasters are becoming more frequent and destructive.

Both renters and buyers face rising costs

The costs associated with owning a home are becoming more volatile as insurance costs rise due to climate risks.

"Those dynamics really play more of a role in why you're seeing weaker markets right now in places like Texas and Florida, which see more severe storms and generally different forms of climate risk, and where homeowners are seeing greater increases in insurance premiums, which doesn't affect renters as much," Redfin's head economist, Chen Zhao, told Business Insider.

Average insurance premiums have increased sharply in the last few years, up 33% from 2020 to 2023, but that trend is uneven depending on a state's natural disaster risk, a June study found.

Even in regions in different states with similar climate risks, those in states with overall higher risks often bear a higher cost burden as insurers pay to transfer more risk to reinsurance companies.

Florida, which has a reinsurance exposure of almost 40% due to high hurricane risk across the state, saw annual insurance premiums increase by about $1,000 in zip codes close to its border with Georgia, even though areas on both sides of the border are similarly at risk.

Georgia, on the other hand, has less than 10% exposure to reinsurers, and its zip codes close to the border saw increases of less than $500 in the last few years.

Overall, rising disaster risk will raise annual premiums for climate-exposed households in the US by $700 by 2053, the study says.

"The cost of owning a home also has been more volatile over time because of the rising insurance costs and the climate change impact, and also because home prices are going up so fast," Jung Hyun Choi, a researcher at the Urban Institute's Housing Finance Policy Center, told Business Insider.

Still, a big advantage to owning a home is the ability to lock in housing costs.

"Home ownership is still one of the most important ways of building wealth in this country," Choi said, adding that not only do homeowners build equity over time, but their costs are often fixed via the 30-year mortgage, which is the most popular home loan in the US.

Renters, on the other hand, are subject to unpredictable price increases year-to-year. That's especially true after climate disasters, according to one study that looked at rent prices following hurricanes in US coastal states.

In extreme disasters, median rents rise due to reduced housing supply. In less severe scenarios, rents may rise because building owners are trying to offset losses from property damage, or possibly take advantage of higher demand from displaced homeowners.

Policy favors homeowners

While it may be tough to know whether costs for renters or buyers are more directly impacted after climate disasters, public policy is clearly skewed in favor of buyers, Choi says. She pointed to forbearance and loss mitigation policies that are meant to help buyers keep their homes.

After Hurricane Katrina, 29% of homes in Louisiana were damaged, compared with 35% of rental housing units — but 62% of damaged homes and only 18% of damaged rental units received disaster recovery assistance, according to a federal study.

In places where federal funding was implemented for renters after Hurricane Katrina, though, rents appreciated at a much slower rate, one study found, pointing to the potential for future policy to address renters' vulnerability to climate events.

Zhao points out, though, that renters generally have more flexibility to move and are less tied down when disasters strike.

"For renters, it's a different story. You don't own the financial risk of living in Florida if a hurricane comes through," Zhao said, adding, "I think that's the other thing that kind of drives a wedge between these regions and other places in the country, and also drives a wedge between homeowners and renters."

Zhao acknowledges that renters still "certainly own the personal risk" of a hurricane. Renters lose their housing stability personal property the same as homeowners.

Whether renting or buying is more advantageous amid climate change will be determined by policy solutions implemented in the next few years. Unfortunately, there isn't a lot of clarity yet, Choi says.

She adds there's a chance that renting has the upper hand in high climate-risk areas.

"If we kind of leave it like this, it could be actually better to just rent because you don't really have to worry about your properties being severely damaged and you're not getting any insurance coverage," Choi said.