Climate change reshapes cities, both environmentally and financially

In thousands of U.S. towns and cities, worsening climate threats — largely due to fossil fuels — trap cities in a paradox.  

Big cities like Houston and Tampa, Fla., and smaller ones like Port Arthur, Texas, and New Bedford, Mass., require proactive, ambitious investment to survive rising seas and temperatures.

But just as adaptation becomes urgent, climate change is undermining the financial and built infrastructure needed for such changes, risking a financial death spiral for communities housing tens of millions of Americans. 

The most visible risk, rising in tandem with the withdrawal of insurance companies, is the growing number of disasters.

In 2023, U.S. communities faced a record 28 disasters costing a billion-plus dollars — a number that has increased, inexorably, year after year.

The age of compound crisis 

“This isn’t complicated,” Sen. Sheldon Whitehouse (D-R.I.) said in June. “Climate risk makes things uninsurable. No insurance makes things unmortgageable. No mortgages crashes the property markets. Crashed property markets trash the economy.” 

The current insurance crisis, he added, “sounds eerily like the run-up to 2008,” when a mortgage bubble crashed the U.S. economy. 

A Hill analysis of data on insurance risk revealed 100 cities where more than half of properties are vulnerable to having their rates spike or their coverage withdrawn. 

"Temperatures are only going to keep rising, causing more frequent and severe weather-related events,” former California Insurance Commissioner Dave Jones told The Hill.  

These storms, fires and heat waves “are going to kill more people, injure more people, and destroy more property," he said. 

But individual disasters are only part of the story. Cities now face simultaneous “cascading events,” Yale University urbanist Karen Seto told The Hill. 

Signs of this crisis appear in both large and small cities.  

In Reidsville, Ga., population 2,500, Jacqueline Jones watches her backyard warily each time it storms. Her neighborhood’s outdated storm drains mean that water often piles 3 feet high against her house. "Everything floods," Jones told The Hill.

On a far larger scale, Houston faced three major flood-inducing storms in three months — culminating in July’s Hurricane Beryl — an unusually early-season storm that left 42 dead and nearly 3 million households, or perhaps 7 million people, without electricity in searing temperatures.  

In the city’s long-neglected northeast, existing vulnerabilities from decades of redlining and disinvestment worsened the crisis by leaving residents without adequate sewer systems — making them even more vulnerable in the face of climate change. 

"When disasters hit [Northeast Houston], they hit hard," said Vanessa Toro Barragán of the nonprofit Hive Fund. Lack of income and city investment means houses aren’t maintained, there are no community centers for cooling, and "people are less likely to replenish their groceries," she added. 

Hurricane Beryl was an example of how disasters tend to feed on each other, creating systems in which stress piles on stress. The storm knocked out power grids already damaged by May storms that led to their own blackouts. Those outages exposed millions to dangerous heat and — by knocking out refrigeration — lack of food. It also caused 154,000 gallons of raw sewage to spill downtown, putting nearby residents with private wells on a boil water notice — a precaution difficult to heed without power.

Houston after Beryl represented an extreme case in a general trend. More frequent and extreme disasters, coupled with chronic issues like heat waves and destructive wildfires, strain infrastructure and add vulnerabilities to already-stressed systems. 

The looming question, Seto said, is what happens when “extreme” crises like the coronavirus pandemic — in which “hospitals and morgues were overrun” — layer on top of “chronic” ones like extreme heat. 

That’s not a particularly outlandish scenario. Rising temperatures and rainfall from climate change make conditions more favorable for epidemics like COVID-19 and expands the range of mosquitos that can carry dengue fever or even malaria. Extreme heat has also emerged as the biggest threat in the Northwestern U.S. and Europe, according to a paper Seto co-authored in the journal Nature this summer. 

A recent paper found that a citywide power outage in Phoenix would put half the population in the emergency room, capacity that the city plainly does not have. While such a total outage is unlikely, University of Arizona researcher Ladd Keith told The Hill, even a neighborhood outage would overwhelm local cooling centers. One of the constant headaches for cities confronting the climate crisis is the risk of feedback loops, in which the effects of one problem worsen others, creating a self-reinforcing cascade. Such a risk means that cites aren’t just facing the risk of epidemic, or extreme heat or the climate-influenced erosion of aging infrastructure — they're facing what happens as those risks combine. 

“What do we do during multiday heat waves, when there are [power-grid] brownouts, and hospital workers can’t get to work because they’re not doing well or the tarmac on the road has melted?” Seto asked. 

Solutions do exist. Climate scientists and urbanists have developed tools to help cities adapt, focusing on solutions that work with nature, rather than against it. Cities can fight heat by adding green spaces, combat water scarcity with water reuse and reduce flooding risks by restoring natural areas or the natural meanders of rivers.  

However, these options are expensive, and cities have been slow to invest in them. Without timely attention, cities risk being caught in a crisis where financial and climate factors create a death spiral, driving people away and leaving behind only those unable or unwilling to leave. 

Canary in the mine: The insurance crisis 

The primary force driving this risk is the nationwide retreat of insurance companies in response to rising climate risks.  

"The principal ways that private insurers respond to increased risk is by raising prices or declining to write insurance at all," said Dave Jones, the former California insurance commissioner. 

Critics argue that insurance companies bear primary responsibility for the increasing risks, having underwritten risky development and fossil fuel infrastructure for decades. In California, a nucleus of rate hikes and insurance, state Insurance Commissioner Ricardo Lara has blamed the “black box” that insurance companies use to set pricing but also pushed to allow them to hike rates more quickly. 

Regardless of the cause, the effect of insurance withdrawals and rising costs is a series of feedback loops that undermine cities' financial stability. 

Lack of cheap insurance pushes businesses and homeowners onto more expensive plans — or the increasingly exposed state-run pools, which hold $1 trillion-plus in liabilities. More than half of those liabilities are in Florida, which in 2024 has been hit already by three hurricanes — Debbie, Helene and Milton.  

The number of people on these last-chance insurance rolls are growing. In Louisiana, for example — a state hit by billion-plus-dollar storms in February and May and Hurricane Francine in September — at least a dozen insurance companies left the state in 2022. That led to a tripling of the number of homeowners with the state program — from less than 50,000 to more than 150,000.  

At a certain point, these individual moves to more expensive plans become a systemic problem. Pricey or unaffordable insurance slashes the value of homes and businesses and thus lessens the amount of money coming in to city coffers from property taxes, the backbone of municipal finance. And higher insurance costs also lead owners to reduce coverage or even , leaving them vulnerable when disasters strike. 

Homeowners are increasingly "going bare," with 12 percent of homeowners forgoing coverage in 2023, according to the Insurance Information Institute, an industry research group — which is more than twice as many as the 5 percent uninsured in 2019. These uninsured form a group of which nearly half — 48 percent — make less than $40,000 a year, an Insurance Information Institute report noted — leaving them and their neighborhoods uniquely exposed when disasters strike.  

“Only a small proportion of low-income homeowners could withstand the total loss of their home from an unforeseen weather event without insurance coverage," the report noted. 

“[Let’s say] my home is valued at $400,000, there’s a major flood event, and the cost to repair is $120,000,” said Birny Birnbaum, executive director of the Center for Economic Justice. “I don’t have $120,000 in savings — what do I do?” 

For homeowners across the Appalachians, that’s a very immediate question in the wake of September’s Hurricane Helene, whose floodwaters all-but-eradicated neighborhoods and entire towns across the region. That a storm that did as much as $250 billion in damage — losses that are almost entirely uninsured, because protecting against them would have required people in mountain communities to buy extra flood insurance that few had any idea they needed.

Anatomy of a death spiral 

In the financial death spiral feared by many experts, a local risk to overwhelmed homeowners can scale up to threaten the survival of entire cities. The spiral begins with a disaster, after which, un- or under-covered homeowners — unable to pay for the damage to their totaled homes, or unable to get the insurance coverage required to keep their mortgage — face foreclosure. Each foreclosure reduces property value and city tax revenue. Sales taxes decline as people leave or spend less — or as businesses themselves lose insurance or are destroyed. 

At a certain point, this trend begins to undermine the tools that cities would ordinarily use to fight it. To rebuild infrastructure, cities can ordinarily raise money from investors by issuing municipal bonds, backed by city revenues like property and sales taxes. However, as investors begin to doubt a city's ability to repay over the typical 30-year bond term, it can lead to higher interest rates and potential ratings downgrades from agencies like Moody’s or S&P Global.

Such a downgrade represents a life-and-death risk, particularly as a warming world brings future disasters — and the need for expensive infrastructure improvements to head them off. As mortgage and property tax rates fall, a natural response is for investors to charge more in interest to cities looking to repair damage or invest in adaptation —  raising loan costs as cities need money most.

Once a ratings downgrade happens, it becomes much harder for cities to raise money for infrastructure, accelerating the spiral. For example, in 2016, Moody’s downgraded Jackson, Miss., to junk bond status due to its failing water and sewer infrastructure — a move that worsened the underlying crisis. The Moody’s downgrade meant it cost the city more to borrow money, which added $2 million to $4 million to its debt-servicing costs. That drained even more of the funds needed for infrastructure investment, contributing to the 2022 drinking water crisis.  

So far, such a downgrade has yet to happen for climate-related reasons. But experts say that’s coming. 

“We've yet to see a major ratings agency downgrade of municipal bonds issued by Miami, but we know that's the shoe that's going to drop at some point,” said Dave Jones.

A Hill analysis of First Street data identifies more than 100 cities where more than half of properties are at risk of insurance corrections, along with more than 500 towns with fewer than 50,000 residents that are similarly exposed. If insurers withdraw, these communities may lack resources to adapt or recover from disasters.

But it’s not just acutely threatened cities in the Gulf Coast or low-lying Atlantic. While Florida is getting hit "first and worst” by the insurance crisis, Whitehouse told The Hill, it is "the leading edge of a problem that would hit coasts all around the United States” — and beyond.  

Insurance companies are also hiking rates and withdrawing from Midwestern states like Iowa, Oklahoma and Nebraska. Small community insurers in these areas depend on a stable market for reinsurance — insurance sold to insurance companies — which has become a volatile “seller's market” in an era of rising global climate risk, Birnbaum said. 

Many regions at stark risk for an insurance crisis may not yet be aware of their risk, according to proprietary data from First Street Foundation shared with The Hill. The First Street data identified millions of properties nationwide that match the profile of those facing steep and unaffordable insurance hikes elsewhere.

That includes nearly every property in climate-threatened cities like Houston; Austin, Texas; Tampa, Fla.; Norfolk, Va., and Riverside, Calif. 

For communities facing climate disaster, sharply rising insurance rates can offer a wake-up-call — a bracing reminder that the once-stable foundations the municipality was built on are shifting, and that stark changes may be necessary. Deinsurance and retreat are harsh correctives, Harvard University professor Jesse Keenan told The Hill in April. “But if you’re at the end of a river delta, like New Orleans, the question becomes: ‘Do you want to take your medicine now or delay the inevitable?’”

But one disquieting element of the insurance crisis is that in many of these risky regions, risk is increasing but prices are not — at least, not for now. A 2023 study suggested that insurers subsidize low rates in risky — but highly lucrative or regulated markets — by raising rates in places where regulators give them more freedom. 

That phenomenon, they wrote, is leading to an untenable situation where rates no longer reflect risks. One reason for that disparity may be that investors are still undercounting the risk that climate change poses to physical property. But no experts interviewed by The Hill said they expect this optimism to continue forever, and so the risk of an insurance bubble hovers over much of America — even many towns for which the good times still seem to be continuing.

First Street data shows thousands of cities that are still growing despite climate risk — but slower than they otherwise would be, in a trajectory that Jeremy Porter, the company’s head of climate research, said suggests an oncoming tipping point.

And a Hill analysis First Street data found 73 towns with populations over 10,000 that are growing — with minimal slowdown despite virtually every property in town being at risk of an insurance hikes. That list that ranges from the flood-prone coastal cities of Wilmington, N.C. and Hilton Head Island, S.C., to wealthy enclaves like Houston-area Bellaire and fire-threatened Casper, Wyo. and Durango, Colo.

Elsewhere, the flight has already begun. Within larger cities, neighborhoods are already being abandoned due to rising climate risks, especially floods, while new paved areas expand into higher-altitude wildlands, increasing heat, fire and flood risks.  

Yale urbanist Seto argues this expansion into the hinterlands repeats the development mistakes that contributed to today’s rising risks. That risk is particularly stark, she said, for smaller cities like Orlando and St. Petersburg, Fla., Laredo, Texas, and New Bedford, Mass. All of them stand out in the First Street data for their high risk of deinsurance or rate hikes — which are more vulnerable to climate-induced death spirals due to their small tax bases, urban problems and lack of crisis management experience. 

A Hill analysis of First Street data identifies more than 100 cities where more than half of properties are at risk of insurance corrections, along with more than 500 towns with fewer than 50,000 residents that are similarly exposed. If insurers withdraw, these communities may lack resources to adapt or recover from disasters.

At a large enough scale, these disasters risk stacking up in a way that undermines the ability of the state and federal government to address them. Those larger entities traditionally support cities impacted by disasters: For instance, California is rebuilding Paradise after the 2018 Camp Fire.  

However, future widespread disasters could overwhelm such efforts, as states and the federal government find themselves overwhelmed — something that is already beginning to happen. Last week, following the staggering costs of Helene and Milton recovery, the Small Business Administration announced it was out of disaster resistance money. FEMA’s Disaster Recovery Fund — which was running at a deficit even before Helene made landfall — blew through half its budget for the 2025 fiscal year in just eight days.

A particular state-level standout is Califronia, where nearly a fifth of the cities and towns are at risk of insurance corrections, according to The Hill’s data analysis. Even California faces deinsurance issues, with the state earlier this year unable to secure coverage for a state fire agency training camp. 

States like Florida, Louisiana and Texas face even higher risks, with 80 percent of Florida’s cities at risk of an insurance-driven economic death spiral, 71 percent in Louisiana, and nearly half in Rhode Island and Texas, The Hill found. Massachusetts, a state often depicted as a climate refuge, has nearly half its cities at risk. 

The large-scale risk gets even worse for states like Florida, Texas and Louisiana, where a largely deregulated insurance market is backstopped by a state-run last-resort insurance program. Such programs allow insurance companies to “cherry pick what risks they want to write,” Birnbaum of the Center for Economic Justice said, and then leave state programs holding the riskiest properties — and the associated costs of a major disaster.  

Insurance companies' perspective, Birnbaum said, is “we’ll manage our risks,” even if it “makes society less resilient.” 

In Florida, for example, the last-resort program stands to lose more than $500 million in the event of a hundred-year storm — costs that would be borne by policyholders. 

Political polarization worsens risks 

Another complication looms at the federal level. Jacqueline Jones, whose neighborhood in Reidsville faced flooding, complained that Federal Emergency Management Agency flood maps had listed the neighborhood as safe — a rampant discrepancy federal regulators see as a pervasive problem.  

The National Flood Insurance Program — the U.S. insurer of last resort — hasn’t been reauthorized for its full five-year term in more than a quarter century. That dynamic has starved the program of funds needed for the long-term planning needed to create new flood risk maps, which has left both the insurance and building industries unsure whether coverage will continue.  

The federal government has partially filled the broader adaptation funding gap faced by towns and cities with massive stimulus packages like the COVID-19 era American Rescue Plan, the 2021 Bipartisan Infrastructure Law, and the 2022 Inflation Reduction Act (IRA) — all of which include tens of billions of dollars to help cities become more resilient.  

In Houston, IRA funds have been used to create off-grid solar and battery-powered "resilience hubs" for shelter during storms or heat waves — creating neighborhood oases during the Beryl blackouts. Federal funds have also supported flood adaptation in disaster-prone low-income neighborhoods, which state and local governments could not, or would not, fund. 

However, applying for these funds requires time and expertise that many cities or community groups lack. They are also both scarce and time limited, with the longest-lived funding source — the IRA — scheduled to run out by decade's end. 

The Environmental Protection Agency (EPA) has funding for only 50 community resilience projects, while more than 1,000 communities are at risk of insurance upheaval, according to First Street data.  

Even when funding is secured, it may not be enough. In Reidsville, Ga., the city council in June rejected a $12 million grant to use IRA funds on a park that doubled as stormwater defense. Resident Jacqueline Jones was left frustrated. "It's bad here. It's dangerous," she said, pointing to the city’s high ranking on EPA lists of toxic chemicals and the presence of fecal coliforms, which swirled in the floodwater. 

“I’m too old to move,” she told The Hill. “But I beg people that have little kids: move out. Leave before the kids get sick.” 

Challenges for 'climate refuge' cities 

But where to go? Some cities like Raleigh, N.C., and Bristol, Conn., offer relative financial stability, with less than 10 percent of properties at risk of insurance. Conversely, a 2023 report by ProPublica found that communities around the Great Lakes form the emerging heart of the optimal U.S. climate. 

But research suggests these communities need to prepare for incoming migrants to avoid conflicts over space and resources between new migrants and existing residents.  

Other cities like Duluth, Minn., Buffalo, N.Y., and Cincinnati are marketing themselves as climate refuges.  

But these cities, too, face their own significant risks: Nearly 20 percent of the properties in Buffalo are at risk of insurance hikes or loss of coverage due to flooding. In Cincinnati, that number is 13 percent and for Duluth, it's 10 percent. For comparison, in Asheville, N.C. — a city long seen as a relative refuge, but devastated by flooding during Helene — that number had been projected at 11 percent. 

The very idea of a “climate haven” can be counterproductive, “because there is no one city that is and will remain safe from climate change,” a 2023 Cincinnati report found. (Buffalo’s motto, a local geographer told the BBC, could become “We’re not an oasis, we suck less.”) 

For such migration to become an opportunity, rather than a threat, those communities — or the Northeastern and Northwestern communities forecasting climate-induced growth of up to 10 percent, according to ProPublica — will have to spend heavily on infrastructure and affordable housing, according to left-leaning think tank New America. 

But the same likely holds true for all cities, Yale urbanist Seto told The Hill — the ones currently expanding in a tide of asphalt into their surrounding wildlands, then planting trees on what is left.  

For cities across the country, she said, modern solutions “can’t be solutions of the past.” 

Cities, she said, have to avoid saying, “‘The dike broke, so we built a taller dike.’ No, we have to rethink other solutions. We need to think about the future of cities — and how to shape those new cities that have yet to be built.”