Submerged Economies: How Climate Change is Washing Away Wealth in Louisiana

May 13, 2026

by Rebecca Ciarochi*

Although people disagree on the causes of climate change, it unequivocally exists and is rapidly reshaping economic landscapes. Louisiana has suffered extensive climate-related damage, and the ripple effects have put the state’s economy and many communities on a trajectory toward submergence, preceded by vanishing coastlines, coastal erosion, increased flooding, and increased storm exposure.  The result is that wealth is literally washing away for Louisianans as they face large-scale population decline, rising homeownership costs, and declining property values.

Louisiana’s coastal landscape was already predisposed to natural subsidence and coastal erosion, processes now exacerbated by human-induced climate change. Louisiana loses about 25-35 square miles of coastal land per year. Coupled with the increasing intensity and frequency of tropical storms, South Louisiana residents are more vulnerable to a greater magnitude of home damage than ever before and, as such, absorb the majority of the subsequent cost burden. Jefferson Parish, for example, is predicted to face a 533% increase in flood damage over the next three decades. Growing exposure to climate risk increases the cost of living, both from costs of climate damage and skyrocketing flood and homeowners’ insurance premiums, making it a less desirable place to live and further contributing to decreasing property value.

In New Orleans alone, homeowners’ insurance premiums increased by as much as 196% in 2024. In many areas, insurance premiums are rising faster than mortgage payments, and thus insurance payments as a percentage of mortgage payments are quickly increasing.

Insurance companies are raising premiums in response to growing risks and major loss events.  Many insurance companies are withdrawing from entire geographic areas, citing state consumer protection regulations that prevent them from raising premium rates to levels that accurately reflect current risk. The result is that homeowners are unable to purchase insurance from the private sector, regardless of the cost, and this is the final blow to property values.  As insurance companies exit the market, the burden falls onto state-run insurance programs of last resort, and ultimately on Louisiana residents.

In addition to standard home insurance, Louisiana residents also face the costs imposed by the requirement of obtaining flood insurance for federally backed mortgages in the Federal Emergency Management Agency’s special flood hazard zones. While such requirements are necessary to protect homeowners in the event of disasters, FEMA’s flood risk maps and premium pricing are widely outdated in many areas, and recent reforms have led to a dramatic increase in flood insurance costs across Louisiana. Even with the National Flood Insurance Program (NFIP) in place to mitigate this with federally backed insurance in flood-prone areas, its premiums often do not reflect true risk because it is historically subsidized.

Climate change is also degrading property values in disaster-prone areas, but this decline is significantly underestimated. Recent studies estimate that residences in the U.S. exposed to flood risk are overvalued by about $121 to $237 billion in USD, with the highest concentration of overvaluation clustered around coastal cities. In addition to increasing insurance costs, the value of the asset being insured is degraded and overestimated.

Rising costs of environmental damage are triggering a snowball effect that, in turn, lowers property values, as climate risks influence consumer demand. Combined, these factors create a disproportionately high cost of living that is likely to continue increasing, driving locals away from South Louisiana.

The Big Uneasy: Climate-induced changes in the cost & quality of living are steering homeowners away from New Orleans

Most Americans’ wealth is tied to real property, and purchasing a home is the largest investment that most Americans make, as home values often outpace inflation. This makes most homeowners extremely sensitive to changes in real estate market prices and costs associated with maintaining a home, like insurance. Likewise, changes in climate risk directly influence the two key elements shaping consumer preferences in the housing market: the costs and quality of life related to purchasing a home. This relationship is increasingly prevalent in younger generations as awareness of climate change grows in response to major disasters, like the California wildfires and Hurricane Helene. In recent years, 80% of homebuyers consider at least one climate risk when buying a home, with 49% reporting that it is extremely important to decision making. This is why, in addition to an increase in the cost of insuring homes in climate-prone areas, growing awareness of the impacts of climate change is increasing the elasticity, or the sensitivity to price, associated with climate risks. As such, climate factors can alter property values altogether. Indeed, Zillow recently removed a feature that disclosed a home’s susceptibility to climate risks, citing claims from homeowners and real estate agents that the feature was harming sales.

Louisiana is no exception, as growing awareness of climate impacts and their contribution to rising housing costs drive migration from Louisiana’s coast and the state as a whole. Awareness of climate change and perhaps climate anxiety is present in Louisiana, as recent polls show that over half of Louisiana voters believe coastal erosion will impact them in the next ten years, and homeownership costs are also increasing, as previously discussed. Both of these characteristics divert consumer demand elsewhere, which is reflected in the fact that, since 2020, New Orleans has faced the largest population decline of any metropolitan area in the country.

The Bayou Bailout: Can New Orleans Stay Afloat?

As policymakers, insurers, and residents argue over who should bear the cost of environmental risks, residents pay the price. Many residents are ready to fold and try their hand elsewhere, but walking away requires accepting a sunk cost. If their wealth is tied up in the home, folding might not leave them with enough for “buy-in” elsewhere. Selling the home itself may also prove difficult, as from the buyer’s perspective, it is an increasingly worthless asset. In this scenario, no one wins. To keep all players at the table, there needs to be a greater degree of collaboration between the public and private sectors.

The state government, residents, and corporations face a common enemy: climate change. If Louisiana wishes to retain its residents and corporations in this fight, it must begin by meeting stakeholder needs. Many Louisiana residents articulate a desire for increased environmental protection through restoration, with roughly 73% supporting coastal restoration and sediment diversions. Despite this, such projects have been canceled in recent months, and future projects could be at risk as funding for coastal protection and restoration projects from the Deepwater Horizon settlement will run out in 2032, and future federal funding for environmental projects remains uncertain in the current federal administration.

While larger-scale projects may be currently limited, Louisiana is making additional efforts in the short term through initiatives like fortified roof grant programs and updating building codes to elevate and permeate surfaces to mitigate flood risks and damage. These efforts to incentivize or subsidize the construction of storm-resilient homes would continue to benefit New Orleans. Continuing to update building codes to make neighborhoods flood-resilient is likely the best initiative in the current political environment: future climate funding is not guaranteed, and building codes tend to pay for themselves in disaster-prone areas.

            In addition to government programs, the private sector is chipping in, with some insurance companies lowering premiums for residents who opt for climate-resilient renovations, like fortified roofs. The continuation of private-sector and public initiatives to lower prices through reconstruction would also inject money back into the economy by improving home values, creating jobs, and reducing insurance costs, making New Orleans a more affordable place to live.

            This climate-induced crisis, though, is most relevant to one party: the government, whose success relies on that of its people. As such, financial turmoil for homeowners and insurance companies translates into turmoil for the government’s financial security. The federal government largely backs the housing market, and thus faces liability if Americans fail to pay their mortgages. And if the housing market collapses, property income tax revenue for local governments will fall, and they will rely more heavily on federal support. As such, the government must fulfill its role in serving the American people and take action to avert a crisis. There are several approaches the government may consider to better spread the risk, as outlined by the Coalition for Sustainable Flood Insurance (CSFI). These include:

1. A federal reinsurance program structured as either a private-public pool, like the Australian Reinsurance Pool Corporation’s Cyclone Reinsurance Pool, or a backstop for extreme natural disasters, modeled after the Terrorism Risk Insurance Act.
2. A federal enterprise arising from the split of insurance into a standard policy, underwritten by the private sector, and risk-based natural hazard policies administered by the public sector. A secondary market would be established to trade natural hazard policies, allowing investors and interested parties to purchase risk in accordance with their risk aversion, modeled after the credit risk transfers of Fannie Mae and Freddie Mac. This would essentially provide cash flow to insurance companies in exchange for purchasing risk.
3. Restructuring the NFIP into a Cabinet-Level FEMA that provides greater coverage and requires greater mandatory purchase requirements.

These suggestions all address a fundamental need: restructuring the distribution of risk. The liability posed by natural disasters continues to increase, and the burden must be taken on by someone. So, when determining the path forward, the question becomes the extent and manner in which such risks are redistributed across households and the public and private sectors. If anything is clear, it is that continuing the status quo is not an option.

*Rebecca Ciarochi will graduate from Tulane in 2027 with a degree in Management, Accounting, and Finance. She was a policy research assistant in the Spring of 2025.