Climate Change, Property Values and the Shrinking Economy

For generations, home ownership has been regarded as one of the safest forms of personal wealth. A house provides shelter, security and an asset which can be sold, inherited or used as security for borrowing. Much of Britain’s financial system has been built around the assumption that residential property will retain its value.

That assumption is now coming under threat.

An article by Harry Brennan in The Daily Telegraph on 14 October 2026 reports warnings from senior figures in the insurance industry that climate change could make increasing numbers of British homes difficult, or even impossible, to insure.

The implications extend far beyond the insurance industry. They could undermine the mortgage market, reduce property values, damage household wealth and add another source of instability to an economy already struggling with the consequences of declining growth.

The Insurance Problem

There is also an important connection with Localism.

Insurance works by spreading risk across large numbers of policyholders. Most properties suffer no serious damage in any particular year, allowing the premiums collected from many households to pay the claims of relatively few.

But what happens when the risks increase substantially?

Flooding, subsidence, coastal erosion and wildfires are becoming increasingly important considerations for insurers. Where damage becomes more frequent, insurance premiums must rise. Where the probability of serious damage becomes too great, insurers may withdraw cover altogether.

This is not simply a theoretical possibility.

Tenbury Wells in Worcestershire has already attracted attention as an example of a town where repeated flooding has created serious difficulties in obtaining affordable flood insurance.

The Environment Agency estimates that around 6.3 million properties in England are currently at risk of flooding, with the number potentially increasing substantially by the middle of the century. Subsidence presents another growing problem, particularly where prolonged dry periods affect clay soils.

There is an important distinction between a property being at risk and becoming uninsurable. Nevertheless, increasing physical risks inevitably raise questions about the long-term availability and affordability of insurance.

The Threat to the Mortgage Market

The financial implications are potentially enormous.

Mortgage lenders normally require buildings insurance because the property provides security for the loan. If that security cannot be insured, the lender faces an additional risk.

An uninsured property may therefore become difficult to mortgage.

That immediately reduces the number of potential purchasers. Fewer purchasers mean lower property values. In the worst cases, a house may become practically unsellable, even though it remains habitable.

Consider a household whose property has been valued at £300,000. If insurers withdraw cover because of repeated flooding, prospective buyers may be unable to obtain mortgages. The property could lose a substantial part of its market value.

The owners may still have an outstanding mortgage, but the value of the asset securing it has fallen.

If this happens to sufficient numbers of properties, the consequences could extend throughout the banking system.

The insurance industry whistleblowers quoted by The Telegraph have drawn comparisons with the financial crisis of 2008, when weaknesses in mortgage lending helped destabilise the international financial system.

The circumstances are different, and a comparable crisis is not inevitable. Nevertheless, the underlying warning deserves attention. An apparently secure financial asset can become much less secure when the assumptions supporting its value prove unreliable.

The Problem of Maintaining Protection

Governments can respond by constructing flood defences, improving drainage, strengthening buildings and restricting development in vulnerable locations.

But these measures require money, materials, energy and continuing maintenance.

Flood barriers must be inspected and repaired. Drainage systems must be maintained. Coastal defences must be strengthened as conditions change.

And protection is never absolute.

Britain already faces enormous demands for expenditure on roads, bridges, railways, water supplies, electricity networks, hospitals and other essential infrastructure.

Climate adaptation adds another expensive obligation.

In an expanding economy, governments might reasonably expect rising tax revenues to finance much of this expenditure.

But what happens in a shrinking economy?

If the economy is contracting because the cost of obtaining and delivering energy is rising, the resources available for maintaining existing infrastructure will become increasingly constrained.

The country may face a growing requirement for protective expenditure at precisely the time when its ability to finance that expenditure is weakening.

This is a central problem of the post-growth economy.

The Wider Property Problem

The threat of uninsurable homes is only one aspect of a much larger issue.

Britain’s housing market depends upon a complicated combination of mortgage lending, insurance, employment, household incomes, infrastructure and confidence in future property values.

All these are vulnerable to economic contraction.

If real household incomes decline, fewer people can afford existing house prices.

If unemployment rises, mortgage repayments become more difficult.

If energy costs increase, heating and maintaining properties become more expensive.

If public authorities cannot afford to maintain roads, drainage and other infrastructure, some locations may become less attractive.

Climate-related insurance problems add another pressure.

These pressures could reinforce one another. Falling property values might reduce household confidence and spending. Mortgage lenders might become more cautious. Construction activity could decline, reducing employment and demand for materials.

A property market that has benefited for decades from economic expansion could therefore become a source of instability during economic contraction.

This would be particularly serious in Britain, where so much personal wealth is tied up in residential property.

Can Government Insurance Solve the Problem?

Britain already has a scheme known as Flood Re, designed to help make flood insurance available and affordable for eligible households at higher risk.

The scheme spreads some of the costs across the wider insurance market. It is currently intended to end in 2039, although its future is under discussion.

Such arrangements can provide valuable protection.

But they cannot eliminate the underlying physical risks.

If flooding becomes more frequent and damaging, somebody must ultimately bear the cost. That might be the homeowner, the insurance customer, the taxpayer or some combination of all three.

Government support can redistribute financial losses. It cannot make those losses disappear.

In a shrinking economy, this distinction becomes increasingly important.

There will be limits to how much expenditure can be transferred from one group of households to another, particularly when many households are already struggling to afford essentials.

What This Means for Localism

Localism offers a different way of thinking about the relationship between settlement, property and economic security.

The present system treats houses primarily as financial assets. Their market values depend heavily upon the availability of credit, the expectations of purchasers and the assumption of future economic growth.

In a localist economy, the primary purpose of housing would increasingly return to providing secure and affordable shelter.

This does not mean that houses would cease to have monetary value or that private ownership would disappear. It means that their usefulness as places to live would become more important than their potential for capital appreciation.

Local knowledge would also become increasingly valuable.

People living within a locality often understand which fields flood, which roads become impassable, where drainage is inadequate and which buildings have survived difficult conditions over many generations.

Such knowledge could influence decisions about where to build, where to improve drainage and where further investment would be unwise.

Smaller-scale building and maintenance activities could increasingly draw upon local materials, local labour and established construction methods.

Traditional buildings sometimes offer useful lessons in ventilation, moisture management, repairability and the use of materials suited to local conditions. These lessons would need to be combined with modern knowledge of flood resilience and structural safety.

Localism would not prevent climate change or remove the need for national insurance arrangements and major flood defences.

Indeed, some problems, particularly coastal protection and the management of major river catchments, cannot be solved by individual localities acting alone.

There would still be an essential role for national government.

But local decision-making could help communities adapt their settlements to the resources and environmental conditions actually available to them.

The Question of Where People Live

There is another consequence which deserves consideration.

Britain has spent generations concentrating economic activity, employment and population in particular urban centres and development corridors.

This concentration has required increasingly elaborate infrastructure, including transport systems, drainage networks, electricity supplies and flood protection.

Some of this development has taken place on land which would previously have been considered unsuitable for housing.

As the costs of maintaining and protecting settlements rise, it may become necessary to reconsider where future development should occur.

A shrinking economy cannot indefinitely support every existing pattern of land use, particularly where protection requires increasing expenditure.

This does not mean abandoning established communities.

It does suggest that future settlement decisions should give much greater weight to long-term physical security, access to essential resources and the costs of maintaining infrastructure.

Localism would encourage settlements to develop in closer relationship with their surrounding land, water supplies, food production and available energy.

The objective would not be to maximise property prices, but to create communities capable of sustaining themselves with fewer external resources.

A Warning of Something Much Bigger

The insurance industry’s warnings reveal a weakness in the modern economy which is easily overlooked.

Much of our apparent wealth depends upon promises about the future.

A house is valuable partly because we assume that somebody will be able to purchase it. A mortgage is secure partly because we assume that the house will retain sufficient value. Insurance is affordable partly because we assume that future losses will remain manageable.

These assumptions depend upon physical conditions as well as financial arrangements.

When those conditions change, financial promises can become increasingly difficult to honour.

Climate change is one source of pressure. Rising energy costs, declining economic growth and the growing expense of maintaining infrastructure are others.

Together they raise a fundamental question.

Can an economy built around continually rising asset values remain stable when the physical costs of maintaining those assets are increasing and the resources available to meet those costs are becoming more constrained?

This is not merely an insurance problem.

It is another indication that the institutions developed during the age of economic expansion may be increasingly difficult to sustain in an age of contraction.

Localism will not provide an immediate solution to the insurance crisis. Nor will it protect every vulnerable property.

But it offers a different foundation for the future: one in which homes are valued primarily as places to live, communities make greater use of local knowledge and resources, and economic arrangements are shaped by what can realistically be maintained.

The growing threat of uninsurable homes may prove to be another warning that Britain needs to prepare for an economy in which maintaining what already exists becomes more important than pursuing further growth.

And that is precisely the economy for which Localism is intended.

---

Source: Harry Brennan, The Daily Telegraph, 14 October 2026, reporting warnings from senior insurance industry figures concerning climate risk, property insurability and financial stability.