Home value insurance is a little idea that economists like to throw around which proposes that home owners should have the option to purchase insurance on the value of their home. This would protect the value of your home should, for instance, a few neighbors stop caring for their property, a factory is built nearby, or the nearest school’s funding is cut. These are all issues that could decrease the value of your home, but are, for the most part, out of your control.
Zoning restrictions are in place to ensure that an incompatible use doesn’t move in that vacant lot next door. No one wants a rubber factory in their backyard–not only are there negative health effects, but the value of your home could plummet. However, zoning is not a fail-safe, and sometimes owners suddenly find themselves in a neighborhood that appears to be falling apart. The best way to combat unwanted changes in your neighborhood is to become involved in the community, attend community meetings and zoning hearings, and let your concerns be heard by the people making decisions about new developments.
A Moral Hazard
An issue with home value insurance is that it poses a moral hazard. This means that, once someone has insurance on the value of their home, they might not be so inclined to become involved in neighborhood or community issues. If they have protected themselves against a decrease in the value of their home, what is the incentive to protest unwanted development nearby?
A Baseline Value Needs to Be Established
Home value insurance could only be effective if the baseline value of the home were established, and then tracked very closely by an appraiser. Even then, it would be difficult to determine the source of the decline (or increase, for that matter) in home value, not to mention the cost of paying an appraiser to track all the insured homes.
Still, home value insurance remains an interesting idea, though not many places have offered it, to date. Would you be interested, if home value insurance were offered to you?
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