California’s freak weather of the past four months — leaving hundreds stranded by heavy snowfalls in the mountains of San Bernardino County east of Los Angeles into early March — are the latest reminders why analysts expect climate change to become an increasing risk factor in California development.

Climate considerations have now become a full-year preoccupation for developers, insurers and others who finance projects in California and other West Coast states — not just the summer and fall wildfire seasons that have wreaked havoc during the past decade, or the considerations made necessary by earthquake preparedness.

Evacuations were ordered Friday in several regions as two new "atmospheric river storms" approached California. Gov. Gavin Newsom declared a state of emergency in 21 counties and also requested an emergency declaration from President Biden, which would make the state eligible for additional federal assistance.

“Given the challenges of developing in California already, it’s going to force developers to figure these insurance and other costs into their planning even more if these weather events start happening more frequently,” Billy Grayson, an executive vice president who tracks land use and climate issues for Urban Land Institute in Washington, D.C., told CoStar News.

Citing data from risk assessment firm Karen Clark and Co., financial services firm Moody’s reported in January atmospheric river storms that battered Northern California with heavy rains, fierce winds and mudslides was already expected to result in insured losses of about $5.4 billion.

That number does not include at least $1 billion in damage to public areas, including lost commerce and productivity, caused when mudslides cut off major roadways including California's scenic Highway 1, according to the state’s emergency management agencies.

It's not just California. Regions around the country have been experiencing more frequent severe storms and have been grappling with similar development issues. And the effects of some increased storms doesn't necessarily mean processes or procedures need to be changed, or that officials will deem any shifts in policy to be necessary.

Even so, before a second series of heavy rainstorms and eventually snowstorms struck the state during February, some California agencies estimated the total economic cost of the barrage of bad weather, including lost business due to road blockages, clearing of fallen trees and mass power outages, could top $30 billion.

As late as March 2, a state of emergency was still in effect in 13 counties affected by storms. In normally sunny Southern California, snow-covered mountains were seen prominently in the background of photos showing the famous Hollywood sign, and also in views from office towers in downtown Los Angeles.

While the heavy rainfall has helped to pull many California counties out of more than a decade of official drought conditions — including the past three years of extreme drought — with melting snow also expected eventually to help some areas, there could be other long-term ramifications for what gets built in the state, especially residential projects that normally spur commercial development.

Moody’s reported that a relatively small amount of the rainfall damage experienced by California residents and businesses through late January was expected to be covered by insurance. “The number of households in California with flood insurance stands at less than 2% — a figure that has been steadily declining,” Moody’s said in a Jan. 25 report. As of August 2022, there were just 193,281 California residential policies in place under the National Flood Insurance Program, a decline of about 5% from the same point of 2021.

Moody’s noted that only homeowners holding a government-backed loan, and who live in places officially designated by the government as being in what are known as Special Flood Hazard Areas, are mandated to obtain a flood insurance policy. But established “flood zones” do not always reflect the current flood risk, “are backward-looking, and are infrequently revised,” Moody’s reported.

“Nowhere is safe from flooding in California today,” Firas Saleh, a director of product management in Moody’s risk assessment division, said in the report. “If we’ve learned anything from this extreme rainfall and subsequent damage, it’s that even perceived low-risk flood zones are still flood zones. If it rains, it can overflow.”

The end result in the long term may be a rethinking of where to build, and how much it costs to build and insure properties, with eventual ramifications for housing affordability among other real estate factors, Grayson said.

This reckoning has already come for other U.S. regions now increasingly dealing with climate change fallout, including hurricane-prone South Florida and other states along the East Coast and Gulf Coast. Several insurers have pulled back on issuing policies in some eastern coastal areas, and insurance companies are considering the same in California. For instance, Allstate recently filed a request with the California Department of Insurance to stop writing new business coverage policies in the state.

Michael Tachovsky, an analyst who tracks real estate damage economics for consulting firm Landmark Research in Dana Point, California, said it’s too soon to predict whether the past few months’ spate of damaging weather will elicit further changes in risk assessment.

But the costs to repair damage and fully recover from floods and storms could be high, and the process prolonged. He noted that many areas of Northern California destroyed by wildfires five years ago have yet to fully rebuild, and many of those areas are still experiencing high construction costs and shortages of qualified workers for rebuilding projects. Those problems were exacerbated by labor shortages during the pandemic.

Most of the immediate damage in California has been to residential properties, but all of this could also figure into thinking about commercial projects designed to serve those residential neighborhoods, Tachovsky said. Developers, investors and insurers could all be readjusting their tolerances for risk.

“This has been so unprecedented for California,” Tachovsky told CoStar News. “We’ve been used to planning for the past decade around things like wildfires, not having too much rain.”

He added that “developers will still be doing their own risk and reward considerations. There will be builders who might still decide to develop on a mountain or a hillside if it is near a beach or has a view or something else that makes it more desirable than another location.”

Depending on whether the freak weather events of the past four months become commonplace, which is becoming more likely with spreading effects of climate change, ULI’s Grayson said California developers will need to think increasingly beyond issues like land, financing, labor and material costs when planning projects in the Golden State.

“Insurance companies measure their risks based on weather events of the past,” Grayson said. “If you see more severe weather like this in places like California, developers are going to need much better tools to make their decisions about how and where to build in the future.”