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How Climate Change May Threaten Real Estate Values

by Jessica Nguyen 06/14/2020

Image by Gerd Altmann from Pixabay

Natural disasters including flooding, hurricanes, mudslides and wildfires affect real estate values. Some recent examples of real estate transactions being influenced by these increasingly intense and frequent events include:

  • A Charleston, South Carolina, homeowner deciding to demolish her house after three years of flooding caused by hurricanes that led to 11 failed contracts to sell the property
  • A Redfin real estate agent in Sacramento, California, losing a sale when her clients couldn’t afford steep insurance premiums due to wildfire risk
  • A Chicago real estate investment firm hiring a Berkeley, California, firm that uses climate-change science research to predict and minimize natural disaster risks, and
  • A new form of gentrification occurring in modest Miami neighborhoods located away from shore and suffering less hurricane damage than beachfront properties.
  • The impact on property prices and salability may depend, in part, on personal beliefs about climate change.

    Divergent Perspectives

    Two studies published in 2019 about the impact of climate change on the real estate market show divergent perspectives. One from the Urban Land Institute (ULI) maintains that climate problems will financially destroy investors who don’t accurately assess potential damage from natural disasters that appear to be intensifying. It’s titled “Futureproofing Real Estate from Climate Risks” and was conducted in conjunction with a Chicago real estate investment company.

    The second study is titled “Does Climate Change Affect Real Estate Prices? Only If You Believe in It,” and is from the University of British Columbia’s Sauder School of Business. It demonstrates that climate change denial has a major impact on the prices that buyers are willing to pay for property.

    Urban Land Institute Study

    Reporting on ULI’s conclusions in April 2019, CNBC noted that the university’s study indicates large real estate companies are spending plentiful time and money on determining how climate phenomena — such as sea level rise due to warming — may affect client properties.

    In particular, the ULI study lists the following actions as essential interventions: (1) mapping risk for existing and potential holdings; (2) including climate risk analysis in decision-making about properties; (3) physically correcting properties to avoid risk; (4) mitigating loss through strategies including portfolio diversification; and (5) working with policymakers on developing disaster resilience.

    UBC Sauder Business School Report

    The UBC researchers found that in coastal areas of America at high risk of flooding and where climate change deniers are dominant, properties sold for about seven percent more than in places where climate-change believers live. They discovered stronger denial in Florida than in California. Also, they didn’t test their hypothesis in Canada or Europe, because belief in climate change is more common there.

    Climate Gentrification

    One of the most concerning impacts of climate change may be the discovery by Harvard University of a trend its researchers dubbed “climate gentrification.” They found that “historically undesirable” neighborhoods at higher elevations, such as Little Haiti, are attracting well-heeled homebuyers who want less risk of flooding. They may push up home prices beyond the means of traditional residents. 

    About the Author
    Author

    Jessica Nguyen

    "Buy, Sell, Invest with Confidence"

    Whether you're in the research phase at the beginning of your real estate journey or you know exactly what you're looking to do, you'll benefit from having a real estate professional by your side. I'd be honored to put my real estate experience to work for you.

    • 2015 Pinnacle Award (Top 3 Agent/Broker in office)
    • 2017 Two Diamond Award at HomeSmart International
    • 2017 Circle of Excellence Top 5% in San Diego County
    • 2018 Diamond Award at HomeSmart International
    • 2018 Circle of Excellence in San Diego County
    • 5 Stars Zillow Agent
    • 2019 Circle of Excellence Top 5% in San Diego County Silver Award
    • 2019 Diamond Award at HomeSmart International