How Climate Change May Threaten Real Estate Values

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:

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.