Climate Change is turning RE on its Head
If we have learned anything from the massive disasters that have plagued our nation in recent weeks, it may be that living in areas exposed to Mother Nature’s mood swings can come at a substantial, heavy cost. With Climate Change comes a change in many business, Real Estate is no exception.
From the immense power and awesome destruction of Harvey and Irma along the Gulf and Atlantic coasts, to the fires in the North West and Pacific Coast, we have seen many extremes recently. Whether you believe climate change is real or not, you cannot deny that there are more “storms of the century” every year, for the last few years. Frankenstorm Sandy last winter, the floods in Baton Rouge, the drought in southern California – all of these and more have made headlines repeatedly, and for good reason.
With the damages from Harvey and Irma tallying well above any hurricane damage totals before, people who may have been looking to purchase coastal properties are starting to think twice. Real estate professionals will have to begin taking this into account, and we are going to call this the Climate Change Factor.
Hugh Gladwin, professor of anthropology at Florida International University, says, “The question is whether people are going to be basing their real estate decisions on climate change futures…. In any coastal area there’s extra value in property, [but] climate change, insofar as it increases risks for those properties from any specific set of hazards – like flooding and storm surge – will decrease value.”
Miami Beach has become the poster child for the effects of climate change. Some studies have made predictions of a five-foot rise in the sea level by the end of the year. Others are suggesting that some $23 billion of existing property statewide could by underwater by as soon as 2050. To counter this and preserve property values, Miami Beach has begun an ambitious and costly defensive program, which includes raising roads and installing new pumps to shift the floodwaters, which intrude more and more regularly.
The scholarly journal, Scientific American, said in May of this year that “Real estate investment may no longer be just about the next hot neighborhood, it may also no be about the next dry neighborhood.”
Andrew Frey, vice-chairman of the south-east Florida/Caribbean Urban Land Institute said recently, “You have folks in south Florida buying houses in North Carolina and Tennessee, because they like the scenery but also because it’s higher ground. If south Florida drops off into the ocean, they’ll have a place to go.” Frey is also a Miami real estate developer. “The more frequent these volatile superstorms become, the more people will look to build in safer places. If seas are rising three millimeters a year, that’s one thing, but if we’re getting superstorms every couple of years with greater frequency and intensity, things can change a lot faster.”
These concerns and more have fueled a demand for data-driven analysis and climate aggregation services that offer real estate advice to clients. From large corporations to state and local governments, on down to individual house buyers, everyone wants to know that they are buying a home in a relative safe zone from dangerous climate change-induced weather patterns.
One of these data companies, Climate Corporation, collates and analyzes National Weather Service data. Mostly, the work with agricultural clients, but they have previously warned that “a few climatic events in a row” would likely cause a collapse in property values “that will make the housing crisis [of 2008] look small.”
This information is backed by one Albert Slap, who is the president and co-founder of Coastal Risk Consulting, a firm that provides Florida investors and other professionals with flood risk analysis reports. Slap said that Harvey was only the most recent natural disaster to expose underpinning flaws in the national flood insurance program. He said this flaw allows property owners in the Federal Emergency Management Agency’s “Zone X” not to carry coverage or fully disclose their flood risk when they sell. This “Zone X” is the range of areas at risk of a once-in-500-years flood event.
“With storm surge and heavy rainfall increasing and climate and sea level rise, the system is just not working…. Millions more people need flood insurance than have it and the crazy thing about Houston was only 15% of those who were flooded had flood insurance. The risk communication is not enough.
“You have thousands of properties in Norfolk, Annapolis, Atlantic City, Savannah, Charleston and Miami Beach where part of the property goes underwater with seawater for days at a time. When you have fish swimming in your driveway, it’s not an amenity, like a swimming pool. It means you’re driving through seawater to get your kids to school, get to the supermarket, whatever you’re going to do.
“Will there be a massive decline in the property values of the flooded areas in Houston. Common sense would say yes. And if that’s combined with new legislation that’s going to require full disclosure, then wow.”
What do you think? Every location on planet Earth carries with it risks unique to the local terrain and climate, but could global climate change begin to impact property values where previously the area was considered “safe”?