Our changing climate has become a pressing global issue with far-reaching implications. But how does climate change affect real estate? Here’s what you should know.
Intense Weather Patterns
The growing frequency and severity of extreme weather conditions, including hurricanes and wildfires, have already left a significant mark on the real estate industry. The National Oceanic and Atmospheric Administration (NOAA) has documented a record-breaking number of hurricanes in recent years, marking the fifth consecutive year of heightened hurricane activity.
Wildfires are also becoming more common in the American West, posing a constant threat to local real estate. The devastating California wildfires in 2020 resulted in the destruction of numerous homes, spiking property prices in nearby regions that avoided the fires.
Sea Level Rise and Real Estate
Rising sea levels pose the greatest challenge to the housing sector. Currently, sea levels are increasing by about 0.13 inches (3.3mm) each year. According to NASA, the global sea level has seen an increase of almost four inches since the mid-90s. This might not seem like a lot, but for residents living at or below sea level, it can often mean the difference between a dry or flooded home.
A study by the Union of Concerned Scientists in 2018 revealed that by 2045, over 300,000 coastal homes would be at frequent flood risk. Houses close to sea level are especially vulnerable, leading to a negative impact on the housing market due to the constant flood threat.
Drop in Sales Prices in Risky Regions
A study from the University of Colorado noted a decline in real estate sales in high-risk coastal areas starting in 2013. The research also indicated that homes closer to rising sea levels sold for an average of 7% less than other similar properties.
This trend contrasts with the increasing sales prices in nearby safer areas. As sea levels continue to rise, this pattern is likely to continue. Wealthier homeowners may choose to relocate to lower-risk areas, while those with lower incomes will face increased flood risks.
Increasing Property Taxes
According to a report from U.S. News and World, as more people leave certain coastal areas due to persistent tidal flooding, the tax base is dwindling. This suggests that local governments may need to increase property taxes over the next several years to support infrastructure.
Rising Home Insurance Premiums
Climate change-related events have also led to higher home insurance premiums for homeowners in high-risk zones. Just as they do with high-crime areas, insurance companies are raising premiums for homes in locations that are at greater risk of climate-induced damage.
Declining Home Sales in Risky Regions
Not surprisingly, fewer homes are being sold in coastal areas considered high-risk. Even though proximity to a forest or ocean may be appealing, the risk of fire or flood often outweighs these benefits. Sellers in these zones may face difficulties due to reduced demand, affecting both sales prices and volume. This could serve as a future indicator for coastal housing sales trends.
Warming Climate and Homeownership
As the global temperatures climb, owning a home can become more expensive, primarily due to higher utility bills. The hot weather encourages more use of electrical appliances such as fans and air conditioning units, thereby stressing the power grid. Increased water consumption is also needed to maintain gardens and lawns in hot conditions.
Anticipating the Future
If you’re in the market for a home, climate change is an important factor to bear in mind, particularly if you’re thinking about moving near a water body or arid region. Certain communities are witnessing significant value drops in their homes, while nearby areas are seeing values skyrocket. Others are experiencing price hikes despite risks due to high demand.
Do your own research and express your concerns to your real estate agent. Together, you can come up with a strategic plan to help you make a pragmatic, informed decision.