Emily Dennis
January 18, 2021
The following analysis gives insight into how climate change is impacting the real estate markets around the world. Not only is the market facing dubious economic ramifications, but people’s lives are also standing in harm’s way. With increasing global temperatures, sea level rise is increasingly putting many infrastructures and various populations at risk. I wanted to write this piece because I felt that this particular facet isn’t necessarily a topic of discussion that comes to mind when people think of climate change along with the very real and unrestrained catastrophes that it can bring.
Climate change is often associated with the natural world, including the increase in both frequency and intensity of natural disasters or the concerning rise in sea levels. These problems are apparent and require solutions, yet there are other areas that prove to be just as devastated by climate change. Global economies are beginning to face dire problems that point to climate change as the root-cause. A study from 2019 explained how the United States’ economic sectors could see immense damages that come from the rise in global temperatures of 2.8 degrees Celsius. The economic downfall of these impacts could potentially cost the United States upwards of $520 billion each year.[1] These problems range in areas of human health, to agriculture, and even tourism. One area that is not as well-associated with climate change is the housing market. If humans continue on this path of global warming, as has been predicted by countless studies and scientists, then approximately 3.4 million existing homes are at 10 percent higher annual risk of flooding by the year 2100, which could potentially reach costs of up to $1.75 trillion annually, just in terms of damage.[2] The devastation brought about by climate change is posing a major threat to the United States’ housing market and sending real estate values into unprecedented territory. Many of these risks could have ultimately been avoided in the long run if climate change had not been exacerbated through anthropological forces that are currently still at play.
The real estate market is an important economic sector in the United States. The risks to this sector are broadening based on the exponential growth of carbon dioxide in the atmosphere, which has been causing higher global temperatures. The increase in temperatures leads to a host of problems, predominately seen among the more coastal communities across the country. When thinking of coastal communities, vast amounts of water are often associated with these areas. However, due to the rising and prolonged periods of temperatures more extreme weather events, such as heat waves, are starting to become more pressing issues among these communities. As urban development continues, the combination with rising temperatures have led areas to experience what is known as the ‘heat island effect’. That is the occurrence of higher temperatures in areas that have fewer trees, more air pollution, and more waste heat from excess population and transportation.[3] This heat island effect is leading to more drawn-out and more intense periods of heat that are detrimental to energy usage and utility costs of homes and buildings. Air conditioning systems are strained, as are water resources. Drought and wildfires can be large-scale side effects of these heat waves.
Early 2020 was the worst year on record for wildfires in the state of California.[4] The frequency and intensity of the fires are increasing when compared to years past, this is a very common theme when analyzing the impacts of climate change. The fires in California have started to drive up the home prices in a state that already contains some of the most expensive real estate in the country. At the same time, the fires are displacing many individuals and families, as they see their homes burn down year after year. The housing prices are greatly increasing because these populations of people need a place to live. At the same time, they are competing with others who have moved out of the larger cities, contributing to a major housing shortage. As of October 2020, the fires in California alone have devastated more than four million acres, killing at least 31 people, and destroying some 8,700 buildings, many of which were once peoples’ homes. Beyond the present damage, a considerable 12,000 homes are still at risk of burning, potentially costing up to $9.4 billion in damage. Communities surrounding fire-damaged areas could see a spike in home prices anywhere from 20-30 percent as people are stuck without a place to live. Whereas areas that were not spared by the flames will see home values plummet the same 20-30 percent. The housing shortage in the state is already a problem, adding fire risk on top of the issue exacerbates it to a new level. The prices of homes can take about ten years to totally recover in areas that have been burned. However, this is an ongoing problem as the fires are occurring more frequently and intensely. [5]
While heat waves pose an imminent threat to coastal communities, sea-level rise is a problem that is more readily apparent to the citizens of these communities. Rising oceans are a direct result of climate change and currently serve as the largest threat to real estate. These significant rises are linked to increased flooding, as well as storm surges. Across the world, increasing global temperatures have caused the rapid melting of the various glaciers and polar ice sheets that have contributed directly and indirectly to the sea-level rises. Glacial melts pose a more immediate threat to rising sea levels. The water from glaciers is stored on land, and so the melting of that ice causes a great amount of runoff into the world’s oceans. Polar ice sheets, located in the oceans, still have a contributing role in the overall process of climate change. The melting of these sheets is highly calamitous to the animals that live on them, such as seals and polar bears. The slow melting of these ice sheets has also been discovered to be changing the patterns of the jet stream as well as ocean circulation over time. This positive feedback loop of warming temperatures, melting sea ice, and warming oceans is not helpful in the fight against climate change, as the planet is losing nearly ten percent of polar sea ice every ten years.[6]
Changing ocean patterns are also playing a role in the decreased food security and agricultural processes of many coastal communities. Smaller coastal farming towns around the world are at the greatest risk, mainly those in the Asia Pacific region. Many communities rely on fishing as a main source of food. However, many fish populations have begun to change their migration patterns due to the ocean circulation changes. Precipitation patterns and sea level rise will also impact food and water security, as the saltwater creates a problem for the soil and drinking water supplies. Areas in Vietnam and Bangladesh have reported a decrease in agricultural production of rice because of the devastating effects of storm surges, rising temperatures, and varied rainfall.[7] Studies done by the National Oceanic and Atmospheric Administration (NOAA) have predicted that sea levels will have risen upwards of eight inches from levels recorded in 2000. That is a significantly higher rate than was recorded in 2018, which the organization determined that sea levels had only risen, on average, 3.2 inches from 1993.[8] This statistic is evidence that the rising sea levels are only exacerbated as time goes on, making all of the problems that are correlated with the rise even more daunting.
Florida serves as a prime example of the current impacts that climate change is having on the housing markets in the United States. The state is experiencing higher-than-average sea level rise that is attributed to wind and ocean current patterns. It was discovered that in 2013, prices of homes in lower-lying coastal areas began to drop while prices of homes on “safer” lands began to increase. Florida is facing a much greater threat to the housing sector because it contains more miles of low coastal lands than any other state in the country. Coastal communities, such as those in Miami-Dade County, are already starting to see a decline in home prices. On the island of Key Biscayne, southeast of Miami, one study reported that the sales in 2018 were one-third below its peak sales of 2012. It also found that the prices dropped more significantly in areas that experienced the greatest rise in sea-level.[9]
Climate change plays a large role in the drop of real estate values at present. As something to note, the long-run impacts of climate change should increase the average real estate prices due to less land development over time. However, there is more that goes on behind the scenes of these seemingly lower sale prices. With climate change being exacerbated, a new phenomenon of climate gentrification has emerged. Communities that are experiencing climate gentrification are often those that are more resilient to natural disasters. So, the idea behind this facet of gentrification is that lower-income coastal communities cannot afford to rebuild their neighborhoods as climate change-induced natural disasters become more frequent and intense. These neighborhoods that were once seen as undesirable to more affluent homebuyers and developers are starting to gain an influx of investments as other, more desirable areas are being destroyed. This results in rising home prices, meaning that the people who once lived within that community can no longer afford it and so they are forced to move somewhere else.
The more resilient communities are often located at higher elevations and further back from the oceans. As sea level rises, the higher-income households along the shoreline face increased costs of maintaining their homes. So, it is more cost-effective for them to move further inland, leading to an increase in home prices for these communities that are away from the shore. In 2018, a study from Harvard University discovered three different mechanisms by which this specific type of gentrification occurs. Their models showed a “superior investment” mechanism in which climate-resilient areas are seen as more desirable and so only the higher-income households can afford them. The second mechanism is considered to be the “cost-burden, in which less resilient regions are not available to the lower-income people, as they cannot afford the increased cost of living through constant natural disasters. The third mechanism is the “resilience investment”. Here, a community develops a more climate-resistant infrastructure, making the area more expensive to live in.[10] In cities such as Miami, Florida and even Flagstaff, Arizona climate gentrification has started to take hold. The findings of the Harvard study suggest that climate change has a great deal of influence on decisions made by both property owners and investors. These effects of gentrification have the potential to speed up rates of population displacement, leading to many people having to move to areas that are at an even great risk of climate devastation.[11]
While there are people who are facing the immediate and detrimental impacts of climate change in coastal communities, some are flocking to those areas that others are fleeing. These are the people who can afford the problems of climate change and will continue to live through them for as long as nature, and their wallets, will allow. A study conducted by the University of British Columbia Sauder School of Business found that people dubbed “climate deniers” are the ones currently keeping the housing markets afloat on many impacted coastal communities. By cross-tabulating sea level data from NOAA and geographic data on climate change from the Yale Program on Climate Change, the institution found that homes facing the possibility of submergence in “climate denier” neighborhoods would sell for about seven percent higher rates than those in “believer” neighborhoods.[12] The same study also incorporated political party affiliations into the study, finding that in states, like California where the population leans more Democratic, this phenomenon is less apparent than in more Republican states, like Florida.
Climate gentrification is just one of the artificial risks that comes with the rising prices of real estate and how they are being impacted. Population displacement is another phenomenon that may be linked with climate gentrification but is also a problem on its own. The term “climate migrant” has been created to describe people who “leave their homes because of climate stressors,”.[13] A climate stressor can be described as dynamics or a pressure that impacts ecosystem functions caused by humans or associated activities.[14] While climate migrants exist in the United States, the problem is more apparent in other countries around the world, namely those that do not have the resources or wealth to continuously rebuild damaged infrastructure. Climate stressors are related to a host of problems. The Intergovernmental Panel on Climate Change (IPCC) conducted a study to analyze the nexus between climate change and population displacement. The IPCC found a plethora of issues that can be deemed “climate stressors” anywhere in the world. The reduced availability of water is one of these issues. While seemingly counterintuitive, the tropical areas of the Mediterranean and Middle Eastern regions of the globe were found to be at the most risk of decreased access to water. The main factors that contribute to a lack of water includes climate-related ones, like droughts, flooding, and mudslides. The study also suggested that a decrease in crop yields will put millions of people at risk of hunger; rising sea-levels will impact “mega-delta” areas in Asia and Africa, and put smaller islands in a position to face devastating flood damage and submergence; and an overall negative health impact on the most adverse groups of poor, elderly, young, and the marginalized.[15]
Slow onset climate disasters are another subset of problems that are plaguing the coastal communities around the world. Examples of these slower disasters include the decrease in water availability, desertification, recurrent flooding, sinking coasts, and increased salt levels in groundwater and soils. These problems have started to deteriorate many economic opportunities as well as the way of life for many people, in some cases causing them to become climate migrants. The most serious disasters, like desertification, can cause a permanent displacement of populations. This in turn causes an influx of people in other areas which then may be subjected to the same problems.
Other development problems play a role in climate migration, as well. More prevalent problems not as well-known in the United States include political and ethnic conflicts. Decreases in resources can trigger violence among groups of people. They are forced to fight over access to water and even food production. These problems are more likely to occur in areas that do not have the adequate ability to adapt due to other systemic issues, such as poverty. Armed conflicts in poorer nations have the possibility of continuing throughout the duration that a specific resource is lacking. A feedback loop can develop, as the chances of reaching peaceful agreements that aim to share the limited resources are decreased. With no solutions, more people face the possibility of displacement.[16]
Solving the problem of decreasing real estate values is not an easy one to fix, with its deep-rooted causes encapsulated by climate change patterns and human behavior. However, an unlikely benefactor has taken charge to try and mitigate the issue. Some of the larger and more powerful real estate companies have become more involved in leading the fight against coastal property damage. Several initiatives have come out of industry, as these companies attempt to save their own livelihoods. The Urban Land Institute partnered with one real estate company, Heitman, to create a report on specific climate change risks; in 2019, the company Moody’s purchased a stake in Four Twenty-Seven Inc., which is a climate research firm; a Dutch pension fund that is the 12th largest real estate owner, works to quantify climate risks: an asset manager, BlackRock, requires its sub-companies to disclose climate change risks and abide by the Paris Climate Agreement; National Real Estate Advisors excluded Florida real estate from its investment portfolios.[17] These efforts indicate more and more real estate companies are pushing to work together to try and mitigate the impacts of climate change on their businesses. The industry is seeking a more unified response and is pushing for more education and standards for its employees in order to understand and aide in the growing climate crisis.
On the flip side of the real estate industry, homeowners and investors should also begin to take greater responsibility in their coastal properties. Higher costs are becoming more prevalent to those that own these properties. Climate-resilience projects are being put forth by many waterfront cities, including Miami, which is investing $200 million in resilience projects for installing pump stations, raising sidewalks, and building seawalls. On a more personal scale, individual property owners can keep their real estate at competitive pricing by also investing in these resilience improvements, although their input can be pricey. These “climate-resistant” homes rely on new infrastructure such as waterproofed electrical systems, relocated ductwork, second-floor generators, flood barriers, and elevated structures.[18]
The risks of coastal climate change and unsteady real-estate values go hand-in-hand. Many of the worlds’ populations live on or near coastal cities, putting them at high risk of climate change damage. If the housing markets in these areas go under, there would be adverse effects for the economic standing as a whole. This is not just a problem in other countries: it can be found across the United States as well. This problem of a shaky real estate market also serves as a precursor to a considerable amount of population displacement and the creation of climate migrants, exacerbated for the poorer and impoverished demographics. Even with the real estate industry stepping in to take on the problem, it will not be enough if there continue to be those who are “climate deniers,” as they put not just the housing markets, but also the livelihoods of everyone in danger. Climate change is a multifaceted problem in and of itself, which contributes to a vast number of other problems, including the one of real estate values.
Thank you to Dr. Michael Blackhurst, PhD – Urban & Regional Analysis Program
1.Martinich, Jeremy, and Allison Crimmins. “Climate Damages and Adaptation Potential across Diverse Sectors of the United States,” April 8, 2019. https://www.nature.com/articles/s41558-019-0444-6.
2.“Ocean at the Door: New Homes and the Rising Sea.” Climate Central. Climate Central, July 30, 2019. https://www.climatecentral.org/news/ocean-at-the-door-new-homes-in-harms-way-zillow-analysis-21953.
3.Editors of Multi-Housing News. “How Rising Temperatures Impact Real Estate.” MultiHousing News. MultiHousing News, May 6, 2020. https://www.multihousingnews.com/post/how-rising-temperatures-impact-real-estate/.
4. Trapasso, Clare. “Why California’s Devastating Wildfires Will Push Home Prices Even Higher>.” Real Estate News and Advice . Realtor.com, October 7, 2020. https://www.realtor.com/news/trends/why-californias-devastating-wildfires-will-push-home-prices-even-higher/.
5.Trapasso, Clare. “Why California’s Devastating Wildfires Will Push Home Prices Even Higher>.” Real Estate News and Advice . Realtor.com, October 7, 2020.
[6].Boyd, Tiffany. “Why Are Glaciers and Sea Ice Melting?” WWF. World Wildlife Fund. Accessed January 4, 2021. https://www.worldwildlife.org/pages/why-are-glaciers-and-sea-ice-melting.
[7]. “Sea Level Rise & Food Security.” Vermont Law. Vermont Law School, November 7, 2019. http://vlscop.vermontlaw.edu/2019/11/07/sea-level-rise-food-security/.
[8].Rivera, Jonathan. “The Impact of Climate Change on Real Estate Valuations and Decisions.” Capright. Capright , September 3, 2020. https://www.capright.com/the-impact-of-climate-change-on-real-estate-valuations-and-decisions-2/.
[9].Flavelle, Christopher. “Florida Sees Signals of a Climate-Driven Housing Crisis.” The New York Times. The New York Times, October 12, 2020. https://www.nytimes.com/2020/10/12/climate/home-sales-florida.html.
[10]. Nathan, Aparna. “Climate Is the Newest Gentrifying Force, and Its Effects Are Already Re-Shaping Cities.” Science in the News. Harvard University, February 6, 2020. http://sitn.hms.harvard.edu/flash/2019/climate-newest-gentrifying-force-effects-already-re-shaping-cities/.
[11]. Beeman, Anna. “Climate Gentrification and Resilience Planning: What Is at Stake for At-Risk Communities?” Climate Gentrification and Resilience Planning: What Is at Stake for At-Risk Communities? | Environmental Law Institute. Environmental Law Institute, September 18, 2019. https://www.eli.org/vibrant-environment-blog/climate-gentrification-and-resilience-planning-what-stake-risk-communities.
[12]. “Does Climate Change Affect Real Estate Prices? Only If You Believe in It.” ScienceDaily. University of British Columbia – Sauder School of Business, November 5, 2019. https://www.sciencedaily.com/releases/2019/11/191105140923.htm.
[13]. “5 Facts on Climate Migrants.” Institute for Environment and Human Security. United Nations University , 2015. https://ehs.unu.edu/news/news/5-facts-on-climate-migrants.html.
[14]. “Does Climate Change Affect Real Estate Prices? Only If You Believe in It.” ScienceDaily. University of British Columbia – Sauder School of Business, November 5, 2019. https://www.sciencedaily.com/releases/2019/11/191105140923.htm.
[15]. Kälin, Walter. “Displacement Caused by the Effects of Climate Change: Who Will Be Affected and What Are the Gaps in the Normative Framework for Their Protection?” Brookings. Brookings, May 10, 2017. https://www.brookings.edu/research/displacement-caused-by-the-effects-of-climate-change-who-will-be-affected-and-what-are-the-gaps-in-the-normative-framework-for-their-protection/.
[16]. Kälin, Walter. “Displacement Caused by the Effects of Climate Change: Who Will Be Affected and What Are the Gaps in the Normative Framework for Their Protection?” Brookings. Brookings, May 10, 2017.
[17]. Rivera, Jonathan. “The Impact of Climate Change on Real Estate Valuations and Decisions.” Capright. Capright , September 3, 2020.
[18]. Penn, Allison R. “What Climate Change Means for Coastal Real Estate Values and Property Investors .” All Property Management . All Property Management , June 24, 2019. https://www.allpropertymanagement.com/blog/post/what-climate-change-means-for-coastal-real-estate-values/.
Policy & Political Review 