Climate change could sink the value of American real estate. A recent study by First Street found that $1.47 trillion in home values could be wiped out over the next 30 years due to climate-related risks. The increased frequency and severity of natural disasters in the U.S., which experts attribute to climate change, is already impacting the housing market—especially in vulnerable states like California, Florida, and Louisiana.
In these states, which are often hit by devastating wildfires, hurricanes, storms, and tropical cyclones, private insurers faced with higher costs and catastrophe exposure have either cut coverage or increased premiums to meet potentially enormous claims. When property insurance premiums grow, properties drop in value. According to First Street, homes impacted by recent rate hikes implemented by the Federal Emergency Management Agency (FEMA) lost 54.1 percent of their value.
Areas affected by extreme weather events additionally see the quality of life degrade for residents, making these parts of the country less appealing for buyers. First Street expects property insurance premiums to increase by an average of 29.4 percent by 2055 due to climate change-driven weather. During those same years, 55 million Americans will relocate within the U.S. due to extreme weather events like wildfires, extreme heat, and flooding.
This migration would start with the relocation of 5 million people this year, First Street said.
Climate change impacts real estate values
Texas, Florida, and California—the three largest Sun Belt states—have absorbed over 40 percent of the nation’s $2.8 trillion in natural disaster costs since 1980, the company found.
These three states are expected to face net declines of 10 to 40 percent by 2055, according to First Street. Disaster-prone areas of the country are likely to be the most affected by property value declines, according to First Street. In the 21,750 high-risk neighborhoods across the U.S. classified by the research firm as facing “climate abandonment”—meaning that they’re experiencing population decline and property insurance premium spikes—property values are expected to fall by 6.1 percent by 2055.
That’s the equivalent of some $591.9 billion. In climate-resilient areas—concentrated in the Midwest and part of the Eastern U.S.—property values are expected to increase by 10.8 percent or $244 billion in the next three decades. First Street identified a total of 4,107 low-risk neighborhoods which are attracting newcomers while keeping stable insurance rates as “climate resilient.”
Jeremy Porter, First Street’s head of climate implications research, told CBS News: “Climate change is no longer a theoretical concern; it is a measurable force reshaping real estate markets and regional economies across the United States.
Our findings highlight the urgent need to understand how rising insurance costs and population movements are transforming the economic geography of the nation.”
There are reasons to be cautious about First Street’s projection, Abrahm Lustgarten, an environmental reporter for ProPublica, wrote in a recent guest essay for The New York Times. The research firm’s economic models don’t take into account the “immense equity” accumulated by American homeowners over the past two decades, and making predictions on migration patterns is something of a gamble. However, the study shows what could happen in the U.S. real estate sector if climate change actually drives similar changes in homeownership and migration as those expected by First Street.
Cameron is a highly regarded contributor in the rapidly evolving fields of artificial intelligence (AI) and machine learning. His articles delve into the theoretical underpinnings of AI, the practical applications of machine learning across industries, ethical considerations of autonomous systems, and the societal impacts of these disruptive technologies.
