How Climate Change Affects the Housing Market

How Climate Change Affects the Housing Market

One look at the housing market these days will tell you almost all you need to know about it.

Prices are on the rise, interest rates are low, and although hundreds of thousands of people are looking for homes to buy, it’s a seller’s market and pickings are slim. There are plenty of factors that can contribute to this trend from natural economic swings to the COVID-19 pandemic rush to get out of the cities. 

Something that many people don’t necessarily consider as a factor that impacts the housing market though is climate change. 

However, they certainly should. 

The global climate impacts nearly every aspect of our lives indirectly whether we think about it or not and whether we choose to believe in science or not. Financial markets and housing are no exception. Today, regulators, financial analysts, and mortgage firms are looking at the changing climate like never before. All of this trickles down into the prices and rates we pay in the housing market.  

Escalating Risks

The science backing the reality of climatic change has been tested in numerous ways and proven again and again. More and more Americans are starting to accept the risks and become concerned, thankfully. Nearly three-quarters now believe climate change is an urgent issue that needs to be addressed to some degree by the federal government. 

Associating climate risks and housing markets can be either very direct or somewhat abstract. For instance, the increased risk of out-of-control wildfires in the Western U.S. is an impact of hotter and drier conditions brought about by climate change that directly affects the likelihood of a home burning in the wildland-urban interface. Likewise, rising sea levels associated with melting ice caps increase the risk of flooding in coastal cities and towns which can push insurance rates through the roof. 

Other more indirect impacts can include things like water quality. High water quality is essential in homes not only for convenience but also for health reasons. Things such as flooding, acid rain, or excessive city pollution can impact water quality by introducing chemicals into waterways or drinking water. Known issues such as things can impact the value of a home. Other things associated with the climate that can impact home value include things like air pollution and soil erosion. 

Climate and Finances

Reports recently filed by federal regulators indicate that climate change is indeed having a significant impact on financial markets. In 2018 alone, it is estimated that natural disasters that were amplified by a changing climate cost nearly $11 billion in residential and commercial real estate losses in the United States. Many of these types of disasters are estimated to get worse in the coming years as temperatures continue to rise and precipitation regimes become more variable. 

Today, many forward-thinking insurance and mortgage companies are starting to consider these risks. Homeowners and especially those looking to buy a home in an ‘at-risk’ area are more likely to see greater insurance rates due to climate risks. Some lenders may not be as willing to lend money in areas that have a higher likelihood of being impacted by climate change in the future. 

For those making decisions about their current and future homes, the climate is also starting to play a bigger role. Many people are taking climate into account when they consider whether or not a home is likely to be of the same or higher value in 20 or 30 years. Climate risk is becoming one of many factors that determine the ideal location of a home for folks looking to buy. These considerations are driving home prices up in some areas considered relatively safe and negatively impacting prices in areas that are deemed high risk. 

Climate change impacts housing market

Green Home Future

A changing climate is also impacting some of the features that are built into new homes and the upgrades that people are making in their homes. The idea of green or more energy-efficient buildings is ever so slowly becoming more mainstream. Many of these ideas have a great deal of merit and could ultimately help reduce the climate impact via fairly easy-to-make home upgrades:

  • Installing solar panels on roofs or single-family homes 
  • Incorporating solar producing windows into apartments complexes and high rises
  • Using a garden/forest/living roof design
  • Installing in appliances that utilize less energy and/or water
  • Upgrading heating and cooling units
  • Replacing old lighting with energy-efficient bulbs and fixtures
  • Using a recycled water system for advanced water and heating functions in large buildings
  • Building with materials that are more flood resistant 
  • Incorporating natural vegetation or food production into green spaces
  • Limiting concrete or hard surfaces and instead using permeable surfaces that allow water filtration on site

All of these building upgrades and ideas have the power not only to reduce the energy consumption and water usage in residential homes and real estate properties but also the power to make a positive impact towards slowing climate change. Furthermore, many homeowners are looking for these types of upgrades and consider them real perks when shopping around for a home – they could be used as a means of boosting the home’s overall value. 

***

The climate crisis is a very real and scary thing that we are facing globally. Impacts on the housing market include rising insurance prices, greater conservatism with lending, and lower property values in high-risk areas. Many of these risks are a reality we’ll have to deal with, but some things can be done to lessen the environmental impact of your home, increase its resilience to climate change, and boost the property value.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.