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Climate Change Impacts on Coastal Real Estate Value

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Posted by Pete Evering on July 31, 2020
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Climate Change Impacts on Coastal Real Estate Value

Climate Change Impacts on Coastal Real Estate Value

Although climate change continues to be debated in national political discussion, the effects of the global trend of warming temperatures are already being recorded. One of the largest and nearest impending impacts of climate change is rising sea levels. We’ve been recording sea level rise for over a century, and trusted climate models predict that we could see a rise of 3 to 7 inches by 2030, and over 4 feet in the next century. While that may not sound like a significant change, a few inches of sea level rise and warming ocean temperatures can have major consequences for coastal cities.

Will Sea Level Rise Alter Coastline Real Estate?

Coastal property value and market changes will be a certain effect of rising sea levels, one that we are beginning to see today. Throughout the United States, over 300,000 homes and 14,000 commercial properties are currently at risk of chronic flooding and will be for the next 30 years. Chronic flooding is defined as disruptive flooding more than 26 times each year. This increased flood risk has major impacts on property value, insurance, property taxes, and more.

The properties facing increased flood risk are not yet losing value outright, but they are appreciating at a lower rate than more inland real estate. Increased flooding on the East Coast from New Jersey to Maine has stunted real estate growth by an estimated $14.5 billion in the last 12 years.

Of course, location and topography, specifically elevation, dictate where flood risk is highest. The majority of the risk is seen on the East Coast of the US, particularly in Florida and New Jersey. On the West Coast, the San Francisco Bay area is facing the highest risk for frequent flooding. Looking at singular properties, proximity to bodies of water and sea level directly predict damage risk and value. Properties at higher elevations are selling for more money than similar properties at lower elevations. Homes located a foot or less above sea level can sell for up to 15% less than a comparable home with no flood risk. Additionally, properties with previous flood damage have significantly decreased value due to increased chances of structural damage or mold growth.

Perhaps the most alarming news is that these current market changes are not fully reflecting the upcoming property risks as sea level trends continue. In 25 years, a total property value of $136 billion could be at risk of chronic flooding throughout the US. Coastline properties remain a popular investment even with the promise of continued sea level rise.

Flood and Storm Insurance

Rising sea levels not only bring increased flood risk; warming ocean temperatures also may increase the frequency and intensity of storms and hurricanes. This means a greater risk of damage and destruction to coastal properties. Property owners should consider greater insurance coverage for these properties, if possible. Additionally, as the risk of damage increases, the cost of insurance will increase. As storms and floods become more frequent, insurance prices are likely to skyrocket.

Property Taxes

Of course, when flooding occurs, it is not just individual properties that are flooded. Streets, neighborhoods, and communities are all faced with the damage. The most at risk cities are forced to invest in adaptation and resilience to sea level rise. Miami is already spending $200 million in flood protection measures such as raising sidewalks and roads, installing water pump stations, and building seawalls.

These expensive investments are impacting local tax budgets and cities’ ability to improve the community in other ways. Some citizens are willing to increase property taxes in order to properly fund resilience projects. Without heavy preventative measures and mediations, these citywide costs will continue to increase.

Considerations for Coastal Property Investments

With major climate changes showing no signs of stopping, there are a multitude of considerations to make when investing or choosing to invest in coastline real estate. We recommend following these tips and guidelines to help you make the important decision:

Conduct thorough research: A lack of social consensus on climate change is driving a delayed market response to sea level rise. This means you should conduct heavy and detailed research on the specific area surrounding the property before making any decisions. Assess future flood risks, not just current ones. FEMA only accounts for current day flood risk, so it may not reflect the true value of the property in 10 to 30 years. Consult information from climate scientists and consider the risk of flooding and property damage in the next few decades.

Prepare for abrupt market changes:When impending sea level rise becomes more apparent, the market may shift quickly to reflect the growing risks. The more vulnerable a property is to sea level rise, the less stable or dependable that property value is. You may not be able to sell a property at the last minute, and property value could drop rapidly, especially following an unexpected storm or bad flood season.

Expect unstable prices:Coastal real estate prices vary greatly depending on personal understandings of climate change and flood risk. You may be able to sell or buy a single property at a wide range of prices. Some people will disregard future sea level rise predictions, and coastal properties in general remain extremely popular. Consider the social and political climate of the property area or city, as this may predict prices people are willing to pay.

Consider taxpayer responsibility:If you already own or choose to invest in a coastal property, take into account your responsibility as a taxpayer for community involvements in sea level rise resilience. You can push preventative rather than reactionary strategies on lawmakers to protect your property and the community.

Consult property management: Utopia management helps clients assess property value and risk, prepare for potential damage such as storms and floods, adjust rent accordingly, and manage insurance rates.

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