Recent natural disasters — such as the LA wildfires — show that climate change risks can shift the real estate and mortgage industries on a dime. And these changes could be extremely costly.
According to a new study, climate-induced shifts could significantly lower property values over time. But this could have a double-edged effect, depending on the market.
Climate risk data provider First Street released its 12th national report, “Property Prices in Peril,” this week. The report estimates the impacts of climate change on the broader U.S. real estate market. It also examines climate risk awareness, house price trends and gross domestic product (GDP) shifts extending to 2055. Climate risk awareness refers to a particular region’s vigilance against climate risks in terms of policies and practices.
First Street’s report projected a jaw-dropping loss in real estate values over time. Climate risks could reduce unadjusted real estate values by $1.47 trillion over the next 30 years. The data provider has previously been vocal about declining property values. First Street’s prior national report also highlighted a long-term impact on property values and communities.
First Street highlights a “stark divergence” in property values as high-risk areas are likely to be devalued, while so-called “risk-resistant” areas should maintain higher values.
But higher property values aren’t the only glaring concern on the horizon. Jeremy Porter, the company’s head of climate implications research, said that homeowners insurance costs and migration patterns may also shift.
“Climate change is no longer a theoretical concern; it is a measurable force reshaping real estate markets and regional economies across the United States,” Porter said. “Our findings highlight the urgent need to understand how rising insurance costs and population movements are transforming the economic geography of the nation.”
Porter’s perspective on rising insurance premiums is already happening. State Farm — arguably the household name of insurance providers — is seeking to raise insurance rates by 22% in California after the Los Angeles-area wildfires. First Street estimated that home insurance premiums will increase by 29.4% by 2025 due to climate risks.
If the risks of climate change aren’t enough, higher insurance premiums can drive residents to other areas for relief. First Street expects 55 million Americans to relocate to new regions over the next three decades, including 5.2 million this year.
Some people were already clamoring to leave states like California even before this year’s deadly wildfires. Higher prices and living expenses were driving people to move, so climate risks may serve as an additional push for migration.
North Dakota and Montana are two examples of key migration destinations, according to First Street. Incoming residents could economically benefit more climate-resilient regions, as they would likely draw in more property tax income. This means more money for schools, infrastructure and other local initiatives, First Street pointed out.
Conversely, Sun Belt states that have been migratory hotspots in recent decades, are likely to be “fundamentally disrupted by climate change impacts,” the report stated. First Street noted that the three most populous states in this region — Florida, Texas and California — have accounted for more than 40% of the nation’s $2.8 trillion in expenses tied to natural disasters since 1980.
First Street urged community stakeholders to take action to meet climate change head on.
“These results highlight not only the pressing challenges but also the opportunities for adaptation and innovation in the face of climate change,” said Matthew Eby, founder and CEO of First Street. “Policymakers, businesses, and communities must act now to mitigate risks and capitalize on the emerging economic opportunities in a shifting landscape.”
