“Most homeowners should care about climate change and the potential impact on their families and property,” says John Berkowitz, CEO and founder of OJO Labs, a real estate technology firm that owns the Movoto listing site in Austin. “Unfortunately, the people who are most likely to be hurt are already disadvantaged in the housing market, such as first-time buyers and minority buyers who are focused on affordability now. They don’t have the luxury of time or money to think about what their property value will be in 2050.”
Lack of knowledge about climate risk makes it difficult for buyers to recognize that their home could be more costly to maintain, more expensive to insure, and more exposed to damage and possible destruction from a storm or fire. All those possibilities could also contribute to a decline in a property’s value or the inability to sell the home in the future. Yet few consumers consider these issues when buying a home.
Numerous studies have recently looked at the current impact of hazards on property values. For example, Redfin researchers found that homes in areas prone to wildfires sold for an average of 3.9 percent less compared with homes in areas with lower wildfire risk in California, Oregon and Washington state in 2020. Between 2012 and 2020, the median sales price of homes in low-risk areas increased 101 percent compared with an 88 percent increase in the median sales price for homes in areas with a high risk for wildfire, according to the study.
But home values don’t always correlate with climate risks. Hino co-wrote a report with Marshall Burke, an associate professor in the department of Earth system science at Stanford University, titled “The Effect of Information About Climate Risk on Property Values,” that focused on flood risk.
“Our research looked at the impact of regulatory flood plain maps, which are used to determine whether a home needs flood insurance, on home prices,” says Hino. “We expected to see that homes that require flood insurance would be less costly than similar homes that don’t require flood insurance, but that’s not happening.”
The main culprit is lack of information, says Hino.
“I read one study that found that less than 10 percent of buyers know that a house is in a flood plain before they make an offer,” says Hino. “They find out later when their lender checks the [Federal Emergency Management Agency] map to see if flood insurance is required.”
Homes in coastal areas that are prone to flooding are desirable to many buyers for their water views, which keeps their prices high. A 2021 study by Redfin researchers found that homes with a high risk for flooding sold for a premium of 13.6 percent more than homes with a low risk for flooding during the first quarter of 2021, an increase in that premium over both 2020 and 2019.
Unfortunately, FEMA maps have been found to underestimate flood risk. A study by the nonprofit First Street Foundation found that more than 23.5 million properties are at risk of flooding over the next 30 years. First Street Foundation’s Flood Factor tool, which is available to consumers, includes flood risk from urban storm water flooding, storm surge and future conditions such as rising seas.
Mortgage lenders and insurance companies rely on FEMA maps to evaluate flood risk and to inform consumers about the requirement or recommendation for flood insurance. Flood damage is not covered by regular homeowners insurance policies and therefore requires a separate policy. The Research Institute for Housing America (RIHA) at the Mortgage Bankers Associationreleased a study earlier this year — “The Impact of Climate Change on Housing and Housing Finance” — that concluded that the housing industry lacks an accepted indicator to assess climate risk.
“There’s lots of work to do in the industry because there’s no single test for climate projections that lenders can use for risk management,” says Eddie Seiler, executive director of RIHA in D.C. “There are private companies working to build models to understand the risks to homeowners and the financial risks to lenders. Freddie Mac and Fannie Mae are working to come up with climate scenarios, too.”
We surveyed 680 licensed Florida Realtors in late 2020. Their responses suggest that prospective homebuyers, by and large, are not taking elevation or flood vulnerability into account when searching for new homes, and the availability of detailed flood risk maps has had little or no impact on them.
Part of the problem may be that mortgage lenders and appraisers aren’t accounting for properties’ vulnerability to sea level rise, so homebuyers aren’t immediately feeling the risk in their pocketbooks. Wealthier buyers who don’t need a mortgage aren’t required to purchase flood insurance, and Congress has a history of rolling backflood insurance rate increases.
In short, nothing is forcing buyers to consider the long-term risks.
Many Florida beachfront homes and communities are at risk from sea level rise and storm surge.
At the same time, studies are clearly showing how risks translate into costs. One recent paper by scientists who create flood risk maps found that Hillsborough County, Florida, home to Apollo Beach and Tampa, is likely to see a 70% increase in annual flood damage by 2050 because of climate change. That’s less than a 30-year mortgage away.
We reasoned when we started the survey in 2020 that if some segment of the population was avoiding property at risk of flooding, then demand should decline and prices should fall. Our previous survey in 2018, involving coastal Florida homeowners, had found that Republicans and Democrats alike believed that their future home values would not be affected by rising seas.
To test the theory that the market is largely ignoring flood risk, we asked real estate agents what they saw: To what extent had they observed house prices either falling or not rising as rapidly for properties at risk of flooding? Forty-five percent reported “not at all.” Only 11 of the 680 agents indicated that house prices for properties at risk of flooding were “very frequently” stagnating or falling.
We also asked if they had seen mortgage lenders declining loan applications or increasing charges for loans in flood-prone areas, in the form of points or mortgage insurance, for example. Sixty percent said, “not at all,” and only 7% said “somewhat frequently,” “very frequently” or “all the time.”
The vast majority of agents, almost 70%, said they expect little impact on the property market in the next five to 10 years.
The WaPo article quotes a buyer who checked that the home was on high ground relative to the rest of the community, but a large part of property value is from the surrounding neighborhood. Sure, your house is on an island while most of the other homes are flooded, but that flood changes the attractiveness of your neighborhood, the tax base to maintain public services, etc. Houses along the “natural” levee in New Orleans that were spared flooding after Katrina still aren’t worth as much as they would have been had the rest of New Orleans (in the bottom of the bowl) not flooded.
As long as they don’t build any a them windmills. <i.That would really wreck the neighborhood!