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USA: Climate gentrification to impact real estate market

Source(s):  Acclimatise

By Caroline Fouvet 

While an ocean view from a balcony often implies higher property prices, this trend seems to be reversed as sea level rise and climate-change-triggered flooding unfold. In 2016, in the United States alone, four inland flooding events amounted to US$ 4 billion, in a country where inundations are the costliest and most common natural disaster. Coastal cities such as Miami and New York City are even more vulnerable to flooding, and are ranked first and second in the list of places most at risk from climate change and sea-level rise.

Such effects are likely to cause displacements, reshaping urban settlements and the socioeconomic status of neighbourhoods. This is what a new Harvard study that looked at climate change impacts on property markets in Miami-Dade County, Florida, suggests. The authors found a correlation between the higher elevation of single-family properties and their rate of price appreciation. Similarly, the research demonstrates that since 2000 the price appreciation of homes at lower elevations was inferior to that higher properties.

This imbalance demonstrates that the perception of flood risks is likely to shift consumer preferences and trigger relocation. As a result, the question arises how vulnerable communities can move to flood-risk-free zones, given the increases of property values in those areas. This situation illustrates the issue of climate gentrification, or how property value fluctuations based on a building’s climate resilience can lead to speculation and investment, forcing lower-income population out of climate proof areas.

The research points out three ways for climate gentrification to manifest:

  1. The “superior investment pathway” is a situation where high-income households opt for safer locations, as illustrated in the study.
  2. Under the “cost-burden pathway” assumption, only richer segments of the population can afford to live in climate vulnerable areas and to pay the associated costs of insurance and repair.
  3. Lastly, the “resilience investment pathway” relates to engineering and infrastructure investments in homes, that drive up property value and exclude those who cannot provide for it.

Climate change impacts on the real estate market are a topic not only for local authorities and urban planners to watch, but also for investors. Part of the methodology designed by Acclimatise, UNEP FI and 16 leading banks for banks to assess climate risks to their loan book covers real estate and estimates the potential changes in property values and loan-to-value ratios due to extreme weather events. A complex interplay of factors, including risk perception, are considered in the analysis. Evidence shows for instance that updating flood risk maps changes beliefs around the riskiness of newly designated flood-prone areas, driving down properties’ sale prices by 12% to 23%. Moreover, the report describes that the value of unaffected properties can increase compared to that of affected properties in the same area, as well as the value of homes that have undergone maintenance and resilience enhancement works following an extreme event.

As both the incremental and acute impacts of a changing climate manifest themselves globally, so do their financial costs. The real estate sector is already impacted, and future trends seem to point toward increasing damages. Improving the resilience of homes is a necessary adaptation measure, but this must go hand-in-hand with careful consideration of communities’ socioeconomic status to avoid a two-tier system for urban development.



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  • Publication date 24 Jul 2018

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