Climate change real estate bubble is worth up to $237 billion

The hidden cost of climate change: Real estate bubble set to burst at $237 billion

Axios Visuals has reported a new study that warns of a looming climate housing bubble that could pose significant challenges to low-income communities and erode real estate prices across much of the United States. With the increasing frequency and severity of extreme weather events, the resilience of homeowners and communities is on the line. It is crucial to address how lenders, insurance companies, and others incorporate escalating flood risks into property prices in order to protect at-risk communities.

The study, published in Nature Climate Change on Thursday, reveals that property prices are currently overvalued by an estimated $121 billion to $237 billion nationally, when compared to their actual flood risk. The true danger of these properties is masked by factors such as outdated FEMA flood maps, incentives in the National Flood Insurance Program, and a lack of climate change information among home buyers.

Experts at the Environmental Defense Fund, First Street Foundation, Resources for the Future, the Federal Reserve, and two universities collaborated on this paper. Scientists relied on First Street’s updated modeling that simulates rainfall-induced, or pluvial flooding, as well as coastal flood events.

The study found that 14.6 million properties face at least a 1% annual probability of flooding, putting them in the so-called 100-year flood zone. However, this is expected to increase by 11% in a mid-range emissions scenario, with average annual losses spiking by at least 26% by 2050. This indicates that there is a pressing need to incorporate escalating flood risks into property prices.

The areas with the greatest property overvaluations are located along the coasts, where there is overlap between rising sea levels, fewer flood disclosure laws, and a high number of residents who may not view climate change as a near-term threat. Much of the overvaluation comes from vulnerable properties located outside of FEMA’s 100-year flood zone.

Once the higher flood risks become evident, homeowners will lose equity in their property, which is a particular threat to lower-income homeowners. Therefore, it is essential to implement measures that protect these communities from the adverse effects of the climate housing bubble.

The pattern of the total overvaluation of at-risk properties in the Lower 48 states reveals hot spots of risk. Specifically, coastal areas show high amounts of overvaluation. Spikes also show up in West Virginia and other parts of Appalachia. In Texas, it is clear that the biggest cities, including Houston and Dallas, have a significant amount of overvaluation. Florida tops the list, accounting for about $50.2 billion based on the actual threat, the study found.

The study highlights the need for more accurate flood maps and better disclosure laws for homeowners. This can help reduce the risks associated with the climate housing bubble. As the frequency and severity of natural disasters continue to increase, addressing this issue is becoming more critical.

Jeremy Porter, head of climate implications at First Street Foundation, has stated that “there is a significant amount of ‘unknown’ flood risk across the country based solely on the differences in the publicly available federal flood maps and the reality of actual flood risk.” Addressing this knowledge gap is vital to mitigating the risks associated with the climate housing bubble.