What Do Experts Say About Climate Change and Real Estate?

Severe wildfire seasons, extreme drought conditions and freak ice storms are all examples of climate change. And now, climate change is impacting where people decide to live.

For example, a California real estate agent might have trouble selling homes in areas affected by the 2020 wildfires. As the risk of fires remains high in 2021, the likelihood of selling a home there is low. 

This isn't the only weather-related change in the real estate industry. Let's take a closer look at what the experts have to say about how climate change will affect real estate in now and in the future.

Effects of Climate Change on Housing

The effects of climate change on housing costs are predictable. Longer, hotter summers will lead to higher energy demands (and bills). Freak events, like the Texas ice storm, may even force entire grids to shut down. Building techniques will have to adapt quickly to an increasingly unpredictable climate. 

Longer and more severe drought conditions are also a concern, especially in the Southwest United States. This will lead to restrictions on water usage and water cost increases. As water becomes more and more expensive, these areas may see people move out in massive numbers to places where it is easier to get. The constant threat of wildfires is also having a dampening effect on real estate.

And, of course, some areas of the world may become completely uninhabitable due to the rise in sea levels. This is currently happening in Florida.

Florida, a Case Study in Real Estate and Climate Change

According to Scientific American, Miami is the city most vulnerable to climate change in the world. Real estate trends in Florida are a case study for predicting its effects in other areas of the world, too.

A report by Resources for the Future predicts that by 2040, the average summer temperature in Florida will be above 83 degrees Fahrenheit. It will also have, on average, 22 to 27 days per year above 95 degrees Fahrenheit, rather than seven. The flooding that is now common in the Florida Keys will also increase in coastal areas. People may soon need to abandon the Keys and move back to the mainland.

In Miami-Dade County alone, climate change threatens $145 billion in real estate value. This will be disastrous for the people who live there, as well as real estate agents, investors, and companies.

But the effects of climate change are not felt the same everywhere. A study published in the Review of Financial Studies shows local belief in climate change influences real estate prices. It focused on Florida, in areas considered most at risk of becoming uninhabitable by 2040. 

The researchers classified different areas as "believer" and "denier" neighborhoods. They then calculated the average change in real estate prices in these areas. Results showed that "all else being equal, homes located in climate change 'denier' neighborhoods sell for about 7% more than homes in 'believer' neighborhoods."

The authors of the study also show that the projected consequences of climate change are already affecting prices. They note a real decrease in real estate value in both believer and denier neighborhoods, although the change is less sharp in denier areas. 

The Human Factor in Climate Change and Real Estate

When choosing a market, real estate agents and investors should consider both climate change and the beliefs of the people who live there. Both affect real estate values.

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