How’s that for a provocative title?
People with one brain cell pinging around their skull will tell you there’s nothing to worry about. That the world’s always cycled through periods of climate change. They’ll tell you that the planet’s always survived the upheavals. And they’re right, of course. To quote George Carlin, “the planet has been here four and a half billion years… the planet isn’t going anywhere. We are! The planet will shake us off like a bad case of fleas.”
In 2017, natural disasters damaged US commercial and residential real estate to the tune of $300 billion. The following year saw a tripling of rainfall over the Eastern seaboard, because as the atmosphere warms up, clouds hold more water. Extreme rain and stormy weather means flooding, landslides, and even fire if water touches electricity. A freezing jet stream’s been battering Northern Europe and America for the past couple of winters.
The dog’s starting to shake.
If you were relaxing, thinking the bad stuff’s only hitting the East Coast, don’t! Because all the edges of the continent are slowly sinking into the ocean! Because when the last Ice Age ended and the massive glaciers weighing down the U.S. melted, the Midwest started slowly popping back up and the coastline started to drop. Like a fat guy getting out of bed. According to the Union of Concerned Scientists, New Jersey will be flooding upwards of 240 times per year by 2045.
But what if I told you this preamble was setting the scene for The Good News?
Real estate and insurance firms are actually investing capital and resources into managing and, to an extent, curbing climate change. It’s true! And it makes sense. These are industries with a lot to lose if environmental destruction continues to increase.
One facet of this climate-consciousness is manifest in Four Twenty Seven, a young research firm named after California’s 2020 carbon emissions target of 427 million metric tons. The company aggregates scientific data on climate change, analyzes direct and indirect risks (the former being hurricanes, droughts, floods, and other direct physical risks, while the latter comprises fluctuations in property value, tax, and market growth caused by transitional risks, meaning problems that grow over time rather than hit at once), and transmit them to a client base consisting of banks, corporations, and governmental branches.
Four Twenty Seven isn’t the only company of its kind, but it may be the most high-profile, as evidenced by its recent acquisition by insurance giant Moody’s, who’s also been taking steps to make people realize the seriousness of the situation by warning cities that they’ll be facing bond rating downgrades if they don’t prepare for climate risks.
Emilie Mazzacurati, Four Twenty Seven’s CEO, puts it well: “in the absence or even rollback of U.S. regulations, it’s investors who are driving change [and] holding the corporations to account.”
Which begs the question: beyond trying to salvage investments, is it possible to turn green policies into greenbacks? Absolutely. Here’s a few things to keep in mind.
The ol’ safe bet of beachfront properties is obviously doomed. You’ll probably still get interested buyers for a couple more years, but people are starting to be rightfully wary, especially with the upsurge of hurricanes like Maria (♪ how do you solve a problem like her? ♪). That’s not to say waterside homes aren’t still in high demand, but you might consider looking at lakes instead of beaches – though, fair warning, even lakes can be affected: Ohio State University estimated that excessive algae, resulting from warmer weather, decreased the combined property value of Buckeye and Grand Lake homeowners by $152 million from 2009 to 2015.
Keep an eye on local insurance premiums and possible tax hikes. Insurers paid out $135 billion globally for damages caused by natural disasters in 2017. This was a record amount, but it’s only going to increase. If you’re buying property in high-risk areas, you’ll be paying much more. At the same time, taxes are likely to rise. Chances are a lot of population will move away from an area that experiences recurrent flooding, but local government will still need money to deal with cleanup and prevention despite a smaller population, hence a likely hike. Mary Ludgin, senior managing director at Heitman LLC, estimates taxes could quadruple in the period you hold a property, depending on where it’s located. Even if you pick out the one invulnerable spot in a dangerous area, with a gorgeous property, that’s a lot of extra costs and inconvenience to be saddled with.
The real estate market’s having to deal with a lot of fast change, from online competition to mercenary lawsuits to anthropogenic climate change and acts of God. That means adapting. Paying close attention to climate risks, working with insurers, looking at how the weather’s influencing the market abroad. Using sustainable materials and methods in construction, and outfitting property with renewable energy sources like solar panels isn’t just good for the conscience and the PR, it’s likely to be financially wise due to the long-term gains and the public subsidies for green energy increasingly available all over the country. Not to mention avoiding the potential liability lawsuits over predictable risk exposure.
The Urban Land Institute says that adapting to these changes “will be painful for investors who are caught off guard, but those who are prepared have the potential to outperform.” And that’s just the thing. A June 2019 paper by the Frankfurt School of Finance shows that most investors aren’t climate change deniers, but that many don’t factor physical and financial climate risks into their business models. Sticking your head in the sand isn’t going to do much good – especially when the sand’s being washed away by successively higher tides.
