Will Global Warming Reduce Investment In Coastal Real Estate?

As Hurricane Harvey wreaks havoc, it's worth examining how global warming may affect investment in coastal real estate. Long-term measurements of tide gauges and the latest satellite figures reveal an average of how much sea levels have risen per year — 3.2 millimeters annually. Over the last 100 years, sea levels have risen eight inches. Extrapolating from this interactive map, it’s clear to see which areas we’ll lose first in the event of flooding. While it remains a humbling thought that we each bear on behalf of humanity, how does it affect us in the short-term?

One effect of rising sea levels seems to be slower home sales along the coasts. According to ATTOM Data, coastal regions in the U.S. have seen a 25 percent reduction in home sales over the last half-decade. Increasing occurrence of hurricanes and associated storm surge risk have seen real estate markets slump in areas such as the Carolinas, and are now affecting counties in South Florida. With worsening king tides and grim predictions from satellite data, geologists and research scientists, it is difficult to see how coastal real estate can bounce back from climate change.

Decades ago, real estate agents used to be the only parties concerning themselves with the mundane details of a property’s distance from the water’s edge. Now, it is one of the first questions buyers have when looking at potential property. But even though there is growing awareness of potentially catastrophic damage from climate change, economists say there is not enough being done to inform home buyers.

As a result of rising sea levels, analysts are predicting devastating real estate fallout which would exceed the dot-com collapse and the bursting of the real estate bubbles in 2000 and 2004, and would affect property owners, developers, lenders and financial institutions that provide mortgage-related products. Banks and insurers already need to start factoring in the more imminent climate change risks associated with coastal properties to protect their own assets and that of investors, and as they do that, people simply won’t be able to afford the surges.

Freddie Mac’s Sean Becketti foresees climate change triggering a housing meltdown from which the industry is unlikely to recover. While residents who still can sell will do so to minimize their losses, it’s more likely thousands of people will have to leave their houses — and their mortgages — resulting in a crisis with no end in sight. Property values will fall and premiums will rise.

Research analytics provider CoreLogic predicted that nearly 7 million U.S. homes are at risk of damage from hurricane storm surges in 2017, with the majority of those properties located in Florida. The National Oceanic and Atmospheric Administration has warned that, based on their modeling, sea levels will rise as much as three feet in Miami by 2060.

There is still sustained high demand for coastal properties, and real estate investors still have faith in these areas. Gladstone Commercial Corporation GOOD just made a major investment in Florida as it completed the acquisition of a three-building portfolio of office space, totaling 306,435 square feet, for $51.4 million. The factors that made these areas highly sought-after have not vanished overnight.

Nearly 40 percent of Americans still live and work in coastal towns, villages and cities, and investments are being protected through use of private bulkheads, commercial water fences and raising investments onto stilts. The coastline is definitely not emptying at any sort of notable rate. However, the trend to look further inland is developing.

Opting for higher ground will, of course, mitigate the effects of rising sea levels, but it won’t minimize the effects of gentrification on historical inland projects. The issue behind real estate investors moving toward higher ground is that it will displace previously immigrant communities who may not be able to move anywhere else.

Global warming has already forced industries such as coal, oil, utilities and transportation to alter their strategies and account for how their future looks alongside climate change. The real estate industry is next. There remains high demand in the short term, and companies such as Gladstone continue to prosper. However, we need to evaluate the potentially devastating economic and social repercussions of global climate change and work toward comprehensive contingency plans.