Sea level rise may seem like a far-off threat, but a growing number of new studies, including one out Thursday, shows that real estate markets have already started responding to increased flooding risks by reducing prices of vulnerable homes.
The bottom line: According to a new report by the nonprofit First Street Foundation, housing values in New York, New Jersey and Connecticut dropped $6.7 billion from 2005 to 2017 due to flooding related to sea level rise. Combined with their prior analysis of 5 southeastern coastal states with $7.4 billion in lost home value, the total loss in 8 states since 2005 has been $14.1 billion.
Driving the news: A recent slew of studies show how the housing market is responding to the increasing risk of coastal flooding — with billions in value disappearing as investors wake up to the systemic risk.
First Street reports
What they did: First Street's Steven A. McAlpine and Columbia University's Jeremy R. Porter analyzed over 9.2 million real estate transactions, encompassing about 20 million properties in New York, New Jersey, Connecticut, Florida, Georgia, South Carolina, North Carolina and Virginia.
First Street also released a new tool called Flood iQ, which allows people to look up individual properties to see how their values are influenced by flooding. Hotspots for flooding and lost value emerge, including neighborhoods in Charleston, S.C., parts of New Jersey and the Norfolk area, where the main access road to the largest naval base in the world has been seeing frequent tidal flooding.
- “The water is coming up on the streets on a very regular basis [in Norfolk]," McAlpine says. “These homeowners are extremely exposed to it now," he says.
- "We can harden cities and allow them to thrive on the coast,” but if we don't take sea level rise and tidal flooding into account, "the problem is only going to get worse,” he adds.
Rutger's Clinton Andrews, who was not part of the studies, tells Axios the First Street analysis is consistent with his work and others.
"Their finding that professional real estate investors apply the largest discounts for flood risk, and that naive owner-occupiers discount less, is consistent with our own work using New Jersey data pre- and post- Hurricane Sandy."
Present day implications
The big picture: The new report comes as other studies are starting to hone in on the present-day changes in value of vulnerable homes, rather than just projections. For example, research to be published in the Journal of Financial Economics shows that homes exposed to sea level rise already sell for about 7% less than identical homes — with the same number of bedrooms, property and owner type — unexposed to flooding.
- The study relies on a vast real estate database maintained by Zillow, combined with sea level rise projections from the National Oceanic and Atmospheric Administration, in order to quantify each property's sea level rise exposure.
- The main sample used for the study has 460,000 sales of residential properties between 2007 and 2016.
One interesting finding in the JFE study is that so-called "sophisticated buyers," which are buyers of second homes or homes for investment purposes, are factoring in a steeper discount rate due to rising sea level concerns than buyers who then live in those homes as their primary residence and rely on that equity for retirement income.
- This could present problems in the future, says study co-author Ryan Lewis, and assistant professor at the University of Colorado at Boulder.
- When they need the money “is exactly when they’ll get hit with this price shock,” Lewis tells Axios.
What they're saying
Sea level rise researchers welcomed the new studies as valuable contributions to the field.
Ben Strauss, the CEO and chief scientist of Climate Central, a nonpartisan research and journalism group, tells Axios that the research quantifies anecdotal evidence:
"Unfortunately, that finding doesn't surprise me at all. We're already paying the price of climate change in so many ways and places now, like wildfires, human health, heat waves, and flooding. As a society, we just don't usually do the accounting and label things that way. This important study helps put the proper label on the package."
Andrea Dutton, climate scientist at the University of Florida in Gainesville, says "you’ll have to forgive me if I’m not surprised that coastal real estate values are dropping due to not just the threat of future sea level rise, but the impacts that are already being felt."
"In our line of science the most common question we get asked by the public is “how much and how fast”? My answer has always been: It will happen sooner than you think."