Written by Breck Hapner
Much like the current state of partisan politics, there is a great deal of disagreement between scientists and realty professionals about how global warming is affecting the $1 trillion coastal real estate market. There are many frustrating unknowns about the climate, but also much positivity regarding the current popularity of luxury shoreline homes with affluent buyers.
Presently, demand for waterfront property with majestic, sweeping views of the Gulf, or Atlantic/Pacific Oceans outweighs concerns of flooding and beach erosion for buyers. Real estate agents specializing in coastal properties have repeatedly confirmed that sea rise is not substantially affecting home values. Lenders and insurers have not altered many contractual valuation parameters to adjust for potential climate-related challenges.
That being said, some industry professionals believe signs of coastal trouble are simply overblown, and the debate over early “warning” triggers has been confined to mainly stop-gap measures by government agencies such as FEMA, the U.S. Geological Survey, the National Weather Service, and the U.S. Army Corps of Engineers. There are many questions about what should be done, and how long it will take (if at all) for climate change to cause sea levels to affect shoreline properties in a dramatic fashion.
Living Large by the Sea Shore?
Experts claim that if present sea level trends continue, home prices and mortgage debt will increase in flood-vulnerable zones, affecting prime coastal property values unless carbon emissions change. Scientists have forecasted that many coastal communities may be in jeopardy by 2050, and soon will become “risky assets” rather than luxury equities.
So, the question is whether the situation will deteriorate over the time of a “normal” mortgage, or if climate change will accelerate the process, quickly introducing hurricanes and flooding that cause irrevocable market change. In the latter scenario, everyone is affected: current homeowners, buyers, sellers, investors, and taxpayers, affecting the real estate industry and the entire economy at large.
According to the National Oceanic and Atmospheric Administration (NOAA), nearly 40 percent of the U.S. population lives along continental coasts, with homes near the water’s edge, or barely a few feet above sea level.
However, according to realtor.com, sales indicate that the coastal housing market remains robust, with little consideration for climate change hazards. Estates exposed to sea level rise are appreciating in value comparable to properties further inland, and remain in high demand despite possible dangers.
Beach & Ocean View vs. Being Underwater
The question to ask: is the real estate industry catering to oblivious buyers who are simply ignoring the effects of climate change? Are these risks being addressed? The latest scientific projections point toward an acceleration of “extreme” weather events such as floods and hurricanes, coupled with rising sea levels over the coming decades.
Yet, countless industry sources state that climate change is not having a tangible impact on the coastal real estate market. Reports from realtor.com show waterfront properties are increasing in value due to the fact that agents and affluent buyers are now weighing risks with ROI. Most wealthy buyers now engage in outright purchase vs. financing a mortgage, combined with intensive elevation studies to find favorable (safer) locations.
The recent National Ocean Service Sea Level Rise Technical Report states that 2018-2022 were the warmest years on record, and that cities, ecosystems, and economies along the nation’s seaboard may be heavily impacted by global warming trends.
In the recent IPCC Climate Change Impacts Report, NOAA Administrator Richard Spinrad emphasized findings that indicate sea levels may rise up to 12 inches globally along the U.S. East Coast and Gulf Coast. The NOAA report states that global sea levels set a new high in 2020, nearly four inches above 1993 levels.
The Federal Climate Report found that sea level has climbed eight inches since 1900, and current models predict a three to seven inch rise by 2030, and possibly 4.3 feet by 2100. A study produced by the Union of Concerned Scientists stated that (in general) over $1 trillion in waterfront property is at risk, with 300,000 homes in danger of flooding amounting to almost $135 billion in damage, forcing 280,000 coastal homeowners to rebuild or relocate elsewhere.
Will all these figures, if they eventually become a reality, give buyers pause?
It is difficult to predict what may or may not happen in the future. But if consequences do occur, waterfront home costs, protection mechanisms, valuations, and surrounding economic factors will include higher insurance premiums and property taxes. Investors will have to factor in speculative costs relating to climate change in every prediction model. In other words, the process may become even more complicated.
Bigger Demand for Waterfront Homes?
Will oceanfront property values diminish, causing beachfront homes to depreciate in value? Will worries about climate change keep buyers out of the coastal market?
The answer is “no,” according to data provided by the National Association of Realtors (NAR), who states that coastal properties at risk of inundation remain in demand, and any acknowledgment of climate change is not stopping homebuyers. The NAR went further to say there has been “no ebb in sales” and “coastal real estate prices have risen faster than landlocked counterparts.”
According to a Redfin report, during the first quarter of 2022, a coastal property in a high-risk flooding area sold for $475,000, up 14 percent from the same period the previous year, and waterfront homes are selling within days of hitting the market.
In a sobering statistic, Redfin also found that the top ten popular places to live were all within Florida, with Miami (just barely above sea level) residing as the crown jewel. Nearly three-quarters of real estate agents surveyed admitted they expect little impact on the waterfront markets over the next ten years.
The main point is that despite what the scientists say, agents and buyers are still optimistic about the coastal real estate market — and the proof lies with relatively high sales figures.
But behind closed doors, everyone in the industry is silently considering the real and evident implications of global warming—and holding their breath.
NAR Chief Economist Lawrence Yun phrased it best: “Consumers are clearly mindful that these climate change impacts could be within the window of a 30-year mortgage, but their current behavior still implies that to have a view of the ocean is more desirable.”
