Jonathan Levin of Bloomberg reports on coastal real estate’s inability to price climate risk.
- Despite increasing climate risk, high-risk areas like Miami are experiencing growth in population and development.
- Preliminary research suggests that when buyers are aware of the flood risk at vulnerable properties, they are less likely to purchase it. Other research shows that the market has been severely discounting the flood risk of high-risk properties, which highlights the need for reliable and readily available data on flood and climate risk.
- Importantly, a long history of bad government incentives through the National Flood Insurance Program (which rewarded people for living in high-risk areas), has entrenched bad building practices and policies.
- Private entities, markets, and nonprofits can play a leading role in pricing the risk of climate change in housing markets.
“That study adds to a 2022 paper by Freddie Mac economists that found that Florida homes exposed to rising sea levels commanded no discount over those that aren’t. Another paper published this year estimated that flood-exposed residential properties were overvalued by $121 billion to $237 billion. In its totality, the available evidence suggests that the market has been insufficiently discounting the risk of rising seas because of a shortage of high-quality information — or at least an information assymetry between sellers and buyers — and that the best way to address it is to get the right data in front of people.”
Read the full article here.