Articles

October 16, 2024

How Climate Change Is Reshaping American Real Estate

Kam Photo

Kameron Kang, CEO of homebuyerwallet.com

Introduction

As climate change intensifies, its effects are increasingly influencing the U.S. real estate market. Rising sea levels, extreme weather events, and shifting climate patterns are transforming how Americans buy, sell, and invest in property. From coastal cities to inland suburbs, homeowners, investors, and developers are recalculating risks and opportunities in response to climate-related challenges. This article examines how climate change is reshaping American real estate and what the future may hold for this critical sector. 

Climate Risk and Real Estate: A Growing Concern 

Climate change is no longer a distant or hypothetical problem for the real estate industry. In 2024, the impacts of climate change on property values, insurance costs, and development decisions are more tangible than ever. Areas once considered prime real estate are now facing increased risks due to flooding, wildfires, and extreme temperatures, driving changes in buyer preferences, investment strategies, and urban planning. 

Rising Sea Levels and Coastal Properties 

Coastal real estate has long been prized for its scenic views and prime location. However, with rising sea levels and an increasing frequency of storms, many coastal properties are now at risk of flooding. According to the National Oceanic and Atmospheric Administration (NOAA), sea levels along the U.S. coast are expected to rise by an average of 10 to 12 inches by 2050, significantly increasing flood risk for coastal cities like Miami, New York, and Charleston. 

As a result, homeowners in coastal regions are facing a difficult dilemma: continue to live in increasingly vulnerable areas or sell before climate risks significantly impact property values. A 2023 study from the First Street Foundation found that nearly 25% of U.S. homes are at risk of significant flood damage over the next 30 years, with a projected $34 billion in lost real estate value by 2050. This has led to a notable shift in buyer demand, as more Americans seek safer inland locations. 

Wildfires and Property Damage in the West 

The western U.S. has experienced record-breaking wildfires in recent years, largely driven by hotter, drier conditions. States like California, Oregon, and Colorado are grappling with how to mitigate fire risks, as prolonged droughts and rising temperatures make wildfire seasons longer and more intense. According to the National Interagency Fire Center, over 60,000 wildfires burned across the U.S. in 2023, destroying thousands of homes and driving insurance premiums in fire-prone areas to record highs. 

Real estate in wildfire-prone areas is becoming more difficult to insure, and many buyers are now wary of purchasing homes in regions vulnerable to wildfires. In some cases, insurers are refusing to cover properties in high-risk zones, pushing homeowners to seek government assistance or abandon homes altogether. This shift in buyer behavior is leading to a decrease in property values in fire-prone areas and an increase in demand for homes in less vulnerable regions. 

Extreme Heat and Its Impact on Livability 

Extreme heat is another consequence of climate change that is reshaping the American real estate market. As temperatures rise, cities in the southern and southwestern U.S., such as Phoenix, Las Vegas, and Houston, are becoming increasingly challenging to live in due to the health risks associated with prolonged heat waves. The urban heat island effect, which occurs when cities trap heat due to asphalt, concrete, and limited vegetation, makes these areas even hotter than surrounding regions. 

In response, developers are increasingly focused on creating more energy-efficient homes with better insulation, solar panels, and cooling systems to help residents cope with rising temperatures. Meanwhile, some buyers are opting to relocate to cooler climates, sparking demand in regions like the Pacific Northwest and the Northeast, where temperatures remain more moderate. 

The Rise of Climate-Resilient Real Estate 

As the risks associated with climate change become more evident, a new focus on climate-resilient real estate is emerging. Buyers and investors are increasingly interested in properties that can withstand the impacts of climate change. This shift is driving innovation in building materials, architecture, and urban planning, with a greater emphasis on sustainability and resilience. 

Elevated and Flood-Resistant Construction 

In coastal areas, new construction is focusing on flood resistance. Architects and developers are designing homes that are elevated above flood levels, using water-resistant materials and incorporating drainage systems that help mitigate the impact of storm surges. Cities like New Orleans and Miami are requiring developers to meet stricter building codes to protect against flooding, and homeowners are investing in protective measures like seawalls and flood gates to safeguard their properties. 

Green Infrastructure and Sustainability

In both urban and suburban areas, green infrastructure is becoming a central focus in real estate development. Sustainable design elements such as rooftop gardens, permeable pavements, and rainwater harvesting systems are helping to manage stormwater runoff, reduce heat, and improve energy efficiency. Additionally, energy-efficient homes equipped with solar panels, battery storage, and smart technology are in high demand, particularly as utility costs rise and concerns about grid reliability grow. 

Wildfire-Resistant Building Techniques 

In wildfire-prone regions, developers are adopting fire-resistant building materials, including metal roofs, non-combustible siding, and ember-resistant vents. Landscaping with fire-resistant plants and creating defensible spaces around homes are also becoming standard practices in high-risk areas. California, in particular, has enacted strict building codes that require homes in wildfire zones to meet fire-resistance standards, driving demand for resilient construction techniques. 

Real Estate Investors Reassess Risk 

Investors are also reevaluating their real estate portfolios in light of climate change. Properties in high-risk areas are becoming less attractive, while climate-resilient properties and sustainable developments are gaining in popularity. Real estate investment trusts (REITs) and institutional investors are increasingly factoring climate risk into their investment decisions, with many opting to divest from properties vulnerable to rising sea levels, extreme heat, and wildfire risk. 

In 2024, tools like the First Street Foundation’s Climate Risk Assessment and the Climate Change Risk Disclosure Act are helping investors better understand the risks posed by climate change to specific properties. These tools provide detailed insights into the future risk of flooding, fires, and other climate-related hazards, allowing investors to make more informed decisions about where to allocate their capital. 

The Future of Climate-Driven Real Estate 

As climate change continues to reshape the U.S. real estate landscape, both challenges and opportunities will arise. Homeowners, developers, and investors will need to adapt to a rapidly changing environment, where resilience and sustainability are key factors in real estate decision-making. Some experts predict that climate change will spur new innovations in housing design and urban planning, driving the development of climate-smart cities that are better equipped to withstand future environmental challenges. 

At the same time, policymakers will play a critical role in addressing the impacts of climate change on the real estate market. Local governments will need to invest in infrastructure that protects against climate risks, while also ensuring that affordable housing remains accessible in areas less vulnerable to extreme weather. In 2023, the Inflation Reduction Act introduced incentives for energy-efficient home improvements, a trend that is expected to continue as the federal government looks for ways to mitigate climate impacts. 

Conclusion 

Climate change is fundamentally reshaping the American real estate market, altering how we build, buy, and invest in properties. Coastal regions face rising sea levels, inland areas grapple with wildfire and heat risks, and buyers are shifting their preferences toward climate-resilient homes. As the effects of climate change intensify, the real estate industry must adapt by embracing sustainability, resilience, and innovation to protect investments and ensure the long-term viability of communities across the country. 

Related Articles