Climate change could wipe 8 billion from US real estate market, study finds

Climate change could wipe $108 billion from US real estate market, study finds

Sea-level rise will flood huge swathes of the country and inundate billions of dollars worth of land, according to a new report.

An analysis by Climate Central, a nonprofit research group, put a price tag on how much all that land is worth — and how much local governments could lose if it goes under water. The report shows that nearly 650,000 private plots of land over 4 million hectares will fall below the high tide line within the next 30 years. The analysis indicates that a rise in sea level could reduce the value of that private land by more than $108 billion by the end of the century.

Because all land below the high tide line is state property by law, the encroachment of the tides could essentially evaporate vast amounts of private, taxable wealth. That, in turn, will significantly reduce property tax revenues in coastal areas, which experts say could ultimately lead to bankruptcy of local governments.

Tide lines haven’t really changed for millennia. Nor does the idea that every land underwater is public, which is an “idea stretching back as far as Roman times,” said Peter Byrne, the director of the Georgetown Environmental Law and Policy Program. ‘The tidal areas, the sea, they are open to the public because they are navigable. They are inherently public.”

But as the planet warms, the old tide lines are climbing uphill. The study found that an area the size of the state of New Jersey that is now above water will be submerged at high tide by 2050.

“Sea level rise will eventually deprive people of the land,” said Don Bain, senior adviser at Climate Central, who wrote the report. “That’s something we have no control over.”

Losing such a huge amount of freehold land in a few years can have far-reaching consequences. Insurance companies have already started withdrawing from coastal markets or significantly increasing their premiums. Banks and other financial institutions are beginning to look at whether it makes sense to provide loans to homeowners and businesses along the coastline.

All things considered, places that are currently habitable will become increasingly difficult to live in. Here’s what this can mean for local governments.

Risk is not equally distributed

Climate Central found that, unsurprisingly, the effects of sea level rise are not evenly distributed across the US. The Atlantic and Gulf coasts will feel its effects more than in other parts of the country. In many areas along the coast, the sea level will rise significantly faster because the land sinks as the sea level rises.

By 2050, Climate Central estimates that approximately 75% of Terrebonne Parish, Louisiana, will be under water. In Hudson County, New Jersey, $2.4 billion in taxable real estate will be submerged. In Galveston County, Texas, more than 4,200 buildings currently above sea level will be at least partially submerged.

Kyle Harner kayaks along a flooded street in Friendswood, Texas on Sept. 22, 2020. (Stuart Villanueva/The Galveston County Daily News via AP file)

Kyle Harner kayaks along a flooded street in Friendswood, Texas on Sept. 22, 2020. (Stuart Villanueva/The Galveston County Daily News via AP file)

“Climate effects won’t happen far in the future, but within the life of the mortgage on your home,” said Anna Weber, a policy analyst with the National Resources Defense Council.

While sea level rise is one of the major impacts of the climate crisis, it is not the only one. Supercharged hurricanes and wildfires will also cause displacement and contribute to the erosion of local tax bases as people move to safer areas. More frequent intense rain showers are expected to cause more inland flooding in many parts of the US coastal counties. These are not the only places affected.

“These numbers are relatively conservative,” said Jesse Keenan, a professor of sustainable architecture at Tulane University who was not involved in the Climate Central study. “That’s what people should be afraid of.”

Do more with less

In many places, coastal real estate is the most valuable real estate – and a major source of property taxes for local governments. Without it, municipalities could see a huge loss of revenue at a time when the costs of climate change adaptation are expected to skyrocket. The costly measures that municipalities must take to adapt to rising sea levels, such as building sea walls or raising roads, may become more difficult to finance.

“When that income tax on real estate shrinks, it’s a bigger problem for adaptation,” said AR Siders, a climate adaptation researcher at the University of Delaware’s Disaster Research Center. That could create a vicious circle: “If you can’t protect those houses, their value drops and you have fewer resources to protect those houses.”

This does not only affect beachfront property owners. Municipalities depend on property taxes to fund roads, schools and garbage collection – all basic services that residents rely on.

“It seems likely to me that over time we will have to come up with a different funding model for really flood-prone communities, or communities along the coastline,” Siders added. “They rely on the continued growth of the housing market and that just doesn’t seem realistic in places that are going to experience the effects of climate change.”

One tool that municipalities use to raise money to fund projects that make them more resilient to climate change is municipal bonds – to do things like build a new bridge, fund the construction of a school or, perhaps, pay for flood control so that a city is not overrun by the next big storm.

Massive snow storm hits mid-Atlantic states (Andrew Renneisen/Getty Images file)

Massive snow storm hits mid-Atlantic states (Andrew Renneisen/Getty Images file)

Floods pose a threat to crops, commuting, utilities, wastewater treatment plants and buildings, the report said. How local governments respond to these economic blows will affect their ability to service debt and maintain their creditworthiness.

“Before they even go bankrupt, the stress will reverberate on the muni bond market,” Keenan said. “What we are going to see is a more explicit [climate] premium and higher borrowing costs for these provinces.”

‘Choices to be made’

There are parts of the country that are exacerbating their exposure to climate risks by continuing to build in coastal areas that will soon be flooded. The Climate Central report calls for stricter restrictions on new developments and on building new homes outside risk zones.

Buyouts, where the government offers to buy flood-prone buildings, could help create a natural “buffer zone” along the coasts, other experts suggest.

“This issue of losing tax base is something that comes up a lot when we talk about buying homes because in that case you’re deliberately converting a property from private property to public ownership,” Weber said. “What this report shows is that in some cases that process will happen whether you do it intentionally or not.”

In addition to building codes and taking people out of danger, there’s still time to change course on greenhouse gas emissions, Bain emphasized. If the world continues to produce emissions at the current rate, the tides will rise faster; if we cut emissions now, we will have crucial time to adapt to the rising tides.

“We may not be able to change much between now and 2050, but we can make a big difference in the future,” Bain said. “Choices still have to be made — between better outcomes and much worse outcomes.”

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