It’s always been said that rising sea levels can reshape city and even country coastlines. But what happens to coastal cities when climate change affects the sea levels? When thinking of coastal cities like New York City, Miami, San Francisco, and the many other cities that have found themselves stretching along the seashores, you cannot ignore the fact that real estate in such cities can be highly affected by climate change. An irreplaceable question to ask: What happens to real estate prices and property values when climate change cannot be contained?
An overview of climate change and how we view it today
It’s widely known that climate change is a change in weather patterns. For instance, areas that are not known for summer rainfall are experiencing heavy amounts all at once. Another case might be extreme droughts or extreme snow.
Of course, the effects of climate change on our daily lives are becoming more apparent to the naked eye. More people are forced to leave their properties due to floods and hurricanes. It’s slowly turning into a patterned model. While opinions may differ, commercial deforestation and natural disasters may bring the prices of goods and services up. After all, it’s up to us to react to whatever nature is throwing at us in the most intelligent manner possible!
How is climate change affecting real estate prices?
The statistics of climate change vs. real estate prices
According to the Wall Street Journal, real estate prices in Miami Beach, for example, show that natural real estate appreciation tends to slow down around low areas. Consequently, real estate properties that are exposed to rising sea levels mainly caused by climate change are selling at a discount averaging 7%. Keep in mind that real estate investors and home buyers view these kinds of beach areas as top locations for vacation home rentals and Airbnb rental investing. Meanwhile, real estate prices in less exposed areas are witnessing a normal rate of real estate appreciation.
In January of 2018, The Federal Emergency National Agency updated New York City’s flood map. It’s becoming clearer and clearer for both the homeowner and the real estate investor that authorities are taking a closer look at floods, hurricanes, and even fires!
Even in the face of these real estate market trends, climate change is still debated heavily. 13% of Americans believe that climate change is not a fact. Meanwhile, 30% believe that humans have no direct effect on it.
Decreasing demand for waterfront properties
We all want that beach-front property that overlooks the ocean. However, thanks to the climate change effect, waterfront property values are expected to decline in the future. This expected drop in real estate prices is justified when factoring in hurricanes and rising sea levels.
For now, real estate prices are not showing signs of a direct influence by climate change. On the other hand, you will start to witness the decrease in demand for waterfront properties. This decrease in demand will bring property prices down.
Insurance rates will go up
Insurance and real estate prices are closely related. Of course, we have not fully experienced the effect of climate change on real estate prices. Mainly because it has not become patterned yet. By 2025, real estate investors and property buyers, in general, will be factoring in climate change with their real estate investment decision. Additionally, insurance companies will pick up on that pattern and raise insurance for properties more prone to floods and extreme weather.
In return, these insurance plans will give you protection from damages. The only downside for real estate investors is the fact that you’ll be forced to pay a premium for insurance knowing that you won’t qualify for an FHA loan without it!
Higher property taxes
It seems that many things can spike your investment property taxes! We bet that you didn’t think that climate change ever would! Of course, taxes are used for a variety of things from infrastructure to social security payments. Keep in mind that by owning a property in a coastal area, you are more prone to floods, hurricanes and rising sea levels. Accordingly, being in such a location is going to cost the government money and ultimately your tax bill will increase! As previously mentioned, in order to get to the point where higher taxes are enforced, there needs to be a clear pattern of climate change. Additionally, these effects on property values and infrastructure must be clearer and more defined!
If you’re looking to buy an investment property and wondering where to head to when considering property tax values, read this blog post: US Housing Market 2018: Highest and Lowest Property Tax Rates by State.
Some property values will go up
It only makes sense that when demand decreases for waterfront investment properties, it will increase for properties in an inland location.
Keep in mind that this will affect every party involved in a rental property! The real estate investors will notice the rising property prices. Ultimately, the added costs will be passed onto the tenant and the rental income from them will go up as well in hopes of reaching some kind of profitable balance with the rising values.
If you’re interested in learning how to go about buying rental properties, read this blog post: Real Estate Basics: How to Make Money with Rental Property.
Can an investment property calculator help you avoid the climate change effect on real estate?
When it comes to analyzing real estate investment decisions, there is no better job done than through an investment property calculator. Among the most effective analytical tools you can use for your real estate business is a comparative market analysis to know the real estate comps of any possible property.
With Mashvisor’s comparative market analysis, you can compare properties that are both waterfront and inland. This helps you with finding the best real estate properties for years to come. Additionally, the more we witness the effect of climate change on real estate, the more need there will be to incorporate it into your investment decision. To enjoy the 14-day free trial offered by Mashvisor, click here.
To learn more deeply about real estate comps, read this blog post: How to Find Real Estate Comps Most Effectively.
The effects of climate change on real estate prices are not noticeable YET! However, real estate prices will start getting a nudge through different factors that can be attributed to global warming. It’s crucial for real estate investors to start incorporating such factors into their business routine. Eventually, it will make sure that the investment of today is not going to be subject to extreme weathering tomorrow!
If you have any more insights on climate change affecting property values, please share them with us in the comments section below!