While accurately valuing real estate in affected areas is complex, the financial impact of climate change is starting to show. In the U.S., real estate exposed to rising sea-levels sells at a 7 percent discount to similar-but-better-protected properties, according to a 2018 study from Pennsylvania State University and the University of Colorado at Boulder.
And the First Street Foundation’s FloodFactor tool showed in 2018 that homes in eight states along the U.S. eastern seaboard have lost a total of US$14.1 billion in value because of sea-level-rise flooding since 2005.
Being prepared
The response of local and national governments will be a crucial factor in determining the financial impact of climate change.
Damage from flooding, storms and rising temperatures is forecast to cost UK city Glasgow around £400 million (US$553 million) a year and make the Scottish city as warm as London by 2050, according to the coalition Climate Ready Clyde.
Some cities are at higher risk than others, according to JLL’s 2020 Global Sustainability Report, and action is being taken for the long-term. Singapore has committed S$100 billion (US$73 billion dollars) over 100 years to prepare the nation for worst-case flood levels, while the city of Miami has recently appointed its first chief heat officer as the U.S. Army Corps of Engineers proposes a seawall to protect it from storm surges.
Although such moves are good news for investors, they only mark the start of what needs to be done at a city level.
“Investors need to know that the infrastructure surrounding their assets is resilient,” says Jeremy Kelly, director, global research at JLL. “Continued investment by cities is therefore vital to address what has become a costly consequence of global warming. Cities need to show the real estate industry that they are organized and ready for extreme weather events.”
But it’s currently the most climate-progressive investors who are taking extreme weather and climate risk most seriously, Mabardi says.
With the Task Force on Climate-related Financial Disclosures, other regulatory mandates, and momentum building around this critical topic, more and more investors and industry players are likely to swiftly follow suit, she concludes.