While climate change threats are often associated with low-lying coastal areas, around 10% of the world’s residential property value is at risk from global warming impacts – including inland homes. Extreme weather like tornadoes and hailstorms fueled by climate change are “shaking the foundations” globally.
The costs of this threat are enormous. By 2050, climate impacts and emissions reduction measures could reduce housing values by $25 trillion or 9% of the total. This “huge bill” looms over individuals, property markets, and the financial system. Disputes will arise over who pays for damage repairs, protective investments, and retrofits to reduce emissions.
Homeowners are one option to bear costs, but markets show “little sign of adjusting to climate risk” – like in Miami where prices rose 80% despite sea level concerns. Many owners did not foresee risks when purchasing. Yet taxpayers funding everything would reward wealthy owners without incentivizing adaptation.
Insurers currently cover most repair costs from disasters like storms. But worsening extremes could make home insurance increasingly expensive or unavailable, potentially causing a “climate-insurance bubble” for one-third of US homes. Governments may have to replace insurers by underwriting more risks, as seen by exploding exposure in California and Florida from $160B to $633B.
Protective investments are also needed, like air conditioning for worsening Indian heatwaves. Countries like the Netherlands invest heavily in flood infrastructure like dykes. But who pays for projects benefiting unaware homeowners, or critical dense cities?
Modifications to reduce emissions will be costly, like heat pumps requiring heating system upgrades. Germany briefly tried banning gas boilers but backed down from public cost objections. Italy spent enormously on renovation subsidies but poorly designed.
While climate impacts are still emerging, earlier policy action would help. Inertia risks “nasty surprises” as housing hugely impacts the financial system. Governments must tackle collective action problems with infrastructure. But they also need policies that “incentivise people to invest in making their properties more resilient” without “subsidizing folly” or “suppressing insurance premiums” that could encourage high-risk living. The “worst response would be to ignore” this looming $25 trillion challenge
Photo by stefzn
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