Climate Alpha was cited by Bloomberg in a recent article about the worrying trend of rising migration into disaster-prone areas – those most vulnerable to physical climate risks including heat, storm, flood, fire, drought, and sea level rise. Our team applied our Climate Price and Resilience Index tools to generate risk-adjusted valuation forecasts for these same high-risk locations to which Americans have been flocking in search of sunshine and low taxes.
Patterns of in-migration and estimated impact to home value growth. (Climate Alpha)
The original report from Redfin indicates how homeowners in disaster-prone areas may witness property value growth slow or even decline as natural disasters intensify. Indeed, by 2040, home values in the high-flood-risk counties Redfin analyzed will grow an estimated 5.4% slower than expected on average, according to Climate Alpha data. The hit to home values could be much more significant in areas that are prone to storms and lack adequate preparedness. In much of coastal Texas and Louisiana, along with Miami-Dade County, Climate Alpha anticipates home values will grow 20-30% slower than expected by 2040. In high heat-risk counties, home values are expected to grow an estimated 4.8% slower than anticipated on average by 2040, and in high-fire-risk counties, they’ll be growing 3.6% slower on average. It’s worth noting that many areas face multiple climate risks at the same time, perhaps leading to significant depreciation.
Patterns of out-migration and estimated impact to home value growth. (Climate Alpha)
Our Climate Price dataset employs advanced statistical models combining socioeconomic, demographic, and market indicators with multiple climate scenarios to generate property valuations for every year to 2040, while the Resilience Index reflects a location’s susceptibility to physical climate risks as well as its readiness to manage disruptions, measured by the quality of infrastructure and healthcare, access to renewable energy, and other indicators. In combination, the data supporting Climate Price and Resilience Index work together to present a comprehensive view of the future performance of assets in any given location across America’s 40,000 zip codes.
Climate Alpha’s models have determined that certain geographies including Massachusetts, Minnesota and the Dakotas, exhibit notable resilience attributes. These regions are anticipated to experience an average risk-adjusted appreciation gain of approximately 8% above market forecasts by 2040. This significant growth can be attributed to their relatively high infrastructure quality (boasting an average score of 70 out of 100), coupled with their minimal exposure to physical risks (indicated by an average score of 23 out of 100).
“Americans who move to disaster-prone areas often rebuild after storms and fires hit,” said Climate Alpha Founder and CEO Dr. Parag Khanna. “But with insurance costs climbing and home-value forecasts sinking, families should think hard about whether it makes more sense to relocate rather than rebuild, and authorities should incentivize homebuilders to build in safer areas.”
To learn more about how climate risk impacts your real estate investments visit www.climatealpha.ai