Climate Change Could Sink Two Million Homes: Why Few Take Note

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Zillow Svenja Gudell discusses the potential impact of climate change on U.S. housing.

A recent report in The New York Times sounds the warning that havoc wrought by climate change looms closer than many of us think. “Now, those warnings are no longer theoretical: The inundation of the coast has begun,” the Times reported. “The sea has crept up to the point that a high tide and a brisk wind are all it takes to send water pouring into streets and homes.” A recent study by Seattle-based online real estate marketplace Zillow zeroes in on the potential damage: Nationwide, almost 1.9 million homes (or roughly 2% of all U.S. homes) — worth a combined $882 billion – are at risk of being underwater by 2100. But many properties could be heavily affected in as little as 20 years.

Rising sea levels would affect not just predictable places like Florida, California or Hawaii, but also Boston, New York City and many places further away from the coast where rivers and other inland waters would also swell, says Svenja Gudell, chief economist at Zillow. Homeowners, especially those along the coast that have seen some damage during recent disasters such as Superstorm Sandy, and insurance companies are recognizing the threat to some extent and taking protective steps, but not enough, she cautions.

The lure of the oceanfront and the seemingly distant prospect of their homes going underwater in about 100 years are reasons why many people don’t realize the seriousness of the threats posed by climate change, she adds. Gudell discussed the findings of the Zillow report on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge@Wharton: We have seen a strong recovery in the housing market since the bubble of 2007-2008. Prices have been on the rise in a majority of the metro areas across the U.S. In fact, San Jose, California, just became the first metro area to post a median price of $1 million. But the Zillow report says climate change has the potential to substantially lower the values of nearly two million homes by 2100. This report [built on] a study earlier this year about the rise in sea levels we could see over the next several decades, correct?

Svenja Gudell: Absolutely. There was an article published that estimated that it is very likely that over the next 100 years we would see sea levels rise by roughly six feet, if not more.

Knowledge@Wharton: Part of that is because of the melting going on in Antarctica.

Gudell: Correct. Those melting ice caps will add water to the oceans, and slowly but surely we will see our coastlines eroding because of that.

Knowledge@Wharton: A lot of people think about New Orleans, about Miami [and] the Florida coastline, but this is a problem that almost every coastline city [will] have to think about in the years to come.

Gudell: Absolutely, and you’re right that usually we’re focused in on places like Florida and Louisiana, where oftentimes hurricanes are also to blame. But if you’re living in a state that is touching the ocean, this is something you’re going to have to deal with over the next few decades.

“The states that are most likely to be affected are Florida, where one out of eight homes is going to be underwater if sea levels rise by six feet over the next 100 years, but also Louisiana….”

Knowledge@Wharton: What are the biggest areas of concern?

Gudell: The states that are most likely to be affected are Florida, where one out of eight homes is going to be underwater if sea levels rise by six feet over the next 100 years, but also Louisiana. Even California, where fewer homes [will be] affected, but the total worth of [that] housing stock is quite high. The list goes on — Texas, Pennsylvania [and] Georgia are definitely impacted. Of course, Hawaii [will] lose close to 10% of its housing stock because of rising sea levels.

Knowledge@Wharton: I guess part of this is not just the rising sea level in the oceans, but [also] a corresponding rise in the levels of the tributaries going into those oceans.

Gudell: Absolutely, and we did map this out. There are certainly lakes that have direct access to oceans, and rivers that will be elevated as well. Along those riverbanks and lakes you would also lose houses affected by rising water levels.

Knowledge@Wharton: The data [says] that one out of eight homes in Florida could be damaged or gone because of the rising sea level. Part of that is [because] the state itself is pretty much at sea level … but when you think about the width of the state, that’s a stark statement to make.

Gudell: It is, and of the close to $900 billion that we would be losing in value here, roughly half of that is from lost homes in Florida. Almost 13% of the housing stock in Florida [will be affected] by rising sea levels, and given that, on average, a house there that is affected costs $262,000, [it will] add up to $413 billion.

Knowledge@Wharton: [What] I found amazing in looking at the data [is] that Boston could be affected by this. New York City could be affected by this, in areas where maybe there won’t be as many properties, but the values of [those] properties are much higher than, say, in Florida.

Gudell: That’s right. In general, we did find that homes that are going to be affected by this tend to be more expensive anyway, simply because they are located by the ocean. [Those homes], currently at least, still come with a premium as people enjoy ocean views and very exclusive locations a lot of times.

Knowledge@Wharton: The insurance industry obviously would feel the effects of this problem in the years to come.

Gudell: Oh, absolutely. This is not something that we focused on with this report, but there is certainly a discussion to be had about flood insurance. Are we underinsuring ourselves given these numbers? If this were to actually happen, would there still be people that are willing to insure homes that are by the ocean? The discussion of FEMA would come up, and rebuilding homes that are so close to the ocean, where they are at risk of being impacted.

Knowledge@Wharton: On the New Jersey shore, in the wake of Superstorm Sandy, so many people had to repair damages or in some cases rebuild houses along the ocean. Many of them decided to put their homes on stilts because they were worried about potential flooding. This is maybe something that some people [will] have to consider as an option in the next several years.

Gudell: It certainly is. That’s one way of dealing with this, at least in the short term – [to] put your home on stilts. As we see this threat increase in the future, it’s going to come down to who has the money to be able to put their home on stilts, or rebuild, and usually these homes are rebuilt nicer and more expensive than they were originally, even [if] once they were affected by a hurricane. Which communities have money to fight off the rising sea level? There [will] be a bit of inequality created by this.

“We have to start thinking about how climate change [will] impact us in terms of buying homes, and in terms of where we buy homes.”

Communities like Boston, Cape Cod, would certainly be affected by rising sea levels. Of course these communities will also have funds available in better-off neighborhoods to be able to do something about that. You will build stronger levees or sea walls that will hopefully stop some of this. It will be interesting to see how that will evolve.

Knowledge@Wharton: [In] Boston, the airport is literally right there on the water. So any rise of sea level in the Boston area would obviously affect the airport, and would affect a lot of the businesses and the people that live along the water down there. I guess the same could be said about New York City as well, especially Manhattan, which during Sandy had flooding issues because of the rise of seawater.

Gudell: Absolutely. To just put a finer point on your Boston example, we show that close to 20% of the housing stock — that’s one out of every five homes in Boston — would be affected. That adds up to almost 22,000 homes, where the median value of the home [that] is affected is just over $700,000. That’s a lot of value lost.

Knowledge@Wharton: With California, is it more Southern California that would potentially be affected by a rise in sea levels?

Gudell: It’s all of California that is certainly affected, but some parts [will be] affected more than others in the sense that some cities would be wiped out completely. We did find that parts of coastal Los Angeles would be completely underwater, where parts of Huntington Beach would be completely submerged. There, you are seeing the complete loss of entire cities.

Knowledge@Wharton: This is a study which in some respects is an informational report, because you look at a variety of different properties. There isn’t any obvious suggestion as to what needs to be done. [What are] some of the things that the housing industry needs to consider at this point?

Gudell: When most shoppers go out there and they shop for homes, they oftentimes don’t even know that they’re in a flood zone until it’s time for closing. They don’t know that that’s going to impact their insurance costs, and oftentimes they certainly don’t have a horizon of 100 years to be able to think about what will happen to [their] home. But not realizing that, even in 20, 30, 40 years from now, they could very well be heavily impacted by rising sea levels. We have to start thinking about how climate change [will] to impact us in terms of buying homes, and in terms of where we buy homes, and what that can do to potential costs, and how our whole financing market [will] work for homes.

“If you ask a builder … he or she will tell you, ‘Oh, I can’t build a unit without AC in it anymore because summers have gotten so much hotter.’”

Knowledge@Wharton: The Hawaii example is also interesting, because Hawaii has quite a bit of altitude to it in portions, [and] mountains. But the majority of the people that live in Hawaii live fairly close to the water.

Gudell: That’s right. Well, it is nice living close to the water in Hawaii, and I can attest to that one, having vacationed there recently. It’s beautiful but it’s absolutely scary to think about what can happen to all of those properties as we see water levels rise. Does that mean I am going to locate closer to a cliff as I build a home? What is that going to mean for us [and] for this home in my lifetime?

Knowledge@Wharton: I guess this is something you [will] be watching closely as we move on over the next decade or two.

Gudell: It certainly is, and along with it, climate change is something that we have started to focus more on. Think about how it changes not just rising sea levels, but [also] how it changes how we buy homes [and] what kind of amenities we ask for.

[For example], do you consider having more air conditioners installed in units? Here in Seattle … everyone used to say, “Oh, you don’t need AC; it really gets really hot two, three days out of the year.”

But now if you ask a builder that builds especially multi-family apartments, he or she will tell you, “Oh, I can’t build a unit without AC in it anymore because summers have gotten so much hotter.” So climate change in general [will] have a large impact, and play a very large role in housing going forward.

Knowledge@Wharton: Let’s delve into that more — the impact that this [will] have on builders in general, and what they build, where they build and the features that they [will] have built into these particular homes.

Gudell: You can think about how much AC use has gone up over the years, [and] heating — how [has] that changed? Have more homes been put on stilts? Are we being more energy efficient? All of these things go into being more climate-conscious, and being able to deal with climate change.

Knowledge@Wharton: I would think that even some spots along the West Coast that are higher up would be impacted by six-foot higher amounts of water, [and] the potential of landslides.

Gudell: Oh yes, absolutely. It comes down to the point you had brought up earlier. It’s not just about how the ocean itself [will] rise, but how it [will] affect rivers and lakes that have direct connections to oceans, how they [will] rise and how that [will] impact people living around those bodies of water. Not everything is connected to a loch system to actually control water levels. Mudslides and river flooding will play a much larger role in future.

“Once we’re at six feet, there’s simply no beach there to even rebuild anymore. We are going to be pushed more inland at that point.”

Knowledge@Wharton: It is a good sign that the housing industry is aware of this, and that [it is] planning for it.

Gudell: Yes, especially [because] our estimates come in impacting close to 2% of the U.S. housing stock. But that’s a conservative estimate if you think about what [will] happen in the next 100 years. As the population grows, [and] as we’re more likely to build in denser areas that are closer to the coast, we [will] have more homes that are affected, and more value that is potentially lost. So it becomes important to think about what [will] happen if I build here.

Oftentimes people think [that] 100 years is so far away. But this is not a change that is going to happen [overnight] — now nothing, and then 100 years everything. It’s slowly going to creep on us, and the good news is that it is 100 years out, so we do have some time to deal with these effects, and think about what we can do.

The U.S. Department of Housing and Urban Development has already earlier this year given money to states to think about creative solutions to dealing with climate change and rising sea levels. However, we need to think more about it and see how this will impact how we build.

Knowledge@Wharton: What about the impact of rising sea water on the people living up and down the Mississippi River?

Gudell: In some parts, you will have river flooding. However, initially at least, you will probably have more of an effect right in closer proximity to the ocean.

Knowledge@Wharton: Are there areas that we haven’t talked about that maybe will come as a surprise to us, that need to be focused on [and] could see a major impact from this in years to come?

Gudell: Well, [many] of them probably are the obvious ones, because they are close to the ocean. But there are certainly states that you don’t normally think about, such as Maine, [which] of course [is] a coastal state but we don’t hear about flooding [there] all too often. It’s overshadowed by places like South Carolina, North Carolina [and] Florida that see a lot more flooding, but every state that is connected to the ocean is going to see an impact here, and some more than others.

“It will be interesting to see, as rising sea levels threaten more and more of these communities, what can be done to stop some of this, or potentially build somewhere else.”

Even a place like New Jersey [will be affected, with] close to 10% of the homes [on the] waterfront being affected there. They are already rebuilding beaches that have been washed away. It will be interesting to see, as rising sea levels threaten more and more of these communities, what can be done to stop some of this, or potentially build somewhere else.

Knowledge@Wharton: As we go through the years, you may see more potential flooding. On the Jersey Shore, you have [some] flooding almost on a weekly basis because of the tides, but when you factor this in, that flooding [will] increase.

Gudell: It is, and some of this data comes from NOAA [the National Oceanic and Atmospheric Administration]. Sometimes when you look at it you can see that the homes that are affected are pushed inland because they are connected to rivers and lakes. Sometimes there are loch systems in place that prevent some of that, but [at] other times there aren’t.

Knowledge@Wharton: I would think the insurance industry is very interested in making sure that this is a point of emphasis right now.

Gudell: Absolutely. But we have also done some research that looks at our love of the ocean. [Our] research focused on natural disasters and hurricanes specifically along ocean fronts, particularly in Florida and the Carolinas. We did see that even though homes are very much in the path of hurricanes, and they get affected over and over again, and are flooded, we do tend to rebuild those homes right by the ocean. So we are not deterred but these issues, and [build in] areas that are in danger of flooding. Sometimes homes are put on stilts, but it hasn’t deterred us so far in terms of building close to these dangerous areas.

Knowledge@Wharton: Builders realize that … the value of [oceanfront] property is higher than, say, in and around here in the Philadelphia area, or in Iowa, or Minnesota — you name the place. So they’re going to continue to build just as long as people have the want to try and live there.

Gudell: Exactly, and given that some of these issues have such a long time horizon attached to them, they are not in the forefront of people when they are making housing decisions. So people don’t necessarily think, “Oh, I’m not going to build a home here because it might be flooded in 100 years from now.” The luxury and the amazingness of property right by the ocean does push for more construction along these paths, and not too much mind is paid to the fact that some of these are at risk of flooding.

Knowledge@Wharton: You said some cities are making [efforts] now to make sure that their areas along the beach are protected. But [with] something like a six-foot rise of sea tide, that … is not going to do enough.

Gudell: No, especially if you [consider] that we are already rebuilding beaches on an annual basis that get washed away. Think about the next 100 years, and the rise in sea levels that we will see. You are absolutely right — Once we’re at six feet, there’s simply no beach there to even rebuild anymore. We are going to be pushed more inland at that point.

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