The Market Is Doing What Government Won’t — or how to get soaked in housing

Economists at the University of Colorado and University of Pennsylvania have identified a decline of between 6.6% and 14.7% in the value of homes in coastal areas that are at risk of flooding. Buyers are looking at forecasts of rising sea levels and their impact on river mouth areas, and are deciding to pay less for homes in these areas.

This isn’t a future forecast — it’s already happening.

An article in The Washington Post reporting on the Colorado-Penn research cites the example of a home in the historic district of Charleston, South Carolina, that is now being demolished. The home formerly had a value approaching $1 million, but could not be sold recently after 11 price reductions.

Separately, the First Street Foundation reports that housing values in select areas on the East and Gulf Coast have declined by a collective $14.1 billion since 2005 that is attributable to flood-related concerns.

According to a co-author of the Colorado-Penn study,

““Sophisticated buyers . . . demand a discount to bear the risk of future sea level rise.”(1)

A researcher at Rutgers who was not involved in these studies notes,

“Their finding that professional real estate investors apply the largest discounts for flood risk, and that naive owner-occupiers discount less, is consistent with our own work using New Jersey data pre- and post- Hurricane Sandy.”(4)

Sophisticated buyers are those buying second homes of buying homes as investment properties. The Foundation reports that people who buy homes to live in them tend to take flood concerns less seriously and are likely to be penalized in the future by loss of home equity and resell value.

As I’ve written before, it actually doesn’t matter why sea levels are rising. we can’t actually tell how much might be due to a geologic cycle and how much to human pollution. A fair answer is to say that both causes are contributing.

The fact is that sea levels are changing, and we have to deal with them regardless of cause. The deniers simply don’t want to spend money to do anything — but there is no choice.

Unsaleable houses will go into foreclosure, driving down property values in coastal areas that threatening the financial stability of mortgage lenders. We’ve seen that scenario before, and in 2008, it almost brought the US economy to a standstill.

The lower property values may in turn boost the drain of population from states in which they are no job prospects — much of the Midwest, Great Plains and South.

Lower property values will force some cities to re-evaluate how they raise revenue to pay for city services.

The damage will be widespread as most major cities are coastal: places like Boston, New York, LA, Houston, Miami. Secondary cities like New Orleans, Charleston, Tampa, Jacksonville, and the Virginia Beach/Norfolk complex might simply cease to exist. In many locations, infrastructure including highways, rail, water treatment and airports may have to be moved.

Smart property owners have already sold and moved to higher ground. It may already be too late for others to sell without taking a financial bath.

This is all in the context of Trump trying to bankrupt the Federal Government, so that in the US, there will be no help in the future for those who get hurt.

Is the disaster in Puerto Rico the model for the America of the future?


Sources:

  1. https://www.washingtonpost.com/national/health-science/sea-level-rise-is-eroding-home-value-and-owners-might-not-even-know-it/2018/08/20/ff63fa8c-a0d5-11e8-93e3-24d1703d2a7a_story.html?noredirect=on&utm_term=.7703d8ec6e81
  2. https://www.naplesnews.com/story/news/local/environment/2018/08/24/sea-level-rise-collier-naples-fort-myers-lee-climate-chage/1086803002/
  3. https://www.ecowatch.com/sea-level-rise-home-values-2598716861.html
  4. https://www.axios.com/sea-level-rise-costing-billions-in-home-prices-7920a7a8-8db4-45b1-ad21-357c4d522fcb.html

 

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