Global Climate Change & The Effects on RE Investing

[Kristen R.]

Hi All -

With all the extreme weather lately, I got to thinking about the possible implications of global climate change on real estate investing - for buy and hold investors. Has anyone thought about this topic? Please share!

Thank you, 

Kristen

[Steve K.]

@Kristen Rolinski My market (Front Range Colorado), has already been effected. We’ve had increasingly worse hail storms and wildfires that have created a real problem with insurance: rates have gone way up and in some areas like the mountains where the fires are and the towns hardest hit by the hails storms it’s difficult to find insurance at all. If you look at areas like Miami Beach where they’re spending hundreds of millions on new sea walls and pump stations and raising sidewalks in order to better prepare for bigger storms, that money has to come from somewhere and it will come from issuing bonds and increasing taxes which I’ve read are expected to more than quadruple in the next decade in many low-lying areas along the coasts. So at the very least we’ll see increases in taxes and insurance in the places with the most risk exposure. Whether or not one “believes” in climate change is irrelevant, we all have to pay our taxes and insurance. Some metro areas will be effected much more than others but I don’t know anywhere that is completely isolated from the whims of Mother Nature. All the big real estate firms recognize this and are spending a lot of money trying to find ways to calculate the risks associated with climate change and how it will effect their portfolios. At it’s core, real estate is the art of measuring risk against opportunity. Insurance companies are already pricing in increased risk from climate change, as are most of the big firms. Why? Because there is overwhelming observable and measurable evidence that shows without a doubt we are in a time period of increasing ocean and land temperatures; changing weather patterns and increased frequency and intensity of events such as hurricanes, hail storms, wind events, flooding and wildfires; changing biosphere patterns; accelerating glacial melting at the poles and extreme northern and southern latitudes; and rising sea level just to name a few. Whether or not this is human caused may be debatable but data is data. Nobody who studies this stuff denies the climate is changing. These changes have already effected real estate investing in the form of increased cost of insurance and taxes in many areas and if the trajectory continues, the direct and indirect effects will be even more dramatic down the road. I don’t really have a plan for it honestly except to work towards being able to self-insure in order to avoid dramatically increased insurance premiums (an 8 plex I own came up for renewal last year and our carrier wanted to increase the annual payment from $2k to $11k, which lead me to think about self-insuring). It’s not something I like to think about much personally but ignoring the problem doesn’t make it go away.