Climate change impacts everyone in the world, including individuals, societies, and governments. It also impacts every industry and business sector. This includes the property sector.

But is this impact positive or negative?

Does climate change pose risks to real estate?

Or does it create new opportunities for transformation, evolution, and growth?

This blog explores!

The Impact Of Climate Change On The Real Estate Sector

Climate change is a complex issue that impacts the real estate sector in three key ways:

Rising Temperatures, Higher Power Bills

One of the most obvious and well-known effects of climate change is raising temperatures. Higher temperatures are triggering dangerously high levels of winds, rains, flooding, and disasters like earthquakes, tsunamis, and landslides.

On the real estate front, a hotter Earth directly affects the “carrying costs” of owning or renting a property. More owners and tenants use more electricity to run fans and HVAC systems to keep the property – and themselves – cool. They also use more water for bathing, gardening, and other human habits. All these effects burden national electrical grids and public resources, increasing power and electricity bills for property owners and tenants.

Weather Events, Property Damage

Weather events like hurricanes, typhoons, and tsunamis have increased in frequency over the past few decades. In addition to impacting human life – the 2011 tsunami in Japan took almost 20,000 lives – these events also take a toll on property. These weaken the structural integrity of buildings in their path and cause untold damage. This damage necessitates repairs and therefore high costs for property developers and owners.

Events like wildfires also have a destructive impact on the property. They also suppress property values because people are less likely to buy or rent property in that area. Current homeowners also suffer because they’re often forced to sell at a lower profit or even an outright loss. Ultimately, climate change-related occurrences decimate the real estate market in that area.

These events also impact property prices and rents in unaffected areas but in the opposite (upward) direction. While this is good news for realtors and property developers, the reality is grimmer for aspiring homeowners and potential renters since they can’t afford to buy or rent property in these more desirable areas.

Rising Sea Levels, Flooded Properties

According to NASA, the global sea level has risen by almost four inches in less than three decades, making it one of the biggest threats to the global real estate market. Rising sea levels increase the risk of floods – a particularly dangerous concern for those living at or below sea levels. One study estimates that by 2045, over 300,000 coastal homes and about 14,000 coastal commercial properties will be at risk of regular flooding. But these estimates are only for the United States.

Hundreds of other countries also have coastlines and coastal properties. Global climate change increases the risk of rising sea levels and flooding for all these countries.

What Is The Real Estate Industry Doing About Climate Change?

Thanks to a growing awareness of the consequences of climate change, the real estate sector are finally waking up to its realities. The sector has accepted that by 2030, climate risks could reduce annual returns by 40%. For this reason, climate change is now a top concern for many real estate players.

These players are making an effort to future-proof and revalue their portfolios. They are identifying mispriced assets and using this information to improve their asset management and property investment strategies.

Further, the industry contributes about 39% to global carbon emissions. This scale makes it imperative for the sector to also contribute to global decarbonization efforts. Fortunately, it is already making inroads in this area – which will ultimately benefit investors, property owners, and even tenants.

One decarbonization tactic in real estate is the adoption of “green” technologies and ideas. Developers are constructing green buildings with fewer carbon-intensive materials like concrete and steel, and more fire- and heat-resistant materials. These properties also have energy-efficient lighting and air conditioning, low-carbon heating and cooling systems, and better insulation.

Together, such innovations help stave off rising temperatures and keep buildings cooler. They also help drive meaningful change to fight climate change risks and create a more sustainable planet. And last but not least, the focus on sustainability helps derisk assets and creates new revenue streams and positive financial returns for real estate investors, owners, tenants, and entire communities.

Conclusion

Climate change is not going anywhere. It is already creating havoc for the real estate sector and will continue to do so in the future as well – unless the industry acts now to mitigate its impact. The good news is that this is already happening through decarbonization initiatives and the increased adoption of green building materials and processes. If these initiatives continue and scale up over time, the industry will prove a valuable ally in the fight against climate change.