A new study published in the journal Nature Climate Change has revealed that properties located in flood zones in the United States are overvalued by $121–$237 billion due to unpriced climate risk. Authored by researchers from Environmental Defense Fund, First Street Foundation, Resources for the Future, the Federal Reserve, and several academic institutions, the study concluded that the increasing flood risk due to climate change poses a threat to the stability of the US housing market.
“Increasing flood risk under climate change is creating a bubble that threatens the stability of the US housing market,” said lead author Jesse Gourevitch, a postdoctoral fellow at Environmental Defense Fund. The potential hazards of flooding are seldom taken into account when it comes to real estate deals, promoting building in areas prone to flooding. Estimating the expense of flooding in house prices can be advantageous for adapting to flooding dangers, though it may leave many people worse off.
In the US, there are more than 14.6 million properties that have a 1% chance per annum of flooding, leading to an estimation of more than $32 billion in annual damage to residential dwellings. The increasing frequency and severity of flooding under climate change is predicted to increase the number of properties exposed to flooding by 11 percent and average annual losses by at least 26 percent by 2050.
The study found that highly overvalued properties are concentrated in counties along the coast with no flood risk disclosure laws and where there is less concern about climate change. Properties in Florida are estimated to be overpriced by a staggering $50 billion. Furthermore, municipalities that are heavily reliant on property taxes for revenue are also highly vulnerable to budgetary shortfalls. Low-income communities are particularly vulnerable, with the potential to exacerbate wealth gaps in the US.
The study also found that a large portion of overvaluation is driven by properties located outside of the Special Flood Hazard Area (SFHA), which make up 83 percent of all properties at risk of flooding and contribute 69 percent of total overvaluation in dollar terms.
These findings demonstrate the need for improved flood risk communication via updated flood maps, broadened flood risk disclosure laws at the state and federal level, and increased investment in flood risk reduction. Doing so can help ensure that decision-makers grapple with the moral questions about who should bear the costs of climate-related disasters.
0. “US Housing Market Overvalued by $200b: Climate Risks Unpriced” Mirage News, 16 Feb. 2023, https://www.miragenews.com/us-housing-market-overvalued-by-200b-climate-949293
1. “More floods, storms threaten U.S. housing market as climate changes” The Washington Post, 16 Feb. 2023, https://www.washingtonpost.com/climate-environment/2023/02/16/flood-risk-housing-market-property-value
2. “New research shows the potential consequences of unpriced flood risk in US housing markets.” Environmental Defense Fund, 16 Feb. 2023, https://blogs.edf.org/growingreturns/2023/02/16/new-research-shows-climate-risk-to-property-values/
3. “Unpriced climate risk and the potential consequences of overvaluation in US housing markets” Nature.com, 16 Feb. 2023, https://www.nature.com/articles/s41558-023-01594-8