Homebuyers across the country are ignoring the risk of flooding and paying inflated prices to create a housing bubble that could burst as climate change intensifies flood damage.
A climate-induced housing bubble will plummet homeowner values, and local governments could lose a large portion of their tax revenue if local property values fall, according to a study released Thursday. increase.
The US real estate market fails to account for flood risk. This is because many homebuyers are in denial about climate change, and government practices keep homeowners unaware of the potential danger of flooding. nature climate change.
Building on previous research on climate change and rising house prices, the study points to shortcomings in public policy. For example, federal flood maps fail to identify millions of properties prone to flooding, and there are no state laws requiring home sellers to disclose flood risk. Affordable federal flood insurance.
A combination of lack of information and skepticism about climate change will result in homebuyers paying inflated prices that do not take into account the cost of flood insurance or flood repairs.
“The market is currently unaware of all of these future losses that are projected to affect these assets,” said Carolyn, study author and vice president of economics and policy at the Environmental Defense Fund. Kowski says. “At some point, the market needs a correction.”
“If the market adjusts on its own and prices fall, homeowners will experience a loss,” Kowski added.
According to the study, U.S. real estate is overvalued by $121 billion to $237 billion, far higher than previous estimates.Home prices are soaring in almost every county in the US
Research shows that counties in Kentucky and West Virginia have the highest rates of overestimation.
“When you take real estate value out of the equation and think about the overvaluation of value, Appalachia really emerges as a hot spot. said study author Jesse Gorevich, a postdoctoral fellow at the Environmental Defense Fund.
In Letcher County, Kentucky, home prices are 42% higher than if homebuyers factored in flood risk, researchers say. This is the highest percentage in the country.
Studies show that 14 of the 20 counties with the highest rates of overestimation are in Kentucky or West Virginia.
The counties with the highest dollar overvalues are overwhelmingly on the Florida coast. In Broward County, Florida, just north of Miami, real estate is overvalued by his $6.8 billion, the highest of any county.
Twelve of the 20 most overrated counties are in Florida.
The study found that a huge number of overvalued properties “are concentrated in coastal counties that lack flood risk disclosure laws and are less concerned about climate change.”
Much of the country’s overvalued real estate is outside Federal Emergency Management Agency-designated flood zones, but it still faces considerable risk. The study highlighted a “flaw in the FEMA map” that should depict areas with the highest flood risk.
Florida has gained notoriety among some climate advocates because it is one of about 20 states that do not require home sellers to disclose information about their property’s flood risk or history of flooding.
The study authors outline four possible scenarios for the housing market.
In a “market crash” scenario, property prices in the flood zone crash, leaving many residents unable to pay their mortgages. Several factors can trigger a market crash. For example, more states may adopt laws requiring flood disclosure when selling real estate, and mortgage interest rates may be higher in flood zones.
A “soft landing” scenario has similar causes and consequences, but on a more gradual scale.
In a “business as usual” scenario, developers continue to build in flood zones and mortgage lenders continue to absorb flood risk without passing it on to borrowers.
The ‘damage mitigation’ scenario assumes that flood damage to homes will be reduced by governments building flood protection systems such as levees and paying residents to move away from flood zones.
“In each of these scenarios, policymakers will have to make trade-offs about who bears the costs of climate change, and more generally property owners or American taxpayers. We have to do it. It’s a really hard question.”
Reprinted from E&E News with permission of POLITICO, LLC. Copyright 2023. E&E News provides essential news for energy and environmental professionals.
