How Climate Change will Crash the Real Estate Market

Overheated real estate markets might become one of the first victims of climate change in the United States. A few years of climate change’s effects might trigger a series of catastrophic real estate crashes in the United States.

The biggest effects will be in coastal areas such as Miami-Dade County; where pricey communities like Miami Beach, Sunny Isles Beach and Palm Beach are right on the beach. Some of those cities and $23 billion worth of real estate might be underwater by 2050 courtesy of rising sea levels caused by global warming, The Economist reported.

“If we continue on our current path, by 2050 between $66 billion and $106 billion worth of existing coastal property will likely be below sea level nationwide, with $238 billion to $507 billion worth of property below sea level by 2100,” The Economist warned in a national report called The Economic Risks of Climate Change in the United States.

“In any coastal area there’s extra value in property, [but] climate change, insofar as it increases risks for those properties from any specific set of hazards – like flooding and storm surge – will decrease value,” Florida International University Anthropology Professor Hugh Gladwin told The Guardian.

How Climate Change will make Sea Front Property Worthless

Gladwin’s studies of property and climate change have profound implications for all investors. Yet the situation was best summed up by Miami property owner Broadway Harewood in a statement to Scientific American.

“Oh, Miami Beach is going under, the sea level is coming up,” Harewood said. “So now the rich people have to find a place to live. My property is 15 feet above sea level, theirs is what? Three under?”

“So OK,” Harewood quipped in the voice of a rich developer, “let’s knock down the projects, and we move in and push them out.”

Gladwin and Harewood are pointing out an obvious truth about South Florida – the poor live inland on higher ground. The rich; including President Donald J. Trump (R-New York) live or vacation on the lowlands next to the sea front. It will be the multimillion-dollar mansions such as Trump’s Mar-a-Lago; and the beachfront condos, that get flooded – not the mobile homes and projects.

Higher Ground will be more Valuable

Gladwin believes that climate change is already driving gentrification in cities and migration around the country. He thinks people are already fleeing the coastal areas because of climate change.

“You have folks in south Florida buying houses in North Carolina and Tennessee, because they like the scenery but also because it’s high ground,” Andrew Frey; a real estate developer and vice president of the Florida/Caribbean Urban Land Institute told The Guardian. “If South Florida drops off into the ocean, they’ll have a place to go.”

Real estate investors have been abandoning Miami Beach for some time data analyzed by Jesse Keenan indicates. Keenan is an attorney who teaches climate change adaptation at Harvard’s Graduate school of design.

“Everybody I know that is a small owner of real estate that isn’t within the billionaire class — average middle-class, upper-middle-class Miamians who have real estate on the beach — is in the process of selling their properties and moving to the mainland,” Keenan told Scientific American. Miami Beach and Sunny Isles Beach are located on a low-lying island that sits between the Atlantic and the Inter-Coastal Waterway.

Keenan also uncovered evidence that middle-class residents are already abandoning Miami Beach. Average people are leaving because of nuisance flooding that raises car insurance rates and makes it hard to get around.

“To be on the beach and to be on the water costs a lot more money and the cheaper parts of town were furthest from the beach — but it just turns out that the cheapest parts of town farthest from the beach are the highest elevation, and now they’re worth a lot more than they used to be,” Keenan said. “That’s it, it’s that simple.”

Will Climate Change Make Miami a Ghost Town?

The flight to higher ground will lead to what Keenan calls “climate change gentrification.” That effect might be temporary because super storms like Hurricane Irma and Hurricane Harvey might make cities like Miami unlivable ghost towns.

Such storms will destroy infrastructure and fill the city with rotting garbage. That will make Miami’s high ground in neighborhoods like Liberty City a pretty nasty place to live.

“What will happen, more than likely, is that you’ll have one big hurricane, and you’ll get a big inundation into the city,” University of Miami marine Geologist Sam Purkis told Scientific American. “And that will serve to rot out the infrastructure — the sewer lines, the electricity, the telecoms; everything that’s under the road. That becomes very costly to keep replacing every time this happens.”

“The more frequent these volatile superstorms become, the more people will look to build in safer places,” Frey told The Guardian. “If seas are rising three millimeters a year that’s one thing, but if we’re getting superstorms every couple of years with greater frequency and intensity, things can change a lot faster.”

How One Superstorm can trigger a National Real Estate Crash

If Purkis is right, just one or two devastating hurricanes might trigger a devastating real estate crash that will be felt nationwide. Disturbingly history provides ample evidence to support his thesis.

The Great Florida Land Bust of the 1920s; which utterly devastated the state’s economy for nearly two decades, was partially caused by the Miami Hurricane of 1926 and the Hurricane of 1928. The Hurricane of 1928 destroyed more than 13,000 homes and may have killed 415 people. The hurricanes helped end the Florida Land Boom an orgy of speculation and development that rivaled the frenzy of Las Vegas in 2005.

All it would take is one really bad hurricane season to repeat that scenario and send regions like South Florida or Houston into depression. The anecdotal evidence provided by observers like Keenan and Frey indicate that process may have already begun in Miami.

America’s Shaky Real Estate Markets are on Dangerous Ground

Climate change might be the catalyst that causes America’s volatile real estate market to come crashing down. Real estate across the country is on shaky ground because of questionable economic policy and poor judgment.

The U.S. real estate market is poised for a crash because of a toxic mixture of cheap finance created by low-interest rates and high property prices. Low-interest rates created by the Federal Reserve’s Quantitative Easing make mortgages cheap and easy to get.

Cheap mortgages make it easy for people to buy far more real estate than they can normally afford. That sustains higher prices and lays the groundwork for disaster. Many people in cities like Miami, Jacksonville and Houston might find themselves with properties that are both literally and financially underwater.

Individuals take out large mortgages to buy overpriced real estate which will lose its’ value. This will fill cities with zombie assets, properties where the resale value cannot cover the mortgage. Such a situation might be worse than the Great Meltdown of 2007 and 2008 because some of the properties might never regain their value.

The effects of climate change on real estate are poorly understood but they are likely to be catastrophic. Nor will they be confined to the coasts, what about the West where wildfires and poor air-quality created by droughts are already major problems? Real estate values in states like Colorado, Washington, Montana, and California are likely to take a hit.

All investors need to take a close look at climate change and examine its’ potential impacts. Those that do might make a lot of money by simply buying land on higher ground. Investors that ignore climate change might find themselves with a lot of worthless real estate that’s underwater.

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