Property Values to Crater up to 60% Due to Climate Change: Burt

After five years of studying global warming and extreme weather, Burt decided in 2019 to start Delta Terra Capital, a climate change-focused research firm set up to help investors hedge against risks that threaten to upend the real estate market.

Since then, extreme heat and natural disasters have occurred. It seems to be becoming more commonThis has given Burt even more confidence in a long-held theory that many property owners ignore.

“There’s a reckoning happening now,” Burt said in a recent interview, referring to the growing threat and cost of floods, wildfires and other weather events caused by climate change.

Rising insurance costs could cause home values ​​to fall by more than half in risky markets.

As the temperature gradually increases, As has been the case for the past 45 yearsClimate scientists say extreme weather events like hurricanes It’s only getting more intense.

More dangerous storms will cause more damage and mean higher repair costs for insurers. In response, insurers will raise the premiums they charge homeowners in at-risk markets, potentially doubling or tripling the current rates.

For example, flood insurance costs for coastal cities are National Flood Insurance Rate Change Burt said additional costs mandated by the Federal Emergency Management Agency (FEMA) could inadvertently cause property values ​​to plummet.

“Buyers will say, ‘OK, I’m not only paying $10,000 next year, I’m also paying $10,000 every year going forward,'” Burt said. “So maybe we should just shave the 20 years of payments off the price and use that money to pay for the higher premiums.”

In that scenario, a home currently worth $500,000 might only sell for $300,000 because a buyer would need an additional $200,000 for 20-year flood insurance, Burt said — and that’s assuming flood risk doesn’t continue to rise over time, which Burt says is unlikely.

“In those highly exposed counties, you can expect values ​​to drop as much as 50, 60 percent,” Burt said of places like Lee County, Fla., where Fort Myers is located. “A lot of these places are only getting back five years of value appreciation. It feels like a lot, but it’s not that much.”

While this scenario may sound unrealistic to some, Burt warns that it’s real: He estimates that 5% to 7% of U.S. homes could lose half their value due to rising insurance costs, which would have dire consequences for all property owners in these markets, even those who don’t want to sell.

Homeowners in coastal cities most at risk of flooding should fear even more: Burt believes that in the next decade, those homes could be underwater for all intents and purposes.

“If the cost of insurance on a home exceeds the amount of rent you can charge on the home as an investor, how much is the home worth?'” Burt says. “So you’re telling me, it’s worth nothing, right?”

Climate change affects everyone, but not equally, said Burt, who estimates that only about 20 percent of the U.S. real estate market, including many Sunbelt cities, would see a significant decline in home prices due to rising insurance premiums caused by climate change.

According to Delta Terra Capital, climate change is expected to cause approximately $1.2 trillion worth of damage to the housing market. This is no surprise. An estimated $6 trillion in value was lost during the financial crisisIt is the government Paris Agreement About climate change.

If the climate crisis turns out to be worse than expected and global temperatures rise by 3.5°C above the pre-industrial average, Burt would predict a loss of value of $2 trillion.

Homeowners in cities most vulnerable to the effects of climate change should be worried, if they aren’t already.

“It’s a really tough environment in an at-risk community,” Burt said.