Climate Change Impacting Housing in New Ways

Evidence on the increasing impacts of climate change is growing.  A new report by the Federal Reserve of San Francisco underlines the heightened financial risks we face as climate change worsens.  According to the New York Times in “Bank Regulators Present a Dire Warning of Financial Risks From Climate Change,” (Link), the Federal Reserve published a “collection of 18 papers by outside experts which amounts to one of the most specific and dire accountings of the dangers posed to businesses and communities in the United States – a threat so significant that the nation’s central bank seems increasingly compelled to address it.”

The research “calls on lenders and other businesses involved in community development ‘to take a leadership role in preparing vulnerable regions most at risk for a new abnormal … that is already here.” Researcher Asaf Bernstein found that “properties likely to be under water if seas rise on foot now sell for 15 percent less than comparable properties with no flood threat”

The decline in property values is “likely to ripple through the financial system, scaring banks and other lenders away from those areas,” according to another researcher, Michael Berman.  Berman said this could lead to a practice called “blue-lining: where banks would avoid lending to flood-prone areas – a reference to the practice known as redlining, in which banks discriminate against African-American neighborhoods by not lending there.”

Another paper notes that “coastal cities are already unable to pay for the types of projects that could protect them from the growing effects of climate change.”  It advises that new steps may need to be taken that “would impose new restrictions or incentives on banks.” Such steps could be to “penalize banks that lend money in areas that have been hit by disasters, yet have not taken steps to protect themselves against similar future disasters. Another could be to reward banks for financing projects that leave communities less vulnerable to flooding or other hazards. And it was proposed that lenders create a common standard for measuring flood risk and use it to set mortgage rates.”

Jesse Keenan, editor of the collection of papers, encouraged the private sector to “assume a greater role in preparing for the effects of climate change.  He said, “The private sector has always adapted.  One either adapts to new markets, products or services, or they go out of business.”

While the article focuses on flood risks, for the North Bay, we could easily see the same proposals for new steps to be taken by lenders for being in the fire zones.  With repeated wildland fire disasters, and now the power shut-offs to help prevent new fires, we may see lenders changing their practices as we have seen from the insurance companies.  And it is likely, new land use regulations will also come into play which could create new barriers to housing being built when it is so desperately needed.  And of course, all of these reactions to climate change will impact property values.  What we have prized as paradise may become less so with the increasing effects of climate change.

We do well as a region to heed the advice above about the private sector taking a greater leadership role in addressing climate change given the new abnormal in which we live.

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