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A report published by the United States National Oceanic and Atmospheric Administration last month projected a 12-inch (30 centimeter) sea level rise along the U.S. coastline in the next 30 years—the same amount by which they’ve risen over the past century. What does this mean for real estate markets and for communities? I talked about this with Miyuki Hino, assistant professor in city and regional planning, at the University of North Carolina at Chapel Hill.
The research you carried out last year indicates that properties in areas at risk of flooding are overvalued by nearly $44 billion as the market is failing to price in the risk properly. A Yale study also found that the sea level rise risk isn’t affecting prices for waterfront properties, at least for now. Yet the threat is very real. Is the market being too complacent, or is awareness lacking?
Multiple studies have found that awareness of flood risk and pricing into real estate markets are either non-existent or smaller than we would have expected it to be, based on an irrational thinking around the expected costs of flooding. There have been other studies that have found that sea level rise is affecting real estate markets.
I would say the question is an open one. We know with quite high levels of confidence how much sea level rise to expect in the next couple of decades, and we can do things like put houses on stilts, build seawalls and adjust the way that businesses and societies operate in different ways. There is a plausible scenario here—which is that the folks who own and buy oceanfront low-lying coastal property believe very strongly in the ability of themselves and their communities to cope with those changes over time. And therefore, there's not really much reason to worry about prices rising.
Historically, we have found that there is a lack of awareness and lack of pricing or incomplete pricing. But I think that might change as we have growing awareness of flood risk and how that's going to change in the future.
What’s been done to manage flood risk?
In the U.S., in the U.K. and in a number of other countries, we’ve seen government programs that purchase homes at some amount of compensation to their owners in order to restore that land to open space. That's not necessarily a scalable solution, but it does recognize that real estate can be a huge component of household assets, and it would be incredibly difficult for these people to find anywhere else to live.
It also recognizes that in some cases, the risks to the property may not have been known at the time it was purchased. It introduces a lot of challenging questions about what's fair and what's equitable and what a public sector can take on in these types of situations. But I think more and more we're going to see either expansions of existing programs or new versions of these programs to address those types of situations.
It seems like the public will have to bear a lot of the costs. Is the private sector involved at all?
The examples that are coming to mind right now are kind of small. For example, there’s a conservation organization that serves as an entity that takes ownership over the land [from the local government]. There are also different types of private organizations thinking about whether to compensate homeowners through programs such as wetland restoration, or other types of environmental credit options.
There's creative thinking around how the private sector can be part of this challenge, but it's tricky because people living [in flood risk areas] are in really vulnerable situations. Some people [don’t trust] having the private sector engage in this process and think that if they're involved, they're just going to turn this land into a hotel or that they are going to be taken advantage of. It's really important that trust is built up during this process and not eroded, so I think people are treading carefully.
What’s next for your research?
One area is the confluence of real estate-related changes. Things that might change the cost of flood insurance, the way mortgages are assessed, the way local governments raise money and pay for things like big adaptation measures. Thinking about that combination of normal dynamics that we only sort of understand, plus the potential new changes, is where a lot of work is headed.
And this big divide, the big differences and who bears the burden, [is also something] we don't fully understand. We know little about how the distributional effects of some of these real estate price changes or insurance industry changes might differ across different parts of the exposed population. That will be critical for informing the design of regulation that doesn't disproportionately hit the most marginalized communities.
Dr. Miyuki Hino’s answers were condensed and edited for brevity and clarity.
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