A new report is warning property investors to take climate change into consideration and start preparing for the effects it will have on real estate values.
The Report
The Urban Land Institute partnered up with the real estate investment management firm, Heitman, and released a report which looks at the future effects of climate change on real estate values and what investors can do to mitigate risks. The report emphasizes the importance of taking climate change into consideration when analyzing different investment locations and opportunities. While there has been a lot of talk recently about how climate change may affect properties, many real estate investors still neglect to factor these risks into their decision making.
According to the report:
“This process will be painful for investors who are caught off guard, but those who are prepared have the potential to outperform.”
The report concludes that high-risk properties will see a drop in real estate values and therefore, pricing as investors begin to pour investments into locations and assets of lower risk.
If you take a look at historic damage to US real estate from certain events like wildfires, hurricanes, and floods (which many attribute to climate change), you can see where the concern comes from for the future of the industry. For example, in 2017, the damage to property from extreme storms hit record highs. Natural disasters across the US cost billions of dollars in damage to property (both commercial and residential) when they occur.
It’s not only these natural disasters that are a concern. Rising sea-levels and heat stress can also become an issue and effect not only real estate values of individual properties, but entire cities.
According to Edward Walter, the CEO of the Urban Land Institute:
“Building for resilience, on a portfolio, property and citywide basis, is paramount to staying competitive. Factoring in climate risk is becoming the new normal for our industry.”
What Can Real Estate Investors Do?
The report outlines a few ways in which real estate investors can take steps now to protect the future of their investments from climate change. Some of these strategies include:
- Including climate risk into due diligence for real estate investments
- Taking into consideration physical risks for your portfolio and any future investment property you plan to purchase
- Diversifying your portfolio to minimize these specific risks
- Investing in physical adaptations for mitigation for assets whose real estate values are already at risk
Besides these strategies, the report also encourages investors to support studies of this kind and bring awareness to the effects of climate change, not only on real estate values but on property in general. You can do this by reaching out to local policymakers and discussing the implementation of wide-spread mitigation strategies if your assets are in an at-risk area.
Whatever your opinion may be on climate change, if you are a real estate investor, take the time to understand the risks your investment properties may be exposed to and do what you can to mitigate them to protect your assets.
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