Growing Returns

Selected tag(s): flood risk

New research shows the potential consequences of unpriced flood risk in US housing markets

No region of the US is unaffected by the impacts of climate change. From recent flooding in California to impending sea level rise along the East coast, the increased risk of climate disasters has made every community more vulnerable.

New research published in Nature Climate Change led by EDF economists finds that increasing flood risk due to climate change pose threats to the stability of the US housing market. Published with researchers from First Street Foundation, Resources for the Future, the Federal Reserve, and several academic institutions, our research revealed that the real estate located in flood zones is overvalued by US$121–US$237 billion due to unpriced climate risk.

Growing flood risk—and a growing bubble in the housing market

pricebubblegraphic

Currently, over 14.6 million properties in the United States face at least a 1% annual probability of flooding, with expected annual damages to residential properties exceeding US$32 billion. The increasing frequency and severity of flooding under climate change is predicted to increase the number of properties exposed to flooding by 11% and average annual losses by at least 26% by 2050.

The increasing risk and cost of flooding due to climate change has led to growing concerns that housing markets are mispricing these risks, thus causing a real estate bubble to develop.

Supported by a grant from the National Science Foundation’s Megalopolitan Coastal Transformation Hub, the study is the first-ever national-scale assessment of climate risk to property values, using the property-specific, climate-adjusted First Street Foundation flood model. To do this, we evaluated the extent to which property values already account for the costs of flooding. We then compared those price discounts with property prices that fully capture expected damages from flooding over the next 30 years.

We found a nearly $200 billion dollar bubble.

The cascading and inequitable impacts of unpriced flood risk

Accurately pricing the costs of flood in home values is needed to support climate adaptation and to remove perverse incentives for development in floodplains. However, doing so could have negative financial impacts on households, communities, and municipalities. In the event that property values fully account for exposure to climate risk, our results raise concern that:

  1. Low-income communities are particularly vulnerable. The extent to which flood risk is not priced into housing values varies based on neighborhood and state characteristics, with low-income households at a higher risk of losing home equity . Such inequities have the potential to exacerbate wealth gaps in the US.
  2. Coastal housing markets are particularly vulnerable. In general, we find that highly overvalued properties are concentrated in counties along the coast with no flood risk disclosure laws and where there is less concern about climate change. In particular, properties in Florida are overvalued by more than US$50 billion.
  3. Municipalities that are heavily reliant on property taxes for revenue could experience budgetary shortfalls if housing prices are corrected for flood risk. Cities and towns concentrated in coastal counties, as well as inland areas in northern New England, eastern Tennessee, central Texas, Wisconsin, Idaho and Montana, are particularly vulnerable to losing revenues in the event of a pricing correction. In these areas, local governments may need to adapt their fiscal structure in order to continue to provide essential public goods and services.

We need efficient and effective climate change policies

The cost of unrealized flood risk in the US real estate market is an increasing threat to economic stability for households, communities and municipalities. Despite clear need for improving flood risk communication via updated flood maps, broadening flood risk disclosure laws at the state and federal level, and increasing investment in flood risk reduction, the realization of these risks will largely depend on policy choices that influence the distribution of flood-related costs in society. In effect, these policy choices will require decision-makers to grapple with moral questions about who should bear the costs of climate-related disasters.

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My perspectives on how we can inspire the next generation of Black climate leaders.

By Arianna Mackey, Environmental Defense Fund (EDF) Summer 2022 Intern

I became aware of my community’s lack of environmental awareness at a very young age. Growing up in the Hampton Roads area of Virginia, my family and I visited the Nauticus museum often. One afternoon, after spending time in the flooding exhibit, I explained to my mom that due to increased flooding, Virginia Beach would be inhabitable in the future, with standing water reaching the front door following a storm. She brushed me off by saying it was an “over-exaggeration” and our community was fine. That encounter piqued my interest in environmentalism. Read More »

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Virginia’s Legislature made progress on flood resilience in 2022, but significant work remains.

Last month, a Nor’easter left parts of Hampton Roads flooded for days, disrupting transit and damaging property. This situation is a reality for a growing number of Virginians who are experiencing more intense and frequent flooding due to rising sea levels and heavier precipitation.

Without action, coastal flood damages are expected to cost Virginia $5.1 billion annually by 2080, which is why its leaders must use every tool in the toolbox to match the scale of challenges facing people across the Commonwealth.

While Virginia’s General Assembly concluded its 2022 legislative session with several successes, more work is needed – particularly in securing long-term funding for flood resilience, to protect people and natural resources from flood threats now and in the future.

Here are three key takeaways from Virginia’s legislative session relating to flood resilience. Read More »

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New Army Corps guidelines will expand natural infrastructure to reduce flood risk and more

This year has brought devastating flooding in the Netherlands, Germany, China, the U.S. and elsewhere. Globally, over 2.2 billion people are exposed to flooding, and that number is growing.

New research indicates the proportion of people living in floodplains since 2000 has increased by 20% to 24%, and climate change is further increasing flood risk with rising sea levels, more intense storms and extreme rainfall events. We need urgent action to protect people from these growing risks.

To this end, the U.S. Army Corps of Engineers (Corps) just released their “International Guidelines on the use of Natural and Nature-Based Features (NNBF) for Flood Risk Management.” Here’s why that’s a big deal.

Read More »

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5 ways federal policymakers can bring equity into flood risk reduction

Flooding remains the costliest, most deadly natural disaster in the U.S., causing more than $1 trillion in damages since 1980.

As climate change continues to fuel more intense hurricanes, sea level rise and heavier rain events, more Americans are at risk from flooding than ever before. And federal resources to protect communities from flooding are not provided to all communities equitably.

This gap in protection is a direct result of unintentional, but consequential flaws in the current cost-benefit analyses that agencies like the U.S. Army Corps of Engineers (Corps) and the Federal Emergency Management Agency (FEMA) use for flood protection projects.

Here are a few ways policymakers and coastal planners can help adjust cost-benefit analyses to expand access to flood protection and achieve more equitable results.

Read More »

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Sea level rise threatens Miami’s future. Here’s how the Army Corps can help keep Florida, Florida.

Florida residents are on the frontlines of climate change, already facing sea level rise and increasing storm intensity. 

This is especially evident in Miami, due to its low-lying topography, porous limestone, dense coastal development and encroaching seas.  

To address these threats, the U.S. Army Corps of Engineers (Corps) produced the Miami-Dade Back Bay Coastal Storm Risk Management study. This multibillion-dollar proposal contains traditional, hardened infrastructure projects, including a massive seawall that would extend across Biscayne Bay in downtown Miami, reaching up to 20 feet in some places.

The proposal has received significant pushback from the public and stakeholders who are concerned about negative impacts to the environment, economy and quality of life.  

As the Corps seeks to address flood vulnerability in Miami and elsewhere, here are three ways the agency can reduce risk while also preserving the natural beauty of Florida’s coastal communities.

Read More »

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Hurricane season is here. We need a national plan to protect our coastal communities.

The Atlantic hurricane season is underway as many coastal areas still recover from an endless barrage of storms last year that culminated in the most active hurricane season on record. With climate change, we can expect to see more intense hurricanes, leaving many communities at risk. 

In fact, a new report indicates that as many as 32 million U.S. homes and $8.5 trillion in assets are vulnerable to hurricane damage. 

Read More »

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Virginia is taking bold climate action to address flood risk across the state

Climate change poses a significant threat to Virginia’s communities, infrastructure and economy. The state has the highest rates of sea level rise on the Atlantic seaboard with more than 34,000 buildings and 534 square miles of coastal land at risk of flooding by 2060, while more intense rainfall is also increasing flood risk statewide. 

Virginia’s state leadership is moving diligently to mitigate current and future flood threats by funding and implementing risk reduction and resilience projects across the commonwealth. 

Here’s how the state is tackling its flood risk problem with thoughtful planning and long-term funding.  Read More »

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4 ways North Carolina’s Legislature can build lasting flood resilience

As North Carolina continues to recover from a string of flooding and storm disasters, legislative leaders have recognized the opportunity for the state to not just recover from recent storms but to rebuild better before the next disaster.

This week, Environmental Defense Fund released a white paper [PDF] recommending four specific policy actions that would better protect residents and businesses from more severe flooding, create jobs and increase climate resilience.   

These four policies will also help the state better compete for federal funding, build capacity within communities and equitably align solutions for those who are disproportionately impacted by disasters.   Read More »

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4 ways to reduce disproportionate flood risk and build resilience for all communities

More Americans are at risk from flooding than ever before, and that risk is growing rapidly as climate change fuels more intense hurricanes and rainfall, and as sea level rise threatens coastal communities across the country.   

However, flood risk is not equally distributed. In this country, we have a flood risk gap that places low-income communities and communities of color at higher risk from flooding. Systemic inequities compound underlying risks and drive disproportionate impacts from climate change to these communities. This gap is visible in many coastal areas, where communities of extreme wealth and poverty exist within a few square miles, yet have unequal protections against storms, flooding and sea level rise.  Read More »

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