Why Investors Should Take Note of Climate Change-Driven Shifts

As extreme weather events become more frequent, America is reevaluating risks and bracing for a migration toward so-called climate haven cities.

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Striking with a combination of extreme and graded climate events—from hurricanes to wildfires and rising sea levels—climate change is reshaping cities and fundamentally altering human life.

Last year was a record-breaking year in terms of disasters and the fifth consecutive year with an above-average hurricane season, according to the U.S. National Oceanic and Atmospheric Administration.

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Some places, such as Los Angeles, are experiencing nearly every climate impact on the books, including rising sea levels causing “king tides,” wildfires displacing entire neighborhoods and devastating heat days that leave vulnerable people in the hospital, Kristen Pawling, sustainability program director at Los Angeles County’s Chief Sustainability Office, told Multi-Housing News.

“Both the chronic and acute hazards arising from climate change are putting more and more people, property and infrastructure at risk,” Katharine Burgess, vice president of Urban Resilience at the Urban Land Institute, said. 

According to Burgess, most U.S. infrastructure is designed according to standards informed by past weather conditions and, therefore, it is not prepared for the changing conditions caused by acute and long-term climate events.

Philip Kash, partner at HR&A Advisors, also points out that inevitably, the effects of climate change will lead to higher capital expenditures, business disruption, reduced economic activity, increases in insurance premiums and decreases in building or land value.

Reevaluating climate risks

Residents, developers and investors are all reevaluating where to move and what markets to invest in.

For example, Louisiana is actively experiencing the impacts of climate change, which is fueling a migration out of southern Louisiana. “The creation of the Coastal Protection and Restoration Agency restricted investments in infrastructure, and lenders and insurers are pulling out of the market,” Kash explained.

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Real estate investment managers are increasingly considering climate impacts, not just at the site or building level, but also at the city or market level, Burgess said, referring to the findings of a ULI report in collaboration with real estate investment manager Heitman.

Investors are seeking to understand which markets are the most vulnerable to the impacts of climate change and are also beginning to look at places where local governments have proactively invested in climate-ready infrastructure, resilient design guidelines, or are encouraging development at sites least susceptible to future impacts, Burgess explained.

Considering climate havens

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From raising roads and building sea walls in Miami to installing cool roofs in Los Angeles, several cities are working on creating resilience strategies to remain competitive in the future.

Meanwhile, cities isolated from extreme weather are strategically preparing for future climate events, providing a haven to residents who are either voluntarily or forcefully displaced due to climate change. 

In anticipation of climate change-induced migration, cities in the Rust Belt region, such as Duluth, Minn., Cincinnati and Buffalo, N.Y, are actively positioning themselves as future climate havens. Thanks to the cooler climate, access to freshwater via the Great Lakes, minimum risk to wildfires and coastal storms, these cities could become attractive places to live in as climate change intensifies, Kash points out.

However, climate change is only one factor people consider when they decide to move. They will look for places with strong local economies and employment opportunities. Therefore, if the Rust Belt markets want to attract future climate migrants, they need to prioritize creating jobs.

Moreover, these cities should also consider upfront investments to ensure they are prepared to absorb, provide opportunities to and meaningfully welcome new residents, according to Kash. “This includes promoting narratives that connect residents and neighbors, which can change the perception of the displaced population,” he explained.

Beyond all this, the receiving communities, together with the real estate industry, need to make sure that there’s enough housing across all income levels. As more vulnerable citizens might be the ones who will be forcefully displaced, cities need to prepare for future growth with affordability in mind.

“Taking an equity-centered approach is essential to cities and regions improving quality of life for people as they consider where to live in the era of climate change,” Pawling said.

Not quite there yet

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Meanwhile, Kash argues that if we examine current housing policies, laws tied to land use and infrastructure investments, which all drive the national affordability crisis, it becomes clear that most cities are not yet actively planning for growth or expansion.

However, cities such as Minneapolis; Durham, N.C.; Sacramento, Calif., or Portland, Ore.—which are prioritizing the missing middle housing—will be better positioned than those that continue to have restricting land use approaches, Kash added.

Without a doubt, climate change is transforming cities and it’s both a challenge and an opportunity for future growth. Cities should do the work now to reduce the calamities of the future—such as economic disruption, social and political conflicts and environmental degradation—that climate change might lead to.

As the real estate industry has the capacity to literally rebuild cities, it is important for the sector to actively participate in building against climate change.

“Real estate is an important player to have at the table, so I encourage the industry to proactively engage with public decision-makers about what efforts they have underway to prepare for climate change,” Pawling concluded.

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