Anticipating a future featuring significant amounts of sea level rise, Joseph Romm has been pondering when this will affect the prices of coastal properties. The fact that the market probably hasn’t already taken into account the conservative sea level rise estimates of the IPCC is just one demonstration of how prices do not reflect ‘perfect information’ in the way often assumed by economists.
My guess is that higher insurance premiums will be the mechanism through which the threats to coasts in the developed world will be brought to light, for most people. Since insurance companies need to gauge risk adequately in order to stay in business, they have fewer conflicts of interest when it comes to evaluating climatic science and making projections about what the consequences of our greenhouse gas emissions will be.
Is this the next housing bubble?
Depending on the amount of sea level rise, this might affect whole cities.
Whole countries, even.
I have not studied this issue specifically. However, I have some understanding on how the insurance industry works and premiums are determined.
I do expect there will be some increase in premiums. However, I am afraid that it will be too little, too late to change human behaviour sufficiently.
Unfortunately, there are at least four factors which would prevent a rise in insurance premiums to reflect the increased particular risk to coastal areas
1. by the time insurance premiums rise will be too late. Insurance policies and premiums are determined only one year in the future. That is the insurance markets will set premiums based on the risk they face only in the next twelve months.
By the time the insurance industry reacts to the increased risk in a substantive way to effect behaviour, the climatic conditions are likely to have reached beyond the tipping point.
2. Also the insurers are in a competitive industry and policy holders will be drawn to the insurers with lower premiums which may not reflect the risk.
3. the increased risk in the coastal areas does not come from increased “risky” behaviour in the coastal areas but rather by increased global carbon emissions. In effect the coastal area policy holder has little effect on the risk and therefore little incentive to change behaviour to reduce the risk. The same applies to policy holders outside of the coastal area.
4. the industry involves the globalization of risk in particular through re-insurance. Therefore increased risk are subsidized by stable or even decreased risks. Therefore the increased risks in the coastal areas are likely to be spread out through the entire insurance industry such that the premiums for all insurance will rise to subsidize the risk. This will not change behaviour.
This is different from the housing bubble which arose when the financing industry ignored the risks arising from poor lending practices and individuals took on more risk than they could bear and the financial institutions saw their equity crumble beyond the value of the loan.
Therefore there needs to be other forces to change behaviour. Sorry to be pessimistic because I am by nature an optimist.
As it is approaching bed-time for me, an easy solution does not come to me. Although I suspect there is no easy solution.
I have heard or a group of cottage owners on a small beach in Quebec that were not able to contract new insurances after some of the cottages closest to the coast were destroyed by a strom surge and that a study suggested that all the others would eventually be destroyed as well given expected sea level rise. I did not find a reference to this online but I am pretty sure I did not dream this.
I am surprised that insurers have such a short-sighted approach, when it comes to setting rates.
Given that year-on-year climate change will be getting bigger during the near to medium future, they will probably eventually be forced to change their approach.
Insurance is a commodity product that is sold in one year lots. I do not see the change coming in length of the policy but rather in what is included or excluded.
Insurers may in time, and probably to some degree already have, refuse to cover for weather related water loss on property damage by excluding for such coverage.
There is already the extensive practice of exclusion for pollution coverage. In the 1980’s and 1990’s the industry as a bloc simply stopped providing their insured with coverage for damage from pollution. Exclusion from pollution is now standard.
“Living near the ocean has always come with the risk of getting wet. Yet coastal dwellers whose homes got swamped by the occasional storm surge could rely on the water to recede eventually. That certainty is gone. Titus has calculated that a three-foot rise in sea level will push back East Coast shorelines an average of 300 to 600 feet in the next 90 years, threatening to submerge densely developed areas inhabited by some 3 million people, including large parts of New York City, Philadelphia, and Washington, D.C. As Margaret Davidson, director of the National Oceanic and Atmospheric Administration’s Coastal Services Center in Charleston, South Carolina, puts it, “Today’s flood is tomorrow’s high tide.”
The rising waters can be kept at bay by constructing dikes and bulkheads, pumping sand to fill out receding beaches, and elevating existing buildings and roads on embankments or pylons. But such efforts may prove prohibitively expensive—Titus says that in the lower 48 states alone, they could cost as much as $1 trillion over the next century, and he estimates that in the process, 60 to 90 percent of the East Coast’s wetlands could be destroyed as bulkheads and other defensive measures restrict the movement of estuaries and marshes, drowning them when the ocean rises.”
Profiling risk and sustainability in coastal deltas of the world
Deltas are highly sensitive to increasing risks arising from local human activities, land subsidence, regional water management, global sea-level rise, and climate extremes. We quantified changing flood risk due to extreme events using an integrated set of global environmental, geophysical, and social indicators. Although risks are distributed across all levels of economic development, wealthy countries effectively limit their present-day threat by gross domestic product–enabled infrastructure and coastal defense investments. In an energy-constrained future, such protections will probably prove to be unsustainable, raising relative risks by four to eight times in the Mississippi and Rhine deltas and by one-and-a-half to four times in the Chao Phraya and Yangtze deltas. The current emphasis on short-term solutions for the world’s deltas will greatly constrain options for designing sustainable solutions in the long term.
—
Sea defences not enough to protect delta cities from rising flood risk – study
Severe, chronic flooding will devastate California coast as sea levels rise, experts say
…
If the sea rises by six feet by the end of the century, more than 600 communities would experience chronic inundation, including more than 50 urban centers from Oakland to Miami to boroughs of New York City, according to the new study.
Under this scenario, damages could significantly start to really rack up. The real estate service Zillow predicts that if tides rise by six feet, nearly 300 cities in the nation would lose at least half of their housing stock.
It also estimates that in such a situation, about 1.9 million homes could be destroyed, with combined loses of roughly $882 billion. Florida stands to lose the most with nearly 1 million homes wiped out. California, New York and Massachusetts also stand to suffer major financial harm from the loss of expensive properties.
But is six feet of sea-level rise likely?
In the past century, the sea level rose roughly seven inches on average. Because of tides and weather patterns, the levels are not constant throughout the planet.
Scientists believe the oceans will likely continue to rise at least by that much through 2100, but could increase by as much as eight feet on average globally.
Still, while scientists have upped their predictions for potential sea-level rise in recent years, conservative estimates fall far short of the six-foot mark.
A report in April from professors at UC San Diego’s Scripps Institution of Oceanography and UC Santa Cruz found that after midcentury, sea-level rise is increasingly dependent on efforts to curb greenhouse gases.
If the fight against climate change proves extremely successful, there’s a nearly 67% chance that sea-level rise could be contained to between one and 2.4 feet through 2100, according to that April analysis. If mitigation efforts fall apart, the report said, the world would most likely see increases of 1.6 to 3.4 feet.
The year is 2037. This is what happens when the hurricane hits Miami
…
One architect I met while researching this book joked that with enough money, you can engineer your way out of anything. I suppose it’s true. If you had enough money, you could raise or rebuild every street and building in Miami by ten feet and the city would be in pretty good shape for the next century or so. But we do not live in a world where money is no object, and one of the hard truths about sea-level rise is that rich cities and nations can afford to build seawalls, upgrade sewage systems, and elevate critical infrastructure.
Poor cities and nations cannot. But even for rich countries, the economic losses will be high. One recent study estimated that with six feet of sea-level rise, nearly $1 trillion worth of real estate in the United States will be underwater, including one in eight homes in Florida. If no significant action is taken, global damages from sea-level rise could reach $100 trillion a year by 2100.
But it is not just money that will be lost. Also gone will be the beach where you first kissed your boyfriend; the mangrove forests in Bangladesh where Bengali tigers thrive; the crocodile nests in Florida Bay; Facebook headquarters in Silicon Valley; St. Mark’s Basilica in Venice; Fort Sumter in Charleston, North Carolina; America’s biggest naval base in Norfolk, Virginia; NASA’s Kennedy Space Center; graves on the Isle of the Dead in Tasmania; the slums of Jakarta, Indonesia; entire nations like the Maldives and the Marshall Islands; and, in the not-so-distant future, Mar-a-Lago, the summer White House of President Donald Trump. Globally, about 145 million people live three feet or less above the current sea level. As the waters rise, millions of these people will be displaced, many of them in poor countries, creating generations of climate refugees that will make today’s Syrian war refugee crisis look like a high school drama production.
According to a study from the United Kingdom’s National Oceanography Centre last summer, the damage caused by rising sea levels will cost the world as much as fourteen trillion dollars a year by 2100, if the U.N. targets aren’t met. “Like it or not, we will retreat from most of the world’s non-urban shorelines in the not very distant future,” Orrin Pilkey, an expert on sea levels at Duke University, wrote in his book “Retreat from a Rising Sea.” “We can plan now and retreat in a strategic and calculated fashion, or we can worry about it later and retreat in tactical disarray in response to devastating storms. In other words, we can walk away methodically, or we can flee in panic.”
https://www.newyorker.com/magazine/2018/11/26/how-extreme-weather-is-shrinking-the-planet
President donald trump doubts that man-made climate change is a thing. According to his administration it is a clear, present and future danger to the United States. That conclusion—unsurprising to anyone who has been paying attention to climate scientists—emerges from the Fourth National Climate Assessment, compiled by 13 federal agencies and released on November 23rd. If the White House had hoped to bury the 1,600-page tome, part of a four-yearly exercise which it is obliged to prepare and make public by a law from 1990, under turkey-laden tables, the absence of news over the Thanksgiving weekend promoted it to the front pages.
The findings made for grim reading. The report details how climate change is already affecting America—through more frequent floods and droughts—and what to expect from falling crop yields, the spread of disease-carrying bugs, fiercer hurricanes and much else besides. Sea levels, up by 16-21cm in the past 120 years, may rise by another metre over the next 80, threatening $1trn in coastal property. Rising temperatures could force Texans to work fewer hours (and pay 10-20% more for energy). Wildfires should cause less devastation by 2090 than they do today—but only because many forests most prone to them will have burned to a crisp. All told, unchecked greenhouse-gas emissions could lop a tenth off American gdp this century.
Coastal flood plains are expected to grow by 12-20%, or 70,000-100,000 square kilometres, this century. That area, roughly the size of Austria or Maine, is home to masses of people and capital in booming sea-facing metropolises. One in seven of Earth’s 7.5bn people already lives less than ten metres above sea level; by 2050, 1.4bn will. Low-lying atolls like Kiribati may be permanently submerged. Assets worth trillions of dollars—including China’s vast manufacturing cluster in the Pearl river delta and innumerable military bases—have been built in places that could often find themselves underwater.
…
Owing to the inexorable nature of sea-swelling, its effects will be felt even if carbon emissions fall. In 30 years the damage to coastal cities could reach $1trn a year. By 2100, if the Paris agreement’s preferred target to keep warming below 1.5°C relative to preindustrial levels were met, sea levels would rise by 50cm from today, causing worldwide damage to property equivalent to 1.8% of global GDP a year. Failure to enact meaningful emissions reductions would push the seas up by another 30-40cm, and cause extra damage worth 2.5% of GDP.
Sea-level rises on the order of one metre—a bit above the IPCC range for 2100—will cost the world a lot. Leaving aside fatalities owing to storms and storm surges, whose effects are worse in higher seas, one estimate made in 2014 found that by 2100 the value of property at risk from marine flooding would be worth between $20trn and $200trn. The Union of Concerned Scientists, an American ngo, estimates that by that time 2.5m existing coastal properties in America, today worth $1.1trn, could be at risk of flooding every two weeks.
A massive problem for some; an existential risk for others. Atoll nations like Kiribati—average elevation less than two metres—risk losing almost all their territory to floods like that pictured on the previous page. In 2015 the president of Micronesia, another Pacific island state, described the fate of such nations in the global greenhouse as “potential genocide”. This, one hopes, goes too far; refugees could surely be resettled. Still, the extirpation of entire territorial states would be without any modern precedent.
…
The biggest extra effect of human activity, though, may well be putting more property at risk as a more populous and richer world concentrates itself in cities by the sea. In the rich world, and increasingly in emerging economies too, the closer to the beach you can erect a condo or office block, the better. In New York alone 72,000 buildings sit in flood zones. Their combined worth is $129bn.
The last time the Earth had a carbon-dioxide level similar to today’s, it was on average about 3°C warmer. Greenland’s hills were green. Parts of Antarctica were fringed with forest. The water now frozen over those landscapes was in the oceans, providing sea levels 20 metres higher than today’s.
Rising sea levels pose threat to homes of 300m people – study | Environment | The Guardian
US to have major floods on daily basis unless sea-level rise is curbed – study | Environment | The Guardian
https://www.theguardian.com/environment/2020/apr/16/us-climate-change-floods-sea-level-rise
Even the $19bn of damage done by Hurricane Sandy in 2012 amounted to only a glancing blow. Property values on the Manhattan waterfront now stand 70% above the pre-Sandy level: on the Queens waterfront they are 128% higher.
Is The Risk Of Sea Level Rise Affecting Florida Home Prices? A New Study Says Yes
https://www.npr.org/2020/10/15/924239753/is-the-risk-of-sea-level-rise-affecting-florida-home-prices-a-new-study-says-yes
High ground, high prices
How climate change is speeding gentrification in some of America’s most flooding-vulnerable cities
California Has A New Idea For Homes At Risk From Rising Seas: Buy, Rent, Retreat
…
It’s expensive to fight the sea. It’s expensive not to. When property values plummet, so do property taxes. But right now property values here are still high and Allen wants to put that value to use before it’s gone.
That’s why the 43-year-old Democrat has proposed legislation to create a revolving loan program, allowing California counties and communities to purchase vulnerable coastal properties. The goal would then be to rent those properties out, either to the original homeowner or someone else, and use that money to pay off the loan until the property is no longer safe to live in.
Think of it like a city-run Airbnb, where the profits go to making sure nobody is left picking up the full tab when the Pacific comes to collect.
…
At its core, Allen’s proposal is a buyout program — a government-subsidized effort to limit the state’s longer-term exposure to sea level rise.
Within the next 30 years $8 to $10 billion of existing property in California is expected to be underwater, according to the state’s nonpartisan Legislative Analyst’s Office. An additional $6 to $10 billion will be at risk during high tide.
“The magnitude of the potential impacts mean that the state cannot afford to indefinitely delay taking steps to prepare,” the report warns. “Waiting too long to initiate adaptation efforts likely will make responding effectively more difficult and costly.”
Communities have three options for dealing with that threat: They can defend those properties using sea-walls and buffering beaches; they can learn to live with higher waters; or they can retreat, moving to higher ground.
The last option is often the least popular, says Julia Stein, a project director at the Institute on Climate Change and the Environment at UCLA School of Law.
“That’s just not a conversation that a lot of coastal communities want to have,” she says.
Retreat from coastlines? Politicians don’t want to talk about it.
Why managed retreat is still a political third rail.
Sea level rise: Antarctica’s ice sheet is critical to the fate of coastal cities. How much it will melt remains a big question – CNN
https://www.cnn.com/2021/05/05/weather/land-ice-melt-sea-level-rise-study/index.html
Up to 410 million people at risk from sea level rises – study | Sea level | The Guardian
http://www.theguardian.com/environment/2021/jun/29/risk-from-sea-level-rises-unless-emissions-reduced
Economic evaluation of sea-level rise adaptation strongly influenced by hydrodynamic feedbacks
As sea levels rise, coastal cities will rely on shoreline protection strategies such as levees and seawalls to mitigate flooding. Although these strategies provide local flood-reduction benefits, they can increase inundation along other shorelines within the same estuary or bay. Using hydrodynamic and economic models, we quantify previously unmeasured regional economic damages (up to $723 million per flood event) that result from the protection of individual shoreline segments in San Francisco Bay, CA. We also highlight and quantify opportunities to alleviate regional flood damage through strategic floodwater storage in low-lying areas. Integrating the findings into coordinated planning efforts that account for the regional impacts of local shoreline actions could provide opportunities to reduce shared risk in coastal regions globally.
https://www.pnas.org/content/118/29/e2025961118
Climate risk scores could reshape Canadian real estate markets, some experts say | CBC News
https://www.cbc.ca/news/business/climate-risk-real-estate-1.6139206
Jeffrey Linn, the artist behind the map, told Daily Hive Urbanized about its meaning and inspiration.
The piece is an original work inspired by both “Ursula K. LeGuin’s vision of a future California in her book, Always Coming Home, and A map of San Francisco made by Burrito Justice,” said Linn via email. He’s originally from San Francisco but lives in Seattle now and has created many similar maps of the West Coast.
All his sea-level rise maps show what it would look like when all the ice sheets in the world have melted 1,000 years in the future.
“These maps can highlight a lot of the landforms we take for granted in the places we live,” he said.
“I hope they think the place names are funny, but also see the seriousness behind the puns and the extreme scenario. Our climate, and our world, is changing.”
https://dailyhive.com/vancouver/vancouver-sea-level-rise-map
Canadians are unknowingly buying homes in climate change danger zones, report finds
Climate change could boost damage costs by billions; more risk disclosure needed for adaptation
https://www.cbc.ca/news/science/climate-risks-1.6196450
Sea level rise: New NOAA report shows accelerating sea level rise on US coasts – CNN
https://www.cnn.com/2022/02/15/us/us-sea-level-rise-report-noaa-climate/index.html
China is home to more than three-quarters of the regions most at risk from climate change, with some of the world’s most important manufacturing centres threatened by extreme weather, according to a new report.
China’s eastern Jiangsu province ranks as the world’s most climate-vulnerable region, followed by Shandong, Hebei and Henan, according to the report released on Monday by climate risk specialists XDI.
https://www.aljazeera.com/economy/2023/2/20/china-provinces-top-list-of-regions-at-risk-from-climate-change
Florida’s government subsidises people living in hurricane zones
This props up the property market, which state revenue relies on
…
The reason can be found in actuarial tables. Florida’s property-insurance market was tottering even before Hurricane Ian. (Property insurance covers wind damage; flood protection is administered separately, by the federal government, and has far lower take-up rates.) Annual premiums, at more than $4,200, are triple the national average. Still that is not enough to cover risk in the state most vulnerable to storms and sea-level rise. Six firms have turned insolvent this year, owing to extreme weather, litigation costs and fraud.
…
Florida has a big interest in making insurance affordable. Real estate generates about a fifth of state gdp. Florida has no income tax, so property tax accounts for a hefty chunk of government revenues. Affordable insurance, says Zac Taylor of tu Delft University, is the “keystone of the political and economic structure of Florida”.
The effect of subsidised insurance is that risk—such as coastal development—is not internalised upfront. Instead costs are redistributed after disasters. If Citizens cannot cover losses, it can levy a surcharge on almost all other property- and casualty-insurance policyholders in the state. The so-called “hurricane tax” was most recently collected between 2007 and 2015, after a run of bad storms in 2004-05.
Rising seas will cut off many properties before they’re flooded | Ars Technica
https://arstechnica.com/science/2023/03/rising-seas-will-cut-off-many-properties-before-theyre-flooded/
Insurance giant halts sale of new home policies in California due to wildfires | California | The Guardian
https://www.theguardian.com/us-news/2023/may/27/state-farm-home-insurance-california-wildfires
Coastal land, though, is China’s most valuable. Officials would prefer to continue building on it. Giant construction projects are ongoing all along the coastline. In Shantou, a port city on the south coast known for its fierce typhoons, a 22,000-seat stadium was recently completed beside the sea. It is surrounded by construction sites which will become industrial parks and residential buildings.
Officials are betting on sea walls to protect such assets. China has thousands of kilometres of them. Smaller cities are supposed to have walls resilient to one-in-100-year floods—those which historically had a 1% chance of occurring in a given year. Big cities are supposed to have one-in-200-year flood protection. Shanghai is unusual in building one-in-1,000-year protection for its central districts. In the Netherlands, for comparison, planners demand one-in-10,000-year standards for coastal cities.
But around half of the sea walls in China are shoddy, according to a government report. Even those that do meet official standards may not last long. A report in 2019 by the un’s Intergovernmental Panel on Climate Change predicted that one-in-100-year floods could occur every year by 2050, owing to sea-level rise.
This all means that massive sea-wall construction can be expected in the coming decades, says Scott Moore of the University of Pennsylvania. Some 430km is under construction already. But a new Great Wall on the sea will have downsides. Upgrading sea walls will become more expensive, as costs rise sharply with height. And the risk of failure increases as sea-level rise accelerates. Higher sea walls create illusions of safety that lead to more construction. “You may be setting yourself up for failure and…setting people up for real danger later on,” says Mr Moore.
https://www.economist.com/china/2023/06/05/chinas-new-great-wall