By Bruno Coppe | US Environmental Policy Student
Introduction
The American Dream is the idea that anybody from any background can progress through society and achieve success via hard work. A noticeable sign of having “achieved” the American Dream is buying your first home property. Typically, homes are the largest financial assets that Americans own, measured monetarily.[1] In aggregate, residential real estate in the United States is valued at $50 trillion, which is almost double the current annual GDP.[2] A recent study found that 3% of that value, $1.5 trillion, could be reduced because of climate related risks within thirty years.[3] This estimate does not account for future inflation, so the $1.5 trillion estimate is likely to be higher in future dollars.
Generally, home purchasers put around 20% of their own equity into a home purchase, leveraging the remaining 80%. As the value of the home increases, the equity that homeowners originally put in multiplies, highlighting the benefit of taking out a mortgage. However, when home property values decrease, the equity shrinks, panic spreads, and Americans are hurt. As somebody who is interested in both real estate and our environment, I would like to explore what effects climate change is having on American real estate.
The effects of climate change vary across the geography of our country. Areas on the coast face rising sea levels and hurricanes, whereas inland regions may be more prone to droughts, floods, heat waves, etc. Recently, the frequency and severity of natural disasters have surged.[4] These natural disasters have multiple direct and indirect effects. To start, as seen with Hurricanes Helene in 2024, property gets destroyed. Value is wiped away. An estimate found in the aftermath of that hurricane, that the need for housing assistance was upwards of $13.4B and 73,700 homes were damaged.[5] Even the property that remained intact may be valued at a lower level because of the damage to neighboring properties and the increased risk of another storm.
There are other indirect but equally devastating consequences to areas prone to natural disasters. Increased weather risk may prompt insurance providers to increase premiums or withdraw its coverage from such high-risk areas. If property values decline in a certain geographic area, the local government may find it challenging to raise money via property taxes, which may put communities under financial strain. Climate change may also cause waves of migration out of high-risk areas to other regions in or out of the US. This blog will exemplify the effect of climate change on real estate in America via two distinct case studies.
Nantucket Case Study
Nantucket is an island off the coast of Massachusetts. Its naturally beautiful beaches, preserved town, and island feel are just some of the reasons why people decide to summer there. It is a popular destination among East Coasters. As one myself, I can relate; I have been three times. It is lovely!
Nantucket is small; you can easily bike around the island in just a few hours. The first time I visited, in 2020, I did just that with my father. When we made it to the coast facing the Atlantic Ocean towards the East, we observed houses that were very close to the water. There were panels with text and pictures explaining how the coast had receded with time. I remember thinking that those homes would soon be swallowed up by the water.
Recently, one property on Nantucket listed for over $2 million during the 2023 summer.[6] Half a year later, the sale closed at $600,000, a 70% decrease on its original ask price.[7] A Nor’easter that did not appear to be overly potent wiped out 70 feet of the beach it sat on.[8] Storms on the island have recently become known to have the capacity to wipe out dozens of feet of shoreline.
I am sure that the seller was very upset after missing out on almost $1.5 million of additional earnings. I would also assume that the new buyers know that they are the last owner of that property. Knowing that the home will not survive much longer, the new buyers may choose not to invest more capital into the maintenance of the home, which could mean that it will deteriorate quicker. Additionally, the town of Nantucket may begin to receive less property tax revenue from such lowered valued homes. Decreased revenue for the town of Nantucket could result in it needing to make budget cuts or borrow money to fill the void.
This case was not a one-off; many other houses have lost substantial value because of receded shorelines.[9] Houses have succumbed and collapsed into the ocean, had to be demolished, or even entirely moved on a short notice.[10] The videos and images are heart wrenching.
LA 2025 Wildfires
Los Angeles and neighboring cities were ravaged by wildfires in January of 2025. The California Department of Forestry and Fire Protection has estimated that over 57,000 acres and 16,200 structures were destroyed.[11] I personally know somebody whose home burned to the ground.
Having a roof over your head is a universal human necessity. So when people lose their shelter, they naturally look for a new place to stay. “According to Redfin, the search term “Los Angeles homes for rent” jumped 186% as of Jan. 15, since the first week of the year.”[12] A decrease in supply of housing caused by the wildfires and the increase in the demand of housing put additional upward pressure on the already high prices of rent and property values in Los Angeles. To make matters worse, LA was already experiencing a housing shortage prior to the wildfires, which only exacerbated the problem.[13] A study by the Washington Post found that rents in LA County jumped 20% two weeks after the fire broke out.[14]
Because of the increased risk of natural disasters in this high risk area, insurance providers are also taking action. Nationally, from 2013 to 2022, insurance as a percentage of mortgage payments rose to over 20% from 7-8%.[15] These numbers are expected to be even more amplified in high risk areas such as LA. Another option for insurance providers would be to drop coverage for its clients. Both cases happened in the LA wildfire scenario. State Farm dropped almost 10,000 clients in neighborhoods that burned just months before the fires broke out, and raised premiums for clients who it didn’t drop.[16] Either way, homeowners lost out. State Farm received so much bad PR that it even dropped its Super Bowl ad.
What’s Next
Uncertainty awaits. One thing I foresee is a migration away from ultra high risk areas that are getting eaten away by the environment. Climate change tends to disproportionately hurt poor people who do not have the means to protect their home or find a new home far away. Property destruction and migration will affect all Americans, and I am hopeful that this will lead to an awakening across political leaders and drive bipartisan solutions.
Potential Solutions
What are some solutions, and what entities could implement them? Municipal and state governments have the ability to implement policies that are tailored to their certain geography and population. For example, cities and counties in California have decided to ban fireworks because they have directly caused $46M in property losses and set more than 10,000 acres aflame across the past 10 years.[17] This is a fit solution for California because for years, their forests have been arid and at increased risks of wildfires. Maybe storm prone locations in the US could adopt policies including one in which contractors would be hired to remove dead tree limbs, secure gutters, or bury power cables before hurricane season, mitigating the damage of superstorms. At the federal level, reports can be ordered to quantify the cost-benefit and environmental equity analyses of separate carbon reduction solutions in comparison to the cost of damaged property values, internal migration, immediate aid, etc. These findings can then be used to implement future policies. Pollution and climate change are public issues that require cooperation from cities, states, and countries; working together, we can make the most progress to protect our one planet we call home.
[1] Frankel, Todd. “Climate Change to Wipe Away $1.5 Trillion in U.S. Home Values, Study Says.”
[2] Ibid.
[3] First Street Foundation. Property Prices in Peril.
[4] Siddiqui, Faiz. “In Florida, Housing Developers Are Flooding Into Flood Zones.”
[5] Office of State Budget and Management. Hurricane Helene Recovery: Revised Damage and Needs Assessment.
[6] Nova, Annie. “Luxury Homes on These Beaches Are Losing Value Fast as Effects of Climate Change Hit Hard.”
[7] Ibid.
[8] Ibid.
[9] Solomont, E.B. “The Race to Save Nantucket’s Homes From Falling Into the Ocean.”
[10]Ibid.
[11] Renter, Elizabeth. “How the L.A. Wildfires Will Affect the Housing Market.”
[12] Ibid.
[13] Ibid.
[14] Ibid.
[15] First Street Foundation. Property Prices in Peril. First Street Foundation.
[16] Carlton, Jim. “Why State Farm Pulled the Plug on California.”
[17] “Illegal Fireworks Ignited California Blaze That Caused $10m in Damage, Mayor Says.” The Guardian
Sources
Carlton, Jim. “Why State Farm Pulled the Plug on California.” The Wall Street Journal, 21 Mar. 2024, https://www.wsj.com/business/state-farm-california-pulled-plug-fires-c702fff8. Accessed 26 Mar. 2025.
Frankel, Todd. “Climate Change to Wipe Away $1.5 Trillion in U.S. Home Values, Study Says.” The Wall Street Journal, 21 Feb. 2024, https://www.wsj.com/real-estate/climate-change-to-wipe-away-1-5-trillion-in-u-s-home-values-study-says-60c6970b. Accessed 26 Mar. 2025.
First Street Foundation. Property Prices in Peril. First Street Foundation, 2024, https://firststreet.org/research-library/property-prices-in-peril. Accessed 26 Mar. 2025.
“Illegal Fireworks Ignited California Blaze That Caused $10m in Damage, Mayor Says.” The Guardian, 24 July 2024, https://www.theguardian.com/us-news/article/2024/jul/24/illegal-fireworks-california-wildfires
Nova, Annie. “Luxury Homes on These Beaches Are Losing Value Fast as Effects of Climate Change Hit Hard.” CNBC, 14 June 2024, https://www.cnbc.com/2024/06/14/luxury-homes-on-these-beaches-are-losing-value-fast-as-effects-of-climate-change-hit-hard.html. Accessed 26 Mar. 2025.
Office of State Budget and Management. Hurricane Helene Recovery: Revised Damage and Needs Assessment. Governor Roy Cooper, 13 Dec. 2024, p. 32. Accessed 21 Apr. 2025.
Renter, Elizabeth. “How the L.A. Wildfires Will Affect the Housing Market.” U.S. News & World Report, 12 Nov. 2018, https://realestate.usnews.com/real-estate/articles/how-the-la-wildfires-will-affect-the-housing-market. Accessed 26 Mar. 2025.
Siddiqui, Faiz. “In Florida, Housing Developers Are Flooding Into Flood Zones.” The Wall Street Journal, 9 Mar. 2024, https://www.wsj.com/finance/banking/florida-flood-zones-development-0593cdb9?mod=article_inline. Accessed 26 Mar. 2025.
Solomont, E.B. “The Race to Save Nantucket’s Homes From Falling Into the Ocean.” The Wall Street Journal, 27 Feb. 2025, https://www.wsj.com/real-estate/luxury-homes/nantucket-beach-erosion-945cdd24. Accessed 26 Mar. 2025.
Bruno, I really enjoyed reading this blog post. I am hoping to work in the real estate industry following graduation, so I have followed the field and related themes very closely. Climate change issues stemming from land loss, restrictive policy, and increasing insurance prices have added significant costs to the industry that did not exist a couple of years ago. Especially from an investment standpoint, insurance costs increasing by more than 11 precent make it even more difficult for investments impacted by climate change to seem attractive anymore [1]. To expand upon what you talked about in the blog post, it will be interesting to see how the value of our nations public lands are affected by climate change. The government owns roughly 640 million acres and some of that land may decrease in value over the next couple of years. This change in value has implications to everybody because the national debt is currently valued at over $36 trillion. It will be interesting to see if the government tries to sell some of these lands in order to decrease the national debt and is able to receive fair value for the assets. If you’re looking to learn more about real estate and environmental impacts to the industry, I recommend checking out the Duke Undergraduate Real Estate Club!
Sources
1. Gelles, D. (2024, October 8). Hurricane damage drives up commercial real estate insurance costs. The New York Times. https://www.nytimes.com/2024/10/08/business/hurricane-commercial-real-estate-insurance.html
Bruno, this is a great blog post. Thank you for putting it together. I think this is a really interesting issue that we are going to see a lot more of in the next decade. I recently had a conversation with someone who covers the insurance market and I was able to ask him about this issue. He explained it to me like this: insurance companies do not make a large profit margin on their premiums, if at all. Instead, they operate at a high leverage, and invest their revenue streams into a mix of financial securities, relying on investment returns to meet short and long term debt obligations. Additionally, he told me that in the past decade, each major insurance firm has developed a highly sophisticated weather risk model that they can use to determine the expected financial losses associated with certain geographical areas. In the case of the LA fires, State Farm’s model must have determined that the cost to pay out for damages to policy holders would outweigh those associated with the negative PR image and lost premium payments. What struck me as odd, however, was that during our conversation, he told me that the government does not use these models when determining potential areas of concern. Apparently, they are extremely accurate at predicting extreme weather events weeks or even months in advance. This is a technology that the government should be using, so that communities and state governments can properly prepare for estimated losses. This seems like an easy first step to helping mitigate an issue that is affecting millions of Americans.
Great Blog Post Bruno! I like the way you tied everything together! I thought it was awesome how you tied in the American Dream to real estate and the homeownership. It points out that climate related losses really encompass social and financial losses. The case studies of Nantucket and LA are especially great. They give real world examples today of how climate change can destroy and devaluate properties. You also did a great job noting the trickle down effects on tax revenue and insurance claims. I was blown away at you figures and this post has made me think reconsider where I would like to buy a home in the future.