2/4/25 – First Street Foundation released a new study today as part of its 12th National Risk Assessment. “Property Prices in Peril” estimates that real estate values could lose $1.4 trillion over the next 30 years due to climate-related risks. That number is unadjusted for inflation.

First Street specializes in climate risk financial modeling. Its clients include financial institutions, companies and governments. The organization announced the research in a webinar this morning. I will summarize it below.

Summary of Research

The basic premise: Homeownership has long been the primary pathway to wealth creation in the U.S. Prospective homeowners decide where to live by balancing quality of life and cost of living. That drives home value increases and decreases.

Crucial Role of Insurance Costs

But climate change is now causing many to recalibrate that value proposition as insurance costs now represent a higher proportion of mortgage costs than ever before. And First Street predicts premiums will continue to rise until they become actuarily sound.

The First Street presentation began with several slides on insurance rates and factors affecting them (losses, predicted risk increases, government regs, etc.). In some areas, monthly insurance payments could soon comprise 25% of total home payments. First Street predicts that…

Huge increases in insurance premiums will drive up the cost of home ownership and make homes in risky areas less affordable for many.

In addition, money paid out to insurance companies does not appreciate like the home itself does. As a consequence, a lower percentage of a family’s total income will be available to build wealth from home ownership in the future.

Secondary Impacts

Further, the authors found that “The implications for local economies extend far beyond direct housing market effects to regional GDP, household financial stability, and public services.”

“Communities facing declining property values due to climate risks confront multiple economic threats,” says First Street. “Falling home equity reduces household wealth and borrowing capacity, constraining consumer spending and local economic activity.”

“Lower property assessments significantly impact state and local government revenues, with property taxes accounting for over 30% of local government funding nationwide. This reduction in revenue can trigger a vicious cycle, where limited funds hinder investments in critical climate adaptation infrastructure just when it is most urgently needed— further exacerbating the decline in property values.”

“States like Texas and Florida, which rely heavily on property taxes due to their no-income-tax structure, are increasingly exposed to fiscal risks as climate change threatens their tax base by impacting property values.” 

Flooding Most Widespread Risk

“Flooding will emerge as the most geographically widespread driver of climate migration, leading 11.9 million Americans to relocate by 2055,” says the study.

“This migration pattern affects every region of the U.S., from coastal communities facing sea level rise and storm surge to inland areas facing fluvial flooding from rivers and streams to urban areas subject to pluvial flooding from heavy rainfall events,”

First Street projections indicate that “over one-third of U.S. counties and more than half the population are exposed to frequent, chronic flooding from precipitation alone.”

Effects of Climate Migration Most Apparent in Small Areas

Instead of looking at national and state trends, the First Street study looked at every census tract in the county. It found that housing choices at that micro-economic level are increasingly being driven by awareness of climate risks such as flooding.

Five Market Segments Illuminate Different Climate-Migration Patterns

Looking forward, First Street modeling segments neighborhoods into five categories:

• Climate Abandonment – 26% of neighborhoods/census tracts, show sustained population loss due to climate change.
• Risky Growth – 31% of neighborhoods continued to grow despite high risk, suggesting other strong economic or social drivers.
• Tipping Point – 27% of neighborhoods show initial growth followed by decline as rising insurance premiums and climate impacts reach unsustainable levels.
• Economic Decline – 11% of neighborhoods lose population despite low risk and stable insurance rates, suggesting economic factors, not climate, are driving decline.
• Climate Resilient – 5% of neighborhoods attract population growth with low risk and stable insurance rates.

The study found five counties in Texas fell into the “risky growth” category: Fort Bend, Denton, Williamson, Travis and Montgomery.

For More Information

To learn more, visit the First Street Foundation website where you will find links to:

• Video of the webinar
• The presentation used in the webinar
• Text of the study

Rehak’s Take

All in all, the authors made an excellent case for “climate caution.” That in itself could affect migration and home prices.

But the study did not address many of the factors that have made Texas one of the fastest growing states in the country, despite the fact that more people live in Texas floodplains than live in 30 states.

For instance, the study did not take into account immigration or variation in tax rates compared to other states.

I’m also a bit skeptical of any study that tries to project current trends 30 years into the future. Fifty years dealing with market research taught me how quickly trends can change.

Despite those concerns, the study makes excellent reading. It also makes a valuable contribution to our understanding of flooding and how it could impact the future of the Houston region.

Posted by Bob Rehak on 2/4/25

2716 Days since Hurricane Harvey