I’m Steve Fudge, and I sell real estate in the City of Toronto, Ontario, Canada. Welcome to my blog on housing, culture, and design. This is where I share my insights and experiences on almost every aspect of the Toronto (and Canadian) Real Estate Market – and life here in the TDot!
Today’s post is about climate risk assessment and real estate values. Why? Because not even two weeks ago a fast-moving thunderstorm hit the provinces of Ontario and Quebec, leaving a trail of wind and rain damage, and nearly 900,000 households without power. It roared through downtown Toronto with such intensity the 100-year-old maple trees on my property, as well as my neighbours, had their massive canopies shredded. We suspect they’re now unstable, pending the report from the arborist. Fortunately, no one was hurt and only some fencing sustained minor damage. The outcome was significantly worse for many in Ontario.
I gotta say the suddenness and the intensity of this storm was disarming. And yet it pales in comparison for those directly impacted in British Columbia in November 2021, when an atmospheric river unrelentingly dumped so much precipitation it resulted in major landslides and severe flooding, forcing nearly 20,000 people to abandon their homes. (Not to mention the victims across the globe of increasingly common hurricanes, typhoons, and the like.)
Climate change is a threat to the planet, and the reality of it is becoming more and more prevalent with the incidence of natural disasters, major storms, and other climate events that alter the geography and topography of where we inhabit.
The UN’s latest climate report is dire, as outlined in this CBC article, “Latest Climate Report Is A ‘File Of Shame,’ UN Chief Says“. The experts say that if current practices with greenhouse gas emissions are maintained we can expect temperatures to increase from 2.4 C to 3.5 C this century, well beyond targets. It’s not hopeless though, as the report outlines a number of actionable items that countries can pursue to reduce greenhouse gas emissions to an impactful level.
I talk a lot about the changing earth and sustainable housing in my Healthy Home series. I’ve set up a number of links at the end of this blog on different topics for your consideration.
Keeping in mind that climate change is a real and dynamic entity, there could be implications for housing and land. Climate risk assessment is a tool that is currently launched in the U.S., but there are plans to adopt the tool here in the Canadian market. The fear is that climate factors could negatively impact real estate values (i.e. the likelihood of fire, flood, erosion, and a host of other issues). It really gives new meaning to the real estate mantra location, location, location.
A Tool For Today’s Market
U.S. company Climate Check empowers “property buyers, owners, and brokers by exposing and quantifying the risks related to the climate crisis through our proprietary risk assessment and report”.
Realtors in Canada are calling for these criteria to be added to MLS listings; this is already happening in the U.S. through brokerage Redfin.
House hunters are accustomed to using tools like Walk Score or Bike Score to create context around how a home’s location is pedestrian-friendly. In a similar fashion, house hunters can plug in a home’s address and receive a score out of 100 for climate risk (one being very low risk, with risk increasing as you approach 100). They look at events like abnormally high heat, storms, fires, drought, and flood hazards. They provide this assessment for today – and also use data sets to look into the future – 40 years ahead to determine the likelihood that a property might be impacted by a climate-related event. In the U.S. 30-year mortgages are popular, so this timeline is useful both for lenders and for potential homeowners.
It’s important too for homeowners to be able to consider the future value of a property, especially given that housing is so expensive – and that a home is now a significant portion of a household’s net worth. This goes beyond the cycles of real estate, predicated by supply and demand as well as other economic factors, where a buy and hold strategy is the recommended way to reap financial rewards over time.
But with changes to the earth inevitable, is an extended timeline for the tenure of homeownership a risky proposition?
The overall risk score is projected by using internationally accepted global climate models that look at worst-case scenarios for the continued release of CO2 into the atmosphere, increasing global climate changes. They also consider how much your overall risk might change over time, based on looking at changes that have happened in a given location back as far as 1900 and look at specific impacts, along with stresses on local infrastructure.
It’s not just prospective homeowners that can use this data to make informed decisions, rather current homeowners benefit as well. They can mitigate potential damage by making changes to their properties – by removing brush near their home and installing barriers in vents and entry points to prevent embers from entering a home. They can mitigate flood damage by making sure that things are airtight and perhaps elevating a home’s foundation to rise above floodwaters. They can remove large trees that might fall and cause damage to a home during an ice storm or a weather event with high winds.
Is your home ready to weather an emergency? Check out our posts:
How This Impacts Real Estate Values
Homeowners already experience the risks of climate change through their insurance premiums, with homes located in flood plains, for example, posing greater risk and therefore getting higher premiums. And according to recent data, claims resulting from climate change-related events have grown exponentially over the last decade. It’s feasible that insurance policies in the future will not have the same coverage as they currently do, or they’ll be cost-prohibitive to many households.
But what does this element of risk do to property values?
As this Edmonton Journal article “Climate Risk Assessments May Soon Impact Canadian Real Estate Prices” points out, getting a high-risk rating isn’t necessarily a deal-breaker or a certainty that real estate values would necessarily diminish over time.
It’s about having access to all information to make sure you make a decision that best suits your needs today and tomorrow. It’s one piece of the pie. And as this article mentions, people don’t rely simply on climate factors to make purchasing decisions. People still love waterfront property, even though there is obviously a greater flood risk or possibly hurricane risk, depending on the location.
Being armed with this kind of information is akin to doing a property inspection prior to purchase. If you uncover defects or problems, it doesn’t necessary derail your purchase. It just helps you have context so that you can best anticipate costs- and make sure that the purchase still makes sense to align with your goals.
In this CBC article “Climate Risk Scores Could Reshape Canadian Real Estate Markets, Some Experts Say“, it talks about niches in the market that seem to represent value increase (or decrease). For example, as the article cites, homes in Miami that are at a higher elevation have appreciated more than homes at lower elevations, given the risk of hurricanes and flooding. It also cites a rent increase in Chico, California that occurred after a neighbouring town basically burned to the ground. They refer to this as “climate gentrification” where homeowners en masse could be subject to displacement and/or unaffordability, as a result of a climate-driven event.
It is especially important to start considering these risks now. Why? Because as greenhouse gas emissions increase the probability of destructive climate events happening also increases. Better to be prepared, well-stocked, and ready well in advance, than to scramble for items like a generator after a weather event fuels demand. And for those making a property purchase, buying a property without all the information is risky – no matter the market conditions – and climate risk assessment really should be on your due diligence list.
In Canada, there has been localized action to address climate change and real estate, for example with a collaboration between the Calgary Real Estate Board and the City of Calgary, sharing mapping data around the devastating floods that hit the region in 2013. Also, the Insurance Bureau of Canada is working with the Federation of Canadian Municipalities to gather reports to help mitigate climate change risk assessments at the municipal level.
Beyond the average homeowner, this is an important new tool for institutional investors, who can use this data in their valuations of assets or whole areas or developments. It can help with accuracy. Additionally, this report from McKinsey suggests that not only should institutional investors consider climate risk with their own holdings, but take a proactive approach to reduce their own emissions, thereby contributing to the continued growth of real estate asset values. Click here to read “Climate Risk And The Opportunity For Real Estate“.
Here are some great articles with more information about climate risk assessment and its growing role in real estate “A New Ratings Industry Is Emerging To Help Homebuyers Assess Climate Risks“, “Is Climate Change Making Your Home A Bad Investment?” and “Climate Risk Assessments & Climate Refugees Will Impact Property Values“.
If you found this post helpful and informative, consider checking out these other Healthy Home articles by Urbaneer.com:
Feeling at home in your new abode isn’t just about décor and dreams. It’s about having peace of mind through due diligence and advice gained from experience. With a cautious, measured – and successful – approach The Urbaneer Team is here for your real estate wishes, wants and needs.
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Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-800
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