40%. The real estate sector is accountable for 40% of the global carbon dioxide emissions. That is a significant slice of the pie. Of these emissions, a whopping 70% comes from building operations, while the rest is from construction. If the damage that a cosmic emission as such has on the environment does not waver you, the mortality cost of it should. The cost of the carbon footprint that real estate leaves is not merely limited to dollars, although you wish it was. It has an unthinkable effect on lives and there is no turning back.
Interestingly, this is because the tables have turned. Even though initially it was the real estate sector that was giving nature a hard time, nature has now squared up and retaliated with climate change, and the aftermath does not look pleasant. Especially not in the real estate sector.
It is climate change vs. real estate and the former is winning by a mile
Global climate change has become an undeniable reality. It is exerting significant pressure on the real estate industry. With rising sea levels, extreme weather conditions, and unpredictable climate patterns the real estate is experiencing a seismic change. Causing existing buildings and infrastructure projects to be impacted adversely.
One of the major concerns that seem to be shaking the core of real estate is the fact that the physical changes that Earth and its landscape are undergoing are already impacting the value and desirability of certain properties. For instance, the frequency with which floods happen in the current world is alarming, to put it mildly, that is. Severe floods are often followed by landslides, shifting the structure of landscapes. This forces the real estate sector to reconsider using land that they had previously marked as profitable. Re-planning everything from the get-go costs more money.
Along with the real estate sector, insurance companies are bearing the brunt of climate change impacts, facing an increase in claims related to extreme weather events. In response, a considerable number of insurers are re-evaluating their risk models, leading to higher premiums for properties in disaster-prone regions (which seem to be everywhere, according to how things are heading). It goes without saying then, that an escalation in insurance cost is inversely proportional to the financial stability of property owners. They could face financial strain, leading to reduced property values and investment returns. Thus, they will be stuck in a vicious cycle.
If you thought floods were bad, wait until you hear about how the Earth is getting hotter with every passing minute. And not in a good way. 2020 was viewed by most as the wake-up call, It was considered the hottest year on record since 1880 sharing the title with 2016. To give you a very slight glimpse at the situation, in the year 2022, the UK was hit by record-breaking heat waves. The occasion attracted notable interest from various experts in the real estate industry, especially professionals who were fluent in surveying and property inspection parlance. They accurately foretold an increase in instances of subsidence, as a result of the heat waves.
To add fuel to the fire, heat waves caused a water scarcity that caused the soils to become drier, creating an elevated risk of subsidence for properties, especially in regions like the southeast and the midlands of the UK. What was disheartening was that these areas used to be famous for having clay-rich soils that are not prone to be victimised by subsidence. But in the face of the unprecedented heat, their resilience shrunk. The Royal Institute of Surveyors (RICS) stressed the need for property professionals to be particularly attentive to older housing stock, which typically had shallower foundations making them more susceptible during these conditions.
All extreme weather conditions that the world is experiencing right now result in casualties.
Extreme heat?
Damages the infrastructure and structural integrity of buildings. This will prove to be risky for people living in poorly ventilated buildings. And on top of that, there will be an increased demand for energy to combat the heat.
Drought and water stress?
There will be a significant strain on water-dependent infrastructure, like hydroelectricity. This will lead to higher water costs and harm the water quality.
A study published in the peer-reviewed journal ‘Nature Climate Change 2023’ has highlighted a significant issue in the U.S. real estate market. The study reveals the existence of a substantial real estate bubble, where properties are priced much higher than their actual value due to prevailing risk of flooding. This overvaluation is estimated to be in the range of $121 to $237 billion, but there is a chance that this is an underestimate.
Wildfires?
A countless number of residential and commercial structures have been constructed in regions that are vulnerable to wildfires. This poses a considerable risk of property damage and destruction. Not to mention that the air quality will be abysmal on local and global levels. A prominent example of an instance as such was the incident that happened in Australia in 2019-20 where 3000 homes were destroyed. Additionally, offices, schools, and airports were closed.
One of the most wildfires that has the world distraught, is the one that broke across Hawaii from August 8th to August 10th 2023. The death count is said to have exceeded 50 and the “older neighbourhood” of Lahaina and a bustling economic centre in western Maui that attracted millions of tourists annually has turned to ashes. More than 1700 buildings are said to have crumbled to the ground.
Rising sea levels and subsidence?
Coastal properties and those situated on deltas will face an amplified risk. Potential risks include coastal erosion, salination of agricultural land, and subsidence.
As overwhelming as the current situation is, an amalgamation of all these concerns should be considered as a plea for help. Not only by the real estate sector but also by nature herself.
Prevention is better than cure. But what if it is incurable?
Then we adapt.
Preventing climate change is not a card that is there in the hand real estate and humanity in general has been dealt with. That threshold has already been crossed. Now we are on the other side where the grass is not greener, literally and metaphorically.
What we seem to have not realised or failed to give due consideration to, is that as much as this is an environmental issue, it is also an economic issue. Therefore it is apt that governments, businesses, and individuals work together to mitigate climate change. A few steps that can be taken to lighten the blow that climate change lands are:
- Adopting environment-friendly construction technologies
- Providing developers and the construction sector with incentives to adopt eco-friendly practises
- Encourage the buyer to invest in and demand eco-friendly projects by giving them discounts on taxes or stamp duty rebates
- Implement green financing (if you haven’t already)
- Familiarise yourself with climate intelligence (this utilises AI techniques and advanced machine learning to collect and analyse vast volumes of data to develop sustainable solutions to combat climate risks. It also inculcates climate actions into business strategies).
- Practise smarter consumption to lessen the carbon footprint
It is a common trait of humans to not take preventive measures or action unless trouble knocks at your doorstep. Climate change is not only at real estate’s doorstep, it has made its way into its living space and occupied all rooms. Reverting this transformation is not an option. But taking precautionary measures is. Therefore, real estate far and wide should consistently ask the question of “how do we adapt?”.
(Sandunlekha Ekanayake)