TODAY’S STUDY: The Cost Of Sea Level Rise Comes Home
Underwater; Rising Seas, Chronic Floods, and the Implications for US Coastal Real Estate (Union of Concerned Scientists)
Along nearly 13,000 miles of coastline of the contiguous United States, hundreds of thousands of buildings lie in the path of rising seas: schools, hospitals, churches, factories, homes, and businesses. Long before these properties and infrastructure are permanently underwater, millions of Americans living in coastal communities will face more frequent flooding, as the tides inch higher and reach farther inland. As sea levels rise, persistent high-tide flooding of homes, yards, roads, and business districts will begin to render properties effectively unlivable, and neighborhoods—even whole communities— financially unattractive and potentially unviable.
Yet property values in most coastal real estate markets do not currently reflect this risk. And most homeowners, communities, and investors are not aware of the financial losses they may soon face.
BILLIONS OF DOLLARS OF PROPERTY AT RISK IN THE COMING DECADES
In the coming decades, the consequences of rising seas will strain many coastal real estate markets—abruptly or gradually, but some eventually to the point of collapse—with potential reverberations throughout the national economy. And with the inevitability of ever-higher seas, these are not devaluations from which damaged real estate markets will recover.
This analysis estimates the number of homes and commercial properties throughout the coastal United States that will be put at risk from chronic, disruptive flooding—defined as flooding that occurs 26 times per year or more (Dahl et al. 2017; Spanger-Siegfried et al. 2017)—in the coming decades. It brings together data on coastal regions that are projected to experience this type of flooding, and data on existing properties provided by Zillow*, the online real estate company. Our findings indicate that sea level rise, driven primarily by climate change and even absent heavy rains or storms, puts more than 300,000 of today’s homes and commercial properties in the contiguous United States at risk of chronic, disruptive flooding within the next 30 years. The cumulative current value of the properties that will be at risk by 2045 is roughly $136 billion. In those 30 years—encompassing the terms of a typical mortgage taken out today—what will the properties be worth if they are flooding on a chronic basis? And how will the broader coastal real estate market fare in the long term? Our analysis finds that by the end of the 21st century nearly 2.5 million residential and commercial properties, collectively valued at $1.07 trillion today, will be at risk of chronic flooding.
Many experts in risk assessment, credit ratings, real estate markets, insurance markets, and flood policy (dozens of whom were consulted for this report), recognize that the risk of sea level rise to coastal real estate is significant and growing— and that for the most part, financial markets do not currently account for these risks.
RISKS BELOW THE RADAR
In many cases, the risks are masked by short-sighted government policies, market incentives, and public and private investments that prop up business-as-usual choices and fail to account for sea level rise (McNamara et al. 2015). Even in places such as Miami-Dade County, which is already experiencing disruptive tidal flooding, the real estate market is only just beginning to adjust (Tampa Bay Times 2017; Corum 2016; Urbina 2016; Spanger-Siegfried, Fitzpatrick, and Dahl 2014). This disconnect can be attributed to a lack of information about risks; subsidized, myopic development choices; and the continued attraction of seaside property and vibrant coastal economies (Keenan, Hill, and Gumber 2018). Other smaller, less in-demand locations, such as in coastal Louisiana and the eastern shore of Maryland, are already facing a chronic flooding reckoning (Spanger-Siegfried et al. 2017).
Properties will not be the only things to flood. Roads, bridges, power plants, airports, ports, public buildings, military bases, and other critical infrastructure along the coast also face the risk of chronic inundation. The direct costs of replacing, repairing, strengthening, or relocating infrastructure are not captured in our analysis, nor do we account for the indirect costs of flooded infrastructure, including disruptions to commerce and daily life (Neumann, Price, and Chinowsky 2015; NCA 2014; Ayyub and Kearney 2012). Taken together, these costs of chronic flooding of our coastal built environment—both property and infrastructure—could have staggering economic impacts.
A NARROWING WINDOW OF OPPORTUNITY TO MAKE BETTER CHOICES
Even when these risks are understood, there are seldom easy solutions. As chronic flooding increases in coastal communities, a tricky cycle begins: investments in adaptation measures could be made to potentially forestall the flooding of properties and the subsequent decline in the tax base. But for communities to maintain credit-worthiness and access to the capital needed for these investments, they would increasingly need to show that they have already made smart decisions and investments to adapt and build resilience (Moody’s Investors Services 2017; Walsh 2017; S&P 2016). Falling behind in this cycle, or lacking the means to invest in the first place, could have grave fiscal consequences.
’ There are many stakeholders in the coastal real estate market, from individual homeowners and business owners, to lenders, taxpayers, developers, insurers, and investors. Whether a property market crashes, or property values steadily decline in response to worsening flooding, these stakeholders are poised to sustain large collective losses. Many coastal residents, whether they own homes or not, will be affected as shrinking property tax bases prevent cities and towns from fully funding schools, emergency services, and infrastructure repairs, or as property tax rates rise for all residents to compensate for those properties devalued by flood risks.
As a nation, we have a narrowing window of opportunity to make better choices and ameliorate risks. The actual physical risks from sea level rise are growing and risk perceptions in the marketplace can shift abruptly, both of which leave communities vulnerable to economic hardships that many will not be able to cope with on their own. This creates a national imperative to prepare individuals and brace our communities and economies for an irreversible decline in the value of many coastal homes and commercial properties, even as we create pathways to new beginnings in safer locations. Given the scale of this challenge, action from the local to the national level will be required, engaging many sectors of the economy. The federal government has a unique and critical leadership role to help provide the tools, funding, resources, and policies that can guide more resilient choices and equitable outcomes along our imperiled coasts.
There will be no simple solution. But continued inaction is unacceptable; we must use the remaining response time wisely to meet this serious threat and protect coastal communities as effectively as we can.
In this analysis, we identified residential and commercial properties at risk of chronic inundation as sea levels rise, defined as experiencing at least 26 floods per year (Figure 1) (Dahl et al. 2017; Spanger-Siegfried et al. 2017). Using data provided by Zillow (Zillow 2017)*, we determined these properties’ current collective value and contribution to community tax bases. We looked at outcomes for the entire coastline of the contiguous United States at multiple points in time through the end of the century, based on localized projections of three different sea level rise scenarios developed for the 2014 National Climate Assessment (Huber and White 2015; Walsh et al. 2014; Parris et al. 2012). In addition, we examined basic demographics of at-risk communities, including the number of people currently housed in these properties and at risk of being displaced, as well as factors such as race, age, and income that could make some populations more vulnerable than others to the physical and financial risks of flooding (Cleetus, Bueno, and Dahl 2015; US Census Bureau 2010; Cutter, Boruff, and Shirley 2003). For more information see Appendix: About this Analysis, p. 22.
Given the importance of individual properties to those who own or live in them, and the broader importance of the coastal real estate market to many market actors invested therein, the following results are based on the high sea level rise scenario, a scenario that results in 6.6 feet of global sea level rise by 2100 and should be used to inform decisionmaking where there is a low tolerance for risk (Parris et al. 2012).1 Our results through the end of the century are generated based on today’s existing property numbers, property values, and related data (Zillow 2017), and today’s demographic statistics (US Census Bureau 2015; US Census Bureau 2010). Aside from rising sea levels and their direct threat to property, our results do not reflect what the future will bring in terms of additional coastal development, adaptation measures, the impact of major storms, population growth, other changes in property values, or other relevant factors. As a result, our findings may under- or overestimate the future number of properties, people, and value that will be affected over time (Hardy and Hauer 2018; Hauer 2017; Lentz et al. 2016).
THE COAST-WIDE PICTURE
With this high sea level rise scenario, we found that within the next 15 years roughly 147,000 existing homes and 7,000 commercial properties—currently worth $63 billion—are at risk of being inundated an average of 26 times per year, or more. About 280,000 people are estimated to live in these homes today; in this time frame many will need to either adapt to regular floods or relocate.
By 2045—near the end of the lifetime of a 30-year home mortgage issued today—sea levels are projected to have risen such that nearly 311,000 of today’s residential properties, currently home to more than half a million people, would be at risk of flooding chronically, representing a doubling of at-risk homes in the 15 years between 2030 and 2045. Not only are the mortgage loans on these homes at growing risk of default if the value of the properties drops, but each successful sale of one of these homes represents the potential transfer of a major latent financial liability. Eventually, the final unlucky homeowners will hold deeds to significantly devalued properties (Conti 2018). Our calculations show that in about 120 communities along US coasts, the properties that would be at-risk in 2045 currently represent a full 20 percent or more of the local property tax base, a crucial source of funding for schools, fire departments, law enforcement, infrastructure, and other public services. For about 30 communities, properties accounting for more than half of the local property tax base today would be at risk by 2045.
By the end of the century, as many as 2.4 million of today’s residential properties and 107,000 commercial properties, worth $1.07 trillion today—roughly equivalent to the entire gross domestic product of Florida—would be at risk of chronic flooding (BEA 2018). Those properties are estimated to currently house about 4.7 million people, the equivalent of the entire population of Louisiana.
Together with previous studies of property at risk from rising seas, our findings illustrate a clear, rapidly growing risk to both coastal communities and the nation as a whole, given the deep financial stakes that both the private sector and the US taxpayer have in our coasts (Figure 2, p. 6) (Center for the Blue Economy 2018; Bretz 2017).
COMMON THEMES AND STATE-LEVEL FINDINGS
As sea levels rise, each of the 23 coastal states in the contiguous US faces the loss of residential and commercial properties and frequent flooding of populated areas, posing new challenges for all communities and adding particular stressors for communities of color and low-income and working-class communities. The following is a selection of common themes that arise across many states. While our discussion of states and locations highlights areas of high risk, this does not mean that other locales face only minimal risk.
MOST TO LOSE? FLORIDA AND NEW JERSEY…HOUSING RISK HOTSPOTS: CALIFORNIA AND NEW YORK…POVERTY, RACIAL INEQUITIES, AND TIDES CREATE HOTSPOTS OF RISK: LOUISIANA, MARYLAND, NORTH CAROLINA, AND NEW JERSEY…GENERATIONAL WEALTH AT STAKE: NEW JERSEY, MARYLAND, AND TEXAS…BLUE COLLAR AMERICA AT RISK: MASSACHUSETTS, DELAWARE, PENNSYLVANIA, MARYLAND, VIRGINIA, MISSISSIPPI, OREGON, AND WASHINGTON…BUSINESS AS USUAL? FLORIDA AND NEW JERSEY…TOURISM REVENUE AT STAKE IN VACATION STATES: NEW JERSEY, NORTH CAROLINA, SOUTH CAROLINA, AND TEXAS…
REALIGNING POLICIES AND MARKET INCENTIVES TO REFLECT GROWING FLOOD RISKS
Well-intentioned but short-sighted federal, state, and local policies can mask risk and create incentives that reinforce the status quo, or even expose more people and property to risk. The market’s bias toward short-term decisionmaking and profits can also perpetuate risky investment choices. Identifying and reorienting the principal policies and market drivers of risky coastal development is a necessary and powerful way to move the nation toward greater resilience.
Here we identify several existing federal and state policies that play a de facto role in how communities—and financial markets—perceive and respond to coastal risks. Each of these policies can be improved to better incentivize and enhance resilience:
1. Federal disaster aid, when not accompanied by explicit incentives to reduce residents’ and businesses’ exposure to risks, has led states and municipalities to rebuild in a business-as-usual way and underinvest in risk-reduction measures (Kousky and Shabnam 2017; Moore 2017). Postdisaster investments should instead be made with a view to reducing future risks through a range of protective measures, including home buyouts and investments in flood-proofing measures as appropriate, and a requirement for adequate insurance coverage. For now, communities and financial sector actors rely on the assumption that federal aid will continue in its current form. Credit rating agencies have cited this assumption of continued federal aid for rebuilding as a reason to avoid downgrading the credit rating of municipalities that are exposed to risks of sea level rise.
2. Existing federal, state, and local policies could be effectively deployed for investments in measures that will both reduce risks ahead of time and help rebuild in a more resilient way (Kousky 2014). We should recognize coastal flood risk for the predictable, slow-moving disaster it is, rather than respond only episodically, i.e., in the aftermath of major storms. One way this can be done is by ramping up investments in FEMA’s pre-disaster hazard mitigation grant program and the flood mitigation assistance program, and the community development block grant program administered by the US Department of Housing and Urban Development (HUD). A recent analysis by the National Institute of Building Sciences of almost a quarter century’s worth of data found that for these types of flood risk mitigation programs, every $1 invested can save the nation $6 in future disaster costs (MMC 2017).
3. The taxpayer-backed National Flood Insurance Program—while a vital program—has long been recognized as subsidizing some homeowners in flood-prone areas and inaccurately portraying flood risks because, in too many cases, insurance premiums and the flood risk maps that underlie them do not reflect true risks (Schwartz 2018; Joyce 2017; Kousky and Michel-Kerjan 2015). The most egregious examples are so-called repetitive loss properties that have received repeated payouts from the program despite being in places that are clearly too risky to insure (Moore 2017).8 With sea level rise, the maps used by the National Flood Insurance Program are increasingly out of sync with the actual risks to coastal properties. Commonsense reforms to the program can ensure that it more effectively communicates flood risks, protects communities, and promotes better floodplain management.
4. A robust federal flood risk management standard should be restored and mandate that all federal investments take into account future flood risks in order to help protect vital federally funded infrastructure, ensure wise use of taxpayer dollars, and also set a valuable guidepost for communities. State and local building and zoning regulations that are solely focused on near-term economic outcomes, and thereby allow questionable coastal development, are essentially building new exposure to risk when they could and should be reducing such exposure (IBHS 2018). Additional important opportunities include more protective building standards and coastal zone management regulations to help encourage floodresilience measures in floodplains, including the protection of wetlands and barrier islands and other natural flood-risk reduction methods.
5. Increased funding for voluntary home buyout programs administered by FEMA and the HUD can also help homeowners move to safer locations. Communities in high-risk areas may also increasingly need relocation grants and technical assistance, and, correspondingly, communities that receive an influx of new residents may need financial resources. And as sea levels rise, federal, state, and local policies and resources should specifically target and address the needs of disadvantaged communities.
6. Banks, insurers, real estate investors, developers, and other major financial actors in coastal areas should establish guidelines and standards to incorporate the risks of sea level rise in their business models, thus better serving the long-term economic interests of their clients. A blinkered focus on near-term profits and market factors can obscure significant risks just beyond the horizon.
If there are changes in the perception of risk to coastal properties or if there is a growing political or social pressure to make changes, the marketplace or policymakers could make rapid changes to align incentives with risks. Potential examples of these types of shifts include changes in insurance premiums or criteria for insurability, changes in lending terms, and changes in credit ratings for communities. These types of tipping points could trigger very quick shifts in property values and the broader economic health of a coastal community.
Unfortunately, a rapid realignment of taxpayer and private-sector investments reflecting true risk could jeopardize the well-being of communities unless deliberate steps are taken to provide options for them ahead of time. The withdrawal of private-sector investment dollars, and even public dollars when places are deemed too costly to support, could bring disruptive local impacts and market speculation with inequitable outcomes, particularly for those communities with fewer resources. Rather than a wholesale rapid withdrawal of funding for these areas, a judicious scaling back of new investment in line with flood risks would be far preferable from a societal perspective, together with a redirection of those investments toward options to help communities cope and build resilience.
PLANNING FOR A RESILIENT FUTURE FOR ALL
As a nation, we must use wisely the diminishing response time that communities have to reduce their exposure to this threat, from the individual scale to the economy as a whole. For communities facing chronic flooding of properties in the near term, it is imperative to act quickly to phase out policies that perpetuate and increase risk, while considering options for retreat from the highest-risk places. For cities and towns where the effects of chronic inundation will become apparent by mid-century, a slightly longer time horizon might allow for more creative solutions and comprehensive policies and planning. Targeted resources must be made available for disadvantaged communities for whom any of these adaptive responses could pose steep challenges. Given the wide-scale nature of the risks to our nation, we need a holistic, timely response strategy.
Decisionmakers still have choices that can help limit— even if they cannot eliminate—threats to coastal cities and towns, and ultimately, to the national economy. Three main strategies exist for adapting to sea level rise on any coast: defend, accommodate, and retreat. Decisions about which combination of strategies to employ, and when and where, require expertise, stakeholder engagement, and ultimately the resources to implement the chosen options. Many cities and towns can expect adaptation to be costly, and that some financial losses will be inevitable. Homeowners and communities cannot be expected to absorb all of these potentially crippling costs on their own, especially those with fewer resources. A range of relevant actors—chiefly, the federal government—can implement policies that will help support adaptation and limit the extent of financial loss, ensuring that these taxpayerfunded resources are wisely and equitably deployed. The private sector also has an important role in driving innovative risk-reduction measures and creating new loci of economic opportunities in areas further inland.
Sea level rise is challenging us to reimagine our coasts in many ways. Hundreds of communities will face losses. Retreat may be necessary from some of the highest-risk places. But there are opportunities to be had too—especially if we plan and invest wisely. Inland communities may be revitalized by the influx of new residents and new businesses. New communities can emerge, new infrastructure be built, and new economic opportunities created. All of this will only be possible with visionary leadership from policymakers, the private sector, and communities themselves.
Critically, the United States must also work with other nations to slow the pace and limit the magnitude of sea level rise through aggressive reductions in heat-trapping emissions, in order to allow as many communities and homes as possible—both at home and abroad—to avoid chronic inundation in the years ahead.
Developing a coherent, just, and forward-thinking approach to the challenges we face will require further research on several fronts.
First, the many stakeholder groups within the coastal real estate sector—from individual homeowners to insurers— need to examine their tidal flooding tolerance and explore thresholds beyond which a pull-back (physically or financially) from affected areas is required. Within the private sector, for example, a careful examination of the risks could trigger decisions—such as not granting loans, raising insurance premiums, or downgrading credit—which will in turn drive big, sometimes painful, changes that begin to align market outcomes with those risks. Local-scale, community-specific modeling under different climate projections is a key piece of this research that can be built out.
Second, communities will need more complete information on whether and how they can be made more resilient in place: for example, through what measures, at what cost, for how long? Third, further research is needed around successful models for retreat that could lead to positive outcomes for coastal and inland communities, particularly considering lessons learned following buyouts and individual homeowner retreat after Hurricane Sandy (Binder and Greer 2016). Critical areas in which we need to build our understanding are the necessary governance structures that will best support coastal retreat, legal implications of historically dry land going underwater, and the relationship between market downturns and climate-induced migration (Flavelle 2018; Kousky 2014). Additionally, as communities increasingly face the challenge of frequent, disruptive flooding, they will need to marshal resources to rise to that challenge—which inherently puts communities with fewer resources at a disadvantage (ERG 2013). We will therefore need to deepen our understanding of how policies can be made equitable and how best to enact them (Deas et al. 2017).
The cliff’s edge of a real estate market deflation due to flooding and sea level rise is already visible for many communities if they choose to look. The trajectory of our current actions— continued building in vulnerable places and ever-increasing global warming emissions—is propelling us closer to that edge. There are thresholds for properties at risk of chronic flooding from sea level rise beyond which regular life becomes unmanageable and financial loss becomes a better bet than struggling to live with floodwater. There are thresholds for communities beyond which economic and financial viability, and crucial public services, are threatened. When enough of those households and communities falter, entire real estate markets may face a tipping point. Whether we react to this threat by implementing science-based, coordinated, and equitable solutions—or walk, eyes open, toward a crisis—is up to us right now.