Paying for Climate Change
One of the most obvious repercussions of climate change related threats to real estate is the financial cost. Taking a look at California’s 2018 fire season, the Camp Fire (the one that obliterated the town of Paradise) alone cost an estimated $10 billion. The 2018 fire season was the costliest in history. In addition to the cost of infrastructure replacement, housing replacement, personal possessions, cars – you get it – is the next disaster in line following the burn. Heavy rains are now washing away portions of the burn scar areas and causing widespread destruction to property that was not burned. How much will this cost? How does the state absorb these costs year after year? Well, really, It can’t. And neither can any state that sustains repeated natural disasters, nor can the Federal Government. With increasing intensity and frequency, FEMA can only do so much. As FEMA chief Brock Long stated, “The bottom line is that my operational capacity internally does not grow with the number of events we have.”1
Using deductive reasoning, it’s easy for us to see where FEMA’s funding shortcomings lead. First, the state, second the municipality, third the homeowner. Or rather, first the homeowner since taxes are the major funding source for state and local governments. Regarding California, seven of the top 10 most destructive wildfires on record in the state have occurred in the last two years.1 In Florida, Hurricane Michael, a harbinger of hurricanes to come, will cost an estimated $25 billion.2 As a result, FEMA “has been looking for ways to redistribute the financial burden. States and localities may soon be increasingly on their own to finance the recovery.”1
The “may soon” is actually now. Fiscally conservative Massachusetts Governor Charlie Baker has proposed increasing the transfer tax to a homeowner selling their home.3 In Los Angeles county, “voters approved a measure that taxes property owners for all the impermeable surfaces on their land. Nearly 70 percent of the county’s voters okayed the measure, which charges land owners 2.5 cents for each square foot of their property on which water can’t soak into the ground.” And in 2016, voters in the San Francisco Bay Area approved a yearly parcel tax to fund mitigation for sea level rise.2 These are a few of the proposals nationwide that are putting the cost of CC disaster onto the local municipalities and the homeowner.
Clearly, as “under all is the land,” the whole real estate industry is impacted as costs associated with CC continue to rise. Questions to consider include how the population can absorb tax consequences for paying for CC mitigation. Yearly income taxes, property taxes, transfer taxes all add up to the home ownership equation.
Other areas impacted by climate change that I will be covering in future blogs are insurance, demographics, climate gentrification, building industry, and migration patterns: not necessarily in that order.
Once again, I’d love to hear what you are seeing in the field. “Like” and resond!