How Climate Gentrification is Increasing Real Estate Costs and Socio-economic Disparities

Posted on November 20, 2020

Justin Cheng
Justin Cheng
ESG Research Senior Analyst, Insurance, Real Estate and Asset Management

Climate gentrification is an emerging concept describing how land with greater resiliency against intensifying physical impacts of climate change becomes more desirable and valuable.[1] It catalyzes fast and visible socio-economic transformation in communities.

The term Climate Gentrification was originally coined in a 2018 Harvard University research paper that studied the impacts of global climate change. As climate change intensifies, investors seek out more climate-resilient real estate to invest in, while affluent residents relocate to avoid physical impacts from climate events such as rising sea-levels and storm surges.

When low-income areas are climate resilient, this typically causes housing prices, rent and property taxes to rise beyond affordable levels for existing residents over time.[2] These residents are forced to endure higher costs for housing, live in unsafe or inadequate living conditions or move away from their neighbourhood.

Impacts of Climate Gentrification

Economic – Elevated housing costs force individuals to choose between paying for food, medical and other necessities; this is especially difficult on a fixed income without corresponding wage increases. Those forced to move are often further away from their employment and everyday services, increasing transportation costs. Lower-income residents are less able to afford climate mitigation equipment, rebuild after severe weather events or travel to escape impacts. As physical climate risks continue to intensify, insurers may raise premiums significantly while providing less coverage, or even cease underwriting in risky regions altogether. Banks may also stop offering mortgages over 30 years on at-risk sites,[3] making it very difficult to sell an affected property. 

Social – Increased financial burdens on those least able to afford it further exacerbates social inequality in regions most affected by climate change.[4] Existing communities will suffer as a result of long-time tenants being left with no choices but to move out. It also points to a lack of government investment[5] in marginalized areas for infrastructure and social services. Poor communication between developers and government officials have neglected the needs and desires of affected communities.[6]

Here are three examples of Climate Gentrification occurring in the US:

Miami: The city has experienced frequent flooding and more severe hurricane damage in recent years, negatively affecting interest in high-value coastal properties. This has caused land values in inland communities outside of the city at higher elevations to rise significantly.[7]

Los Angeles: In the past couple of years, severe wildfires north of the city have rendered several neighbourhoods too risky for rebuilding (due to the risk of more frequent and intense fires). With the Pacific Ocean to its west, sea level rise is projected to force beachfront residents to retreat towards the centre and east end of the city in the future, which is home to a number of working-class communities. Many insurers are significantly raising premiums or choosing not to underwrite any at-risk properties.[8]

Phoenix: Long periods of extreme heat have pushed some to migrate to more temperate locales, such as nearby Flagstaff, AZ. Its higher elevation results in lower temperatures and proximity to Phoenix mean many have moved to or purchased property in Flagstaff. It is reported that up to 25 percent of homes are secondary dwellings, driving up the cost of housing for Flagstaff’s residents.[9]

Real Estate Sector Review

In Sustainalytics’ Risk Rating universe, 499 real estate companies were analysed regarding their performance in “Sustainable Products & Services Management”. The indicator examines developers’ response to climate gentrification issues, providing an indirect approach through evaluating product offerings from companies within the real estate sector from a sustainability perspective. A higher score value signifies more effective management of sustainable products and services at the company. Based on average company performance, the real estate sector performs poorly as a whole, as can be seen in the following chart. The average score of companies in each subindustry falls significantly below “50” in this indicator (indicating average management.) This reveals the underperformance of the subindustries, inferring that real estate developers have notable room for improvement to manage better the social impacts and housing accessibility challenges associated with physical climate impacts in their business—especially when compared to other real estate subindustries.

climate gentrificationSource: Sustainalytics

Integrating Social Sustainability in Real Estate Development

We anticipate the negative impacts of climate gentrification to become more widespread in the coming years. As such, developers will likely need to consider impact assessments before starting each project. Insurance affordability, population displacement, increasing regulatory requirements and growing interest in sustainable building practices will shape the future of this issue.

As physical climate impacts become more frequent and affect more regions across the world, climate gentrification highlights the plight of vulnerable communities who may be least resilient to predictable climate events–having to choose between everyday necessities or living in an area safe from climate risks. Through climate-conscious policies and regulations, strengthened climate risk impact assessments, equitable distribution of sustainable infrastructure investments and ongoing community dialogue, social inequities caused by climate gentrification can be reduced and managed.

 

Sources:

[1] Dagenais, Travis. “Rising seas, distressed communities, and “climate gentrification”: Jesse M. Keenan talks Miami in Vice, Scientific American” Harvard University Graduate School of Design, August 14, 2017, https://www.gsd.harvard.edu/2017/08/rising-seas-distressed-communities-and-climate-gentrification-jesse-m-keenan-talks-miami-in-vice-scientific-american/

[2] Ivanova, Irina. “Climate gentrification threatens Miami’s last affordable housing” CBS News, March 19, 2020, https://www.cbsnews.com/news/climate-change-miami-affordable-housing-gentrification-cbsn-originals-documentary/

[3] Raim, Laura. “Florida’s flooded future”, Le Monde Diplomatique, June 2020, https://mondediplo.com/2020/06/12florida

[4] Florida, Richard. “‘Climate Gentrification’ Will Deepen Urban Inequality”, Bloomberg CityLab, July 5, 2018, https://www.bloomberg.com/news/articles/2018-07-05/-climate-gentrification-will-deepen-urban-inequality

[5] Suarez, Xavier L. “We can reverse climate gentrification, keeping long-time residents from being displaced | Opinion”, Miami Herald, November 19, 2019, https://www.miamiherald.com/opinion/op-ed/article237521694.html

[6] Caballero, Michael. “The case for preventing climate gentrification”, GreenBiz, February 13, 2018, https://www.greenbiz.com/article/case-preventing-climate-gentrification

[7] Allen, Greg. “South Florida Real Estate Boom Not Dampened By Sea Level Rise”, NPR, December 5, 2017, https://www.npr.org/2017/12/05/567264841/south-florida-real-estate-boom-not-dampened-by-sea-level-rise

[8] Holder, Sarah. “Playing the Odds on the Next California Wildfire”, Bloomberg CityLab, February 21, 2020, https://www.bloomberg.com/news/articles/2020-02-21/can-ai-help-protect-homeowners-from-wildfire-risk

[9] Milman, Oliver. “Climate gentrification: the rich can afford to move – what about the poor?”, The Guardian, September 25, 2018, https://www.theguardian.com/environment/2018/sep/25/climate-gentrification-phoenix-flagstaff-miami-rich-poor

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