One of the oft repeated risks from climate change is the threat that comes from rising sea levels. Depending on the forecast, even in the most optimistic ones, seas are projected to rise several feet before the end of the century. With the accelerating build-up of CO2 and the rate of temperature increase (2017 being the hottest year on record), many expect dramatic sea level rise to occur much sooner than most expect. CO2 concentrations in March 2020 was 414.5 ppm, much higher compared to 411.97 ppm in March 2019. (1)
While people might want to buy shore property for benefits that include potential rental income, capital appreciation and personal use, they also face potential risks of hurricanes, sea level rise, etc. Some of these risks can be mitigated by purchasing flood insurance.
Last summer I explored the question, “if sea levels rise, what will be the impact on a clients’ net worth and portfolio?”
The answer is one few people are willing to confront.
I have asked many people who own real estate at the shore about their plans to deal with sea level rise. Their answers typically boil down to the fact that they don’t worry about it. “I am going to retire to the shore. Real estate on the shore has always been a safe bet. Why would it be different when I retire?” Living on the east coast, memories of super storm Sandy still resonate with many, but I think most see the storm as a one-off event—not as part of a larger picture.
The fact is if sea levels rise only a few feet many homes at the shore and elsewhere will be at risk. Local businesses and infrastructure will also be impacted. The loss of such large assets could be a financial drag to the retirement plans of many people; even the wealthiest would feel the impact. (2)
Holding on to assets, like shore homes, that are at risk due to sea level rise is unacceptable in my opinion. Ignoring the changes taking place in the environment will not make the problem disappear.
“While much development took place between 1950 and 2000, financial risk rose quickly afterward because much of it clustered along coastlines and adjacent to rivers and lakes, where buildings were more vulnerable to flooding.” (3) Houses near water have until recently sold at a substantial premium inflating valuations.
But homes are not the only assets threatened by sea level rise. Local governments and businesses in coastal areas are at risk as well.
“Will the city be better off if people live in that house for another 30 to 50 years but are unable to get in or out during high tides or lingering storms? How long, he asks, does the city maintain the street? Or keep the storm-water and sewer systems operating? What happens years from now, when emergency services can’t get to these homes because the street has flooded? ‘At some point, the investment in infrastructure can’t be sustained,’ he says. ‘That’s the bottom line.’” (4)
The lesson here is that the very definition of “risk” needs to be expanded in order for investors and retirees to accurately minimize their exposure to threats posed by a changing climate. How is the world changing? Which of my assets are at risk? What can I do to be financially secure 10, 20, even 5o years from today?
If you want to learn more about how climate change affects your investments and how to manage this risk please feel free to contact me at email@example.com
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