Introduction to Climate Risks in South Florida
If you have ever been on Zillow, you may have noticed a new category. It’s the level of risk for extreme heat, air quality, flooding, wildfire, or wind risk for the area you live in.
And after analyzing the data for a few months, Zillow has found trillions of dollars of real estate are at risk—and it appears homebuyers are paying attention to these climate risks.
The Financial Impact of Climate Risks
“We estimate that U.S. homes with major flood risk are worth $7 trillion, and U.S. homes with major wildfire risk are worth over $9 trillion, and U.S. homes with major wind risk are worth over $7 trillion in total,” said Kara Ng, a senior economist with Zillow.
When we take a closer look, Ng says that among the largest U.S. metro areas, Miami has the second-highest total value of homes with major flood risk at close to $580 billion. Miami also has the second-highest total value of homes at wind risk at more than $1.4 trillion.
It’s a total that can have a big financial impact.
Risk and Household Income
“For example, the value of risk for a home destroyed by extreme wind is worth almost nine years of that area’s median household income. That’s a big hit to a household,” Ng said. “The value of risk for a home destroyed by extreme flooding is worth over 11 years of the area’s median household income. And that’s because Miami’s flood-prone homes tend to be of higher value.”
The Effect of Climate Risks on Home Sales
Because of this, Ng said that homes with higher risk are now taking longer to sell and are selling for less.
Of the Florida listings in June, Zillow found only 35% of high-flood risk homes sold compared to 56% of low-flood risk homes.
High-risk homes that did sell had an average discount of 3% or more from the initial listing price.
Experts Weigh In
“One thing you have to understand about these studies is that it’s hard to control for things that might matter for how a house is sold, but that are just not observed in a study like this,” said David Kelly, an academic director at the University of Miami’s Business School.
He said reports like these don’t take into consideration all of the factors that could impact homebuying behavior.
He gave examples such as if a home was built at a lower quality, or if more transactions are happening in one area versus another.
Long-Term Implications
However, he has also studied the topic of climate risks on homebuying behavior in South Florida and has come to a similar conclusion.
“We solved that problem actually by looking at newly protected flood areas in Miami, so when a Miami area becomes newly protected, we take the same house before and after [and ask]: how was it sold before the protection was put in place, and how was it sold after, relative to some unprotected area? And you can see that once it’s protected, the sale price goes up by 5%," he said.
Both Kelly and Ng say while there are risks, for those who want to live in South Florida, it comes with the territory.
Conclusion
Now Zillow says even with these risks, South Florida and Miami are desirable places to live, and that people will continue to move or stay here based on other factors.
Zillow predicts that the knowledge of these risks could, in the long term, slow the growth of home prices and lessen demand in some areas.
FAQs
Q: What is the estimated value of U.S. homes with major flood risk?
A: $7 trillion
Q: How does climate risk affect home sales in South Florida?
A: Homes with higher risk are taking longer to sell and are selling for less, with high-risk homes selling at an average discount of 3% or more from the initial listing price.
Q: Will climate risks slow the growth of home prices in South Florida?
A: Yes, Zillow predicts that the knowledge of these risks could slow the growth of home prices and lessen demand in some areas in the long term.
