The decision to buy a home is the sum of a thousand details that are micro (a soft-close kitchen drawer) and macro (global coordinates). And these days, climate is vying for top spot on the big-picture list.
From coastal sunshine to mountain snowfall, a region’s climate often drives decisions about where to live and house hunt. Yet increasingly even the most pleasing environments on paper come with an asterisk denoting risk.
With weather patterns top of mind for buyers and sellers, Stuart Siegel, president and CEO of global real estate brokerage Engel & Völkers Americas teamed up with advisory firm Henley & Partners on the recently released Global Investment Risk and Resilience Index.
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The index measures a country’s “exposure to geopolitical, economic and climate risks as well as their capacity to adapt and recover,” according to the report, to provide investors, businesses and individuals with rankings of the best countries in which to invest and store or grow their wealth.
The U.S. ranked 24 on the index with a score of 73.04 out of a possible 100 rating. Switzerland came in at No. 1 with a score of 88.42. (The index is based on 3,000 data points.)
To learn more about how buyers and sellers are accounting for changing weather in the U.S. real estate market, Mansion Global sat down with Siegel to talk about climate risk, how it’s affecting home buying and how homeowners are approaching mitigation.
Mansion Global: What prompted Engel & Völkers Americas to report on climate change?
Stuart Siegel: Climate change is something that we have been following at the company globally for years. We have an advisory business, which supports our franchise’s license partners in the predevelopment analysis cycle for commercial projects. That’s where we first started seeing climate risk get priced into real estate deals.
Now, it’s filtered down into our world in the residential brokerage.
So, this report was important because clients keep asking about climate change as it relates to buying and selling. People want to know about factors beyond their control and how to mitigate them.
What was your biggest takeaway from the report?
The buyer and seller psychology is no longer, “I don’t have to worry about it because it happened once, and it’s never happened since.” Devastating climate events are no longer dismissed as once-in-a-lifetime or once in 50-year events. Unfortunately, extreme temperatures and massive rainstorms are more frequent.
So, we see weather impacting real estate more often, from the fires in Malibu to what happened in Asheville, North Carolina, last year with mudslides.
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So many of these properties from the coasts to the Carolinas are as valuable as they are vulnerable.
True, but now there are very few regions that are not subjected to some sort of climatic challenge.
Look at the Sierra Nevada Mountains, which have been getting these Armageddon snow conditions where precipitation is not measured in inches or feet but yards. Those regions’ biggest challenge is snow load on roofs, which builders now account for in new construction.
Look at Tropical Cyclone Beryl’s impact on Vermont; it’s the same topography and dynamic. Mountains on every side that act as a funnel. That’s why certain towns got slammed.
It seems no place is truly impervious to climate change.
Everybody is at risk of having wet shoes in a wet basement.
As a result, I think that climate is really impacting the psychology of homeownership. Accounting for climate change is getting almost as important as schools when it comes time to buy a home.
Another factor that comes into effect is a home’s walkability. One of our colleagues in New Jersey’s house flooded a couple times but she could walk to town for supplies, and that matters. It also means you’re more likely on a commercial power grid than a feeder grid.
The housing market must be changing as a result of climate’s overall impact.
I don’t call it a change. Instead, there’s an adaptation and recognition that we must adjust what homeownership looks like.
Buyers are asking questions and sellers are anticipating the answers by making improvements to their home. Everybody is hyper aware.
I’m seeing buyers ask, “Does this property have a generator?” They’ll also question whether the glass in doors and windows can withstand hurricane-strength wind.
Buyers and good agents are not hiding from the risk factors. They’re using it to show why there’s value in a specific home, assuming the home has these upgrades.
However, it becomes very hard to defend a home’s pricing when it’s lacking climate accommodations. Sellers must factor in how to price a house that’s at a high fire risk or on the Gulf Coast or in Florida whose design or construction hasn’t accounted for climate change.
How else are sellers adapting?
I think what people are just starting to see is there are all sorts of tactics to try and adjust climate risk. What we also hear is if you’re in an area that’s susceptible to climate risk, the seller better be ready to answer any questions about any steps or improvements they’ve made to anticipate climatic shifts. It becomes an asset of the house.
For example, many homeowners now have very interesting fire suppression systems tied to pools, pumping systems and landscaping that isn’t incendiary. I saw an article this past week about something called “wet roofs.” They’re sprinkler systems on the exterior of homes that really make a difference in protecting your property from wildfire.
If a seller puts in hurricane-proof windows in Florida, then it’s part of the bricks and mortar. It preserves and increases that asset’s value.
Is increased climate risk slowing down homebuying?
No. It’s creating more discipline. Buyers are more thoughtful. They step back and assess risk. Making an offer on a home is no longer purely emotional.
The amazing thing about our country and the real estate market is [its] adaptability.
What advice do you give buyers trying to predict future climate risks?
Do your homework. Talk to insurance companies before you commit. Ask tough questions about what replacement cost really covers, if the cost per square foot includes premium materials for added resilience and the limits on insurability.
Ask if the policy includes future mitigation costs. Those are the serious conversations buyers should be having.
Some buyers may not just be asking if they can even get insurance but at what premium? If you’re in California or Florida you can get insurance, but the cost is prohibitive.
You have a home in Summit County, Colorado. How are you adjusting to climate change?
My wife and I like being outside the city. We ski, backcountry ski, play tennis.
However, climate change has led to drier conditions and more stressed trees, reducing their natural defenses against beetles. The northern Rockies got inundated with pine bark beetles a couple years ago.
Everywhere you drive now, you see these massive teepees of dead trees that counties have piled up for controlled burns. The Bureau of Land Management and park service comes by all the time, making sure we have a sufficient perimeter cleared between our home and the forest…We have fire hydrant access, and we adjust our day-to-day life. If it’s a high fire season, I won’t barbecue or even smoke a cigar outside.
But it doesn’t change our love for the place. We simply adapt. Indeed, we acclimate to it.
This interview has been edited for length and clarity.