Friends of ResiShares:
The biggest story in housing right now is also the biggest story in climate, politics, and American life. Hurricane Ian struck Florida last week as one of the most deadly and economically destructive natural disasters in American history. Alongside the Resi Wrap last year about the collapse of the Miami condo tower, Florida, one of the fastest-growing states in the country, continues to find itself in the news for the worst possible reasons.
Hurricane damage in Florida is not a new phenomenon. As our most low-lying state, surrounded on three sides by warm water and directly in the path of an annual megastorm track, Florida residents have historically expected to tolerate a high powered storm every 2-3 years and need to evacuate and rebuild along the coast approximately every decade.
As we tend to collectively remember for at least a few weeks after each devastating southeastern hurricane, western forest fire, and yes, ironically, even each midwestern polar vortex, climate change is making these events progressively more likely and severe.
In a past ResiShares note, we called attention to the firms attempting to tie increasing climate risk to bets and hedges on the housing market, such as Deltaterra. In it, we asked “what’s the long?” In other words, while it is mostly directly knowable which homes face higher insurance premia and risk from climate change, it is a more open-ended question to ascertain which regions are likely to outperform from an influx of climate refugees.
This month, Axios reported on a group trying to do just that. Given the bullet-point format of the article, it lacks enough detail to see how Climate Alpha is going about their research, but it’s notable that folks are finally building businesses around trying to answer this question.
What makes this question so difficult to answer is that it is not just a math problem, but a problem requiring a researcher to make assumptions about human behavior and path-dependent politics. That is, while heat in Phoenix or hurricanes in Florida might negatively impact net migration at the margins, its countervailing effect on housing supply might actually cause real estate prices to rise, if those factors mean Phoenix homebuilders can’t secure water rights and Florida residents flee riparian zones for higher ground.
This is precisely what happened to New Orleans after Katrina. The immediate effect of the disaster was actually for home prices to rise, as displaced citizens needed a place to live. While prices then fell through the mortgage crisis, they did so less than the US as a whole. Since 2014, we have seen population stagnate and decline, while overall prices raced ahead, led by transactions in the now-diminished consideration set of desirable properties.
