By Don Procter
Climate change is an emerging risk affecting the value of real estate, which is why Chris Chopik wrote a 75-page paper on the subject for a degree in the Master of Design in Strategic Foresight and Innovation program at Toronto’s OCAD University.
Chopik’s paper – Property Value in an Era of Climate Change – doesn’t propose any easy solutions but his research raises the need for innovation in the housing industry. And the sales rep for Toronto-based Sage Real Estate says while property owners are the most vulnerable stakeholder, Realtors need to pay heed to the impact global warming has on their business.
“If I sell a house in a flood-prone area and I don’t talk to my client about that potential risk, is there a financial, litigious risk that I am taking?” he asks. It is one of many issues real estate professionals might face. While answers might depend on many factors, everyone – government, industry and the general public – should take changing climate seriously.
An experienced paraglider, Chopik has observed striking weather changes in the past decade or so while flying high on the foot-launched gliders. “I can relate to it (weather) in a more visceral way than maybe the average person from my paragliding experience and that gives me a framework that has underpinned how I look at the problem.”
He advocates the development of a real estate climate-risk index (REC) – a scientific measurement of sorts that could offer Realtors and potential buyers a “walk score” style rating for “evaluating the climate risk” of properties.
His concept for the REC is based on information he gathered for his paper. It looks at the cost of ownership, including the (de)valuation associated with climate-risk and resilience of a property and/or a region.
Simply put, his REC assesses risk factors based on the frequency of weather events multiplied by the intensity of damage. It also accounts for secondary and tertiary sources such as properties adjacent to oceans and rivers. Risk mitigation elements are also part of the equation. “A lot of this is based on data that will be widely available in a few years,” he says.
The REC “is about putting a lot of data in one place where we can get a risk index that is real. Whether it is a buyer’s interest or a real estate value asset, I think a tool like this is going to be very effective at eliminating risk for the industry and make it easier for homebuyers to make better choices,” Chopik says.
Weather risk data is not new. A case in point is an online map of sea-level rise put out by the National Oceanic and Atmospheric Administration in the U.S. It can predict the likelihood that a specific property in a seacoast town or city will be under water in the next 20 years, Chopik says.
He adds that North Carolina provides a flood risk website for any zip code in the state. “In that marketplace we can say, ‘caveat emptor,’ but in places like Ontario… we have to dig for it (information) so right now it is harder to empower the buyer to protect themselves.”
He says moving the REC from concept to reality will require a number of stakeholders – possibly a collaborative effort between insurers, governments, lenders and the real estate industry. The starting point is getting everyone to agree that climate change is real and it will impact homes and properties, he says. “We cannot be a climate-denying industry and also protect homeowners.
“It could cost you hundreds of thousands of dollars (in property losses). Until we get to the state where everyone is prepared to be there (on the same page) it is very understandable that homeowners and Realtors are confused.”
While property loss resulting from wildfires, wind, drought and heat might result from climate change, the biggest factor today is flooding. In the U.S. 20 million residents will be “domestic migrants” as a result of storm surge and other ocean-based damage, he says.
So, what is being done about flooding in Canada? As a result of the 2013 flood in Calgary, that city has integrated flood mapping with the MLS. Calgary also offers flood protection measures for homeowners living in high-risk zones. The list includes “simple things” such as raising mechanical systems off basement floors and building up curbs around property.
“These are the types of things that can take a building from uninsurable to insurable or unsellable to sellable,” says Chopik.
He cites the city of Edmonton’s mapping of infrastructure showing at-risk points to flooding from storms as a valuable resource to Realtors and clients. Toronto, meanwhile, has charted 42 flood-risk neighbourhoods but many Realtors and their clients are not aware that they exist. “If a municipality or a regional government like a province is not releasing flood map data, then obviously we can’t ask the buyer to beware.”
Chopik’s advice to Realtors is to closely examine where the potential for risk is from climate change. Realtors in B.C.’s interior, for example, might research the effects of drought on well water and agricultural production. At the same time, they should talk to authorities on forest management about forest fire risks and property mitigation measures.
A realist, Chopik says even a knowledgeable salesperson or buyer won’t be able to forecast what might happen to a property because of climate change. As a case in point, he says Goderich, Ont., was not known as “the tornado capital of Ontario” until a category F3 tornado hit the city in 2011, ripping through the historic downtown and residential neighbourhoods.
“The reality of the future is you might be living in a rain forest that could be a desert or you might never have a flood before but now you have a deluge.”
He says while a home might be fully insured for flood damage, the property it is on might not be insured for “stigmatized value loss. It’s not something we normally think about, nor is it something we can easily assess.”
Describing climate change as a capitalist problem, he says there are sound financial reasons for governments to take the problem seriously: gross domestic product (GDP) goes up when money is spent responding to climate change.
The industry needs to look at climate risks and, “probably by means of disclosure, find ways to create stability in the marketplace in the face of those risks.” The integration of flooding mapping with realtor.ca is an example, he says.
“Our industry is going to be impacted by climate change whether we like it or not. The question is: ‘Do we respond with maximum capability and impact (to help reduce property risk) or do we respond in a disaster recovery kind of mode?’”