Mr. Gore Goes to Hollywood

Move over Martin Scorsese, Al Gore is Oscar .  This is one more step of climate change going mainstream.  One of the more interesting economic implications of this trend is with real estate values.  Prices may start to take into account potential direct implications, future regulatory changes, and changing marketplace perceptions.  Keep in mind that real estate is often about perception.

First we will review the losers:

  • Places near the ocean.  From Kennebunkport to Qingdao, Cancun to Capetown, the perception that the seas are rising will affect property values.  People won’t pay top Rinminbi if they think there is a chance their investment will be swallowed by the sea.  One general rule is that every 1’ sea level rise will, over time, result in a 500’ deep loss of inland land.  Using the IPCC range of 7” to 23”, the sea will on average encroach between 250 to 1000’ of land. There is also a perception that warming and rising seas will increase the intensity and, for some, frequency of hurricane damage.  Expect increased hurricane insurance, if it is available.
  • Places where it is already hot.  With the IPCC range of 2°F to 11.5°F temperature rise, everywhere will get hotter.  Already hot areas may just get too hot for some people.  There exists a concern about future water shortages and reduced vegetation as the air temperature warms.  This concern will be exacerbated by the potential and real increase of air conditioning costs.  Atlanta, for instance, is already painful in August.  In the future, it may be unbearably painful. 
  • Places where there isn’t much water.  Water is somewhat finite.  Locations like the southwest US, and parts of China and Australia are already in moderate to severe drought.  In the US, the drought of the Colorado Basin is likely to affect long term real estate values in places like Phoenix, Tucson and Las Vegas.  According to the USAToday , since 2000 a drought has shrunk some reservoirs to 50% or less than normal. Other areas of intrigue are agricultural land values, especially in the US and Australian breadbaskets.  In the US, the Ogallala or High Plains Aquifer is a very shallow reservoir stretching across 8 states.  It has been an essential water source for agriculture.  However, recent decades include a precipitous drop in water levels.  Without water, the land above it looks a lot less valuable.
  • Places which rely on a lot of energy for transport and heating.  The poor McMansion homeowner.  Not only will the vastness and typically shoddy construction houses result in substantially higher heating, cooling and lighting costs, one hour commutes in an SUV will be a lot more expensive.  Over time, people will impute these added costs into their offering prices and the market will decline.

Next week: the winners.