Climate Change and The Property Market: Risks, Opportunities

We Examine the Risks and Opportunities that Climate Change Presents to The Property Market

By the team at We Buy Any House

Whether or not climate change is real is still a debate many people have these days but there is one thing that is for sure – Earth’s temperatures are rising and there are visible changes that we can all observe in our everyday lives that we cannot ignore.

The headlines on climate change and its impact are flooding the news daily and yet some people are still reluctant to believe in its existence.

The Environmental Impact of Real Estate

A very popular topic surrounding global warming is how it is affecting the oceans, however, not only is it bad for our water resources but it also has massive implications on many other aspects of our daily lives.

It is important for us to identify which sectors are creating the most carbon footprint so that we can all focus our energy and resources into making a change there.

For instance, the real estate industry has accounted for around 40% of UK’s carbon footprint and greenhouse gas emissions globally which is why it is worth considering innovative and smart solutions that could potentially decrease that amount.

Investors are hesitant as to whether making changes in the built environment will not be really costly for them, however, many believe the opposite. Sustainable building could end up creating higher returns for investors since nowadays people tend to be more attracted to energy efficient properties with lower running costs and higher rents.

Despite the many opportunities which open up for the property market, there are also numerous risks concerning it as well. The climate has become so unpredictable that extreme weather is now more common than ever, large scale incidents are occurring more often and occasional hurricanes, wildfires and floodings are not unknown to us anymore.

All those are making it incredibly difficult for the real estate industry to manage both the condition and running costs of the property.

Climate Change and The Property Market: Risks, Opportunities. A brick building surrounded by plants and forest
Mithradham the first fully renewable energy powered educational institution in India dedicated solely for environment and renewable energy.
Photo by Tony Xavier on Unsplash

The Risks Facing The Property Market

It comes as no surprise that the risks daunting upon the property industry are numerous and highly dangerous. Yet real estate investors and owners did not seem to take climate change as seriously as it should have been taken prior to the Covid-19 pandemic. Little did they know how that would have transformed the world and its impacts.

Now that the pandemic has cooled off a bit, investors have been seriously pressured into making more sustainable decisions for the real estate sector.

The risks facing the housing market have been divided into two groups according to their specifics – physical and transition. Both have incredible impacts not only on the operational side of real estate but also on its value.

Physical Risks

Physical risks are considered those that are directly affecting the housing due to the changes in climate. For instance, such risks are extreme weather conditions, floods, heat, hurricanes and storms. Climate change has physically affected the rising of temperatures, sea levels and changes in patterned weather conditions. All these massively contribute to damages in properties and are causing problems for landlords, owners and investors altogether.

Transition Risks

Alternatively, the transition risks result from the shift to more carbon neutral housing solutions and are often considered to be the human responses to climate change such as the political, societal and economic ones. That is where the name comes from, describing the transition between the highly unsustainable building practices to the eco-friendlier ones which will be kinder to our environment.

The real estate industry is one of the biggest contributors to Earth’s greenhouse gas emissions which is why the shift will most likely make a big difference. However, the reason why investors have not been so optimistic about this change is because it will be incredibly difficult to achieve.

Most properties are running on fossil fuels and in the fight towards reducing carbon emissions a lot of changes in regulations must be made which may leave a lot of assets ‘stranded’. What the term ‘stranded assets’ generally means is that many of these assets will be rendered unsuitable for resale and therefore go to waste once the transition has been completed.

Addressing these Risks

A question arises as to why there are still real estate professionals who deny or even worse ignore all those evident risks which the industry is facing due to the severity of climate change in recent years.

A RICS survey suggests that almost half of investors are still considering climate change risk factors to be of ‘no importance’ or simply ‘irrelevant’ to the housing market which is a big part of the problem.

As briefly mentioned above, the first thing towards solving a problem is acknowledging that there is one and therefore with half of real estate investors not committed to the sustainability agenda, it is rather difficult to make noticeable changes and often a single person’s actions may go unnoticed.

However, any change, small or large, will influence somebody or something which will hopefully generate the success of the overall sustainable goal.

interior of a new designer building with plants indoors

The Opportunities Presented

Fortunately, the risks do not necessarily outweigh the opportunities which open up for the real estate industry.

No matter the impacts and how irreversible the harm of climate change may seem, there is still so much room for the market leaders to make a difference for the good. The first step to achieving this is by identifying the contribution the industry has on the planet, what its biggest threats, weaknesses and strengths are and only then could you map out the opportunities and possibilities for making a positive impact.

First Steps

As with any problem, the most important thing to do after identifying it is to act fast. The conscious change towards smarter consumption, more eco-friendly construction and sustainable materials has the potential to make the change needed.

Going green in building is possibly the first big step for the real estate industry that will kickstart the transition. We are all so used to materials such as steel and concrete but as weather and environment conditions change so should the materials. With the rise of wildfires, floodings and heat, more water-resistant, fire-resistant and heat-resistant materials should be introduced worldwide as an answer to the current conditions.

What’s more, switching to more energy efficient alternatives is a must in sustainable builds.

The transition shouldn’t be too difficult to implement since a change from the traditional light bulb to a more energy saving LED one could be easily achieved. Similar changes, no matter how small, could reduce your energy consumption and even be cheaper in the long run.

Not to mention the fact that if your property is rented, it will appear more attractive to tenants who also wish to be responsible and sustainable with their usage.

The Benefits of Building Sustainably

Some investors believe that going green in the real estate market could also result in better returns on investment.

Building sustainable properties has shown to provide some tangible financial benefits for investors because of higher rent prices and occupancy rates. Moreover, such buildings have many intangible positives as well such as increased market value and impeccable reputation.

Showing the community and potential tenants that you are combating climate change and joining in the fight towards a more sustainable future will instantly add value to your property and will attract likeminded individuals who will also want to contribute to it.

Additionally, making use of smart and innovative technologies is a must.

All the opportunities that the industry has in its way to improve its carbon footprint connect back to new technologies without which none of it would be possible. Using the right equipment to suit your environmental needs, knowing how to use it properly and most efficiently is how change can be achieved.

The amount of smart machinery out there on the market is immersive, the only thing lacking is people who know how to make the most out of it.

new york street with taxi and trees

A Sustainable Future for Property

It really is extraordinary what the world has already done in order to fight climate change and it’s worth reminding ourselves that any progress no matter how big or small contributes to the greater goal in one way or another.

It is true that there is a lot that has been accomplished already by the property sector in terms of sustainable buildings as well as cost effective and energy saving material alternatives, however there is still a long way to go. The ever so real risks and challenges which the industry is facing should not be underestimated and ignored any longer.

It is important that we all act now and make our own contribution towards a better future.

This article was written by a quick house sale company, We Buy Any House. If you are wondering “how can I value my house online?”, head to the We Buy Any House website for more information relating to all property related enquiries.