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What are the best places for climate change for real estate investors? Real estate investors beware, where you invest is becoming more and more critical as climate change related issues begin to grow exponentially. Some climate resilient regions may produce better investment returns. Did you ever imagine a Hurricane alert for Southern California?
Raging 20’s Climate Resilient Episode
This is a continuation of our Money Viking investing series to be strong and prepared through what we call the “Ragin 20’s”, a time of geopolitical change, black swan events like pandemics, social change and technological change that is coming at us rapidly.
And this is not meant to be doom and gloom, but meant to take a clear eyed evidence based look at the reality of the world we live in and be best prepared to thrive as people and investors. Keeping Hurricane Hillary aside, let’s examine the best places for climate change from the perspective of real estate investors.
Loss is Real
I have known several real estate investors that have lost properties due to fire and other natural disasters intensified by a warming global climate. You may think, who cares, that is what insurance is for. But the insurance process for these folks was a nightmare and increasingly insurance companies are pulling out of high risk environments. They wish they had known the best place for climate change for real estate investing.
Therefore where you invest is critical for long range planners and investors.
Why Discuss Real Estate in This Context?
Real estate is a tangible hard asset. Meaning that is a physical thing that one can see, touch and manage. Many real estate investors love this aspect of RE investing. It is such a different experience compared to watching candles and lines on a stock tracking software. Or swiping left and right in an investment account.
But the physicality of it is both an asset and a liability. It cannot disappear when the economy malfunctions or through a flash crash. But it can be destroyed through weather phenomen, fire or arson.
This is where this video comes into play. This is for those considering the implications of climate change on their physical real estate investing.
Every region will feel impacts
Let’s be clear, there is no place that appears completely immune from the impact of climate change and climate resilient region real estate. (Not even San Diego, LA is immune from Hurricane Hillary warnings!) From the research I have seen, it can be a kind of pick your poison moment. You might escape wildfire in one area, but face severe water shortages. You may miss out on sea level rise but then have to deal with smoke filled air from massive wildfires literally a thousand miles away.
There’s nowhere to hide from the effects of climate change. Every region in the United States has felt the rising temperatures, and in certain areas, flooding and more extreme weather patterns are putting real estate investors at risk. Experts even predict that some areas in the world will be unlivable by 2050, especially some areas in Africa and the middle east.
While some U.S. cities are better prepared to weather climate change and more extreme weather patterns, some areas are more exposed due to proximity to flood zones, a lack of climate-adept infrastructure and the population’s level of preparation.
Around the world, some cities are building their climate resiliency by investing in clean energy, infrastructure and preparing their residents for extreme weather events. In the United States, there are some cities that stand out from the rest in terms of geographical risk, resilience and preparedness.
GOOD NEWS FOR NORTH AMERICA
So, most of our Money Viking audience is located in North America and there is good news for the US, Canada, etc. Climate change issues are projected to be less severe relatively speaking for this part of the world. But do not get complacent, there may still be issues, but they are not as severe as other continents.
Unfortunately large swaths of Africa, the middle east and Asia will experience large scale disruptions. This is not good for the world at large. In an increasingly globalized and connected world, no area will be unaffected.
Trouble spots in US
That said, there are parts of the US that are dealing with extreme heat, flooding, sea level rise, stronger hurricanes, fires, smoke and more. The 2023 fires in Canada blew toxic smoke into the upper Midwest and eastern coast of the US, making air quality hazardous for weeks on end. Main point, no area is immune.
Perhaps Just Avoid the Riskiest Areas
Climate resilient region success may come down to avoiding the worst impacted areas in North America. No one wins when climate change continues to gradually change things. But one strategy may be to avoid investing in the most at risk areas and regions. These would be the opposite of best places for climate change:
For example, areas of Florida, Louisiana, South Carolina, New Jersey, Virginia and Texas are particularly vulnerable.
But this does not guarantee success. The great lakes regions is projected to be well protected from some of the worst impacts, but can easily be smoked and chocked out during certain times a year as Canadian wildfires rage.
What to do as a real estate investor to harness the best places for climate change
- Do your homework. Before investing in a specific area do research on the near term and long term risk factors. Think about your specific time horizon. If you are making a multi generation investment, you may want to reconsider a particular area that is projected to deal with future shocks. Does the area have a climate action plan of some kind to mitigate the effects and support the population through extreme weather events? Is insurance coverage available and how does that impact your bottomline as an investor?
- Factor the risk into your investment decision. Investing is always an exercise in risk management. A whole host of things can change and wipe out an investment. And those who have been investing for a while know that black swan events do happen. This is on reason I am a huge advocate for strategically and uncorrelated investment diversification.
- Consider diversified REIT’s. Most individual real estate investors cannot properly diversify. But large REITs certainly can and we can all own shares. Public Storage may get one site wiped out from wildfire, but have 5,000 other income producing locations. American Tower may lose a few towers here and there but have thousands of others.
Regions geographically that are best places for climate change:
- Great Lakes region
- The Great Lakes are a major source of fresh water, which will be increasingly important as climate change leads to water shortages in other parts of the country.
- The region is also relatively well-protected from sea level rise, as the Great Lakes are inland bodies of water.
- The Great Lakes region has a diverse economy, which will help it weather economic disruptions caused by climate change.
- The Midwest is home to a number of agriculturally productive areas, which will be important as climate change leads to changes in agricultural yields.
- The region is also relatively well-protected from extreme weather events, such as hurricanes and wildfires.
- The Midwest has a strong manufacturing base, which will help it adapt to the changing economy.
- The Northeast is home to a number of major cities, which have the resources and infrastructure to adapt to climate change.
- The region is also relatively well-protected from sea level rise, as much of the Northeast is located on high ground.
- The Northeast has a strong economy, which will help it weather the economic disruptions caused by climate change.
- Rocky Mountains
- The Rocky Mountains provide a natural barrier to many of the extreme weather events that are becoming more common due to climate change.
- The region is also home to a number of renewable energy resources, such as solar and wind power, which will help it reduce its reliance on fossil fuels.
- The Rocky Mountains have a relatively low population density, which will make it easier to adapt to the changes caused by climate change.
- Pacific Northwest
- The Pacific Northwest is home to a number of temperate rainforests, which will provide a valuable refuge from the heat and drought that are becoming more common in other parts of the country.
- The region is also home to a number of renewable energy resources, such as hydroelectric power and wind power.
- The Pacific Northwest has a relatively high level of education and income, which will help it adapt to the changes caused by climate change.
These are just a few of the regions in the US that are well-positioned to adapt to climate change. As the climate continues to change, it is important for communities to assess their own risks and vulnerabilities, and to develop plans to adapt to the changes that are coming.
City by City level best places for Climate Change
We clearly are not going to stop climate change. Hopefully some technology can be deployed to mitigate the worst impacts.
As an investor, on a city by city level I would research whether a particular city has a strong climate resiliency plan in place and are they making investments now?
Your Thoughts on Best Places for Climate Change?
This installment is meant to spark thinking and further research. This is an ever dynamic situation, but one that should be factored into long term real estate investment plans.