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How Is Climate Change Affecting Real Estate?

A Conversation with Dr. Howard Botts


When we think about climate change, we often think of its impact on life as a whole, and the lifestyle changes that will occur from rising temperatures and sea levels to solar panels and electric cars. But one of the most profound areas, a changing climate can impact is our homes.

Host Maiclaire Bolton Smith sits down with Chief Scientist Dr. Howard Botts to ask the questions on everyone’s mind: Will our dream beach home be underwater in the next century? Will the reclaimed land of Louisiana disappear into the Gulf? And how will we grapple with the cost, both human and financial, of major disasters to come?

MAICLAIRE BOLTON SMITH: Welcome back to Core Conversations, a CoreLogic Podcast. I am your host Maiclaire Bolton Smith, and I’m the senior leader of research and content strategy with CoreLogic. In this podcast, we’ll have conversations with industry experts about key topics from housing affordability to the impacts of natural disasters on property. When we think about climate change, we often think of its impact on life as a whole, and the lifestyle changes that will occur from rising temperatures and sea levels to solar panels and electric cars.

But one of the most profound areas, a changing climate can impact is our homes. Will our dream beach home be underwater in the next century, or will the reclaimed land of Louisiana disappear into the Gulf? Will our current building codes withstand the test of time of more extreme weather and how will we grapple with the cost both human and financial of major disasters to come?

So for our episode today, we’re going to dive into climate change with the one and only Dr. Howard Botts, chief scientist at CoreLogic. Howard welcome to Core Conversations.

DR. HOWARD BOTTS: Well, thank you, Maiclaire. I’m very happy to be your guest on this episode.

MBS: Wow, I’ve been wanting to have you as a guest for a long time, so I’m glad we’re able to finally make this happen. So why don’t we get started by telling our listeners a little bit about your background. You’re a scientist, a professor, a neighbor to the Stars. How did Dr. Botts come to be?

HB: Well, that’s a long story that we don’t have time for in this podcast but I’ll give you the quick answer. Background is a PhD in geography, but on my way to a PhD, I spent a number of years as a consultant, working in everything from a retail site location to working as healthcare planner for a number of different agencies, eventually getting my PhD in geography and teaching in the University of Wisconsin System. One of the great things about Wisconsin is they like faculty members to do what they teach.

So I had a series of companies that either did consulting or built products and ultimately sold my last company to CoreLogic about 14 years ago. That was basically geospatial plus hazard modeling. So really my whole career has been trying to understand impacts of different kinds of events on the built environment. So this is a great place to be. We have unbelievable amounts of data and really a cool science team here of over 100 people that I get to work with daily.

MBS: Yeah and we’re so lucky to have you Howard. For all of our listeners out there, Howard is one of my favorite people at the company. So I’m really glad we get to dive into this with you today. Climate change, we hear these words a lot, especially these days. So what’s the status quo on climate change and how do we actually define it?

HB: A great question Maiclaire and really is a tale of two worlds at least in the US where the prior administration there was really no interest in looking at any kind of climate change initiatives. Then with the new incoming Biden administration, our world is really changed overnight. Certainly the history of the planet, the climate has changed continuously through time, 12,000 years ago, sea levels about 400 feet lower than it is today. But when you don’t have cities built along the coast, sea level rises, that’s not an issue.

So one of the main things certainly about climate change is we’ve built a lot of cities, infrastructure, or homes in areas that are experiencing particularly dramatic climate change. The general consensus probably 90% plus of all scientists is we’ve greatly sped this up over the last couple of centuries with tremendous amounts of carbon dioxide and other things being released.

So I think the current state is trying to understand what does this changing climate mean for the housing ecosystem, for agriculture, for things related to social justice, our groups being impacted differently. So it’s great we’re having the conversation. I think it allows us to at least start to understand the magnitude of the problem. With that, we can start to plan at least to mitigate and make adjustments to try to prevent the loss of life and property.

MBS: It’s a lot like most disasters. I’ve always said that the number one thing you can do to be prepared for any kind of hazard and disaster to happen is believe it’ll happen and understand it. We like to say here at CoreLogic know your risk to accelerate your recovery. That’s really what we’re starting with. This conversation is talking about climate change to raise awareness so that we can do those things about understanding about how we can be more prepared, how can we be more resilient because we can’t stop mother earth from climate from changing. So how can we deal with it?

You mentioned our expansive science team and one of the members of your science team, Dr. Bin He here at CoreLogic recently did a study that looked at controlling factors in a home of everything except climate risk. He found that climate risk adversely affects home prices. So basically that’s saying that places are cheaper or slightly less expensive in riskier areas. So how concerned should real estate agents and specifically home buyers be about a deflating market value as we continue to contend with the effects of climate change?

HB: That’s a really fascinating question that we deal with a lot is how does perception and the reality that our property is going to be worth less over time impact buying decisions. A good example of what we’re seeing right now if you look at the Miami Beach area regularly, when they get king tide, super high tides, the streets are flooded. We’re seeing in those neighborhoods that look a little like Venice, Italy, which is not what you want, they’re not residential decision, prices are going down and that’s being factored in to the equation.

Additionally, a lot of homes that were built just outside the 100 year flood zone. I think they’re starting to be growing recognition that these homes you’re not safe if you’re just outside that. So people are looking very carefully. We talked to a lot of individuals who when they’re moving to Florida or somewhere else really want to understand what’s their elevation relative to the floodplain. In California, we’re seeing now real estate agents demanding, essentially that people in vegetated areas, Sierra Nevada and others prove they can get insurance before they’ll even start to go through the mortgage process.

So I think there’s both perception and reality are being factored in. There was one interesting study that said depending on your political beliefs, if you believe climate change is a hoax, you’re willing to pay more for a house and environmentally hazardous area than if you believe in climate change. So even politics start to factor into how people are viewing space and a risk related to property.

MBS: That’s really interesting and then there’s a couple things you said that I want to dive into there. So flooding, you talked about. That’s something we’ve talked about on this podcast before about how flood zones as designated flood risk zones flooding does not stick within those zones and you can be flooded in a lot of places outside of those as well too. So I think from the lender community and trying to get a mortgage, the flooding has been a big risk for a long time, and you can’t get a mortgage without having flood insurance if you’re in one of these flood zones. So can you talk a little bit more about this of how lenders deal with flood risk?

HB: That’s interesting question that we spend a lot of time at CoreLogic dealing with. Now, if we kind of go back in time to get a little perspective on this in the 1950s, 1960s, insurers really couldn’t adequately understand what flood risk was on particular properties and they started to leave the market. So in order to protect the most vulnerable homes, the federal government came in and created the national flood insurance program. They essentially arbitrarily picked the 100-year flood zone, 1% annual chance that a home is going to flood as a sort of benchmark and thinking that in the life of 30 year mortgage, then it’s relatively infrequent.

So that really was the genesis of the 100-year flood zones we see today. But we know that that risk is changing and all of us are seeing average annual temperatures globally or within the US rising year after year and for every essentially one degree centigrade, air increases in temperature can hold 7% more water. So just simple thermodynamics mean there’s a lot more water in the atmosphere and that the 100-year flood zone is probably not an adequate measure and it’s really a binary measure. You’re either in or out. You have the highest risk obviously next to the stream or river and then as you go up in elevation of less risk, but I think you hear all the time after a major flood event, people saying, but I’ve lived here 30 years and it’s never flooded. So it’s 100-year flood zone and there’s no guarantee there.

So I think we’re going to see the new national flood insurance program, a risk rating, 2.0. They’re really going to be looking at a more graduated approach. We’re seeing routinely 500-year, 1000-year floods in the US. So I think we’re going to see a lot more emphasis on flood insurance. We’re also seeing private insurers starting to come into the market again because we have very good tools that can look at a very granular level individual home.

At CoreLogic we’ve developed a first floor height model that FEMA uses, which essentially tells you how high is the front door from the property itself and really a good measure of how likely is a home going to be inundated that you wouldn’t get simply by knowing the elevation of the property. So floods will become increasingly significant both from rivers. Flash flooding now accounts for more than 50% of all flood losses so very intense rainfall and certainly sea level rise and saltwater flooding will become a bigger issue.

MBS: It’s interesting and it’s great now that we do have these tools available to help understand the risk a lot more. It’s interesting what you said about there being more water in the atmosphere and therefore we are getting… There’s going to be more floods are just going to happen because of the thermodynamics of the science behind flooding. I think of cities that we’ve seen these big floods happen in before like Houston is a big one, Hurricane Harvey in 2017, we saw this massive flood and areas far outside the designated flood zone areas flood.

Southwest Louisiana was just pummeled last year in particular by hurricanes, Laura and Delta and they’ve seen really bad flooding, which we’ve talked about on this podcast again. New Orleans, obviously really high on everybody’s radar. These are just going to get worse. These floods in these specific cities and other cities like them. Are people going to be able to secure a mortgage moving forward knowing that the floods are just going to get worse and the homes literally might be underwater?

HB: I think that’s the big discussion at the moment. Will they require homes to be elevated before they can be sold in these hazardous areas? Do we commit as part of our infrastructural investments starting to build more defenses? We did a study recently on Tokyo Bay for a Japanese insurer looking at essentially if you build a higher seawalls and invest the money now, what’s the cost benefit of that and it’s a significant benefit to build the structure. So the question is, are we going to build sea walls around Florida or raise the levees in New Orleans.

As we build freeways and other infrastructure, do we raise them up so they become natural barriers to help kind of prevent flooding. I think these are all issues. One of the causes certainly is climate change as we’ve talked. The other is allowing things to be built in environmentally sensitive areas. When you have repetitive loss like we see in the flood insurance program, ultimately, is it better to buy those properties out, relocate the individuals and turn that back into space, so that’s going to be flooded.

MBS: The topic that’s really common in the disaster planning world is land use planning and what is the appropriate use for certain lands to be? I think of Hawaii specifically and how they’ve been inundated tsunami over the years from different earthquake events and Hilo in particular, if you go back 40, 50, 60 years, there was four more blocks of homes towards the shoreline and now that’s a park because they have learned time and time again that they can’t have homes there because those homes are going to be damaged when a tsunami happens. So I think from a flooding perspective that’s similar concept of what makes the most sense for that land to be knowing that climate is changing and sea level is rising and these hazards are not going to go away.

HB: Yeah, I think that’s absolutely correct and you’re not doing anybody a favor by allowing them to be in a home that can’t reset. Even though we have tsunami warning buoys out in the ocean, you may hopefully preserve life, but a property damage is going to be extensive. They’re just redoing all the tsunami risk areas in California. There’s places in Washington and Oregon that if you’ve been along the coast there, you notice they’re relocating schools and others up above the 100 foot level.

Any new fire station or police station, as I understand it has to be built at that level. They actually have tsunami drills in the schools where unlike a fire drill where you march out orderly, I guess it’s run as quick as you can up above 100 feet. So in the Cascadia, Alta goes just off shore is going to send up a pretty big wall of water. So I think there is a lot of contingency planning going on. You as an earthquake scientists, certainly know Maiclaire that anomalies are an underrated risk, I think because of the infrequency. But as we saw in Indonesia, a number of years ago, we can have significant loss of life.

MBS: Yeah, definitely and that topic is one that I could go on forever. It’s something that’s very near and dear to my heart. But something I think we can really learn from the life safety aspect of how to protect people is a huge part of it. Protecting property is a whole other side of things. I think that’s kind of what we’re trying to get into. So if I take a step back, you also a little bit ago mentioned wildfire and a lot of times when people think climate change, they think these weather disasters, they don’t necessarily think of wildfire but wildfire is a huge one.

You and I both live in California, you in Southern California, me in Northern California and I know over the course of the last number of years, there’s been many times you and I have texted each other photos of smoke that we’ve seen out of our windows of our home. So this is really near and dear to both of us. I think in California specifically, wildfire has become a big thing from an insurance perspective because we live in places that are beautiful but those beautiful places are also so dangerous. From an insurance perspective, insurance companies are denying home insurance on some properties because the wildfire risk is too high. So where does that put insurance companies and home buyers when they’re stuck between a rock and a hard place, like they want to own this home but the wildfire risk is so high and they can’t get insurance for it.

HB: Let’s unpack that a little bit. Certainly, we’ve seen the most devastating and the most widespread wildfires over the last three, four, five years that we’ve ever experienced and significant property damage and that’s only increased with the extended drought we’re having now in the west. Average winter temperatures are much higher than they used to be, which means less snowpack. It also means that bark beetles and other insects which used to be killed off by a hard winter freeze are not being killed off so it’s possible to drive across broad swaths of the Western US and it looks like an autumnal forest with beautiful oranges and yellows and then you realize, these are evergreens. They’re not supposed to be those colors.

So you have a lot of standing hazards with trees that are dying or distress. You have low soil moisture, low humidity and all of that is the recipe for these huge fires we’re seeing. The flip side of that is as you kind of indicated people love to live in static areas. We see tremendous amount of retirees in California, Oregon and Washington moving up into the cascades or Sierra Nevada mountains or further east of the Rockies. They’re building in areas that are very, very high risk for wildfire. The question is often, well, who lets people build in these places.

If you think about what’s funding, many of these counties it’s property taxes. So they’re often highly encouraging kind of development in places that they see as rational and an economic sense but we as wildfire scientists see as dangerous. So because of the number of homes and all the issues related to recent wildfires, insurers are trying to get a better handle on risk and they’re also feeling that they’ve got to pull back from the market, I think. So that’s having significant repercussions and it doesn’t take many talking to their legislators that it starts to become a big issue.

In California, the department of insurance in particular is highly focused on this at the moment. Non-renewal is a big issue. A lot of insurers are looking at zip code levels which doesn’t make a whole lot of sense cause part of this zip may be safe, part of it may be a wildfire risk, they’re just blanket denials. So people are saying, wait a minute, there’s nothing to burn around me. Why am I being non-renewed? I think there’s going to be tremendous pressure on trying to identify home mitigation as one approach to help insurers or stepping back like national flood insurance and the California fair plan, which is insurer of last result for wildfires will probably be picking up a lot more policies.

MBS: It’s something it’s going to evolve over time too cause I think we’re just continuing to learn more. Like you said, I think there’s a lot unknown that insurance companies are like, this is a risk area, we blanketly will not insure somebody here, but the risks can be a little bit more refined probably in a lot you can do to mitigate homes. Several episodes ago, we had Dr. Tom Jeffrey, our chief wildfire scientists come and talk about wildfire risks specifically and things that you can do to protect your home from being impacted by wildfire too. You can’t necessarily remove the location from around you, but there are things you can do to mitigate damage that can happen. So I think all of these things moving forward in the future can help being more resilient and being more prepared for a bad disaster to happen.

HB: Absolutely, and Dr. Jeffery is certainly one of the leaders in this space. He’s pointed out to us there are things that can be done, but in some ways, going back to our kind of topic, climate change, we’re seeing fire season extended, but we’re also seeing very, very high wind events. So you clear brush away from your home, trees, you do the right things with not having woodpiles or wood siding, other things that when you get 40, 50, 60, 70 mile an hour winds blowing for those of you that are old enough to remember telephone books, large telephone books size embers through the air, that’s going to have a real impact.

Even in communities where individuals are mitigating, if your neighbors not, that’s also an issue. So certainly we’re going to see a lot more building code changes, a lot tighter kind of reinforcement of brush clearing other kinds of things. I see that around in my house, all my neighbors are hiring goats to come in to get on the steep slopes to try to mitigate their loss. So the goats seem happy, the homeowners seem happy. So it’s a win-win from that perspective.

MBS: Who knew that the goats were part of the climate change future? A couple of things I want to unpack on what you just said. I want to stay on this topic of extremes. You mentioned building codes too. When I think of extremes, I think back to February and the extreme weather that we had in Texas. We also had an episode where we talked about this as well too, where Texas in particular froze over the state’s infrastructure and building codes weren’t quite up to what they needed to be, to handle the inclement weather.

As we would expect disasters like that or events like that could become more frequent. So is this something that we can expect to be, this extreme weather to continue more and more frequently moving forward and how as a society can… What recommendations do we have to cope with these changes? Whether it’s from the utility perspective or building code regulations. We joked during that episode of, are we all going to have to live in bunkers eventually? What do you think the future holds as we deal with extreme weather?

HB: Well, interestingly, I’m in Austin, Texas today where we’re recording this podcast and literally every person I talk to got a disaster story, frozen pipes, frozen water heaters, no power for a prolonged period, being displaced out of their house for a couple months while they remediated all the damage to the homes. At least the case around here, none of these homes while they were built to withstand heat, they all have great air conditioning systems. They don’t tend to have the same level of insulation, particularly around pipes and other things because the deep freezer have not been a significant issue.

Well, conversely, this summer we’ve seen a record heats and heat in Washington, Oregon, British Columbia, where people don’t have air conditioners and heat does a major killer of humans. And so we are seeing these dramatic swings. One of the things that a number of the atmospheric scientists are looking at is the flow of the jet stream, which appears to be slowing and getting a little less stable. So in the case of the Texas, freeze the jet stream dipped far to the south allowing Arctic air to come down and we have these poor vortexes. It seems like routinely and winners now, which are the same equivalent. It just doesn’t get as far.

So I think certainly utilities are going to have to rethink their infrastructure and ability to winterize, whether it’s windmills or other sources of non-fossil fuel and certainly hardening the utilities for this kind of disaster. Then homeowners, obviously it’s going to become a significant issue to figure out ways to winterize your home. So this doesn’t happen. But the long answer is it will continue, I think to see more great or more fluctuations in weather, hot and cold, different parts of the country being impacted.

It’s unseasonably cool now in Texas, which is sort of weird for this time of year and it’s hot and dry in other places. So we’re seeing variability. We had a low hail tornado season this year. We’ll probably have a heightened hurricane season. Different places are experiencing things that are not used to being part of their daily life.

MBS: Fluctuations and extremes in what we’re used to, I think those are the two main themes of what we can expect and I think is that the new normal or is there even a new normal, or what do we think moving forward as we… Sometimes we like to end these episodes by saying if you were to look into your crystal ball which everyone has told me, they don’t have a crystal ball and they wish they did, but climate change is a tricky one. So if we stick on those two topics of fluctuations and extremes, is that the future?

HB: I think lots more in the way of surprises, good and bad. But certainly if you’re an agricultural producer, there’s going to be real challenges. If you’re growing wine grapes, the wine region is going to start to shift as it’s a longer term process. Certainly, we need to look at all coastal development. As we talked about building and wildfire areas in low lying areas, the good news is we have the data. We just have to figure out how do we kind of get that into a decision-making.

I think we see, and if I had a crystal ball, I think what I’m going to see is that the federal government is going to start to require banks and mortgage companies and others to start stress testing any kind of loan, like a climate equivalent of FICO score, your property will be given a hazard risk score at an individual level. The challenge there of course is it’s great for awareness. I think you should have that awareness before you buy a home, but will it be differentially impacting lower income minorities, that kind of thing. So whenever we do something like this, we have to be mindful of how we’re going to deal with individuals that this may impact them in ways that are not optimal.

MBS: Definitely. I think that’s a great place for us to end today because as we look towards the future, there’s a lot of unknowns and we have the data and we’re working to get that data in the right hands so that we can be the most prepared moving forward and knowing to expect the unexpected, I think, is what we’ve learned over the last few years. So Howard, we could talk all day and we probably will, but thank you so much. This has been so interesting. Thank you for joining me today on Core Conversations of CoreLogic Podcast.

HB: Thank you Maiclaire. Excellent conversation. I always enjoy our conversations. You’re a great example of resilience, which is what we’re going to need as we go forward to the new world of climate variability.

MBS: Wow, thank you for that, Howard. We’ll have to have you come back on the podcast again in the future at some point in time. So thank you all for joining us today. For more information on the property market and the housing economy please visit us at corelogic.com/intelligence.

I hope you’ve enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released and thanks to the team for helping bring this podcast to life. Producer Rhea Turakhia, editor and sound engineer, Romie Aromin and social media guru, Mike Wojcik, tune in next time for another Core Conversation.

© 2021 CoreLogic, Inc. All rights reserved.

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