What Climate Change Means for the Housing Market

On this episode of The Long View, real estate expert and author Ilyce Glink discusses different geographic regions’ housing markets and her advice on how to deal with the repercussions of climate change.

Here are a few excerpts from Glink’s conversation with Morningstar’s Christine Benz:

The Booming Homebuilding Market

Christine Benz: You mentioned the new-home market, the homebuilding market. I was just reading an article in The Wall Street Journal today about that issue, about how they’re booming. Can you talk about that, how people who aren’t finding existing homes are looking at new homes?

Ilyce Glink: I think a lot of people like the idea of buying a new home because it’s new, and it’s got all the modern things that you see on HGTV every day. But the truth is there are trade-offs when it comes to new homes. Sometimes that’s location. Sometimes it’s school district. Sometimes it’s just the size of the home that you can buy. They’re more expensive. There’s a lot of different things that are going into making homes more expensive, new homes. Some of that is labor costs. A lot of that has to do with construction materials, many of which got caught up during the pandemic. Prices went up. There’s also competition for those materials. We have had a massive hurricane, lots and lots of storm damage, flood damage all over the country, wildfires. People have to rebuild. And there’s just a limited quantity of the materials that they need and a limited quantity of the people who are able to do that rebuilding. And so, all of that has put into making new homes more expensive.

I was touring San Diego a couple of months ago, and I was simply astonished at the prices that are being asked and received in that community. Condos that are going for $1,000 to $1,200 a square foot, that’s New York prices or was New York prices. But single-family homes or brand-new town houses near UC San Diego are going for $1.3 million to maybe, I don’t know, over $2 million in excess of $1,000 a square foot. And so, we’re seeing those prices in markets that normally wouldn’t have commanded it, and it’s kind of shocking.

Geographic Differences in the Real Estate Market

Benz: Can you talk about geography a little bit more, what you’re seeing in terms of geography? We’ve had this move of people toward the Sun Belt-type states, moving away from the big urban locations in the Northeast and to some extent in the Midwest, like Chicago. Can you talk about what we see in terms of geography?

Glink: The big story there is that people are moving to the Southeast and, for whatever reason, still moving to the coasts. Everybody wants a water view. Pretty soon we’ll have lots more of those, I think. But in any case, we’re seeing a lot of movement to the South and Southeast. We’re also seeing, and we saw this during the pandemic—it began right away, March of ‘20, people were fleeing cities and trying to move to somewhere rural where they had more space. And so, you saw it up and down the housing food chain. People in studios moved to one or two bedrooms. People in one or two bedrooms moved to the suburbs into a single-family house. If you were in the suburbs, that might not have been enough space, you moved to a bigger house. You moved to a rural area. And we’re seeing some of those people come back now, but a lot of times they aren’t coming back. And what they’re doing is they’re staying, they’re building their lives in a different place, taking advantage of remote working, which became a thing three years ago, and very happily doing that. And so, we’ve seen an interesting shift in how people are living their lives and what’s very important to them. And I think that’s causing a lot of consternation for owners of large office towers. And I know you’re going to want to ask about commercial building. We can do that, too. But also, for owners of companies who might prefer to have everybody in-house.

The Impact of Climate Change on the Housing Market

Benz: You just referenced climate change, Ilyce, in your last response. I want to delve into that and its repercussions for housing prices. We’ve seen, just this summer, record heat in some parts of this country, and most of the big insurance carriers, as far as I understand it, have pulled out of Florida. So, at what point, or are we already seeing climate change have a meaningful impact on the property market?

Glink: I think it’s already happened, and it’s just beginning. So, you’re right about Florida. Most of the major insurance companies have pulled out. Florida itself, the state, is now backing the insurance, homeowner’s insurance, for these properties. And my friends and colleagues and family who are in Florida aren’t quite sure how long that’s going to last, because even though Florida is doing quite well, you just get another hurricane barreling through, and that could wipe out $10 billion, $15 billion. So, we’ll have to see what happens there. But you’re right about climate change. Arizona has put the kibosh in any new building unless builders can show that they have a 100-year supply of water. That’s hard to do when all your water is coming from the Colorado River, or it’s being sucked up by fields of alfalfa going to feed cows living in the Middle East. So, you’re seeing some things go on there.

Out in California, you’re having an issue with wildfires, although it’s been quiet this last year, and they had a tremendous amount of rain and snow. But on the flip side, there’s worry that we’re going to start to see flooding due to all that snow start to melt. We had some friends whose daughter got married in Utah in June, middle of June, on a mountaintop, and they had skiing. They had somebody ski in to do her wedding, because there literally was nine feet of snow on the mountain in the middle of June. And so, you’re seeing just odd weather patterns everywhere, and it does start to affect how people buy, sell, and live in their homes.