An article in Harvard Magazine explores how financial markets have already begun to price in the probability of climate disasters, making future adaptation efforts more expensive and driving inequity.
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… ‘This is what keeps me up at night – people’s wealth caught up in these properties…
Jonathan Shaw for Harvard Magazine writes:
… financial markets have already begun to price in the probability of such disasters, and that will make future adaptation efforts more expensive and drive inequity, said Jesse M. Keenan in a May 10 presentation hosted by the Graduate School of Design (GSD)….
KEENAN’S TALK, benignly titled “Financing Climate Adaptation,” might more aptly have been called, he said, “Wake Up Massachusetts, You’re Already Paying for Climate Change”—an exhortation that in fact applies “all across the United States.” He cited “robust empirical evidence” that markets are responding to assessments of climate-change risk, and warned that commercial and residential property owners will shoulder the economic burden of higher financing costs.
Cities and towns typically rely on future tax revenues to fund capital projects—whether for construction of schools or seawalls—by issuing bonds to long-term investors. A typical term for a municipal bond issue might be 30 years, so investors are already assessing the risk to about 2050…
Recent legislative measures such as the Bipartisan Infrastructure Act, and more recently, the Inflation Reduction Act, Keenan explained, focus on decarbonizing the economy by incentivizing mitigation.
“The Rich Are Going to Adapt”
INCENTIVES for adaptation do exist, he said, “but they originate in the private sector, not necessarily in the public sector.” ….
“This is what keeps me up at night,” he continued, “in terms of the property-tax base, people’s wealth caught up in these properties, and what this means culturally, institutionally, financially, and politically—on so many levels.”….
Depreciating Properties at Risk
…..A 2019 study found that coastal properties in a zone at risk of six feet of SLR sold at a 7 percent discount relative to other similarly situated U.S. properties. Multifamily assets, typically purchased by investors who are more savvy to exposure risk than typical homeowners, were discounted even more heavily. New construction is also more constrained in areas where residents understand climate change risks….
“What To Let Go”
WHAT SMALLER COMMUNITIES can and should do, he said, is align their capital plans with long-term spatial planning, which will involve difficult conversations….
