Over the past decade, hundreds of thousands of people have moved to areas threatened by climate change in the United States, driving property prices up in flood-prone coastal regions and fire-ravaged parts of the Southwest.
However, a small group of investors has taken a different approach. They argue that as more Americans become vulnerable to climate change, home values in these risky areas will start to decline.
This perspective has created opportunities to profit by betting against housing markets that are susceptible to weather disasters or by investing in locations that will appeal to people seeking to avoid the worst effects of climate change.
For anyone looking to buy or sell a home in the United States in the coming years, the visions of those investors could significantly influence future decisions.
Five years ago, Woolcock, an Australian investor who recently launched an investment firm called Climate Core Capital, began analyzing a dataset that focuses on climate risks and population growth in major U.S. cities over the next 30 years. He observed that the fastest population growth often coincided with the most hazardous areas facing the threat of climate disasters.
However, Woolcock has since regarded these vulnerable areas as ticking time bombs, considering investing in such real estate a risky gamble. As a result, he and his partner Rajiv Ranade founded Climate Core Capital in 2021 to encourage investors to do the opposite. They advocate for a long-term real estate strategy that redirects funds to growing, climate-resilient cities.
The investors believe that the U.S. real estate market has not yet learned to properly assess climate risks or to develop resilience against them. They argue that greater profits can be made with less risk by investing in better buildings in safer locations.
According to the Washington Post, Woolcock and Ranade believe that the rising costs associated with climate change will lead to a decline in the value of millions of homes in areas exposed to extreme weather, from Louisiana to New York, before 2030.
However, both acknowledge that capitalizing on this situation is currently challenging. While their firms have been involved in hundreds of millions of dollars' worth of real estate transactions, neither has successfully found investors to support their future-focused bets.
Woolcock describes climate-risk real estate in America as a “dust pile.”
Referring to the early 1930s, the Washington Post notes that a 150,000-square-mile area in the Great Plains was once a thriving agricultural community. The Great Plains, a vast elevated plateau extending east of the Rocky Mountains, includes states such as New Mexico, Texas, Oklahoma, Colorado, Kansas, Nebraska, Wyoming, Montana, South Dakota, and North Dakota.
However, severe soil erosion caused by drought and poor farming practices has led to a significant decline in its population and economy, from which it has yet to recover.
Many assume that this decline is due to people migrating to places like California, a theme immortalized in John Steinbeck’s novel “The Grapes of Wrath”.
Woolcock warns that many other hazardous areas in the United States could soon experience a similar fate. Cities with weak economies that have been repeatedly impacted by climate-related disasters may struggle to recover after multiple blows.
If residents lose faith in the ability of these places to rebound, they may enter a slow and inevitable decline.
