A Blog by Jonathan Low

 

May 11, 2021

The Reason Rising Seas Aren't Causing Coastal Property Value Declines

Research shows property owners are aware of the risk but do not believe it is immediate. 

And given the price of coastal properties, many of these homeowners have the resources to begin mitigation efforts should the threat become more immediate. JL 

Matthew Spiegel reports in Yale Management Insights:

There’s a reason why “waterfront property is phenomenally expensive:" there’s a finite supply of coastal property, and people like to live on the water. Buyers may also view sea level rise as a long-term issue and believe mitigation efforts will successfully hold back the rising tides. By the time most properties will be at any serious risk of ocean waves lapping at their front doors, which could in some places be more than a century from now, the homes will probably have deteriorated anyway

Global sea levels have been rising for over a century—and, alarmingly, at an increasing rate. Currently, climate change is causing sea levels to creep up an eighth of an inch every year, according to the National Oceanic and Atmospheric Administration (NOAA). The dangers are serious: with higher sea levels come dangerous storms and increased flood risks.

There’s reason to think this threat might cause a decline in beachfront home prices as spooked buyers flee inland, and some headlines have suggested that it already is. But a deeper look at the data shows that prices aren’t declining, according to new research from Yale SOM’s Matthew Spiegel. Spiegel and co-author Justin Murfin of Cornell University developed a novel way to study the effects of sea level rise on waterfront properties across the country. Their analysis revealed that, viewed locally, sea level rise is not affecting prices.

Do steady prices represent a failure of the market to incorporate the risks associated with the climate crisis? Not necessarily, Spiegel argues. There’s a reason why “waterfront property is phenomenally expensive,” he says: there’s a finite supply of coastal property, and people like to live on the water. Buyers may also, not unreasonably, view sea level rise as a long-term issue and believe mitigation efforts will successfully hold back the rising tides.

Spiegel and Murfin began their study by gathering data on real estate transactions in 23 coastal states from the late 1960s to 2017, focusing on sales that took place less than 30 kilometers from the shoreline. From there, they used a combination of coastline maps and mathematical calculations to identify properties directly on the water. In addition to price, their data set also included information on home size, date of construction, lot acreage, and a variety of other factors that influence home value.

To study the effect of sea level rise on these properties, the researchers relied on data from NOAA, which takes frequent measurements at tidal stations around the country. They also gathered home elevation information from the U.S. Geological Survey.

Then, in contrast to other studies of sea level rise and property value, Spiegel and Murfin looked at an important but often neglected factor in inundation risk: vertical land movement.

While sea levels are increasing, land masses are rising and falling too. Downward movement, or land subsidence, stems from factors including groundwater extraction, tectonic motion, and bedrock deterioration. Meanwhile, upward movement, or land rebound, is the result of the melting of ice sheets during the Earth’s last glacial period. Without the heavy weight of those glaciers on their surface, some land masses are gradually inching higher.

“Sea water rise gets a lot of publicity, but the land movements don’t,” Spiegel says. Yet both are important when thinking about the risk of any particular home being underwater in the future. “If I have two homes a foot above sea level, and they’re in different parts of the continent, they might face very different risks from sea level rise, because one might be on ground that’s moving up, and the other could be on ground that’s moving down.”

Take Galveston, Texas, one of the most significant areas of land subsidence in the United States, and Juneau, Alaska, where the rate of land rebound is actually outpacing increases in sea level: both are on the water, but they will be affected by sea level rise in very different ways.

This insight gave Spiegel and Murfin a simple way to isolate the effects of sea level rise on waterfront property price: if prices do reflect inundation threat, homes at the same elevation should be more valuable in areas where land is rising than in areas where land is sinking. In other words, elevation should be less valuable in Juneau than in Galveston.

But that’s not what the data revealed. Across all the property sales they studied, elevation was not priced in this way, suggesting the threat of sea level rise does not factor into buyers’ decisions.

So what should we make of the fact that beachfront home buyers seem unconcerned? Are they just burying their heads in the sand?

Spiegel doesn’t think so. By the time most properties will be at any serious risk of ocean waves lapping at their front doors, which could in some places be more than a century from now, the homes will probably have deteriorated anyway—leaving plenty of time for them to be torn down and rebuilt on stilts, or to create a sea wall, if necessary.

Homeowners may not even have to pay for certain large-scale mitigation efforts themselves: major cities including Boston and New York have already begun planning infrastructure projects that would provide storm barriers and prevent flooding.

he says.

But if anyone out there wants to offload a beachfront property at a bargain-basement price, Spiegel has an offer: “Let me know. I’ll move there.”

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