Coastal Real Estate – A Depreciating Asset in an Age of Climate Change?

The Ninth Wave was a political novel published in the 1950s. The ostensible story is about a surfer who learns to have patience to wait and catch the Big One, the "9th wave" of every set, supposedly the largest in a wave sequence. In business, many savvy investors and entrepreneurs try to read waves of change and get positioned in the water ready to start paddling when they see a huge wave about to break on the horizon. (Think Bill Gates, Mark Zuckerberg, Elon Musk, etc.)

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I read this book in my early 20s. The one thing I remember is the line that said people should buy coastal real estate, because “they aren’t making any more of it.” I didn’t take that advice. For a long time, I regretted it, watching the incredible property appreciation during the past fifty years in southern California’s coastal cities.

In a way, now I'm glad I didn’t buy along the coast.

Think about it: 40% of Americans live in coastal counties. With rising sea levels and greater damage expected from storms, hurricanes and wave surges, much of coastal America will be in growing danger. Each year, predictably and unpredictably, the sea will inundate low-lying coastal areas. Rising sea levels will affect hundreds of billions of dollars in coastal real estate, destroying some of it and devaluing much of the rest. Areas along the Florida coast and Gulf Coast will become like Venice, Italy, learning to live with daily and seasonal inundations. Gondolas and water taxis may replace Uber and Lyft as on-call transportation.

MIami Beach - Need I say more?

MIami Beach - Need I say more?

Given this scenario, not only likely, but eminently predictable, when will insurance companies stop writing policies for these homes and buildings, or raise the rates so high that homes will stop buying insurance? When that happens, who will want to make 30-year mortgage loans to uninsured buyers? Who will want to buy a home “guaranteed” to flood?

Without new buyers, existing owners will either “age in place” or abandon their damaged or soon-to-be-damaged homes. Then we’ll see another episode of “jingle mail,” such as we saw during the Financial Crisis ten years ago, in which distressed homeowners, owing more on their loans than the value of the homes, simply stop paying the mortgage, abandon the homes and mail back their keys to lenders.

In that scenario, some communities may lose so much income from unpaid property and sales taxes that they will have to declare bankruptcy and default on pensions. Who will then bail them out? Most likely you and me.

Much of U.S. coastal real estate will become a massive disaster zone, an event likely to unfold over the next thirty years like a slow-motion train wreck. The ninth wave of the ninth wave, the tsunami of climate change, is gathering strength, soon to crest. Do you want to be standing on shore or swimming in the ocean without a surfboard when it does?