Here's how climate change magnifies homeownership costs

by Candyd Mendoza23 Apr 2019

Climate change has catalyzed several factors that have led to steeper housing costs, according to data from Moody’s latest homebuilding report.

In 2017, Houston saw more than a 200% increase in serious mortgage delinquencies on damaged homes after Hurricane Harvey flooded nearly 100,000 homes, according to CoreLogic.

“In response to the increased frequency and intensity of natural disasters, including hurricanes, wildfires, and flooding, all of which often damage or destroy residential properties, building standards are growing more strict,” Moody’s said in the report. “This is particularly so in coastal areas and areas close to waterways with lower elevations that are prone to flooding from rising sea levels, high tides, and exposure to hurricanes.”

Evolving regulations addressing building-safety issues have called for more durable impact-resistant building products to endure extreme weather conditions. This has created a demand for higher-resistance materials, which are more costly than standard building products. The demand along with pricey flood insurance could lead to a hike in homeownership costs, according to the report.

“Homebuilders will intend to pass through the cost of energy-efficient construction materials to their customers, but it may not be fully feasible, particularly with current, already difficult affordability conditions,” Moody’s said. “This will expose homebuilders to some margin pressure to encourage demand. Overall, regulations are likely to continue to become more stringent in the face of climate change, strengthening the viability and efficiency of structures and therefore benefiting homeowners. However, higher costs will affect both the homebuilding companies and ultimately the homebuyers.”

California has instituted some of the most demanding regulations in energy efficiency nationwide. Last year, the California Energy Commission required all new homes built in the state starting in 2020 to include solar-panel technology and follow energy-efficient building codes covering thermal, ventilation, and lighting aspects. While going green requires initial upfront costs, Fannie Mae’s multifamily green bond impact report projected owners to save 10% on annual utility expenses.