Climate Change and the Future of U.S. Real Estate: $1.47 Trillion at Risk
The U.S. housing and commercial real estate markets are on the verge of a major transformation as climate risks escalate. According to a recent study by First Street Foundation, discussed here by First Street’s head of climate implications research Jeremy Porter, extreme weather patterns and rising insurance costs will significantly impact property values, with an estimated $1.47 trillion in real estate losses by 2055. This discussion is somewhat reminiscent of observations we shared in a post last year; Helene/Milton Losses of the Florida “Self-Insured” May Be Near a Tenth of State’s GDP.
The Growing Threat of Climate Change on Real Estate
Historically, climate-related studies have focused on direct property damage , such as flooding or wildfire destruction. However, the latest research sheds light on indirect impacts , including population shifts, long-term environmental hazards, and skyrocketing insurance premiums. These factors are beginning to reshape the real estate market in unprecedented ways.
Regions that are particularly vulnerable include:
- Florida – While still experiencing population growth, Florida faces rising insurance costs due to increased hurricane intensity and flooding.
- Louisiana – A state already grappling with extreme weather events, now seeing further devaluation due to climate risks.
- Western U.S. – Wildfires and drought conditions continue to pose significant threats to property values.
- Mid-Atlantic & Midwest – These regions are experiencing more extreme precipitation events, leading to flooding and higher insurance costs.
The Insurance Crisis: Residential and Commercial Properties Impacted
One of the most pressing concerns is the rising cost of insurability, which is affecting both residential and commercial real estate. Over the past two to three decades, climate disasters have steadily increased in frequency and severity. However, the most dramatic surge in insurance premiums has occurred in the last five to six years, as insurers adjust to the growing number of claims.
This shift is now being directly reflected in property values. Homeowners, commercial property investors, and business owners are factoring in insurance costs during negotiations, leading to devaluations in at-risk markets. Key climate threats impacting insurability include:
- Hurricanes and wind damage along the Gulf Coast
- Increased flood risks nationwide
- Wildfire-prone areas in the West
The Commercial Real Estate Factor
While much of the discussion has focused on residential housing, commercial real estate is equally at risk . Businesses and investors are seeing:
- Higher insurance premiums cutting into operational budgets and profitability.
- More difficulty securing financing, as lenders factor climate risks into property valuations.
- Potential migration of businesses away from high-risk areas, reshaping regional economies.
For retail, office, and industrial properties, these risks create uncertainty in long-term investments. Areas with increasing disaster exposure may see commercial properties struggle to attract tenants, while businesses may be forced to move to lower-risk markets to control operational costs.
Homeownership and Wealth Building at Risk
For many Americans, homeownership is a key path to financial stability and long-term wealth. However, the rising costs associated with climate risk are altering this fundamental principle.
- Insurance costs are rising disproportionately – At the beginning of the 21st century, homeowners typically paid about 10% of their mortgage toward insurance. Today, that figure has more than doubled to 23%.
- Recent homebuyers are most vulnerable – Those who purchased homes in the past five to seven years are facing unexpected costs that significantly increase their overall mortgage burden.
- Property valuations are adjusting downward – In climate-vulnerable regions, home appreciation is slowing, and in some cases, reversing.
For longtime homeowners with built-up equity, higher insurance costs may be a manageable burden. However, for newer buyers, these expenses could alter home affordability calculations, forcing them to either purchase lower-value properties or reconsider homeownership altogether.
The Future of Residential and Commercial Real Estate in a Changing Climate
As climate risks become more embedded in the real estate market, risk-based pricing will become the new norm. Insurance companies will continue to adjust premiums to reflect actual exposure, which in turn will shape both residential and commercial property values.
This shift challenges the traditional American dream of homeownership as a surefire way to build wealth. In climate-vulnerable areas, home values may not appreciate as they did in previous decades, making real estate a less reliable investment. Additionally, business owners and investors must account for climate-related expenses, as insurance and disaster recovery costs eat into potential profits.
The First Street study highlights the urgent need for homebuyers, investors, and policymakers to reevaluate how climate risks influence real estate. As insurance costs continue to rise and climate-driven migration patterns shift, the future of U.S. real estate— both residential and commercial —will be increasingly tied to the realities of a warming world.