Research from Realtor.com found that 26.1% of homes in the United States (valued at an estimated 12.7 trillion dollars) are exposed to at least one type of severe or extreme climate risk. The Netherlands is also increasingly experiencing extreme weather, which increasingly leads to damage. At the same time, the most common climate risks for Dutch homes — foundation damage, flooding, and heat stress — remain mostly uninsured or only partially covered.
From warning to reality
The IPCC warned as early as 2007 about the scenario in which real estate would become uninsurable. Central banks, including the European Central Bank (ECB), have now identified climate risks as a direct threat to financial stability. If homes, the most important collateral for mortgages, lose their value or literally wash away, a systemic risk arises that extends beyond the housing market.
Domino effect
The consequences could be quite drastic. For households, climate damage often means a double blow: the loss of their home and assets, while mortgage debt remains. For banks and other financial institutions, this may cause the collateral on their balance sheets to evaporate, putting pressure on their stability.
Loss of property value
At first glance, the Netherlands and Europe seem reasonably protected, but even still, risks are undeniable: flooding, land subsidence, and storm damage put pressure on the housing market. An estimated 800.000 homes in the Netherlands are at risk of subsidence and collapse due to dropping groundwater level (AFM). Approximately 1,350,000 homes – 16.8% of Dutch homes – are at medium to high risk of flooding (PONT Klimaat). For now, the insurance and mortgage markets are holding up, but it remains to be seen how long this will last as climate change accelerates. Are our financial sector and general society sufficiently prepared for the loss of value that will inevitably occur in the coming decades?
Question
The question seems not to be whether climate risks will affect the housing market, but how great the impact will be. Without timely intervention, a climate insurance problem threatens to affect both households and institutions. The real question is: how do we ensure that housing remains affordable, insurable and safe in a changing climate?