Climate Change Is Creating A Huge Bubble In The U.S. Financial System
Monday, April 17th, 2023 Catastrophe Legislation & Regulation Property Risk ManagementHomes constructed in flood plains, storm surge zones, regions with declining water availability, and the wildfire-prone West are overvalued by hundreds of billions of dollars, recent studies suggest, creating a housing bubble that puts the U.S. financial system at risk.
The problem will get worse as sea level rises and storms dump heavier rains and if unwise building practices continue. But increased awareness of climate risks, more realistic flood insurance pricing, and reform of government disaster policy could reduce this overvaluation -- and the risk of an economically disastrous bubble burst.
Climate futurist Alex Steffen has described the climate change–worsened real estate bubble this way: ‘As awareness of risk grows, the financial value of risky places drops. Where meeting that risk is more expensive than decision-makers think a place is worth, it simply won’t be defended. It will be unofficially abandoned. That will then create more problems. Bonds for big projects, loans and mortgages, business investment, insurance, talented workers -- all will grow more scarce. Then, value will crash, a phenomenon I call the Brittleness Bubble.’
