Last year, Wyatt wrote a terrific issue exploring the US real estate markets that will benefit the most (and least) from climate change.
After publishing, readers asked if we could publish a similar report for other parts of the world.
I know everyone has their own opinions on climate change. But regardless of your views, if you invest in real estate, you still need to know what everyone else is thinking.
Because these trends — or the perception of them — will move markets.
As the impacts of climate change ramp up, many people are on track to lose money in real estate. This is not a prediction about the future; it’s our present reality.
Of course, preparing is about more than just avoiding losses. Real estate markets are shifting along with the climate, and new compelling buying opportunities are sprouting up.
The first half of this issue is free. We’ll explore the Köppen climate classification; the excellent framework for thinking about a city’s climate, and look at the insurance market — which is shaping up to be the real arbiter of real estate values…
In the second half, I’ll show you a few places whose real estate markets may unfortunately be cooked, along with three spots I think would be wise to consider buying for the long-term.
Let’s go on a global property tour 👇
Note: Since you have the All-Access Pass, you can access the full issue. ✅
Table of Contents
The facts that matter
First, some important context.
More than 80% of net book value and 75% of the floor area of the world’s real estate is estimated to be at high risk from the physical impacts of climate change.
You read that right. The vast majority of the world’s property owners are, on some level, vulnerable to climate change at a physical level.
Now, there are enough doom & gloom headlines out there to feed an army of doomers for decades. But it shouldn’t dismissed even if you’re a property-owning optimist.
1) The Paris goalposts are shifting
The goal of the 2015 Paris Climate Agreement was to limit global warming to below 1.5°C above pre-industrial levels. As of today, all UN member states are signatories.
The problem is, scientists now expect more than a two-degree rise.
2) Extreme weather is becoming more common
Second, extreme weather events are becoming much more common.
These include sea level rise (coastal flooding), inland flooding, extreme storms, wildfires, subsidence, and heat and water stress.
3) The risks from climate change are not evenly distributed
You may know the famous quote by William Gibson:
The future is already here – it’s just not evenly distributed
This quote is about technology, but it’s also proving to be a good way to think about climate change.
Climate change is not a blanket problem — it will impact each country very differently.
The temperature anomalies are already noticeable today:
But climate change is about more than just temperature. And for that matter, it’s about more than just countries.
To really understand the real estate risks and opportunities, you need to zoom down to the city level and look at micro-climates.
And the best framework for understanding micro-climates is through the Köppen Climate Classification.
The Köppen Climate Classification
If you’re a geek, you may have heard of a German scientist named Wladimir Köppen, who classified the world into five climate zones:
- Tropical 🌴
- Dry 🏜
- Temperate 🌳
- Cold 🥶
- Polar ❄️
He then refined each zone along two additional dimensions:
- Seasonal precipitation type ☔
- Level of heat 🥵
The result is a three-dimensional framework to classify the climate of every single place in the world:
For example, where I live (The Sunshine Coast in Queensland, Australia) has a classification of Cfa: Temperate (C), No dry season (f), and Hot summers (a)
This is a very popular classification. Other cities which share the Cfa classification include Sao Paulo, Austin, Shanghai, and Milan:
As you can see, this is a very helpful framework. But it doesn’t stop there.
Recently, Köppen’s work was furthered by another German scientist (these Krauts are everywhere!) called Hylke Beck, who compiled the projected climate model data into dynamic maps to glimpse of how the world is likely to look and feel in 2070.
Based on Beck’s research, the folks over at pudding.cool created what I think is one of the coolest visual essays ever: A look at 70 cities around the world, and how their Köppen classifications will change between now and 2070:
Insurance companies hold all the cards
If you’re a stock investor, you may be aware of the efficient market hypothesis — the (somewhat flawed) idea that all available knowledge is priced into the market price.
In the case of global real estate, an efficient market will increasingly be forced to properly value the new climate risks.
At the end of the day, value points back to insurance.
Insurance is absolutely essential for real estate. It safeguards people’s homes — the most valuable asset they will ever purchase.
If insurance markets fail, large tracts of the world will become uninhabitable. And one could argue they are already starting to fail!
State Farm and Allstate are bailing on the entire California market. They’ve stopped offering insurance policies to new homeowners, and are refusing to renew existing policies.
And that’s mainly due to fire risk. A 2022 study by actuarial firm Milliman estimated 3.5 million American homeowners face a 10%+ home valuation drop once the market starts properly pricing flood risks:
This overvaluation is not unique to the US: insurance costs are suddenly becoming a very big deal for property owners around the world.
In Australia, 1 in 7 properties in ‘high risk’ areas (which includes Brisbane, its third largest city) are becoming uninsurable. Meanwhile, Africa is losing 15% of its GDP growth to climate change.
Global insured losses have been climbing upward for decades:
In a recent post, Home Economics author (and occasional Alts contributor) Aziz Sunderji cited climate change as the number one reason for rising insurance costs in Texas.
What’s interesting is that many of the areas with skyrocketing insurance rates are the same places experiencing the fastest population growth — particularly the south.
So far, higher insurance costs haven’t hampered the flow of Americans moving to disaster-prone areas like Texas. But as insurance becomes more costly—or outright unavailable—we should probably expect this to change
– Aziz Sunderji
Around the world, insurers are facing more bad years than good years. Since extreme weather events are on the rise, insurers are losing money, even in states that were once considered “low-risk.”
Like so much else with climate change, humanity is kicking the can on addressing this inconvenient insurance apocalypse:
One way to manage this situation would be to allow insurance companies, which are good at evaluating risk, to set their prices as high as the actuarial tables tell them they should be… …But this would be much too messy, and the uproar from coastal residents and wealthy homeowners and the real estate industry guarantees that no state government would let it play itself out. [States] manage the problem of fleeing insurance companies by trying to stuff policies into state-run “insurer of last resort” firms.
– Hamilton Nolan
Examples of state-backed “insurer of last resort” companies are California’s FAIR plan, and Florida’s Citizen’s Property Insurance, which even Governor Ron DeSantis admits is ”not solvent.”
The insurance industry knows what’s happening (as does the reinsurance industry, which is experiencing the hardest catastrophe market in a generation), and suddenly finds itself playing a critical role in helping humanity tackle climate change.
In a recent article titled Could Insurance Save the World?, author Stephen Johnston warns of an insurance “doom-loop,” where rising climate risks create “insurance deserts” where properties become uninsurable → causing insurers to pull out of high-risk markets → leading to even higher premiums for remaining homeowners.
On a positive note, it also highlights some novel funding mechanisms the insurance industry could break this cycle.
Regardless of how this plays out, it’s become clear that climate can-kicking is now confronting the cold, calculated, boring reality of insurance risk.
Uninsurability is the first stage of uninhabitability. And insurance companies are at the center of it all.
Which cities will be the losers?
As I mentioned, it’s foolish to generalize about the impacts of climate change at the country level. We need to think about the impact of climate change impacts at the city and even neighborhood level.
Let’s analyze a few of the standout losers and winners.
The big losers are likely to be cities previously located in temperate climates (C) which are positioned to become tropical or arid (A and B).
Athens, Greece 🇬🇷
Athens may be a great place to visit on holiday, but unfortunately it’s on track to becoming a climate change loser.
It’s located in a “climate change hotspot” exposed to increasingly fierce heatwaves, drought, and fires.
According to the UN, the Mediterranean is warming 20% faster than the global average due to a combination of sea warming and high evaporation rates which are making the Med saltier and warmer.
Athens is expected to transition from a temperate climate into an arid one which means warmer wetter winters and hotter drier summers.
The City of Athens is the hottest mainland European Capital, and its average high temperature has already risen by 1.6°C.
Athens’ excess of concrete makes it particularly vulnerable to the impacts of climate change, particularly wildfire.
Heatwave risk
Whilst drought and fires are likely to become a bigger problem for the whole city, some parts of the city are more affected by heat stress than others.
A 2019 analysis of 571 European cities by the Newcastle University Polytechnic, ranked Athens as the European city facing the single greatest impact from heat waves.
In particular, the heavily built-up parts of Athens are likely to suffer growing heat stress in the form of urban heat islands.
Sea level risk
Although Athens is not directly situated on the coastline, parts of the broader Attica region are vulnerable to sea-level rise.
Coastal areas, including Piraeus (Athens’ port city), could face flooding and coastal erosion due to rising sea levels.
The elevated forest and shrublands regions surrounding Athens are likely to fare better. It’s also likely that a portion of the city’s residents will move to the country to escape the heat, so valuations may be less vulnerable in those regions.
Flood risk
Central Athens is most at risk here. Climate change is expected to bring more extreme weather events, including intense rainfall, leading to flash flooding in Athens.
The city’s ancient infrastructure and narrow streets, which are not well-equipped for heavy downpours, are particularly vulnerable to this type of flooding.
Water scarcity risk
It’s ironic that a city can have both flooding and water scarcity issues, but that’s the reality.
The mismatch between peak water demand in the summer (due to tourism and agriculture) and lower water availability during that time of year creates seasonal water imbalances, which will put additional stress on Athens’ water management systems.
Tourism risk
Athens is a major global tourist destination, and the effects of climate change, such as extreme heat, could negatively affect the tourism industry.
Tourists may find it less appealing to visit during hotter months, and the risks of wildfires or other climate impacts could make the city less attractive to international visitors.
Hong Kong 🇭🇰
Unlike Athens, which is temperate turning into arid, Hong Kong is a temperate climate that’s turning tropical.
This means more heatwaves and heavy rainfall, sea level rise, intense typhoons, and most of all, flooding.
Flood risk
Victoria Harbor is particularly at risk, due to its coastal geography, high population density, and economic reliance on global trade and finance.
As shown below, the northern parts of Hong Kong Island are most at risk: particularly the Causeway Bay and Central neighborhoods.
Most real estate across the city is vulnerable to the impacts of climate change and falling valuations — especially given the high starting point with property prices.
Landslide risk
To escape the growing risks, real estate investors may be tempted to buy elevated property where the flood risk is lower. Not so fast.
Landslides are becoming a bigger risk for the city’s hillside communities due to Hong Kong’s increasingly wet, tropical climate, gradual slope degradation and population growth.
As a result, real estate investors may be prudent to avoid low-lying coastal land, low-lying inland land, and hillside land. The problem is there are not a lot of alternative property options left.
In short, it will be hard to avoid the negative impacts of climate change on Hong Kong real estate.
Los Angeles, CA ☀️
I know the focus here is supposed to be international real estate, but I wanted to talk a bit about LA.
There’s growing talk of Hollywood turning into Bollywood thanks to climate change. Like Athens, LA appears to be a sitting duck that’s positioned to transition from a temperate climate into an arid one.
This means drought, heat, and precipitation are likely to become much bigger challenges for the city.
Drought risk
Whilst the city is expected to become warmer and dryer, extreme weather events and sea level rise are also water-driven challenges to be aware of.
There’s no escaping the fact that drought is the standout risk for LA. Prospective buyers tend to become more cautious when water becomes scarce. This is particularly bad news for property owners since drought generally leads to lower property prices.
Flood risk
Despite the new arid climate, flooding is also expected to impact 27% of the city’s buildings.
The biggest impacts are likely to be felt in Long Beach and Seal Beach, and the inland watershed.
How is flooding a climate risk in an arid climate? There are three reasons:
1) Flash floods from intense rainfall
Arid regions often experience infrequent but intense rainstorms. When rainfall does occur, it can come in short, heavy bursts, leading to flash floods.
The soil in these areas tends to be dry and compact, which reduces its ability to absorb water quickly.
As a result, rainwater flows over the surface, causing flash flooding, especially in areas with poor drainage systems.
2) Low vegetation and erosion
Arid climates tend to have sparse vegetation, meaning there are fewer plants to slow down rainwater and help absorb it.
With little to no vegetation, the ground is more prone to erosion, which can worsen the effects of flooding by increasing runoff and depositing sediments in waterways, further blocking them and exacerbating flood risks.
3) Dried riverbeds and wadis
Many arid regions have dry riverbeds, known as wadis, that are typically dry for most of the year but can fill quickly when rain does occur.
These wadis can turn into fast-flowing rivers during sudden downpours, creating significant flooding hazards, especially if they run through urban areas or near infrastructure.
Wildfire risk
Wildfire is expected to impact 23% of the city’s buildings
Check out the map of wildfire risk below. The areas surrounding central LA are particularly at risk.
The Climate Change in the Los Angeles Region Project concluded that the impacts on the city won’t be uniform. The city’s valleys and inland areas are expected to warm more than its coastal areas.
So if you’re intending to live in LA longer term, the real estate that’s likely to be in highest demand is well-elevated land near the coast which remains safe from coastal erosion, sea level rise, wildfire, and flooding.
Particularly safe areas include Pacific Palisades and Rancho Palos Verdes.
Riyadh, Saudi Arabia 🇸🇦
Off to the Middle East next.
It won’t surprise you to hear that Saudi Arabia is a hot, arid country which is expected to become even hotter and drier.
In fact, the country is warming faster than most regions, so climate change is already having a devastating impact there.
Unfortunately, its biggest city Riyadh is sitting smack bang in the middle of the hottest, and fastest warming, region of the country.
Heatwave and air quality risk
As a result, Riyadh is facing a couple of major climate change risks: worsening heatwaves which are making the city harder to live in, and poor air quality.
The heatwaves speak for themselves, but the air quality challenge is already hard to overstate. Riyadh’s annual air pollution rates are a massive 15 times higher than the level WHO recommends as safe.
It’s going to be challenging for Riyadh property owners to navigate climate change as the whole city is facing such significant impacts.
There’s some good news though. Saudi’s Arabia’s 10 billion tree planting objective is the largest afforestation project in the world, and should dilute some of the climate change impacts the country would otherwise be on track for.
Riyadh is set to benefit from the planting of 1 million trees. From a real estate perspective, owning property in parts of the city (and the country) which are positioned for major afforestation may help mitigate against the impact of climate change on real estate values.
Other losers
There are nearly 90 million people currently living in cities that are transitioning away from temperate climates.
Other cities shifting from temperate-to-arid:
- Austin, TX
- New Delhi, India
- Tel Aviv, Israel
- Tunis, Tunisia
- Mexico City, MX
- Casablanca, Morocco
- Barcelona, Spain
- Santiago, Chile
Other cities shifting from temperate-to-tropical:
- Hanoi, Vietnam
- Lusaka, Zambia
- Sao Paulo, Brazil
- Nairobi, Kenya
Winners
Oslo, Norway 🇳🇴
The main winners are likely to be cities which were previously located in cold climates which are positioned to become temperate.
Oslo is the perfect example here: It is transitioning from Dfb (cold, no dry season, warm summer) to Cfb (temperate, no dry season, warm summer)
In fact, the entire Nordic region is positioned to be a climate change winner because of its improved livability in a warmer world.
Milder winters
As temperatures rise, Oslo is expected to experience milder winters with less snow and extreme cold. This can reduce energy costs for heating, lower winter mortality rates, and make transportation and infrastructure maintenance easier.
It may also boost outdoor activity and tourism during seasons that were previously more limited by severe cold.
In the future, people might be bragging about their luxurious beachside resort in Copenhagen as much of the Nordics region is expected to change from a cold climate into a temperate climate.
Extended growing season
The region’s economy is also set to benefit from expanding agricultural seasons. For example, the Norwegian growing season is expected to increase by up to two months which will provide a strong economic tailwind.
Not only is Norway naturally well positioned for climate change, the country has also long been focused on becoming Europe’s most sustainable country, with Oslo leading the charge.
Oslo’s goal of reducing emissions by 95% by 2030 is one of the most ambitious in the world, while its plan to adapt to the impacts of climate change is also thorough.
That’s all good and well, you may say. But what about sea level rise? After all, Oslo is located on the Oslo Fjord, which connects with the North Sea. Surely that’s a big problem for a coastal city?
Would you believe, sea level rise hasn’t been a major issue in Norway to date? The city’s coastline is generally steep and rocky, and the country’s land mass has been rising roughly in line with the sea level.
The other Nordic countries have often referred to Norwegians as ‘lucky Norwegians’, and they’re certainly living up to their nickname when it comes to climate change.
Having said that, with temperatures in the Arctic Circle rising more than twice as fast as the rest of the world, sea level rise and flooding are likely to become bigger challenges for Oslo and the rest of the country as the ice melt accelerates.
So it’s not all good news, even if it seems as though Norway was custom-designed by nature to thrive in a warmer world.
For existing Oslo property owners, most are positioned to benefit from a warming climate, but keeping a close eye on sea levels and flooding risk is advisable. This is arguably the biggest risk that could cause problems for property.
This flood map of Oslo confirms the risk:
While Oslo may benefit in certain areas, it is important to note that no region is immune to the risks of climate change. Norway will still face challenges such as more intense rainfall, increased flooding, and the potential impact on ecosystems and biodiversity.
But for real estate investors looking for opportunities, Oslo (and Norway in general) is likely to be one of the more obvious climate change winners.
The improved climate story is similar, albeit with unique geographical nuances, in Sweden and Finland.
Dublin, Ireland 🇮🇪
Time for a Guinness. Next stop: Dublin.
Renowned in equal measure for its nature, culture, and rainfall, Ireland has actually been getting incrementally wetter in recent years.
There was a 5% increase in rainfall between 1961-1990 and 1981-2010, with a larger increase in winter and autumn.
But the good news is the country’s climate is expected to improve in the future.
Less rainfall
Dublin is expected to experience less rainfall with a shift toward wetter winters, dryer summers, and warmer temperatures throughout the year.
This is music to the ears of many real estate owners since investors tend to put a high value on lifestyle benefits.
Warmer temperatures
You may recall that Europe is warming considerably faster than the global mean, but Ireland isn’t part of mainland Europe. It’s more similar to the North Atlantic, which is warming at a slower rate.
Across the island, surface air temperatures are expected to increase everywhere and across all seasons.
Fewer climate extremes
While parts of Europe may face extreme heat, droughts, or wildfires, Dublin’s temperate maritime climate might offer relative stability.
This could make the city more attractive to businesses and residents compared to regions more severely affected by climate change.
Flood risk
However, there’s one climate change risk that should be front of mind for Dublin real estate investors: flood risk.
It’s arguably the biggest risk for Dubliners due to the city’s coastal location and the presence of its main river, the Liffey, which connects with Dublin Bay.
Outside of these higher risk flood zones, owners of elevated properties in Dublin are generally well-positioned.
Toronto, Canada 🇨🇦
Canada is generally regarded as one of the countries that will benefit the most from climate change.
Of all the Canadian cities, Toronto stands out as the most well-positioned for what’s coming.
The city is shifting from Dfa (cold, no dry season, hot summer) to Cfa (temperate, no dry season, hot summer). Meaning the city’s winters are becoming milder and its summers are becoming hotter.
Milder winters & fewer extreme cold events
Less harsh winter weather could make Toronto a more attractive place to live, with fewer disruptions due to snowstorms and extreme cold, which have traditionally caused transportation and infrastructure challenges.
Reduced frequency of extreme cold events could lead to fewer cold-related health issues, lower costs for winter infrastructure maintenance (such as snow removal), and less damage to roads and buildings due to freezing and thawing cycles.
As winters become milder, Toronto may see reduced heating costs, which could benefit both households and businesses. This can result in lower energy consumption, less strain on energy infrastructure, and reduced carbon emissions from heating.
Economic benefits
The economic benefits should be significant. It’s been estimated that Canada’s average national income could rise by 247% driven by expanded growing seasons, more tourism, and additional maritime shipping opportunities as the Arctic region’s ice cover dwindles.
A booming economy is likely to be supportive of higher real estate prices.
Flood risk
There will also be challenges to contend with in the form of forest fires, rising sea levels, flooding, and shifting precipitation patterns.
The city was built on many riverbeds and depressions, so flooding is a significant risk posed by climate change. As a result, water drainage is a growing problem in areas like the Don Valley and the subway tracks throughout the city.
Heat island micro-climate
Toronto’s micro-climate is also disproportionally affected by an upward temperature trend, thanks to a peculiar case of the heat island effect.
Like most cities, Toronto’s excess of asphalt, cement and metals causes heat to become trapped in the city — so the hot summer days will feel even hotter.
Based on public records provided by Environment and Climate Change Canada, the average annual temperature has increased 1.5 °C at Pearson Airport over a period of 30 years.
Owners of Toronto real estate in the well-drained, elevated parts of the city are well-positioned to benefit from climate change, as are property owners in the greener areas within and surrounding the city.
To be clear, Canada still has challenges. But they are preparing to navigate these challenges better than most countries, and are one of the few to have enshrined its net zero goals into law.
Other winners
Other cities shifting from cold-to-temperate:
- Vancouver, Canada
- Copenhagen, Denmark
- Stockholm, Sweden
- Helsinki, Finland
- Kyiv, Ukraine
- Budapest, Hungary
- Berlin, Germany
- Warsaw, Poland
- Prague, Czechia
Closing thoughts
The climate change lottery is already selecting its winners and losers in the global real estate market.
Real estate markets are likely to increasingly value the risks and opportunities posed by climate change, so there are going to be opportunities to make money, and probably more importantly, to avoid losing money, for informed investors.
In general, you’ll want to make sure you own property in the regions which are positioned to benefit, or not lose from, climate change: e.g. the Nordics, Northern Europe, Canada, and the northern regions of the US.
You’ll also want to avoid being more exposed than necessary to the regions positioned to transform into much more difficult places to live: e.g. the Mediterranean, the Middle East, and parts of Asia.
To that end, high-quality research into flood and wildfire risk in regions you own, or are considering owning property is going to become much more important for property valuations.
As for me? I live in Queensland, Australia, so I don’t have any horses in the race with any of the cities discussed.
That said, climate change is definitely causing major challenges here as well. In particular, reduced rainfall and increased prevalence of bushfires have become a much bigger deal for us.
And this hasn’t escaped the insurance sector’s notice. Our 2024 home insurance renewal bill was 40% higher than 2023.
That’s it for today.
Reply to this email with comments. We read everything.
See you next time, Simon
Disclosures and holdings
- This issue was written & researched by Simon Turner and Stefan von Imhof.
- Neither author currently has any real estate holdings in any of the loser or winner cities mentioned here.
- Altea has no real estate holdings.
- This issue was sponsored by Money Pickle.
