Is climate-adapted development worth it?
Last week, I had the privilege of attending a pilot session organized by the Ministry of Infrastructure and Water Management, the Resilient Delta Initiative, and the Dutch Association of Insurers. The session focused on climate-adaptive building in the Netherlands and provided valuable insights into how the country is addressing the challenges of a changing climate.
The program covered general adaptation strategies and highlighted two real-life urban development projects in South Holland. In both cases, the locations were deemed suitable for development but substantial adaptation was required to ensure long-term safety. While each project was unique in its setting and engineering solutions for mitigating risk, they had one thing in common: the significantly higher cost of climate-adaptive development compared to traditional methods. These extra costs arose, for example, from the need to strengthen the soil and land set aside for water storage, which reduced the number of houses that could be built on the same plot.
Willingness to pay for safety
The fact that climate-adaptive building is more expensive makes sense and is not necessarily a deal breaker. Higher costs in risky areas incentivize people to move to places that are inherently safer. However, in cases where location amenities outweigh adaptation costs, or where people are willing to take the risk, development may continue. In theory, we would expect natural outcomes where people gravitate toward safer areas, and adaptive development only proceeds where it is truly worthwhile – due to limited risk, location benefits, or affordable adaptation options.
However, this natural sorting process did not occur in either of the South Holland projects. In both cases, municipalities expected a net loss on their developments. In essence, the market was unwilling to bear the additional financial burden of climate-adaptive housing in these locations. Yet, both projects continued—thanks to government subsidies. In one instance, the national government granted 65 million euros to make the development of 5,500 homes feasible, contributing nearly 12,000 euros per house. While these subsidies promote climate-adaptive housing, they raise an important question: Should we use public funds to develop in risky areas – even though market expectations indicate that people are not willing to pay for it?
Opportunity costs of subsidies
Although subsidizing adaptive development may seem well intended, it is not an equitable use of public funds. The subsidies mainly benefit those who are going to live in these areas – as they can enjoy adapted living at a reduced price. Instead of mitigating risks in specific areas, we could allocate those same resources for development in safer regions. For example, using the 65 million euros to build in naturally safe areas could yield an additional 250 homes (assuming an average construction cost of 260,000 euros per house). Alternatively, the money could be invested in infrastructure improvements to make safe areas more attractive and better connected, encouraging organic growth in places where adaptation isn’t needed. Especially in today’s tight housing market, pouring resources into prestige projects in hazardous areas can come across as inefficient use of capital.
Building experience
At the same time, there is an argument for subsidizing adaptive projects like these. At present, the development costs of adaptive projects are still high because we have little experience with this type of development. However, as more projects are completed, governments and developers will gain experience and learn how to do this more efficiently. In this sense, subsidies can make early projects feasible, allowing the knowledge gained to be applied more broadly in the future.
Whether experience reaches the wider public or remains limited to the selected few participating in these subsiding is then a question of essence. Experience sharing as in pilot sessions from last week is at least a good step to start with. Whether or not it is enough to ensure affordable adapted housing in the long run remains to be seen.
