Information disclosure on climate risk affects the housing market

Climate change is one of the most pressing issues facing humanity. It is important to have access to reliable and up-to-date information about climate risks in order to make informed decisions and take appropriate action. The Netherlands is a low-lying country that is particularly vulnerable to the effects of climate change, including land subsidence, sea level rise, flooding, and extreme weather events. As such, the Dutch government has made climate adaptation a top priority, and efforts are underway to improve access to climate risk information.

Climate risk can impact property values. Properties located in areas with high climate risks may be considered less desirable and may have lower resale values. In some cases, properties may even become unsellable if the climate risk is deemed too high. Previous study shows that all else equal, house prices are on average 1% lower in places that are at risk of flooding in the Netherlands. By providing accurate and detailed information about flood risks, property owners and investors can make more informed decisions about buying and selling real estate and can avoid potential losses in property value. According to a recent paper published in Nature Climate Change, in the US market, residential properties exposed to flood risk are overvalued by US$121-237 billion. And these highly overvalued properties are concentrated in counties with no flood risk disclosure laws and with less concern about climate change. As such, more accurate and accessible information on properties’ climate risks would likely increase the capitalization of these risks in housing markets. To this end, in the Netherlands, one of the key initiatives in this regard is the Delta Programme, which is a long-term plan aimed at improving its resilience to climate change. The program includes a focus on improving data collection and sharing, as well as on developing new tools and methods for assessing and managing climate risks.

In some municipalities, the government is trying its own way to improve the disclosure level of information on climate risk. For example, Dordrecht municipality sends letters to the 15.000 citizens that live outside of the dikes to remind them of the flood risks. In this letter, they provide information about the risk of high water, what people can do if high water is expected, and how the municipality supports residents and entrepreneurs. Another example is Zaanstad, where prolonged drought leads to an increased risk of rotting and foundation subsidence, the municipality implements a mandatory disclosure policy about foundation quality in housing transactions. A seller is required to share all known information about a house's foundation with the buyer. And buyers are expected to ask about this. One research shows that when foundation quality is mentioned during housing transactions, it plays a significant role in home value. Clearly, making disclosure of current climate damages and future climate risk mandatory would allow home buyers to efficiently incorporate climate risk into their transaction behaviors.

Despite these efforts, there are still challenges to improving access to climate risk information in the Netherlands. One of the key challenges is the complexity of the data involved, making it difficult for non-experts to interpret and use effectively. In this regard, an effective way of communication is especially needed, given that it takes a long time for some people to believe the climate risk is indeed threatening their life if they have no experience of past damages, particularly in vulnerable neighborhoods such as those living in the unembanked area.

To address these challenges, it will be critical to continue investing in research and development of new tools and methods for collecting, analyzing, and sharing climate risk data, as well as in education and training for people on how to correctly interpret and use this information. Additionally, greater communication and collaboration between different stakeholders will be essential for ensuring that climate risk information is effectively shared and used to inform decision-making at all levels.

Figure: Foundation map in Zaanstad

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