The Real Estate Business Is More Cognizant of Climate Change and the Need to Adapt. Why?
March 07. 2022
The real estate industry has done a lot to protect homeowners from the hazards of climate change, but there’s still a lot more to be done. The findings of research conducted by ULI & Heitman indicate that global warming has fueled climate migration–and could impact the demand and prices of real estate. Remember, demand and supply go hand in hand; increased demand devalues a commodity and vice versa.
Global warming has influenced the innovation of new building techniques and solutions to reduce carbon emissions. Areas that will not be able to manage adverse climate effectively will undoubtedly experience diminishing demand in the property sector. On the other hand, the areas that counteract adverse climate effectively are likely to experience a boom in the real estate sector. The above illustration suggests that climate migration has a direct impact on decision-making in the real estate sector.
According to the ULI-Heitman research, the property industry has been raising awareness of the risk posed by changing climate since 2019 and has continuously adopted new approaches, such as physical risk assessment, revising investment underwriting, and property management practices. Over 30 million people were displaced in 2020 alone, thanks to extreme climatic conditions, and an estimated 14 million risk to be displaced when natural disasters, such as hurricanes and floods strike.
Christian Aid–a UK aid organization, did another research and found out that global insured losses against natural disasters exceeded US$100 billion for the fourth time in a period of five years. When a place is deserted due to natural disasters or catastrophes, the demand and value of properties in those areas diminish, and that’s why the real estate sector has no option but to adopt new approaches to keep up with the shifting trends.
Conducting a climate risk assessment has become an integral component of decision-making in real estate investing. Climate risk assessment typically begins by measuring climate threats against a portfolio. The climate risks can range from floods to wildfires, earthquakes, hurricanes, among other catastrophes. Climate risk assessment finally considers the feasibility of a project considering the available risk management solutions.
The real estate industry has been a significant contributor to global warming for decades, considering it contributes 40% of the total global carbon emissions annually. Besides contributing to the carbon emissions, the industry is guilty of consuming resources unsustainably without rehabilitating the environment. The above-tabulated data–sourced from NOAA System Research, shows that the rate of carbon emissions has been increasing over the decades from 1959 to 2019, and if all factors remain constant –no action is taken, the trend is likely to continue.
The environmental injustices made the industry disreputable, and have been struggling to rectify the situation over the years. NGOs, government authorities, scientists, millennial investors, environmentalists had to raise their voices to curb the environmental destruction perpetrated by the property development industry. At least they listened to the voices of reason, although they have a long way to go.
The pressure exerted on the industry over the years started to bear fruits recently. The change of stance can be attributed to increased awareness and an understanding of the consequences of unfavorable climate to the industry.
It’s not late for the property investment and construction sectors to act on climate change. Investors are already adopting strategic approaches to climate change in various ways, including:
– Performing risk assessments to ascertain the feasibility of prospective projects;
– Incorporating risk management strategies in their projects–due diligence;
– Investing directly in mitigation measures for specific assets;
– Working with local policymakers to find practical solutions for changing climate;
– Using modern construction solutions that save resources and energy;
The above-bulleted actions work towards mitigating the risks of adverse climate changes. Additionally, over 500 influential companies in the real estate and construction sector are active members of the Science-Based Targets initiative that advocates for low-carbon solutions and economies.
Besides being proactive to curb global warming, real estate stakeholders in different countries must adhere to regulations put in place to control the changing climate. Most European countries are on the front line with tighter climate-related regulations and stricter standards. For instance, Germany’s European Energy Performance of Buildings Directive–GebäudeEnergieGesetz, has formulated regulations and standards that promote building efficiency while France has followed suit. The new standards recommend new building strategies that are low-carbon oriented or integrate circular economies that promote the rehabilitation of the soil and environment.
The property investment and construction industries are walking the talk by taking bold steps of incorporating practical solutions–helping to achieve the Global Sustainment Development Goal of climate action by reducing global temperatures to below 2°C by 2030. The following are some sustainable solutions expected to revolutionize the real estate and construction industry:
New buildings will be self-sufficient in matters of energy and provide additional energy to urban networks.
Buildings undergoing remodeling will be raw material repositories and refurbished buildings will be a source of second-hand raw material for other constructions.
Flora and Fauna make the environment beautiful. Buildings should be constructed with nature lovers in mind. Most people love pets, flowers, and other plants, meaning modern buildings are expected to be habitable for all creation.
The real estate sector must continue with its initiatives against climate to safeguard its business interests. Bold actions, such as reviewing operations, processes, and supply chains should be considered to achieve this goal. The construction sectors must consider sustainable building options, including constructing modular buildings, investing more in research & development, and hiring experts, such as energy engineers or carbon specialists. On the other hand, investors must ensure their portfolios are free from the risks of adverse climate.
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