Society—and the real estate industry—are “grossly unprepared” for a coming era of instability due to climate change, economist Spencer Glendon, senior fellow at the Woods Hole Research Center in Falmouth, Massachusetts, told ULI Governing Trustees at a meeting in Washington, D.C. Glendon had previously spoken to a ULI audience at the 2019 ULI Resilience Summit.
The climate has shifted already, he noted. Areas that have long been considered temperate are becoming hotter, with climate-driven aberrations, such as severe storms, droughts, and fires, becoming more common. The climate will continue to heat up for decades to come, he warned, and the rate of heating is accelerating.
Glendon explained the correlation between prosperity and temperate climates, stating that the more moderate climates produced civilization, and therefore capital. However, as climate impacts intensify, cities in temperate climates will see livability becoming increasingly challenged, with some areas facing daytime temperatures so high that being and working outdoors will be unsafe. Rising sea levels, salination of groundwater, and the expansion of arid terrain will burden governments with the need for expensive infrastructure improvements. These changes will affect agriculture and economic productivity and will drive migration to more-habitable areas, he said.
Glendon also stressed that the industry is leaning into extreme risk. “We have rising seas, more intense rain, and we are building the most expensive real estate on the water,” Glendon stated. He emphasized that financial models, including those used by insurers, bond-rating agencies, and secondary mortgage companies Fannie Mae and Freddie Mac, have not accounted for these changes. “We built a complex financial system based on outdated assumptions,” he said.
However, major reinsurance companies are taking climate-driven risk into consideration. Ultimately, the loss of commercial insurance availability, just as more entities need coverage for a greater variety and severity of risks, could be a trigger that forces more businesses and cities to fully incorporate climate into their risk assessments.
He challenged the real estate executives to go beyond thoughts of sustainability. “We have to get to zero net carbon emissions. It’s not an opinion. It’s facts; it’s physics. Your job is to demand better regulation. It’s the only way you can save your own businesses,” he said.