• Homes exposed to rising sea levels sell for less than similar properties, even though the threat is decades away.
  • Declining property values have severe implications not only for vulnerable communities in Florida, but for millions of Americans across the country.
  • Investors who own multiple properties or a second home have begun to demand a discount for the anticipated effects of climate change.

The projections are staggering: By 2100, the homes of 4.7 million Americans could be vulnerable to rising sea levels, posing a threat to nearly one trillion dollars in coastal real estate.

While this deadline is still decades away, the possibility of future devastation is causing home prices to drop in coastal markets – particularly in areas with forward-thinking buyers.

According to a recent study from researchers at Pennsylvania State University and the University of Colorado at Boulder, homes that are vulnerable to rising sea levels sell for around 7% less than similar unexposed properties. Homes that do not expect flooding in the next century sell at a smaller discount of 4%.

The obvious communities to watch out for are located in Florida, where more than one million homes are at risk of chronic flooding by the turn of the century. But rising sea levels threaten some unexpected areas as well, including Hilton Head, South Carolina, where nearly $1.5 billion worth of property could be lost by 2045, and Charleston, South Carolina, where exposed homes have already lost $266 million in value since 2005 due to coastal flooding and impending sea level rise.

Other communities such as Foley, Alabama; Nantucket, Massachusetts; and Queens, New York, could lose more than $1 billion each in real estate by 2045.

With the threat of property damage on the horizon, sophisticated investors - those who own multiple properties or a second home and tend to have higher earnings and levels of education - have begun to factor climate change into property purchases. According to the researchers, who studied the sale of more than 460,000 homes from 2007 to 2016, these demands are likely to increase as investors become more savvy.

Though the US government has taken steps to reverse Obama-era climate change protections, investors have stayed attuned to scientific projections. In the wake of 2014, when the Intergovernmental Panel on Climate Change doubled its projection of the world's rising sea levels, the property discount for sophisticated investors increased significantly. This led the researchers to conclude that sea level rises are "a first-order consideration for certain segments of the coastal real estate market."

Even savvy renters should not expect a discount, however, since their rates depend on current property values.

Ultimately, the researchers find that the real threat to property values is the likelihood of environmental hazards, not the present-date quality of a home. After controlling for factors like waterfront views, remodels, and areas that experienced recent flooding, the researchers found a significant association between vulnerable homes and discounted rates. The more worried a community is about rising sea levels, the more likely these homes are to fetch a discount.

These findings have grave implications not only for the real estate market, but for the US economy as a whole. For many US households, real estate is their greatest asset. A loss in property value could impact the financial health of millions of Americans. As fears about rising sea levels continue to mount, coastal communities will be tasked with mitigating the effects of climate change, or risking the slow, but steady decline of their housing markets.