Who should pay?

Climate risk scores on real estate listings are having an impact on prices and realtors are complaining. But who should pay for these losses?

If you have been browsing Zillow or Redfin in recent years, you may have noticed that (in the US at least), listings have been accompanied by a property risk score for fire, flood, air quality, etc. These scores have mostly been generated by First Street – a private company that takes publically available information about climate risk, and downscales it to the lot level using a proprietary algorithm.

Here’s an example for a home in Houston, Texas:

Since this has been common, analysts have noticed that the worst-ranked homes for risk are suffering from relative price declines, particularly for homes at risk of flooding. This seems like a natural outcome, the higher the risk of flooding, the more expensive insurance will be, and if you can’t get insurance, the higher the risk of financial loss, and thus there is a reduction of price to compensate. If this was a static situation, then ideally these additional costs/risks would have been built into the historical prices and new prices wouldn’t be any worse affected. However, the situation is not static.

Intense rain events, wild fires, coastal flooding etc. are becoming more common in many places (while air quality issues are decreasing), and so risks to properties are changing over time, and homeowners are finding that they may not be able to sell their home for as much as they expected. That is a (relative) loss to those owners, for something that is not their fault (at least directly). Additionally, lower (relative) prices mean lower (relative) real estate commissions, and thus this has upset the realtor industry as well.

This is actually a big problem

Sympathy for brokers is not high outside of the industry (to say the least), and their struggles are not going to win many hearts or minds, but the bigger issue is much more serious. Climate changes are going to lead to increased future losses not just because of more ‘stuff’ being built (a big factor in increasing historical damages), but also because existing properties are facing more risk.

For example, take a row of houses along the North Carolina dunes, one of which fell into the sea this summer. Sea level there is rising (even more than the global mean), predominantly as a function of human impacts on the climate. Thus, a home built in 1976 that Zillow values at over $400,000 is now actually not worth anything. There are many less extreme examples where rainfall intensity increases are leading to more risks of flooding, or increases in fire weather etc. but the point is that areas of higher hazards are expanding and, objectively, many property values are (relatively) decreasing.

Generally speaking, property value rises and falls are felt by the current owners – they benefit (when they sell) if an area becomes more desirable, or take a loss if the opposite occurs. Public policy can impact this, but mostly society deals with this via changes in property taxes and assessments (in the US at least). The impacts due to climate changes are different though – these are changes that can in fact be blamed on our historical emissions that we have known for decades have been having such an effect.

Previously, it was a situation like pass-the-parcel – whoever was left holding the property when the impact was felt (the flood, the fire, the collapse into the sea) would end up paying for it or, at best, split the losses with their insurance company. The risk factor information is helping spread the costs to the current owners (as well as the future owners), which (I think) is a bit fairer but, of course, the costs are not being borne by the people causing the issue (the fossil fuel companies, the people that used their products etc.). People have also argued that society writ large should cover these losses – that regional or federal governments either through grants or insurance payouts should compensate owners, while others argue that the oil and gas companies should pay.

There is a real issue in how reliable these risk assessments are – if they are wildly different from different companies or approaches, or if the algorithms are proprietary, then it’s possible the impacts from releasing this information will be sub-optimal. But both Florida (h/t Kelly Hereid) (for hurricane damage) and California (wildfires) are leading the way in having public, open source, catastrophe models, and conceivably that could be spread more widely.

In practice, there is going to be a patchwork of different ideas, and different models, but there is no (sensible) answer that is based on ignoring the risks to keep prices artificially high. Even realtors should be able to accept that, and if they want to be compensated for their loss of commissions, they should get in line to sue the people who caused it.

References

1. C.W. Callahan, and J.S. Mankin, "Carbon majors and the scientific case for climate liability", Nature, vol. 640, pp. 893-901, 2025. http://dx.doi.org/10.1038/s41586-025-08751-3