Climate change: what impact on real estate?

Rising average temperatures in France, rising sea levels, recurrent droughts... The effects of climate change in France are already indisputable. Météo France, which has studied the effects in France, predicts a disparate evolution depending on the region: some areas are likely to be heavily impacted, while others can expect to remain relatively spared from the effects of climate change. What are the consequences for the attractiveness of French regions? Will a property in a region prone to heatwaves lose value? Are seaside properties at risk from rising sea levels?

To answer these questions, and find out how to prepare for these risks, we present an overview of the impact of climate change on real estate in France.

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1. Rising temperatures: impact on living comfort

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Rising temperatures and thermal discomfort

The rise in temperatures in France is characterized by several phenomena: the rise in average annual temperatures across the country (from +1.6°C to 3°C by 2050 (AFP, 2021)), the increase in the number of heatwave days, the lengthening and increasing intensity of heat waves... All these phenomena increase thermal discomfort in the home. Remember those scorching nights when, after a day of intense heat, it's impossible to close your eyes because the muggy heat permeates the air... Now imagine that these days occur two or three times more often each year. How enviable is that?

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Which regions are most affected?

During the last heatwave of 2019, it was Occitanie and Provence-Alpes Côte d'Azur that experienced the highest temperatures, while Brittany and Hauts-de-France won the favor of summer tourists that year (L'Express, 2019). These phenomena will continue to affect France very unevenly, and AFP has created a simulator where you can find out the effects of weather changes in your commune, available here : Demain, quel climat sur le pas de ma porte ?

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Impact on real estate and tourism

While the real estate market has yet to show any changes directly linked to these phenomena, we can observe that over the 2015-2019 period, the increase in tourist numbers was almost twice as high in the cooler departments (Seine Maritime, Manche: +9.6% on average) than in the departments most affected by heat waves (Hérault, Gard: +4.5% on average) (INSEE, 2022). The two heatwave episodes of 2017 and 2019 could explain this preference, with peak temperatures in 2019 peaking at 46°C in Hérault.

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Cities, the front lines of global warming

Cities will be particularly hard hit, as they form heat islands that amplify heatwave phenomena and make it difficult for temperatures to fall (due to lack of greenery, profusion of concrete areas...). In Paris, by 2050, we could have three times as many heatwave nights as we're used to, i.e. 20 nights a year (AFP, 2021). Marseille could experience 6 times as many extremely hot days, and Brest 2 times as many abnormally hot days.

‍Mapping temperature trends :

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2. Increased risk of drought and weakened buildings

In January 2022, Covéa, France's leading insurer (owner of the MAAF, GMA and GMF brands), revealed in its white paper on climate change that there would be an inevitable increase in building risks due to droughts caused by climate change in France. Indeed, Covéa reports an already marked increase in drought-related claims, which is set to rise by over 60% by 2050 in France. What are the links between drought and weakened buildings?

The risk of drought, which for buildings takes the form of the insurance risk of "clay shrinkage and swelling", is a phenomenon that weakens the soil on which buildings rest when this soil experiences dry spells. This phenomenon, linked to variations in soil volume, induces differential settling, causing damage to buildings. Since 2016, the recurrence of episodes of intense drought and the damage caused have increased. Between 1989 and 2020, the costs associated with the effects of drought amounted to almost 15.2 billion euros.

Covéa's analysis (see map below) suggests that the Massif Central could experience an intense worsening of drought damage.

Risk mapping :

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3. Rising sea levels, a threat to French coasts

Another effect of climate change is rising sea levels, which threaten all coastal areas. What about France, with its 5,500 km of coastline? Is rising sea level a cause for concern? Could it pose a risk to real estate?

According to an analysis by Callendar, exposure to the risk of coastal erosion due to rising sea levels is grossly underestimated. In fact, 15,000 real estate transactions concluded between 2016 and 2021 involved property that would become subject to flooding before 2050. The total value of these properties at the time of acquisition was estimated at 5 billion euros, a value that did not take into account exposure to the risk.

This global rise is already a reality: since the beginning of the 20th century, a rise of 20 centimetres has been observed, which is faster than any observed for over 3,000 years. Callendar points out that the mouth of the Seine and the Atlantic coast are the most exposed, with cities such as Le Havre, for which the value of property at risk by 2050 would exceed 1,000 million euros, as well as Bordeaux, Deauville and Caen.

Another important point in the study is that, while these risks are already present by 2050, they will become more pronounced by the end of the century. According to the different scenarios analyzed, i.e. depending on the speed at which the Antarctic ice melts and the quantity of greenhouse gases emitted this century, the number of properties at risk could increase tenfold by 2100.

The firm also offers a simulation tool to determine whether a property is located in an area at risk of flooding, which you can find here: http: //submersion.climint.com/

Mapping the risks associated with rising water :

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4. Loss of property value due to climatic risks

Is your property at high risk from climate change? Is your property likely to lose value by 2050? Knowing that first-time homeowners (owners who still have loans to repay for the purchase of their main residence) live in their homes for an average of 27 years (INSEE, 2017), the transactions that are made today are already affected by the changes to come between now and 2050... i.e. 28 years from now.

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Changes in property attractiveness

Several factors need to be taken into account when assessing potential loss of value. Callendar's analysis of transactions over the past 5 years suggests that climate risk is currently largely underestimated in the real estate market. Some real estate investors and developers are proposing to upgrade their buildings to avoid "climate obsolescence", i.e. adapting them to protect against the effects of climate change. This resilience could take the form of improved temperature and humidity management indoors, or additional protection of pipes against flood damage... But it doesn't protect against the other inconveniences of a city affected by these extreme phenomena: is it always pleasant to live in a city that experiences more than 10 days a year above 35 degrees, like Toulouse? Or where the number of scorching nights reaches 19 a year, like Grenoble? At present, there are no studies showing that real estate prices are changing in this direction, but their attractiveness could change by mid-century.

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The risk of uninsured assets

Alongside the risk posed to attractiveness, there is the problem of property insurability. Indeed, in areas increasingly exposed to risk, with significant material and financial damage, insurers could decide to no longer cover certain claims, or prices could become so high as to be prohibitive for property owners. We can already see in some overseas regions that several insurers have withdrawn due to risks deemed too high, and even where insurance remains available, the segmentation of rates is such that insurance then becomes economically inaccessible (L'Argus de l'Assurance, 2019).

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Access to information on these risks

The main consequence for property owners will come into force next year, when a new law on coastal erosion risk information comes into force. In France, from 2023 onwards, tenants and purchasers will have to be informed of the risks of coastal erosion within a century as soon as the property is advertised. In addition, owners will have to make provision for the costs of destruction and restoration.

This law, which is part of the Climate and Resilience Act, aims to ensure that buyers and tenants are aware of the risks to which the property they are interested in will be exposed, in the light of anticipated developments due to climate change. There is therefore a real risk for all properties that have been acquired recently, in ignorance of the risks to which they are exposed, and which could then lose value on the real estate market once these risks are known.

According to Callendar, in the 78 communes in France where properties that will become at risk before 2050 account for more than 5% of transactions, the local real estate market is likely to be greatly impacted by the communication of this new information.

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Conclusion

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Is your property at risk of losing value?

‍Itall depends on one's exposure to the specific risks associated with climate change, including rising sea levels, rising temperatures and increased drought phenomena. Different geographical areas will not be impacted in the same way by the various effects of climate change: the northwest and west coasts of France will be in the front line when it comes to rising sea levels, while the south, east and major cities will be more exposed to rising temperatures.

You can consult the tools developed by Callendar andAgence France Presse to estimate the risk according to your geographical location.

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When might the property lose value?

‍Inthe case of rising water levels, the Climate Act could well reveal as early as 2023 that the value of certain properties is overvalued in relation to their exposure to risk. In the case of rising temperatures and drought, there are no studies to date that point to a potential risk of loss of value, even if weak signals suggest that repeated heatwaves are increasing the attractiveness of regions spared from high heat.

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Appendix: The dictionary of climatic phenomena

abnormally hot days: when the daytime temperature is 5°C or more above normal.
heat wave: when more than five consecutive days are abnormally hot.
extremely hot days: when temperatures exceed 35°C
heatwave: a heatwave is a phenomenon of extreme heat, but its definition is not universal. In fact, each region has its own definition of a heatwave. For example, in mainland France: Paris heatwave if at least 31°C during the day and 21°C at night; Marseille heatwave if at least 36°C during the day and 24°C at night.
canicular night: a night when the temperature does not fall below 20°C, preventing the human body from resting properly.
heat islands: phenomenon of localized temperature rise in urban areas compared with neighboring rural areas. These heat islands are artificial microclimates caused by human activities (power plants, heat exchangers, etc.) and urban planning (dark surfaces that absorb heat, such as tar).
clay shrink-swell (RGA): this phenomenon, linked to variations in soil volume, leads to differential settling, causing damage to buildings
coastal erosion: gradual loss of material that causes the coast to recede and beaches to lower.
submersion : temporary flooding of a coastal area by the sea, which occurs under extreme weather (wind, depression) and oceanographic (high swell, tide) conditions.

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