Regeneration & Resilience

Fortifying Housing Markets in a Climate-Changing World

New analyses show Canada can avoid significant financial losses from climate-fueled disasters if a small percentage of new homes are built out of high-risk areas, and a massive shift in the economic geography of the US as homeowners migrate from danger zones to climate-resilient areas.

Published 1 month ago | About a 7 minute read

Image: VisualCreative1

Building new homes in disaster danger zones could cost billions, threaten affordability

Image credit: Fathom Global

As is the case in most developed countries, governments across Canada are racing to build more housing to improve affordability. Yet a new study from the Canadian Climate Institute has found those efforts risk putting hundreds of thousands of homes in harm's way — and adding billions of dollars in costs each year — unless policy is improved to direct development away from the threat of wildfires and floods.

As Close to Home: How to build more housing in a changing climate outlines, building new homes in areas at a high risk of flood or wildfire could cost governments, insurers and homeowners up to $3 billion more each year for rebuilding and disaster relief. These risks are neither distant nor abstract: Damages from just four extreme-weather events in July and August 2024 — flooding in Toronto and Southern Ontario, the catastrophic wildfire in Jasper, extreme flooding in Quebec and an historic hailstorm in Calgary — totaled more than $7 billion in insured losses.

One of the most striking findings of the study is that most of the projected costs are associated with a relatively small number of homes expected to be built in flood-vulnerable zones: Redirecting just three percent of new homes away from the highest-risk flood areas could save nearly 80 percent of all projected weather-related losses by 2030.

"The most affordable home is the one you don't have to rebuild after a disaster. Governments across Canada can save billions of dollars each year and keep people safe from disasters by building just a small percentage of new homes away from the highest-risk areas for wildfires and floods,” says Ryan Ness, Director of Adaptation at the Canadian Climate Institute. “Our new report outlines the tools policymakers have to steer new housing to safer ground and support affordability in the process."

The report — which includes wildfire-risk analysis from Canadian financial services firm Co-operators, flood-risk modeling by Fathom Global and future housing risk analysis by SSG — is a first-of-its-kind analysis in Canada to model the financial costs of future floods and fires on new housing slated for construction by 2030.

It finds that more than 540,000 homes could be built in areas of flood hazard and more than 220,000 homes in locations exposed to high wildfire hazards by 2030. The associated total costs are likely to be highest in British Columbia — which faces $2.2 billion in added annual costs under a worst-case scenario — followed by Manitoba ($360 million), Alberta ($220 million), and Quebec ($214 million). The Yukon could see increases in average damages as high as $1,200 for each new home from flooding alone, well beyond the national average.

The Climate Institute also commissioned a companion report, Indigenous Housing and Climate Resilience, by Shared Value Solutions to identify unique challenges and barriers faced by Indigenous Nations in developing climate-resilient homes, with a particular focus on housing on First Nations reserves. The report examines successful policies and practices, and presents nine policy recommendations.

"Solving Canada's housing crisis requires not just building more homes but ensuring they're affordable in the long term. This includes building new homes in safe locations that are resilient to increasingly severe floods and wildfires,” asserts Lisa Raitt, Vice-Chair of Global Investment Banking at CIBC and Co-Chair of the Task Force for Housing and Climate. “This new Climate Institute report highlights the financial risks Canada faces if housing policy continues to allow risky development, and offers actionable solutions to protect people and property."

The report notes that all levels of government have a role to play in reducing the threats of extreme weather disasters to new homes, and offers these policy recommendations:

Federal, provincial and territorial governments should steer housing and infrastructure investment away from high-hazard zones to low-hazard areas.
Provincial and territorial governments should strengthen land use policy to redirect new construction away from areas at high risk of flood and fire damage.
Federal, provincial and territorial governments should reform disaster-assistance programs to deter risky development — for example, by making new homes built in high-hazard zones ineligible for publicly funded disaster compensation.
Governments should create, maintain and make publicly available maps that show hazardous areas — and mandate the disclosure of such information in real estate transactions — so that homeowners, renters and developers have access to that knowledge.
The federal government should empower and support Indigenous communities to build climate-resilient homes in safer areas within their territories.

"Local governments, at the forefront of both the climate and housing crises, are essential partners in safeguarding Canadians and protecting communities from escalating climate impacts,” says Carole Saab, CEO of Federation of Canadian Municipalities. “This report highlights the urgency of coordinating across all orders of government and sectors to keep Canadians and their homes safe from increasingly severe wildfires and floods."

Climate-driven migration, insurance increases could erase $1.4T in US real estate value by 2055

The LA fires, January 2025 | Image credit: Maxar

Meanwhile, First Street’s just-released 12th national report estimates a potential $1.47 trillion reduction in US real estate value over the next 30 years due to climate-related risks.

First Street uses transparent, peer-reviewed methodologies to quantify the past, present and future climate risk for properties globally and makes it available for citizens, industry and government. In October, Zillow began offering First Street’s data for five key climate-related risks on all for-sale property listings across the US — helping buyers to better assess long-term affordability and plan for the future.

Drawing on interdisciplinary research that examines climate risk awareness, housing market dynamics, climate migration patterns, and demographic and socioeconomic shifts, First Street’s new Property Prices in Peril report offers a forward-looking analysis of the Housing Price Index, property-valuation trends and localized GDP impacts extending to 2055.

Key findings

By 2055, climate-driven weather phenomena are expected to increase homeowner insurance premiums nationwide by an average of 29.4 percent — the five largest metro areas facing the highest insurance premium increases are Miami (322 percent), Jacksonville (226 percent), Tampa (213 percent), New Orleans (196 percent), and Sacramento (137 percent).
Simultaneously, migration induced by climate risks including extreme heat, wildfire and flooding is anticipated to drive significant population redistribution, with 55 million Americans expected to relocate within the US over the same period to historically less populous states such as North Dakota and Montana — which are forecasted to grow due to their climate resilience.

“Climate change is no longer a theoretical concern; it is a measurable force reshaping real estate markets and regional economies across the United States,” said Dr. Jeremy Porter, Head of Climate Implications Research at First Street. “Our findings highlight the urgent need to understand how rising insurance costs and population movements are transforming the economic geography of the nation.”

The study projects a stark divergence in property values: High-risk areas are likely to experience significant devaluation, while regions perceived as climate resilient are poised to benefit from increased demand. This reallocation of economic activity will have profound implications for local government revenues — with at-risk areas facing reductions in property tax income, while more resilient areas stand to gain.

“These results highlight not only the pressing challenges but also the opportunities for adaptation and innovation in the face of climate change,” added First Street founder and CEO Matthew Eby. “Policymakers, businesses and communities must act now to mitigate risks and capitalize on the emerging economic opportunities in a shifting landscape.”