The massive climate report released by the Trump administration on Friday makes clear that the President’s climate policies will destroy every last bit of U.S. (and global) coastal property in the decades to come.
That means more than $1 trillion in U.S. coastal property will eventually be valueless. So the only question is “when” and not “if” that trillion-dollar housing bubble will burst.
The answer appears to be sooner, rather than later, for two reasons. First, the administration’s policies — to abandon the Paris climate deal while working to gut both domestic climate action and coastal adaptation programs — make the worst-case scenarios for climate change more likely while undermining any efforts to prepare for what’s coming. Second, the GOP tax reform bill will directly deflate coastal property values because it targets the tax breaks for the most expensive properties.
Let’s start with how Friday’s congressionally-mandated National Climate Assessment (NCA) makes clear Trump’s climate policies will destroy every last bit of U.S. (and global) coastal property in the coming decades.
The report, the “authoritative assessment of the science of climate change, with a focus on the United States” by scientists from 13 federal agencies — which the Trump administration reviewed and cleared before releasing Friday — paints a grim picture for our coasts.
The scientists can’t rule out eight feet of sea level rise by century’s end (the “extreme” scenario). But then, the Arctic sees upwards of 18°F warming in the 2071-2100 timeframe, so melting of the Greenland ice sheet will be off the charts.
The NCA looks at a variety of scenarios, including ones where the nation and world meet or even surpass the Paris climate targets to minimize total warming. But it also examines higher emissions scenarios where Paris fails. They reflect plausible worst-case scenarios on the business-as-usual path, which is the path that Trump’s policies keep us on.
In those “intermediate-high” and “high” scenarios, sea levels rise 4.9 to 6.6 feet respectively by century’s end. Significantly, they rise 1.4 to 1.8 feet by 2050, which is in the time frame of 30-year mortgages that banks will soon be considering. When banks stop providing those mortgages, property values will plummet.
Remember, the storm surge from future Harveys and Sandys will be on top of whatever sea level rise we see, which is why studies find that, in high emissions scenarios, Sandy-type storm surges occur every year or two by mid century.
The report also looks at the often neglected rate of sea level rise in the coming decades. In the “high” scenario, seas are rising 8 inches per decade by 2050, and 14 inches per decade by 2090. That rise continues to accelerate until it reaches a rate of 2 feet per decade early in the next century.
How exactly do coastal areas adapt to such rapid and accelerating sea level rise? How rapidly do you abandon places that you know will be repeatedly inundated by the combination of sea level rise and storm surge in the coming decades?
And for those who consider such rates of sea level rise unlikely, the NCA has some bad news. The United States is all but certain to see higher “relative sea level” [RSL] rise than the global average especially in the Northeast and the western Gulf of Mexico. In fact for “for high [Global Mean Sea Level] rise scenarios, RSL rise is likely to be higher than the global average along all U.S. coastlines outside Alaska.”
Moreover, the report warns that “climate models are more likely to underestimate than to overestimate the amount of long-term future change.” Again, that means sea level rise is likely to be higher and faster than the report’s projections, especially under Trump’s policies.
The trillion-dollar coastal property bubble is ready to burst
The implications for coastal property values are grave. “The risk will rise as sea levels rise, and when that happens, you’d expect your property value to fall,” as Lloyd Dixon, the director of the RAND Center for Catastrophic Risk Management and Compensation, told the International Business Times last month. “At some point, the property becomes worthless.”
Sean Becketti, the chief economist for mortgage giant Freddie Mac, warned a year ago that the coastal property bubble will burst sooner than expected: “Some residents will cash out early and suffer minimal losses. Others will not be so lucky.”
As Bloomberg put it in April, “Demand and financing could collapse before the sea consumes a single house.”
That process may already be starting. Last November, the New York Times reported that “nationally, median home prices in areas at high risk for flooding are still 4.4 percent below what they were 10 years ago, while home prices in low-risk areas are up 29.7 percent over the same period.”
Jesse Keenan, who studies coastal property, has “begun to see evidence in survey data that middle-income people are leaving Miami Beach and other places with nuisance flooding that makes it difficult to get around at high tides or insure a car,” Scientific American reported back in May. “It’s not out of the question that Miami Beach loses 20 percent of its population and most of those people go to the mainland,” said Keenan. “I’m talking about the next 20 years.”
The GOP tax plan could start to deflate the bubble
The GOP tax reform bill the House of Representatives is considering takes a few whacks at states with a lot of coastal property. As the New York Times reports, it proposes “to put a cap of $10,000 on the property taxes that can be deducted at the federal level; to eliminate the deduction for state and local income taxes; and to restrict the mortgage interest deduction to loans of $500,000 or less.”
The key point is these changes hit the highest-price homes the most — and coastal property values are nearly double the value of similar inland property, according to a Congressional Budget Office study. They could deflate coastal property values more than 10 percent.
Given that the coastal property bubble must burst sometime in the not-too-distant future — and that the early sellers of overpriced coastal property will do a lot better than the later ones — this initial deflation may well hasten the inevitable sell-off.
Here’s the ultimate question for owners of coastal property — and the financial institutions that back them: Who will be with the smart money that gets out early — and who will be with the other kind of money?
“Pessimists selling to optimists.” That’s how one former Florida coastal property owner describes the current state of the market in a must-read Bloomberg story.
Right now, science and politics don’t favor the optimists. The disintegration of the Greenland and Antarctic ice sheets is speeding up, providing increasing evidence we are headed for the worst-case scenario of sea level rise — three to six feet (or more) by 2100.
The impacts are already visible in South Florida. “Tidal flooding now predictably drenches inland streets, even when the sun is out, thanks to the region’s porous limestone bedrock,” explains Bloomberg. “Saltwater is creeping into the drinking water supply.”
At the same time, President Trump is working to thwart both domestic and international climate action while slashing funding for coastal adaptation and monitoring. E&E News reported earlier this month that the EPA has already “disbanded its climate change adaptation program” and reassigned all the workers.
Faster sea level rise and less adaptation means the day of reckoning is nigh. Dan Kipnis, chair of Miami Beach’s Marine and Waterfront Protection Authority — who has failed to find a buyer for his Miami Beach home for nearly a year — told Bloomberg, “Nobody thinks it’s coming as fast as it is.”
But this is not just South Florida’s problem. The entire country is facing a trillion-dollar bubble in coastal property values. This Hindenburg has been held aloft by U.S. taxpayers in the form of the National Flood Insurance Program.
A 2014 Reuters analysis of this “slow-motion disaster” calculated there’s almost $1.25 trillion in coastal property being covered at below-market rates.
When will the bubble burst? As I’ve written for years, property values will crash when a large fraction of the financial community — mortgage bankers and opinion-makers, along with a smaller but substantial fraction of the public — realize that it is too late for us to stop catastrophic sea level rise.
When sellers outnumber buyers, and banks become reluctant to write 30-year mortgages for doomed property, and insurance rates soar, then the coastal property bubble will slow, peak, and crash.
The devaluation process had begun even before Trump’s election reduced the chances we would act in time to prevent catastrophic climate change. The New York Times reported last fall that “nationally, median home prices in areas at high risk for flooding are still 4.4 percent below what they were 10 years ago, while home prices in low-risk areas are up 29.7 percent over the same period.”
Sean Becketti, the chief economist for mortgage giant Freddie Mac, warned a year ago that values could plunge if sellers start a stampede. “Some residents will cash out early and suffer minimal losses,” he said. “Others will not be so lucky.”
As this week’s Bloomberg piece puts it, “Demand and financing could collapse before the sea consumes a single house.”
So here’s a question for owners of coastal property — and the financial institutions that back them — as they watch team Trump keep his coastal-destroying promises: Who will be the smart money that gets out early — and who will be the other kind of money?
8 Nov 2017 by Ari Natter on Bloomberg
Coal giant gave advice to political appointee on grid report
Energy Department proposed changes to bailout coal plants
Days after Energy Secretary Rick Perry requested a study on how to help coal-fired power plants, a lobbyist for the largest U.S. coal producer contacted the department to offer his advice. Many of those ideas became part of the department’s efforts to help the fuel source.
“It occurred to me that the DOE study would be a good way to highlight the inequities in the market and the uneven playing field on which coal plays,” Shepherd wrote in an April 19 email to Fisher, adding he was including “some broad questions that could be addressed by the study.”
The resulting study, released by the Energy Department in August, touted the value of power from coal-fired power plants, emphasizing just that point: on-site storage of fuel offers an important way to safeguard the electric grid’s resiliency. A month later the department proposed a rule to bail out coal plants, touting just those fuel-storage attributes.
That regulation, if adopted, would be a boon for coal companies like Peabody. Neither natural gas nor renewable energy, coal’s chief competitors in electricity markets, have the fuel-storage attributes of coal, supporters say.
Shepherd’s emphasis that the electricity marketplace wasn’t working correctly was also highlighted repeatedly by Perry and other supporters of the new regulation.
“We engage and advocate with a broad range of stakeholders based on our views and experiences from the markets in which we conduct business,” Peabody said in a statement.
“We support policy that recognizes the importance of baseload power from coal for a reliable, resilient, cost-effective electric grid,” the company said. “The administration recognizes that reducing coal from the baseload mix and forcing too much reliance on renewables creates reliability issues and drives up costs.”
The emails were obtained through an open-records request. An Energy Department spokeswoman didn’t respond to a request for comment.
Not all of Peabody’s ideas were adopted. Shepherd recommended that the administration move to “suspend or limit” the wind production tax credit and provide tax incentives to existing coal plants for the construction of environmental controls.
The emails also show that Peabody sought help from the Energy Department and other federal agencies to extend the life of the massive coal-fired Navajo Generation Station in Arizona. A Peabody mine supplies that plant.
“We would love to get your insight on how DOE could work with the EPA and Interior to assist in keeping the plant open,” Shepherd wrote in an April 12 email.
The emails show that the Energy Department’s study was not an objective look at the reliability of the grid as the department has maintained, said Casey Roberts, a senior attorney for the environmental group, the Sierra Club.
The Sierra Club has joined with groups as diverse at the American Petroleum Institute and American Chemistry Council to oppose Perry’s proposed regulation.
“These documents show the influence certain private interests had and the extraordinary access they had while the Department of Energy was conducting this study,” Roberts said in an interview. “The communications between Peabody and Department of Energy staff show a shared understanding that the objective of the DOE study was to preserve coal generation.”