A destabilized climate could lead to a precipitous decline in property values, cutting communities off from the tax base they need to fund climate adaptation while banks stop lending in areas that experience repeated floods, according to an analysis released earlier this month by the Federal Reserve Bank of San Francisco.
“The collection of 18 papers by outside experts amounts to one of the most specific and dire accountings of the dangers posed to businesses and communities in the United States—a threat so significant that the nation’s central bank seems increasingly compelled to address it,” the New York Times reports .
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That the Federal Reserve should speak up about climate change is striking, given that “the topic is more politically polarized in the United States than many other places” and the Fed, which is supposed to remain aloof from politics, could be accused of “straying into partisan territory,” the paper adds. But the bank is refusing to stay mum, with Fed Chair Jerome H. Powell stating in an April letter to Senator Brian Schatz (D-HI) that “severe weather events” are very much on his agency’s radar.
The letter followed a March statement by the San Francisco Fed, which oversees the financial well-being of a significant chunk of the western U.S., that “volatility related to climate change has become ‘increasingly relevant’ as a consideration for the central bank.”
And now, the 18 papers in this month’s release, “published with the knowledge of the Fed’s board of governors, present in precise language a dire picture of the risks of a changing climate, and warn that local governments don’t have the means to deal with them,” writes the Times.
The complex web of new studies warns that climate change is already affecting the U.S. real estate market. Research by University of Colorado economist Asaf Bernstein “shows that properties likely to be underwater if seas rise one foot now sell for 15% less than comparable properties with no flood threat.” Michael Berman, former chair of the Mortgage Bankers Association, adds that “that decline in property values is likely to ripple through the financial system, scaring banks and other lenders away from those areas,” the Times says.
That mounting hesitancy would “further imperil the financial health of places, particularly poorer ones, already struggling with flooding,” adds reporter Christopher Flavelle, with Berman anticipating “a real possibility that real estate values in communities will be decreasing due to increased flood risk just as the real estate tax base is being relied on for funding of new flood mitigation infrastructure.”
A paper by John Cleveland, executive director of the Boston Green Ribbon Commission charged with shielding the city from climate impacts, added that “even large, affluent cities do not currently have the financial capacity in place to fund all of their plans.”
The collection of papers includes proposals for “changes that could alter the behaviour of financial institutions and local governments, pushing them to better prepare for climate change,” the Times states. Regulators could penalize banks that lend money to jurisdictions that fail to protect themselves from flooding or other disasters once they’ve experienced them first hand. “Banks could also be rewarded by regulators for financing projects that leave communities less vulnerable to flooding or other hazards.” Another paper calls on lenders to “create a common standard for measuring flood risk, and use it to set mortgage rates.”