The Impact of Climate Change on Canadian Real Estate

As the consequences of climate change become more apparent, Canada is experiencing a range of environmental challenges, including forest fires, extreme weather events, and flooding. These phenomena not only pose significant threats to human lives and natural habitats but also have far-reaching implications for the real estate market. In this blog post, we will explore the top five ways in which climate change-related forest fires, extreme weather, and flooding will impact Canadian real estate. Additionally, we will highlight major Canadian cities that are expected to be most affected by these changes.

1. Decreased Property Values and Insurance Accessibility

Climate change-related risks, such as forest fires, extreme weather events, and flooding, can lead to decreased property values in affected areas. Potential buyers may be hesitant to invest in properties that have a higher likelihood of being damaged by these disasters.

Moreover, insurers might increase premiums or even deny coverage altogether in high-risk zones, making it more challenging for homeowners to protect their properties adequately. The combination of reduced property values and limited insurance accessibility can lead to financial instability for homeowners.

According to a report by the Intact Centre on Climate Adaptation, climate-related risks could cause a 15% reduction in the value of Canadian residential properties by 2050. This reduction is primarily attributed to increased exposure to natural hazards and their associated costs.

2. Increased Costs of Maintenance and Repairs

Extreme weather events and forest fires can cause significant damage to buildings and infrastructure, requiring expensive repairs and ongoing maintenance. Forest fires can destroy entire neighbourhoods, leaving homeowners with the burden of rebuilding.

Flooding can lead to foundation damage, mould growth, and other structural issues, necessitating costly renovations.

A study conducted by the Insurance Bureau of Canada suggests that insured costs for climate-related disasters in Canada have been rising steadily, averaging around CAD 1.8 billion annually between 2009 and 2019. This doesn’t include the costs that were not insured. The total cost to homeowners is actually much higher.

As climate change intensifies, these costs are projected to increase further, putting additional strain on homeowners and real estate markets.

The rising cost of ownership in these cities increases the monthly disposable income needed to own a home and reduces how much money people have available to save for a down payment or cover mortgage payments. In other words, it reduces their homebuying budgets and puts downward pressure on prices.

3. Changing Risk Profiles for Coastal Cities

Coastal cities in Canada, such as Vancouver, Halifax, and St. John's, are particularly vulnerable to rising sea levels and increased storm surges. As a result, these cities face significant risks from climate change-related flooding. Higher water levels can lead to coastal erosion, infrastructure damage, and increased coastal floodplain areas.

According to the Climate Atlas of Canada, sea levels along the Canadian coastline are projected to rise between 75 cm and 1.74 meters by 2100, depending on future emissions scenarios. This poses a significant threat to coastal real estate and necessitates strategic planning and adaptation measures to mitigate potential damages.

4. Impacts on Northern Communities

Climate change is also affecting Canada's northern regions, where the permafrost is thawing and temperatures are rising at a faster rate than in other areas. As a consequence, these regions experience increased forest fires and accelerated infrastructure degradation, affecting real estate in these communities.

When the permafrost beneath a highway or railway thaws, it causes the terrain to sag. That in turn flexes and distorts the roads and tracks. Some stretches of the highway are now plagued by large cracks in the asphalt. In other places, the road surface has become wavy and irregular, warping as the ground below crumples.

Yellowknife, the capital of Canada's Northwest Territories, has been experiencing a higher frequency of forest fires, resulting in air pollution and property damage. The shifting climate dynamics in these regions will require adaptations in construction methods and long-term planning to ensure the sustainability of real estate development.

5. Health and Livability Concerns

Climate change-related disasters can also impact the overall livability and health of Canadian cities, affecting the desirability of certain neighbourhoods. Extreme heatwaves, for example, can make certain areas less habitable, particularly in urban centres with limited green spaces and high-density housing.

Toronto, Montreal, and Vancouver are among the major Canadian cities that will likely experience more frequent and intense heat waves due to climate change. The Urban Climate Change Research Network estimates that by the 2050s, Toronto could experience heatwave conditions for up to 55 days per year, posing health risks and reducing the attractiveness of certain areas for residents.

Frequent heat waves make homes in these cities less attractive and shift population growth to cities with more moderate year-round temperatures.

What can we do?

Climate change is already having tangible effects on the Canadian real estate market, particularly in relation to forest fires, extreme weather events, and flooding. Reduced property values, limited insurance accessibility, increased maintenance costs, changing risk profiles for coastal cities, impact on northern communities, and health concerns associated with extreme heat waves are all significant factors that must be considered.

The long-term solution is to reduce greenhouse gas emissions. To do this we need to:

• Transition to Non-fossil Fuel Energy Generation: Hydro, nuclear, wind, solar, and other options should all be on the table. Energy doesn’t need to be renewable, the priority is eliminating emissions from energy generation. Most of Canada is powered by hydroelectricity but there are gaps on the prairies and in Atlantic Canada. A shift away from fossil fuels leads to the adoption of electronic vehicles (EVs).

• Reduce Energy Waste: Improving energy efficiency across various sectors, including buildings, transportation, and industrial processes, can lead to substantial emissions reductions. Implementing energy-efficient technologies, promoting energy conservation practices, and adopting stricter energy efficiency standards for appliances and vehicles are effective strategies.

• Adopt a “Mass-transit First” Approach to Transportation: Transform cities and connections between cities to mass transit by default. Using personal vehicles on an exception basis. Intra-city and inter-city mass transit is crucial for reducing emissions. EVs should be available to fill the gaps where mass transit cannot provide coverage but transit should be the starting assumption.

• Walkable and Bikable Cities: Establish comprehensive cycling networks and walking infrastructure not only reduces energy consumption but it also leads to better health outcomes.

• Sustainable Land Use and Forest Conservation: Forests act as carbon sinks, absorbing and storing large amounts of carbon dioxide. Canada is one of the largest countries in the world and has the third-largest forested area. We need to plan and manage the designated forests that will be carbon sinks and optimize them for this purpose. The forests designated for harvest should also be monitored to ensure they are being re-planted and managed sustainably. There are also de-forested areas of Canada where forests could be restored.

While, many policymakers would consider these activities to be environmental policy, in the long run they are related to housing policy.

Sure, Canada isn’t the biggest greenhouse emitter in the world, but we can’t ask the United States and China to reduce emissions if we aren’t willing to do it ourselves.

To address these challenges, comprehensive climate adaptation and mitigation strategies need to be implemented. This includes urban planning that takes into account climate change risks, investing in resilient infrastructure, promoting sustainable building practices, and raising awareness among homeowners and real estate professionals that reducing greenhouse gas emissions will benefit them financially in the long run.

It is crucial for policymakers, real estate developers, and individuals to collaborate and prioritize climate resilience to mitigate the long-term impacts of climate change on Canadian real estate.