Thursday, March 27, 2008

Global Warming: How Could It Affect Future Real Estate Values?

Global warming is on the minds of many people after yesterday’s news that a 160 square mile piece of Antarctic iceberg collapsed. According to an AP article, that ice formation had been estimated to be approximately 1,500 years old.

Most of us have heard evidence for and against the theory that human activity is the cause of global warming. I’m not a scientist, and I won’t debate whether global warming is a natural phase of the earth’s climate or the product of human industry. However, I will discuss how real estate values could potentially be affected if the polar ice caps melt, as some believe is already happening at an unnatural rate.

In an article in USA Today, scientists at the U.S. Geological Survey estimate that the maximum rise in sea levels would be approximately 215 feet, or 65 meters. This estimate assumes that all of the ice sitting on land in Greenland and Antarctica were to melt. That is the worst-case scenario that they predicted, and they said it would probably take a few thousand years to reach that point. For more details, read the USA Today article.

I found an interactive map that helps identify the areas that would be impacted. By changing the estimated sea level rise, you can see how the different areas are affected. As most people know, the biggest threat is probably to Manhattan. The area is home to millions of people and it is barely above sea level. It is also the financial center of the country, if not the world.

In a worst-case scenario, if Manhattan were to go under, millions of people and businesses would need to relocate, and there would be billions--if not trillions--of dollars in losses.

Here are just a few questions to consider: Would property insurance cover some or all of the losses? If they did cover such losses, how many insurance companies would go under as a result? Would the government come to the rescue, and if so, how much would it cost taxpayers?

I don’t believe that the worst-case scenario will happen. Many cities across the world would be lost--not just Manhattan--and the world wouldn't just sit back and let that happen. Scientists are already working on ways to combat the effects of global warming.

But if no action is taken and the sea levels rise, I believe that there will be widespread panic and people will head for high ground. If I were investing with the long term potential effects of the global warming in mind, I would stick to markets and areas that are at least 215 feet above sea level. Even if it will take thousands of years for sea levels to rise that much, people will become extra cautious much earlier on. Real estate values could increase dramatically in these areas as many millions of people are displaced and have to look for new homes.

I don’t think we will probably have to worry about this sort of chaos (at least stemming from the current global warming threat, but who knows what will happen when we start implementing the counter measures I mentioned earlier) but were it to happen, severe global warming would shatter the markets and send the world into financial turmoil such as never before witnessed. Even though desire for real estate in certain areas will increase, there may not be people who enough people who can afford higher prices, and actual demand probably wouldn’t equal investor expectations. Investors who think the effects of global warming will be felt in their lifetime might want to purchase gold. In times of panic, investors have always been able to count on gold.

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