The Impact of Climate Change on Vacation Home Ownership

Thinking Strategically

October 30, 2017

Owning a vacation home in a sunny, down south destination is something many of us dream about. Mexico, Hawaii, Southern California, Arizona, The Bahamas or the Caribbean, Florida. You may even own such a property yourself, one with a resplendent water view.

But climate change and the effect it is having on sea levels – not to mention the increasing frequency and intensity of hurricanes – is making many of us re-think where we might buy a vacation home and instead look at the options available to rent a property.

Real estate agents and coastal properties

Real estate agents looking to sell coastal properties usually focus on one thing: how close the home is to the water’s edge. But buyers are increasingly asking instead how far back it is from the waterline. How many feet above sea level? Is it fortified against storm surges? Does it have emergency power and sump pumps?

The real estate industry, particularly along vulnerable coastlines, is slowly realizing the need to factor in the risks of catastrophic damage caused by climate change. This includes damage from rising seas and storm-driven flooding.

Ian Urbina, writing in The New York Times (Perils of Climate Change Could Swamp Coastal Real Estate, November 24, 2016) stated: “Some analysts say the economic impact of a collapse in the waterfront property market could surpass that of the bursting dot-com and real estate bubbles of 2000 and 2008.”

Thinking strategically about vacation home ownership

All of this suggests that we should be thinking more strategically about vacation home ownership, especially about buying in areas vulnerable to rising seas and hurricanes.

One way to approach the problem is to recognize that the proliferation of websites sourcing vacation rentals in just about every part of the world makes finding a vacation home – for a week, a month or even longer – just a few keystrokes away.

Airbnb, for example, is an online marketplace and hospitality service enabling people to lease or rent short, medium and long-term lodging including vacation rentals. It has over 3,000,000 lodging listings in 65,000 cities and 191 countries, with 150,000,000 users.

Airbnb can be accessed via either the Airbnb website or mobile application. Registration and account creation is free. On each booking, the company charges guests a 6%-12% guest services fee and charges hosts a 3%-5% host service fee.

Users can search for lodging using a variety of filters including lodging type, dates, location, and price. Before booking, users must provide a valid name, email address, telephone number, photo, payment information, and, if required by the host, a scan of a government-issued ID. Bingo, it’s that simple.

HomeAway is another source, offering 2,000,000 vacation rentals in 190 countries. And, of course, if you want a source that’s more focused and select, consider the exceptional Cottages To Castles, which offers hand-picked luxury Italian villas. In other words, the alternatives to vacation home ownership are numerous.

The insurance dimension

The question is this: why take the chance investing in a fixed vacation property which, depending on the location you choose, could be vulnerable to a natural disaster? Even the advantages of an appreciating vacation home real estate asset can start to look questionable in light of rising insurance rates.

The Insurance Bureau of Canada acknowledges that flooding in particular has caused home insurance claims to soar, with payouts due to severe weather doubling every five to ten years since the 1980s – from less than $100 million a year to over $3 billion a year in just three decades. But while the cost of fixing damage caused by extreme weather is eye-catching, it’s not the only factor pushing rates higher.

So what’s the result of all this? Expect to pay more for your insurance in years to come and don’t be surprised if premiums continue to rise even if you don’t make a claim. In some cases, you may have to settle for less coverage – or none at all – especially if you live in an area that’s prone to catastrophic weather such as flash floods.

Michael Fahy, The Michael Fahy Group, CIBC Wood Gundy, 604 691-7207.

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