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Despite climate change, coastal property values are on the rise. Researchers point to two reasons.

The Atlantic Ocean, beach and houses are at Duck, Outer Banks, North Carolina, on Thursday, August 24, 2023. (Photo courtesy of Ted Shaffrey, AP)
The Atlantic Ocean, beach and houses are at Duck, Outer Banks, North Carolina, on Thursday, August 24, 2023. (Photo courtesy of Ted Shaffrey, AP)

new economic model from North Carolina researchers suggests that tax incentives for high income property owners and federal subsidies for beach nourishment projects continue to increase coastal property prices, despite growing climate risks from sea level rise.

This story was reported and written by WUNC

"Wealthier and wealthier people continue to move into these [coastal] communities. And that continues to bid up housing prices in the coastal zone, despite the escalating risks that we see," said  Martin Smith, a professor in environmental economics at Duke University who co-developed the model. "Part of this process is also the tax incentives. And on top of all of that, we're subsidizing the management of beaches and the defense of our shorelines... [which] is propping up those real estate values as well."

The model,  published earlier this month, was developed by Smith and  Dylan McNamara, professor of physics and physical oceanography at University of North Carolina Wilmington.

Both authors say federal subsidies can slow a market’s adjustment to long-term climate risks by obscuring the costs to counter such risks. These subsidies include funding for measures that help mitigate property damage from storms and flooding, such as beach nourishment projects, which involves pumping sand onto beaches to counter sand erosion.

Smith describes the situation as a paradox.

"We do things that defend the shoreline that are justified in the short run, or even in the medium run. But in doing so, we, paradoxically, increase the value of the coastal zone," Smith said. "And when we increase the value of the coastal zone, we attract more investment and more high income and wealthy residents. And that puts higher value in the way of climate change. So we're kind of stuck in this cycle, where we just keep defending the shoreline, which props up property values and then defending it more."

Smith emphasized that this cycle is important to understand because it's only a matter of time before coastal communities are completely inundated because of sea level rise caused by climate change.

"The real question for us is: how do we want the transition to that future to look? Do we want things to sort of click along where we have all this value, and all of a sudden things just drop off a cliff? Or do we want to be a little bit more deliberate about the transition to that future moving forward?," Smith said.

The study suggests facilitated managed retreat as an option, where government programs would help residents transition away from the coast. Another option is investing in coastal housing that's more transitory, rather than current housing that tend to be stuck in place.

The world changes fast.

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