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information, asset condition, & advantage

When buying, selling, or using a tangible asset such as a home, building, or work of art, the condition of the tangible asset is important. Condition affects the purchase, use, and sale of a tangible asset.

What factors inform the condition of tangible assets and the markets for tangible assets? There are many.

The New York Times has been following the interactions of the real estate market (purchase and sale transactions, predicated on condition) with documented effects of changing climate and more frequent occurrences of extreme weather.

Information and perspective around such interactions are presented in the November 24, 2016 article, “Perils of Climate Change Could Swamp Coastal Real Estate.”

Pertinent questions arise. What information. How sourced. How to make use of information. How to turn challenges into opportunities. Opportunities at point of purchase, at point of sale, and during the lifetime and use of the asset. Opportunities for health, wellness, lifestyle, and value.

Here is an excerpt:

“As difficult as it is to predict the pace of climate change, modeling how it will affect the real estate market is even more complicated. Like a game of hot potato, builders, homeowners, banks, flood insurers and buyers of securitized mortgages try to hand off risky properties before getting burned. Developers erect houses and sell them typically within a couple of years, long before their investments depreciate. Banks earn commissions even on risky home loans before bundling these mortgages into securities and selling them to large pension funds, insurers or other buyers.

“Home buyers tend to think short term, focus on what they can afford and hope that the local infrastructure keeps pace with the rise in sea levels. Home buyers are also generally on their own as they look at prospective properties and try to size up their risk, as real estate agents vary in what they disclose.

“… Good information is hard to come by. No one knows whether, when or by how much properties will depreciate, seas will encroach or flood insurance policies will change.”

See: “Perils of Climate Change Could Swamp Coastal Real Estate” | Ian Urbina, The New York Times, 24 November 2016

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Houston, Harvey, & post-natural-disaster residential patterns

Sarah Zhang of The Atlantic spoke with Princeton University and UCLA economist Leah Boustan about Houston and Hurricane Harvey. They discussed to what extent the natural disaster that befell Houston might serve as an impetus for residents of Houston to migrate, to move elsewhere.

Dr. Boustan and her colleagues Matthew Kahn, Paul Rhode, and Maria Lucia Yanguas have tracked the effect of natural disasters on economic activity in US counties. Their study has included an examination of migration after 5,000 natural disasters in the United States between 1920 and 2010.

The following excerpts follow Ms. Zhang’s transcription of Dr. Boustan’s discussion.

Risk & infrastructure

Boustan: We do find a migration response to an event like that. But for a very severe disaster—and Harvey looks like it’s going to be in that category—the response is twice as large.

Part of that has to do with people learning about the risk factors. Maybe they didn’t know the area they’re living in is so susceptible to storms.

Part of it is watching whether the existing infrastructure really works. There’s discussions now about Houston not really having enough of a drainage system. People might have known, yes, there are tropical storms, but they may not have understood the tropical storm is going to be such a devastating effect.

FEMA & centralized disaster response

Boustan: FEMA started in the early ’70s, and it gets its own independent status as an agency in ’78. We looked at before and after the ’70s, there was a hypothesis, well—and I’ve heard a lot of this post-Harvey—that when you have centralized disaster response, there’s not really an incentive to move out.

Moral hazard

Zhang: This is the idea of “moral hazard”: When you’re protected from the consequences of your actions, you take more risks.

Boustan: Right, like there’s going to be big government payout, and that encourages people to stay put in places that are risky. You know you’ll get your FEMA payout. We actually didn’t have any difference of course in the migration response before and after FEMA.

Centralized government response & disasters are getting worse

Boustan: But of course, this is really just a before and after, and there’s a lot things about the ’40s, ’50s, and ’60s, that could be different about the ’80s, ’90s, and 2000s. In particular, you can really see the number of disasters and severity of disasters increasing. There are two things going on that could be kind of confounding. On one hand, there’s government response. On the other hand, disaster activity is getting worse. We can’t really separate those two things, but it looks like because disasters are getting worse, there’s just as much of a migration response more recently than there was in the ’30s, ’40s, and ’50s.

See:

“Will People Return to Houston After Hurricane Harvey?” | Sarah Zhang, The Atlantic, 3 September 2017

#Houston #HurricaneHarvey #Harvey #naturaldisasters #migrations #realestate #realestatemarket #market #risk #FEMA #economics #Princeton #UCLA

 

 

 

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Houston’s residential real estate market & Hurricane Harvey | single-family home sales decline 24% year-over-year

The Houston metropolitan area has grown by about 400 people a day, building about 40,000 housing units a year. This has made Houston the nation’s largest new-housing market, with seven percent of the nation’s residential construction. Regulation has been light, the civic model tied to growth. Building everywhere and fast, the city has kept housing prices low.

“You have a country that’s divided between high cost places like Bay Area and New York and higher unemployment areas like Detroit, and places like Houston pick up the slack,” observed Issi Romem, chief economist at BuildZoom, a startup that helps people find contractors, both residential and commercial.

The New York Times reported on September 12 that people in Houston are “betting that nothing can stop Houston’s continued growth”.

“Redfin, a national real estate brokerage firm, said its agents had 45 home buyers lined up to purchase homes here when the storm hit. Only eight buyers backed out because of the storm, and tour requests immediately rebounded a week later.

“‘I was shocked,” said Glenn Kelman, the company’s chief executive, who lives in Seattle.

“For now, buyers and sellers are trying to figure out how prices have changed after the flood. The Powells’ potential buyer and many others are looking for a deal on a damaged home.

“At the same time, many economists are forecasting that the price of undamaged homes will rise as demand outstrips supply. Early estimates suggest that tens of thousands of homes were damaged, and developers are worried about labor shortages as repairs get priority over new construction.”

Then, on September 13, Inman reported that Houston homes sales have declined 24% year-over-year in August.

“Home sales were humming throughout the first three weeks of August, but the moment Harvey struck the region, everything came to a screeching halt,” said HAR (Houston Association of Realtors) chair Cindy Hamann.

“HAR’s latest monthly report shows that all segments of the Houston housing market felt the strain.

“August sales of property types across the board totaled 7,077, a 24 percent decline compared to the same month last year, while total dollar volume dropped 22 percent to $2.0 billion. After 10 consecutive months of gains, single-family home sales took a 25 percent year-over-year hit.”

In August, Business Insider gave some thought to the Houston housing market and vulnerabilities. Houston is a city with 800 miles of creeks and bayous that can easily overflow during a storm surge. It has seen 38,000 acres of wetlands disappear in the last two decades due to a construction boom in greater Houston. The city is flat and drainage systems are outdated. Developers, further, have often not followed the federal wetlands mandate. And building regulations have not accounted for historic flooding levels.

 

See:

“Houston housing comes to ‘screeching halt’ after Harvey” | Gill South, Inman, 13 September 2017

“Houston’s Unsinkable Housing Market Undaunted by Storm” | Annie Correal and Conor Dougherty, The New York Times, 12 September 2017

“A Storm Forces Houston, the Limitless City, to Consider Its Limits” | Manny Fernandez and Richard Fausset, The New York Times, 30 August 2017

“Houston was a ticking time-bomb for a devastating hurricane like Harvey” | Leanna Garfield, Business Insider, 28 August 2017

 

#Houston #HurricaneHarvey #Harvey #realestate #realestatemarket #housing #housing market #resilience #Redfin #HAR

 

 

 

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potential balance-sheet exposure to climate-change impacted housing & real estate markets seen as material, & potentially actionable, risk

A bank’s or insurance company’s exposure to the housing market, which might face risks from sea level rise, and to climate risk via their loan books, including via physical impacts to houses on their mortgage books, is considered by Geoff Summerhayes of the Australian Prudential Regulation Authority as a key climate-change induced major or material financial risk to the bank or insurance company and a risk that is actionable by shareholders.

“The potential exposure of banks’ and insurers’ balance sheets to real estate impacted by climate change” may be risks that are “foreseeable, material and actionable now” (Summerhayes, February 17).

While much of the early focus on these risks has been on insurance firms and their exposure to losses from increasingly frequent and severe natural disasters, it is now understood that there are a variety of other potential issues. Other potential issues include the potential exposure of bank’s and insurers’ balance sheets to real estate impacted by climate change.

A case has been filed on 7 August 2017 against Australia’s largest bank, the Commonwealth Bank of Australia that is the first anywhere in the world to test in court how companies are required to disclose climate change-related risks in their annual reports. The case, filed by bank shareholders, claims that the bank’s 2016 directors’ report did not adequately inform investors of climate change risks and seeks an injunction to stop the bank making the same omissions in future annual reports.

A part of the claim focuses on the Commonwealth Bank not disclosing any climate-related risks as major or material risks. “When the bank talks about major or material risks to the bank, we say it should be talking about climate change,” said David Barnden, a lawyer at Environmental Justice Australia who signed the claim on behalf of the applicants.

The Commonwealth Bank of Australia might face diverse risks as a result of climate change. “CBA has exposure to the Australian economy in general. We could be talking about anything from extractive projects to the housing market, which might face risks from sea level rise,” said Barnden.

The case follows a key speech given in February by Geoff Summerhayes of the Australian Prudential Regulation Authority at the Insurance Council of Australia’s annual forum in Sydney. Mr. Summerhayes said that climate change poses both a physical risk and a transition risk for Australian companies.

“The terminology I would like to adopt now, consistent with the FSB Taskforce, is physical and transition risks. I won’t bore you with definitions, but for the sake of clarity:

  1. “1. physical risks stem from the direct impact of climate change on our physical environment – through, for example, resource availability, supply chain disruptions or damage to assets from severe weather.

“2. transition risks stem from the much wider set of changes in policy, law, markets, technology and prices that are part of the now agreed transition to a low-carbon economy.”

Business, he said, needs to stop reporting on climate change as a purely ethical or environmental issue and begin seeing it as a financial problem. He said: “Like all risks, it is better they are explicitly considered and managed as appropriate, rather than simply ignored or neglected.”

“While climate risks have been broadly recognised, they have often been seen as a future problem or a non-financial problem,” he said on February 17.

“To begin with a generalisation, while climate risks have been broadly recognised, they have often been seen as a future problem or a non-financial problem.

“The key point I want to make today, and that APRA wants to be explicit about, is that this is no longer the case. Some climate risks are distinctly ‘financial’ in nature. Many of these risks are foreseeable, material and actionable now. Climate risks also have potential system-wide implications that APRA and other regulators here and abroad are paying much closer attention to.”

“I think the days of viewing climate change within a purely ethical, environmental or long-term frame have passed. More and more, the conversations we are having are about the practical realities and consequences of a changing climate. One reason for this is that we now have a much more sophisticated, granular, quantifiable understanding of the impacts, risks and probability distributions around climate change. This is true on the planetary scale.”

 

See:

“Concise Statement” | Guy Abrahams (and another), Applicants, Commonwealth Bank of Australia, Respondent, signed by David Barnden, Lawyer for the Applicants, 7 August 2017.

“Commonwealth Bank shareholders sue over ‘inadequate’ disclosure of climate change risks” | Michael Slezak, The Guardian, 7 August 2017

“Apra says companies must factor climate risks into business outlook” | Gareth Hutchens, The Guardian, 17 February 2017

“Australia’s new horizon: Climate change challenges and prudential risk” | Geoff Summerhayes, Executive Board Member, Insurance Council of Australia Annual Forum, Sydney, 17 February 2017

#CommonwealthBankofAustralia #climaterisk #financialrisk #materialrisk #physicalrisk #transitionrisk #realestate #housingmarket