Press Release – Before the Flood: How Climate Policy Can Save the Residential Housing Market

New report explores the role government can play in preventing a climate-driven housing crash

The US now routinely faces “once every hundred years floods” that leave homeowners, and communities, economically devastated. Unless we make substantial changes, we face the looming threat of another housing crash, and, like the one before it, Black and brown homeowners will bear the brunt of the storm. The challenge for policymakers is how to write climate risk into the rules of our housing market— into home prices, mortgage insurance rates, guarantee fees in the secondary mortgage market — to encourage adaptation and transition, without forcing existing homeowners, particularly those in frontline communities, to bear all the risk.

In Soaked: A Policy Agenda to Prepare for a Climate-Triggered Housing Crash, Great Democracy Initiative Fellow Lindsay Owens considers our current, limited options for stemming such a climate-induced housing crash and proposes a suite of new policy options for federal officials to consider. These policies rely heavily on changes that could be made by the Federal Housing Finance Administration now, without waiting for Congress.

“As more neighborhoods in the United States become uninhabitable, and as increasingly frequent floods and flames swallow billions in property values, policymakers must begin to view climate change as the systemic economic threat that it is. A balance between housing affordability and the continuation of incentives for individuals to live and invest in harm’s way must be struck soon,” said Owens. 

Suggested policy options include the following:

  • The federal government should invest in high-quality, asset-level data on all sources of climate risk, including floods, wildfires, sea-level rise, and others and make it available to the public.
  • Regulators must assess the current climate risk in the federal housing portfolio — starting with a climate audit of the more than $5 trillion in mortgage debt held or guaranteed by the government-sponsored enterprises Fannie Mae and Freddie Mac.
  • Policymakers must consider how existing subsidies designed to encourage homeownership should be modified in light of the intensifying climate crisis. The government can shape mortgage pricing and loan terms to encourage prospective homeowners and key stakeholders across all parts of the residential real estate market (e.g., mortgage insurers, lenders, and developers) to better adapt to climate change.
  • Congress and federal regulators must quickly consider a suite of options to assist homeowners in certain at-risk geographies, given the no-longer-remote possibility of a major climate-induced housing crash. These responses should address two immediate concerns: how to redistribute equity to address the disparate impact of climate change on frontline communities, and how to manage retreat by encouraging homeowners to relocate out of geographies that face increasing (and continuous) climate risk.

“If the current pandemic has taught us anything, it is that policymakers should move quickly to put a plan in place for a climate-induced housing crash. The time to plan for a crisis is before it happens,” said Owens.

You can learn more about the progressive approach the Great Democracy Initiative is taking to fight climate change here.

About the Great Democracy Initiative

The Great Democracy Initiative seeks to develop bold, progressive, and actionable policy plans for leaders seeking solutions to key issues facing our country. Instead of proposing technocratic tweaks or layering new programs on top of a broken system, the Great Democracy Initiative targets the structural problems facing our democracy, including unaccountable policymakers, corporations with outsized economic and political power, and policies that subtly stack the deck against average Americans.