If you’ve been reading the BiggerPockets blog for many years, you’ve probably noticed that the Midwest is often cited as one of the best places to invest in real estate right now. Major cities offer affordable housing and rental prices and a stable job market. As a result, the housing market is booming and has so far avoided the post-pandemic downturn seen in other regions.
But while all of this is true, the Midwest is also the region most at risk for flooding over the next 20 years, with all the associated impacts: abandoned communities, declining home prices, and insurance premiums. What would happen if we told them something like an increase in Will it make the home less attractive to both buyers and investors?
Midwest: Future flood zone
Unfortunately, according to the latest cutting-edge research from a nonprofit organization focused on climate risk. first street foundation, all true. The Midwest has the highest proportion of what the foundation calls “future climate abandonment areas,” or regions projected to lose population between 2023 and 2053 due to increased damage from flooding. It is predicted that
How can we trust this new study? It’s very detailed and based on real data from flood risk assessments performed on real homes. Instead of issuing a blanket statement about the states most at risk (florida (It is well known that Texas is at great risk of periodic flooding), the researchers took what they called a “granular” approach, breaking down communities by county and even by county. Each block was evaluated. “Climate risk is a household issue, not a state-by-state issue,” the report says.
Because flood risk can vary widely within a small area, this method of predicting where climate abandonment areas will be concentrated provides significant benefits. Simply put, even within the same city, some areas are far more prone to flooding than others. Houses on some blocks may even be more at risk than others.
A map provided by First Street as part of the report shows that high-risk areas are scattered across the country, rather than evenly covering the entire state. However, it is clear that the Midwest will experience a disproportionate amount of climate-related migration and property abandonment over the next two decades.
Areas most at risk for these changes are in Illinois, Michigan, Indiana, and Ohio. Cities projected to see the highest growth in climate abandonment areas are Minneapolis (Hennepin and Ramsey Counties), Indianapolis (Marion County), and Milwaukee.
What kind of research is this? I don’t That means these regions will experience the kind of population exodus straight out of a disaster movie. The report states, “While many areas in these states are projected to experience high flood risk and population declines, other areas within the states are likely to experience population growth as their populations are redistributed to avoid risk. “There is,” he explains.
As the researchers emphasize, most studies migration pattern They tend to focus on dramatic interstate migrations, such as from New York City to Florida. In fact, that’s not how the majority of Americans behave. Most people move very locally, not only within their own state, but also within their home county. These local movements are driven by “individual preferences to remain familiar with family, support networks, local labor markets, and local housing markets.”
In other words, if flooding continues, people may be forced to leave their homes, but they tend to go to neighboring towns rather than across the country.
Be sure to do your due diligence
First Street’s report drives home the importance of thorough local action for real estate investors. the study. For anyone serious about investing in the Midwest, investing in areas with low flood risk should be a best practice. It’s about investing in areas that will have healthy housing markets in 10 or 20 years versus having depressed housing markets with low property values and unattractively high flood insurance premiums. It could make a difference to regional investment.
Actually recent study shows that there is a direct correlation between increased flood risk and decreased property values. Add to this the existing problem of population decline in some parts of the Midwest, and flood risk becomes a tipping point.
In fact, many people don’t want to leave their homes until they feel they have no other choice. Communities that are already at risk due to other issues (e.g., lack of jobs) are more likely to become empty when climate change risks are added to the equation.
Philip Mulder, a professor in the School of Risk and Insurance at the University of Wisconsin-Madison, explained the difference between the Midwest and other regions. miamiIn an interview with luck. Mulder pointed out that Miami also has a high risk of flooding, but it is still a vibrant economy and many people are willing to move despite the risk of flooding. Why people are there. Flood risk is therefore a kind of tipping point that forces people out of their communities. ”
Real estate investors focused on the Midwest should evaluate multiple risk factors when choosing an investment location. Flood risk While this alone does not automatically make a location unsuitable for real estate investment, this factor, in addition to existing population decline and local economic stagnation or decline, almost certainly makes it unsuitable.
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Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.