On September 24, 2022, as Hurricane Fiona barrelled toward the east coast of Canada, the full cost of damage to homes and properties up and down the Atlantic coast could not have been anticipated. In the end, the actual losses exceed the insurable losses which are estimated to be $800 million. Significant numbers of people fled their homes, and in Port au Basques 100 homes were permanently lost to relocation to higher ground.

We know extreme weather events like hurricanes are becoming more destructive, and more frequent. It’s also significantly impacting real estate markets across Canada.

At some point everyone feels the impact

From 2023 wildfires in British Columbia’s interior, Alberta, Quebec and Nova Scotia (5 per cent of Canada’s forest burned), to the Ontario and Quebec derecho of 2022 (875 million insured losses), B.C’s atmospheric river of 2021 (450 million insured losses) to headline-grabbing flooding in Ottawa-Gatineau, Muskoka and New Brunswick in 2019, Canada is reeling from unprecedented losses from natural hazards. The impact to liveability, insurability and saleability are connected to the protection of assets through resiliency investment.

Properties across the country are feeling the heat of the changing weather patterns. On Canada’s famously vast ocean coastlines, storm surges, sea levels and stronger wind speeds are impacting communities through both shoreline erosion and direct property damage. The reliability of winter ice in the Arctic is impacting quality of life while thawing permafrost creates new challenges to existing and new buildings in Canada’s north. The impacts from changing weather patterns are affecting all of society, including homeowners, farmers, insurers, municipalities and governments.

As weather becomes more erratic, property owners may bear the most risk (and loss) but every stakeholder in the housing supply chain — from realtors to insurers to lenders to municipalities — will feel the impact. The good news is that in many cases we know how to reduce the risk to property and community. 

Consider the risks

Whether you’re working in commercial real estate, residential investment property or homeowner marketplaces, a growing number of investors are considering natural hazard risks before they buy. Understanding the risk allows for investment in asset protection. 

While hazard mapping in Canada is only emerging, the ability to match peril to resiliency intervention is well established. Programs such as Fire Smart reduce wildfire risk and interventions to reduce basement flooding including sump-pump backup and backflow prevention are increasingly common investments in property protection which are often accompanied by municipal government incentives.

Location risk-stigma 

Following catastrophic weather events, location stigma has meant that property values may plummet and dampen value in local markets. In 2014, one year after the Bow River flood, Calgary’s housing market was still working to recover. Some of the affected houses had price drops from 10 to 25 per cent, with an average loss of $208,870 in assessed value for each home damaged. When communities are in the news for natural hazard events it can have a lasting effect based on market memory and stigma, depending on the severity of the event, the amount of news coverage and the visibility of damage. 

Climate gentrification

A recent Harvard University report coined the term “climate gentrification” to describe how wealthier investors in coastal, flood and wildfire zones are fleeing and pushing prices up in climate-resilient neighbourhoods that were once less desirable. The outcome for some property owners, particularly those with fewer means, are that they’re stuck with stranded assets and homes in flood and wildfire zones. 

The Urban Land Institute examined real estate asset exposure to climate risk and concluded that markets such as New York and San Francisco (much like Toronto and Vancouver) face intense climate risk because of the high concentration of high-value assets. When these locations are hit with catastrophic events such as flooding, the marketplace experiences a sizeable value loss, significant disruption to economic productivity and large-scale insurance payouts.

Market disruption indicators

Insurability will be the first indicator of a marketplace disruption — insured and uninsured losses are already impacting the personal wealth of Canadian families. According to Catastrophe Indices and Quantification Inc., insured damage for severe weather events across the country reached $3.1 billion last year.

Beyond increased insurance costs, property value impacts from natural hazard risk can also mean a loss in value, loss of use and rent, increased costs for maintenance and repair, increases in property taxes related to municipal resilience and recovery investments, as well as increased costs for higher-risk mortgages. Overall, real estate with a higher risk has increasing potential for higher TMI (taxes, maintenance and insurance) than low-risk property.

Impact on asset valuation: An opportunity for realtors

One of the big problems for the real estate market is that natural hazard risk isn’t currently integrated into asset valuation. As a result, two homes might appear to have similar value, but the risk of value loss and loss of use often isn’t factored in.

For realtors, this represents an opportunity. Many of the realtors that I have had the pleasure to work with are experts in their marketplaces and, as a result, have a strong understanding of all aspects of civil society in the communities in which they practice. The opportunity to utilize this marketplace knowledge to build brand equity through the provision of good advice related to historical natural hazard events is increasingly important to homeowners. Until reliable predictive risk mapping is available in markets everywhere, there is dependency on the knowledge of local market experts. They can give good advice because they have personal experience and memory. 

Provide client solutions to save money and boost property value

Building on your expertise with knowledge of municipal incentives for risk reduction such as subsidies for backflow valves offers a touchpoint for connecting with clients and delivers an important reminder of your customer-centric service model. Similarly in rural and urban contexts in Saskatchewan, Manitoba and Alberta, where hail is a seasonal risk, providing clients with solutions that increase property resiliency, such as hail-tolerant shingles, demonstrates expertise and know-how that is increasingly valued by Canadians. 

The changing weather patterns that are increasing annual insured losses from natural hazards require participation of everyone in protecting our properties and preserving our hard-earned home equity. For members of our society who are aging in place or housing-vulnerable, this conversation is also important. 

Natural hazards are not directly influenced by government policies or economic performance. With increasing risk comes increasing cost for recovery, no matter who is governing. Protection through investment in asset resiliency is an important piece of a total-society approach to reducing losses from catastrophic events. Protection begins at home, where property value, wealth, health and quality of life begin. 

Helping your clients reduce their risk to natural hazards is good for you and good for your community. Get involved, get in the know and bring resiliency solutions to your clients’ real estate investments.