Catastrophic loss events have been increasing in frequency, severity and time-adjusted cost. When large-scale catastrophic loss events result in housing unit loss, there’s an increase in demand for housing from displaced families within local and adjacent marketplaces.

The allocation of resources to build back, repair or replace lost housing units draws market capacity away from building new units. Consequently, measurable impacts on housing supply result from catastrophic housing losses. 

Defining natural hazard 

A natural hazard is an extreme event that occurs naturally and causes harm to humans. It can include infrastructure, amenities and housing. In Canada, flooding has been the source of the most expensive housing losses recorded, although impacts from other natural hazards such as wildfires, wind, heat waves, drought and hail are on the rise.

In the future, sea level rise and storm surge, melting permafrost and seismic hazard are expected to increasingly impact catastrophic housing loss in Canada. Catastrophic losses are typically measured in insurable losses resulting from natural hazards. Societal costs such as emergency management and response and knock-on health impacts to people and society are not typically measured in these reported figures.

Impact on people

Individual homeowners who are impacted by catastrophic loss events have the most to lose. In Canada, people have much of their personal wealth contained within their homes.

According to the CMHC, “High levels of debt do most damage when a significantly negative external economic event happens … It becomes difficult, if not impossible, for many mortgage holders to service their debt.”

In addition to property value impacts, the Red Cross estimates the cost of displacement for a typical family is $60,000 for the uninsured cost* in the form of savings or debt for disaster recovery and cost of living while displaced. 

According to Treading Water**, a pan-Canadian study on the effects of flooding on property values, property is devalued from catastrophic flood events. This results in affected homeowners losing equity and market growth, which reduces the portability of that wealth to lower-risk locations.

The relative buying power of people affected by natural hazards is substantially reduced, which in turn reduces their capacity to financially recover and relocate.  

Understandably, the experience of managing catastrophic loss results in increased stress, emotional loss and, in many cases, PTSD. While these costs to people are substantial, they are not reported in the valuation of insurable losses from catastrophic events.  

Managing supply with drag from catastrophic losses 

There are three stages of catastrophic loss of housing that impact supply: point of incident, housing displaced people and return.

Canadian events: Point of incident, displaced, return

 

Glace Bay, N.S.
300 homes damaged, 100 permanently relocated, said to result in a long-term housing shortage

Fort McMurray, Alta.
2,400 buildings destroyed, 500 damaged. As of May 2018 (2 years post-fire), 20% of homes destroyed have been rebuilt

Merritt, B.C.
400 homes destroyed, 52 homes permanently lost, 600 residents unable to return to community

Point of incident

The point of incident marks the time when a home becomes uninhabitable, requiring repair or reconstruction. The loss of this unit will remain until the point of return, which can be two years and, in some cases, longer. The impact on supply is -1 unit. As is frequently the case, not all units are rebuilt.

In the case of Merritt, British Columbia, for example, 13 per cent of houses were not rebuilt for a variety of reasons, including the destruction of the lot from river flows. Similarly, in Fort McMurray, Alberta, some houses were not rebuilt due to land toxicity. On Cape Breton Island, Nova Scotia, some coastal lots were retired to conservation lands, as the emerging sea level and storm surge risk are deemed too high to warrant reinvestment.

Housing displaced people

Housing displaced people is an important part of catastrophic loss response. When people flee catastrophic loss, they add to market housing demand. Individuals will seek housing within their network, including family and friends, and some will find temporary housing until they get a more stable interim solution.

This +1 demand unit will put pressure on housing in adjacent and broad markets until the resident returns. And, it’s very likely to create pricing pressure as supply is strained against surging demand.

Return

The return period is measured from the time of displacement to the time of return. In terms of housing supply, the return period offers a -1 unit drag on new build capacity as both materials and labour are allocated to building back damaged housing.

The build-back resource allocation will typically draw resources from the new build marketplace to prioritize rebuilding. This loss of market housing construction resources represents a permanent time-value loss to new housing creation. The larger the catastrophic losses in any marketplace, the greater the drag on creating new housing units.

Lower-cost investment in resiliency to save housing from catastrophic loss: Key to market stability and housing supply

There’s an amplifying impact on the supply and demand gap from catastrophic losses which exacerbate pricing and availability pressures in local marketplaces. This impact lasts from the point of displacement to the point of return, which can be a two-year timeframe and sometimes longer. 

The supply and demand drag created by catastrophic loss units in the Canadian housing supply will continue to impact people, governments and housing market stability. Direct site-level property devaluation after catastrophic loss can stigmatize communities and have lasting local real estate market impacts which affect the housing supply chain, from lenders to homeowners.

With ambitious goals to create new housing, the lower-cost investment in resiliency to preserve housing from catastrophic loss is an important perspective for the achievement of Canada’s market stability and housing supply. Disruption to new build supply capacity and amplification of housing insecurity for Canadians who experience catastrophic loss exemplify the importance of residential resiliency investment. 

* Red Cross 2015-2022 examination of flood response over seven years: CatIQ 2023

** Bakos K., Feltmate B., Chopik C., Evans C., 2022