Property owners are familiar with the hazards of weather events like floods or storms, but the potential impact of a severe drought may go overlooked. Real estate investors must be aware of climate change-driven risks like drought that can affect properties, residents, and their ROI.
Drought—an extended period with no precipitation from rain or snow, or much lower precipitation than a region usually gets—can worsen or cause property damage and affect quality of life for property residents.
“When conditions are extremely dry for an extended period, properties can be faced with a number of risks. Drought conditions can put stress on buildings, worsen air quality, and increase wildfire risk,” said ClimateCheck Principal Cal Inman.
By considering drought risk in investment decisions, real estate investors and real estate investment trusts (REITs) can better protect their assets and make informed choices about their portfolios.
ClimateCheck’s comprehensive, data-informed analysis around a variety of environmental hazards, including drought, helps investors plan their portfolios and guard existing investment properties against potential damage. Here are five ways that drought can impact properties.
Foundation and structural damage
An extended period of overly dry conditions can worsen existing structural issues in investment properties, or potentially cause new ones. This is because prolonged dry conditions can cause soil to shrink and settle. As the ground dries out, it contracts, potentially worsening or causing cracks in foundations, walls, and driveways. Uneven floors, doors and windows out of alignment, and broken sewer pipes are other symptoms of damage to a building’s foundation caused by drought.
Structural damage can require costly repairs. When you know a building is located in a region at high risk for drought, you can plan ahead for potential costs. That may mean taking measures to make your property more resilient to drought, or considering potential for drought when planning your portfolio.
Health impacts on residents
Drought can also affect the health and well-being of residents living in investment properties. Drought conditions can increase exposure to airborne dust and otherwise contribute to poor air quality, especially when accompanied by heat waves or fire. Children, elderly people, and those with pre-existing health conditions are the most vulnerable to air pollution.
In extreme cases, drought can even reduce access to water for drinking and other everyday needs. As surface water sources have dried up in parts of California, some localities have been left only with contaminated groundwater. This has forced residents to rely on bottled water.
Understanding the health implications of drought can help investors such as healthcare REITs determine the best measures to mitigate risks and ensure the well-being of their tenants. This may include investing in water treatment systems or improving HVAC systems to better filter air during low air quality days.
Landscape deterioration
During periods of drought, water scarcity becomes a critical issue. In regions experiencing severe drought conditions, water restrictions may limit water for residential use, or make water more expensive. This can make it harder to keep landscaping green. Brown lawns and dying trees and shrubs can impact a property’s appearance, making it harder to attract potential buyers or renters and potentially hurting the property’s value.
Property owners can improve curb appeal in drought-prone environments by implementing drought-tolerant landscaping. Some drought-prone regions offer tax breaks and rebates to encourage property owners to replace water-intensive plants with more sustainable options such as cacti, rock gardens, and other landscaping that requires minimal water.
Increased fire hazards
Dead vegetation caused by lack of water can increase the risk of wildfire. In addition to the increased danger posed to residents and properties, real estate investments located in wildfire-prone regions may face higher insurance premiums to cover the increased risk. Some insurers have withdrawn home insurance offerings in California in response to wildfire risk.
Other challenges for businesses, developers
Scarcer water access can lead governments to restrict new construction. Even when construction is not restricted, developers may have trouble securing long-term sources for water. That means that even when there’s demand for construction such as housing developments, inconsistent access to water can make it hard to complete projects.
Water-intensive businesses, ranging from energy production to data centers to farming, can also face challenges. Agriculture may face decreased productivity, crop failures, job losses, and other financial or economic consequences.
Ready to learn about the impact of climate risk on your portfolio? ClimateCheck’s team of experts provide access to accurate, thorough climate risk data and assessments for locations across the United States and Canada. Our comprehensive climate risk reporting gives property owners the tools they need to understand their exposure, make informed decisions about their portfolios, and take action to mitigate potential damage before it happens.
Alexandra Jones is a Philadelphia-based writer and author who covers agriculture and climate.