Feb 06, 2024

Zelman & Associates builder insights: New homes face extreme heat risk — ClimateCheck data

Heat | by Tess Townsend, Director of Communications | 2 Minutes

A new report from Zelman & Associates, a housing research firm that provides in-depth analysis and research to the real estate industry, highlights the disproportionate exposure of new single-family structures to extreme heat.

The firm analyzed ClimateCheck’s climate risk data alongside statistics on building permits issued for single-family housing as far back as 1990. The analysis includes approximately 20,000 local homebuilding submarkets, over 6,000 public homebuilder communities, and around 140 million residential housing units.

Recently built homes at higher risk of extreme heat

In “Peering Into Permits: New Home Market More Exposed to Heat Wave Risk,” Zelman & Associates found that extreme heat puts new homes at significantly higher risk than existing housing stock. In the 12 months ending in Q3 of 2023, 63 percent of single-family building permits were issued in regions facing extreme heat risk, as informed by ClimateCheck’s property-level data for residential housing units and area-level data in homebuilding submarkets. The percentage of new builds in hotter regions has steadily increased since 1990, when just 40 percent of single-family permits were issued in these areas. Only 40 percent of all U.S. housing stock is located in regions facing elevated climate risk from extreme heat.

The report notes that new construction is generally better positioned  to weather other climate risks, including drought, wildfire and high precipitation. Notably, new construction is at much lower risk of flooding overall; however, new builds in Arizona, California and Texas are at a significantly higher risk from drought.

Overall, the report concludes that homebuying trends in the near future will be driven by economic conditions rather than directly by climate risk, though marginal shifts are expected as climate-related risks affect the affordability of home ownership. For example, homeowner’s insurance premiums spiked in states with high climate-related risk like Florida, Texas and California in 2023, with some insurers pulling out of high-risk areas entirely.

“Consumers increasingly care about climate change and climate risk, and they definitely care about climate-related costs like increasing insurance premiums and utility bills,” said ClimateCheck CEO Cal Inman. “Home builders have an opportunity to adapt their projects to changing climate risk, whether by producing more resilient homes or making different considerations about where to build.”

How extreme heat impacts property

Extreme heat forces air conditioning units to work harder, resulting in higher energy costs that eat into internal rate of revenue (IRR). When HVAC systems work overtime, they can wear down faster and require more frequent maintenance. With newer buildings, there’s an opportunity to control long-term costs by ensuring HVAC systems meet changing climate needs.

Builders and property owners can use some mitigation strategies against extreme heat, like using reflective roof materials, insulating structures well, installing energy-efficient HVAC systems and incorporating shade-providing landscaping.

“Extreme heat multiplies risks, with both direct and cascading effects on people, buildings, and the energy and transportation systems that we use to supply and maintain those buildings. This can make properties and their users less resilient in areas with frequent high temperatures,” said Dr. Annie Preston, ClimateCheck’s Head of Data & Risk Visualization.

Extreme heat also puts the wellbeing of building occupants at risk, which can be a liability for commercial properties, especially care facilities and other residential facilities but also businesses. Residents affected by extreme heat can suffer from heat stroke, heat exhaustion and heat cramps, especially in the case of a power outage when HVAC systems can’t function. Children, seniors and people with certain underlying health conditions are most at risk.

Climate risk data to inform building strategy

ClimateCheck's comprehensive data enables real estate industry stakeholders to make informed decisions about where and how they build. As climate adaptation and mitigation become increasingly important in the market, understanding climate risk for a single project or your entire portfolio can help shape your business strategy in the short and long term.

Read the full Zelman & Associates white paper and access more insights from Zelman. Download a free sample ClimateCheck report to learn about climate risk to your property.

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