Climate Risk and Resilience in the US Real Estate Market

Climate change has shifted from an environmental concern into a core systemic investment risk. Rising sea levels, wildfires, and other severe weather events are increasing in both frequency and intensity, with tangible negative impacts to our built environment. Real estate offers a clear example of how climate change isn’t just a future concern but an increasingly powerful driver of investment performance. Across the USA’s real estate landscape, a range of tactical risk-mitigation measures are evolving to preserve wealth, stabilize markets, and drive risk-mitigated asset appreciation.

The Current Scale of Climate Disruption

Institutional real estate investors have a long track record of mitigating portfolio risk by diversifying assets across potentially fragile but highly desirable locations and less risk-prone areas. But now, given the frequency, severity, and unpredictability of weather events, spreading risk is top-of-mind from the smaller-scale investors and ultra-high-net-worth individuals to commodity-level purchasers.

In 2024, there were 27 confirmed weather or climate disaster events in the USA that resulted in losses in excess of USD 1 billion (the annual average number of these events between 1980–2024 was nine). Even climate havens, historically considered insulated from severe weather impacts, have recently seen unprecedented levels of devastation. Given the frequency of media coverage of these events, climate risk has, understandably, become a more significant factor in an investor's risk/reward equation. In a recent survey of Engel & Völkers global Private Office advisors, the group collectively reported a net increase of 45% in “stability, security and climate resilience” as a buyer motivation in the last 12 months.

In response, governments are evolving climate-related risk-mitigation strategies to stabilize real estate markets. Buyout programs, insurance reforms, and resilience-based building codes are now the first line of defense in protecting physical assets.

Buyout Programs

Buyout programs are an increasingly popular risk-mitigation tool introduced to stabilize property values. Part of a coastal resilience and flood damage mitigation strategy, states like Massachusetts, New Jersey, and New York implemented opt-in programs for homeowners to have their high-risk properties purchased by their respective governments. These programs give owners the option to receive fair market values for their high-risk homes and support stabilization by removing obsolete properties from the resale inventory pool. Post-buyout, properties are cleared and repurposed as natural buffers or parks. This helps prevent abandonment, blight, and neighborhood-wide devolution. An added benefit of buyout programs is that they reduce systemic real estate risks — increasing consumer and insurer confidence as risk-exposure/volatility declines. A 2024 Congressional Budget Office study found that each dollar spent on buyouts decreased future damages by USD 1.80.

Insurance and Legislative Reform

Governments continually adopt creative measures to eliminate high-risk properties from the market and fortify consumer tolerance for risk. High-risk states from California to Florida have passed legislative reforms aimed at attracting private insurers back, easing premium spikes and higher deductibles for consumers as competition increases.

These changes are critical as US homeowners must have insurance to secure a mortgage. Yet, as storm frequency and intensity grew, insurers refused to take the risks inherent in certain locations. Across Florida, during the peak of the crises in 2022/2023, private insurers left en masse, leaving owners of high-risk assets with no insurance, or unaffordably high premiums. Many were left with few options — bear potential loss burdens, hold the high carrying cost of insurance, or sell.

Home buyers also faced disruptions as they entered into purchase contracts only to realize the property wouldn’t qualify for a mortgage. This added more disruption and volatility to a market that has faced a host of predominantly climate-related challenges in recent years.

State reforms have now provided relief creating consumer protections and reinsurance infrastructure that have helped stabilize the market. As of 2024/25, private insurers are re-entering formerly risky areas, driving a competitive insurance market that ameliorates carrying costs and future pricing risk.

Transparency reforms also empower buyers across markets. For example, while most states have long had asbestos and lead disclosure requirements for buyers, California law now also requires sellers to disclose wildfire risk when listing homes. This policy intervention ensures that buyers make informed decisions about value and consider measures to limit losses, such as retrofits, fireproofing, insurances, and off-site allocation of valuables. A win–win for the consumer and the insurer, climate-related disclosure laws are expected nationwide, as California historically leads US policy reforms.

Evolving Building Code Regulations

Not only is the existing building stock within the USA becoming more investible through the measures mentioned above, but new development is an increasingly attractive asset as building codes evolve. Historically focused on health and safety, building codes now address energy performance and climate resilience.

For example, early International Building Codes (IBC) specified fire-safety for building occupants. While these provisions still exist, the IBC introduced the Wildland-Urban Interface Code, establishing resilience measures such as ignition-resistant construction techniques. The expanded code covers fire-related events, wind, flooding, extreme heat and so on. Some state and local jurisdictions go even further. New York City building code adopted the Climate Resiliency Design Guidelines in 2022, using predictive analytics to anticipate future weather events and the resilience efforts needed to counteract them.

These enhanced code practices mitigate risk in US housing stock by reducing the severity of losses from natural hazards. Having extended ancillary benefits, newer developments abiding by these codes improve investor confidence, mitigate insurer strains, and support long-term property value appreciation.

The Future of Climate-Resilient Real Estate

Climate risk is now a defining factor in real estate valuation. While rising insurance costs, asset exposure, and regulatory hurdles pose significant challenges, they are being counterbalanced by legislative reforms.

Moving forward, property integrating climate resilience will be key to value preservation. By adopting a risk–resilience investment framework, investors can balance the climate-based vulnerability of property investment with existing risk -mitigation strategies. Markets that proactively integrate climate resilience policies, disclosures, and construction will continue to both attract capital and maintain value. As a result, investors that understand the availability of these interventions today will have the greatest competitive advantage tomorrow.