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January 15, 2014 4:30 AM Real Estate Opportunities Provided by Climate Change?

By Matthew Kahn

Justin Gillis focuses on which U.S Eastern coastal areas are at increased flood risk due to rising sea levels. People have to live somewhere. If specific areas such as Norfolk Virginia are at increased risk of flooding, what areas on “higher ground” will experience increased demand to live there? Could real estate developers help the coastal population to adapt to climate change by identifying geographic areas that have natural advantages in coping with emerging risks?

This is free market adaptation. Implicit in Gillis’ claims is the belief that we will continue to rebuild our cities in the same places using the same materials and continually repeat our same mistakes in the face of new risks. There is a group of rational choice economists who argue that we learn from our past mistakes. This is an interesting debate that offers several testable hypotheses! If the people of Norfolk Virginia want to keep things as they were, then they are free to do so but should use their own resources to finance their efforts. If federal subsidies are offered then spatial moral hazard arises.

[Cross-posted at The Reality-Based Community]

Matthew Kahn is a professor at the University of California, Los Angeles's Institute of the Environment. He specializes in the environmental consequences of urban growth and related quality-of-life issues.

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