The costs of a climate resilient housing market are currently manageable, but division looms

The consequences of sea-level rise for the Dutch housing market are projected to be costly but manageable until the turn of the century. Based on the most recent climate scenarios by the Dutch Meteorological Institute, KNMI, the Netherlands can protect itself against the effects of climate change with acceptable investments. However, we will need more than just stronger dikes. Climate-adaptive construction should become the norm. Specific locations are threatened by a several problems, such as extreme waterlogging, heat stress, and foundation damage, combined with the financial vulnerability of households in these regions. In the short term, action must be taken to distribute these burdens fairly: both between current homeowners and future buyers, and between high and low income households. The turn of the century, however, will see considerable uncertainty. We will need a plan to make the Netherlands climate-resilient in the long term. This is the conclusion of the chief economists of ING (Marieke Blom), Rabobank (Ester Barendregt), and ABN AMRO (Sandra Phlippen) in the report Climate change and the Dutch housing market, which the three major banks are publishing today. They emphasize that the housing market faces a number of issues and that some homeowners will need help to navigate the transition.

By far the largest expenditure is making all homes more energy-efficient, says Marieke Blom, chief economist at ING. “The costs amount to about 1% of GDP annually until 2050, for all owner-occupied and rental homes combined. Spending on energy efficiency is often cost-effective for homes with poorer energy labels, as this lowers the energy bill and raises the property value, but it is a considerable task and people often dread the hassle it brings. One risk is that the increasing energy tax will weigh relatively heavily on lower incomes. The second-largest venture is adapting urban public space to withstand waterlogging, drought, and heat – this will cost about 0.2% of GDP annually until 2050. The planned dike reinforcements to prevent against flooding due to dike breaches are – contrary to popular belief – the least costly: about 0.1% of GDP annually until 2050.

Depending on the location of the house, the property value may decrease by factoring in the costs of (potential) damage. However, the value could also increase in the case of climate-adaptive construction. This is where a “climate division” looms, warns Ester Barendregt, chief economist at Rabobank. “Aspiring homeowners who have less to spend are more likely to buy a home in a neighborhood where the prices are lower, perhaps without realizing that waterlogging or foundation damage occurs more often there. And neighborhoods where homeowners have more to spend, take measures against these risks, causing the property values there to rise. This reinforces the already existing inequality in the housing market.” The economists also point out the risk that the costs of climate adaptation and home damage will fall on future buyers, often young adults. Due to a lack of information, they may pay too much for their first home.

In consultation with scientists, policymakers and practical experts, our teams have made several recommendations based on our analysis, says Sandra Phlippen, chief economist at ABN AMRO. “To keep housing affordable for everyone in the short term, it comes down to 1) the right price, 2) support where necessary, and 3) ideally, stricter standards rather than increased energy prices. It is important to ensure that all of these adjustments do not lead to vulnerable households ending up in vulnerable locations, as is the case in many other countries.”

Avoid buying a pig in a poke

Expand the foundation repair desk

The researchers recommend expanding the existing Foundation Repair Fund so that this is not only available nationwide, but also that it covers more damages and costs. Homeowners can then get help where necessary to repair their property in the event of climate damage.

Standardization instead of pricing

The government has the important responsibility of setting standards for how we can make new and existing homes in the Netherlands climate-resilient and energy-neutral. An obligation to improve the energy efficiency of a home when purchasing it does not increase the energy bill and ensures that costs are more clearly reflected in the purchase price.

Global climate change has local ramifications. This is particularly so in the case of The Netherlands1 : A considerable coastline, the presence of the Rhine-Meuse-Scheldt river delta, and 59 percent2 of the land area prone to flooding, all make the country highly exposed to floods3 from the sea and rivers. The Netherlands also faces other physical climate risks, including waterlogging, heatwaves, and prolonged drought which can cause damage to buildings and other assets. Finally, the Netherlands faces transition risks due to both climate mitigation and adaptation policies, which can shift the value of assets affected by these policies.

The complete publication can be read here.

A description of the methodology used in this project is included here.

The channels of impact can be found here.

The full list of references can be found here.