DURHAM, N.C. – A new economic model developed by North Carolina researchers can help explain why coastal property values continue increasing despite growing risks from sea-level rise. The model can help inform public-sector investments in climate adaptation along U.S. coasts.

“It’s not a matter of if, but when coastal communities approach complete inundation,” said Martin Smith, a distinguished professor in environmental economics at Duke University who co-developed the model. “The question is: are there more effective ways to manage coastal areas in the next few decades that could smooth this transition?”

Their National Science Foundation-funded study, published in Nature Communications on March 12, 2024, resulted in a Coastal Home Ownership Model that analyzes how shifting coastal management costs to property owners can impact the real estate market, coastline development, and coastal community demographics.

As of 2018, coastal counties in the U.S. were home to almost 40 percent of the U.S. population, according to the National Oceanic and Atmospheric Administration (NOAA). These communities, which have long grappled with eroding shorelines and coastal storms, face substantial sea-level rise due to climate change. They will encounter increased risks of coastal flooding, threats to critical infrastructure, and eventually seawater inundation of vast swaths of the coast.

Market forces vs. forces of nature

According to the authors, tax incentives for high-income property owners, coupled with federal subsidies that currently cover measures to mitigate property damage from storms and flooding, continue to drive coastal property prices higher, despite evidence of growing natural hazards from sea-level rise. Subsidies like this can slow a market’s adjustment to long-term climate risks by obscuring the costs to counter such risks, the authors said.

Their model showed coastal property values eventually falling without federal subsidies for coastal management or tax incentives for high-income property owners. By limiting the pool of buyers in the near-term to those who can afford to build their own defenses against a rising, encroaching sea, coastal communities would become limited to high-income residents, causing coastal gentrification.

The opposite effect -- climate gentrification -- where wealthier residents flee climate risks, is also possible, based on policies, timing and nature.

“In the long run  -- whether the coastal environment becomes low-income homogenous, is populated by wealthy owner occupants, or is something in the middle -- a precipitous decline in the housing market prior to complete inundation may not be desirable,” wrote the authors.

Adapting to the inevitable

The federal government spent $12 billion over the last century on beach nourishment projects throughout the United States, which includes pumping sand onto beaches to counter sand erosion.

The researchers found these projects failed as a sustainable way to adapt to climate change, and at best, only delayed declines in property values and population as residents fled risk. Coastal management subsidies have helped slow coastal demographic changes, treating beaches as a public good protected by public monies.

Instead, the authors suggest facilitating a “managed retreat” of residents from the coast. This would be a more durable solution in which residents are allowed to live temporarily in their homes by renting them back, and maintain flexibility to retreat from waterlogged areas without being tethered to deeds and properties.

Another alternative is for the public sector to invest in climate-appropriate coastal housing that is more modular and movable than current coastal housing stock, which tends to be stuck in place against sea-level rises.

“The results we’ve presented should promote discussions of the future of coastal habitation, which would be a significant shift from the current framework of dealing with coastal climate impacts in a reactionary manner,” said Dylan E. McNamara, professor of physics and physical oceanography at University of North Carolina Wilmington, who co-developed the model.

"Understanding the coastal system -- where climate change, human habitation of the coast, property markets, and policies interact in complex ways -- is an important first step toward charting a more sustainable course for the future,” Smith said.

For personal reflection on their research, authors provide first-person “Behind the Paper” insights.

CITATION: “Policy and Market Forces Delay Real Estate Price Declines on the US Coast,” Dylan E. McNamara, Martin D. Smith, Zachary Williams, Sathya Gopalakrishnan, Craig E. Landry. Nature Communications, March 12, 2024, DOI: 10.1038/s41467-024-46548-6