“Real estate markets work well when you have a closing with a buyer and a seller and they understand the cost and there is nothing hidden,” he said. “It’s difficult for a home buyer to understand the loss to the property, so insurance cost risk isn’t translating into the sales process. People need to see the full risk rate.”

Right now, some are solving by underinsuring, but homeowners cannot recover after a climate event if they only get 50% to rebuild, he said.

According to a new report from the Harvard Joint Center for Housing Studies, Improving America’s Housing, homeowner spending for disaster repairs has trended up in all regions of the country, totaling $49B in 2022 and 2023, as compared to $16B in 2002 to 2003. This also means that disaster repair spending as a share of total home improvement spend went from an average of 4.4% in the decade before 2004 to 6.4% in the decade since 2013.

Climate disaster repair also is one of the top factors influencing the predicted growth in remodeling activity in the next year.

Climate Risk Is Overheating

Extreme heat is now a climate risk in many parts of the country and brings along with it many potential side effects. First, is the immense fire risk associated with hot, dry areas. Next, is the additional energy load on the grid from air conditioning.

“The load increase is from AC, plus the electrification of everything, electric vehicles, more manufacturing in the U.S., plus data centers and the appetite to develop AI and the running of AI,” said Andrew Bochman, a senior grid strategist at the Idaho National Laboratory at the SXSW Conference. “And, the grid is tired, old and creaky. It is congested. It has more non-dispatchable that you cannot count on – wind and solar. All have digital components sourced from China. All heavily reliant on China. And security.”

That’s a lot of risk factors for one system, most that cannot be addressed in a simple way.

Plus, while it seems somewhat unimaginable, he also pointed out that just a few months ago, in October 2024, firefighters were fighting wildfires in every one of the 50 United States.

Wildfires are happening outside of typical fire seasons and extreme heat is changing a lot of other features in the landscape.

“Utilities are all planning to turn off power so that they don’t cause a wildfire,” Bochman said. “It’s a public safety power shutoff where power is turned off for hours at a time when there are dry, windy conditions.”

And, just as it is really difficult for consumers to wrap their minds around the dollar impacts of a potential disaster, it’s equally difficult for insurance to do the same thing.

Will Swan is the director of Energy House Labs at the University of Salford and explains that insurance companies and banks want to know more about what they are insuring to understand the risk and how to mitigate the risks to then create the right business model.

“What is the value of investing in resilience to an insurance company – if they put their money there, how much does it save them down the line?” he said. “They are much better at responding to disasters when they happen. Risk is about information and it’s about what you don’t know. The more you know, the more you can manage the risk. Are you just building things that will get far too hot when you are trying to get to net zero?”

These are conservative institutions that want and need to have quantifiable validation for business activity, which now is evolving so fast the models are outdated as soon as they become available to be used.

“It’s hard to measure how homes will perform in terms of resilience,” Swan said. “We don’t appreciate a model of the places well. If a disaster happens every other year, we rely on old data a lot of the time.”

During SXSW, Eric Vermeiran, director of ESG advisory and business development at Nasdaq, said that climate is the number one issue for the biggest investors.

“Only 4% believe that climate risk is being accurately accounted for,” he said. “Climate is underestimated. Climate change is difficult to model for its physical risks and transition risks, what the economy has to bear to shift to low carbon.”

Migrating Away From Climate Risk

According to the Zillow report, more than 80% of home buyers evaluate climate risk when shopping for a new home.

Still, many high-risk areas remain desirable and often have higher home values. Homes with extreme flood risk — a risk score of 9 or 10 — that were for sale in June 2024, had a median list price 22% higher than homes with minor risk scores of 1 or 2. The median list price for homes with extreme fire risk was 49% higher than homes with minor fire risk.

Maybe the home values remain high because high income earners can not only self-insure, but they can afford to rebuild, said Bradley Schurman, founder and CEO at design firm Human Change who presented at the recent SXSW conference. The lower income homeowners cannot bounce back.

“Everyone is aware of climate change now, they are just consuming it differently,” he said. “I cannot express the impact of a 1.6 degree change, but I can express how much a 70% increase in insurance will impact someone. People left behind are on fixed incomes. They aren’t paying attention to the data as much as they are paying attention to their pocketbook.”

Dale Kunce, regional CEO at American Red Cross, said that the organization has responded 60,000 times in a year to disasters. Specifically after the Los Angeles fires, the organization provided shelter to those who lost their homes. In Altadena, where 16,000 homes were destroyed, two-thirds are underinsured and are not going to rebuild.

“It fractured the community in Los Angeles,” said Kunce. “When wildfires go through communities, one-third do not return by our estimates.”

Migration is reactively and proactively happening. Across the country in Florida, the state isn’t looking at a reduction in total population yet, but it is dealing with wealth moving from one community to another.

“The people that are moving now tend to be working-age populations with families,” Schurman said. “The people largely left behind are lower-income or elderly on fixed incomes. This means that newer inland communities will likely have a strong tax base, while those on the coasts could see their fortunes dwindle. The places that need public services will struggle to provide them.”

So, the migration patterns are taking a toll on local economies, short and long term.

“A smart, strategic future will likely involve a mix of mitigation and migration; a one-size-fits-all approach will not work,” he added. “This means that the governments will need to continue managed retreat for some while, at the same time, encouraging others to build or modify properties for climate resilience.”

Digital Twins Battle Climate Risk

Cutting-edge technologies such as digital twins, AI, and real-time monitoring can help proactively protect communities and housing for water resilience.

Serelle Corn is president at digital construction company Project Controls Cubed and also spoke at the SXSW Conference to the value of digital twins on major projects.

“It takes an immense amount of data and makes it accessible to anyone,” Corn said. “In the 3D models you have your assets. In one digital twin is cost, resources, quantities, and products–the models are so intelligent. It’s the future.”

Digital twin technology also provides the opportunity to bring in more community partners, and can be an effective educational tool. Technologies like digital twins are providing a much needed tool in the toolkit to better protect homes and communities.

Regenerative Design Beats Climate Risk

Design also plays a major role in the process.

We will keep developing, even at the risk of depleting natural resources, said Sean Quinn, who serves as the director of regenerative design at global architecture firm HOK. As an expert in regenerative design, he explores how to restore environments and engage people in a unique journey, while also leveraging technology in the service of that natural process.

Design practices such as enabling passive solar design for load reduction to optimize the building envelope and integrate into the environment, bringing in natural daylight to reduce energy use, collecting rainwater, are practices to create a positive experience for the health and wellbeing of people in a particular context.

“We look at nature itself and millions of years of evolution for the common goal of environmental stewardship and to enhance a site’s ecosystem’s performance,” Quinn said. “Regenerative design brings new life to something that has been depleted. It puts life at the center.”

The practice is critical as the urban population increases by more than one million people every week. With that sort of resource limitation, Quinn says we need to go beyond decarbonization, beyond the goal of zero to something more sustainable.

Regenerative design practices will reduce the rate we are damaging the environment, and potentially, slow the risk of climate disasters.

Future Investment For Climate Risk

Greg Witkowski from Kean University points out that it’s time to elevate building codes nationally and assign more money to prevention. Places like Charleston, South Carolina, are rezoning for the first time in 50 years to move to higher elevation.

“This is a code issue – low density multifamily really solves for a lot of challenges and it’s a local government choice,” he said. “Philanthropy is playing a larger role, we’re starting to see philanthropists fund preparedness.”

Climate risk is moving faster than anyone’s predictions, but on a positive note, solutions could be coming out faster. Vermeiran said that climatetech is the fastest growing subset of investing, where investment is predicted to grow from today’s $2.1T to $4.5T by 2030.