New Orleans could be surrounded by sea water in a matter of decades according to new research. The study says the US city has reached a “point of no return”, and that rising temperatures and sea levels mean the process of relocating residents should start immediately.
For the city’s 360,000 residents, the financial effects of climate change will probably arrive before the water itself. Long before streets become permanently flooded, household finances can begin to deteriorate.
Properties at extreme risk of flooding can lose value, becoming harder to insure and then harder to sell.
And while New Orleans is an extreme example, situated as it is below sea level on the low-lying Louisiana coast, the financial risks of climate change apply elsewhere.
In many countries, the home is often the largest family asset, offering security in retirement or for younger generations. But, long before any place becomes physically uninhabitable, insurance premiums, mortgage costs, property valuations and market confidence can all take a hit if an asset is considered to be at risk.
Recent evidence suggests this is already happening in the UK. It has been estimated that the owners of around 430,000 homes in England could become “climate mortgage prisoners” by 2050.
These are households that may struggle to insure, sell, or remortgage their homes because flood exposure makes the property financially unattractive or unacceptable to lenders. Flood risk can turn a family home from a saleable asset into a trapped asset. A homeowner may still live in the property, still make mortgage payments, and still maintain the house, yet find that the market has changed around them.
If insurers raise premiums or withdraw cover, mortgage lenders may become more cautious. And if lenders become more cautious, buyers may disappear.
When buyers disappear, the home no longer performs its basic financial role as a saleable asset.
There are also official estimates that around 6.3 million properties in England are currently in areas at risk of flooding, with this figure expected to rise to 8 million by 2050.
Flooded market
All of this is likely to become more of an issue for the less well off. Wealthier households might be able to move earlier, absorb transaction costs, pay higher premiums, or buy in lower-risk areas.
Poorer households will have fewer options. They may remain in exposed properties because they cannot afford to move, even as the value of those properties deteriorates. In that sense, climate risk can widen wealth inequality – not only through physical destruction, but through unequal access to an escape route.
New Orleans offers an extreme version of this logic, and the danger is that forced relocation becomes necessary only after households have already lost out financially.
The UK should be able to avoid reaching that stage. But it cannot wait until communities are visibly failing. It should identify where flood and coastal risks are likely to impair household financial resilience, and intervene before families become trapped.
Governments need to combine climate adaptation measures with ideas to protect household finances. Flood defences remain essential, but they are not enough.
The UK also needs stronger rules against building new homes in high-risk areas without credible protection. And it will require long-term planning after an initiative set up in 2016 between the government and the insurance industry to make flood insurance more affordable comes to an end in 2039.
Banks, insurers, regulators and local authorities should treat flood exposure as a shared financial risk issue, as well as an environmental concern.
British coastal towns or flood-exposed communities are not destined to suffer the same fate as New Orleans. But both risk physical climate change gradually turning into severely damaged household finances. By the time a family cannot insure, remortgage, or sell its home, the crisis has already begun.
The UK still has time to act. But the starting point must be honesty about the fact that dealing with climate risk is not only about protecting land. It is also about protecting family assets, mortgage access, insurance markets and the financial security of ordinary households.
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