Home Fixed interest Will climate change initiatives help or hurt real estate values?

Will climate change initiatives help or hurt real estate values?

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The United Nations Climate Change Summit (COP26) has just ended, and there has been a lot of discussion about the role of cities in the impact of climate change. Since cities consume more than two-thirds of the world’s energy and generate roughly equal amounts of global carbon dioxide emissions, cities are an obvious place to focus. decarbonisation efforts.

Climate change initiatives are deployed at all levels – from large Fortune 500 companies and city planners to real estate operators, real estate investment fund (FPI) and even federal policies. While they are certainly positive for the environment, these initiatives could have negative effects not only on the cost of developing and operating real estate, but also on its value. Here’s why.

How climate initiatives will impact city investors

Cities are home to half of the world’s population and a good majority of its investment opportunities. Any major changes to regulations and incentives within these urban areas can have a profound impact on the cost of doing business. Depending on the location and extent of the activity, initiatives could range from new building codes to increasing insurance premiums.

UN Secretary Guterres called on cities to align “procurement, infrastructure development, zoning, city planning, building codes, transportation systems, waste disposal and investments with the Paris Agreement, the New Urban Agenda and the Sustainable Development Goals ”. Although not all cities will adopt all measures, reform is likely underway. Here are some things you might see:

  • Minimum heating / cooling standards or alternative energy solutions.
  • Increased runoff and water catchment requirements on commercial properties.
  • Multi-use or commercial residential rezoning to create more pedestrian towns.

Image source: Getty Images.

Cities engage in climate initiatives

From country presidents to city mayors have expressed interest in supporting climate change initiatives. The Paris Agreement was signed by 192 parties and holds those parties accountable for reducing global greenhouse gas emissions. Interest, however, for investors can mean talking, or it can mean business.

Funding will be an essential element in setting up many of the initiatives discussed. At COP26, 450 major banks signed an agreement to decarbonize their portfolios and invest billions to finance green initiatives. The tap of money is clearly flowing, but is the financial commitment justified?

Impacts of the initiative on real estate values

Green buildings are already selling, and the appeal will only increase from here. The National Association of Realtors (NAR) Consumer Demand Reports found that 59% of residential consumers are very or somewhat interested in sustainability.

A market comparison conducted by the NAR in Boston examined the potential for a higher sales premium in carbon neutral homes. They compared new homes achieving Leadership in Energy and Environmental Design (LEED) Platinum and Home Energy Efficiency Rating System (HERS) certifications to similar new homes on the market at the same time and just down the street. Carbon neutral homes sold faster and priced 22.7% per square foot more than comparable units that did not have these standards.

Commercial buildings are also following suit. In addition to the well-established operating cost savings, which are on average 69%, you will also see increased rents and occupancy and a higher sale value if you own the property. Dodge Data & Analytics World Green Buildings Trends Report found that the average premium for rental rates is 17% worldwide and the occupancy rate is 16% higher. And if you sell, you’ll likely get a premium for the sale, with the US averaging 20% ​​more sell value.

Strong consumer demand as well as public and private entities supporting climate initiatives facilitate this adjustment. Reshaping new investments with this in mind, slowly modifying existing real estate as repairs are made, and basing new construction around this theme are probably good ideas. They will not only reduce environmental impacts, but will also likely increase the value of your real estate.

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