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Climate Change and Mortgage Risk

Climate Change and Perceived Mortgage Risk

Thousands upon thousands of households across British Columbia and Canada have their eye upon the BC Southern Interior as a place to call home. Who doesn’t want to live here? It’s a four-season paradise. But there’s an elephant in the room that must be addressed. It’s called climate change, and the impact it may have on where people choose to buy a home. With a lot of media exposure placed on summertime forest fires in the Okanagan, some people are wondering if this neck of the interior is a place to establish roots. As the Penticton community’s go-to mortgage broker, we want you all to have a look at the big picture. Let’s review.

Why the BC Southern Interior Remains to be a Big Draw for Home Buyers Amidst Climate Change

Densification Not the Answer

There is a trend attributed to climate change spreading throughout the country – climate migration. Climate migration refers to when households move from one region to another in an effort to limit their exposure to natural disasters such as earthquakes, floods, tsunamis, tornadoes, and wildfires. At first, is may seem as if resettling is the answer, however a predicted consequence has reared its head – densification. And with densification comes other concerning forms of risk for homeowners. By moving to densified cities with higher population concentrations, households trade one perceived risk, for many more tangible ones. The increased risks that come from migrating to densified areas include (but are not exclusive to) the following:

  • Increased risk of break-ins and subsequent property damage, theft of possessions, and vandalism.
  • Increased risk to other forms of crime that result to personal harm.
  • Increased risk of water and fire damage that occurs from close-proximity to adjacent and neighboring properties (where the leak or fire occurred).
  • Increased risk of damage due to earthquakes (the more buildings and structures surrounding your home, the greater the threat).
  • Increased risk of motor vehicle accidents

Some of above risks also come with new costs that are passed on to homeowners. One significant cost concern, is insurance. Here’s why:

“As densification occurs, it increases concentration risk exposure for insurers […] Insurers need to manage that risk. They do so in part through reinsurance but also geographic diversification. This means they will typically limit the amount of supply deployed in any one geographic location […] Higher exposure to catastrophic risk due to risk concentration, as noted earlier, adversely impacts an insurers’ reinsurance costs and capital requirements.” (BC Financial Services Authority)

When insurance companies feel the pinch, so do you. Households that reconsider a mortgage in the BC Interior and instead look to larger cities (Vancouver, Victoria, etc.) will more than likely pay more in insurance premiums in the future. They may not even be able to get access to adequate insurance products as insurer resources tighten.

Costs will also increase for condo buyers in densified areas. As insurers charge more to strata corporations in the big city, the increased premiums will be passed on to unit owners in the form of higher strata fees. The same passing of the literal buck will also occur as strata corporations pay for renovations and retrofits to common areas to mitigate densification risks.

Lastly, densification directly contributes to the reduced supply of real estate inventory. Short supply drives home values up into unaffordable territory. Look no further than BC Lower Mainland housing prices as an example of this in action.

Trading One Climate Concern for Three More (maybe more)

As alluded to above, home buyers take on a whole other set of costs and risks by fleeing (or sticking to) over-densified residential communities. Some may be willing to accept it if it means limiting their risk to a natural event that is more endemic to a specific region. We’re of course referring to wildfires and the hillsides of the BC Interior. However, by seeking a mortgage elsewhere, you are likely trading one climatic concern for more. For instance, if you feel as is moving to the BC coast or up north is the answer, you must be prepared to accept the following threats to homeowners:

  • Earthquakes (BC coast)
  • Tsunamis (BC coast)
  • Dramatic increases in water levels (BC coast and northern BC)
  • Extreme windstorms (BC coast and northern BC)
  • Landslides (BC coast)
  • Extreme snowstorms and seasonal snowmelt (northern BC)

Simply put, climate migration only drives households into a whole other (and often more costly) set of problems. This is just one of the reasons why the Okanagan is touted as the best place to get a mortgage in BC. Further, by buying a home in one of the area’s innumerable neighborhoods that are far removed from the “at risk” zones of the valley, you will have no climatic cause for concern.

Armed with a newfound peace of mind, we encourage you to get pre-approved on a Penticton area mortgage today. If you have any additional questions, please feel free to contact Carloni Mortgage Brokers at your convenience.

Call 250.493.9111