Climate Adaptation and Policy-Induced Inflation of Coastal Property Value

Abstract

Human population density in the coastal zone and potential impacts of climate change underscore a growing conflict between coastal development and an encroaching shoreline. Rising sea-levels and increased storminess threaten to accelerate coastal erosion, while growing demand for coastal real estate encourages more spending to hold back the sea in spite of the shrinking federal budget for beach nourishment. As climatic drivers and federal policies for beach nourishment change, the evolution of coastline mitigation and property values is uncertain. We develop an empirically grounded, stochastic dynamic model coupling coastal property markets and shoreline evolution, including beach nourishment, and show that a large share of coastal property value reflects capitalized erosion control. The model is parameterized for coastal properties and physical forcing in North Carolina, U.S.A. and we conduct sensitivity analyses using property values spanning a wide range of sandy coastlines along the U.S. East Coast. The model shows that a sudden removal of federal nourishment subsidies, as has been proposed, could trigger a dramatic downward adjustment in coastal real estate, analogous to the bursting of a bubble. We find that the policy-induced inflation of property value grows with increased erosion from sea level rise or increased storminess, but the effect of background erosion is larger due to human behavioral feedbacks. Our results suggest that if nourishment is not a long-run strategy to manage eroding coastlines, a gradual removal is more likely to smooth the transition to more climate-resilient coastal communities.

Economics of Coastal Erosion and Adaptation to Sea Level Rise

“…The framework has analyzed beach replenishment in models with a simplified spatial representation Landry 2011;McNamara et al 2015;); expanding to more realistic spatial models will require numerical analysis. The conceptual framework should also be useful for analysis of the erection of shoreline protection structures and the implementation of a shoreline retreat policy.…”

“…The modelling literature has pursued two parallel tracks with the goal of eventually achieving some synthesis . One track starts with a stylized single community and a single adaptation strategy and then begins to layer more geomorphological, spatial, and climate science realism McNamara et al 2015;. A logical next step is to embed multiple adaptation strategies into this capital-theoretic framework and continue to build in more realism grounded in the physical science.…”

“…In essence, alignment of positive and normative modeling requires that the net benefits function in (1) includes all of these public goods. However, the empirical work that demonstrates the single-community model's ability to predict nourishment intervals does not account for these other ecosystem services McNamara et al 2015). We examine some of the tradeoffs across stabilizing shorelines and changes in other ecosystem values in a stated preference study discussed below.…”

Responding to Sea Level Rise: Does Short‐Term Risk Reduction Inhibit Successful Long‐Term Adaptation?

“…This system is fundamentally not stable because of the accelerating risks of damage due to SLR and (probabilistically) more severe storms (Knutson et al, 2010). While direct financing of engineering from nonlocal government entities has decreased, both shoreline engineering and shoreline property continue to enjoy subsidies/external transfers that continue to make beach nourishment a more attractive investment (McNamara et al, 2015). While direct financing of engineering from nonlocal government entities has decreased, both shoreline engineering and shoreline property continue to enjoy subsidies/external transfers that continue to make beach nourishment a more attractive investment (McNamara et al, 2015).…”

The loss of fishing territories in coastal areas: the case of seabob-shrimp small-scale fisheries in São Paulo, Brazil

“…Additionally, it may be difficult to define fishing territories and get them formally recognized by governments, largely due to their volatile physical boundaries, but also because of the increasing competing economic interests for the appropriation of aquatic spaces, land value and real estate in the world's coastal and riverside areas (McNamara et al 2015). It makes the identification of and claims for formal recognizion of fishing territories challenging.…”