From risk to resilience: Managing climate risk in residential assets

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

As climate change accelerates, its impact on real estate investment decisions is becoming harder to ignore. Across the US, the increasing frequency and intensity of natural disasters is reshaping markets and challenging traditional approaches to real estate, particularly in the residential sector where resident concerns regarding housing affordability, livability, and resiliency have a direct bearing on where they choose to live. High-risk climate markets are bearing the brunt of these changes, and impacts are only expected to increase with extreme weather events breaking records year after year.

Extreme weather events such as the recent California Palisades Fire, which destroyed over 10,000 structures, and Hurricane Helene in 2024, which caused USD 79.6 billion in damage, exemplify the tangible implications of a warming planet. Meanwhile, events like the 2021 Texas power crisis highlight regional vulnerabilities in infrastructure.

Navigating residential acquisitions and dispositions in high-risk markets requires a proactive approach that not only considers risk exposure and risk mitigation but also accounts for residents’ specific needs.

In climate-vulnerable regions, property insurance is pivotal to protecting asset value, but rising premiums and policy withdrawals are becoming increasingly common. Recent data shows that 18 of the top 20 U.S. insurance providers experienced loss ratios exceeding 100%, forcing insurers to cease issuing new policies and/or remove coverage for high-risk hazards. Recently, 11 insurers pulled out of home coverage in California because of increasing risks of wildfires.  Insurers are also increasingly dropping coverage in eastern seaboard states such as Florida, the Carolinas, and Louisiana due to elevated hurricane risk, and in central states like Oklahoma due to increasing tornado frequency. In Florida, the rate of non-renewal affects 1 in 6 policyholders (Glades County), in North Carolina, the rate is 1 in 9 (Green County), and in Oklahoma, 1 in 13 (Kiowa County). As a result, real estate investors increasingly need to factor climate risk hazards and forecasted insurance implications into their asset planning and deal underwriting.

Case Study: Before the 2025 Palisades Fire, State Farm canceled insurance for over 72,000 California homeowners because of wildfire risks, leaving many properties uninsurable. The fire resulted in extreme damage to commercial and residential properties, many with no or limited insurance coverage, causing significant adverse impacts to real estate holdings with owners not in a position to access insurance funding to repair and recoup asset value. Further, the damage to neighboring infrastructure and communities will likely have long-term impacts on residential and commercial leasing.

While government intervention, such as public insurance programs, can partially mitigate risk to asset value from decreasing private insurance coverage, comprehensive risk management is essential. In addition to insurance risks, the increased cost of living and population displacements due to climate events will increasingly strain the residential market.

Why are insurance costs rising?

• Increased loss frequency and severity: Extreme weather events are driving higher and more frequent claims, decreasing insurers’ long-term financial stability.
• Rising real estate prices: Higher repair and reconstruction costs due to market demands on materials and labor and increased sophistication in building systems further strain insurers.
• Aging assets: Buildings constructed under older building codes typically are not designed to withstand climate hazard levels that newer buildings must meet, resulting in greater exposure in the insurer’s portfolio.

Increasing operating costs can negatively impact property affordability. Multifamily assets in high-risk regions should implement risk mitigation strategies tailored to each asset’s construction/building systems and applicable climate risk hazards to proactively decrease insurance premiums.

Strategies to minimize insurance challenges

• Risk assessment: Assess vulnerabilities specific to building age, construction materials, critical systems (e.g., HVAC, emergency generation), and modeled climate hazards applicable to the asset.
• Increase resiliency: Prioritize future-proofing strategies based on the asset’s hazard exposure to increase resident safety and wellbeing and maintain ability to operate. A more resilient asset will also result in no/shorter periods of down-time following climate events. Resilience strategies include sealing walls and windows for wet storms, installing blast-proof window film for winds, implementing flood barriers for flood risk, and adopting landscaping practices (e.g., native species) to reduce runoff and wildfire spread.
• Renewable energy adoption: Install onsite renewables (e.g., onsite solar) paired with storage to minimize grid reliance during disasters.
• Insurer coordination: Demonstrate implementation of risk mitigation measures to insurers to highlight increased resiliency and decreased risk exposure; alignment on lower asset risk can improve insurance terms and decrease premiums.

Natural disasters don’t just damage buildings; they destabilize communities. Since 1980, the U.S. has sustained over 400 climate disasters, with total costs exceeding USD 2.9 trillion. These events disrupt local economies, increase tenant and resident turnover, and reduce property stability.

In late 2024, Hurricane Helene caused widespread displacement and economic turmoil in North Carolina, with Asheville losing 8,200 jobs (4% of its workforce) in October alone. Increased unemployment rates reduce consumer spending, resulting in a general slowdown of the local economy and limiting affordability to live in the region. While programs like FEMA offer financial assistance to tenants and property owners impacted by climate disasters (Direct Lease Temporary Housing), proactive planning is critical to limit short- and long-term effects of climate events.

Best practices for resident retention and stability:

• Community resilience: Invest in community resilience initiatives, such as flood mitigation projects, to increase resident confidence in long-term housing stability.
• Asset resilience projects: Invest in emergency power systems and risk mitigation strategies to ensure the asset’s ability to operate and provide a safe environment.
• Resources: Provide residents with resources to understand what climate hazards are applicable in the area and how they can prepare for them.
• Strategic proptech: Deployment of technologies such as extreme weather warnings and air filtration systems to protect against smog will increase resident confidence in the safety of living in the property.
• Emergency response: Establish emergency response protocols and provide training to ensure resident safety.
• Resident incentives: Temporary rent adjustments in response to climate events can help stabilize occupancy and increase resident satisfaction.

Avoiding areas with climate risk altogether is virtually impossible and may mean overlooking opportunistic acquisitions. Instead, GreenGen recommends a strategic approach to understanding risk exposure and underwriting risk mitigation strategies to increase asset value.

Steps to navigate acquisitions

1. Identify climate risks during due diligence: Work with third-party consultants to assess applicable acute hazards and chronic stressors. Quantify value at risk of the asset based on type and severity of climate hazards and include in the investment committee memo.
2. Leverage data: Conduct an energy audit and resiliency assessment to evaluate risk exposure and identify strategies to increase resiliency and efficiency. Review local risk mitigation efforts to evaluate how they may decrease the asset’s risk profile.
3. Negotiate: Leverage identified risks during deal negotiation.
4. Underwrite: Include risk mitigation strategies for short-term and long-term risks in the asset action plan.

Property owners looking to exit high-risk areas should consider timing and transparency. Buyers increasingly review risk exposure and seek evidence of climate resilience when evaluating potential acquisitions; owners who proactively address these concerns can maximize asset resale value.

• Portfolio risk review: Regular reviews of the type and severity of risk exposure at the asset- and portfolio-level enable ownership to make strategic decisions on managing portfolio risk exposure and selecting proactive dispositions to manage forecasted risks.
• Track resiliency initiatives: Monitoring community and municipality initiatives to mitigate risks, such as installation of levees or investment in emergency infrastructure, will help ownership more accurately review and forecast risk exposure.
• Monitor trends: Anticipate shifts in market preferences and exit before risks escalate further.
• Implement resiliency strategies: When preparing for disposition, implement energy efficiency measures, risk mitigation strategies, and green building certifications to increase asset resiliency and asset valuation to prospective buyers.
• Communicate climate resilience: Showcase recent upgrades, such as flood-proofing measures, energy efficiency retrofits, or emergency preparedness investments, and demonstrate how they improve long-term resilience of the property.
• Leverage storytelling: Position the property as a forward-looking investment that has been future-proofed for climate challenges. Highlight green building certifications in place as evidence of the asset’s sustainability and resilience.

Residential real estate professionals face a critical moment. As climate risks reshape markets and lead to population displacements, housing affordability issues are exacerbated and asset insurability comes into question. The ability to adapt will determine long-term success.  By partnering with experts to monitor risks and market trends, adopting proactive measures, and positioning properties as climate-adapted assets, owners can safeguard their investments and strategically improve asset value.

Key takeaways:

• Proactive planning and resilience measures are essential to stay competitive in a changing market.
• Partnering with third-party climate professionals can uncover cost-effective mitigation strategies.
• Leverage data to monitor asset and portfolio risks.
• Strategic implementation of risk mitigation strategies and proptech can increase resident confidence in asset resiliency, leading to increased resident retention.
• Demonstrate implementation of resiliency and risk mitigation measures to align with insurers on asset’s value at risk.
• Position resilience as a marketing differentiator to attract forward-thinking buyers.

This article was written by Chelsea Cole, Director, Program Management and Fiona Louie, Intern, Program Management at GreenGen. Learn more about GreenGen here.