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Climate change is making home construction more expensive

Justin Ho Sep 1, 2023
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Mario Tama/Getty Images

Climate change is making home construction more expensive

Justin Ho Sep 1, 2023
Heard on:
Mario Tama/Getty Images
HTML EMBED:
COPY

Later this morning, the Commerce Department will tell us how much money was spent on construction in July.  

The home construction industry has been facing a number of challenges this year. High interest rates are weighing on housing demand, and construction loans are harder to come by.

But the lending environment isn’t the only obstacle to home construction. Climate change is making home construction costlier, too.

In states where natural disasters are becoming more common, builders are demanding more climate-resistant building materials, like steel-reinforced walls and wind-resistant glass.

“And so then that makes it costlier, if there’s a spike in demand coming from all homebuilders in that area,” said Parinitha Sastry, a finance professor at Columbia Business School.

As natural disasters pick up, Sastry added, developers will also face additional regulatory hurdles, if they want to, say, qualify for the National Flood Insurance Program.

“You know, elevation requirements,” she said. “There may be restrictions on basement construction.”

Many insurance companies have been raising home insurance premiums in disaster-prone areas, and some insurers have stopped offering home insurance at all in certain states.

That makes it harder for people to get mortgages, according Benjamin Collier, a professor at Temple University.

“Even building those homes becomes more complicated because it’s hard to find buyers for them,” he said.

On top of all that, Collier said, the construction projects themselves could be facing higher insurance costs, too.

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