OP-ED: Preparing the Housing Industry for Climate Change
An Ottawa condo developer recently claimed that he’s not concerned about the impact of climate change on his business. This was in a private conversation and he said he didn’t care about something that is “10 years in the future,” and “When it’s regulation, we will worry about it.” Our four cents: if he’s not paying attention to the record-breaking weather right in front of him, this city builder will soon be behind the 8-ball. We’re want to suggest that developers, building and infrastructure contractors, material suppliers, trades people, real estate and legal professionals and real estate investors start investigating risks and opportunities in climate change.
Are you planning for a changing environment? Or are you waiting for the market and politicians to dictate what you do? We know that when you try to innovate, consumers and risk-averse government bureaucrats don’t get it. We’re not letting consumers and politicians off the hook here: if you’re only worried about your next paycheck or the next election, you’re not doing your grandchildren any favours. But we’re more concerned about what innovators in the housing industry can do at this point in history.
We think it’s time for leaders to join efforts with other leaders to work with government to enable innovation instead of impeding it especially when it comes to a global threat like climate change. We also know you have to keep your trades and suppliers and employees working. So is there a business case for taking a proactive approach to changing weather patterns and new opportunities in green building? Never mind your responsibility as city builders to build a safe city. Let’s just look at numbers and risk.
Follow the money
Insurance is a significant expense for businesses, and the insurance industry has been warning of climate change for decades. The Insurance Bureau of Canada (IBC) found insurance payouts from extreme weather have more than doubled every five to 10 years since the 1980s. Since 2010, claims have hovered between $1 billion and $3 billion (all figures CDN) per year, compared with an average of $400 million per year from 1983 to 2008. The industry-sponsored Institute for Catastrophic Loss Reduction (ICLR) claims that climate change combined with growing urban populations and aging infrastructure are increasing annual insurance costs of damage from weather events. ICLR estimates insurance industry payouts between 2009 and 2014 inclusively amounted to $8.52 billion. They’re still tallying the costs of flooding in Ottawa/Gatineau in April. How might insurance costs impact on housing affordability? What does this mean for your development and production costs?
In addition, the federal government is working on a nationally negotiated price on carbon which will require businesses to disclose their greenhouse gas emissions. Do you have any idea what your company’s carbon footprint might be? Don’t forget to include transportation in your calculations. For the sake of argument what does a $40 per tonne carbon price mean to your costs and margin? But governments are not the only ones threatening disruption to businesses.
On top of rising insurance costs, emissions regulations and carbon pricing, businesses face additional risks from climate change, including:
- missed opportunities to develop and market climate-friendly products and services;
- lawsuits alleging environmental harm;
- harm to reputation (when a company’s environmental policies negatively affect its brand);
- supply chain cost changes (from rising raw material and energy costs);
- large-scale disruption in manufacturing and shipping from storms and climate-related political upheaval in different parts of the world;
- physical risk from an increase in damaging weather events.
How do ice storms and heat waves affect your suppliers and crews now? Your production schedules now? And five years from now? And then, there are the investors who back your projects.
Real estate represents a primary vehicle for investment to which weather events pose a direct threat. Global investors are increasingly wary of its associated risks to economic activity in cities. Weather events have clearly become more damaging and expensive. Cities across North America are trying to stop low-density development because of the carbon footprint of cars and the costs of car infrastructure. What is the risk to investors and developers on the outskirts? Will those investments become stranded assets? Time to re-think singles in the suburbs? Ouch!
There’s no longer any question that our weather systems are changing, and that we humans are contributing. We can load you up with the research but we’re getting tired of repeating ourselves. In the Ottawa region, we’re already seeing the changes, like the record-breaking rain and flooding in early April of this year that are impacting on buildings and neighbourhoods. What’s in the cards for this region? From multiple sources like the World Meteorological Association, the International Panel on Climate Change, Environment Canada, Statistics Canada, Natural Resources Canada and Ontario’s Ministry of the Environment, we in Eastern Canada can expect:
- More rain storms and flooding;
- More hot dry periods;
- More severe freeze-thaw cycles;
- More freezing rain as the temperature rises, especially in late winter.
Weather is changing the building industry. In our opinion, it’s not productive to continue bickering with governments about regulations that are flowing down from international concerns about energy issues and climate change, through federal and provincial policy, to the municipal level. Cities, the housing industry and consumers must all work together to prepare for more severe weather.
So how might climate change impact on a builder’s or renovator’s planning and operations? First, there’s the day-to-day common sense stuff, and we’ll just skim the surface. Our electrical grid is vulnerable to severe weather (remember the ice storms in Ottawa in 1998, Toronto in 2013 and New Brunswick in 2017?), a good reason to advocate green energy and battery storage. Maybe think about adding some hardware to beef up your roof-wall connections, and if you’re shingling, add some extra nails in your sheathing and double nail your shingles on the windy side. Don’t connect your gutter downspouts to the sewers, and ensure that your grading directs water away from your new builds. And do we really need basements? Especially in areas where there’s growing risk of flooding? There are many other ways to adapt housing to changing weather patterns. Check out the ICLR’s website for more.
With regard to planning, you might want to watch for changes to your local Conservation Authority flood plain mapping for the region before you build, because maps are being revised as a result of climate change. Consider cutting your carbon footprint, and read up on pending regulations around carbon reporting. And what are investors and insurers saying about climate change? What are new risks in terms of your reputation, supply chain disruptions, legal liability and backing for your projects?
Educate your customers. Market the heck out of energy efficiency and safety features. We believe recent weather events are waking consumers up to climate change. Are they awake enough to pay for your innovation?
And we know this will raise hackles in an industry hanging on to business as usual, but we are convinced prefabs are the way of the future. To quote an innovative builder, “Building a house on site is about as smart as building a car in your driveway.” Just sayin’. And if you’re not thinking carbon, you’re missing a big opportunity. We could go on. This is simply factoring in existing and projected conditions. There are some risks but also serious opportunities and some serious coin waiting for you out there.
To return to the fellow who thinks climate change is 10 years in the future, he’s missing out on some opportunities. Look to the leaders. You know who they are. They’re preparing for a new environment in home building and looking for ways to turn the market towards more resilient neighbourhoods and more resilient city builders. Link up and follow the dollars instead of the ostriches.
Gary Martin holds a doctorate in sustainable urbanism from Carleton U. He splits his time between building stuff, sustainability advocacy and teaching, and trying to connect the three. [email protected]
Ruth McKay PhD is a tenured prof Carleton University’s Sprott School of Business. One of her areas of interest is business risks from climate change. She supplied the numbers. [email protected]