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Climate Risk Research Points to Trillions in Unpriced Real Estate Exposure
Research published in late 2025 by First Street, a US climate risk analytics firm, estimates that human-driven climate change could result in net property value losses of approximately 1.47 trillion dollars across the United States, driven primarily by rising insurance costs and a gradual shift in buyer demand away from high-risk locations. A separate analysis cited by Fortune found that one in four homes in the country is already assessed as facing severe or extreme climate risk. Together, the figures point to a repricing of physical risk in real estate markets that is only beginning to take effect.
The research identifies a structural problem in how property values have historically been set. Physical risks including flood exposure, ground instability, subsidence, and climate-driven soil shrink-swell have largely been absent from valuation models. Insurance markets are now absorbing these risks more directly, with premiums rising steeply in the most exposed areas and in some cases coverage becoming unavailable altogether. As insurance costs become a more visible component of property ownership expenses, the research suggests that values in high-risk zones will adjust downward to reflect the true cost of holding the asset.
The OECD has approached the same question from a financial stability perspective in its Future-Proofing Real Estate Investment report, published in 2025. The report, drawing on survey data from the OECD Future-proof Real Estate Task Force, found that climate-related risks are reshaping property markets in ways that affect household wealth and broader financial stability. It noted that the assessment and management of these risks varies considerably across the real estate ecosystem, with many asset owners and lenders still operating without consistent frameworks for quantifying physical risk exposure at the asset level.
Ground-level physical risks, including subsidence driven by groundwater extraction, clay shrink-swell, and the compounding effects of repeated extreme weather events on soil behaviour, are among the less visible components of climate-related property risk. Unlike flood risk, which has mapped boundaries and an established history of insurance disclosure, ground movement risk is harder to see and has been more slowly integrated into property due diligence processes. As a result, assets affected by progressive ground instability may carry more unrecognised exposure than either owners or lenders currently appreciate.
The convergence of rising insurance costs, tightening lending conditions, and increasing disclosure requirements is creating pressure on the real estate sector to develop more systematic approaches to physical risk assessment. The research published this year suggests that the financial consequences of not doing so are already measurable, and will grow as climate trends intensify.