The growing severity and frequency of climate-related events in Canada are transforming how homebuyers, real estate developers, and investors view land and buildings. This shift is significantly impacting real estate investment, development, and urban planning strategies nationwide. As urban economist Robyn Brown notes in Policy Options, while climate-risk insurance options exist, their premiums are high and rising, necessitating government intervention through infrastructure reinforcement, insurance plan backing, or risk mitigation via enhanced research and analysis.
The challenge is compounded by the difficulty landlords face in passing increased insurance costs to tenants, who are already struggling with high living costs. This situation is influencing real estate development decisions at the investment stage, with previously viable projects now under greater scrutiny due to risk. Moreover, lenders like Canada Mortgage and Housing Corporation (CMHC) are becoming more cautious about underwriting mortgages for floodplain properties, making it hard for homebuyers to secure mortgages even with technical risk mitigation solutions.
Insurance companies are refining their risk assessments using advanced forecasting, adjusting coverage strategies by geography and property type. This is prompting investors to avoid high-risk areas and diversify their portfolios. One potential strategy for real estate owners is the ‘hardening of assets,’ which involves incorporating climate-resilient elements into building design to protect physical assets and lower insurance costs. Examples include replacing impervious surfaces with permeable ones and elevating mechanical systems to protect against water damage.
Government infrastructure projects are also crucial in mitigating climate risk. The Don River realignment project in Toronto demonstrates how cities can reduce flood exposure through large-scale environmental engineering. By restoring the river’s natural dynamics and creating wetlands and green spaces, the project reduced flood risk and enabled sustainable urban development.
Innovative approaches like Copenhagen’s climate parks, which use urban green spaces to absorb stormwater, show that both private sector innovation and government participation are necessary for sustainable solutions. Governments can financially backstop insurance in high-risk areas, enforce stricter building codes, offer tax incentives for climate-resilient developments, and invest in sustainable infrastructure. Supporting R&D in climate-resilient building materials and techniques, such as mass timber and low-carbon concrete, can also help.
Climate change is now a critical factor in real estate investment decisions, with insurance costs determining project viability. Developers, investors, and governments must collaborate to create resilient, sustainable, and economically viable urban spaces. The author, a board member of the Association of Ontario Land Economists, originally published this piece on Policy Options under a Creative Commons license.
