“The house I grew up in, which was built in 1930 and bought by my grandparents”
Everybody I know that is skilled at building, says that some houses built in the 40’s and 50’s and even 60’s were built better than the average modern home. I’m not talking about the cookie cutter construction that went up right after WWII.
The father of the current President was a builder of such shoddy construction, both single family homes and apartment houses. They served their purpose of putting a roof over peoples heads, but those type of units are to be avoided at all costs ( if they’re still standing, they’ve assuredly had lots of work done to them ).
There are some very well constructed older homes that I see in my travels. So it is really hard to buy into some of the comments of how a house depreciates to zero over 50 years. The majority probably do, but most definitely not all of them.
I completely agree with this. The well-built homes of those years had very solid construction. (Not the shoddy ones, of course.) My current home (a baby built in 1987) is also solid – it was built by the experienced real estate investor who planned to live in it himself.
Wendy
I don’t think “useful life” means that every house is expected to deteriorate to dust in 50 years. It’s an average. Some houses will last well longer than that, but if the overwhelming majority of homes have to have virtually everything about them replaced/updated over the course of 45-50 years, the handful of ones that don’t won’t affect the overall average.
You get into a Ship of Theseus situation here a little bit, but over 50 years or so most of the systems in a home will probably be replaced or updated over time. Certainly all of the fixtures and appliances - but over that amount of time, the roof and plumbing and electrical probably needed to be replaced/repaired.
The point being that part of the reduction in value of U.S. homes in climate affected areas can be (and will be) mitigated by just letting them depreciate over time, rather than continually maintaining the property.
I agree, this will happen. At least to those homes that become unlivable from flood and fire. It doesn’t eliminate the loss, the house becomes a stranded asset. It’s still a real economic loss, like the dilapidated $1 Italian property.
Sure. But the point is that homes worth $1.5 trillion today are not going to be worth $1.5 trillion in fifty years unless there’s continuous investment in maintaining and renovating them. So by the time 2075 rolls around, the structure worth $200K (to pick a number) would probably be run down to the point where it’s only worth $75K - because the $125K in replacing and repairing and modernizing the structure would have been minimized or foregone altogether. Knowing that an area will be uninsurable/uninhabitable in five decades allows plenty of time to amortize out most of the value of the structure.
I suspect that the decline in property values will occur much earlier than the physical decline of the house.
Property values will decline because rapidly rising insurance costs will kill demand. It is probably already happening in some areas.
I’m guessing in Florida where between 15%-20% are already going without home insurance that climate change won’t provide enough time for a lot of people to amortize much of the value of their home.
"I don’t think “useful life” means that every house is expected to deteriorate to dust in 50 years. "
Seriously ?? of course every house is not going to collapse and turn into a pile of dust in 50 years, lol, I see evidence of that daily. I wasn’t the poster arguing that the useful life of a house goes to zero in 50 years. In the coastal areas of the South, and in the fire prone areas of California ( don’t think it’s the entire State ) I’d be more worried about natural disasters turning a house into a pile of dust than 50 years of wear and tear turning it into dust.
I remember people here in metro Detroit, tearing down perfectly serviceable mid-century houses, to build McMansions. My aunt sold her house on the lake, which was built in the early 80s, in 2007. The new owners promptly tore it down, to build something bigger and fancier.
Ever watch “This Old House”? Their projects are shifting, more and more, to reducing the existing house to a shell, and completely rebuilding everything inside. The house they did in Nashville would probably have been more cost effective to tear down and start over.
So, yes, there is a school of thought that older houses are too small, and lack modern electrical and HVAC systems, to such a degree, they aren’t really cost effective to be brought up to McMansion standards.
Pic: my aunt’s house, the 25 year old, $450,000 teardown, because it wasn’t big and fancy enough.
Sure. The loss in value will be priced forward. But if climate change will wipe away $1.5 trillion in U.S home values in 50 years, then the amount of actual economic loss will still be less, because those structures can be amortized over their useful life.
I know. My point was that the useful life of a house being about 50 years doesn’t involve thinking that the house degrades into dust in 50 years, any more than the useful life of a car being about 20 years means that no cars made after 2005 are still on the road.
Plenty of old cars are still being driven. If you set out to carefully maintain and preserve a car you buy today, you can easily keep it running in 20 years. But a very large number of those MY 2005 cars are now off the road, because over the whole population some are lost to total accidents or reaching repair costs that aren’t worth the investment.
The same is true of houses. Of new houses being built today, some will certainly last more than 50 years. But some will suffer total loss accidents over five decades. Some will get torn down or rebuilt for other reasons. Some will end up requiring most of their systems being replaced over time. On the whole, the lenders expect a random house to last about fifty years - even though many will last longer than that.
I would add to this discussion (from having multiple friends with ancient parents living in Florida, Arizona, Nevada, and other long time hot retirement locations) that hot real estate markets always attract horrific construction contractors along with shady/corrupt inspectors and stunningly blind to all but the very short term flow of fees and property tax governments. I have seen entire tracts of homes with probable net negative value new homes on them because of insane shoddiness or extremely imprudent locations/foundations.
The $1.5T is an estimate of the increased cost in home insurance.
The change in home values is modeled for changes in insurance premiums only,
If premiums equal losses, then $1.5T reflects climate losses. I suspect insurance only covers a fraction of the losses, but have no idea what that fraction is. Perhaps premiums are twice the loss to pay for insurance company skims. Perhaps it’s 1/10 as homes are underinsured for climate risk.
I looked into a nice place on Lake Como a while back. It wasn’t 1 euro, but it was VERY cheap compared to anything comparable in the USA. Also, those 1 euro houses aren’t really 1 euro, and there are all sorts of hoops you need to go through, and each hoop costs money. Sometimes substantial amounts of money.
It is in 30 years (2025-2055) the length of a typical mortgage. And that $1.5T is going to be localized to a relatively small number of areas in a few states that have outsized GDP impacts.
Toolin’ around Delray Beach (east coat of Florida north of Miami) is see that in the downtown area there are still homes from the 1920s. Outside that area, near the intracoastal about a third of the homes are ranch houses from the 70s (50 years old) and two-thirds have been replaced. That process is still going on, so 30% at 50 years and 70% at five years would give an average age of
Toolin’ around the entire town of Soller, Spain where I own a house I see almost no homes that are newer than 150 years, and most are closer to an average of 300 years. Upkeep and improvement is pretty constant, but the initial construction was literally rock solid.
Until very recently it has shrunk, as family size has decreased and opportunities elsewhere beckoned far from tending oranges, lemons, olives, and fishing from the small port. Outsiders like me have been buying for some time, and now the old empty nesters are cashing in on their old homes and moving to newly constructed flats outside of the old town. Those flats are built using mostly concrete block rather than rock and with far better heating and plumbing, and required to imitate the look of the ancient stuff.
