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Banks are finally waking up to what climate change will do to housing

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Banks are finally waking up to what climate change will do to housing

Clean energy companies are reaping the rewards of this emerging shift. Aira, a Swedish company that installs heat pumps, recently announced that it had reached a deal valued at €200 million ($214 million) for loan commitments from BNP Paribas bank. This will allow Aira customers in Germany to pay for their heat pumps in installments.

“Banks and financial institutions have a huge responsibility in accelerating the energy transition,” said Eirik Winter, CEO of BNP Paribas in the Nordic region. That the financing deal could also increase property values ​​is a “positive side effect,” he adds.

Home renovations and energy retrofits are not cheap. Loans are often necessary to sufficiently lower the barrier to entry for consumers. Lisa Cooke works for MCS, a body that accredits heat pump and installers in the UK. She was able to afford a heat pump herself, she says, thanks only to a government grant and just under £5,000 ($6,300) of funding from Aira. “That’s really what’s allowed me to do it,” she says. “Even with savings, I wouldn’t have been able to do it any other way.”

Luca Bertalot, secretary general of the European Mortgage Federation (European Covered Bond Council), says there are huge risks to economic productivity if people cannot get housing that protects them from the worst effects of climate change. In heat waves, he notes, worker productivity drops, which has a negative impact on GDP. On the contrary, he speaks of a kind of butterfly effect of energy modernization. If people make their homes cheaper to cool or heat, they may save money, which they can spend on other things: their children’s education, for example, which in turn improves the chances that their children will have a comfortable life (and maybe buying an air conditioner). themselves to a safe home) in the future.

But there is still, perhaps, a slowness to recognize the coming storm. Energy efficiency does little to protect properties from the most acute effects of climate change: stronger storms, sea level rise, wildfires and flooding. As governments become unable to cover the costs of these disasters, lenders and insurers will likely end up exposed to the risks. The US National Flood Insurance Program, for example, is already creaking under the weight of mounting debt.

“As damages accumulate, it could well be that markets become more efficient and the incentives (to protect property) become stronger, because no one bails you out anymore,” says Ralf Toumi of Imperial College London, who advises insurance companies. .

Ultimately, the impacts of climate change on housing will force some to move elsewhere, Burt suggests. Given the irrevocability of some scenarios, such as coastal towns that could be lost at sea, or communities that would be condemned to endless droughts, there are some assets that no reinforcement or modernization can ever save. The structural utility of these properties, like water in an oasis that dries up, will simply evaporate.

To ease the burden on people most at risk of losing their homes to climate change, affordable loans could one day be directed to consumers in these areas to help them move to safer places, Burt says. Lenders who do not take this approach and continue to offer mortgages on homes destined to succumb to climate change could soon regret it. “If you’re trying to support those markets,” Burt says, “you’re throwing good money after bad.”

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