Rising sea levels increase the risk to housing

Economic Commentaries, News Climate change will cause sea levels to rise. Housing located close to Sweden’s coastline will then become more vulnerable to extreme weather and flooding. This could, in turn, have consequences for financial stability.

Climate change is one of the greatest challenges of our time in that it creates climate-related risks of various kinds. Rising sea levels form one such risk. Over the next century, higher average temperatures due to climate change will lead to higher sea levels and new coastlines higher up on what is now dry land.

Sweden has a long coastline, reflected by the fact that about 8 per cent of Sweden’s owner-occupied and tenant-owned homes are situated within 3 kilometres of the coast and no more than 5 metres above sea level. This housing thus runs a greater risk of material damage in a future climate scenario in which sea levels have risen.

This may have negative effects on financial stability in Sweden. For example, an increased risk of flooding could lead to prices falling in parts of the housing market, to insurance costs for coastal housing becoming higher and, in the worst case, to housing actually being flooded and destroyed. Climate risk may thus entail increased credit risk for lenders, but also for the credit institution that lent money to the borrower with this housing as collateral.

In the Economic Commentary “Rising sea levels due to global warming will entail increased risks to housing”, the author notes that the risk of flooding will increase even if climate change is relatively small. Southern Sweden is particularly vulnerable – there, the risk of flooding will increase more than in the rest of the country. The extent to which this will affect financial stability is hard to assess, among other things because it depends on how society adjusts to the new level of risk.

By Mattias Danielsson, who works in the Financial Stability Department of the Riksbank.

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Updated 03/11/2020