Climate risk makes insurance a bigger factor in home pricing

This summer offered another stark reminder that climate risk is no longer a distant consideration for the global property market. Wildfires have swept through some of Europe’s best-known tourism and second-home destinations, with communities evacuated across France, Spain, Greece and Croatia. By mid-August, more than 576,000 hectares had been affected across Europe, while wildfires in the U.S. had burned more than 6.4 million acres during an exceptionally severe season.

For the global real estate market, the implications extend beyond homes directly threatened by fire. Climate change is beginning to influence not simply where people want to live, but how buyers determine what a property is worth.

Luxury real estate impacted

For generations, the fundamentals of luxury real estate have been remarkably consistent: scarcity, location, architecture, privacy and views. Those fundamentals haven’t disappeared, but another consideration is moving rapidly up the list: climate resilience. Buyers are now asking questions that once sat lower down the checklist: can the property be insured affordably, and how exposed is it to extreme heat, flooding, wildfire or disruptions to water and power supplies? These are now relevant questions about asset quality and long-term value.

This is particularly true at the upper end of the market, where wealth widens choice but does not remove exposure. The very characteristics that make a location desirable — waterfront access, wilderness, dramatic landscapes and warmer climates — often go hand-in-hand with exposure to flooding, wildfire, heat or water disruption.

That doesn’t mean affluent buyers are about to abandon Miami, the Mediterranean or the Caribbean. These remain markets with deep cultural and lifestyle appeal and limited housing stock. What is changing is how buyers differentiate between properties within those markets. Two houses may offer equally spectacular views and prestigious addresses, but if one is designed to cope with extreme temperatures, incorporates resilient energy and water systems and has appropriate fire or flood mitigation, its long-term proposition looks increasingly more appealing. We are seeing a resilience premium emerging alongside the traditional location premium.

True cost of homeownership

For buyers, the purchase price is only part of the calculation; insurance, energy use, maintenance and eventual resale liquidity all contribute to the true cost of ownership. Insurance is likely to become particularly important: across the EU, only around a quarter of losses from climate-related catastrophes are currently insured, a gap that is a growing concern for policymakers. A discretionary vacation home must justify its place, and rising costs give buyers the freedom to look elsewhere.

The impact of climate risk is therefore likely to be highly localised. An exposed coastal market may keep attracting strong international demand even as individual buildings within it diverge due to elevation, construction materials and adaptability. Resilience is inherently local: what matters in a hot climate, such as passive cooling and water storage, differs from what matters on a coastline or in a wildfire risk zone.

Reshaping what luxury means

This is also beginning to reshape what luxury itself means. For some buyers, self-sufficiency is becoming a form of luxury: homes that harvest rainwater, generate their own power and reduce reliance on external infrastructure. The circular home — designed to minimise waste, reuse resources and extend the life of materials and systems — is following the same shift, moving from a sustainability concept towards a marker of quality.

What was once presented primarily as an environmental benefit increasingly has practical value. Rainwater systems and solar power with battery storage can reduce exposure to drought, blackouts and supply disruption, while circular design can extend the usable life of a property and reduce its dependence on replacement materials and resources. Features once associated with sustainability are increasingly valued for the security, comfort, durability and autonomy they provide.

That creates a growing role for the real estate professionals who interpret these markets. The best international agents have always understood the intricate layers that influence demand beyond price” schools, planning regulations and the differences between micro-markets. Climate resilience now needs to become part of that local intelligence. For a global buyer, the benefits are straightforward: comfort, security and preservation of value.

The best real estate has always combined scarcity with enduring desirability. As climate becomes a more visible factor in investment and lifestyle decisions, that desirability will increasingly depend on something else too: the ability to adapt. As buyers become better at pricing that ability into their decisions, resilience itself may become one of the defining characteristics of what makes real estate truly prime.

Chris Dietz is President of Global Operations for Leading Real Estate Companies of the World.