A Proxy for Climate Change

From the Wall Street Journal on August 2, 2013 - The Water Factor:

"Luxury vacation homes built on the water cost 63% more, on average, than similar properties that are landlocked, according to an analysis by global property consultancy Knight Frank."

In Miami, waterfront properties sell for 60% more than non-waterfront homes.  In Phuket, Thailand, the value is 100%.  The market is fundamentally subject to the view (the "bigger" the view, the higher the price) and the location (the supply is limited - you can build just so many $5.2 million, 10,000 square foot homes next to a large body of water).

Some type of global luxury home index could be an interesting proxy to measure changing attitudes and risk preferences relating to climate change adaptation.  When the "Water Factor" generates a 63% premium, you have two issues to consider - (1.) Buyers are discounting the scientific evidence regarding rising sea levels, and (2.) Buyers understand the risk and the value of the property is greater than the risk.

One other consideration.  In a world of rising sea levels, the boundaries of "waterfront" will change.  Discounted property two-miles from a "bigger" view of an ocean, could be a "premium" location in 2050.  Some longer-term real estate investors could do very well.