Air Quality Should Be a Factor In Your Next Investment Decision—You Might Be Surprised Why

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Poor air quality has been in the headlines about U.S. climate change, especially on the West Coast and in Southern states. Increasingly devastating wildfires are becoming a sad fact of life in California, Texas, and Arizona, with many states added to the list of those impacted or at high risk of fire damage each year. 

But one specific wildfire-related factor is affecting the West more than in any other region in the country: smoke pollution. According to recent research from First Street Foundation, the West now has nearly double the maroon air days than it did 20 years ago. The maroon classification is the worst air quality grade there is, defined as ‘‘hazardous’’ to the general population by the EPA. 

Redfin recently took First Street’s data and combined it with U.S. Census Bureau migration data. The result? A significant overlap between net out-migration data and air pollution data. People are not only actively leaving the same areas that are suffering the most from poor air quality; they’re also actively moving to areas that have good air quality. 

Climate Change vs. Costs of Living

Does this mean that all these homeowners have finally had enough of air hazard warnings and worrying about the long-term implications of particulate matter on their health? Somewhat surprisingly, it appears that this is not the case. If anything, the Redfin report suggests that people are mostly moving for reasons that have nothing to do with poor air quality. It just so happens that these areas are also increasingly unaffordable. 

The West has had consistent trouble with its real estate markets since the beginning of the pandemic. Soaring home prices combined with increased worker mobility have reshaped the real estate landscape there, with many areas recording population losses.

Affordability still trumps concerns about climate for the vast majority of homeowners in this region, as it does elsewhere in the U.S. A Redfin survey from May 2023 showed that just 9% of recent homesellers moved because of climate change concerns. The majority moved because they wanted more space (31%), proximity to family (24%), or wanting a better deal on a home (20%).

The fact is, however, that in many cases, the increasing unaffordability of homes in California is directly linked to the persistent wildfire hazard. Redfin chief economist Daryl Fairweather says that ‘‘even when homebuyers do consider climate change, poor air quality often isn’t top of mind because it’s not as visibly destructive as hazards like flooding and fires.’’ 

That is true, but living in an area heavily affected by wildfire smoke almost certainly means being close enough to the more immediate risk of fire damage to property. And that’s where living costs really begin piling up. 

BiggerPockets spoke to Nathaniel Pitchon-Getzels, a licensed real estate professional with the Compass Group in California. He shared some firsthand experience of why people are selling. The picture that emerges is of a state where wildfires have ‘‘undeniably reshaped the dynamics of buying and selling real estate, particularly in high-fire risk zones.’’

Two main concerns dominate sellers’ decisions to move, according to Pitchon-Getzels: basic safety and soaring insurance premiums. These two factors are hitting the elderly and families especially hard, with many deciding that the ‘‘challenges of securing adequate insurance coverage, which has become both scarcer and pricier in these areas,’’ is not worth it.

One of Pitchon-Getzels’ clients relocated from the coast, citing the increased fire hazard as a primary concern. Another client, ‘‘upon receiving an exorbitant insurance bill, swiftly made the decision to list their property for sale. Despite their fondness for the neighborhood, they were unwilling to bear the burden of heightened costs.’’

Pitchon-Getzels says buyers thinking of moving to California have the exact same concerns, ‘‘particularly first-time buyers and the elderly are increasingly wary of high fire risk zones and actively steer clear of such areas.’’ However, wealthier buyers have the resources to absorb increased costs and maximize safety via ‘‘advanced fire suppression systems and fire-resistant upgrades.’’ 

According to Pitchon-Getzels, for California’s luxury real estate market, the priorities are the same as they have always been: ‘‘lifestyle factors such as scenic views, privacy, and proximity to amenities over the associated costs and risks.’’

What You Should Prioritize as a Real Estate Investor

If you are an investor in the West, you will need to do meticulous research into how climate change is affecting property taxes and insurance premiums in the area you’re thinking of investing in. Just because a location isn’t at the epicenter of recent wildfires doesn’t mean it won’t be affected next year. Insurance companies know this.

Obviously, there won’t be a mass exodus of people from California anytime soon, and people are still actively moving to the area. And if you are investing in a higher-end property, you may be off the hook. 

But if you are tackling the affordable segment of the real estate market, you will need to tread carefully. Paying attention to air pollution data, in addition to tracking home and rental prices and insurance costs, is not a bad idea. 

As is so often the case with climate change factors, it may be at the back of people’s minds now, but it could become a tipping point for both homeowners and renters when other pressures mount. As Daryl Fairweather points out in the Redfin press release, ‘‘As the dangers of climate change intensify, we will likely see more people factor air quality and other disaster risks into their decisions about where to settle down.’’

In other words, if an area has exorbitant living costs and people struggle to breathe there on too many days a year, they might just choose to move.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.