The Wall Street veteran on the other end of the call managed tens of millions of dollars in real estate for a wealthy family, Woolcock recalled. Although he said he agreed with Woolcock’s forecast, he couldn’t sign on.

“The problem is,” Woolcock remembered him saying, “I have spent the last seven years going to my investment committee and telling them to invest in the Sun Belt, so my personal track record is tied to the opposite of what you guys are saying.”

In the past decade, hundreds of thousands of people have moved to places threatened by climate change, bidding up real estate from flood-prone coastlines to the fire-scarred Southwest. But a small group of investors — including Woolcock and his partner Rajeev Ranade, along with iconoclasts like David Burt of DeltaTerra Capital — are pushing in the opposite direction.

Their argument: As Americans wake up to the threat of climate change, the value of homes in risky markets will begin to slide. That’s created opportunities to profit by betting against housing markets exposed to weather catastrophes or investing in places that will attract people who want to avoid the worst.

For anyone expecting to buy or sell a home in the United States in the coming years, their insights may help you decide where to go next.

Five years ago, Woolcock began analyzing a dataset charting climate risk and population growth in large American cities over the next 30 years. The fastest population growth, he saw, overlapped with the riskiest areas from Austin to Phoenix.

“These were places where everyone was making a lot of money very quickly,” he told me. “It was immediately apparent it was a ticking time bomb.”

So Woolcock set out to convince investors to do the opposite, co-founding Climate Core Capital with Ranade in 2021. They’re promoting a thesis that might be called the “big long”: redirect money into growing, climate-resilient cities.

I was sitting in a conference room in their co-working space in Boston this summer as the two gave the pitch they normally delivered to investors. The market hasn’t yet learned to properly price climate risk — or resilience. Investors could earn more, and risk less, by investing in better buildings in safer cities. A chart displayed on the wall showed a point representing Naples, Florida, a bull’s eye for rising seas and hurricanes. It barely fit on the chart’s risk axis. On the opposite side was what they see as a low-risk climate haven prepared for a volatile century: Ann Arbor, Michigan.

Even as more investors say they’re considering climate change in their calculations, few are putting money on the line.

Burt, CEO of DeltaTerra Capital, is the flip side of Woolcock’s bet. He wants to re-create his successful wager against the subprime housing market before it collapsed in 2008. Instead of betting against toxic mortgages, he sees the rising costs of climate change devaluing millions of homes from Louisiana to New York before 2030.

Both of them, however, admit that it’s a hard sell. While their firms have advised on hundreds of millions in real estate transactions, neither has found investors to back their bets on the future.

Burt, Woolcock and Ranade are gamblers with the same worldview. They’re confident they’ll be proved correct — they just might be early.

The ‘big long’

Woolcock, who speaks with the animated enthusiasm of the grad student he was until three years ago, has a favorite analogy to describe risky real estate in America: the Dust Bowl.

In the early 1930s, the 150,000-square-mile region in the Great Plains was a thriving agricultural community. But extreme soil erosion, brought on by drought and poor farming practices, tipped its population and economy into a downward spiral from which it has yet to recover.

Many assume that’s because people left for places like California, an exodus immortalized in John Steinbeck’s “The Grapes of Wrath.” But researchers say the data suggests otherwise: Migration out of the Dust Bowl’s center in Texas and Oklahoma was limited compared with the prior decade. Instead, people skeptical of its prospects stopped moving there.

Woolcock believes many risky places in the United States may start to look a lot like the Dust Bowl: cities with vulnerable economies hit by climate-driven disasters will wither after repeated blows. If people lose faith in these places’ ability to rebound, they could enter a slow, inexorable decline.

New Orleans may be one of them. Its population has never recovered from Hurricane Katrina. Today’s population remains 20 percent lower than it was before the storm and continues to decline despite a $110 billion package of federal assistance — roughly twice the value of the city’s residential real estate at the time.

New Orleans now has the strongest levees in the country, said Allison Plyer, chief demographer at the Data Center, a Louisiana research nonprofit, but it’s not enough to prevent further decline. She and other experts say New Orleans’s economy must grow beyond tourism and the fossil fuel industry to arrest its decline, especially as the costs of keeping the city dry continue to rise. “Disasters accelerate preexisting trends,” Plyer said in an interview. “If you’re declining, you decline faster. … The incredibly sad thing is the number of shocks keep coming.”

Woolcock sees vulnerable pockets like New Orleans forming around the country. The climbing cost of insurance premiums, maintenance and taxes for new infrastructure may convince some to leave — and even more not to come.

Built for a hotter world

Woolcock’s journey into real estate investing began on a research ship off the coast of Chile in the early 2000s. Fresh out of high school, he spent his day hauling steam drills up mountain glaciers to extract ice cores. At night, he played cards and drank in the ship’s galley with scientists who saw their work laying the foundation for global climate action through treaties like the Kyoto Protocol.

“At the time, none of those scientists believed we’d be where we are,” he told me. “They all knew the evidence of the problem was so overwhelming, and the world would act well beyond Kyoto, with a conveyor belt of ever-greater global commitments.”

This naive optimism, he said, shaped his career.

After six years as an officer in Australia’s foreign service, and discouraged by the glacial pace of international climate talks, he was ready for a change. Woolcock left for a stint in finance before landing at Harvard University’s Graduate School of Design. Neither governments nor private markets, he felt, were moving fast enough to adapt to what was coming.

He and Ranade are now pursuing the big long. Climate Core made a small number of real estate investments before interest rates shot up, and they began advising institutional investors, about $200 million in transactions so far.

But their investment philosophy remains the same: Buy premium buildings in low-risk cities best positioned to thrive in a hotter, volatile world.

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Finding a city like that is hard. There are no signs driving into town. But there is data. Climate Core uses more than 80 indicators — from municipal debt and hospital access to urban tree canopy — to identify a city’s “readiness,” the capacity to quickly recover and thrive despite repeated climate shocks.

Climate Core executives wouldn’t disclose most of their targets but said they’re focused on 20 markets, mostly in the northern half of the United States, while avoiding hot real estate markets such as Florida, Texas and the arid Southwest — even climate-conscious California. “There are certain levels of risk that no amount of readiness can really help,” Ranade argued.

This approach has led them to unexpected places such as Chattanooga, Tennessee, which invested in urban renewal and flood protection during the 1980s, and Atlanta, where the city’s urban forest acts as a buffer against heat stress.

In every city, they identify efficient apartments and multifamily buildings designed to withstand extreme weather, which their data suggests will hold their value better over time. Geothermal heating and cooling, parking garage flood gates, air filters for wildfire smoke and high-efficiency building standards like passive house will be the “LED lightbulbs” of the 2030s, Woolcock argues: affordable, ubiquitous and coveted in new construction.

Ranade, who estimates he’s helped finance more than $2 billion in real estate deals from Chicago to Singapore, said the big long works because most investors still ignore the cost of risk or the value of resilience. “Everyone is talking about it, and no one is seeing it,” he said.

Ranade compared his firm’s strategy to betting on the subprime mortgage market’s collapse in 2008. “There were a lot of investors who said, ‘Okay, when it’s true, I’ll do it,’” he said. “And we would say to them, ‘When it’s true, it will be too late.’”

The new big short

I met Burt on Martha’s Vineyard, not far from Boston. He picked me up at the island’s tiny airport wearing the summer vacation spot’s casual uniform: a polo shirt and gray shorts. Burt’s soft-spoken demeanor made him seem less like the iconoclastic Wall Street investor who bet (successfully) that the subprime mortgage market would collapse in 2008, later appearing in Michael Lewis’s book, “The Big Short.”

Today, he was my tour guide as we pulled out on the island’s main road. He pointed out everything that’s changed since growing up here as a high school student with his dad. Ponds no longer froze over and beaches were washing away, putting some houses in a precarious position. “There are cliffs that we used to play under that are just completely gone,” he said.

Burt’s not surprised because he’s been predicting this for years.

His firm is staking out an unpopular position in real estate: Within the next five years, he predicts about one-fifth of U.S. residential properties will see their value decline as insurance premiums and other housing costs skyrocket.

But, like Woolcock, he’s struggling to convince investors to take the bet.

“I like being right,” he told me later as we walked down a beach near his home. “My whole career has been working really, really hard to understand what drives asset values and how … to capture things that are not well understood, that are mispriced. And this is just the biggest thing right now.”

When Burt was an investment manager at BlackRock, the world’s largest asset manager in 2005, few believed the housing market would collapse. But he noticed something amiss in the data: Risky subprime mortgages were being stuffed into securities, and sold as part of safe, AAA-rated investments. He left in 2006 to start his own firm, betting that many of those securities would be worthless as people stopped paying off their mortgages during an economic downturn.

Climate risk and subprime mortgages are similar, Burt argues: massive amounts of unpriced risk in the housing market that most people are ignoring.

While tighter lending standards have largely eliminated toxic subprime mortgages, markets have barely begun to recognize the costs of climate change.

One 2023 study in the journal Nature Climate Change estimated unrecognized flood risk meant U.S. homes were overvalued by $121 billion to $237 billion. Fire, drought, storms and other threats could push the total far higher.

The market reaction has been muted in part because governments still absorb much of the risk. Insurance premiums are often subsidized with state and federal dollars through programs like the National Flood Insurance Program (NFIP). Banks issue mortgages for risky homes and sell them to government-backed Fannie Mae and Freddie Mac, effectively transferring risk to taxpayers. Local officials balk at mapping climate risk, out of fear that it will hurt property values and lower tax revenue.

All this has left homeowners in the dark.

“There’s got to be a reckoning,” Burt said. “It’s gravity. These prices will have to adjust to accommodate the new physical reality of the property.”

This shift may be underway. Insurers are starting to charge by looking to the future rather than the past — and charging a lot more.

In 2022, the federally backed National Flood Insurance Program underwriting most of the country’s flood insurance began raising rates as much as 18 percent per year to reflect climate-driven risks. Florida will soon require everyone to buy flood insurance if they want access to Citizens, the state’s public insurer, even if they do not live in a designated flood zone. These changes affect millions of homeowners every year.

“It’s a template for what’s going to happen everywhere,” said Burt.

For now, Burt’s predictions remain just that.

Benjamin Keys, a real estate and finance professor at the University of Pennsylvania’s Wharton School, is forecasting a more gradual decline in regional markets, rather than an imminent severe downturn. Most homes appreciated dramatically during the pandemic and unlike in 2008, few have to sell because of ballooning interest rates.

Betting against housing markets exposed to climate isn’t as simple as selling a stock short, and Burt won’t reveal his exact strategy. His firm is working with Intercontinental Exchange, owner of the New York Stock Exchange, and others to assess the sensitivity of $750 billion in mortgage-backed securities to climate shocks.

But he is also exploring ways to make an even bigger bet against the housing market in vulnerable places. He says he could, for instance, work with Wall Street banks to create special financial products that allow people to bet against mortgages, which are often pooled into securities sold to investors, in places most exposed to flood and wildfire risk. It’s possible to analyze the credit scores and geography of the bundled mortgages to identify those most at risk of default.

If enough investors took a stand, it could make markets price climate risk more accurately. “Markets would be more efficient if speculators were doing their job,” he argued.

What this means for buying a home

Woolcock and Burt met for the first time on Oct. 1, 2021, in a deserted pub in Newton, Massachusetts. They connected over pints of Guinness and Allagash, and the fact that almost no one outside of the bar bought their central thesis.

“We were in a back corner booth talking through all the ways people could lose millions oblivious to climate risks … they’d worked their whole lives to afford,” Woolcock told me, “and scratching our heads when it would be apparent to more people and the markets.”

“We were in agreement,” Burt added. “It doesn’t seem like the markets are with us. We’re still fighting that battle.”

Climate risk is changing the calculus for everyone. The typical homeowner may purchase just a few houses in their lifetime; investors might buy or sell thousands. But the same lessons apply. Here’s what real estate investors say they’ve learned about how to make a smart investment in tomorrow’s housing market:

Owning a home is about to get a lot more expensive. Climate change is set to drive up the costs of maintenance, insurance and property taxes. As a result, fewer people will be able to afford a home or qualify for a mortgage in riskier areas. To reflect higher costs and lower demand, home values will decline compared to where they would be if costs remained the same. To plan, budget for repairs and the cost of hardening your home against extreme weather, higher property taxes in the future and rising insurance premiums (the NFIP offers estimates of future premium hikes).

Renting will become a better deal in risky places. Homeownership can build wealth or become a financial trap. Renting lets you enjoy amenities (like a waterfront property) without risking major losses. Martin Smith, an economist at Duke University’s Nicholas School of the Environment who models how coastal communities respond to sea-level rise, says climate change threatens to hollow out communities when costs climb. As middle-class residents leave, he said, “a lot of other things start to unravel.”

Some places will thrive despite it all, while others crash unpredictably. A community’s future may depend on its resilience, the ability to rebound despite repeated stress. The Federal Emergency Management Agency’s national map of community resilience offers a starting point on how counties compare, something I’ll explore more in the next installment of the series.

Other markets may see home values plunge virtually overnight due to natural disasters (as with Hurricane Sandy’s effect on real estate around New York City in 2012) or a sudden shift in sentiment if everyone rushes for the exits. This may be felt years or even decades before the physical impacts of climate change are felt.