This chapter establishes the central role of climate-related risks in the real estate sector. It defines climate-related risks and examines them through a real estate lens. It shows how physical risks (arising from extreme weather and gradual environmental shifts) and transition risks (from new regulations, technologies, and market changes) manifest, interact and create systemic pressures, with an emphasis on their location-specific nature. The chapter then maps the roles of key stakeholders, including governments, regulators, investors, owners and tenants and illustrates how interconnected markets (such as construction materials, energy and finance on the input side, and housing, rental, and investment markets on the output side) shape the sector.
Future‑Proofing Real Estate Investment
Abstract
Real estate is highly exposed to climate-related risks. The sector concentrates USD 111 trillion in wealth in OECD economies (34 of 38 OECD member countries), equivalent to 196% of their GDP. Property assets are immobile long-lived, and subject to local regulations making them highly sensitive to both physical and transition risks.
Risks and losses in real estate are local in origin, but their accumulation can scale up nationally, regionally and globally. Climate-related disasters cost up to USD 430 billion per year globally, (about 0.5% of global GDP), with total damages from disasters (including both climate-related and geological events) reaching USD 131 billion in the first half of 2025.
Physical risks are location specific, cumulative and shaped by vulnerability: exposure varies within countries, regions, and neighbourhoods, and a property asset’s condition (design, age, maintenance and level of adaptation) determines its vulnerability and how the same hazard can produce different levels of loss.
Transition risk is the potential for buildings to lose value or face higher costs because of changes in regulations, markets or technology. It is also place-based: compliance pathways, costs and timelines are set by local administrations, rules, and enforcement. Energy-system characteristics and market capacity also influence how quickly and effectively buildings can adapt. If municipalities set earlier or stricter requirements, the owners are obliged to move faster to meet regulations; if skills, supply chains or finance are limited, the risk of delays and higher costs grows.
The real estate sector is characterised by interactions between supplier and occupier markets, as well as public policy, and involves a wide range of stakeholders. They operate through tightly linked input (supply side) and output (demand side) markets. On the supply side through input markets, land, labour, materials, finance and approvals; on the demand side through output markets, households, businesses and investors. Bottlenecks in input markets (such as in land release and approval delays, lack of skilled labour or materials, or limited finance) quickly feed into output markets through increased rents, prices and liquidity, amplifying both physical and transition pressures.
Implications for action
Embed climate-related risk management in property-level decisions so buyers and renters know their risk. When all actors have clear access to verifiable facts such as damage history, local hazard exposure and current energy performance from sellers and local authorities they can better inform investment decisions. When assessments are built on transparent, comparable and data-driven evidence, households, firms and investors can reduce asset level and portfolio risk exposure.
Align national climate targets with local delivery tools. Establish a clear and consistent timeline for permits, whole-life-carbon assessment and minimum energy-performance standards. This predictability allows owners to plan investments, lenders to price maturities with confidence and municipalities to sequence projects while reducing execution risk and stranded assets.
Support regulation through delivery capacity and enforcement. Avoiding new building construction in high-risk areas is essential to reducing exposure. Zoning and resilient land-use planning set the framework for where and what can be built, but they only shape outcomes if data is reliable, approvals are timely and transparent, and enforcement is in place. Building standards and codes for safety, efficiency and resilience require skilled workers, reliable supplies of lower-carbon materials and financial products that spread building and retrofit costs over time. When these enabling conditions are in place, investments are more likely to remain viable in the long-term.
Knowledge gap and next steps
Future analysis needs to disaggregate risks by building type (residential, commercial, industrial, public) to capture differences in exposure and performance.
Evidence is most useful when categorised by ownership structure (institutional, household, informal) to better understand varying capacities for adaptation and investment.
Risks could be further analysed by geography (urban versus rural, high- versus low-income regions) since local conditions strongly determine vulnerability and resilience.
Most of the future growth in building stock will take place in emerging and developing economies, however, data from these regions remain limited.
The real estate sector is one of the largest contributors to climate change and among the most exposed to its consequences. With built real estate stock including residential, commercial and industrial property assets valued at USD 111 trillion in 34 of 38 OECD member countries, equivalent to 196% of total GDP in 2022, real estate represents both a systemic vulnerability and a central lever for mitigation (Roulet, 2024[1]; UNEP, 2024[2]). Its location-specific exposure to physical climate-related risks, due to its immobility, capital intensity and long asset lifetimes, make it uniquely sensitive to the intensifying and long-term effects of climate change. At the same time, its central role in financial systems (as property assets are key financial assets), employment and urban development magnifies the scale of both risks and opportunities.
The real estate sector is not on track to meet net zero objectives, as emissions continue to grow at an average of 1% annually since 2015 (IEA, 2023[3]). In 2023, the construction and operation of buildings accounted for 34% of total CO₂emissions, with 26% coming from building operations, 55% from cement, steel and aluminium, and an additional 3% related to brick and glass used as construction materials (GloablABC/UNEP, 2025[4]). The Chaillot Declaration on buildings and climate, which was adopted by representatives of around 60 countries in 2024 at the first-ever Global Forum on Buildings and Climate, highlighted several critical issues. Article 4.5 addresses continued investment and construction in climate-related risk-exposed areas and carbon-intensive new buildings that jeopardise the well-being and health of inhabitants, the resilience of cities, and the economic long-term stability of the real estate sector. Article 4.6 emphasises the need for enhanced financial flows, both private and public, to meet the needs and requirements of sustainable construction, renovations and adaptation of buildings, especially in developing countries. Additionally, Article 6.2 calls for implementing an appropriate financial framework, including financial and fiscal incentives and regulatory tools such as taxonomies, to dramatically increase affordable near zero emission and climate resilient buildings and to phase out the financing of emissive and non-resilient ones (Government of France, 2024[5]).
This report aims to guide bolder government action to decarbonise and enhance the resilience of buildings at local, national and global levels. It does so by providing a structured analysis of how climate-related risks are assessed and how they intersect with real estate markets, highlighting the sector’s role in climate action from both a mitigation and adaptation angle. Building on existing literature and a dedicated OECD survey, the report:
Defines climate-related physical and transition risks, outlines place-based vulnerabilities, maps the stakeholder ecosystem and interconnected markets (Chapter 1);
Reviews climate-related risk assessment frameworks, data sources and analytical tools for understanding place-based climate-related risks (Chapter 2);
Shows the ways in which place-based climate-related risks become financial risks (Chapter 3);
Explores how financial risks are transferred and mitigated, through spatial planning and regulatory levers and financing/funding mechanisms (Chapter 4); and
Concludes with policy pathways aimed at strengthening the enabling policy environment and improving understanding of place-based climate-related risks in real estate investment (Chapter 5).
By clarifying what is known and where gaps remain, the report aims to guide immediate policy and market action while laying the foundation for the next phase of analysis. Further work is needed to capture the full scale and complexity of investment requirements and risk transfer challenges. Future analysis can consider to a greater extent the size of the market, and distinguish building types (residential, commercial, public, industrial, etc.) and ownership structures (institutional, individual, informal) in a more granular way, as well as the specific contexts of emerging and developing economies.
Climate-related risks are the potential irreversible negative impacts of climate change, which involve long-term shifts in temperatures and weather patterns (UN, n.d.[6]). In contemporary risk frameworks, these risks are systemic. Climate-related risks can propagate across sectors and balance sheets rather than remaining confined to isolated assets (ECB, 2023[7]) .
Two widely used perspectives define the concept of climate-related risk. The Intergovernmental Panel on Climate Change (IPCC) frames risk as a function of the interplay between hazards, exposure, vulnerability and the adequacy of response, that is, the action or non-action taken to mitigate or adapt (IPCC, 2022[8]). The Task Force on Climate-related Financial Disclosure (TCFD) distinguishes physical risks from transition risks. Physical risks include damage and disruption from acute events (e.g. storms, floods, wildfires, heatwaves) and chronic shifts (e.g. sea-level risk, temperature trends, precipitation change). Transition risks, on the other hand, arise as economies move toward net zero through policy, technological and market change (TCFD, 2017[9]).
Under business-as-usual scenarios, baseline warming pathways of more than 3°C will cause climate-related physical risks to become more frequent and severe (IPCC, 2023[10]). 2024 was the hottest year on record, with temperatures exceeding 1.5°C above pre-industrial levels and 2025 is projected to surpass this record (WMO, 2025[11]). In Canada, wildfires, floods and hailstorms drove insured losses to record levels in the summer of 2024. Over two months, four major weather events caused damage exceeding CAD 7 billion and resulting in more than 250 000 claims, around 50% more than insurers typically process in one year (IBC, 2025[12]). In Europe, the financial toll of weather and climate-related disasters has more than doubled, rising from an average of around EUR 19.7 billion per year between 2010 and 2019 to nearly EUR 44.9 billion per year between 2020 and 2024 (EEA, 2025[13]). The damage from extreme weather events to the built environment is expected to increase up to tenfold by the end of the 21st century as a result of the increase and severity of extreme weather events (EEA, 2024[14]).
Transition risks are accelerating as the global economy shifts toward low-carbon pathways. Policy and supervisory expectations are tightening, disclosure and reporting requirements are expanding, building-energy and performance standards are becoming more stringent and technology cost curves (e.g. electrification, digital controls) are reshaping investment timing and operating models. In the TCFD framework, these forces change cash flows through higher compliance costs, earlier capital expenditure, altered demand patterns and reputational effects; in markets, they raise the probability of asset stranding for inefficient or carbon-intensive stock and increase dispersion in valuations between compliant and lagged assets (TCFD, 2017[9]). The interaction of policy, markets and technology therefore creates near-term financial exposure for markets. This affects households and the entire real estate sector, particularly where transition unfolds in a disorderly manner (EDHEC Climate Institute, n.d.[15]).
The economic case for climate action is clear: inaction imposes far higher costs than investing in mitigation and resilience. The economic impact of climate inaction could reduce global gross domestic product (GDP) by up to 18% by 2050 (Belrzaeg, 2025[16]). Limiting warming to 1.5°C could cut global GDP losses by two-thirds compared to a 3°C pathway (ETH Zurich, 2024[17]). But resilience can deliver significant benefits. In the United States, every USD 1 invested in climate preparedness is estimated to avoid USD 13 in damages, reflecting the high benefit-cost ratio of anticipatory resilience (U.S. Chamber of Commerce, 2024[18]). Similarly, a review of 320 adaptation and resilience investments across 12 countries, representing a total of USD 133 billion, shows that every USD 1 invested delivers more than USD 10 in benefits over a ten-year period. This equates to potential gains exceeding USD 1.4 trillion, with average returns estimated between 20% and 27% (WRI, 2025[19]). Furthermore, one study identified USD 1.8 trillion of adaptation investments, with benefit-cost ratios ranging from 2:1 to 10:1 (OECD, 2024[20]). Figure 1.1 depicts the general economic benefits of mitigation and adaptation measures in real estate investment against the cost of inaction, including climate-related physical risks and transition risks faced by households, firms, financial institutions, governments and the global economy.
Note: The term natural disasters in this context includes both geological events (e.g., earthquakes) and climate-related events (e.g., wildfires, storms, and floods).
Source: (Notaires de France, 2025[21]; IFC, 2021[22]; U.S. Chamber of Commerce, 2024[18]; ETH Zurich, 2024[17]; WRI, 2025[19]; ECB, 2022[23]; WEF, 2024[24]; Munich RE CatNatService, 2025[25]; NEMA, 2023[26]; IEA, 2019[27]) (ECB and EIOPA, 2024[28]; MSCI, 2025[29]; Clement et al., 2021[30]; Belrzaeg, 2025[16]; EIB, 2025[31]; OECD, 2024[20]; Queensland Government, 2025[32])
Real estate is an asset class, deeply interconnected with the financial system, labour markets and urban development. In 34 of 38 OECD countries (all OECD members except Chile, Colombia, Costa Rica and Mexico), real estate constitutes the single largest store of wealth, valued at USD 111 trillion in 2022, equivalent to 196% of total GDP. Of this, residential real estate accounted for about USD 73 trillion (close to 129% of aggregate GDP), while commercial real estate and other corporate structures represented around USD 37 trillion (about 66%) (Roulet, 2024[1]). The magnitude of household wealth tied to real estate underscores the crucial role of construction activity in sustaining and expanding this asset base. In France, construction assets amounted to EUR 8.8 trillion at the end of 2024, including EUR 6 trillion in residential buildings and just under EUR 1 trillion in non-residential buildings, with the remainder in civil engineering works (INSEE, 2025[33]). Investment in the sector is continuing to grow. For example, residential direct investment in France rose from approximately EUR 30 billion in 2001 to EUR 125 billion in 2019 (Morel and Uri, 2021[34]). Across the euro area, major investors in commercial real estate (CRE) that invest directly in property indirectly through shares and debt of real estate companies, known as real estate investment funds (REIFs), held about EUR 526 billion in physical CRE at the end of 2023 (Daly, Ryan and Schwartz Blicke, 2024[35]; Daly et al., 2023[36]). These regional developments reflect a broader global trend. Public-sector actors are also significant contributors: in 2024, multilateral development banks (MDBs) channelled nearly USD 18 billion into mitigation finance concerning buildings, public installations and end-use energy efficiency, and USD 9.8 billion into adaptation finance across energy, transport and other built environment infrastructure (EIB, 2025[31]). These trends confirm that real estate is increasingly favoured by investors, making climate-related risks in the sector systemically important.
Physical risks are particularly critical because real estate assets are inherently fixed, immobile and place dependent. Fixed assets cannot relocate in response to changing environmental conditions (ULI, 2022[37]). The extent of exposure depends on where assets are situated, while vulnerability reflects their sensitivity and capacity to withstand or recover from damage. Both dimensions are shaped by factors such as local geography, building design, quality of construction, maintenance and the presence of adaptation measures (IPCC, 2022[38]). Place-based vulnerabilities emerge from the interaction between physical exposure and local characteristics. For instance, coastal properties may face sea-level rise and storm surges, assets in wildfire-prone regions may be threatened by drought and heat, and buildings in dense urban areas may be exposed to extreme temperatures. The degree of vulnerability also depends on building design, function, adaptation measures and age, which together determine how well an asset can withstand or recover from climate-related stress (GARP, 2025[39]).
Structural characteristics, such as building materials and construction quality, strongly influence resilience. The function of a building also matters. For example, occupied residential or office properties are more sensitive to extreme heat than storage facilities (Noels et al., 2024[40]). Existing adaptation measures, including fire-proof material or flood defences, can substantially reduce vulnerability. Yet ageing building stock remains a persistent weakness: across OECD-EU countries, 65% of buildings were constructed before 1980, and those built before 1945 typically leak five times more heat than modern ones (OECD, 2024[41]). Without targeted retrofitting, this stock will remain both carbon-intensive and highly exposed to hazards.
Where a building is located is central to risk reduction, determining the level of hazard exposure. In the Paris region, the share of residents living in 100-year flood zones differs widely across municipalities, reflecting variations in topography, land use and development patterns (Figure 1.2). Even the best construction standards cannot offset the risks of sitting in floodplains, coastal zones, or other hazard-prone areas. Proper land-use rules and zoning are critical, providing the foundation for performance standards to work and limiting exposure while keeping planning coherent. Across many regions, urban growth has spread into high-risk areas, often driven by land scarcity, economic pressures, or weak enforcement. This creates long lasting exposure to disasters and substantial future costs. Encouraging new construction in lower-risk areas can help redirect development patterns and reduce future vulnerabilities, creating safer and more sustainable communities. Climate-aware planning, supported by satellite data, GIS mapping and hazard models, allows authorities to identify danger zones, adapt regulations and direct safer investment (WB, 2025[42]).
% of population living in areas that have a 1% chance of being flooded in any given year
Note: Population exposure to river flooding is assessed using a 100-year return period, which corresponds to the average duration between two flooding events of the same intensity.
Source : https://localdataportal.oecd.org/
Weather extremes and hydrometeorological variability increasingly amplify geotechnical hazards. Heavy rainfall, alternating droughts and rewetting and localised flooding can provoke landslides, soil subsidence and shrink-swell cycles in clay-rich soils. These phenomena can induce ground movement, degrade foundation stability and cause cracking or distortion in buildings and infrastructure. In the UK, for example, over the past decade the adverse effects of shrink-swell behaviour in soils have been estimated to cost the economy around GBP 3 billion, making it one of the most damaging geotechnical phenomena in the country (ICE, 2020[43]).
Climate-related disasters already generate substantial and rising costs. Annual climate-related economic losses averaged about USD 111 billion per year during 1995-2004, rose to roughly USD 175 billion during 2005-2014 and exceeded USD 230 billion per year during 2015-2024, with nearly USD 430 billion recorded in 2017, the highest year on record (Figure 1.3). The rising trend can be explained by three dynamics: (i) higher hazard levels as climate change increases the frequency and intensity of extreme events such as floods, storms, wildfires, cyclones and droughts; (ii) greater exposure, with more people, assets and economic value concentrated in vulnerable areas; and (iii) better data and reporting, which improve the capture of damages and losses (OECD, 2023[44]). The trend is ongoing: in the first half of 2025 alone, catastrophic natural hazard events (which include geological events like earthquakes and climate-related events such as wildfires, storms, floods and cyclones) caused USD 131 billion in total losses, of which insurers covered around USD 80 billion (Munich RE CatNatService, 2025[25]).
Note: Climate-related hazards include cyclones, floods, convective storms, wildfires, winter storms, and secondary hazards (droughts, landslides, snow, freeze).
Source: OECD calculations based on data provided by Swiss Re (Swiss Re, sigma database. All rights reserved.)
Between 2015 and 2024, global climate-related economic losses fluctuated widely across years and hazard types. Losses were lower in 2015 and 2016, then reached nearly USD 430 billion in 2017 due to exceptionally high cyclone losses as well as increased wildfire and storm losses. In the following years (2018-2024), annual climate-related losses often exceeded USD 200 billion. Convective storms became a major contributor, rising from roughly USD 25-33 billion in 2015-2016 to about USD 60-90 billion per year in 2023-2024. Wildfire losses also increased compared with earlier years, with peaks of around USD 27-29 billion in 2017 and 2018. Floods and other secondary hazards (such as droughts, freeze or landslides) remained significant sources of losses throughout the period (Figure 1.4).
Note: Climate-related hazards include cyclones, floods, convective storms, wildfires, winter storms, and secondary hazards (droughts, landslides, snow, freeze). Earthquake was added in addition to the climate-related hazards economic loss.
Source: OECD calculations based on data provided by Swiss Re (Swiss Re, sigma database. All rights reserved.)
Transition risks are those arising from extensive economic and societal adjustments due to climate policies. This global shift is primarily driven by the imperative in many countries to reduce greenhouse gas emissions and limit global warming, aligning with signatories of multi-national agreements like the Paris Agreement. Drivers of transition risk include evolving public sector policy, legislation and regulation, advancement in technology and market changes towards green practices (BIS, 2021[45]). These changes can expose economies and sectors to disruptions and shocks, leading to short-term financial impacts for companies, especially those heavily reliant on fossil fuels (TCFD, 2017[46]). The financial and reputational challenges organisations face from transition risks can differ depending on the type, pace and direction of these changes.
Transition risks in the real estate sector stem from a shift to a low-carbon economy in many countries. As buildings account for 34% of global energy-related greenhouse gas emissions, decarbonisation is both a necessity and an opportunity for the sector (GloablABC/UNEP, 2025[4]). Energy efficiency upgrades, renewable energy integration and sustainable building practices can reduce operating costs, enhance asset value and attract environmentally conscious investors and tenants (OECD, 2022[47]). Yet the transition also brings significant risks that affect property values, investment strategies and access to finance. Tighter regulations such as stricter building codes, mandatory disclosures and carbon pricing raise compliance costs and may accelerate asset stranding. Market expectations are shifting rapidly, and reputational risks mount for companies that fail to align with ESG standards. Table 1.1 summarises these risks, which can reduce liquidity, undermine competitiveness in energy-intensive sub-markets and restrict financing options (Carlin, Arshad and Baker, 2023[48]).
At the same time, the transition to a low-carbon economy is constrained by shortages of skilled labour. While demand for skilled workers is set to rise as climate goals accelerate investment needs (OECD, 2024[49]), over one-third of European firms already report difficulties filling technical roles, with construction vacancies often remaining open for more than 250 days (OECD, 2024[50]). These labour shortages slow housing delivery and energy retrofits which can lead to stranded assets and higher long-term costs. Acting early on building energy performance is far more economical because economies of scale reduce construction cost premiums. Further, innovative renovation models make retrofits cheaper and more scalable, early action lowers long-term heating and cooling expenses, and high-performance buildings ultimately require less capital investment and last longer. For new buildings, the benefits of integrating energy efficient measures are clear: retrofitting a building envelope later can increase operational expenditures for heating and cooling two to three time over 10 years compared with integrating efficiency during construction (IEA, 2024[51]).
Transition risks are place-based for regulatory and market reasons. They arise from the interaction between jurisdiction-specific rules and the characteristics of local markets rather than from hazard exposure. In practice, the starting point of the building stock is decisive. Where a country or a municipality already has a high share of efficient dwellings, compliance pathways are shorter, and capital expenditure can be sequenced more predictably. Where the stock is older, larger or poorly insulated, owners face steeper performance gaps, earlier retrofit needs and tighter refinancing conditions. The contrast within the Netherlands is illustrative: the municipality of Almere reports roughly 60% of dwellings rated A to A++ on the Energy Performance Certificate (EPC), while Rotterdam’s share is about 23% (OECD, 2023[52]). The same national targets therefore imply different costs, timelines and stranding risks across local markets, with direct consequences for valuations, rents and household energy burdens.
Regulatory instruments at the municipal level can compress or extend compliance and retrofit timelines. The schedules by which owners must plan, finance and execute works to meet energy-performance and whole-life carbon requirements are inherently connected to planning and permitting. For example, in Finland, Helsinki’s 2023 decision to link a mandatory carbon-footprint cap for high-rise residential buildings (14kgCO₂e per m² per year) to the building-permit application date effectively accelerates design, procurement and financing choices ahead of forthcoming national rules. While in Tampere, land-allocation powers require a climate statement, including a quantified carbon footprint and an Energy Performance Certificate at a minimum class A, before awarding public land. This moves transition criteria upstream in the development pipeline and reduces uncertainty later in permitting and lending. Greater London (UK)’s London Plan introduced whole-life-carbon assessment for major developments in 2021. Vancouver (Canada) leverages its autonomy over building codes by requiring designers of mid-scale buildings to measure, limit and reduce embodied carbon, with a target of achieving a 40% reduction by 2030 (OECD, 2025[53]). These examples show how subnational choices can alter the pace, scope and cost of transition within national frameworks.
Physical and transition climate-related risks do not operate in isolation; they interact in ways that can amplify vulnerabilities across the real estate system. For example, physical damage to properties can trigger abrupt regulatory tightening or repricing, accelerating transition risks. Conversely, poorly sequenced decarbonisation measures can increase exposure to climate hazards. For instance, if energy-efficient buildings are constructed in flood-prone zones or use materials unsuited to higher temperatures.
Urbanisation and housing shortages intensify the pressures from both physical and transition climate-related risks. Population growth and rapid urbanisation generate an urgent need for new construction, with cities projected to add around 13 000 new buildings every day until 2050 (OECD, 2022[47]). In Indonesia, the government has launched its ambitious 3 Million Homes programme to address the supply shortage affecting 9.9 million families who do not yet own a home. Aligned with the Long-Term Development Plan (RPJPN) 2025-2045, which aims for 74% of households to have access to liveable, affordable and sustainable housing by 2029 and 100% by 2045, the programme targets the construction and renovation of up to 3 million housing units annually (WB, 2025[54]; Indonesian Government, 2025[55]). This construction surge intensifies both physical climate risks and decarbonisation challenges. Globally, rapid building expansion could generate high emissions while embedding greater physical exposure to climate hazards. A co-ordinated approach is therefore essential to avoid maladaptation. For example, new buildings will be less exposed to climate-related risk when strategically located away from flood-prone areas, built with adequate standards and constructed by skilled labour trained in energy-efficient and resilient practices. Conversely, poorly insulated or inefficiently designed structures may drive-up energy demand, resulting in increased costs for heating and cooling (UNEP, 2024[56]).
Real estate relies on the wider built environment, meaning weaknesses in infrastructure resilience can create system-wide strain. Buildings rely on public infrastructure, from roads and bridges to energy and water systems, all of which are increasingly exposed to extreme weather events. Meeting resilience and repair demands will require unprecedented resources: cities in emerging economies alone are projected to need USD 29.4 trillion in private investment by 2030 to make infrastructure and services climate-resilient (IFC, 2018[57]). Despite this hefty upfront sum, each US 1 spent on infrastructure resilience in low- and middle-income countries can generate USD 4 in benefits (OECD, 2024[58]).
Socio-economic pressures add another layer of complexity. Climate-induced migration is expected to displace 216 million people by 2050, reshaping housing demand in host regions (Clement et al., 2021[30]). Climate shocks, such as the 2022 European heatwave, have already fuelled inflation, reducing household disposable incomes and dampening housing demand (Kotz et al., 2023[59]). The risks are particularly acute for vulnerable households: without adaptation, climate change could push 132 million people into extreme poverty by 2030 (World Bank, 2024[60]). Meanwhile, informal settlements are expanding rapidly, with more than 1.1 billion people now living in slums or slum-like conditions, often in hazard-prone and exposed areas (Cities Alliance, 2024[61]).
Treating physical and transition risks together, rather than separately, is essential for managing the systemic nature of climate-related risks and ensuring long-term stability in the sector (IPCC, 2018[62]). These dynamics show that resilience in the real estate sector is both necessary and possible, but only through a dual strategy of mitigation and adaptation.
Real estate functions as a physical, financial and non-financial asset. It shapes the built environment through the design, approval, construction and use of fixed structures, while simultaneously operating as an investment class governed by valuation, securitisation and portfolio management processes. This dual nature connects the industry to urban development, global capital flows, markets, demographic shifts, regulatory frameworks and policy agendas. For households, real estate also represents a non-financial asset, serving as a store of wealth and a foundation for generational economic security.
Real estate development is a complex process involving a large, diverse and interdependent network of actors responsible for the planning, financing, delivering and managing the built environment. Real estate sits at the intersection of numerous industries, including construction, finance, law, urban planning and public policy, making it inherently complex. The industry operates within a web of regulatory bodies, financial institutions, community interests and private sector participants, each with defined (and at times overlapping) roles across the real estate ecosystem. The roles range from the approval and construction of physical structures to the financing, investment and insurance of assets and the use and management of structures (Figure 1.5. ).
Source: Author’s elaboration and (Glickman, 2013[63])
Households are the dominant owners of real estate and therefore a primary stakeholder in how climate-related risks are borne and managed. In OECD countries, residential real estate amounts to 129% of aggregate GDP (Roulet, 2024[1]). Within the euro area, real estate represented about 80% of gross household wealth in 2021, underscoring the concentration of assets in property (Banque de France, 2024[64]). France offers a clear example: data from 2022 shows that out of a total national wealth of approximately EUR 20 000 billion, households account for about EUR 14 800 billion, representing 74% of the country’s net wealth. Household gross assets (EUR 16 800 billion) consist of roughly 38% financial assets and 60% non-financial assets. This non-financial wealth is primarily property, with the value of household buildings and underlying land totaling EUR 9 482 billion (Banque de France, 2023[65]). French households’ residential property (comprising both dwellings and the land beneath them) was valued at approximately EUR 9 235 billion at the end of 2022, split between EUR 4 737 billion in dwellings and EUR 4 498 billion in built land (INSEE, 2024[66]).
For households themselves, property is the cornerstone of their economic wealth. Most families invest the bulk of their wealth in housing rather than financial assets, with owned homes being the main store of household wealth in most OECD countries (OECD, 2022[67]). Homeowners hold almost 95% of national wealth on average across OECD countries (OECD, 2025[68]). Real estate assets serve as investments, sources of credit and collateral and, critically, places where people live.
Households are the most affected by climate-related risks and their decisions play a crucial role in driving demand, informing policy, and enabling effective, resilient responses. Households are on the front lines of the physical climate-related risks, from flooding, droughts, and heatwaves to rising sea levels. They also face financial risks linked to shifting market values, changing insurance costs, and evolving regulations. The heavy concentration of household wealth in property makes families vulnerable to these impacts, yet it also gives them influence over how societies adapt. Decisions about where to live, how to construct or retrofit homes, and how to finance or insure property shape wider market trends and policy choices. The July 2021 floods in Europe, among the most severe in recent decades, show how this affects behaviour. In Germany’s Ahr Valley and other affected regions, many households chose to relocate rather than rebuild after severe damage, reflecting the importance of protecting their main asset. Survey evidence from this region indicates that while households are more likely to adopt adaptation measures following flood damage, this response changes when losses exceed about 60% of a home’s reconstruction value, at which point relocation becomes more likely (Endendijk, T., Rodriguez Castro, D., Dillenardt, L. et al., 2025[69]).
Residential occupiers and commercial tenants directly influence market demand, influencing building performance and resilience outcomes. Expectations for affordability, comfort and energy efficiency increasingly drive design and retrofitting choices (UNEP FI, 2023[70]). In the EU, close to one-third of residential buildings are occupied by tenants (Collins and Curtis, 2018[71]). More resilient buildings benefit from stronger tenant retention and steadier cash flows (UNEP FI, 2021[72]). Evidence from Ireland shows that residential housing tenants are willing to pay on average EUR 38 more per month for each one-grade improvement in energy performance, highlighting the economic incentives of aligning investment with user demand for energy efficient housing (Collins and Curtis, 2018[71]). Commercial tenants also drive market demand as occupiers actively seek properties that can withstand climate-related risks and disruptions. Energy-efficiency improvements can raise the value of commercial buildings by 10-20%, reflecting the premium that tenants and the marketplace have on sustainable, high-performing assets (UNEP FI, 2023[70]). Tenants interact closely with property managers and energy service companies (ESCOs) who manage day-to-day operations and energy efficiency improvements. They also depend on leasing intermediaries and brokers to match them with available space and to structure leasing agreements.
Owners and managers of real estate portfolios shape the market through their investment choices and asset management strategies. By allocating capital, maintaining and upgrading properties, and setting standards for efficiency and resilience, they influence both market performance and urban development. Their decisions on risk, sustainability and innovation send signals that guide broader market trends (UNEP FI, 2023[70]).
Developers, construction companies and engineering firms sit at the front end of the process, responsible for bringing projects from conception to completion. Their activities link closely with financial organisations and insurance companies whose products and capital enable projects to proceed. International organisations, civil society and research and academic institutions contribute through advocacy, benchmarking and knowledge production. They generate data, policy frameworks and independent analysis that forms private and public regulation, while also shaping the discourse and policy around sustainability, affordability and resilience in the real estate sector.
National and regional governments shape the real estate sector by setting high-level, often place-blind priorities. Through housing strategies, fiscal measures, infrastructure investment and environmental regulation, they influence both supply and demand. Regional bodies adapt these objectives to local conditions, co-ordinating municipalities while balancing growth, sustainability and resilience.
Municipalities and local governments worldwide shape the real estate sector. Real estate is inherently place-based, tied to the administrative boundaries that define land ownership, zoning and planning authority. Local actors (municipalities, inter-municipal bodies, departmental councils, regional councils) guide land use planning and determine urban development strategies. Their role is particularly acute when it comes to risk prevention (whether against floods, forest fires, coastal erosion, technological accidents or industrial pollution) and combating the anthropogenic causes of these risks such as urban sprawl, deforestation or inadequate infrastructure. Weak zoning laws, inadequate land use regulations and poor enforcement contribute to rising flood exposure as urbanisation extends into flood zones. Local planners and authorities rely on comprehensive hazard data to manage these risks and guide safer urban development (WB, 2025[42]).
Local actors are also the first line of response when it comes to dealing with natural hazards and their consequences, ensuring the safety of the population, the continuity of services and the planning of reconstruction. This responsibility is all the more important given the diversity of risks that exist in different territories. Box 1.2 expands on how municipalities in France are managing their local real estate assets and implementing risk preventive measures through multi-level governance.
Decisions taken by local governments around land use and development rights shape the physical fabric of towns and cities as well as the fiscal capacity of the jurisdictions themselves. Local governments rely on property taxes for essential service provision. Across OECD countries, property taxes account for 0.15% to 3.72% of GDP, making them a significant source of local government revenue. They play a role in subnational fiscal autonomy, encompassing both recurrent and non-recurrent levies on property use, transfer and ownership (OECD, 2023[73]). Permitting processes and building codes are critical levers for advancing low-carbon development, yet unclear or shifting regulations create uncertainty that undermines investment confidence (Berg et al., 2023[74]). The supply of housing and commercial property is directly influenced by these local frameworks, determining affordability, density and the overall attractiveness of places to households, businesses and investors.
In France, the real estate assets of local authorities are estimated at EUR 1.45 trillion, representing 15-20% of the country’s total real estate wealth. Managing this stock requires substantial resources. For instance, municipalities of 70 000 to 100 000 inhabitants devote, on average, 8% of their operating budgets to asset management (ADEME, 2019[75]; Ministry of Ecological Transition of France, 2025[76]). (ADEME, 2019[75]; Ministry of Ecological Transition of France, 2025[76]).
Local authorities play a central role in planning and land-use regulation, which encompasses both risk prevention and long-term urban development. Municipalities and inter-municipal bodies are responsible for producing and updating statutory planning documents such as local urban development plans (PLU) and territorial coherence schemes (SCoT). These set out a diagnosis of the area, a presentation report, sustainable development and planning objectives, general planning guidelines, zoning and programming, regulations and annexes, including natural and technological risk prevention plans. Drafts are subject to consultation with state services and citizens before adoption by the relevant council. Once approved, they are public and accessible, notably via the Géoportail Urbanisme platform (geoportail-urbanisme, 2025[77]).
Local actors are also at the front line of risk management, both in preventing risks (e.g., urban sprawl, industrial pollution, deforestation) and in responding to natural hazard events to ensure public safety, continuity of services and reconstruction. The diversity of risks across territories is particularly acute: mainland France faces different hazards compared to its island and overseas territories, underlining the need for tailored responses. In mainland France, municipalities along the Rhône regularly update their flood risk prevention plans (PPRi) to anticipate seasonal flooding (Préfet de Vaucluse, 2023[78]). In overseas territories, such as Guadeloupe and Réunion, local authorities must integrate seismic risks, cyclones and volcanic hazards into their land use planning.
Effective land use planning and risk management require strong multi-level partnerships. Local authorities lead, while the State provides regulation, mobilises actors – as in the Grenelle Forum on the Insurability of Local Authorities (Grenelle de l’assurabilité des collectivités territoriales) – and supports them through platforms (such as CollectiveAssur or Aides-territoires), contracts and decentralised services (Collectivites Locales, 2025[79]; Aides Territoires, n.d.[80]).
Policy actors, regulatory bodies and international frameworks help shape responses to climate change in the real estate sector. Standards developed by organisations such as the International Capital Market Association (ICMA) and the Task Force on Climate-related Financial Disclosures (TCFD) are pushing the sector towards greater transparency and accountability. Alongside public institutions, these bodies intersect with standard-setting agencies, consultants, data analytics firms and certification providers, which provide quality assurance, climate-related risk assessments and compliance services across the real estate industry.
Financial institutions are central to the real estate ecosystem, shaping both market stability and the transition to sustainable assets. They provide the capital that enables construction, renovation and property transactions, while assessing and pricing the risks associated with these investments. Through lending, investment and insurance decisions, they determine which projects receive financing and at what cost, influencing both the pace and direction of real estate development. An important part of this capital allocation occurs through financial market vehicles such as Real Estate Investment Funds (REIFs) and Real Estate Investment Trusts (REITs), which pool capital and provide scale. By integrating climate-related risks into credit assessments, portfolio strategies and insurance coverage, financial institutions act as gatekeepers of capital and can transmit market signals that reward low-carbon and resilient assets. Their actions can therefore play a decisive role in steering the sector toward greater climate resilience and long-term value creation.
Each stakeholder in the real estate ecosystem plays a role in the real estate market, a system of interconnected markets that support the production, exchange and use of property assets. The broader system of interconnected markets spans land acquisition, material and labour supply, regulatory approvals and investment flows, and influences both inputs (supply) and outputs (demand) in the property development process (Figure 1.6).
Source: Elaboration by authors from (Adams and Tiesdell, 2012[81])
Real estate supply and demand are shaped by constantly interacting input and output markets. On the supply side, input markets include land acquisition, labour for construction, building materials, capital finance investment and political approvals for development rights. On the demand side, output markets cover occupiers who purchase or lease space and investors who seek returns from real estate assets. These markets operate as a single system as changes in one area quickly affect the other.
Bottlenecks across input markets may constrain new supply side markets. For example, in 2024, only 215 900 new residential units were approved in Germany, marking a 16.8% decline compared to 2023 and falling to less than two-thirds of the 2021 level (293 393 units) according to the German Federal Statistical Office (Kingston, 2025[82]). This sharp drop underscores the growing gap between actual construction activity and housing needs. A recent assessment by the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) set a target of 320 000 new homes per year through 2030, based on demographic trends and regional demand. However, current approval rates suggest that this target is unlikely to be met due to high construction and material costs, labour shortages and slow, complex approval procedures which involve overlapping jurisdictions (BBSR, 2025[83]). These bottlenecks in input markets place direct pressure on the output market, including the supply of new housing, by pushing up land values, increasing rents and investor risk and raising concerns about housing availability and affordability in urban areas.
Each market depends on the others, creating a tightly interconnected system with far-reaching economic effects. For example, land values influence access to finance, and finance conditions affect the demand for labour and materials. Regulatory approvals determine the timing and scale of land sales and construction activity, while investor appetite shapes development feasibility, and occupier demand underpins investment returns. In the UK, the value of land and property in England and Wales is estimated at nearly GBP 9 trillion, more than half the wealth of the nation (HMLR, 2025[84]). This immense concentration of wealth means that even small inefficiencies in planning approvals or land release have outsized ripple effects through connected markets with direct economic consequences, affecting not only housing affordability but also financial stability and investor confidence.
Climate change introduces additional pressures across all of these interconnected markets. For example, land markets are affected when floodplain designations, wildfire risk or heat exposure reduce development potential and alter values. Labour markets face disruption when extreme weather halts construction, and there is growing demand for skills in low-carbon building methods. Material markets experience supply chain shocks, such as timber shortages following wildfires, as well as higher costs where carbon-intensive products like cement are subject to stricter pricing. Finance markets respond as insurers limit coverage capacity in high-risk areas and lenders re-price capital to reflect exposure to climate impacts or poor energy performance. Political and regulatory approvals evolve as planning authorities require flood resilience, sustainable drainage or net-zero building standards. Changes in energy markets can reverberate through markets, impacting a multitude of stakeholders. For example, regions of Norway exposed to the 2021-2022 European energy price surge experienced significant and persistent declines in housing prices, even after the government introduced electricity subsidies (FHFQ, 2024[85]). Occupier markets are exposed when overheating reduces the usability of homes or rising energy costs make commercial space less attractive. Investor markets face devaluation and the risk of stranded assets, for example older retail parks or office blocks that cannot meet tightening efficiency regulations.
Owners and managers of real estate portfolios face mounting pressures, with regulation, investor priorities and climate-related risks playing a growing role in asset outcomes. Stranded asset risk is becoming more pronounced, particularly where older, or inefficient properties fail to meet evolving standards on carbon intensity or resilience. In this context, the long investment horizons of institutional owners expose them to potential devaluations if assets cannot be retrofitted or repositioned to align with tightening market and policy requirements. Moreover, the rising scrutiny of climate-related disclosures and ESG benchmarks is placing pressure on managers to demonstrate credible transition strategies, while balancing short-term returns with long-term resilience (Muldoon-Smith et al., 2019[86]). Investors are already applying measurable pricing penalties to euro area office buildings exposed to physical climate-related risks, with evidence from 2007-2023 showing widening discounts and early signs of reduced liquidity in older, less resilient assets (Foerster et. al, 2025[87])
Climate-related physical risks threaten all economic actors with rising costs, degraded physical assets and increasing vulnerability, but households are particularly exposed. Households bear the brunt of climate-related risks. They are affected when their insurance premiums rise and may face difficulties selling their property if property insurance costs become very high or unavailable. In the EU, the insurance protection gap is stark: only about 25% of economic losses from natural catastrophes (e.g. floods, earthquakes) were insured, based on historical average over the 42-year period from 1980-2021. In some EU countries, this share was as low as 5% (ECB and EIOPA, 2024[28]). A continuing or worsening gap in insurance coverage will mean that households in regions exposed to climate-related risks, such as floods or wildfires, are likely to face substantial out-of-pocket losses in the absence of state aid. Low-income households in particular have less buffers to absorb shocks, fewer options to relocate and less capacity to invest in retrofits. Renters face similar burdens. While they avoid the direct costs of ownership, they often bear many of the indirect costs: landlords passing on higher insurance, energy and maintenance costs; difficulty securing rental contracts in high-risk zones; greater exposure to displacement; and the possibility of being priced out of lower-risk neighbourhoods.
Sustainability goals are driving new investment opportunities and creating benefits across interconnected markets. Green buildings represent a USD 24.7 trillion investment opportunity in emerging markets by 2030, driven by lower operating costs, higher asset values and tenant demand. Green buildings can deliver up to 37% lower operating expenses, achieve sales price premiums of up to 31% with faster transaction times, reach occupancy rates up to 23% higher and secure rental income uplifts of up to 8% (IFC, 2021[22]). New industries in climate risk assessment are emerging in response to shifting regulatory frameworks and physical climate-related risks, while investors increasingly view green buildings as a distinct asset class offering lower risk and more stable returns (UNFPI & Global ABC, 2024[88]).
The resilience and durability of real estate development depends on how effectively these interconnected markets integrate both physical risks from climate impacts and transition risks from regulatory and market change. Weakness or delay in one market can destabilise the whole system, while alignment across inputs and outputs creates the conditions for viable and climate-resilient property.
In light of these opportunities and challenges, the OECD has brought together a range of stakeholders under a Future-Proof Property Investments Task Force (see Acknowledgements). Together with the French Ministry on Ecological Transition, the Sustainable Buildings Unit of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE) has hosted a series of Task Force meetings through hybrid events at OECD headquarters in Paris, France. At each meeting, the Task Force has grown and diversified, guiding future research and collaboration. Members have presented their work, shared the opportunities and challenges they face in assessing climate-related risks in the real estate sector, provided angles for potential solutions and given feedback on the research findings. To complement the Task Force meetings, the OECD Future-proof Real Estate Investment Survey was conducted. The survey aimed to collect data and information from various stakeholders regarding climate-related risks and their associated challenges and solutions (Box 1.3).
Survey structure
The survey was designed to gather extensive information about climate-related risks in the real estate market, assessment instruments and strategies and market expectations associated with the risks. Drawing on insights and feedback from the OECD Future-proof Real Estate Investment Task Force, the survey encompassed the themes found in Table 1.2.
Survey dissemination
To capture the global real estate markets, the survey was disseminated to real estate experts operating in both OECD Member and non-member countries’ markets. Additionally, the OECD Future-proof Real Estate Investment Task Force disseminated the survey and provided their own responses. As a result, the survey collected 43 completed responses, representing participation from 7 world regions (Africa, Asia, Europe, North America, South America, Oceania and the Middle East) and covering a broad range of stakeholder and property types.
Survey respondents were categorised into five stakeholder types as detailed in Figure 1.7. The majority of respondents were financial institutions and institutional investors (53%), followed by service providers and support entities (40%).
Note: Question from the survey: “Stakeholder category of the participants”. The survey respondents could select all applicable options.
Source: OECD Future-proof Real Estate Investment Survey
The survey covered 7 main property types: i) residential (apartments/multi-family buildings); ii) residential (single-family homes); iii) commercial (office); iv) commercial (retail); v) commercial (hospitality/lodging); vi) industrial/logistics; vii) healthcare facilities; as well as additional responses categorised as: viii) not applicable and ix) other real estate assets. Only 19% of survey respondents were engaged in a single type of property, while approximately 65% were managing, investing and operating in 3 or more types of real estate asset classes (Figure 1.8).
Note: Question from the survey: “Types of real estate properties managed”. The survey respondents could select all applicable options.
Source: OECD Future-proof Real Estate Investment Survey
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