Extreme weather is a major financial risk across today's global markets. The increasing frequency of extreme weather events leads to geological instability, demographic changes, resource scarcity and economic uncertainty. With regards to the social housing sector, the effects are visible in various ways: higher borrowing costs, increased insurance premiums and fluctuations in funding availability from public and private sources.
Supply chain disruptions
The economic risks from extreme weather for global trade are estimated to be approximately USD81 billion1.
Extreme weather events can bring about significant disruptions in the global supply chain. In the housing sector, this can mean a shortage of both raw materials and good quality building supplies, as well as rising transportation costs and supply delays.
As social housing providers often rely on cost-efficient global supply chains, disruptions in one country can spill over to the entire production timescale, disrupting or even halting projects in the UK. This highlights the need for housing providers to ensure they have alternative suppliers and contractors to maintain business continuity and bottom lines.
Production stage challenges
Adverse weather events cause delays in 45 percent of construction projects globally, resulting in billions of dollars in additional expenses and lost revenue2.
Extreme weather also impacts aspects of construction during the production stage, including excavation, tunnelling and hot works. Changing water tables affects a site's susceptibility to flooding. Increased winds affect lifting operations and work conducted at elevated heights. Furthermore, equipment and materials on site must be stored suitably to protect against the possibility of adverse weather.
Hot and humid weather significantly impacts worker productivity in construction. There is a considerable decline in productivity, particularly during the warmest periods. Flooding and snowfall can also cause delays, as workers cannot reach sites or sites become unworkable. Additionally, there are potential health and safety hazards for the workers when they do return to work.
The UK is seeing a massive drop in the number of skilled workers in the construction sector due to various economic and political factors3. This has led to rising wages due to labour shortages. Unpredictable weather aggravates the situation, affecting construction budgets and timelines.
Weather migration risk
Extreme weather is causing increased migration as millions of people are displaced due to flooding, hurricanes, severe storms, wildfires, extreme heat and related disasters. The ensuing changes in settlement patterns will inevitably impact the UK's social housing, which already has a shortage of more than 300,000 homes4.
High demand and the shortage of affordable housing have led to providers venturing into areas at higher risk from extreme weather, such as flood plains5. However, building too many homes in such locations puts the housing supply at further risk and must be considered with long-term impacts in mind6.
Impact on design and infrastructure
As extreme weather events become more severe, their impact on future buildings will also increase. Failure to factor this into plans could lead to unsustainable buildings that are inadequate to withstand extreme weather, resulting in substantial business losses7.
To address this, several factors need to be considered during the design phase. These include building separation, foundation quality, elevation, using non-combustible materials, and the ability to withstand high winds and temperatures. Appropriate provisions must also be incorporated to address potential energy and water scarcity.
The augmented financial risk
As it is, the housing finance ecosystem has already distributed risks among multiple industry participants. These participants have recently navigated financial headwinds in the global economy, rising inflation and unpredictable interest rates.
The financial impact of extreme weather events has necessitated a reassessment of future risk tolerance. Today, the sector faces a massive challenge in meeting the nation's housing needs due to inequitable access to credit in a heightened-risk environment8.
Green Bond: A Sustainable Financial Tool
With the mandate to build environmentally friendly housing and reduce emissions9, decarbonising the housing construction sector through supportable financing is vital. Considering this, social housing providers may issue green bonds to attract investors interested in sustainable initiatives. Green bonds are specifically meant to finance projects with a positive environmental impact, such as energy-efficient retrofits, renewable energy installations and sustainable construction practices.
