The increasing severity and frequency of climate change-related events in Canada and the resulting property-insurance issues are changing how homebuyers and real-estate developers look at land and buildings. It’s also a growing factor in how real-estate investment, development and urban-planning strategies are being reshaped from coast to coast.

While there are climate-risk insurance options available, the premiums are high and rising. Governments must therefore embark on a range of solutions – such as beefing up infrastructure, backstopping insurance plans or mitigating risk through better research and analysis.

The insurance-availability challenge is exacerbated because it’s often difficult for residential and commercial landlords to pass increased costs to tenants, who are already facing the high cost of living.

The interplay between the cost and availability of climate-related insurance is already influencing real-estate development decisions at the investment stage, with many previously viable projects now facing greater scrutiny for risk.

Adding to the problem is that many lenders, including Canada Mortgage and Housing Corporation (CMHC), are taking a hard look at underwriting mortgages on floodplain properties. This means that even if developers have technical solutions to mitigate flood risks, it can be nearly impossible for homebuyers to secure a mortgage – effectively rendering the property unsellable.

In the past, builders could construct near floodplains if the homes had raised foundations, sump pumps and other technical solutions. Now, with insurance and mortgage options disappearing, along with a higher frequency of climate-related events, such developments are no longer viable.

Insurance companies are also refining their risk assessments, using advanced forecasting to predict climate-related disasters and areas of high risk. As a result, they are adjusting their coverage strategies by geography and property type. This is influencing investors to avoid high-risk areas and diversify their portfolios to minimize exposure.

One potential way forward is for real-estate owners to adopt a strategy known as the “hardening of assets.” The term originated in the world of cybersecurity, but in real estate it’s about incorporating climate-resilient elements in the design of built structures to protect physical assets and to lower insurance costs.

For example, some developers addressing climate-related flood risks by replacing impervious paved parking lots with permeable surfaces that allow water to soak into the ground, which improves drainage and reduces the risk of flooding.

In addition, mechanical systems are being elevated to protect them from potential water damage. Landscapes are being designed to better capture and manage stormwater runoff.

Major government infrastructure projects are also playing a role in mitigating climate risk.

The Don River realignment project in Toronto is a prime example of how cities can reduce flood exposure through large-scale environmental engineering. The river basin was re-naturalized – meaning the river’s flow was reshaped and restored to a more natural, meandering path that allowed the surrounding land to better absorb and manage floodwaters.

This was necessary to allow the possibility for the surrounding land to be developed given the high inherent risk of flooding in the area. By restoring the river’s natural dynamics and creating new wetlands and green space, the project reduced flood exposure and unlocked previously unusable land for safe and sustainable urban development.

From an infrastructure perspective, a lot of innovation can be introduced through flood-prediction models and material choices, which can lessen the impact when floods happen. An interesting model is Copenhagen’s climate parks, where urban green spaces are designed to absorb stormwater during heavy rainfalls to reduce the risk of flooding while also serving as vital community amenities.

These examples illustrate that private-sector innovation alone isn’t enough to solve the challenges. Government participation in strategic partnerships, adequate funding and smart policy direction are critical to creating sustainable long-term solutions.

One approach worthy of consideration is for governments at various levels to financially backstop insurance in high-risk areas to ensure that coverage remains available to property developers and owners.

This practice has been explored in parts of the U.S., where state-backed insurance programs provide much-needed stability in disaster-prone regions. However, there is a big financial risk for governments in the case of catastrophic events such as the recent Los Angeles wildfires.

Governments can also enforce stricter building codes, introduce tax incentives for climate-resilient developments and invest in sustainable public infrastructure. These interventions, coupled with environmental-management measures – stormwater-handling systems, flood barriers and drought-resistant landscaping – can all contribute to making cities more resilient.

Government policymakers also have a role to play in supporting R&D around climate-resilient building materials and techniques. Promoting the use of mass timber, low-carbon concrete and net-zero building practices can help reduce the environmental impact of new buildings while improving their durability in extreme weather.

In addition, financial incentives such as tax breaks for climate-adaptive buildings can go a long way toward encouraging developers to integrate climate-resilience measures at the earliest design stages.

Climate change is reshaping the way real-estate investment decisions are being made and insurance costs are now a critical determining factor in whether many projects will even move forward.

Developers, investors and governments must therefore work together to address the climate-driven challenges of designing and building resilient urban buildings and spaces that are sustainably livable, insurable and economically viable.

The author is a board member of the Association of Ontario Land Economists.