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If you think climate change won’t affect your retirement, think again. Months ago I wrote about the impending disaster in Rio Verde Hills Arizona where the water source in the unincorporated town of about 980 homes has relied on is going dry. That source went dry on January 1, 2023. The neighboring City of Scottsdale stopped delivering water to Rio Verde Hills as part of its own drought management plan. Rio Verde Hills had been warned in 2021.
On top of that, the aquifer is drying up. Even the 200 or so homes that have wells are confronting no water, little water, or intermittent water. Here’s how the NY Times describes it:
“Almost overnight, the Rio Verde Foothills turned into a worst-case scenario of a hotter, drier climate, showing what happens when unregulated growth collides with shrinking water supplies.
“For residents who put their savings into newly built homes that promised desert sunsets, peace and quiet (but relegated the water situation to the fine print), the turmoil is also deeply personal. The water disruption has unraveled their routines and put their financial futures in doubt.”
In other words, you don’t want to be invested here for your retirement.
Residents are scrambling. Some are driving miles to get to a health club to take a shower. Most can’t do laundry at home. They are using disposal plates to avoid dishwashing and saving what rainwater they can for flushing toilets. This is an affluent area. Many homes were valued at $1,000,000 or more. One can bet that this isn’t the way of life they had anticipated.
You can just guess how easy it will be to sell a million-dollar home there now. Dozens of listings have appeared on Zillow in recent weeks, and those that had been on Zillow have seen prices drop—one I saw, listed in October, revised its price down twice, and now sits at 40% below the original asking price. What if you had plowed YOUR nest egg into a beautiful retirement home there? For some people, financial futures are being destroyed.
It’s Climate Change
The underlying cause of this consternation is the persistent drought and reduced flow in the Colorado River. Scottsdale, one of Arizona’s hottest retirement locations, is managing its water by refusing to provide the water it owns to any community outside its borders. That's because Scottsdale's water supply is coming under pressure. Today the impact is felt by an unfortunate few in Rio Verde Hills, but it is a precursor of things to come. Water allotments are going down, and as they do, communities won’t have enough. Winners and losers will be chosen. And then the winners will lose their water, too.
Where to Live in Retirement
Each person will need to decide for themselves if buying a dream home in an area like this meets their risk threshold. To me, buying a home in the Southwest as a personal residence takes on too much risk. Water shortage is one part, but the Southwest is also one of the more susceptible areas to heat waves—a real killer. Without water, you won't survive a nasty heatwave. Likewise, surviving a heatwave with extreme wet bulb temperatures requires air conditioning. The drought that is making taps run dry is also silencing hydroelectric dams—i.e., the electricity source that runs the air conditioners across the area. Hence, living in the Southwest creates two forces of existential threat—running out of water and not having the electricity needed to stay cool.
This problem disproportionately affects the homebuyer and retiree. As with all challenges to survival, it is the children and the old people who are most susceptible to physiological challenges from disease or challenging survival conditions. But it is also the retired homebuyer committing a nest egg to a home that they occupy who is taking an additional kind of survival risk—financial. When you find your place and commit a million dollars to a home, the last thing you expect is to have its value crater because there is no water to serve the place. But this is exactly what retirees need to start expecting. Water is going to run out. It may run out far sooner than most people think. Even if you have only ten years left, the possibility of horrors and financial collapse can still damage you profoundly.
I’ve discussed this with a few folks who said this: “Well, if I have my own well, my own air conditioner, and my own solar energy system, I can survive all that.” I suppose that is true, but the aquifers are drying up so a well may be of no use. And if your neighbors don’t all have the same sources of independence, they won’t be able to stay there. You will be surviving alone. No community. No restaurants. No businesses. You will be surviving in a ghost town, and again, who do you think would buy that home? How would you get your money out so that you could relocate?
Vulture Investor Opportunity?
From another perspective, this could be an opportunity. With the temporary shortage of water, prices could become severely depressed. If a solution is found, those prices could quickly rebound, thereby creating an investment opportunity for those who can handle the risk. At the end of the day, the risk is this: Rio Verde Hills, and many other communities in the Southwest, may never get sustainable water supplies.
Or maybe they will.
The local drought is staying as it is, although you can expect some fluctuations in rainfall that will tempt some people. Nonetheless, the long-term trend is not changing, and the effect of climate change is accelerating, not slowing. It is going much faster than most people realize, and the impacts are both bigger and coming much sooner than most models predicted. Hence, the water problem will get worse, not better. Forty million people will face unprecedented challenges.
One could bet, therefore, on a solution coming from somewhere because the alternative to a solution is the mass exodus of 40 million people and a collapse of the economy. The options are limited. There are desalination plants on the coast with pipelines to non-coastal communities. There is trucking in water for forty million people. There is piping in water for forty million people. There are atmospheric water generators, but you’d need an awful lot of them—for forty million people. None of these options are inexpensive.
So, what we have here then are three bad options from a retired investor/homeowner perspective. Either you own property with no water, which makes it utterly unlivable. Or, you figure out how to get yourself water while everything else is unlivable and your community collapses. Or, a very expensive solution is created. In all cases, the value of your investment drops precipitously. Hence, even the vultures are unlikely to win.
What Should Retirees Do?
Given the rapid changes afoot in many warm climate zones, and given the desire to migrate during certain seasons, I’ll be renting. I’d rather pay more than take on the risk of a market disaster driven by climate change. I’ll gladly pay more to the wealthy people who can afford that risk than take it on
Anthony Signorelli
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