The Intergovernmental Panel of Climate Change (IPCC) report couldn’t be clearer about the impact of climate change and the potential for an increase in extreme hazards.
Attracting global attention, the report examines in detail the risks and implications of such hazards, identifying with “high certainty” island nations such as Australia and New Zealand are likely to see an increase in flood, drought, bushfires and coastal erosion events due to climate-related weather patterns.
The impact for the Australian and New Zealand property markets – which have an estimated value of $8.8 trillion and $1.5 trillion respectively – is expected to be gradual but a matter all sectors should start to prepare for, Dr Pierre Wiart, CoreLogic Asia Pacific’s Head of Consulting and Risk Management Solutions, said.
“Australia and New Zealand will both be more exposed to rising sea levels, contributing to increased coastal flooding and shoreline retreat along sandy coastlines,” he said.
“Given the large geographical spread of the residential buildings and the variety of building types, any climate-related impact could take numerous forms.”
The IPCC report highlights extreme hazards are going to be more recurrent and the trends we’ve seen in the past will be emphasised.
For Australia that likely means drought episodes will occur more frequently, with greater intensity, and the same for extreme precipitation which will lead to floods. For New Zealand more extreme precipitation events and flooding are forecast.
Dr Wiart said while property is subject to extreme hazards, the vulnerability of real estate is not uniform and the impact of these events will vary depending on building type, structure and location.
Tim Lawless, CoreLogic Asia Pacific’s Research Director said to date previous weather-related events had resulted in little long-term impact on housing value.
He said Australian markets had been resilient to natural disasters, not least because a large majority had occurred in areas with low population densities.
“Housing values in the worst affected areas of the Brisbane floods saw only relatively minor declines following the event and were fully recovered within the space of a few years,” he said.
“The worst affected areas of Northern Queensland following Cyclone Yasi and Cyclone Debbie saw a mild fall in housing values, but these impacted postcodes actually recorded a higher rate of house price growth over the three years following the cyclone than the regional Queensland average.”
In New Zealand, the market’s resilience was underpinned by significant government support for impacted areas which assisted with faster recovery and therefore minimising the perceived risk of property ownership in those regions.
However Australians and New Zealanders, were still paying substantial premiums to live close to the coast or along rivers in populated areas demonstrating climate change so far had little material impact on housing demand for higher risk properties.
“It’s reasonable to assume the impact on housing values could be more substantial if weather related events became more frequent or impactful, or if insurance costs rose substantially creating an additional disincentive to purchase in area that might be higher risk,” Mr Lawless said.
Dr Wiart says the insurance industry was pricing in natural hazards when it came to property however the impact of climate-related risks is largely new territory for the banking, finance and property valuation industry.
“We are at a turning point where everybody is more aware of the potential impact of climate change,” he said.
“As we start to assess risk and there’s heightened consumer awareness, we can expect more scrutiny from within the real estate industry, particularly among informed buyers, valuers, lenders and insurers.”
As CoreLogic continues to capture transactional data on property listings and sales, it seems the impact of climate change on housing values, demand and specific locations will begin to show over time in weaker growth or lower housing values in affected areas.
“Geospatial data sets and capabilities are another key area where CoreLogic is leading the way, working with climate data to establish geographic overlays on property markets that help to provide a deeper understanding of the relationships between housing markets trends, geography and climatic factors,” Mr Lawless said.
CoreLogic’s portfolio of climate risk solutions are designed specifically to help sectors meet regulatory obligations, understand the climate impact on portfolios and, help meet sustainability and corporate responsibilities.
To help its clients understand their exposure to existing natural hazards, CoreLogic and Munich RE use advanced location analytics and 40 years of natural hazards data collection to assign a risk rating for each and every property in Australia and New Zealand.
Dr Wiart says multiple data sources are assigned a rating score for various hazards including flood, bushfire, cyclone and coastal risk.
“It is feasible to identify the properties most at risk from many different perspectives. People, like companies, have very different views of what they define by risk,” he said.
For more information on CoreLogic’s Climate Risk Solution, visit https://www.corelogic.co.nz/products/climate-risk-solution.