Climate change is real and happening right now, but many homeowners in at-risk areas are still not thinking realistically about what it means for their properties, experts say.
The news article is available HERE.
In recent months, there has been a succession of significant floods around the country, and that follows a number of one-in-100-year floods last winter.
At the same time, heat waves and wildfires are sweeping through Europe and the United States.
These types of weather events used to be unusual, but that is not the case now. And experts say it is clear evidence of the impact of climate change.
Despite this, there has been little impact on property values in at-risk areas. A prime example is coastal properties.
The NZ Searise programme shows many communities are sinking, which exacerbates the effects of sea level rise. A sea level of just 30 centimetres higher would turn a one-in-100 year flood in Wellington into an annual event, for example.
But coastal properties remain desirable and tend to carry premium prices.
CoreLogic head of research Nick Goodall says people do not seem to realise how climate change will affect property prices in the years to come.
Work has been done on Auckland suburbs with a high proportion of coastal properties which looked at whether homeowners could see prices changing, he says.
“There was little, or no, recognition from people that there was any risk. The positive attributes of coastal property, such as the view or waterfront access, far outweigh climate change risks.
“The negative impact just didn’t come into it, possibly because of a belief that problems are decades away and won’t impact on the current owner.”
It is hard to quantify, but he expects coastal property prices to go down as more people accept the risks, and higher insurance premiums add to a property’s costs.
That may not happen in the near future, as research from the Strand Marsden Project shows prices have proved resilient following a weather disaster.
Project leader Dr Ivan Diaz-Rainey, from the University of Otago, says a study of prices in South Dunedin found they dropped 15% on average immediately after severe flooding in the area in 2015.
But they largely recovered over the next 12 to 18 months, although buyers still have a 3% to 6% discount relative to properties that are not in an at-risk area.
The finding is consistent with international research, which also shows that if people don’t believe in the risks they don’t get priced in, he says.
“People who have lived through such events tend to believe in the risks, but the nature of price discounts depend on how many people believe in them, and more need to before prices fall.”
It suggests a lack of knowledge, but Climate Sigma managing director Belinda Storey says deep-seated behavioural biases, such as amnesia, optimism and inertia, come into play in decision-making around property.
That is why houses in risky locations that have been unaffordable continue to be, and properties in some coastal areas have had significant increases in demand.
“Not only do people ignore the future, but they ignore things that have happened recently. The Dunedin study, and overseas research, shows prices fall after a disaster, but they recover quickly, even when there is clear evidence of risk.”
But the key thing to keep in mind is that properties that are currently exposed to extreme weather events and damage have a time limit on them, she says.
“There is going to be a limit to how long it is going to be safe and economic to remain in those places which is a really difficult message to deliver.”
That matters because in New Zealand many people live close to the coast or near rivers as when the country was settled it was important to be near what were then the main transport routes.
To get an idea of how many properties are at high risk from rising tides and storm surges, CoreLogic identified the council areas with the greatest proportion of residential properties within 50 metres of the coast.
Ōpōtiki has the most with 12.4%, or more than 400 properties, in the 50m radius. Marlborough is not far behind with 10.6%, or over 2100 properties.
The Far North follows with 10.6%, or over 2400 properties, while Thames Coromandel District has 9.7%, or over 2100 properties, and Kaikōura District has 7.4%, or over 130 properties.
In the case of Auckland, looking at the raw number of properties within 50m of the coast in different parts of the regions reveals a considerable amount at risk.
There are more than 4100 in Auckland City, over 2700 in Rodney, over 2700 in Manukau, and more than 2500 on the North Shore.
Storey points to Westport, which has been hit by catastrophic flooding several times in recent years, as another example of a high-risk area. It sits between two rivers and the sea, and has a mountain range nearby, and so will be strongly impacted by climate change.
A new survey from insurer IAG suggests public awareness is increasing, with 91% of respondents expecting to see more frequent and extreme flooding events, and 78% saying climate change is an important issue for them.
Three-quarters say some people may need to move from where they live, and more than half (53%) think homeowners should not have the right to live in locations badly affected by climate change.
But the number of people prepared to act to reduce the impacts of climate change on themselves personally reduced to 64% from 69% last year.
IAG chief executive Amanda Whiting says there are mixed views about who should pay for climate change impacts, with the results indicating shared responsibility between Government, local councils, and homeowners.
About 75% of people say they want central and local government to invest in building infrastructure and to zone land in a way that reduces the impact of climate change, she says.
“While more action, such as the National Adaptation Plan, has been taken on climate there still seems to be a high level of uncertainty around the role individuals need to play and how they will be personally impacted.”
Storey says one reason the market has not priced in climate change is charity hazard, which is when people do not take mitigation measures in the face of risk due to reliance on expected assistance from the government or other individuals.
People believe someone will build a seawall, or that someone will buy their house, or that the EQC will pick up the tab if their property ends up in trouble, she says.
“That’s why there is a strong desire to build defences or bring a public subsidy on insurance for example with the impression you are going to fix the problem.
“But you’re not fixing the problem. Seawalls have a limited life span, for example. All you are doing is buying a bit of time, and you are probably going to make the problem worse.”
The reality is long-term planning across all options is required, and many homeowners will have to retreat from the areas they live in, she says.
Prices on properties in at-risk areas may start falling when the risk, and accompanying costs, is quantified to homeowners, and they understand it, the experts agree.
Goodall adds that younger generations, who tend to have greater awareness of climate change, may steer away from at-risk properties and facilitate downward pressure on their prices.
“Conversely, as people consider the climate change risks more, properties in areas with less risk may see prices increase.”
