Coastal properties at highest climate risk could fall in value in 18 months By Elizabeth Redman & SSB
Many city dwellers have made a sea-change during the pandemic, sending property prices in some coastal hotspots soaring.
But coastal properties at the highest risk of climate change impacts could start to fall in value as soon as 18 months from now, an expert has warned.
Over time, beach towns face risks such as coastal erosion, coastal inundation, riverine flooding and even bushfire that could come under the focus of insurers and mortgage lenders, but Climate Valuation chief executive Karl Mallon said major banks are already being asked by their regulator to assess the risks to their businesses from climate change, such as loans to properties at risk of floods.
“At the moment it’s just ‘assess it’, but in the near future they’re going to be asked, ‘What are you doing about this?’” he said.
“And that’s going to make them very hesitant to keep providing mortgages in high-risk areas.
“What we’re saying to homebuyers is they need to think about whether they will continue to be able to get insurance or be able to sell their house in a few years if they’re in a high-risk zone because we think that’s going to get very hard, very quickly.”
Asked if he thought that could hit property prices, Mallon said, “For sure, absolutely, I think within 18 months.
“There are a lot of people who are still prepared to – they think they’re prepared to put up with these changes in order to get lifestyle, but when these impacts happen they change their mind.”
Although he emphasises that most properties will be fine, specific properties and specific communities will be affected, making now a good time to make long-term plans.
The technology around climate change analysis has improved in the past couple of years, allowing property-specific risk analysis where banks can assess a mortgage application and see whether a house is on the side of the street that floods or the side that doesn’t, he said.
Mallon issues hundreds of reports a week for potential homebuyers who are checking property risk, warning it’s naive for homeowners to think they can sell a property to someone who won’t be doing the same.
A homebuyer will experience 30 years of sea-level rise by the time they pay out their mortgage, and if they sell at any time, the new owner will also be looking 30 years ahead.
“People in coastal areas need to be thinking quite long-term in terms of the future value of their property,” he said.
Mallon warns owners of coastal property not to go without insurance, and to consider the possible impacts to their house. For example, is it near a river that could break its banks? Is it low-lying and at risk from a large storm on top of high tide, when a small rise in sea levels can be magnified to push waves further inland? Does the local council have a plan to deal with coastal inundation, especially for properties that aren’t at least 10 metres above sea level? Could the beach in front of the house be eroded?
It’s no hypothetical in Collaroy on Sydney’s northern beaches, where last week large swells washed away sand in front of a sea wall that was designed to protect properties and the beach from storm surges.
Laing + Simmons Narrabeen’s Chris Gamarra has been fielding enquiries from potential buyers about coastal erosion and flood.
“Erosion and flood are hot on buyers’ minds at the moment, understandably,” he said.
“I have just sold a lakefront [home] in Narrabeen – the concerns there for flooding and flood risk was very significant.”
He noted concerns held by some in the community about the sea wall management and predicted an increase in values for properties away from the affected area that are seen to be on a safer part of the beach.
“I think you will see properties change in their price depending on their risk level, which is not something we have had in the past.”
But LJ Hooker Mona Vale’s Kylie Segedin said others in the community expected the sea wall would give them more protection in time, which made them feel safer.
“Last week just after that storm, we had enquiries on that [property] we’ve got for sale on Collaroy Beach. It’s not a concern,” she said.
“There will be people that are concerned about erosion, but they are not the buyers for those properties.”
A recent report estimates a $30 billion investment is needed in coastal protection and adaptation projects over the next 50 years.
Prepared for the Insurance Council of Australia, the report calls for relatively modest spending that would avoid losses for individuals and communities, through coastal protection infrastructure, better data collection and difficult decisions about the long-term viability of some properties.
A survey of 94 coastal councils in 2020 found 90 per cent rated coastal hazards a priority issue, but identified funding issues as critical to deal with the challenge, the Australian Coastal Councils Association said.
Some coastal areas are already experiencing climate change impacts, especially during storms, said Sarah Boulter, senior research fellow at the National Climate Change Adaptation Research Facility at Griffith University.
“In some parts of the country, councils are very aware of some of those risks,” she said.
“A diligent owner should be looking and thinking, ‘is there a risk here and how soon will I experience that risk?’”
Although living by the coastline defines the Australian lifestyle, it is going to become more challenging, she said.
This could mean hard engineering solutions such as sea walls in some areas, or sand-dune nourishment and revegetation, or changes in planning rules to avoid developing at-risk areas.
Australia is a wealthy country with very good engineers who will be able to protect important parts of the coast over time, University of Sydney Associate Professor in the School of Geosciences Ana Vila Concejo said.
And in some areas, the houses are not so close to the coastline as to be in immediate danger, although others are at risk and may be best managed through moving the residents into less dangerous areas, she said.
“That will be the only solution in some areas. In other cases, if the Australian government and Australian public think this is worth saving, there can be engineering interventions.”
She warned potential homebuyers to look at the surrounding environment – are there stable cliffs in front of their beach house, or is it near an estuary that could flood?
“If your dream property is just behind the dunes and the elevation is not very much above the high water mark … I would not buy there either.”
Major banks are preparing their home loan books for climate change, and working with their regulator.
A Commonwealth Bank spokesperson said lending assessments include a “range of factors”, adding customers need to understand how their building insurance premiums may change over time.
“We are also enhancing our data and analytics capabilities to better understand the current and future impacts of climate change to our customers and mortgage book,” the spokesperson said.
NAB head of ESG risk management Rosemary Bissett said climate change was a source of significant risk and opportunity.
“We do assess climate risk associated with our lending portfolio, including residential mortgages. This is a key aspect of the climate vulnerability assessment we are currently completing for APRA. We will continue to look for opportunities to provide information to stakeholders in our disclosures as we better understand the physical impact risks of climate change on our portfolio,” she said.
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