Half a trillion dollars could be wiped off property values before the turn of the decade, according to a new government report.
A major new government report has cast a damning picture of the cost of climate change on the housing market, estimating that losses in Australian property values could soar to $571 billion by 2030 under a high-emissions scenario.
The Australian government’s National Climate Risk Assessment (NCRA) – the first report to collate evidence on how climate risks are, and will be, experienced in Australia – was released on Monday (15 September).
The report modelled the impacts of different global warming levels that are likely to be reached, including a 1.5 degree Celsius (1.5°C), 2°C, and 3°C increase.
In the worst-case scenario modelled, in which temperatures rise by 3°C, or a ‘high emissions’ scenario, the number of deaths due to extreme heat could rise fivefold.
In addition, damage-related losses to housing values could total $571 billion by 2030, $611 billion by 2050, and $770 billion by 2100.
The report warned that climate change would likely lead to more intense climate hazards over a larger area.
About one in 12 homes in Australia are currently in high-risk areas, and nearly the same share are in very high-risk areas.
By 2030, that could rise to 10.2 per cent of all homes – an extra 134,000 properties in very high-risk zones.
Looking further ahead, if global warming reaches 1.5°C, around 928,000 homes (10.2 per cent) would be in very high-risk areas. At 3°C warming, that jumps to 1.2 million homes (13.5 per cent).
A larger number of extreme weather events would cause property damage, increase insurance costs, and potentially lead to the loss of homes, particularly in coastal areas vulnerable to rising sea levels and erosion.
Impacts would be most severe in areas already exposed to floods, tropical cyclones, bushfires, and heatwaves, which are likely to become more frequent and intense.
Major urban centres and cities across coastal areas are emerging as “primary hotspots for risks” from rising sea levels, leaving some of Australia’s most affluent beach and coastal suburbs the most vulnerable.
Based on today’s housing spread but future climate risks (cyclones, floods, bushfires, and extreme heat), the number of high-risk areas could double by 2100. Rare but powerful wind events are expected to cause much bigger housing losses, especially in parts of Western Australia, the Northern Territory, and Queensland, the report found.
Financial institutions need to consider climate change in credit risk
Climate risks could result in increasingly limited access to loans and mortgages, as lenders evaluate climate change in credit risk, the report outlined.
For example, banks and lenders are starting to see coastal erosion as a serious risk, especially for expensive coastal properties. Businesses are also vulnerable because insurance usually does not cover damage from the sea.
Lack of insurance also reduces the financial capacity to support loans and mortgages and reduces the value of assets.
Many commercial buildings are located in areas at high risk from climate change, for example, 43 per cent in the NT and 47 per cent in northern Queensland, compared to just 9 per cent nationally.
In NSW, only 5 per cent are currently in very high-risk zones, but that rises as temperatures climb.
The report noted that, for the financial sector, this means climate-related damage can reduce business revenues, trigger loan defaults, and force asset sales.
Climate crisis to hike insurance costs
Climate change would also increase insurance costs, leading to more underinsured or uninsured properties, according to the NCRA.
If global temperatures rise by 2°C, insurance premiums would increase for more than 1.5 per cent of houses to the point that their property value declines by 10 per cent.
For a 3°C rise, over 9.0 per cent of houses will have higher insurance premiums to the point that their home values drop by 10 per cent.
The growing intensity and frequency of climate-driven hazards are already raising concerns about the provision, affordability, and accessibility of housing insurance.
In response, new approaches to improve access to affordable insurance cover for high-risk properties may need to be considered, the government research suggested.
For example, some insurers are starting to incorporate climate risk assessments when providing insurance; however, coverage remains limited and can vary widely.
Insurance providers may also become more selective about offering coverage in high-risk areas, leading to limited availability of insurance options for property owners.
In some cases, insurers may choose to withdraw coverage for properties deemed too high-risk to insure, leaving property owners vulnerable to financial losses in the event of a disaster.
Commenting on the report’s findings, Minister for Climate Change and Energy Chris Bowen said: “Australians are already living with the consequences of climate change today but it’s clear every degree of warming we prevent now will help future generations avoid the worst impacts in years to come.”
In response to the report, the Australian Government has released a National Adaptation Plan – a policy framework on how it plans to respond to the risks.
Going forward, the Australian government said it “will work with states, territories and local government to create an action agenda for this plan”.
[Related: Is insurance the next big challenge for home owners?]
