Climate change is real and happening now, but many homeowners in high-risk areas are still not thinking realistically about what it means for their properties, experts say.
In recent months there has been a succession of major floods across the country, following a number of floods of one in a hundred years last winter.
At the same time, heat waves and wildfires are sweeping Europe and the United States.
This kind of weather used to be unusual, but that’s not the case now. And experts say it’s clear evidence of the impact of climate change.
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Despite this, there has been little impact on property values in risk areas. A good example is coastal properties.
The NZ Searise Program Shows Many Communities Are Sinking, which exacerbates the effects of sea level rise. For example, a sea level just a foot higher would make a flood of one in a hundred years in Wellington an annual event.
But coastal properties remain desirable and tend to carry premium prices.
Nick Goodall, chief of research at CoreLogic, says people don’t seem to realize how climate change will affect real estate prices in the coming years.
Peter Meecham / Stuff
The Westport suburb of Snodgrass is surrounded by water after floods swept the area.
Work is in progress Auckland suburbs with a high share of coastal properties who looked to see if homeowners could see prices change, he says.
“There was little or no acknowledgment from people that there was any risk. The positive qualities of coastal property, such as the view or access to the water, far outweigh the risks of climate change.
“The negative impact just didn’t come through, possibly due to the belief that problems are decades away and won’t affect the current owner.”
It’s hard to quantify, but he expects coastal property prices to fall as more people accept the risks and higher insurance premiums increase the cost of a property.
That may not happen for the foreseeable future, as research from the Strand Marsden Project shows that prices have proved resilient after a weather disaster.
Project leader Dr Ivan Diaz-Rainey, from the University of Otago, says a study on prices in South Dunedin found they fell an average of 15% 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 from properties that are not in a high-risk area.
The finding is consistent with international research, which also shows that if people don’t believe in the risks, they aren’t being priced in, he says.
“People who have experienced such events tend to believe in the risks, but the nature of price discounts depends on how many people believe in them, and there must be more before prices fall.”
It suggests a lack of knowledge, but Climate Sigma director Belinda Storey says deep-seated behavioral biases, such as amnesia, optimism and sluggishness, play a role in real estate decision-making.
Delivered
Associate professor Ivan Diaz-Rainey says people who have experienced climate change believe in the risks.
That’s why houses in risky locations that were unaffordable still exist, and real estate in some coastal areas has increased significantly in demand.
“People not only ignore the future, but they also ignore things that happened recently. The Dunedin study and overseas research show that prices fall after a disaster but recover quickly, even if there is clear evidence of risk.”
But the most important thing to keep in mind is that properties currently exposed to extreme weather and damage have a time limit, she says.
“There will be a limit to how long it will be safe and economical to stay in those places, which is a very difficult message to get across.”
That’s important because in New Zealand a lot of people live close to the coast or near rivers, because when the country settled it was important to be close to what were then the main transport routes.
To get an idea of how many properties are at high risk from high tides and storm surges, CoreLogic identified the municipal areas with the highest proportion of homes within 50 meters of the coast.
Ōpōtiki has the most with 12.4%, or more than 400 properties, in a radius of 50 meters. Marlborough is not far behind at 10.6%, or over 2100 properties.
The Far North follows with 10.6% or more than 2400 properties, while Thames Coromandel District has 9.7% or more than 2100 properties, and Kaikōura District 7.4% or more than 130 properties.
In the case of Auckland, the raw number of properties within 50 meters of the coast in various parts of the regions indicate significant risk.
There are over 4100 in Auckland City, over 2700 in Rodney, over 2700 in Manukau and over 2500 on the North Coast.
Tom Lee / Stuff
In Ōpōtiki, 12.4% of the homes are located within 50 meters of the coast.
Floor points to Westport, that has been hit several times by catastrophic floods in recent years as another example of a risk area. It is located between two rivers and the seaand has a mountain range nearby, so will be greatly affected by climate change.
A new survey from insurer IAG suggests that public awareness is on the rise: 91% of respondents expect to see more frequent and more extreme floods, and 78% say climate change is a major issue for them.
Three quarters say some people may need to move from where they live, and more than half (53%) believe homeowners should not have the right to live in locations hit hard by climate change.
But the number of people willing to take action to reduce the impacts of climate change on themselves personally has fallen to 64% from 69% last year.
IAG chief executive Amanda Whiting says there are mixed views on who should pay for the impacts of climate change, with the results pointing to 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 zoning it in a way that reduces the impact of climate change, she says.
“While more action has been taken, such as the National Adaptation Plan, on climate, there still seems to be a high degree of uncertainty about the role individuals should play and how they are personally affected.”
Storey says one of the reasons the market hasn’t priced in climate change is the danger to charity, namely when people don’t take mitigating actions in the face of risk because they depend on expected help from the government or other individuals.
People believe that someone is going to build a seawall, or someone is buying their house, or that the EQC will pick up the bill if their property gets into trouble, she says.
“Therefore there is a strong desire to build defenses or bring a government subsidy on insurance, for example with the impression that you are going to solve the problem.
Monique Ford/Stuff
Climate Sigma director Belinda Storey says charitable risks are one reason homeowners ignore the risks of climate change.
‘But you don’t solve the problem. Sea walls, for example, have a limited lifespan. All you’re doing is buying some time, and you’re probably just going to make the problem worse.”
The reality is that long-term planning is required for all options, and many homeowners will have to withdraw from the areas they live in, she says.
The prices of properties in risk areas can begin to fall when the risk and associated costs are quantified for homeowners, and they understand, the experts agree.
Goodall adds that younger generations, who tend to be more aware of climate change, can stay away from risky properties and facilitate downward pressure on their prices.
“Conversely, as people become more aware of the risks of climate change, homes in lower-risk areas may see prices rise.”