But did you also realise how much climate change is endangering our property and property investments?
New analysis, by Savvy of the latest Climate Council data, has revealed across Australia there are approximately 520,940 properties, (or one in every 25) which will be ‘high risk’ of an ‘extreme weather event’ such as flooding, extreme winds and bushfires.
That means insurance companies deem these properties too much of a risk to insure and deny an application for a home and contents premium.
Effectively, they’d be uninsurable.
Not only that, but another 9% of properties (1 in 11) will reach the ‘medium risk’ classification by 2030, with annual damage costs that equate to 0.2-1% of the property replacement cost.
These properties are at risk of becoming underinsured.
The most uninsurable suburbs - where they’re located
Victoria’s Greater Shepparton region - which encompasses Moira, Campaspe, Mitchell, and parts of Strathbogie - has the highest concentration of at-risk properties with 27.4% out of 94,280.
Thanks to its flat and rural landscape, 26.5% of properties in the area are at high risk of riverine flooding and 1.5% are at risk of surface water flooding.
The area has already experienced several major flooding events in 1916, 1917, 1939, 1956, 1958, 1974, 1993 and 2010/11/12.
According to the analysis, by 2030 there will be 1,607 properties in the area at high risk for surface water flooding and a further 2,140 properties at ‘medium risk’.
Next on the list is Tweed, Bryon and Ballina region in the north of NSW, bordering Queensland - the area includes Byron Bay, Hastings Point, Tweed Heads, and Mullimbimby.
Though once considered rural, these locations are becoming increasingly suburban. The popularity of the area means it has become increasingly suburban but its flat terrain and plentiful trees means many of the properties are at risk of bushfire and flooding.
Of 106,455 properties, 20.9% are considered high risk.
14.5% are at high risk of riverine flooding, 5.2% are at high risk of bushfire exposure and 0.4% of properties are at risk of surface water flooding.
Third on the list is the Maranoa River area of Queensland which sprawls across almost 750,000 square km of the northern state and encompassing Charleville, Cunnamulla, Dalby, Roma, Kingaroy, St George, Stanthorpe, Winton, and Warwick.
The area has the Maranoa River but is also home to The Condamine-Balonne River system, one of the major tributaries of the Murray-Darling river system, meaning a large percentage of properties are at risk of flooding.
Of a total of 132,078 total properties, 14.8% are at high risk of extreme weather events.
13.9% are at high risk of riverine flooding and 0.6% are at risk of bushfires.
In the regional town of St. George, it’s estimated that 70% of properties will be uninsurable due to flood risk by 2030.
Fourth on the list, and in Queensland again, is the Lockyer Valley & Scenic Rim which spans the Gold Coast hinterland between Logan and the New South Wales border and the Lockyer Valley west of Ipswich.
Of 88,952 properties, 13.6% are at high risk.
9% of properties are at high risk of bushfire, 3.6% are at high risk of riverine flooding and 0.4% are at high risk of surface water flooding.
By 2030, the risk of fire will affect a significant number of the properties in the communities of Yarrabilba, Canungra, Greenbank, Kairabah, and Jimboomba.
How is the data calculated?
Using a combination of modelling from the Commonwealth Scientific and Industrial Research Organisation (CSIRO), Universities of New South Wales and Queensland, the US National Oceanic and Atmospheric Administration, and data from Climate Valuation, Savvy has been able to create a Maximum to Date Value at Risk (MVAR) of extreme weather and climate hazards.
This is essentially the annual risk of damage to an asset.
Properties with an MVAR in excess of 1% of the total replacement cost is considered “high risk”.
These are properties where insurance companies will either set premiums beyond what is normally affordable, effectively refusing to insure a dwelling.
The total risk of hazards combines the likelihood of:
- Riverine flooding – when a river breaks its banks and floods
- Coastal inundation – when seawater floods an area
- Extreme wind – such as intense low-pressure systems or tropical cyclones
- Bushfires – destructive, out of control fires that spread through trees or forests
- Surface water flooding – often known as “flash flooding” after sustained heavy rainfall
“This could have a massive flow-on effect for house prices and gaining home finance in these areas,” Savvy home finance expert Bill Tsouvalas said.
“No one will want to live in an uninsurable property and a lender will shy away from providing finance for it.
”It could very well mean the death of some towns as they become uninhabitable from, not just a climate perspective, but economically.”
What does this mean for your property investment?
Aside from the fact that tenants would be wary of living in an area at such high risk of a severe weather event, an uninsurable property is also likely to be an unsellable property.
Investors could face the prospect of selling their portfolio off at a huge loss, and walking away with nothing much to show for it.
Nobody will want to buy your flood or fire-prone home, and even if they did, there’s a good chance they wouldn’t be able to secure the finance to do so.
What does this mean for property prices?
Climate change, increased risk in these areas and issues with insurance could have a flow-on effect on property prices.
Even the RBA warned late last year that dwelling values in 254 high-risk suburbs could fall as a result of climate change.
They suggest that Brisbane and the Gold Coast could feel the effects as early as 2050, while large areas of metropolitan Melbourne, Sydney, and Perth may also be affected.
The bottom line
I don’t share all of this to scare you about the potential risks of being a property owner.
In fact, it’s the opposite.
I am making you aware of another potential problem to keep in mind when it comes to making the best investment decisions for your portfolio.
The fact is, some suburbs are likely to become riskier as time goes on.
Others are located in relatively ‘safe’ zones, which aren’t as likely to be impacted by climate change.
While I’ve always said the location will do around 80% of the heavy lifting of your investment property's capital growth performance, clearly having a property in the wrong location will damage its long-term growth potential.
Focusing on buying an investment grade property in a good area is vital to your property investment success.
