Climate Change and Australia’s Property Market
Whilst most property buyers focus on home features, proximity to establishments and the lifestyle it offers, another factor now influences the buyer’s decision — the effects of global warming on the property.
Ugly Truth: Australia will face $611 billion worth of property damage by 2050 due to climate change.
The Climate Council also projected that the Australian economy is poised to be inflicted by a staggering blow of diminishing property values to the tune of $571 billion by 2030.
In fact, the Reserve Bank of Australia has already announced that more than 250 suburbs in the country will experience falling property values. Today, 3.5% of Australia’s homes are already at the highest risk.
The Climate Council reported that in 2030, $571 billion will be slashed off from the current $9 trillion property market’s value. The decline in value will be mostly seen in agricultural and coastal regions due to extensive flooding.
How Did the Previous Disasters Affect Australia’s Property Market?
Australia faces natural disasters way too often. Remember the 2019-2020 bushfires? How about the Brisbane floods in 2011? Despite a 17.2% increase in natural disasters in Australia from 2008 to 2021, primarily storms and floods, the housing market has shown remarkable resilience. Among the four major disaster types studied (bushfires, cyclones, storms, floods), bushfires had the most substantial impact on affected areas, notably increasing days on the market and reducing turnover.
Bushfires didn’t correlate with year-on-year house price growth but did prolong property sales. Cyclones reduced property turnover rates, storms increased days on the market, and floods reduced year-on-year house prices while increasing days on the market.
Specific case studies of major disasters, including the 2019 NSW bushfires and the 2020 NSW floods, revealed different impacts on metro and regional areas. Metro areas rebounded more quickly, possibly due to better infrastructure. Overall, metropolitan areas demonstrated greater resilience in the face of natural disasters compared to regional areas.
These events were devastating, but according to CoreLogic, the effects did not impact the property market.
However, climate change is a whole new category, and researchers discovered that it can have a more permanent impact on real estate.
Will Urban Homes Be Affected?
Certainly! The Australian Sustainable Built Environment Council states that global warming can cause ‘heat islands’ where the increase in temperature can cause building materials to deteriorate faster. Bushfires will not just leave ravaged homes but can cause damaged electrical wires and leaking gas, resulting in run-down communities.
In NSW alone, nearly 90% of the population resides in urban areas, where temperatures are typically around 1°C to 3°C higher than in rural areas. Climate change elevates average temperatures, leading to more frequent and prolonged extreme heat events. This exacerbates urban heat and the heat island effect, intensifying the impacts of climate change in cities and making extreme heat even more severe and challenging to handle.
What Will Happen On Bank Loans and Insurance Premiums?
Australian banks will be more exposed to risks and credit losses if they take homes as collateral. To augment the possible loss, home loans are expected to be more expensive with higher interest rates. The borrowing cost will increase if Australia does not do anything to target zero emissions by 2050.
As early as 2030, around 5% of homes will face exorbitant premiums being at high-risk locations. With more weather-damaged properties in the coming years, premiums are also expected to shoot upwards.
The Reserve Bank conducted a climate scenario analysis as a complement to the CVA, focusing on banking sector risks. The analysis considered housing price impacts due to physical climate risks, estimating that around 7.5% of properties could see a 5% or greater reduction in price by 2050, relative to no change in climate risks.
Will the Property Market Still Be Profitable?
The property market is integral to the Australian economy as the highest investment by the value of all asset classes, and its connection with large employment generation sectors: construction, developers, marketing, banking and others. Thus, property market resilience is crucial for Australia.
As James Hansen puts it, “Global warming isn’t a prediction. It is happening.”
This ignites fear amongst property developers. And if you resonate with this, here’s some news to cool you down.
Astute property developers can still successfully build and market projects using a keen eye on environmental news. You must take a closer look at where the governments will implement measures to protect communities from the seismic effects of climate change.
Property developers must also find ways to create environmentally-friendly and sustainable homes that reduce carbon footprint. Using smart metres, installing energy-efficient light bulbs, adding solar panels and proper insulation, and opting for double-glazed windows are some of the features that can be incorporated.
Currently, eight million Australian homes aren’t energy efficient, and according to our internal research, most of these homes need to be demolished and rebuilt from the ground up. This means a huge potential for both developers and renovators.
Don’t believe me? Here’s where I got the facts from:
What are the full economic costs to Australia from climate change? (unimelb.edu.au)
RBA sounds alarm on house prices in 254 suburbs (yahoo.com)
Climate Change Could Wipe Billions Off-Property Market: New Report | Climate Council