UPDATE: A groundbreaking report reveals that Australia’s property market is on the brink of a severe downturn due to escalating climate risks. The assessment suggests that extreme weather events could slash property values by a staggering $570 billion by the end of the decade, with losses potentially rising to over $610 billion by 2050 under a worst-case climate scenario.
The report, Australia’s first national evaluation of climate threats, highlights the urgent need for homebuyers and investors to reassess their decisions. Key risks like riverine flooding, coastal inundation, and bushfires are anticipated to significantly impact property prices. Researchers indicate that as these disasters become more frequent, buyers will likely opt for lower-priced, less vulnerable properties, pushing banks and insurance companies to adjust their valuations and premiums accordingly.
Ehsan Noroozinejad, a senior researcher at Western Sydney University’s Urban Transformations Research Centre, stresses that while some current risks are factored into property prices, future threats such as sea-level rise remain undervalued. “Future risks, like sea-level rise or low-salience hazards, are only partially or not at all capitalized into prices,” he stated.
The 2022 floods in Lismore, a town hit hard by disaster, exemplify this phenomenon. Despite a temporary dip in property values, recent data shows a rebound in prices, which are now 6.7 percent below record highs. This resilience can be attributed to the town’s appealing lifestyle and a lack of affordable housing options, making residents reluctant to leave despite the risks.
Why This Matters NOW: As property values in vulnerable areas face increased pressure, the ripple effects will be felt across the economy. The report indicates that nearly 751,000 homes are currently situated in high-risk zones, with projections suggesting that over 1.2 million homes could fall into the very high-risk category by 2090.
Liam Dillon, a senior economist at the Committee for Economic Development of Australia, notes that rising insurance premiums are already affecting home values in high-risk locations. “Rising insurance costs could erode property values by as much as 10 percent in some instances,” he explained. This trend is expected to amplify, particularly in less affluent suburbs where residents may struggle to cope with increased premiums.
Ray White chief economist Nerida Conisbee also points out that wealthier buyers are better equipped to manage rising insurance costs, allowing them to continue investing in high-risk areas. For instance, Adelaide Hills remains a hotspot for affluent buyers despite its bushfire threat.
The disconnect between perceived and actual risks adds another layer of complexity. According to the latest findings, less than 1 percent of homeowners believe they are at high risk of flooding, despite 4.4 percent of homes actually facing significant annual flood probabilities. Dillon advocates for improved transparency and mandatory hazard disclosures at the point of sale to help buyers make informed decisions.
As the climate crisis intensifies, this report serves as a wake-up call to homeowners, investors, and policymakers alike. With the potential for significant property devaluation looming, immediate action is crucial to address these risks. Stakeholders must stay informed and proactive as the landscape of Australia’s housing market evolves in response to climate change.
Stay tuned for updates as this situation develops, and prepare for potential shifts in the market that could impact your home investment decisions.
