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Byron Shire
April 22, 2024

Time to go? The costly impact of climate change on the housing hip pocket

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Brought to you by Cosmos Magazine and The Echo

In the Cosmos Synergy column, our staff writers explore how we’re dealing with the urgent issues of climate change.

“It’s terrifying, you live with the absolute fear of it happening again.”

Jennifer Woods had lived in Wagga Wagga her whole life, a single parent of four children, a social worker and no stranger to what life on a floodplain might throw the way of anyone living there: the town has learnt to cope with floods – 60 have been registered since Federation.

But in March 2012, authorities started issuing evacuation warnings, the Murrumbidgee River was overflowing and poised to breach the 10.7m-high levee surrounding the city.

Mercifully, that breach never came, ending 14cm short of spillover, but it was enough to prompt government funding to add 63cm to the town centre’s main levee and another 40cm to the secondary barrier protecting residents of North Wagga, where Woods lived.

It was at the time that Woods was partway through her PhD looking at community resilience and connectedness during the 2012 flood that she found herself back in the thick of it.

She’d sat on the residents’ association board, been involved in ongoing discussions around raising the levees that protected the community from 1-in-100-year flooding events, but after 2016, she decided enough was enough.

“I just couldn’t handle another one,” she says. “Even aside from all the practicality of paying, like, $6000 for insurance.

‘There was only one company that would insure me – I’m getting older and I didn’t want to pick up my furniture again.

“But the real crux of it is, I just couldn’t probably do it again. It takes your whole life.”

Jennifer Woods points to the flood level on her street in 2012. Photo Supplied

Making that life-changing decision – to stay or leave a vulnerable community – is personally difficult.

But it’s made even harder because of the unknown. How is the changing climate likely to impact regions already feeling the sting of consecutive natural hazards?

Climate change is risky business

A well-behaved climate scientist would avoid saying a single event was due to climate change. After all, weather variability exists with or without human activities pumping greenhouse gas emissions into the atmosphere. Climate itself is measured over, at least, decades. Factors like soil saturation, vegetation mix, and regional geography all play a part in the unique shape of a natural disaster, perched atop the foundation of natural variation and the energy injection of global warming.

Black Summer losses

State Fatalities Losses claimed ($) Uninhabitable homes
NSW 26 1.88b 2488
VIC 5 18.6m 300
SA 4 186m 147
Qld 0 69.6m 49
Source: Australian Disaster Resilience Knowledge Hub.

Estimates suggest the Black Summer fires cost Australia $2.32billion. But the climate offered little reprieve to the eastern states afterwards. Floods struck Australia’s east coast communities throughout the following 2 years at levels described, in some cases, as 1-in-100-year events.

The 2022 floods were the most expensive disaster in Australia this century, and the fourth-most ever, behind the 1999 Eastern Sydney Hailstorm and cyclones Tracey and Dinah (1974 and 1967).

Impact of NSW floods, 2021-2022

State Properties damaged Uninhabitable property Losses claimed ($)
2021 4375 1196 629.6m
2022 14000 5303 2.7bn
Source: Australian Disaster Resilience Knowledge Hub, NSW Flood Inquiry.

A 1-in-100-year event is terminological deception – it’s not a temporal measure, you can’t circle your unprecedented rainfall event and expect to see the next one appear in a century.

“It means that if you, at the start of the year, roll the dice 100 times, you’ll get that number once,” says Ashcroft. “It doesn’t mean that it has a 100-year return period. It’s probability that we’re playing with.”

Another way of describing it, as Ashcroft points out, is as a 1% chance of that event happening in any year. Our changing climate will shift the bounds of expectation for those events.

Property owners might wonder whether they can financially afford to take that risk on board.

At the end of 2023, Natural Hazards Research Australia and major insurer Suncorp released a discussion paper putting assisted relocations on the agenda.

No more is climate change an existential question. It’s far more mundane – it’s about the hip pocket.

It takes your whole life.

Jennifer Woods

“We have worsening natural hazard risk in our future. That’s being driven by climate change, but it’s also being driven by increased exposure, that is we have got more people and more assets than we’ve ever had before,” says Andrew Gissing, NHRA’s chief executive.

“We’re also seeing more frequent extremes. In communities, for example, the Northern Rivers [of NSW in 2022], but that’s not the only place around the country that’s seen back-to-back disasters and you’d expect to see similar, opposite events happen more often.”

Gissing poses the question for communities facing more frequent extremes: “Should we simply be making a decision about building them back somewhere better, rather than where they were, to simply be exposed to those hazards again?”

A house in Mullumbimby in the aftermath of the 2022 flooding. Photo Jeff Dawson

Like Jennifer Woods, who could only get one insurer to cover her house, and with a hefty premium bill at that, many others living in hazard-prone areas are starting to feel the pinch.

“If you think about financial services and how insurance operates, it’s that shock absorber in the economy, and also a safety net for individuals,” says Alix Pearce, senior manager of climate and social policy at the Insurance Council of Australia (ICA).

“And if we see this protection gap broadening between those that can afford insurance and those that can’t, the cost to our industry is significant, but also the cost to the broader economy, as well, will become very substantial.”

The industry and climate researchers want buyback schemes considered as a means of reducing risk exposure – not just for individuals, but for the economy as a whole.

And buybacks aren’t a new idea. In the 1980s, NSW enacted a voluntary buyback scheme for nearly 200 properties in Milperra a suburb in southwestern Sydney near Bankstown airport. About 170 properties have been acquired in the 40 years since.

At the same time, other communities have actively resisted relocation. Jennifer Woods’ old town in North Wagga has been the subject of relocation discussions as far back as the fifties. Even then, the community’s progress association opposed retreat. Today, North Wagga still proudly displays a welcome sign that defiantly states ‘We shall not be moved’.

North Wagga’s welcome sign. Photo Evrim Yazgin

But each flooded floorplan or ash-singed roof only pushes premiums up and calls for giving people greater transparency about how climate will affect their property costs are rising.

Modelled futures, model houses

Transparency starts with the science itself. There’s been plenty of it for decades, but the warning bell is ringing louder as devastating events marry up to long-standing predictions.

A glance over scientific reports from the Intergovernmental Panel on Climate Change spells it out – if greenhouse gases continue to increase at record levels (they still are) Australia’s climate will shift to be more favourable to major natural hazards.

Perhaps more disconcerting is that, while the world’s best climate scientists expect this to be the case, the truth is that we just don’t know what will actually happen – climate scientists can only make scientifically-informed predictions about changes to a most complex of systems.

“It’s bloody complicated!” Ashcroft says. “Some components of our weather and our climate and our land and our ecosystems are just so complicated.”

She points to the quality of data available for rainfall prediction – a major influence of both flood and fire events. Australia has just over 110 years of good-quality rainfall information. That might be fine for building temperature projections, but in Australia’s case, it “really only captures 3 multi-year, big, stonking droughts: The Federation drought at the start of the 20th century, the WWII drought and the big Millennium drought”.

“It’s not enough to do statistical analysis on, it’s not really enough to understand how frequent they are, how intense they can be.”

Inherent within climate projections is a level of scientific uncertainty or confidence – but it’s better than nothing. Ashcroft: “Of course, there are some things we don’t know, but just because you don’t know 100%, does that mean you don’t do anything?”

Man and woman near Lismore floodwaters
Lismore floodwaters receding, 2 March 2022. Looking down Uralba Street towards flooded CBD. Photo David Lowe.

But climate modelling does at least give policymakers and communities a chance to make reasoned and informed decisions about the future.

For years, the IPCC has used Representative Concentration Pathways (RCPs) – superseded recently by Shared Socioeconomic Pathways (SSPs) that better consider societal impacts – to help plug certainty gaps. These act as breadcrumb trails policymakers can follow: what future scenarios might efforts to reduce emissions be consistent with?

Just because you don’t know 100%, does that mean you don’t do anything?

Linden Ashcroft

An RCP4.5 pathway, for instance, sees greenhouse gas emissions peak around 2040 before trailing off towards the end of the century, ending with atmospheric concentrations around 540 parts per million in 2100 (current CO2 atmospheric concentrations are around 420ppm).

RCP4.5 is considered a ‘middle pathway’ – not the fastest reduction achievable but one that assumes some coordinated effort to slash carbon.

Contrast that with a high emissions scenario: RCP8.5 sees little effort to reduce emissions –CO2 reaches 940ppm by century’s end.

From here, scientists can extrapolate the carbon policy decisions made by governments and industries today into real world impacts – what will the climate be like, and what does this mean for human socioeconomic, food, health and infrastructure security?

Representative concentration pathways as indicated in the IPCC’s 5th Assessment Report (AR5). Image IPCC

While governments wrestle with how to structure their future economies, climate projections are being used to inform insurance pricing now.

But consumers need not be left in the dark. Some groups are beginning to feed that information directly to policyholders, in the interests of transparency.

When Jennifer Woods decided to leave Wagga, she looked at places right around Australia to try and find a new home.

“I was looking in Tasmania for a while and was using some sort of tool local to Tasmania, looking at flood, fire and maybe earthquake risk, and the relative impact on insurance,” Woods says. In the end, she settled on Bateman’s Bay, about 270km southeast of Wagga, itself a place that saw Black Summer fires immolate forests on the fringe of its community.

Risk consultancy firm Climate Valuation has provided free climate insurance risk assessments to the public for several years, and in 2022 was commissioned by the Climate Council (an environmental advocacy group) to convert its data into an Australia-wide map, indicating the level of hazard risk for individual suburbs based on RCP pathways.

As the ICA warns of the growing protection gap, especially in regional communities, the climate risk map highlights it. A medium level of risk indicates the chance that a property would be underinsured in the future. High risk means no insurer would offer a policy.

Under a middle-of-the-road RCP4.5 scenario the map of Australia lights up in shades of yellow and red. In the colour scale, the deepest red shading indicates more than 30% of properties in a given area are at medium-to-high risk; of being either underinsured or uninsurable.

It would be hard reading for some. Those areas razed in Black Summer are particularly noticeable: 92.8% of properties in the Blue Mountains Council are at medium-high risk. Over the border, for the Adelaide Hills Council also scorched by Black Summer, it’s 3 in 4 homes.

LGA Properties in LGA High risk Medium risk Properties at risk
Blue Mountains 44,383 1,749 40,311 94.77%
Adelaide Hills 21,172 10,370 9,850 95.5%
Source: Climate Risk Map, Climate Council (Data from Climate Valuations and Australian Bureau of Statistics)

“We buy [climate] data from the same suppliers, for example, that the insurance industry use,” says Karl Mallon, CEO of Climate Valuation.

Basically, he’s providing consumers projections based on the same methods the insurance industry uses to set premiums.

It does this by modelling ‘synthetic’ properties.

Let’s not sugarcoat it and pretend there isn’t a problem, there is a problem.

Karl Mallon

Take your own home, for instance. “We might say, OK, we’re going to build a synthetic version of that house,” says Mallon. “You might say it’s an old ‘Queenslander’ up on stilts, and it’s made of timber… or, you might say it was built last year, slab on ground, off the plan.”

Prospective policyholders answer these same questions when applying to an insurer.

The Climate Valuation model then considers where that synth house is built, mixing in satellite imagery with data on the soils of the area, height above sea level, flood maps, forest coverage, regional climate – both now and under those three RCP models. How will winds, temperatures and other environmental factors change over time? How will the most extreme events manifest in each scenario?

It’s not simply that a house is built in a hazard-prone area, it’s the complex mix of location, property age and quality together with climate projections that inform a premium.

Mallon says that knowledge is power to the policyholder. Does a house need to be upgraded? Would a person buy a house that’s considered under, or uninsurable?

“It’s not the insurance industry’s fault – they’re not a Magic Pudding which is like ‘Oh yeah, we’ll pay out every claim. Yeah, you get flooded every year and we’ll just rebuild your house,” that’s ridiculous, they can’t do that,” Mallon says.

Karl Mallon presents on property risk at an Adapt NSW conference. Photo Climate Risk Group

“But equally, let’s not sugarcoat it and pretend there isn’t a problem, there is a problem.”

Building certainty in an uncertain world

Despite these real and important problems, “for most Australians, climate change is not expected to have a huge impact on what they’re paying currently.”

So says Saroop Philip, an analyst at Sydney-based actuarial services firm Finity Consultancy. It’s undertaken several assessments of housing insurance affordability and socioeconomic equity in Australia, including for governments.

A 2022 green paper Finity prepared for Australia’s Actuaries Institute found the expected climate impacts on insurance premiums justified conversations around policy interventions to prevent rich-and-poor gaps widening. Often, those in the most hazard-prone regions are themselves among the least wealthy Australians.

Even so, when she sold her place in Wagga, Woods felt the guilt.

“Because I knew what I was doing, I knew I was selling someone a property that we going to be hard to insure, that’s probably going to be quite impacted in the future – could be tomorrow, could be 20 years.

“I was fully transparent with them [the buyer], much to my real estate agent’s dismay. And they bought it anyway. They bought the risk, but I felt pretty bad about it.”

Although Philip and his colleagues note most people living in Australia today won’t probably have a climate-affected premium, they also found it would be “almost inevitable… that some homeowners will be caught in an affordability trap over time, which was not foreseeable when they purchased their home”, further noting that charging for risk after housing construction affects both premium affordability and reduces property value.

It’s a conundrum, says the firm’s principal Rade Musulin. While increasing the information available to consumers to make informed decisions is a good thing, he says, the risk to those who have established properties is being left with stranded assets.

“For every person who makes a decision on saying not to buy a house or not to move there, it could also have a seller on the other end of the transaction that may suffer a drop in the value of their property,” Musulin says.

“You may have communities impacted by being branded as high risk. There are social consequences of that information too.”

And it’s not just communities built in the past, but established in the future. Every new development signed in high-risk areas exacerbates the issues raised by actuaries and insurers. Imagine buying a brand-new house, only to be told it might be prohibitively expensive to insure.

“For every person who makes a decision on saying not to buy a house or not to move there, it could also have a seller on the other end of the transaction that may suffer a drop in the value of their property.

Rade Muslin

Barbara Norman, Director of Canberra Urban and Regional Futures at the University of Canberra and a contributing author to IPCC Impact reports in 2013, says these pitfalls need to be factored into planning laws and approvals now. To its credit, Norman says, the federal government has enacted a National Climate Risk Assessment to scope the future, and what it means for communities around the country, many of which are calling for decision-makers to engage with them on the issue.

Barbara Norman. Photo University of Canberra

“There’s been quite a shift at the ground level now,” she says. “It doesn’t mean that they’ll like the solutions, but they really are looking for that conversation.

“If we can have a facilitated conversation across communities now – it’s not a matter of if [hazards will occur] but when – let’s look at the scenarios.

“Using scenario planning to tackle these issues is a lot less frightening to communities… what are the strategies? What would we do when these things happen?  And having at least thought through those processes, if the inevitable does happen, then at least they’re ready.”

For Jennifer Woods, who packed up and moved out of Wagga, relocating life somewhere else has worked out well. Despite difficulties adjusting to a new community, she says she’s thriving now, and encourages those in similar situations to be open-minded about the prospect.

“You should never, never say no to an opportunity before you explore what it’s going to offer you,” she says.

“Have a look at it, see what it can offer you and the community as a whole.”

But at the same time, she wants outsiders to know that it’s never an easy decision to uproot and transplant elsewhere, which is why planning for the future is so important for communities around the country, many of which forge even closer bonds amid disaster and destruction. Bonds that will be essential for these communities, whether they continue to rebuild, or leave for pastures new.

“At the end of the day, all of those things: policy, insurance, it’s all about people.”

“It’s really important not to underestimate that sense of community that is born out of a shared disaster experience. It’s really a strong and potentially powerful tool. That if you derive it properly, and you nurture it, you could actually really build really great, strong communities going forward.”


This article was originally published on Cosmos Magazine and was written by Matthew Ward Agius. Matthew Agius is a science writer for Cosmos Magazine.

Published by The Echo in conjunction with Cosmos Magazine.


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