Editorial: Climate change will affect property values, insurance - so it’s time to find answers

Opinion

EDITORIAL

Climate change may not usually rank as a hot topic for many New Zealanders. But property prices do – and the two are about to collide head-on.

In some places, the impact is already visible, as the Herald’s environment reporter Jamie Morton showed this week with a disturbing story about the rise of insurance premiums in the face of growing flooding and coastal erosion driven by climate change.

Alarm bells have been ringing for some time. Modelling by Niwa and the University of Auckland revealed 441,384 residential buildings – with an estimated replacement value of $218 billion – are at risk of flooding.

We know from events such as Cyclone Gabrielle and the Auckland Anniversary floods last year that extreme weather, previously expected about once a century, is now more likely to happen every 50 or even 20 years.

Insurance companies, whose business depends on these models, have started to raise their premiums accordingly. Based on international experience, they may start to withdraw cover altogether when natural disasters occur once every 50 years or more often.

One analysis calculated about 10,000 coastal properties in Auckland, Wellington, Christchurch and Dunedin could become uninsurable by 2050.

Homeowners are already living this nightmare in high-risk coastal areas such as Port Waikato, where time-sequence aerial maps show the sea creeping up the beach and into residents’ backyards. Some cannot sell their homes, which are now virtually worthless.

Similar scenes are playing out in Waitara in Taranaki, Haumoana in Hawke’s Bay and Bluecliffs in Southland. Low-lying areas in big cities, such as South Dunedin, Petone in Wellington and Auckland International Airport in Māngere, are increasingly at risk.

Yet the public will to tackle the problem seems limited, probably because the implications for property values are so profound.

When Nelson City Council released a hazard map with flooding and landslip ratings, many residents complained it was inaccurate and had made their homes uninsurable. The same pattern looks likely around the country as nervous councils weigh up the relative risks of accurate flood risk warnings versus a legal tsunami of complaints from aggrieved homeowners.

The most obvious response is to stop building in flood-prone areas, yet several housing projects in the coalition Government’s proposed fast-track development list are on at-risk land.

The next step, known as “managed retreat”, is to abandon properties in flood-prone areas, especially on the coast. This also seems to be in the too-hard basket. The previous Government failed to enact its proposed Climate Change Adaptation Bill and the coalition shows no interest in forcing anyone to move. A report by Parliament’s finance and expenditure select committee last month tried to set out principles for who would pay, but even its members dismissed them as too vague and contradictory.

It’s no wonder politicians want to duck this problem, as there are so many controversial questions. How much cost should homeowners bear, given they decided to live in a flood-prone area? What share of the cost should councils and the Government pick up? How can the Government provide much-needed leadership without distorting vital (but possibly inadequate) price signals from insurers?

None of these questions are easy to answer. The worrying sign is that, as a country, we seem unwilling to confront them and time is running out.