Climate change and the property market

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Australia is a land exposed to the elements and with climate change a hot topic for global debate, property investors should keep up to speed on potential threats to their most valuable assets.

Global warming is the topic of the moment with much speculation as to what it is, what causes it, what damage it will cause itself and whether it even exists.

While there is much debate about the causes and projections of climate change, the Commonwealth Scientific and Industrial Research Organisation (CSIRO) has made several predictions.

 

CSIRO research
The average surface temperature of Australia has increased by 0.7 degrees over the last century. The CSIRO predicts that Australia’s annual average temperature will increase by 0.4 to 2.0 from 1990 levels by the year 2030, and one to six degrees by 2070, as a result of greenhouse gas emissions. While this might not sound like a lot, experts say that an increase of just one degree can have severe environmental and weather impacts, such as flooding and cyclones. CSIRO also predicts that sea levels will rise by between 0.09m and 0.88m by the year 2100 relative to 1990.

 

CSIRO climate scientist Dr. John Church believes that even a conservative increase could see the coastline reduce significantly in some areas of the continent.

 

“In Sydney and Fremantle, high sea-level events occurred more than twice as frequently during the second half of the 20th century in comparison to the first half. This effect will be exacerbated with further rises in sea level – any change in the frequency or intensity of storms will have an additional impact,” says Church.

 

Cyclone Larry in North Queensland in 2006 is one example of a surge in severe storms. As a result of the cyclone, coastal properties not only suffered structural damage, but also became more expensive to insure and in some cases the most vulnerable properties have become uninsurable.

 

Likewise, in areas of Western Australia and South Australia where the economy relies heavily on primary industry, a severe storm can have a detrimental impact on both the local industry and the supporting infrastructure and property market.

 

Basin dry up

With temperature increases and a lack of rainfall, the number of high fire risk days in south-east Australia will increase by 4-25% by 2020, according to the CSIRO.

 

The Murray Darling Basin, which spans over three states and one territory, has recorded its lowest ever rainfall over the first three months of this year with a slight improvement in April according to the Murray-Darling Basin Commission.

 

According to the CSIRO, approximately 48% of Australia’s farms fall within the Murray-Darling Basin with a gross value of $7.9 billion (ABS).

 

Rural real estate agent Tim Lyne from Ray White says that until there is a sufficient amount of rain, prices in rural areas will decline.

 

“Irrigation properties are the worst affected, such as those which produce cotton. Property prices in the area in and around McIntyre have hit a standstill,” Lyne says.

 

 

Vulnerable coastal property

The threat of climate change on coastal regions makes for a huge potential loss of infrastructure and property. So where are the areas most at risk?

 

(1) Cairns and the Great Barrier Reef

According to the Australian Government Greenhouse Report, storm surges will be a serious issue for the North Queensland coast. The Cairns and Great Barrier Reef region comprise just 4.4% of Queensland’s area, however more than 11% of Queensland’s total agricultural output and 20% of its accommodation is based in the area. The estimated value of the tourism industry in Cairns is around $1.1bn per year, while the primary industries such as agriculture are estimated at an annual worth of $785m.

Severe weather associated with climate change would be devastating to Cairns’s economy as well as Queensland as a whole.

 

(2) Ballina

In a region where 63% of the population live on the coastal fringe, Ballina is a vulnerable destination for residential property damage.

As a result of the area’s vulnerability, Ballina has taken up the Cities for Climate Protection Local Action Plan, where 40% of the population have chosen to participate in household energy and water reducing initiatives.

 

(3) The Gold Coast

The Gold Coast is one of the few areas in Australia where there are beachfront properties adjoining the sand. The fact that the land is low-lying makes the Gold Coast particularly vulnerable to flooding and rising sea levels.

 

Gold Coast mayor David Power has taken the threat of climate change very seriously and has set legislation in place to combat any severe effects it might have.

 

“Climate change is something that we’ve been addressing for the last 12 years. Our strategy is to prepare for the one in a hundred year storm, which there is scientific evidence will occur more frequently as the climate gets warmer,” he says.

 

 How will climate change affect the property market?

The direct effects of climate change relate to whether climate change and its bi-products will directly influence a property’s price. However, as environmental scientist Dr. Peter Cowell, a lecturer on Marine Science from Sydney University says, “people don’t care about what can happen 100 years from now, they want to know how it will affect them now”.

 

As the effects of climate change become more apparent, Australia will soon need to formulate action whereby areas are identified as being suitable for property development or not. According to Cowell, not enough is known about where the safe and not so safe areas are.

 

“From what we know about the physical processes, the risk will vary significantly from place to place. Nobody has done the modeling in detail adequately enough to identify good risk from bad risk near the coast and in the coastal lowlands,” he says.

 

“It's obvious that up the hill on bedrock is safer than down in the coastal lowlands on deposits of loose sediments. But that distinction is not very useful because clearly the sea-change society wants to invest as close to the beach as possible,” says Cowell.

 

“It's there we need to distinguish between bad risk and acceptable risk locations. If the nation is overly cautious, we undercapitalise. If the nation is too reckless, we create a liability that is unpatriotic because of the degree to which the liability undermines future prosperity,” he adds.

 

Property insurance
Perhaps the most immediate threat of climate change on property owners is the recent surge in home insurance premiums. The homes affected by this are in coastal regions where severe weather events have become more and more frequent.

 

While there is no conclusive scientific evidence to directly link climate change with an increase in natural disasters such as cyclones, insurance companies believe that the two are linked and have taken action accordingly.

 

Nicolas Schofield from Allianz Insurance says that insurance rate setting is not a forward projecting exercise but rather based on the nature and impact of the claims over a long period of time.

 

“Insurance premiums are based on risk. We can only decipher the amount of risk to a particular property on what we know is going to happen now. 2005 was a bad cyclone year so premiums for properties on the north coast of Australia did rise, but then 2006 was a more benign year for cyclones. As we get more claims related to weather damaged property, then our premiums will rise. This has already happened in parts of North Queensland,” says Schofield.

 

In Allianz, around 35–40% of all losses are already caused by natural disasters, while worldwide insurers paid out approximately $67 billion on claims related to natural disasters. If cyclone weather moves south as a result of the temperature rising, Schofield says that insurance companies will raise premiums.

 

Ski resorts – bargain!

 A gradual increase in temperature has meant that ski seasons have consequently been getting shorter across the globe. A CSIRO report projects that the ski season's longevity will decline by 16% by the year 2020, while a damning UN report claims that, as a worst case scenario, none of Australia’s nine ski resorts will be economically viable by 2070.

 

As the temperature becomes warmer, the snow levels will become higher, which will leave resorts that are at low altitudes without snow. The CSIRO predict that the snowline at Mt Kosciusko will rise from its present average level of 1,460m to between 1,490 and 1,625 by 2020. Another CSIRO report predicts that the worst case scenario will mean that 96% of the snow will be lost by mid-century.

 

Alpine real estate agent John Castram says banks are becoming increasingly weary of lending money to finance alpine properties.

 

"If climate change is alive and real, the very first mountain in Australia to go is Mount Buller, then Thredbo, then Perisher, then Falls and the last one left standing is Hotham because it lies above 1500m. This is the area everyone will go to,” he says.

 

Castram admits that the threat of climate change has impacted the alpine property market but says that it could be an opportune time to buy.

 

“In the last year we’ve sold $35 million in property in both Dinner Plains and Mt Hotham. These are just small towns but it shows that people are responding to the lower prices,” says Castram.

 

The green boom
Shadow Minister for Climate Change, Peter Garrett says that addressing climate change through the creation of carbon abatement plants would do wonders for economic growth.

“We need a new direction to deal in a practical way with the climate change challenge. If we put in place the right policy settings, we can cut our greenhouse pollution while creating jobs in the areas where they are needed, namely regional and rural Australia,” he says.

A booming green industry could have a positive effect on property prices in and around the region where these carbon abatement plants would be situated. A similar scenario took place with the industrial boom in Western Australia and the effect this had on the property sector. Median capital growth in regional areas grew by 30.64% in 2006, according to Residex.

 

Following the government’s initiative to reach a mandatory renewable energy target by 2010, Australia can expect to see an increase of wind farms and other renewable energy industries. This would undoubtedly have an impact on the overall economy, including the property market.

 

(1) Waubra, Victoria

Located in Victoria, northwest of Ballarat, Waubra is a small town that has been boosted by the development of a wind farm. The $326 million wind farm has provided an increase in jobs and tourism. The operating company, Wind Power Pty Ltd, has committed to establishing a Community Wind Fund for the benefit of the Waubra community, contributing $64,000 annually. There is a second wind farm currently being built by Acciona Energy, which will provide more jobs as well as further fuelling the economy.

 

(2) Alinta wind farm, Western Australia

This is the largest wind farm in Western Australia and also one of the largest in Australia. It houses 54 of the world’s largest wind turbines. The Alinta wind farm located in Pinjarra aims to inject $30 million into the economy as well as creating well over 200 jobs. The secondary benefits are increased tourism, as well as heavily reduced electricity costs.

 

3) Woolsthorpe, Victoria

Wind Hydrogen Limited is a company that generates renewable energy created primarily through wind power. It operates from both the UK as well as Australia in Woolsthorpe, which is situated approximately 16km north of Warrnambool, Victoria. The project covers 750ha and will include 20 to 25 wind turbines.

 

 

The greenhouse

If you’re planning to build, there are some basic elements to consider, from the orientation of the building to insulation and fittings.


Ideally, buildings should have a completely northern aspect but if that can’t be achieved, then the aim should be to maximise the property’s northerly exposure.


Insulation should be the most important aspect of building an eco-friendly house as it will save energy. Using materials that are high in thermal mass such as brick or sandstone will go a long way to insulate a house, because these materials take a long time to heat up or cool down as opposed to materials like timber, tin or acrylic.

 

General manager of Archicentre David Hallett says his company is focused on designing eco-friendly houses amidst the growing concern of climate change.

“With increased densities being pushed by governments, homeowners and homebuyers are becoming more conscious about their property delivering healthy environments to deliver lifestyle outcomes,” he says.


Hallett believes that suburban homes will be fitted with eco-friendly features in the near future. “Water walls could be of great advantage where space required for a standard tank does not exist and we could also see water fences becoming part of the urban landscape where neighbours would be able to share the water saving potential.”


Futurist Annie Macbeth says that in years to come a house’s self efficiency will increase its price.


“Urban lifestyles are beginning to be affected by water restrictions, although the real impact has not yet been felt by most city dwellers. Properties that are water and energy conscious will have a well recognised added value,” she says.

 

Eco living

If you are a landlord, here are some measures you can take to make your property and your tenants eco friendly.

 

 

(1)      AAA shower head: $20
These shower heads will use only seven to nine litres per minute whereas a traditional shower head will use 20-30 litres. Not only is this great for the environment, but it can reduce your water bill by up to $100.

 

(2)      Tap aerators : $5
These little wonders help to control how much water you use by mixing it with air. They can be bought at any hardware store and they simply screw onto your existing tap.

        

(3)      Dual-flush toilets: between $200-$700
An average flush uses 11 litres of dam water as opposed to a dual-flush toilet, which uses three litres for a half flush and 4.5 litres for a full flush. Dual-flush toilets, along with washing machines and dishwashers, come with a water efficiency rating system, which is measured in stars. The more stars, the better that appliance is for the environment.

 

(4)      Rainwater tank: from approximately $700 (government rebates available for up to $800)
Not only can water caught in a rainwater tank be used for watering the garden, it’s also possible to connect it up with the shower, toilet and your other water utilising appliances. A rainwater tank on a coastal suburb of NSW has the potential to save up to 100,000 litres of water per year.

 

(5)      Solar panels: from $12,000 (small one or two bedroom house) – $35,000 (a large house that uses a lot of energy)
Solar panels can be installed on the roof of the building and provide energyfor lighting, electricity and heating water. Installation costs would not be cheap. However, solar panels have the potential to reduce running costs from around $100 to over $1000.

 

 

(6)      Linings in the roof, floor and walls: cost varies 
Insulation is the most important factor in reserving energy in a household. If a house is kept warm in winter by maintaining its heat and stays cool in summer by blocking out the heat, then there is little or no need to use energy for an air conditioner. 

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