Coast property ‘tragedy on horizon’
There is more to a report warning of dangers for coastal property owners than meets the eye, Neil Johnstone believes.
WELLINGTON: A leading researcher says there is an urgent need to understand New Zealand’s “tragedy on the horizon” — climatedriven costs that could hit coastal properties and banks.
Tens of thousands of homes that sit within a kilometre of the coast are likely to be hit by a combination of sea level rise and more frequent and intense storms as a result of climate change this century.
One report last month predicted thousands of homes in our main four centres could face soaring insurance premiums — or have some cover pulled altogether — within only the next 15 years.
In a major new study pulling together experts across geology, climatology, banking and real estate, Associate Prof Ivan DiazRainey, of the University of Otago, will take a wider look at the crisis, exploring when and to what extent it will impact property values.
“The ‘when’ is a really critical question — that depends on what [climate change] scenarios play out, but right now, we want to get some bounds around how house prices are going to be affected,”
Prof DiazRainey said.
“When South Dunedin was flooded in 2015, for instance, at first there was a 15% discount on those affected houses, before it recovered to around 4% over the long term.
“But obviously, if these properties start flooding frequently, and there are no defences, then the effect is different.”
Models already indicated houses were expected to sell for discounts in areas with higher risks of damage from natural disaster, such as flooding.
‘‘That lower price compensated for the higher costs of insurance and repair.
The current average holding period of a New Zealand house was about 7.4 years — but those homes imminently threatened with permanent flooding were likely to become stranded assets more quickly than that.
Prof DiazRainey said that raised big implications for the banking sector — and his study would investigate the potential thresholds for state changes, such as banks withdrawing lending.
The state changes themselves could trigger a fire sale of assets, as homeowners sold up before their assets were stranded, or simply walked away from homes with negative equity.
Given more than 60% of the four largest banks’ loan portfolios were made up of housing loans, even a relatively small proportion of stranded assets could threaten financial stability.
“The big central banks around the world are now taking this extremely seriously as is the Reserve Bank of New Zealand, who are a partner in our project,” he said.
“In New Zealand some banks have 90% of their assets in domestic real estate, but this is an evolving situation, and it really depends which pathway we go down.”
A sweeping assessment, released by the Government last year, set out scenarios New Zealand faced based on emissions rising at the current rate, and resulting in a projected 67cm of sea level rise and a 3degC increase in temperature by 2090.
It found about 675,500 New
Zealanders lived in areas already prone to flooding, and a further 72,065 lived where some of the most dramatic effects of sea level rise could hit.
One of its authors, Niwa coastal scientist Dr Rob Bell, said New Zealand likely had only a few decades to get proper plans in place to prepare for rising seas.
Prof DiazRainey expected the climate threat would hit properties and banks with quick shocks, like those caused by Canterbury’s earthquakes, as well as also gradual impacts, as seen with the slow buildup to the leaky homes crisis, ultimately cost $47 billion. — The New Zealand Herald
THIS newspaper, for the second time in about a month, recently gave frontpage credence to a Governmentfunded report that anticipated (even encouraged) insurance difficulties for some 3100 Dunedin property owners within 15 years. The report, written by North Island “climate economists”, claimed to be based on the impacts of extreme storm surge in conjunction with expected sea level rise.
Having some knowledge of the physical realities involved, and of local flooding characteristics, I questioned the authors’ approach via a series of emails. It turns out that their report has not been peerreviewed, that the authors could not identify where the claimed 3100 affected Dunedin properties were located, and that the authors were entirely unaware of the only detailed study of storm surge/sea rise impacts along the Otago coastline. I sent them a copy, but received no further response.
There are arguably three reports in play. The first is a detailed Niwa report. It is a comprehensive 160pager that maps, in detail, areas of the Otago coast at risk from combined sea level rise and storm surge. I refer to this as the scientific report.
A second Niwa report produced generalised nationwide tabulations of numbers of houses and utilities in cities that are situated on land believed to be lowerlying than calculated future sea levels in conjunction with extreme lowprobability storm surge conditions. I refer to this as the inventory report.
Finally, there is this latest report, highlighted by the ODT and other media, whose authorship is predominantly (not entirely) based within Te Herenga Waka — Victoria University of Wellington. For clarity, I refer to this as the economists’ report. This report is funded by MBIE (the taxpayer).
Niwa describes its inventory report as utilising simple “bathtub” mapping. If an area’s surface (the seat of the bath) is below the elevated sea level in a projected storm event, it is included in the inventory.
This approach essentially ignores the elevation of any protective landform between the area under consideration and the sea (it ignores the height of the “rim” of the bath). In the case of Dunedin, the protective rim is provided primarily by the sand dune system that extends from Lawyers Head to St Clair. That system obviously needs to be maintained.
Niwa has confirmed that its scientific report takes into account local topographical detail, whereas its inventory report does not.
I can’t tell you the quantum of sealevel rise, nor frequency of extreme storm surge, nor what the condition of the sand dunes will be at any time in the intermediate to longerterm future, but I can assure readers that the insurance retreat scenario 15 years hence predicted for Dunedin is at odds with credible scientific analysis and reporting. Residents should ensure that their insurers take note.
We should all be mindful of realistic climate change impacts and of realistic solutions. The areas of the Dunedin coast that the scientific report identified as potentially at risk from storm surge are at Taieri Mouth, Long Beach, Purakaunui and possibly other small settlements. I suspect the total number of such properties at imminent risk would be closer to 31 than 3100.