How to know whether to rebuild your home or relocate after a natural disaster

With the cost of repairs to flood-damaged homes across New South Wales and Queensland expected to soar, homeowners may be wondering whether to rebuild or relocate after significant damage to their homes.

Insurance Australia Group (IAG) previously noted that insurers had already received over 30,000 claims immediately following the floods, with 5,000 homes potentially needing to be replaced.

The potential cost of rebuilding flood-damaged homes could soar 20% or more due to a skilled labour and materials shortage, warns CoreLogic’s head of insurance solutions, Matthew Walker.

In an interview with the Australian Financial Review, Mr Walker stated that the “expected range of additional cost for a full rebuild based on our past experience is in the region of 20% and 50%.”

“In the past significant events, individual building element costs can increase by as much as 300 per cent and labour rates for specialist trades doubling or more for long periods after the event. These rates are partly a factor of the event’s location and distance to major centres,” said Mr Walker.

The choice to rebuild a home following a disaster, whether through recuperated losses from insurance claims or your own savings, is extremely personal and will depend on individual circumstances and emotions.

For some homeowners, it is not about the money but the significance of the home for themselves and their family. For others, they may be in a position to consider walking away – especially if repair costs are tipped to skyrocket.

When is it not worth rebuilding after a natural disaster?

In September 2020, IAG released its Severe Weather in a Changing Climate report, which reiterated the estimate that global warming could reach 1.5°C during the 2020 decade and 2°C by 2035. This alone is expected to increase the frequency and intensity of weather events, including more droughts and extreme weather events leading to flooding.

Unfortunately, due to the likelihood of destructive events increasing, thanks to the lack of response to climate change in Australia, it may be worth exploring scenarios in which homeowners could consider relocating instead of rebuilding following a natural disaster.

• When you cannot insure your property

In areas across Australia prone to flooding, such as towns built on floodplains, you may find that homeowners are simply uninsured for flood damages. This is often not a choice, with insurers either not willing to offer flood protection, or the cost of premiums in these areas are out of reach for everyday Australians. In some flood-prone areas, the cost of residential premiums are reported to be up to $30,000 a year.

For example, the Hawkesbury-Nepean Valley floodplain is home to one of the fastest growing areas of Western Sydney. The state government reportedly has plans to increase the number of residents on the floodplain from 70,000 to 130,000 by 2050. In 2019, Coles Home Insurance advised residents of Waterside Estate it would cease policy plans in this area due to flood risks.

If you are a homeowner with property in an area that is unable to be insured for flood damages, or the cost of premiums are too high to afford, it may be worth considering if relocating could be a better fit financially. Especially if more flooding events are to be expected due to climate change.

• When you live in a high-risk area for climate change events

Flood-prone areas with high populations are expected to face the most significant losses and damages due to climate change. But it’s not just floodplains that are high-risk areas for devastating climate change events.

If high-end rising sea level scenarios do result in a near-1m increase, every state and territory except the ACT could see houses and landmarks submerged underwater by 2100. Coastal cities and communities, such as Darwin, Collaroy-Narrabeen Beach and the City of Lake Macquarie, are expected to be severely impacted.

According to the 2020 IAG report, the frequency of tropical cyclones making landfall in Queensland’s east coast and the western South Pacific region has increased substantially. And south-eastern Queensland and north-eastern and eastern New South Wales areas are currently experiencing increases in the frequency of large to giant hail.

The most significant increases in risk of destructive hail are likely to be “in the region inland from the Hunter River, south through the central and southern New South Wales highlands and central to eastern Victoria”, according to the IAG report.

Across all of Australia, it is expected that the likelihood of bushfires that result in serious loss of life and damage to property will increase, along with the length of fire seasons. But this is also expected across fire-prone regions globally, which have historically shared firefighting resources. With more devastating bushfires expected, this could strain these global resources.

It’s unrealistic for every homeowner living in a potential high-risk area for climate change events to up and move today. But it’s worth keeping in mind that it’s not just insurance that may impact your decision to renovate or relocate, but the increased rate at which your property could be damaged over the next few decades.

Compare home insurance