How climate change affects coastal property: Which areas are the most at-risk?

A new report has revealed the areas around Australia where coastal property is at the greatest risk of being affected by climate change, which could potentially affect property values as well as the cost of home loans and home insurance premiums.

The new Coastal Risk Scores for Financial Risk Assessment whitepaper from CoreLogic estimates that $25 billion worth of Australian residential coastal property may be at risk from increasing storm surges and coastal erosion as a result of climate change.

Which areas are most at risk?

According to the CoreLogic report, common traits of the top 10 suburbs at “Very High” risk include their close proximity to the coast, low elevation, fastest coastal retreat figures and high property values. Many of these at-risk properties were found to be concentrated around the Gold and Sunshine Coasts in Queensland, Cronulla and the Northern Beaches in New South Wales, and Port Melbourne in Victoria. 

Top 10 suburbs by number of buildings exposed to CoreLogic’s Very High and High Coastal Risk Score, ordered by Value at Risk (VaR)

Source: CoreLogic

What does this mean for me?

CoreLogic head of consulting and risk management, Dr Pierre Wiart, said that coastal risk will crystallise over the next three decades, describing recent extreme weather events as “tangible effects of climate change”.

“This is leading to direct physical and financial consequences. Coastal risk has far-reaching implications for the country’s property market and its supporting financial sector, including property valuations, home loan viability and insurance premiums.”

CoreLogic research director, Tim Lawless, added that the shift to working remotely has caused the value of coastal properties to accelerate significantly over the past two years, with Queensland’s Gold Coast and Sunshine Coast recording annual median value increases of 33.0% and 34.4% respectively in the 12 months to January 2022.

According to Dr Wiart, it’s important for owners, potential buyers, and the property and financial sectors to understand the risk associated with coastal properties, which could include:

Lower property values plus riskier home loans

If you own or are planning to buy a property in a coastal area, it’s possible that the value of your property may rise more slowly or even decline over time due to the higher risk of being affected by coastal erosion, rising sea levels or more. It may also be harder to successfully apply for and/or refinance a home loan if lenders are concerned about the risk to these properties.

According to Dr Wiart, “credit risk and long-term loans are directly impacted by these natural trends. Equally, for any financial institution, it is important to evaluate the potential downturn in property values or the concentration of a portfolio at risk.”

Less insurance coverage plus higher premiums

It’s not a secret that insurance costs more in some areas of Australia than others, with premiums quickly becoming unaffordable in areas at the highest risk of natural disasters such as flooding.

According to Dr Wiart, “increasing coastal risk is also adding pressure on insurance. Property owners face ballooning insurance premiums and restricted insurance coverage, together diminishing their insurance affordability and protection of their significant assets.”

What steps can I take?

Before applying for a mortgage to buy or refinance a coastal property, you could consider ordering a free property report to get an idea of its approximate value and other important information.

Comparing home loans can help you find a mortgage offer that may suit your financial situation, though you may want to contact the lender to find out if they have any special terms and conditions for at-risk properties on the coast or elsewhere. A mortgage broker may also be able to help you find a home loan and mortgage lender that suits your needs.    

Compare home loans in Australia