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Lenders warned coastal risk threatens $24.9bn in homes

Research from CoreLogic has cautioned increasing storm surges and coastal erosion will threaten almost $25 billion in residential property, with expected knock-on effects for the mortgage industry.

The findings, published in a new report, has been based on a freshly developed coastal risk score, measuring the potential impact of climate change over time.

CoreLogic reported its risk score has evaluated combined coastal risks based on compounding storm surges (rapid erosion of the shoreline, where sea water is pushed onshore by strong wides and surges above normal tide levels) as well as long-term erosion and the ongoing rise in sea levels.

The data firm has drawn on three decades of shoreline movements and location analytics, to calculate its coastal risk ratings.

Pierre Wiart, head of consulting and risk management at CoreLogic commented the damage caused by recent flooding in South-East Queensland and NSW was a reminder of how extreme weather events could devastate home owners and property.

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“In the next three decades, coastal risk will crystallise, with the tangible effects of climate change already being felt in most parts of Australia,” Dr Wiart said.

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

Australia’s sea levels are rising at a higher rate than the global average, according to a United Nations Intergovernmental Panel on Climate Change (IPCC) report from August.

Dr Wiart commented that understanding the coastal risk associated with properties will be key for home buyers and the property and financial sectors.

“Consequently, credit risk and long-term loans are directly impacted by these natural trends,” he explained.

“Equally, for any financial institution, it is important [to] evaluate the potential downturn in property values or the concentration of a portfolio at risk.”

Property owners are also expected to face ballooning insurance premiums and restricted insurance coverage.

A Reserve Bank of Australia (RBA) analysis from September similarly warned a number of regions across Australia will cop material declines in housing prices due to physical risk from climate change.

Home loans account for around two-thirds of the big four banks’ portfolios, which could result in significant credit losses and a higher proportion of mortgages with loan-to-value ratios (LVRs) above 80 per cent, the RBA calculated.

Westpac chief executive Peter King last year revealed the bank had estimated that around 2 per cent of its mortgages book could be impacted by climate change.

$5.3bn in property at ‘very high’ risk

CoreLogic’s coastal risk score places homes within one of five categories, on a scale from no risk to low, medium, high and very high risk.

Dwellings categorised as very high risk could see gradual coastal erosion reach their home within the next 30 years, the report said, and could also be at very high risk of significant storm surge impact.

Those at high risk were forecast to see coastal erosion reach their property within 60 years, or could feel the impacts of significant storm surges.

More than 900,000 dwellings fell into one of the four “at risk categories” (above low), with 12,694 houses and 9,441 units categorised as high or very high.

The homes in the very high-risk category came to a collective value of $5.3 billion, while those in the high category were worth $19.6 billion ($24.9 billion combined).

Queensland had the highest concentration of properties in the very high-risk category, across the Sunshine and Gold Coast’s densely populated coastlines.

Tim Lawless, research director and founder of CoreLogic, noted Australia’s property wealth is mostly distributed across the eastern and south-eastern seaboard, with a significant proportion located in premium coastal, river and harbour front suburbs.

The shift to working remotely through the pandemic has also seen a rise in demand for regional property, causing the value of coastal homes in particular to accelerate.

The Gold and Sunshine Coasts in particular recorded median annual price rises of 33 per cent and 34.4 per cent in the 12 months to January.

“Spectacular view, lifestyle appeal and limited supply has long attracted a premium for Australia’s best coastal properties,” Mr Lawless said.

However, recent findings from the Australian Housing and Urban Research Institute (AHURI) found the vast majority of Australians now consider the proximity of extreme weather events when deciding on where they want to live.

Aussie also recently published research finding climate change will increasingly drive property purchases.

The suburbs with the most risk

Paradise Point, a suburb in the Gold Coast, had the highest volume of detached houses that were most vulnerable.

The Paradise Point homes at risk have an estimated value of $1.5 billion within 6.4 square kilometres – making the suburb with the highest concentration of residential wealth at high coastal risk.

Around 20 per cent of the suburb’s housing stock was at high risk, equivalent to 40 per cent of its total residential value.

Other Queensland suburbs in the top 10 for most buildings exposed to very and high coastal risk included Runaway Bay on the Gold Coast and Caloundra and Golden Beach on the Sunshine Coast.

However, Noosa Heads on the Sunshine Coast was also noted as having a high proportion of residential wealth at risk ($291 million worth in property).

But, NSW, Tasmania and South Australia also have a large number of individual houses classified as very high risk.

Cronulla and Manly in Sydney as well as Port Melbourne ranked highly due to the high residential apartment value and density of apartment dwellings within close proximity to the coastline.

In Cronulla, eight houses and 254 apartment dwellings, worth a total of $486.4 million, were tipped to be very high risk. Manly on the other hand had 21 houses and 109 apartment dwellings, worth $462.1 million, at very high risk.

Port Melbourne in Victoria had 29 detached houses and 202 apartment dwellings, worth a total of $486.4 million, found to be high risk.

[Related: Natural disasters key factor in city relocation]

Lenders warned coastal risk threatens $24.9bn in homes
mortgagebusiness

Sarah Simpkins

Sarah Simpkins is the news editor across Mortgage Business and The Adviser.

Previously, she reported on banking, financial services and wealth management for InvestorDaily and ifa.

You can contact her on This email address is being protected from spambots. You need JavaScript enabled to view it..

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