Belinda Storey finds visits to her family’s seaside holiday home in New Zealand increasingly unsettling.

The house, built by her father using timber milled from their farm, sits just meters from a pristine white-sand beach on the fringes of the Pacific Ocean. It’s one of her favorite places. But for the climate economist, it’s also a reminder that the nation is in denial about rising sea levels.

The threat of inundation is looming ever larger for coastal communities, yet property prices in even the most vulnerable areas have continued to soar.

“Values of coastal properties have gone in the exact opposite direction to where they should be going,” Storey said. “And it’s happening around the world, not just here.”

On the Coromandel Peninsula, where the Storey family’s Cooks Beach holiday home is located, prices have risen 16% in the past year, despite the national average dropping for the first time in 11 years. In August — against a backdrop of a nationwide property market slowdown — a four-bedroom holiday house across the road from the sea at Cooks Beach changed hands for NZ$1.71 million ($1 million), a whopping NZ$1.16 million more than it sold for in 2015.

New Zealanders are not alone in struggling to price the risk to property that comes from sea level change and flooding.  In the US, Florida became a haven during the pandemic property boom— prices in some parts of the state have jumped as much as 67% since March 2020.  In Portugal, values in the Algarve region on its southern coast have soared this year as American and other foreigners snap up seaside villas. 

That’s despite sea levels reaching record highs this year and studies suggesting their rise is accelerating. Changing atmospheric conditions are also leading to more severe weather events, creating risk inland from river and surface flooding. 

Even if the world succeeds in keeping global warming to less than 2 degrees Celsius above pre-industrial levels — and latest analysis suggests it won’t — most of Cooks Beach is destined to end up below the tideline, according to global mapping by Climate Central.

Insurance Retreat

But the impact on house values will be felt long before oceans are lapping at doors. Insurance premiums are expected to rise to reflect the higher risk and eventually coverage may be pulled entirely — a phenomenon known as insurance retreat. When that happens, seaside house prices could drop significantly.

That’s because once insurance cover is removed it becomes difficult, if not impossible, to secure mortgage finance. Next comes infrastructure retreat, where local governments and utility companies stop fixing flood damaged roads, water supplies and other infrastructure because they know it will be damaged again.

New Zealand’s weather conditions and the fact that almost a third of its houses are within a kilometer (less than a mile) of the coastline means the country is likely to be one of the first to experience insurance retreat, serving as a preview of what may follow elsewhere. 

Storey’s Climate Sigma research company found there are at least 10,000 houses in New Zealand that will experience full insurance retreat by 2050. For some homeowners in major cities Wellington and Christchurch, retreat will begin by 2030, Storey said.

So far, New Zealand’s property market seems blissfully undeterred. Around the country, coastal properties are consistently popular with buyers, said Nick Goodall, head of research at CoreLogic New Zealand. In instances of flooding or sea ingress, there is a temporary correction but then prices quickly recover, he said.

“There’s an attractiveness to being on the coast,” Goodall said. “The flipside of that is the risk of living there, but in the past we’ve seen people willing to take that on. They say ‘the sea’s not going to rise to my house in my lifetime, so I’m fine with that’.”

‘People Need to Know’

New Zealand’s central bank governor, Adrian Orr, said the insurance industry and banks need to be transparent about rising insurance costs and the withdrawal of coverage.

“People need to know what they’re actually buying into,” Orr said Nov. 2. He was speaking after the release of the Reserve Bank’s Financial Stability Report, which warned that homeowners may see a fall in property values in flood zones as risk is priced into the housing market.

In a separate report Thursday, the RBNZ said climate change is a potential source of shock to the economy that it needs to keep in focus.

National Australia Bank Ltd. Chief Executive Officer Ross McEwan last month said the increased frequency of flooding in Australia and New Zealand is prompting the lender to rethink its funding in areas prone to inundation in the future. In Australia, extreme weather events are already threatening to make home insurance premiums unaffordable for an estimated one million households.

‘Mind Shift’

Tim Grafton, Chief Executive at the Insurance Council of New Zealand, said New Zealand needs to act now to mitigate risk by investing in sea walls and other barriers to protect vulnerable communities.

“If you sit on your hands and do nothing about trying to reduce risk and just let insurance premiums increase, then people leave and property values decrease,” he said.

Government analysis released last month identified 44 communities around New Zealand that are exposed to flooding or sea level rise and have limited financial ability to respond to the risk. Earlier this year, a major Environment Ministry report addressed the need to prepare for the eventual managed retreat of some communities from high-risk areas.

Storey said sea-level rise is a “certainty” and it will accelerate no matter what the world does to reduce greenhouse gas emissions from here.

She might still have time to enjoy her family’s holiday home on the sea, but she wouldn’t buy one herself, she said.

“There’s a real mind shift we need to have in terms of climate change adaptation,” Storey said. “Some properties have a time limit on them now.” 

(Updates with RBNZ comment in 17th paragraph)
To contact the authors of this story:
Ainsley Thomson in Wellington at [email protected]
Tracy Withers in Wellington at [email protected]

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