While you might not be noticing it every day, climate change is starting to have a serious impact on people’s lives. From unseasonably hot months to uncontrollable bushfires, to rising water levels, it seems like there’s always something happening somewhere — but what about the less visible changes? Are people unconsciously making a change due to climate issues?
Observed impacts of climate change on housing markets may once have been confined to areas known for extreme weather, but as Australian summers get hotter and longer, the challenges of climate change are manifesting in the property market in previously unexpected and specific ways. Rising temperatures are proving a disruptive force to town planning, creating affordability pressures and increasing insurance costs.
Western Sydney might be undergoing near record-levels of development and population growth, but it’s also breaking records elsewhere: temperatures. New data from the Australian Bureau of Meteorology shows that the maximum daily temperatures each month keep rising. Climate projections reported by the Australia Institute projected that by 2030, Penrith could see 22 days of the year where temperatures surpass 35 ̊C. Meanwhile, the eastern suburbs of Sydney are expected to remain relatively cool, with just 7 of these days projected in Coogee.
Reducing thermal discomfort is an increasing focus for urban planners. Water technologies, tree canopy and the use of cool materials are demonstrably effective.
However, we’re not seeing all of these in Western Sydney, and it’s bad news for the region. The construction of the Western Sydney airport, for example, will require some level of mitigation for bird and bat strike, including limiting the number of trees within a certain radius of the airport. These complexities increase the challenge that rising temperatures place on the ambitious developments for Western Sydney.
As development companies try to combat the increasing temperatures in the future, expect to see new and innovative approaches to the problem. Some developers may choose to include natural cooling elements in their buildings (similar to 443 Queen Street in Brisbane), while others may integrate new water reuse facilities into their design.
For buyers, the slow change in the area means that they will have to get used to the increasingly hot summers. In the long term, this will drive up electricity bills as the air-conditioner has to stay on longer. It may also mean that buyers will use some spaces in their new homes less due to the amount of sun/heat they catch during certain points of the day.
Tasmanian dwelling market growth has been the best in the country when considering annualised capital gains in the past 5 years, providing 6.6 per cent in capital returns each year. While there are many reasons for the high growth, including increased tourism, a Launceston City Deal and growth coming off a relatively low base, climate change is another major driver. Research in 2019 led by Nick Osbaldiston at James Cook University in Cairns, found climate and environment as the top reasons for those who had migrated, or considered migration, to Tasmania. Of 329 survey respondents, over 225 acknowledged climate and weather as a motivation for migrating to the state.
While interstate migration has added demand to the dwelling market, it has also eroded housing affordability. Hobart had the worst rental affordability and the third-highest value to income ratio of the capital city markets in September 2019.
As the mainland heats up, climate refuge areas such as Tasmania could be increasingly dominated by those with higher means, crowding out those on lower incomes who are often employed in local essential service industries. To combat this unaffordability, we may see a rise in ‘build-to-rent’ developments in the State.
Insurance premiums can be an exorbitant cost for homeowners in areas at risk of flood, fire and severe storms. Climate change increases the severity and frequency of extreme weather events, meaning more Australians could be hit with rising insurance premiums in severe weather prone areas.
In North Queensland, insurance premiums rose over 260% between 2003 and 2013, compared with an increase of under 40 per cent in CPI. While North Queensland has long been prone to cyclones and high rainfall, this was exacerbated by cyclone Yasi in 2011. Following the cyclone, annual value declines in the Cairns house market bottomed out at -7.4%, while unit values declined -14.3%. Since then, apartment stock has under-performed with an average annual growth rate of -0.8% through to February 2020. This is bad news for investors in the region, who now have to deal with the unprecedented impact reduced tourism due to COVID-19.
Recently, devastating bushfires across Australia have demonstrated the impact of climate change in creating more extreme, high-frequency weather events. While the full impact on regional economies and housing market activity is yet to be seen, higher insurance premiums could weaken demand in regional Australia, particularly the strata title segment. Weakened demand in regional markets may seem like they will become a more affordable option for first home buyers, but the high insurance premiums may prevent some buyers from entering the market at all.
Looking forward, the challenges related to global warming for the housing market are likely to become more mainstream and impact demand for housing more broadly.
Regions that offer insulation from worsening weather events or higher temperatures could see demand rising, placing upwards pressure on prices and crowding out low-income earners. This kind of climate inequality will warrant responses from policymakers, planners and the housing industry. We’re already seeing the industry respond with the introduction of special extremely low home loans for eco-friendly developments, so we can expect there to be more eco-friendly approaches as the years go on.