ESG Focus | 10:30 AM
Property buyers are being confronted with two major issues, increasing development density and future impact from a changing climate.
- Value of Australian properties can be impacted by a changing climate
- Buyer's agent advises buyers and owners to be risk aware
- Climate-risk report puts around 794,000 properties in “very high-risk” zones
- Insurance premiums on the rise, while some regions risk becoming uninsurable
By Danielle Ecuyer
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A nation confronts property climate risk
The latest major climate-risk report for Australian property was released in September by the Australian Climate Service and found under a scenario of 3 degrees Celsius of global warming, the estimated loss in property values of around -$571bn by 2030 would rise to an estimated -$611bn by 2050 and up to -$770bn by 2100.
Such property value losses reflect the combined impacts of physical climate risks such as fires, floods, heatwaves and sea-level rise, as well as economic disruptions.
Currently, around 751,000 homes are located in “high-risk” zones. Around 794,000 are in “very high-risk” zones. By 2090, homes in “very high-risk” zones are estimated to number around 1.2m, with some inner-city and affluent coastal suburbs in Sydney and Melbourne noted as “primary hotspots” due to sea-level rise and storm surges.
The report also warns many homes in high or very high-risk zones may become “effectively uninsurable” by 2050.
At face value, this report has considerable implications for property owners. Even if some of the impacts don’t come to pass in the near term, a regulatory push to highlight the risks across councils and other government entities, as well as implications for insurance premiums, can have a pull-forward effect on property valuations.
For most Australians, buying a home is the largest and possibly one of the most important life decisions, so how should potential buyers and owners assess these and other emerging risks in 2025?
Development pressure and local resistance
In a recent discussion with Daniel Sofo, one of Australia’s leading buyer’s agents and the founder of Unicorn Buyer’s Agents, a boutique Sydney-based agency helping clients secure high-quality properties, FNArena explored some of Daniel’s insights and concerns for present day property owners and buyers.
As far as Sofo is concerned, there are two major factors his prospective clients should consider: development and climate change.
“Both are reshaping Australia’s housing landscape faster than most people realise, and if you’re not paying attention, you’re putting your investment and your family’s safety at risk.”
On the first issue, the National Housing Accord passed a mandate to build one million new homes by 2029, with state governments introducing major planning reforms aimed at increasing density, particularly in inner and middle-ring suburbs near transport and infrastructure such as railway stations.
Not all local councils are on board, with Sofo identifying push back from the likes of Sydney’s Inner West Council, which has proposed its own ‘Fairer Future’ plan as an alternative, while Woollahra Council is considering avenues to challenge the NSW State Government’s plan to reopen Woollahra’s abandoned train station with 10,000 additional apartments.
Meanwhile, Mosman residents are threatening legal action to block increased density, even as development applications reach all-time highs.
Sofo: “Increased density is coming whether existing property owners like it or not”.
Climate change and market awareness
For Sofo, climate change is the real and silent market shaker, as also highlighted by the National Climate Risk Assessment.
His wake-up call came when an elderly woman in Brisbane told him her insurance jumped from $700 to $13,000 in a year. Property owners are already experiencing “skyrocketing insurance premiums, declining resale values and the very real threat of becoming uninsurable”.
On that basis alone, Sofo argues climate risk has already arrived, as evidenced by how financial institutions are treating clients in high-risk flood and bush fire zones. Premium hikes of 30%-50% in a single year are being reported, while some have seen increases of up to 400% or more.
The risk, according to Sofo, is that un-affordable or unavailable insurance could price people out of certain areas and trigger a broader market correction. There is also anecdotal evidence of lenders seeking to quietly reduce exposure to risky postcodes.
“Don’t buy in or near flood plains or bus fire zones. Don’t rely on old assumptions about safe suburbs, and don’t think councils, lenders and insurers are sitting idle—they’re redrawing the housing map before your eyes” , Sofo warns.
Waverley Council drew the ire of existing homeowners a few years back when it produced flood maps for the local government area, highlighting which parts of the community would be impacted by severe wet weather events.
For Sofo, this is just one example of how councils are facing a widening gap between what ratepayers want and what good governance demands. When ratepayers are confronted with potential adverse risks associated with their properties, it’s easy to see why they would be concerned about the potential impact on property values.
Climate planning and development are politically charged everywhere, with no easy answer as to how it will play out.
With a wide-ranging client base, from people in their 20s to their 80s, most of Sofo’s clients want information, not denial, on climate change risks. “They want honesty”, he says. “If I tell them the property is in a flood zone, they listen.”
Rather than avoiding certain areas entirely, buyers are now asking what flood mitigation measures have been implemented. The anecdotal dynamic has shifted to awareness and preparation.
“Savvy buyers are those who look beyond the brochure and into the long-term viability of where they’re investing.”
For Sofo, the proposition is simple; forget ideology and think dollars and cents.
If someone buys in a risky area, the insurance, repair and maintenance costs will be higher.
“The numbers speak for themselves, and it comes down to whether a buyer is prepared to carry the costs and the stress that comes with them.”
Energy Efficiency and Future Value
Another factor to consider is the energy performance of a property.
In the UK and EU, it is a requirement to issue an Energy Performance Certificate when a property is built, sold or rented.
Lower-rated properties face higher running costs, the risk of higher insurance premiums, and potentially lower resale values.
For more information on how your local government area will be impacted by a changing climate:
https://www.climatecouncil.org.au/resources/climate-risk-map/
FNArena’s dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/
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