Sydney Property Prices and Climate Change

Climate change is a highly divisive topic so let me begin by clarifying that our various opinions on its existence and cause are no longer relevant.


Climate risk and sustainability have already set in motion a raft of changes across all industries associated with Australian Property.


The commercial property sector (principally office space) has been at the pointy end of policy change for quite some time and we have seen corresponding increases in climate resilience and sustainability. The residential property sector has lagged but is about to reach a tipping point.


If you own or are considering purchasing a residential property it’s important to be aware of how the existing and upcoming changes will impact you.


Many existing dwellings are vulnerable to the effects of climate change. A significant proportion of Australian dwellings are coastal and harbourside. Tracts of Sydney, Melbourne, Newcastle and the Gold & Sunshine Coasts amongst other regions are deemed to be at substantially increased risk of flooding due to sea-level rise and more frequent extreme weather events as is the significant percentage of inland homes built less than 1.5m above sea level and at risk of flood damage and soil subsidence.


Australia’s legacy residential architecture has been inherited from other countries and will not withstand forecast rising temperatures. For example, 86% of Victorian homes built before 2005 have an average energy efficiency rating of 1.8 stars. Most older builds also have no contingency for drought, bushfire, or power outage.


The Australian Climate Council estimates 9% of all Australian properties will suffer a loss in value directly related to climate change over the next decade, totaling $570 billion. The biggest factor will be the increased costs of insurance, followed by the costs of new compliance, repair, and remediation.


Whilst no home is uninsurable, the costs for many will become prohibitive. Factor in additional power costs for climate control and it is easy to understand how future values can be affected.


Australian insurance companies are already flagging assessment reforms on the back of Australia’s recent bushfire and flood disasters.


Changes to valuation protocol have recently been amended with valuers now required to comment on a properties’ energy efficiency and climate resilience.


Changes to local council planning controls will likely see all residential property assigned a climate risk score and efficiency rating which will directly impact property values and insurance premiums. Platforms already exist to assess property devaluation due to climate risk and this will inevitably become a standard component of a building report.


I don’t mean to sound alarmist and if you’re already a home a property owner there’s plenty you can do to mitigate risk. For example, if you assess your property and it is in a high-risk area for any climate change event it may be worth considering divesting on a shorter timeline. If risks are less prevalent it may be more a matter of upgrading and future-proofing. For property purchasers now is the time to factor climate change into your research and purchase decision. Australia’s climate will be hotter and more extreme twenty years from now. How will your new home or investment stand up to the new normal?


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