$25 billion in Australian residential property exposed to high coastal risk

The findings, published today in CoreLogic’s inaugural Coastal Risk Scores for Financial Risk Assessment whitepaper, utilise a new proprietary Coastal Risk Score, which measures the potential impact of climate change over time.

The risk score methodology evaluates combined coastal risks based on compounding storm surge (rapid erosion) and change in coastline (slow erosion), with the latter also implicitly considering on-going rising sea level trends. It draws on three decades of shoreline movements and advanced location analytics, to calculate and assign a coastal risk rating for 98% of Australian residential property.

Dr Pierre Wiart, CoreLogic’s Head of Consulting and Risk Management, and report author, said the damage caused by recent weather
events in south east Queensland and NSW were a tragic but timely reminder of the untold devastation extreme weather events could have on Australian people and property.

Dr Wiart said the Coastal Risk Score would inform homeowners, future buyers and financial services sectors such as insurers and lenders, of potential future climate-related coastal risks.

“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 implications for the country’s property market and its supporting financial sector, including property valuations, home loan viability and insurance premiums.”

The United Nations Intergovernmental Panel on Climate Change (IPCC) report, published in August 2021, called out Australia’s rising sea levels, which are increasing at a rate higher than the global average.

Dr Wiart said the impact of climate change on Australia’s coastal erosion and rising sea levels was alarming and required urgent attention.

“Understanding the coastal risk associated with those properties is important to every owner, potential buyer and ultimately our property and financial sectors that are supporting the expansion of new coastal properties in number and in value,” he said.

“Consequently, credit risk and long-term loans are directly impacted by these natural trends. Equally, for any financial institution, it is important to evaluate the potential downturn in property values or the concentration of a portfolio at risk.

“Increasing coastal risk is also adding pressure on insurance. Property owners face ballooning insurance premiums and restricted insurance coverage, together diminishing their insurance affordability and protection of their significant assets,” said Dr Wiart.

Coastal Risk Score Explained

CoreLogic’s proprietary Coastal Risk Score places properties into one of five defined categories, from No Risk, Low Risk, Medium Risk, High Risk through to Very High Risk.

Dwellings categorised as ‘Very High’ risk may be impacted by coastal retreat within the next 30 years, and may also be at very high risk of significant storm surge impact.

More than 900,000 dwellings are identified as falling into one of the four ‘at risk’ categories, with 12,694 houses and 9,441 units categorised as being at High or Very High risk of coastal exposure. The residential value of these properties is $5.3 billion and $19.6 billion respectively.

Fig.1 Number of dwellings at risk and equivalent Value at Risk (VaR)

Australian suburbs most at risk

CoreLogic’s analysis shows Queensland has the highest concentration of properties at ‘Very High’ risk for the number of both individual houses and units, owing to the Sunshine and Gold Coast’s densely populated coastlines.

However, New South Wales, Tasmania and South Australia also have a large number of individual houses classified as being at ‘Very High’ coastal risk.

Of the top 10 suburbs around Australia with the most value at risk, Paradise Point on Queensland’s Gold Coast has the highest volume of detached houses most vulnerable. As a consequence of their high value, estimated at $1.47 billion within 6.4km2, no other suburb has such a high concentration of residential wealth subject to high coastal risk. About 20% of the suburb’s housing stock is at high risk, equivalent to 40% of the suburb’s total residential value.

Cronulla, Manly (Greater Sydney, NSW) and Port Melbourne (VIC) also rank highly due to the high residential apartment value and density of apartment dwellings within close proximity to the coastline.

The common traits of the top 10 suburbs are their close proximity to the coast, low elevation, fastest coastal retreat figures and high property values.

Fig 2. Top 10 suburbs by number of buildings exposed to CoreLogic’s Very High and High Coastal Risk Score, ordered by Value at Risk (VaR)

Tim Lawless, CoreLogic Research Director, said while Australia’s property wealth is principally distributed on the eastern and south-eastern seaboard, a significant proportion is located in the country’s premium coastal, river and harbour front suburbs.
He said in the past two years the trend for coastal living had accelerated, drawing even more people to popular waterfront enclaves resulting in unprecedented increases in housing growth rates.

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

“In the past two years however there has been a broad demographic shift where more Australians are prepared to consider housing options outside of the capital cities. Working from home has been a catalyst of this trend with more people basing themselves in regional locations during the pandemic.”

This shift to working remotely and subsequent increase in demand for regional property has caused the value of coastal properties to accelerate significantly. Queensland’s Gold Coast and Sunshine Coast benefited enormously from this trend, recording annual median value increases of 33.0% and 34.4% respectively in the 12 months to January 2022.

Importance of understanding coastal risk

Understanding coastal risk and its potential impact on properties is critical for Australians and the property and financial services industries who support them, Dr Wiart said, particularly as the expansion of new coastal properties continues.

”Armed with this information, businesses can employ a sophisticated approach to quantifying climate change impact, enhancing risk management and making data-led decisions – each of which can also benefit their customers,” said Dr Wiart.

”While this is potentially surprising or even confronting information for homeowners, this important data will allow consumers to make the best property decisions, and help them plan for long-term wealth preservation,” Dr Wiart concluded.

Research methodology: defining coastal risk scoring

Storm surges
During storms, sea water is pushed onshore by strong winds and surges above normal high tide levels, and potentially far inland, ultimately dramatically eroding the seashore.

CoreLogic’s risk model examines waterfront properties that are subject to extensive damage based on their distance to shoreline and their elevation. A matrix of elevation and distance establishes the risk ranking from Very High (lowest elevation closest to shore) to Low (higher elevation and remote from shore).

Long-term erosion
Regular tidal activity can steadily erode the coastline over time. At CoreLogic, we extracted data provided by Geoscience Australia of the shoreline movements captured by satellite imagery from 1988 to 2021, measuring the change in distance for each and every property. 
We then created an algorithm that calculates the coastal retreat rate for each property over time. This helps identify the time remaining before a property is likely “to fall into the water” because of future erosion, assuming a constant retreat rate. We established a ranking with Very High corresponding to a retreat rate in less than 30 years.

Rising sea levels
The mean global sea level has risen 30cm between 1900 and 2017 – a rate of 0.26cm per year. However, this rate is being accelerated by climate change, with sea levels predicted to rise between 1m and 2.5m by the end of the century. Our dataset takes into account the previous 30 year trend of rising sea levels.

Our Coastal Risk Score: a combination of storm surge and erosion potential

Our methodology combines the two coastal risk types – storm surge and gradual erosion – and translates this risk in a practical scoring system: Low Risk, Medium Risk, High Risk and Very High Risk.

Data disclaimer
While CoreLogic uses commercially reasonable efforts to ensure the CoreLogic Data is current, CoreLogic does not warrant the accuracy, currency or completeness of the CoreLogic Data and to the full extent permitted by law excludes all loss or damage howsoever arising (including through negligence) in connection with the CoreLogic Data.

For more information about CoreLogic’s Climate Risk Solutions, download our report Measuring risks to coastal properties.

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