The headline in the Mercury Bay Informer proclaims Whitianga “Still a Seller’s’ Market” and rampant residential development continues on our coasts. But is the housing market underpricing or ignoring the risk of sea-level rise? The insurance industry is already flagging it will retreat from high-risk areas.

Some coastal developments exposed to 1-in-100-year events such as the January 5 storm surge are at risk of becoming uninsurable within 20 years according to researcher Belinda Storey.  She warns that small changes in sea levels can significantly increase the reach of coastal storms, and storms are becoming more intense.

Her conclusion is that insurance retreat and credit retreat are the mechanisms most likely to translate escalating coastal hazards into lower property values over the next few decades.

Insurance retreat occurs when an insurer declines an application for insurance coverage/renewal or starts charging extraordinarily high excesses. Insurance retreat has already begun in some Peninsula locations badly affected by recent storms. The Insurance Council has warned that sea-level rise is not an insurable event – there is nothing unexpected, sudden or accidental about this. 

In New Zealand, insurance is a prerequisite for securing a mortgage. Since insurance policies are renewed annually, insurance retreat can occur during the term of an existing mortgage.

Once insurance is unavailable property buyers will find it near-impossible to borrow money to purchase a property, and existing owners may need to pay cash to fortify their properties.

Coastal homeowners may experience sudden drops in property prices as coastal risks are better understood by potential buyers.

If you imagine that this is some far-off threat, consider this. Scientists have found $US7.4 billion has already been lost in home values across just 5 coastal States in the US because of sea level rise flooding from 2005 to 2017. 

Prudent coastal property owners and those considering buying coastal property can get a good indication of potential sea flooding a the Regional Council’s sea flooding simulator If the property is in a risk zone they may wish to ask  – if my property loses insurance in the next 10 to 15 years, how might that change any capital gains if whoever may wish to buy my property isn’t able to borrow money to buy it? And – if I lose insurance and my property is then damaged by a coastal storm, could I absorb the losses?

Acting sooner rather than later matters. Research from Westpac shows that delaying adaptation over the next decade will cost New Zealand around $30 billion. The longer we delay adaptation work and making rational decisions about property ownership near the coast, the higher the costs home-owners, ratepayers, and taxpayers will face.