‘Structural discount’: True impact of flood risk on property prices revealed – realestate.com.au

A first-of-its-kind report has revealed the real impact of flood risk on property values, revealing a persistent value gap that is widening over time and limiting household wealth.

Homes at risk of flooding may be cheaper than comparable homes, but that discount on the purchase price could hold buyers back for years to come, a new report shows.

According to the PropTrack Climate Council Property Value Flood Risk Report, released Wednesday, a typical three-bedroom home at risk of flooding could sell for $75,000 less than a comparable property without a flood risk.

But with values ​​for risky homes growing more slowly, that value gap is widening over time and limiting household wealth creation, the report found.

Eleanor Creagh, senior economist and co-author of PropTrack, said this amounted to a “climate disaster-related punishment”.

“While these homes may initially appear more affordable to buyers, the lower value reflects the risk of significant future costs such as higher insurance premiums and property damage,” she said.

The report found there were more than two million flood-prone homes in Australia, including more than 800,000 in Queensland, representing a third of all homes in the state.

About 70% of flood-prone homes experienced a reduction in value due to flood risk. These were disproportionately located in south-east Queensland and northern NSW.

For the remaining 30% of homes, flood risk was offset by the benefits of waterfront amenities and coastal views in buyers’ valuations, the report suggested.

“Flood risk may be underpriced in these markets as buyers are unaware of the risk they face,” Creagh said. “Or buyer preferences for amenities may simply outweigh the perceived downside of flood risk.”

In premium markets such as Noosaville and Noosa Heads on the Sunshine Coast and Hope Island on the Gold Coast, properties at risk of flooding were actually valued higher than comparable risk-free homes, the report said.

Property agent Richardson & Wrench Noosa Heads director Shane McCauley said flood risks were not on the radar for most buyers in the Noosa region, who were more focused on the benefits of the waterfront location than potential drawbacks.

“When people look at properties in Noosa, they don’t think of it as a flood zone,” he said.

“Real estate is extremely popular and very finite, and its value is constantly increasing.”

When it came to property prices in some premium areas such as Noosaville, flood risk was outweighed by the value of views and proximity to water. Image: realestate.com.au

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The report combined PropTrack valuation data with historical risk data from Geoscape to analyze the impact of flood risk on the value of individual homes.

It noted that properties at risk may be at a “structural, persistent property-level discount”, with price growth over time not sufficient to offset the impact of flood risk, and the value gap often widens.

“In regions where flood risks reduce property values, losses are anchored in market prices, which will only increase over time,” says Creagh.

In the long term, this resulted in a growing wealth gap between at-risk and flood-free households, the report found.

Recent floods cause the biggest price impact

The report shows that the biggest falls in values ​​occurred in areas that have seen damaging flooding in recent history, including Lismore, Hawkesbury, Ballina and South East Queensland.

In Lismore, prices of at-risk and flood-free homes had diverged significantly since the city experienced its highest-ever flood in 2022, when water levels rose 14.4 meters.

Although house prices in the wider Richmond-Tweed region have since recovered, values ​​of homes in Lismore at risk of flooding remained more than 20% lower than at the start of 2022, took longer to sell and were more discounted by suppliers, the report found.

The findings suggested that buyers were increasingly willing to pay more for homes in safer locations, and that values ​​of at-risk homes fell more sharply since the big flood.

Climate Council research shows that floods were the most damaging form of extreme weather in Australia, accounting for around 29% of damage, followed by tropical cyclones (23%) and droughts (19%).

Source: Climate Council 2021. Based on data from EM-DAT (2010 – 2019), the International Disaster Database: www.emdat.be. ‘Floods’ include coastal flooding, flash flooding and river flooding.

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The report noted the role of climate change in the increased frequency of flooding, with higher temperatures leading to greater evaporation and higher moisture levels in the atmosphere, increasing the intensity of rainfall in coastal areas.

Ms Creagh said the cumulative impact of more frequent extreme weather events could lead to a more lasting impact of flood risk on the property market.

“Over time, this is likely to contribute to a bifurcation in the market, where climate-resilient properties are better positioned to retain long-term value,” she said.