Changing weather conditions a disaster for investors

CoreLogic’s head of research, Eliza Owens, said the recent bushfires will have an impact on investors looking to see in the foreseeable future.

“Recent devastating bushfires across Australia have demonstrated the impact of climate change in creating more extreme, high-frequency weather events.” 

“While the full impact on regional economies and housing market activity is yet to be seen, higher insurance premiums could weaken demand in regional Australia, particularly the strata title segment,” Ms Owens explained.

The impact of higher insurance costs will especially be felt for property investors who have purchased apartment buildings.

Following the cyclone, annual value declines in the Cairns house market bottomed out at -7.4 per cent, while unit values declined -14.3 per cent. 

Since then, unit stock has underperformed with an average annual growth rate of -0.8 per cent through to February 2020.

“This may at least partially be because building insurance is mandatory for units, but not houses. Insurance premiums for strata title properties in particular have risen significantly in the wake of Cyclone Yasi, as insurers built up capital requirements post natural disaster.”

“In North Queensland, insurance premiums rose over 260 per cent between 2003 and 2013, compared with an increase of under 40 per cent in CPI. While North Queensland has long been prone to cyclones and high rainfall, this was exacerbated by cyclone Yasi in 2011,” Ms Owens explained.

Looking forward, the challenges related to global warming for the housing market are likely to become more mainstream and impact demand for housing more broadly. 

“Regions that offer insulation from worsening weather events or higher temperatures could see demand rising, placing upwards pressure on prices and crowding out low-income earners. This kind of climate inequality will warrant responses from policymakers, planners and the housing industry,” Ms Owens concluded.