With platforms like Zillow in US introducing climate risk scores and researchers uncovering the financial impact of disasters, climate vulnerabilities are reshaping the real estate landscape.
These US climate risk scores are particularly relevant given the increasing frequency of wildfires threatening thousands of properties on the west coast and extreme cold snaps impacting the east coast.
Zillow adds climate risk scores
Zillow’s climate risk scores on for-sale listings rank homes from 1 to 10 across five risk categories, providing buyers with insights into potential hazards like floods, wildfires, and extreme heat.
“Climate risks influence where most prospective buyers shop for a home,” said Manny Garcia, Zillow’s senior population scientist.
Younger buyers, in particular, are prioritising safety from natural disasters like rising waters and wildfires, he added.
Zillow users can access detailed climate data under the “Climate risks” section of listings or explore risks across neighbourhoods using interactive maps.
While some buyers may avoid high-risk areas, Zillow research shows waterfront properties and other high-risk homes can still attract strong demand, partly due to their unique appeal.
Homeowners in risky zones are encouraged to retrofit properties to improve resilience.
“Every dollar invested in making a home more resilient can save six dollars in recovery costs if a disaster strikes,” said John Rogers, CoreLogic’s chief data and analytics officer.
Flood risks and financial impacts
In Australia, new research from the University of Technology Sydney (UTS) shows that homes in flood-prone areas sell for less but come with high insurance costs.
For instance, properties in Richmond, NSW, with a high-risk of flood, sell at a 10.8% discount yet face annual premiums up to $4,606.
“More than one in 10 Australian homes are in flood zones, and flooding is the most common and costly natural disaster in the country,” said Associate Professor Song Shi of UTS.
However, buyers often underestimate the cumulative flood risk over a lifetime, leading to inadequate preparation and financial strain.
The study found that property price discounts rarely offset long-term costs like insurance.
It emphasised the need for better public education on flood risks and proactive measures to mitigate damage as climate events grow more severe.
Climate risks across Australia
Domain’s 2024 Perils Report highlights how these risks are increasingly influencing property values and buyer decisions, underscoring the critical role of real estate agents in navigating these challenges.
- Bushfires: Nearly 5.6 million homes, valued at $4.66 trillion, are at risk.
- Flooding: About 953,000 homes face flood risks, with an estimated value of $768.5 billion.
- Coastal Erosion: Around 160,000 homes near coastlines, worth $26.41 billion, face erosion risks.
Nicola Powell, Domain’s Chief of Research and Economics, shared key findings from the report, including the varied impacts of different risks on property prices.
“What we found with coastal erosion… for every 10 metres you move away from that coastline, the property value declines by 2.6%.
“And if the property has a high shoreline risk erosion, there is zero percent impact on price,” she explained.
Remarkably, despite the risks, homes first in line to the ocean command a premium of 20.4%, with an additional 5.4% increase for beachfront properties without road breaks.
In contrast, bushfire and flooding risks show a significant negative impact on property values. “For every increase in bushfire risk rating, the value of the property declines by 2%,” Powell said.
A similar pattern emerges for riverine flooding: “The deeper the chance of the flood, the greater the impact on price.”
Findings from Domain:
Flood risks
Flooding poses a significant challenge, with 8.1% of Australia’s 11.7 million residential properties at risk -amounting to $768.5 billion in value.
Queensland leads with 344,453 homes at risk, followed by New South Wales and Victoria. High-risk zones, where flooding is likely within a property’s ownership lifespan, account for nearly 141,000 homes valued at $99.1 billion.
Buyers are increasingly pricing in flood risk, with higher risk leading to reduced property values.
In Bundaberg, Queensland, the impact of major flooding events lingers on property prices, despite measures to improve flood resilience, such as plans for a flood levee.
Bushfire threats
With 5.6 million Australian homes (nearly half of all properties) at risk of bushfires, the threat is widespread, especially in regional areas and the urban fringe.
These homes have a combined value of $4.66 trillion, with New South Wales, Queensland, and Victoria holding the majority of high-risk properties.
Agents should note that buyers are increasingly factoring bushfire risk into property decisions, particularly for homes in high-risk areas.
The 2009 Black Saturday bushfires offer insights: while property listings initially declined post-disaster, prices showed resilience over time due to pre-existing risk pricing, limited housing supply, and improved housing quality during reconstruction.
Coastal Erosion
Approximately 160,000 Australian properties sit within 150 metres of the coastline, with 10.8%, or 17,500 homes, facing erosion risks.
These properties, collectively valued at $26.41 billion, are concentrated in Queensland ($11.26 billion) and New South Wales ($9.42 billion).
Despite the looming risk, coastal properties retain strong buyer appeal due to their desirable locations and views.
