Recent climate change related events – be it the increases in the extremes of fires, heatwaves, floods, or storms causing houses falling into the sea due to coastal erosion; or the more ‘normal’ cyclonic events – have had extreme adverse effects on property around Australia.
These events have seen banks and other stakeholders increasing their awareness levels, and exploring their risk exposure. The future implications of these climatic influenced events, which have historically affected Australia, cannot be underestimated. Climate change will increase the likelihood of the escalation in intensity, frequency, and severity of such events into the future, and the implications this will have for the ownership, occupation, and management of property, is significant
(Warren-Myers and Hurlimann, 2021). To capture the profile of such risks, now and into the future, and the potential for impacts on value; will require valuers to have a greater awareness and understanding of the risks posed by these types of events and the implications of climate change generally. In turn, these risks will have an impact into the future for property uses and its’ values. While local governments have a role in ensuring planning processes are followed, it remains that the risks related to developments vests in the property owner/developer and further down the line the owners, occupiers, financiers and insurers (Cradduck et al., 2020). Previously, in the aftermath of these extreme events, the Australian, State and local governments have provided monetary support to enable homeowners, businesses, and communities to rebuild and re-establish their lives. However, as climate change will likely increase the frequency and adverse effects of these events, the financial implications on the government purse means future support will likely be less available. As a consequence, the is a need for individuals to be better informed of the risk to their properties (Warren-Myers et al. 2018). However, as the 2010-2011 Brisbane floods demonstrated, property owners often do not fully understand the related risks. The implications of a lack of understanding of property risks resulted in underinsurance, and in extreme cases a lack of insurance by individuals (Cradduck and Teale, 2014). This lack of understanding has been further exposed in the wake of the events of 2020 for the fires and floods that ravaged Eastern Australia.
The Australian government to date has refrained from making clear policy directions in response to the issues of climate change, and emissions per se. As such, in this policy vacuum, business leaders of Australia are taking action (IGCC, 2021a; IGCC, 2021b; Australian Business Roundtable for Disaster Resilience and Safer Communities, 2021; Warren-Myers et al. 2021). A move prompted firstly, by the escalation in the number of extreme events that has highlighted risk exposure of property and business activities. Secondly, the increase in climate related risk reporting on assets and business activities recommended by the Taskforce on Climate Related Disclosures; and international requirements leading to mandatory reporting in the United Kingdom and New Zealand, for publicly listed companies, large insurers, banks, non-bank deposit takers and investment managers, which have had implications for Australian based organisations with overseas interests . Thirdly, by the focus on mitigation, and the setting of net zero emission targets. This is also leading to an increase in a range of assessment and rating-based tools and frameworks, in attempts to capture the vast array of risks posed to property and business operations.
Going forward, the increasing reporting of emissions and climate related risks, and the increase in available related information, will also be a consideration for real property asset valuations. These changes, and the enhancement, availability, and transparency of information and tools; places an increased onus on valuers to ensure accuracy in reporting and documenting of climate related risks and emissions profiles for assets. A failure to engage with more readily available information, and/or tools, may leave the valuer open to liability without any defence (Cradduck, 2015). Further, a failure to identify a relevant risk in a valuation report is also likely to be a breach of the Code of Ethics.
In light of this proactive response by business and the increase in adverse climate related events, it is timely for the valuation profession to review its’ approaches, processes, guidance and education (Warren-Myers and Cradduck, 2021). In particular, the valuation profession would benefit from enhancing its’ understanding, identification, and incorporation of such risks in valuation practice. We believe these matters would be beneficial to incorporate into valuation processes, by providing direction for the identification of information sources, tools and content to aid in providing a more comprehensive understanding of climate related property risks.
‘Valuation @ Risk’ is an APREF funded research project that seeks to explore physical risk issues and the escalation of climate-related risks to property and its consideration in valuation practice. We are trying to get a broad perspective from valuers across Australia, to examine how physical risks to property are identified, and what actions are taken by the valuers regarding identified risks. Your response is important as it will help to inform the framework, and guidelines, we propose to develop.
We are aiming to develop in consultation with valuers and the Australian Property Institute, guidance for valuers, and the broader property community through the development of a climate change risk identification framework; to enable valuers and other property professionals to identify climate change risks and how such risks are best considered in the valuation processes. We seek your input as to matters that should be considered, information sources and tools that could be used, and processes that should be followed.
This article was contributed by Dr Georgia Warren-Myers and A/Prof Lucy Cradduck
Project: Valuation @ Risk
Warren-Myers, G., & Cradduck, L. (2021). Physical and climate change-related risk identification in valuation practice: an Australian perspective. Journal of Property Investment & Finance.
Warren-Myers, G., & Hurlimann, A. (2021). Climate change and risk to real estate. https://minerva-access.unimelb.edu.au/handle/11343/243218
Warren-Myers, G., Hurlimann, A., Bush, J. (2021) Climate change frontrunners in the Australian property sectors, Climate Risk Management, 33, 100340.
Cradduck, L., Warren-Myers, G., & Stringer, B. (2020). Courts’ views on climate change inundation risks for developments: Australian perspectives and considerations for valuers. Journal of European Real Estate Research, 13(3), pp. 435-453.
Warren-Myers, G., Aschwanden, G., Fuerst, F., & Krause, A. (2018). Estimating the potential risks of sea level rise for public and private property ownership, occupation and management. Risks, 6(2), 37.
Cradduck, L. (2015) The statutory defence(s) of ‘peer professional opinion’. Australia and New Zealand Property Journal, 5(3), pp. 224-228.
Cradduck, L., & Teale, J. (2014). A sunburnt country–storms, surges and sea levels: of insurance and flooding rains. In Geography Research Forum (Vol. 34, No. 1, pp. 123-141). Ben-Gurion University of the Negev, Department of Geography and Environmental Development.