Property market decimated by floods, bracing for Covid

Attention passengers, assume brace position.

That’s not a warning you ever want to hear at 30,000 feet, but when you’re climbing onto the roof of your home to escape floodwaters, faced with loss of property, belongings and potentially your life; you’ll still be grappling for that metaphorical and literal lifejacket.

Tim McKibbin, CEO, Real Estate Institute of NSW (REINSW)

Under normal circumstances that might be your insurance policy.

Real Estate Institute of NSW (REINSW) CEO Tim McKibbin blew the emergency whistle mid-month, with a foreboding message about future property markets impacted by unprecedented, widespread flooding, and a potential new wave of Covid, putting investors, property managers, owner-occupiers and tenants, on notice.

Mr McKibbin said while transactional activity has stayed relatively stable in recent weeks, it would ‘regrettably’ be shaped by unwanted influences in coming weeks; natural disasters and Covid.

“The NSW Government has already signalled the potential return of Covid-safe measures in light of the new wave of infections,” he said.

“Agents will need to be vigilant and ready to adapt to any changes in operating procedures required.

“Housing is an essential commodity and recent natural disasters are having a major impact on the state’s housing market, with many areas in the state reeling from flood devastation,” he said.

Property values halved

Herron Todd White CEO Gary Brinkworth said that apart from losing possessions and potential displacement, property owners must confront how their property’s value will be affected.

Gary Brinkworth, CEO, Herron Todd White

“The vast majority of Australia’s wealth is tied up in real estate, so the economic fallout from flooding is widespread and substantial but understanding the real dollar consequence of flooding is not easy, it requires intimate knowledge of specific locations and an understanding of buyer and seller sentiment,” he said.

Calculating the impact of flooding on property values is difficult, he concedes.

“For example, in North Lismore, our valuer reports that houses effectively gutted by flood waters have seen their values halve.

“Meanwhile, in the recent flood epicentre of Echuca, our teams have said the expected fallout on property will be economic rather than structural.

“Then there’s Brisbane, which has had to deal with several so-called one-in-100-year flood events over the past 14 years.”

Rental crisis worsening

The knock-on of natural disasters in capital cities and regional areas alike is being especially felt in the rental market.

The Rental Affordability Index (RAI) released this week found every capital city nationwide in a period of rental affordability decline, with regional areas in even more dire straits.

A key finding was that floods significantly impacted the Northern Rivers of NSW, with the region facing low vacancy rates, and outward-migrating city residents driven by the pandemic continue to impact rental affordability across the nation’s regional areas. Queensland, Tasmania and Western Australia were the most affected.

Ellen Witte, SGS Economics and Planning partner and Rental Affordability Index (RAI) report author

“We found that the static or slightly falling rents of the early pandemic were short-lived, with rents now being equal or higher than pre-pandemic, and Hobart still the least affordable city,” said Ellen Witte, the report’s lead author and a Partner at SGS Economics and Planning.

“The pandemic also saw the existing rental crisis spread to the regions, when many households left capital cities.

“This year’s severe floods also significantly affected affordability in the Northern Rivers of NSW.

“Lismore is one of the worst affected towns, where affordability declined by 10 per cent between 2021 and 2022.

“Bellingen was similarly affected, with affordability declining by 14 per cent,” she said.

Hobart was found to be the least affordable with high rents relative to household incomes. Brisbane has shown the largest decline in affordability, decreasing 11 per cent in the past 12 months, according to the RAI score.

Perth is at its lowest rental affordability since 2016, declining 15 per cent in the past 24 months, reflecting a sharp increase in rents since the onset of the pandemic, which incomes have not offset.

Sydney, Melbourne, Adelaide and the ACT all declined in affordability this year (following slight improvements during the pandemic), the report said.

Newly released Insurance Council of Australia (ICA) data shows the insurance bill for storms and floods since January 2020 has topped $12.3 billion, or around $480 for every adult and child in Australia.

Every eastern state has been significantly impacted by flooding and bushfires over the last three years, while South Australia and Western Australia have been hit by storms and cyclone activity. 

“We must not ignore what this data is telling us to do – invest in community-level mitigation, home retrofits, home buybacks in the most extreme cases, and better early warning systems,” Andrew Hall, CEO, ICA said.

Andrew Hall, CEO, Insurance Council of Australia

We also need to stop building homes and in harm’s way and make new homes stronger.”

Since January 2020, almost 788,000 claims related to floods and storms that were declared Insurance Catastrophes or Significant Events have been received by insurers,

In just three years, one in 25 adult Australians has made an insurance claim because of this wild and wet weather. 

“Each one of the 788,000 wild and wet weather claims lodged with insurers over the past three years represents a significant disruption to an Australian homeowner, tenant, landlord, business owner, primary producer or motor vehicle owner,” Mr Hall said.

“The fact that one in 25 of us has had to lodge an insurance claim because of this extreme weather is very sobering.” 

The cost of this year’s February-March floods has now reached more than $5.65 billion, surpassing the 1999 Sydney hailstorm in cost and making it the most expensive natural disaster in Australia’s history.

Flood insurance map

Queensland’s City of Gold Coast released new flood maps this week, to raise risk awareness.

The map has five risk categories, ranging from very high risk to those areas only possibly affected in very rare or extreme flood events events (i.e. mapped as the Maximum regional flood extent).

In the coming weeks, the City will also publish a flood insurance map and the technical flood information will be provided to ICA. This insurance map will differ with the flood risk awareness map as it will it represent current flood risks.

The maps are for information purposes only and are non-statutory.

The Bureau of Meteorology’s December to February forecast says rainfall is likely (greater than 60 per cent chance) to be above median for the Queensland coast, north coastal and southern New South Wales, all of Victoria, south-eastern South Australia and eastern Tasmania. Below median rainfall is likely for parts of Western Australia.

The REINSW has developed a Flood Relief Toolkit to help agents help their customers and communities.