Banks readying for sea-level erosion of property values

Insurers and banks are beginning to focus on the risks of rising sea levels for property values, New Zealand's Parliamentary Commissioner for the Environment has warned ahead of the release of a detailed new report which will show which coastal property will be hit hardest.

Commissioner Jan Wright appeared before parliament's Local Government and Environment select committee in Wellington on Thursday to discuss the Commission's recent report 'Changing climate and rising seas: Understanding the science', which spelt out that a 30 cm rise in sea levels by 2050 was already 'baked in'.
 
When she released that report late last year, Wright was already warning that banks had started taking an interest in the issue during the investigation.

"If you imagine now a thirty year mortgage on coastal property that is vulnerable, maybe you get to a point where the insurance is not renewable after a certain point," she said at the time.

"When these events become a certain frequency, the insurance companies say: 'No more'. And for the banks there may be the problem of negative equity."

On Thursday, Wright revealed that a second report, due "by the middle of the year", would include modelling to draw up coastal hazard lines, and would look "particularly at the risk to property and infrastructure and … how councils will be trying to deal with this [as they] run headlong into ratepayers."

Wright told owners of coastal property to look to the experience of Christchurch property owners who found their land had become flood prone following the earthquakes there.

"One of the most interesting interactions in this report has been with the insurance industry," she said.

"The chief executive of the insurance council is particularly interested in this, as the industry is in general, and described the situation in part of Christchurch as 'a glimpse into the future'."

"The response from the insurance industry to sea level rise will be the same as what we are seeing in Christchurch. With increased frequency of flooding you get premiums being raised as a first step, then you get higher excesses in policies and then you get 'no, we are not going to insure you at all because this flooding is just happening too often'. So there are very real economic impacts associated with this."

The chair of the committee, MP Scott Simpson, expressed concern that the upcoming report could have "significant potential to have detrimental financial impact on property owners."

Wright was unapologetic, warning that coastal property owners needed to face up to the situation.

"There will be detrimental financial impacts, regardless," she said.

"People will find themselves unable to insure their properties and so, really, I think the idea is to protect as many people from that situation as possible."

"This is not easy for anyone but sometimes we have to have these hard conversations and the insurance industry is right onto this. They really are right onto this and they are not going to be soft about it."

Wright said she was also "asked by the chief executive of the Bank of New Zealand to go and talk with him and I spent an hour with him. He was very interested in both the water quality work and the sea level rise work."

The upcoming report may also include recommendations on increased central government involvement as the issue becomes too challenging for councils to manage on their own, as shown by the experience of the Kapiti Council near Wellington at the bottom of the North Island. The council had to back down on plans to include coastal erosion warnings on Land Information Memorandum reports after a backlash from property owners.

"Local Government NZ is wanting more central government involvement here and I think it is along the lines of 'we are trying to do things here but we need more legal heft', if you like," said Wright.

"I may well make recommendations that relate to that, in one way or another, but I don't know until we have done the work."