Background

Should I stay or should I go? Climate-change risks to property values across space and time, and the related implications for financial stability

How many hits will you take before you run? Exacerbated flood risks associated with climate change will affect future property values in vulnerable areas as the intensity and frequency of flooding increase. Since both property and financial markets are forward-looking, understanding the interplay between increasing flooding hazard, related financial losses, and when those losses will occur, has profound implications for homeowners, banks, insurers, and the stability of financial systems. The associated risks are long-term and susceptible to the ‘tragedy of the horizon’ in that current decision makers fail to fully account for future risks.

Research Aims

Our research will explore when, and to what extent, increasing flood frequencies and severity will impact property values in NZ’s coastal cities given that markets are forward looking and have imperfect information. The project will also examine potential flow-on effects of these losses (risks) on the stability of the NZ banking system. The purpose of this research project is not to conduct a traditional climate impact assessment. Rather, we will add value to existing assessments by extending them to incorporate a more nuanced understanding of climate change-related flooding hazards' impacts on property prices and financial stability.