Government can't be the de facto insurer of property after weather events

NZ Herald

6 days ago

For example, the communities of Port Waikato and Bluecliffs have seen properties irreparably impacted by coastal erosion and sea level rise but have been treated differently to the properties impacted by single destructive events such as Cyclone Gabrielle and the Auckland Anniversary flooding in 2023. Not having a clear policy on the Government's response after an event has created this unfairness in outcomes.
Buyouts of properties most affected by Cyclone Gabrielle and the Auckland Anniversary flooding cost central and local government billions of dollars. The future liability of the reactive approach from these weather events is large and growing, as development continues to happen in places that will be affected by the physical impacts of climate change.
It is not sustainable for the Government and local government to be the de facto subsidised insurer of property values after significant weather events. This approach is effectively a subsidy encouraging people to stay in harm's way.
We all need to be thinking about the impacts of climate change as we make decisions about how and where we live. We need clear and consistent information regarding the hazards and risk scenarios our properties face.
We also need to know what plans are being made to address the hazards and risks. This is where clarity of roles and responsibilities comes in: local and regional authorities must be able to prepare adaptation plans, and many already are. To do this, they will use the Para framework – examining options under the different headings protect, accommodate, retreat and avoid. The relevant authorities will need to prioritise the proposed adaptation activities and determine how they will be funded.
The question of how to fund preventive risk reduction is particularly challenging. This will require a mix of central and local government and property and infrastructure owners. We are proposing that contributions to funding investments in risk reduction broadly reflect those who get the most benefit from it.
This must be subject always to consideration of ability to pay, so that those who can't contribute aren't simply left to their own devices.
The Government's historical approach to property owners affected by a significant event should change. After a long transition period (20 years), hardship should be alleviated with reference to need rather than to property values. That is, there would be no buyouts following an extreme weather event that has damaged property.
The Government would retain its role in alleviating hardship. The point is that this can be achieved in different ways than underwriting pre-event property values. One option, for example, would see a beachfront mansion owner and an owner of a small house in a flood-prone area be assisted according to need. If that need is established then they would receive the same capped amount rather than a payment based on the respective value of their properties.
This has no impact on the role of central and local government during and immediately after an event, in terms of the emergency response. This proposal also doesn't represent an abrupt shift in policy today – it goes hand-in-hand with a long transition. This period enables the creation and ongoing update of hazard and risk information, and a timeframe over which people can make decisions in the knowledge of the future state that will apply.
Banks and insurers are already starting to take these hazards and risks into account. Banks have the bigger challenge – typical mortgages are 20-25 years, while insurance contracts are annual. Insurers can decide each year the level of risk they are willing to take on and the price at which they will provide the insurance, whereas banks make a lending decision for a much longer period.
Changes in lending and insurance practices will likely be the first way that people will experience the impact of climate change on property markets. A bank may require a much larger deposit or decline to lend at all on a particular property; or your insurance premium skyrockets; or the most significant hazard facing your property, flood risk, is excluded from your policy following a significant event.
The numbers involved are large. A recent assessment of climate change and flooding problems in South Dunedin illustrates the scale of the potential problem. Seven potential adaptation futures were reviewed in detail, ranging from continuing as is to large-scale retreat. The different plans affect some 5800 properties and estimated costs of the different scenarios ranged from $2 billion to $7.1b – that's $345,000 to $1.2 million per house. For context, the current Dunedin City Council capital delivery budget is $200m annually for the entire city.
Climate change adaptation involves hard questions for which there are no easy answers. That we are now having this conversation is a great start. The water lapping at the door doesn't care what we believe, and transparency of information regarding hazards and risks does not change those hazards and risks – events will occur and losses will be felt whether we understand that information or not.
The fact that some who receive that information will have difficulty responding to it is not a good reason for not providing it.
The approach we take needs to be enduring beyond election cycles. We have limited resources as a nation; we need to make sure we are using those resources effectively and not wasting them on short-term measures when we are dealing with a long-term problem.
It is inevitable that people will have different views of the level of risk, and some may choose to buy, or stay, at a place despite the knowledge of the hazards and estimates of the risk. That's entirely up to them, but that shouldn't require the country to underwrite that decision.
The reflexive response from those unhappy with this approach essentially says: a person buying, or choosing to stay in, a property today with the knowledge that it is at a higher risk of the physical impacts of climate change should expect to be made whole by the Government (ie the whole community) in 20 years' time, if those risks come to pass.
To which it's worth asking: why?