New Zealand house prices vulnerable to climate risks, RBNZ Says
NEW ZEALAND house prices probably don’t reflect the risks posed by rising sea levels and increased flooding, the central bank said, as it steps up efforts to understand the impact of climate change on financial stability.
“Climate change-induced increases in flooding risk and related potential changes in insurance behaviour are unlikely to be fully captured in current house prices,” the Reserve Bank (RBNZ) said in a report on Tuesday (Nov 1) in Wellington. “Therefore, owners may see a fall in property values in flood zones as we gain an improved understanding of the risks and this is priced into the housing market.”
Increased rainfall in some parts of New Zealand has seen devastating flooding this year while rising sea levels are starting to threaten coastal properties. The RBNZ has added an assessment of flooding risks to banks’ residential mortgages in its annual stress tests, asking lenders to measure their exposure in flood zones.
On sea level rise, the RBNZ found that about 2.5 per cent of properties, or one in 40, would be affected by an increase of 50 centimetres. That increased to 3.8 per cent in a more severe climate outcome with one metre of sea level rise, the bank said.
The risk assessment looked at how banks’ current mortgage portfolios would be affected by flooding risks out to 2100, with the range of sea level rise stress tested consistent with modelling by the Intergovernmental Panel on Climate Change.
River and surface flooding may pose an even greater risk to bank residential mortgage portfolios than coastal flooding, the RBNZ said. It found that in a severe scenario, more than a quarter of banks’ current mortgage lending in largest city Auckland was on land that could be impacted by flooding.
The RBNZ said the stress tests gave a deeper understanding of future flooding risks and meant banks could position themselves to avoid being exposed over time, for example by tightening lending requirements in high-risk flood zones. BLOOMBERG
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