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How will flooding impact the property market?
Regions most affected by the recent floods were among the strongest performers over the past year.
How will flooding impact the property market?
Regions most affected by the recent floods were among the strongest performers over the past year.
Following the devastating floods in Queensland and NSW, new analysis has examined how the value of property in flood-affected regions may be impacted.
CoreLogic looked back at the movements of the Brisbane property market in the aftermath of floods that hit the city 11 years ago.
The firm found that house prices had declined by 6.1 per cent between January 2011 and January 2012.
“This decline kicked into recovery mode off the back of several cash rate reductions from November 2011,” said CoreLogic head of research Australia Eliza Owen.
“However, it was not until March 2014 that the dwelling market fully recovered the value recorded in December 2010.”
The suburbs most affected by flooding suffered an even sharper decline in values including falls of as much as 17.9 per cent in the suburb of Chelmer and 17.4 per cent in Rocklea.
House prices in Indooroopilly took more than nine years to recover to the levels seen in January 2011 while property in Chelmer took over eight years to bounce back.
Ms Owen noted that it was difficult to isolate the impact of the floods on property values since prices in Brisbane had already been trending lower from the middle of 2010.
A major difference highlighted between the property market then and now is the time gap between major flooding events.
“In 2011, major flooding had not affected the region since 1974, and flooding of this nature was considered a ‘once-in-a-100-year event’,” said Ms Owen.
“For current homeowners, it has been just over 11 years.”
This much shorter gap could potentially lead to a shift in buyer attitudes about property in low-lying areas and drive insurance premiums higher, dissuading buying in flood-prone areas.
Prior to the recent floods, riverside precincts in Brisbane still attracted a premium compared to those located further away from the river according to Ms Owen.
“Australians have historically placed a high value on housing within close proximity to the water; whether this trend changes based on forecasts of more frequent severe weather events is yet to be seen,” she said.
Another key difference between 2011 and 2022 is the path of interest rates.
While the recovery of the Brisbane market was supported by a series of cuts starting in late 2011, the Reserve Bank is currently expected to hike rates within months.
“The cost and implications for the housing market of the current floods is difficult to evaluate, given that for many coastal areas, clean up and damage assessment is yet to commence,” concluded Ms Owen.
“Ultimately, this event reinforces the consequences of climate change, which poses a great challenge to the real estate and finance sectors now and in the future.”
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