Sea level rise, more rain in wet areas and less rain in dry areas, increased frequency and severity of extreme weather events (such as storms, droughts and fires), ocean acidification, biodiversity loss and glacial melt are all environmental effects that are expected to arise in some form.
These will come at a cost, though there may also be benefits. As temperatures rise, some land will become less suited to its traditional agricultural or horticultural use.
In some areas, climate change could extend the growing season or introduce new product opportunities. But in less fortunate cases, areas might become too hot, or too wet, or too volatile to support stock or crops.
This could force a change in land use at substantial cost (new infrastructure, lost revenue and new skill development).
Some crops currently limited to North Island production will be able to be grown further south, while Northland is already showing signs of successfully producing crops currently associated with warmer climates, such as peanuts.
But warmer temperatures combined with higher rainfall and more high impact weather events will further exacerbate erosion and slipping of hill country.
This will increase the need to fully retire some blocks of grazing land and alter management practices in other areas, including more pole planting (trees planted intermittently to stabilise soils).
Environmental changes are likely to put a strain on key infrastructure across the country, particularly in coastal areas.
With more extreme rainfall, flooding and storm surges, our wastewater and storm water infrastructure is facing mounting pressure.
Most of New Zealand’s piping infrastructure is designed to handle a 1-in-100-year flood, yet by 2050 some vulnerable coastal zones could experience a 1-in-100-year flood almost every single year, according to Deep South National Science Challenge.
Based on modelling by NIWA and the Deep South National Science Challenge, an additional 7,000 buildings, 133km of roads and 10km of rail line are at risk of flooding for every 10cm of sea level rise, with another 80cm of sea level rise expected by the end of the century based on median projections.
That means that by the end of the century, $38 billion worth of buildings (currently inhabited by 150,000 people) would be at risk of coastal flooding. Separately, $135 billion worth of buildings (inhabited by 675,000 people) could be at risk of extreme flooding from rivers.
The precise impact is highly uncertain, but we can expect a loss of valuable private and public assets – local councils themselves are looking at a loss of up to $14 billion in infrastructure, in addition to the value of at-risk homes, businesses, roads, schools or hospitals. Disruption and productivity costs as communities adjust could be significant.
Property, insurance and financial stability
Given the increasing likelihood of flooding associated with sea level rise and more extreme weather events, increased risk is increasingly being assessed by insurance companies and included in property LIMs.
Securing insurance is expected to become costlier and more difficult, especially in coastal areas.
A report from the Deep South National Science Challenge investigated coastal properties that currently experience inundation once every 100 years.
Evidence suggests that insurance companies start to partially retreat from insurance coverage when coastal inundation occurs every 50 years and fully withdraw when events occur every 20 years.
Based on this, at least 10,000 properties in New Zealand’s four largest cities are expected to be uninsurable by 2050, with many, many more homes across the country likely to experience a sharp rise in premiums and/or a full or partial loss of insurance over the same period.
For the vulnerable properties considered in the report, partial loss of insurance is expected to begin within the next 15 years, meaning homeowners will increasingly bear more risk and cost, with insurance estimated to increase as much as four times before these properties become uninsurable.
Global weather events could also lead to higher reinsurance costs for New Zealand insurance companies, with flow-on effects to insurance premiums and availability more broadly.
Insurance is a cost of owning property, so changes in the cost or availability of insurance can be expected to affect property values directly. This could be quite material if insurance becomes completely unavailable.
Loss of insurance also makes it harder to borrow, so there could be flow-on impacts to house prices via reduced credit availability. Impacts on property values, if significant in scale, could have financial stability implications too.
If homeowners found themselves in negative equity positions, negative feedback loops could occur via credit availability, lower collateral values and falling house prices.
In such a scenario, it is possible that business assets could also be affected, given that small business loans are often secured against residential property.
In a bad scenario, bank balance sheets could also come under pressure due to lower collateral values, while insurance companies could also face significant strain, particularly if the risks of damage have not been appropriately priced.
Yet despite clear risks associated with property damage, reduced insurance availability and lower property values, New Zealanders remain fixated on coastal property and values keep rising.
Quotable Value recently reported that coastal property remains the “hottest of hot commodities”, with no signs that the kiwi obsession is abating.
Overall, it is possible that we are seeing a mispricing of risk in the property market, which could lead to a significant repricing in future.
On the flip side, less-vulnerable inland areas could experience a boost to economic activity as they become more attractive places to live, resulting in population growth, rising house values and increased business presence.
Over time, it is likely that parts of the population have to shift further inland and urban areas and infrastructure have to be rebuilt.
This might generate some economic activity, though would divert resources away from other productive uses.
Over the long term, movement of population is likely to weigh on property values in affected areas, while property in unaffected areas is likely to become relatively more valuable, boosted by displacement of people both from domestic coastal areas and potentially other affected countries.
Higher population flows and pressure on the existing housing stock are possible too, which could put upward pressure on property prices. The effects of climate change are expected to be relatively benign in New Zealand compared to the globe as a whole.
This, as well as our close proximity to highly vulnerable nations, makes us particularly susceptible to ‘climate migration’. In some Pacific nations, such as Kiribati, people are increasingly acknowledging that relocation may be inevitable.
There is also a possibility that we see higher voluntary immigration if people perceive New Zealand to be safer (or simply more comfortable) in this changing climate.
Economic growth would be boosted from increased migration, as it drives greater spending and brings additional skills to the labour force, but it would also put additional pressure on housing and infrastructure.
The risk is that we could face more rapid immigration than we are equipped to handle.
On the whole, it is possible that house prices in aggregate are not actually affected much, but there is much uncertainty and regional divergences should be expected, with periods of adjustment and pockets of financial distress possible.
The cost of doing nothing
If we do nothing to mitigate climate change then we are simply imposing a higher cost on the next generation.
If New Zealand doesn’t meet its climate change targets, then carbon credits will need to be sourced from offshore, which could come at a substantial cost to the country.
The Climate Change Commission recommends that no offshore credits should be purchased before 2035, and advises this option should only be used for unforeseeable situations such as a major volcanic eruption or fire that impacts our ability to produce low-emission electricity and therefore reduces our ability to meet our Paris Agreement targets.
We can expect some substantial changes to our environmental and economic landscapes at the hand of climate change over the coming decades. And it’s hard to say exactly what that will look like.
What we do know, is that positive environmental action from households, businesses and government has the potential to reduce the feared economic adversity.
It will take a global effort, but it’s one that we can all play a part in.