The Reserve Bank wants to find out to what extent climate change is being factored into New Zealand's current house prices.
That's one thing the RBNZ will be looking at as part of its new Climate Change Strategy it released on Thursday.
Other things that the RBNZ plans to delve into include the insurance sector's response to climate risks and the impact of climate change on New Zealand farms - particularly "highly leveraged" ones.
There's no detail included in the strategy as to just how the RBNZ will go about eliciting this information - and how it would be able to measure the impact of climate change on such things as house prices and indeed whether there is a current impact.
Reserve Bank Governor Adrian Orr says the central bank wants to contribute to the Government’s objective of a sustainable, productive and inclusive economy.
"Where possible, we want to facilitate a smooth transition to a low carbon economy while ensuring that this does not diminish or adversely impact the soundness and efficiency of the financial system."
He says the bank’s climate change strategy includes monitoring and managing the bank’s impact on climate, reflecting climate risks within its core functions, and contributing to wider efforts to identify, monitor and manage climate risks within our economy and financial system, and as part of the global central banking and regulatory community.
The RBNZ's new Climate Change Strategy says that understanding, quantifying and managing risk is critical to many of the Bank’s core functions. This includes the setting of monetary policy, the monitoring of financial stability risks and financial markets, and the identification of appropriate prudential requirements.
"In conducting these core activities, the bank must have regard to all relevant risks and operate according to appropriate time horizons. Climate change will increasingly represent an important risk that we must factor into our decision-making when carrying out our functions."
Specific matters the RBNZ will look at include considering the impact of climate change policies and private sector adaptation to climate change on inflation and labour market outcomes as per the mandate of monetary policy and analysing the potential impact of climate change on future capital and migration flows, and the implications for the New Zealand economy and financial system.
The RBNZ's going to undertake "more in-depth analysis of the potential implications of climate change for financial stability". Among other things, the Bank expects to:
- Analyse the insurance sector’s response to climate risks, and explore the risks posed by New Zealand’s exposure to off-shore reinsurance markets;
- Analyse the extent to which climate risks may be factored into current house prices across the country;
- Explore the impact of climate change on New Zealand farms, with particular focus on the potential impact on highly levered farms; and
- Explore options for incorporating climate risks within its stress testing framework.
The RBNZ's also going to engage with regulated entities to understand how climate related risks are being addressed within the sectors that the RBNZ regulates. As part of this, the Bank will engage with entities to explore their own internal climate risk strategies to evaluate the New Zealand financial system’s awareness and management of climate risks; and seek to identify opportunities to enhance disclosure of climate risks in New Zealand.
Additionally the RBNZ's going to monitor the development and operation of capital markets "to identify any impediments to the efficient provision of finance for ‘green’ investments".
The RBNZ has been welcomed as member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The Network was set up in December 2017 at the Paris ‘One Planet Summit’ to strengthen the global response required to meet the goals of the Paris agreement.
Head of Department Financial System Policy and Analysis Toby Fiennes says the Reserve Bank is very proud to have been accepted as a member of the NGFS.
"Playing our part globally, and as a leader in the Pacific region, is important both in terms of reinforcing New Zealand’s reputation as a ‘good global citizen’, and in providing us access to the latest thinking around the globe."
31 Comments
Hang on Ed. I made a comment that perhaps the RBNZ should be studying banking rather than climate.
Relevant because we already have a ministry of environment to worry about the climate and doubly relevant because of what is being exposed over the ditch in Australia and the fact that the RBNZ have already said that they have a shortage of staff! It's called sticking to your knitting!
Not wishing to critique the article but
What about earthquakes & volcanoes erupting in NZ
NZ is the shaky isles after all
Lockwood houses withstand richter 9 earthquakes yet are not mandatory in earthquake zones ?
Has ChCh even stopped shaking yet ?
ChCh earthquakes made reinsurance industry up here note excess NZ risk for quakes
Auckland inactive volcanoes everywhere with Rangitoto long overdue for eruption & when it does Auckland will be covered in ash. 5km radius I think they predicted for ash fall.
This is why I live in Nth America near aging nuke reactors
So much safer
At moment swimming with the sharks
Merry Christmas Kiwis
Enjoy the holidays
I think that it is a very worthy proposal.
Clearly we have identified change to our physical environment - unless you are Donald - which has implications for both sea level rises and changes to both climate and weather. After all, we look at sustainability in planning in so many other ways.
Climate change is going to be a gradual process and extreme weather events are likely to have more significant impacts and cloud what is a process of steady and irreversible change.
It is important that we do consider climate change and the implications for planning at a government level, industry/business, and even personal, levels. As an example; putting aside considerations of sea level change and their implications for our coastal cities, what are the long term implications of change in climate and weather for the Waikato in terms of sustainability of dairy farming. Is the long term viability of dairy farming (and its supporting infrastructure) likely to be significantly affected by a climate which becomes both warmer and wetter, and likewise is a region such as Canterbury going to become less suited to arable farming, and the Hertaunga plains less suited to pip fruit?
Here in Napier, much of the city raised in the 1931 earthquake is marginally (0.5m) above sea level and developments such as at the airport (0,3m above high tide?) could well become more prone to king tides and abnormal sea levels during tropical cyclones (which will most likely become more frequent). Parts of the foreshore fronting residential areas currently face ongoing significant net erosion which is likely to increase. The coast at Haumoana is retreating and essentially the homes fronting the sea have been largely written off with the Regional Council not prepared to fund protection work, although along Westshore the Council has undertaken continual annual sediment replenishment.
While I don't want to be seen as a DGM, it is simply being prudent to consider, recognise implications, and act accordingly. After all we do this all the time.
kiwimm - But you would think the insurance company would stop insuring the house once the water was lapping around the front door ?. Then that would leave the bank to take the full loss of the loan. 30 year mortgage gives plenty of time, especially if they keep adding to the mortgage with cars, boats, holidays. Or if it is an interest only loan.
The debt stays with the owner unless they declare bankruptcy.
Insurance companies are already increasing costs to low-lying areas as the risk increases. Note that the risk will keep increasing until insurance becomes too expensive or too risky - this hapens over several years.
hi FP
Your view is a little simplistic. Don't think that banks don't protect their interest and don't do due diligence.
For a start, sea level rise is going to be a fairly slow process (the Royal Society estimates that over the past 20 years it has been rising at 3.2 cm - 0.12 inches - per year) so it could be some time before it starts lapping around a large number of homes. The noticeable effects will be extreme events such as inundation due to extreme events such king tides and tropical cyclones, and coastal erosion due to a change in coastal equilibrium due to the sea level rise (and are the effects currently being noticed in low lying atoll nations such as Kiribati). So as a loan is usually for 25 to 30 years - but repayable on demand at any stage - it is not what is currently important.
Note that when purchasing a property the bank is more than likely require a valuation from a registered valuer. This is far more detailed than an estimated cost; it will cover a range of factors including identifying hazards (obtainable from local and regional council reports) such as coastal hazards and slip hazards. Most bank staff have open access to QV information, and the property information available is far more extensive than estimated value and includes the same sort of hazard information.
As noted by other bloggers; the bank is also going to require insurance covering the value of their mortgage. Insurance companies are very, very aware of natural hazards risks and in many instances are not insuring high risk properties (ask those in the areas of Greymouth who haven't been able to obtain insurance for the past 30 years or so, or the people in coastal erosion areas such as Haumoana in the Hawke's Bay).
It is simple: Risky property = no insurance = no mortgage.
If due to increasing risk (e.g. more frequent extreme events) then the insurance company is going to pull out and repayment of that mortgage will most likely to shortly follow. (Note that when you take out insurance you need to declare all parties with a vested interest in the property which will include bank mortgages and from anecdotal accounts - such as lapsed premiums - my understanding is that insurance companies are not slow in informing banks whenever an insurance policy lapses).
So bottom line is that with increasing sea level rises, so will more and more properties become more at risk (especially to extreme events) and the ability to get a mortgage and insurance will become increasingly common than it is currently already. This is already happening and will continue to do so
P.S. Ask those in Kaikoura who are having difficulty re-insuring due to increased risk of after shocks and therefore problems with finance.
It's not clear that climate change will have any net negative impact on NZ:
https://country-level-scc.github.io/explorer/
We are a mid-latitude temperate ocean moderated island climate. A degree or two of warming (not likely given our climate controlled by south pacific ocean and upper ocean is only warming at 0.3°C per century) will just lift the treeline 1-200m in the south, lengthen and enhance growing seasons making our main industry of agriculture more productive, and have very little impact on rainfall (possibly increase it). We don't have much low-lying land to worry about, and the ongoing 2mm/year of sea level rise is not a problem even over long term (has been rising at the rate since ~1870's with no noticeable impact) - we have centuries to add a little fill (costing a few $10's per m²) to any high value low-lying land that might be affected.
And it's not clear that it won't.
What about seasonal snow melt and the impact on our hydro electricity generation?
What about rainfall patterns and farming?
What about increased erosion and loss of soil fertility?
What about more tropical storms and the advent of malaria in the Far North?
What about low lying towns, storm surges and property prices?
What about insurance premiums?
As we are mid latitude rainfall is anticipated to increase if we warm appreciably - so basically all positive from a generation and agriculture perspective: https://earthscience.stackexchange.com/questions/986/how-will-climate-c…
Malaria spread is a disproven scare story - the global range of Malaria is diminishing over time (eg was in Alaska during Klondike gold rush) endemic in southern Europe pre WW2 but with better medicine is now gone, and mostly gone from China too - it is a disease of poverty.
Why would there be any climate impact on erosion or fertility? That is about agricultural land management techniques.
If you are worried about storm surge then build sea walls and require new houses be built half a metre higher and then in 100 years after the houses are all higher (and sea level has risen 200mm as it did in last century) add half a meter of fill (about $25/m² for urban land that is generally worth $100's to $1000's/m², the cost spread over 100 years is tiny - about 10% higher rates for the affected properties, <<1% over all properties. That will buy you 250 years at current rates of sea level rise.
Keep in mind that the sea level was 120m lower 20000 years ago, and has oscillated up and down by 3m several times during the last 7000 years at far faster rates than current. It is wrong to believe that we existed in some sort of climactic homeostasis pre-industrial revolution: http://notrickszone.com/wp-content/uploads/2014/05/Caryl_4.gif
I think its very clear. Even if NZ is actually NET better off (and with sea level rise and weather extremes that's a big ask) the problem that will loom is Syria-->EU like mass migrations as ppl move from where the disasters are to where they are not. In terms of food production the impacts expected are a 25% drop in food output, this means 5million ppl we no longer feed and the consequential increase in food prices. Then the impacts on insurance or lack of it.
looking iffy to say the least.
Foyle,
I am looking at Prof Gluckman’s 2013 report on the potential impacts of CC. It is very measured,as you would expect and I can only quote selectively. Eg Extreme weather events are likely to increase.Significant floods and droughts are expected to be more frequent. I think you would agree that we are indeed seeing that.
Again; NZ can expect an increase in the frequency of extremes of high tides and their associated risks. Glacier volumes are projected to continue to decrease.
On the positive side the report said that; With some degree of adaptation,near-term increases in yield/profit may be possible in some farms. A final quote; As a result of circulation changes,sub- tropical cyclones are also expected to track south more frequently. We saw this last year with 3 ex tropical cyclones doing considerable damage.
We are starting to see substantial spikes in ocean temperatures which is worrying. I think you are being overly complacent.
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