How climate change is reshaping real estate and economic geography 

Climate change is an economic, affordability, and cost-of-living issue. Cost of living implications were made clear in recent Consumer Price Index (CPI) data released by the Australian Bureau of Statistics (ABS).In the 12 months to December 2024, the CPI rose 2.4%. Insurance rose 11%.While it was slowing from a peak of 16.2% in December 2023, the relationship between insurance cost increases and extreme events would suggest we can expect more upward movement following fires in Los Angeles, flooding in Queensland, and fires in Victoria.As we see stronger impacts of climate change, it’s becoming a housing affordability issue and an economic management issue.Insurance is a proxy for loss and damage associated with climate change. Loss and damage is what we’re left with when we fail to reduce greenhouse gas emissions (mitigation), and fail to adequately adapt to the impact of a changing climate caused by those emissions (adaptation).Loss and damage is financial or non-financial costs to human and natural systems. Financial cost to human systems is reflected in insurance premiums.Extreme weather events – the most obvious being floods, fire, storm surges, hurricanes, etc – are major drivers of loss and damage and rising insurance costs.Insurance Council of Australia (ICA) data published in the federal Treasury’s Intergenerational Report shows insured losses from natural disasters rising steadily since the turn of the century. Following NSW floods and other disasters in 2022, they reached almost $7 billion for that year.Forgoing insurance in the face of costsAustralia isn’t alone. A report produced by the US State Department just before the change in administration showed that the US experienced one billion-dollar disaster every four months in the 1980s. Now, there’s one every three weeks on average. In 2024, there were 27 costing US$182.7 billion.People are increasingly forgoing insurance as costs escalate or insurance is simply not available. The ICA says that as extreme weather intensifies, and populations grow in high-risk areas, the global insurance protection gap widens.In 2023, it was estimated 38% of global economic losses were not insured, leaving businesses and communities vulnerable and economies weakened.In Australia, the ICA reported in 2023 that Swiss Re estimates the gap to be 35% and growing.The insurance protection gap becomes a fiscal issue as those lacking insurance turn to government. Treasury’s Intergenerational Report makes it clear natural disasters are contributing to growing fiscal pressures on all levels of government, particularly through disaster assistance.Disaster recovery funding arrangements (DEFRA) are a cost-sharing arrangement between the Commonwealth and the states. It doesn’t include other payments such as increased social security payments, foregone taxes and revenue loss due to reduced employment and economic opportunities.Disaster insurance increasingTreasury projections show DEFRA disaster assistance could increa