Parts of Queensland are experiencing the worst flooding in a decade, but historically housing markets have recovered
Brisbane flooding impacts
The recent dramatic flooding in Brisbane is not expected to have any significant long-term impact on the housing market. In the immediate term, the focus in Brisbane is of course on safety and then dealing with the more pressing administrative matters such as repairs, and insurance.
Over the medium and longer-term, history shows that there will be a relatively insignificant impact on the housing market. In the aftermath of the 2011 flooding, there was a modest downturn in prices, although the market was already experiencing relatively flat conditions at around that time, after a preceding boom.
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Over the following five years, detached house prices in Brisbane recorded price growth of about 25 per cent, so there wasn’t really a discernible negative impact from flooding.
Generally speaking, we tend to avoid flood-prone areas for investors, because the insurance premiums can be high, and there is less of a ‘sleep at night’ factor. There may also be challenges upon resale of the property, if there is a perceived risk of flood impacts, or if the property shows up as an elevated risk on flood risk assessment maps.
For homebuyers, some will be prepared to buy in a flood-prone area, if they can secure a bargain, and provided the cost stacks up from an insurance perspective.
5-year outperformance from 2011
The floods will become a distant memory relatively quickly in terms of Brisbane’s housing market dynamics. A few years ago our market research showed that out of the top 20 suburbs impacted by floods in 2011, 19 of them outperformed the Brisbane house price growth benchmark over the following five years.
The only exception was Pinkenba, which is quite an unusual suburb with relatively few transactions, being more impacted by other factors, such as proximity to the airport.
|Rank||Suburb||5-year price growth (%)||Brisbane 5-year detached house price growth (%)||Outperformed Brisbane benchmark?|
|1||Fig Tree Pocket||53%||26%||Yes|
Figure 2 – House price growth in flood-impacted suburbs 2012 to 2017
There was a perception after the floods that flood-prone areas might be perceived negatively or experience poor capital growth, but that did not prove to be the case.
Part of the reason for this was that many of the suburbs were located close to the river, with water often being a drawcard for buyers in Australian real estate. And most buyers were able to look through the risk of flooding as an infrequent event that they were prepared to deal with.
It also helped that some of these locations were subject to rezoning, which made them potentially attractive to investors and developers.
Immediate focus on safety and clean-up
When considering buying property in a flood-prone area buyers need to conduct a risk assessment of the suburb the property type being considered, and the risk for the specific property in question. It is possible to get insured in a flood-prone location, but the annual cost may naturally be higher.
In Brisbane in the immediate term the focus will of course be on safety, primarily, as the flood water recedes. And then households will move on to deal with repairs, and then insurance claims.
There may be a rental supply crunch over the coming months, as there will be additional demand for rentals from displaced households, as well as a further depletion of the rental stock.
It has been estimated that up to 15,000 homes may be impacted by flooding. Everyone in Queensland is hoping for some more favourable weather.
Over the medium to longer term, we don’t expect there to be any negative impact on the housing market.
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