Flood-risk homes defy analysts' expectations, gain value faster than unaffected properties

Instead of avoiding homes at risk of flood, house-hunters are snapping them up at a discount, new data shows.

Buyers' taste for a bargain means growth in property values for houses in flood zones is currently outpacing nearby, unaffected areas.

Analysts at Cotality, who supplied the data exclusively to RNZ, were so surprised by what it showed that they had to double-check it.

Cotality head of data Craig Dargusch said he was "greatly" concerned that people at the lower end of the market appeared to be trading off risk against affordability.

But buyers and those in the property industry said flood risk was just one of many factors to weigh up, with some saying a flood-zoned property could still be a safe purchase with the correct due diligence.

The data combined average monthly sale prices since 2020 with Cotality's flood score, which assigns each property in the country with a risk from zero (no risk) to five (high risk) based on property history, council data, and other information.

"We probably expected to see the properties at the highest risk of flooding having the lowest growth rate in the years following [the 2023 severe weather events]," Dargusch said.

Instead, the data showed the opposite.

Despite houses with high flood scores selling at a steady discount, their values had been increasing faster than properties with no risk at all since the severe weather events of 2023.

"I remember looking at it, going, I can't make any sense of it," Dargusch said.

"It's counterintuitive - we're seeing in actual fact that the properties with the highest risk of flood had the highest rate of growth."

That was true even in Auckland, where thousands of properties were damaged during the 2023 Anniversary Day floods, and in Hawke's Bay, at the epicentre of Cyclone Gabrielle.

The team compared houses in flood zones in both regions with unaffected properties in a 500-metre buffer.

In Auckland, flood-zoned houses attracted a $70,000 to $100,000 discount, but had increased in value by 18 percent since 2020, compared to 13 percent for other properties.

"We had to double-check it and then triple-check it to make sure that the data was right," Dargusch said.

In a way, what was happening was a rational market response, he said - people were seeing a window of opportunity and taking it.

"Housing affordability being as difficult as it is, they're likely pricing [the risk] and saying, that's ok, I accept that risk. I choose to have a home … and live with that risk versus an alternative approach."

Price growth would have to top out at some point, as it was unlikely that average house prices for flood-risk properties would exceed those not at risk.

"All things equal you wouldn't typically see those lines cross.… Is there a plateau ahead where they've reached their maximum growth rate and then the growth rate flattens, prices flatten, and that's where it stays?"

That had already happened in places like Lismore in New South Wales, which had suffered repeated and severe flooding, Dargusch said.

"The rate of growth may or may not be higher for a period of time, but the prices have been almost permanently reduced."

The results had concerned him "quite greatly".

"I think about the families who are so excited to move into those houses, raise their kids, have a patch of land of their own," he said.

"You wonder how families live with that [risk] over time - do I get away with it? Will I have the luck? Will Mother Nature have a different future in store for me?"

The government had already indicated the "safety net" of property buy-outs following severe weather events - as happened in Auckland and Hawke's Bay - would not continue indefinitely, he said.

Without that, some very high-risk properties would eventually become "non-transactable".

That would not be down to a lack of willing buyers. "It's about the property being deemed uninsurable."

Flood maps not enough on their own

Auckland woman Amy McDaid bought her Avondale house, which was located in a flood-prone area, with eyes wide open.

"I would always check the [council] flood maps, but the more I looked, the more I became aware that the flood maps weren't good enough in themselves to give me an idea," she said.

She still took the maps seriously, but actually visiting properties she was interested in let her get a better understanding of the risk.

"If it was down a long driveway and if it was at the bottom of a gully, what did the surrounding areas look like - did they look damp? Did they look like they were prone to water? Was there mould on adjacent homes?"

Other properties might show a flood hazard, but it was clear any water would run away from the house itself, McDaid said.

Before putting in an offer on the house she eventually bought, she checked with insurers that they were happy to provide policies.

She also spoke to her prospective neighbours about how their houses had come through the Anniversary Day flooding in 2023.

"They weren't even aware that they were in a flood plain. They reported some water pooling on their lawn that had disappeared within an hour of that major event of 2023."

Two years later, and after some heavy rain events, she did not feel at risk at all in her home.

"It is a property that's set very high - I felt like pretty much the whole of Auckland would be underwater if the water managed to meet this house."

She encouraged other buyers to do their due diligence before ruling a flood-zoned house in or out.

Property professionals notice behaviour changes

Mortgage adviser Sarah Bloxham specialised in helping first-home buyers and said her clients were increasingly aware of natural hazards information.

"If it's got a hint of any sort of flood overlay, they're just not even offering.

For buyers who were interested in a property that showed a flood risk, their first call should be to an insurer, Bloxham said.

"I don't want them spending $1000 on a valuation, $750 on a builder's report and a lawyer if we're not even going to get insurance."

West Auckland conveyancing practitioner Hilary Jenkins echoed the need for early due diligence but said there was more to it than what public flood maps showed.

"There is such a fear about it now, and if people just look at the top level of the maps, it's not going to help them," she said.

It was important to dig further into the hazard information.

"Just because you're in a flood risk area doesn't mean the house is going to flood," she said.

"We would always advise definitely making sure that they query and get some confirmation that there has been no flood damage to a property when it's in a flood area."

Some buyers were concerned about resale value, and she had also noticed a change in awareness from sellers.

"If they're in a flood area, they have to be much more prepared about how they're marketing it and the information that they're giving people right from the beginning, whereas that was never really an issue before."

Sometimes people were choosing to move because they were sick of storms and flooding themselves, she said.

"They often are taking a bit of a hit on price because it's taking longer to sell and they just want to move on with their lives."

Plenty of people were still willing to buy those properties, though, she said.

"It's just taking longer and people want more information around them."

Insurance expert Bryce Davies said the choices prospective buyers made tended to be based on more traditional considerations.

"Is it in the right school zone, has it got the right number of bedrooms, transport links? People have been making those trade-offs all the time, they know how to do that."

Flood risk and other weather-related hazards, on the other hand, were a relatively new factor.

"It comes back to the [risk] literacy problem… How do I now add this into how I think about the problem?"

It identified dozens of gaps it said must be addressed over a 15-year timeframe, including what is built, where it is built, knowledge, resources and governance.

Climate Change Minister Simon Watts announced last year the government would fund the creation of a National Flood Map, which would provide the public with comprehensive, consistent information about flood risk in their area.

The first iteration of the map is due early next year.

Craig Dargusch said he strongly supported the concept, but the best information in the world would only take people so far.

"Supply and demand in the market will ultimately play a part even against scenarios … that with cool, rational logic you'd say, that's a risk I'm not willing to take."