Uninsurable houses as a result of climate change will be a disaster for homeowners, banks, governments and the whole of society. Are we ready for the challenge?
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This is the transcript:
Uninsurable homes are creating a housing market time bomb in the UK, in the USA and around the world, and we need to understand that because the consequences are enormous.
The reality is that, of course, climate change is coming home to roost. That's what's behind this problem of uninsurable houses and uninsurable other properties, by the way, because this does also affect businesses.
We thought that climate change would have an impact on us through things like rising temperatures, or failing glaciers, or crop failure. But no, climate change is actually going to force change onto the world because of the failure of financial markets. Uninsurable properties can't be insured. That will mean loans can't be repaid. This crisis could become a financial meltdown, and we need to understand this.
Climate change is giving rise to all sorts of major changes in the observed patterns of behaviour within our weather. We are getting wildfires, floods, hurricanes, and heat waves.
All of these are happening before we've even reached the point where 1.5 degree global warming change can really be said to have had a significant impact, and we're heading much higher. What's happening is that places that were once considered to be safe are now seeing unpredictable and extreme weather changes of a sort that are simply unprecedented.
At the same time, the insurance industry, and anybody else, come to that, are unable to predict what is happening because their models are out of date. And, as a result of that, major reinsurers, the people who actually stand behind the insurance companies that we deal with, are pulling out of supplying insurance for some of the riskiest markets in the world, with the consequence that things like basic household insurance are no longer available to many people.
There are areas where flood insurance is not available, fire insurance is not available, or, quite simply, no insurance of any sort is available.
This is happening in California, for example, where major wildfires are the risk.
Also in the States, Florida and Louisiana are seeing significant hurricane risks.
Texas and the Midwest are seeing increasing flood risks.
In Canada, the problem is different, well, only to the extent that the geographical location is obviously not the same as in the States, but floods and wildfires are, in particular, hitting British Columbia and Alberta.
And in Australia, there is a massive problem, as we've seen on news broadcasts for some time now, with regard to fires of all sorts.
In Europe, the problem is just as real, but flooding is perhaps the biggest risk. In Germany, and Belgium, and the Netherlands, flooding has been a real problem since 2021. We've also seen this issue in the deep valleys in the south of France, where flooding has become a major problem.
And elsewhere in Europe, the problem is of absolute bone dryness. The likelihood that we'll get fires is increasing as a result.
In the UK, we have a significant problem. According to the Environment Agency, one in six houses in the UK is now at risk of flooding. That's happened in places which initially seem unlikely. Yorkshire and Cumbria have been hit badly, but so too have inland locations like Worcestershire, where it's so common that flooding now takes place that I suspect they can just roll out stock footage on television, because the scene looks the same as the last time, which wasn't so long ago.
And this isn't only because of deep flooding in the sense of rising sea levels. It's also because of surface water flooding. There are major problems in many urban areas in the UK because our drainage systems just aren't up to taking water away.
We've got a problem with coastal erosion as well in Norfolk, East Yorkshire and parts of the west of Wales. Whole communities are at threat from collapsing into the sea, and that's happening. It's thought that at least 21,000 homes in the UK might disappear by 2100, and that's an estimate from the UK Climate Change Committee.
In the south of England, the problem is different. The problem there is extreme dryness. The south of England is largely clay based and on clay soils, the problem of dry weather becomes shrinkage, and the result of that is subsidance. Already many parts of the UK cannot get insurance cover for subsidance claims and subsidance claims make your house literally unsaleable.
So, where we are seeing this is varied. But perhaps the most surprising of the areas where this is becoming a problem is in the London suburbs.
The flood risk map of England shows an enormous area of risk inside Yorkshire, and I mean inland Yorkshire there, around the Yorkshire coast and then heading south all down the Lincolnshire coast, the whole of the fens, where I live. And then it looks as if there are scattered areas of other risk in the rest of the UK. In particular, for example, around Romney marshes, which is that red blob in the southeast of England.
But if we just go into the south east and London in a little more detail, what we can see is that all the most desirable postcodes in London are in fact subject to significant flooding risk. Anywhere near the River Thames could flood and the Thames barrier might well not provide any protection.
The risk to the Essex marshes may not be too significant.
We might be able to dismiss the risk to Romney marshes.
But there are other centres of population there which are vulnerable.
And when we look at London, this is a massive area of concentrated population, but also of wealth and also of bank lending.
If the City of London was to be at risk, then we would see an enormous change in attitudes. And it is. The map shows it. And so we have a real financial risk implicit in this.
The government has reacted in the UK. There is something called Flood Re, which is a reinsurance company set up by the government. It was created to cover houses built before 2009, but that is, of course, one of the problems. It does not cover new build houses, and too many of these are being created on floodplains where the flooding risk is really high.
It also does not cover businesses and 85% of all commercial lending in the UK by value is believed to be against properties which are at flood risk. In other words, there's a mortgage on that property. If it floods, the mortgage might fail and the bank will be in trouble. So the government's measures at the moment do not mitigate the risk in a very real way.
What are the consequences?
We're seeing rising insurance premiums. Some houses are paying up to £1,000, and maybe quite a lot more, for additional premiums to cover flood risk. There's also some areas, and I've heard this about Doncaster, for example, where quite simply you can't get cover whatever you want to do. And in other places, specific risks, flood, subsidence, or whatever, is not covered, and that basically gives rise to rejection for mortgages.
The consequence is that households are becoming trapped in their homes. People cannot sell because their house cannot have insurance cover, and without insurance cover, nobody can get a mortgage to buy it. The result is literally stunted, or blighted, prospects for the people involved; they can't move, and social mobility is fundamental to wellbeing.
There's also, of course, therefore a risk for the mortgage lenders, the people who have already lent on these properties and who now find that these assets are effectively unsalable and therefore they may not be able to recover their loans.
This is suddenly making many bank balance sheets look very vulnerable. I've been in conferences where this has been discussed by bankers, and they all seem to have the naive belief that before this problem becomes too big, they'll all be able to offload their property portfolios onto somebody else who's unaware of this problem.
To describe that as naive is absurd. This is a totally systemic risk for the banking industry that could hit it very hard and create another financial crisis.
There's a problem for the government. Not only will it face claims under its Flood Re reinsurance scheme, but there's a simple fact that it has a problem with regard to managing infrastructure, and this isn't just the infrastructure on the east coast or in the west of Wales, or wherever else there are direct flood risks. This is about intermittent risks as well.
How is the government going to stop London flooding, for example?
Once may be unfortunate.
Twice would look like carelessness?
The third time it happens, people will say it's time to up sticks and move.
How is the government going to manage this internal migration that flooding might create in the UK? As far as I know, there is quite literally no strategy for this at all. And yet it is a very real risk that the government needs to face.
And of course, we see the risk of market meltdown in some parts of the UK as people try to leave as a matter of panic, virtually.
But there will be other parts where, of course, there will be excess demand for property because 📍 it's on relatively high ground.
And there will be some odd places where both these conditions could apply. I happen to live in Ely in Cambridgeshire. Ely is an odd, big lump of clay sitting in the middle of the fens. My house is a hundred feet above sea level. That's great, except that we'll be an island if flooding happens, and so there will be no communications in and out except by rowing boat.
All of these things matter, and none of them appear to be planned for.
But when it comes down to what creates the need for decision making, banking is the area where this risk is going to hit home hardest. Quite simply, banks are facing the risk of bad debts, and bad debts petrify them, and, therefore, they'll demand action.
So, what can we do? First and foremost, all those who deny that we can do anything about climate change need to wake up and smell the coffee. We can, and we should, do things to tackle climate change.
We can, and we do need to transform our economy so that we recognise 📍 the risk that climate change creates for us.
We need to create sustainable energy sources. Whatever the far-right, say our future is in sustainable energy.
We need to phase out the use of fossil fuels. Whatever Tony Blair might say, we cannot rely on fossil fuels as the basis for our future economy.
We might well need to reduce consumption of some goods and services, particularly those that are consumed by the wealthy. For example, the time for an airline tax has arrived; there is no excuse for excess global travel for leisure.
We need to build flood defences. There is no excuse for not doing so, and we have to start now, or we won't be ready.
And we've got to stop building on floodplains.
At the same time, we've got to protect our transport systems. The example I've just given of my home that is safe with regard to flooding, but may become impossible to live in because there'll be no roads into or out of the community where I live, is a situation where thinking about transport is essential if future viability is possible.
In some parts of the country, we have to look at how we are going to manage planned relocation because nothing else may be possible.
What is the support that's going to be provided?
What's the compensation for lost homes?
Who's going to pay it?
Why? At what value?
All of these things need to be addressed, and we need to address that potential risk of an internal refugee problem, which may be as destabilising as any other refugee problem that we'll ever face, and be just as unpopular.
There might be a staggering cost of building new houses in higher areas.
Who's going to bear that?
Who's going to do it?
Who's going to coordinate it?
I don't know the answer to these questions.
And if everyone floods out of London, literally because of flooding, then there's going to be another crisis because it is the most densely populated part of the UK. And if people leave, we need to find new accommodation for them.
And in the background, there's all this risk of failing banks, and at the same time, the risk of a massive loss of productive capacity in this country, because as I mentioned, so many commercial buildings are in flood areas.
We literally face the risk of meltdown as a consequence of climate change. But it's not the temperature that's going to cause the problem. It's the water, the fires, and the drying out of our clay soils that is going to cause the problem in the UK. And around the world, variations on these themes will do exactly the same thing. As a whole, we face a crisis that we live in places which may no longer be sustainable.
How is the world going to manage that? It's probably one of the biggest challenges that we now face, and as far as I can see, almost nobody's giving it the attention that it needs.
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A bleak and gloomy outlook then. It’s no wonder people are turning to Gregg’s and other comfort foods, you might as well enjoy yourself and have a bit of what you fancy. Thank you for the insight that 85% of commercial lending results in a property having a mortgage on it.
This issue is close to home for me, literally. Parts of my garden, but fortunately not the house (at least not yet) feature on the flood risk map you mention. It’s yet another area where Government must take more action. (Not sure I should, but I’m starting to feel a bit of sympathy for them. We’re piling on the pressure every day, aren’t we!!!) There needs to be a multifaceted approach encompassing nature-based solutions, urban planning, community engagement, policy reforms, infrastructure investment, and financial measures beyond the Flood Re scheme to enable people to put in place flood mitigation measures. Collaborative efforts between government bodies, communities, and the private sector will be pivotal.
Meanwhile the ruling classes are planning how to take advantage of the oil buried under the Arctic so we can get the planet even hotter than +3°C:
https://www.bbc.co.uk/news/articles/cjwqn7z02plo
But if bird flu makes the jump to humans there probably won’t be enough people left to fill all the houses we have now, so that might help.
It is a great worry given that Labour(ed) plan yet another bonfire of the regulations, building houses where they should not and leaving homeowners with the risk.
I am also concerned about the privatisation of the estate services – road cleaning and maintenance by ‘Man Co’s’ – what will they charge when they have to clean up the mess and will they maintain drainage runs and gullies (to collect water) sufficiently well in the first place?
And the first thing we need is land reform so that people can move to and settle (perhaps camping at first) in such places as the large estates owned by the descendents of Norman landowners.
That is not the first land reform I would do.
Very impressive post.
“How is the government going to stop London flooding, for example?”
It can’t.
You could split flooding in London into two categories: moderate stuff (insurance picks it up) and a black swan event = massive rainfall i.e. cloud river event in the Thames catchment area (which is very large indeed) the main accelerants being: farming practises (bare fields) and urbanisation. Couple this to high tides. London noth of the Thames would +/- survive, south of the Thames? gone. Financial district – built on the docks, which sit at +/- river/sea level. The UK’s financial centre has played a role in failing to even acknowledge the impact of the climate disaster – thus the flooding of much of London does have a certain circularity. The other problem stems from the end of the ice age – Scotland is still rising (loss of glaciers) Southern England is sinking somewhat, obvs all on gelological time scales – but still.
If it did happen – the gov could move somewher else – how about Scunthorpe – given it incorporates a word that so fully describes the nature of those that infest the UK’s body politsic.
It seems that all the major parties have their head in the sands with regard to climate change and flood risk. Everything you have said has been known about for many years. A good twenty years ago a friend working in food risk alleviation from a large civil engineering company stated how frustrating it was that whilst the EA would object to building on flood plains this would e largely ignored so more and more houses are being built in high risk areas.
As always it is finance, in this case insurance that will force action on climate change, but as someone who worked with hydrological data I remain baffled why so little mitigation planning is being done. The modelling is very clear and the consequences will be severe. I am fortunate to live uphill in a low risk area, but the roads out of our village are vulnerable to flooding and we are very close to a major flooring risk for the mainline into Devon and Cornwall which currently has a 1:2 flood risk.
Given a major issue with the effect of climate change is the fact that we will have more droughts followed by deluges which cause far more flooding, which is catastrophic in urban areas where it cannot dissapate I do not understand why more action at least around emergency management is not been taken. I saw pictures a year or so back of such an incident in Walthamstow and the effects were scary.
I am with Greta Thunberg on this one. Our house is on fire, but we seem to do nothing believing that somehow we won’t be affected or technology can buy solutions. Why is no one really talking about this? Even the Green Party seems scared to speak out about the impacts on our lives of ignoring such things. It seems as always economic consequences will force action of some kind.
I hope in this case that finance does force change: something has to.
I’m guessing that so some of the worse affected have influence as it generally costs more to live with a river or sea view. On the Devon coast big chunks of cliff are regularly falling into the sea and in Seaton gardens and roads no longer exist on what would have been very desirable roads.
Worst governments at the worst time.
Meanwhile the elites are in a power struggle it seems their aim is to seize as much wealth as they can to future proof themselves and let the rest of us rot.
I see absolutely no change in attitude of government or developers on this issue, Richard. Indeed, I can take you to a huge housing development just a couple of miles from where I live (on very high ground – over 300 feet above sea level) to the NE of the Nottingham, which is right on what for centuries we’ve regarded as the flood plain for the Trent and within a couple of hundred metres of the actual river. When they first started groundwork there – about a year ago – I was amazed that they had planning permission. But it seems from what I’ve seen on the parts of the development that have been completed, that the ‘solution’ is to create a series of ponds and ditches to capture any water from floods, and then to raise the roads and housing by a few feet above the level of the surrounding land. No doubt we’ll see how effective that is in due course.
That seems to be happening north of here, as well. I’d have thought you could not, more effectively, put people off.
Thank you, both.
It’s the same in Buckinghamshire and Oxfordshire. Having lived since a few months old, I was born in Arsenal and Corbyn country, one knows where it floods.
One development is called Watermead. The farmer sold the land to Aylesbury United. The mighty ducks did not last long there and sold the land for development. Buyers did not get the hint.
That area is prone to flooding. In November 1642, Royalists from the capital, Oxford, engaged Parliamentarians, recruited by local MP John Hampden. The Royalist cavalry got bogged down in the marshes and were picked off by Parliamentarian infantry.
🙂
An immediate stop to new building on flood plains unless the builder is prepared to provide buildings insurance in perpetuity !
It’s interesting to see things framed in economic ways, but the issue is in some ways more simple.
The area of land that is habitable is shrinking. Places which could be settled in the past can no longer be.
It’s a pretty simple and easy to understand fact that the market (real estate in this case) behaves irrationality with.
A rational market would address this risk, property that was at high risk would decrease in value. Land that was high risk, for example flood plains, would not be financially viable to build on because of this.
It is higher and sooner than 2100, 200,000 properties by 2040 – 2050
https://coastal.climatecentral.org/map/9/-2.0276/53.704/?theme=sea_level_rise&map_type=year&basemap=roadmap&contiguous=true&elevation_model=best_available&forecast_year=2030&pathway=ssp3rcp70&percentile=p50&refresh=true&return_level=return_level_1&rl_model=coast_rp&slr_model=ipcc_2021_med
https://www.manchestereveningnews.co.uk/news/greater-manchester-news/cop26-parts-north-west-could-22052446
https://www.lancs.live/news/lancashire-news/areas-lancashire-most-risk-disappearing-24227770
It is among 20 local authority areas across the country to face losing that number with almost 200,000 properties at risk in total.
Thanks
Richard
When you think of trading in your car there’s usually a few DUKW’s for sale on the internet.,…
Ha, ha
In 2002 (23 years ago)I could not get normal house insurance for a house near Goole, East Yorkshire, from any of the companies showing up on comparison sites.
They said “we are no longer insuring the DN postcode area”. Which is huge!!
(In the end it was with the Halifax because they were selling the house.)
This is not a new problem….
Agreed
Regarding Ely the worst case scenarios extrapolate sea level rise out to 8mm a year (currently it’s 3-4mm a year). Most houses are pulled down or are going to be pulled down less than 200 years from construction based on public data about the age of the housing stock. The voters of Ely who sit 100 feet above sea level ( over 3 millennia of sea level rise ) seem to vote Lib Dem who endorse propositions that there is a ‘climate emergency’.
We urgently need to transfer population from lower lying areas to safe places like Ely therefore, but if you ask the residents of Ely if they would accept a delimit on height restrictions for all building types to allow a greater population sharing limited resources, they would vote no.
And that is the nub and rub of political economy.
Oh dfear. You really do miss the point. We would be an island with no economy.
You have wasted your time.
Governments worldwide, (except in a few instances like China and some of the most affected island areas), are too busy finding ways not to spend money on reducing climate risk, or not to pay money they have already pledged to reduce climate risk, even to think about making provision for actually addressing the materialisation of that risk.
What is true for finance is equally true for mass influxes due to climate-evasion migration (which will happen), health services and pandemic control, emergent zoonotic diseases and shifts in disease prevalence location (think malaria, candida auris and aspergillosis), pollinator extinction, food supply and a host of other candidates.
A magical effect of the publicisation of the 2050 Net Zero threshold seems to me to be that it has made politicians, oil barons and corporations believe that climate change won’t start until 2050, so it will be someone else’s problem and they can make profits while the sun shines.
Actually it’s here now – has been for years. I remember being surprised to see little egrets in Langford Lakes and Southampton Water 20 or more years ago – that was because the winters were already getting warmer.
My father was a geologist in Botswana – he spoke at a geological conference in Stockholm in the late 1960s, where he warned about petrochemical-induced climate change because he was observing patterns in the pre-Cambrian geology of Botswana that were being mirrored in 1960s environmental behaviour. He indicated it would eventually lead to significant climate warming with major effects. He was, unsurprisingly, ridiculed. So it goes.
He would sometimes tell me that, in my lifetime, I would see the poor move north to eat the rich. I wish I had a copy of his speech – I don’t and there was no web in the 1960s.