Australia’s almost $6 billion commercial property industry is dragging its heels on climate change adaptation, hand-balling escalating climate risks and costs onto owners and investors, risking substantial liability in future, experts say.

Many in the property sector “are sitting on their hands”, said Dr Georgia Warren-Myers, a senior lecturer in property at the University of Melbourne and leader of a research program investigating climate change responses in the industry. “They know they should be doing something about this, but aren’t really sure how to do it or what to do,” she said.

“Unless pro-active thinking about this actually starts happening … it’s going to be billions of dollars to do things like build sea walls and create the pumps that will ensure land doesn’t get inundated.

“Who should be paying for that wall? Should it be those residents that are directly affected, or is it really fair to say that the person who moves five kilometres inland be contributing to protect people’s properties?”

While the United Nations recently sounded the alarm on escalating future climate risks as a “code red for humanity”, property owners have already experienced any number of warnings of how climate heating can and will damage that most cherished cornerstone of the ‘Great Australian Dream’.

They include the flood that swept into homes in the Melbourne suburb Elwood in 2012; the 2016 storm surge that sunk the swimming pool of a multi-million dollar Sydney cliff top home; rising insurance prices and uninsurable homes in bushfire and flood prone areas.

Meanwhile, many in the commercial property sector – which includes developers and investors in commercial sites as well as residential housing estates and apartment buildings – have continued to enjoy lucrative profits on business as usual, with only a few standout organisations having taken proactive steps to recognise the reality of climate risk. A lack of government direction was stifling wider recognition and adaptation, according to the work by Dr Warren-Myers and her team.

Their research, investigating barriers to climate change adaptation, includes interviews with 24 industry insiders conducted over 12 months to late 2019, as Australia’s Black Summer began to play out. They questioned property owners, investors, managers and developers for a report published last year, and another released last month.

“We don’t see any climate change risks and we don’t consider it, it’s not built into the decision-making process,” one member of a high-net worth family that invests in real estate development told the researchers.

“People don’t go out of their way, in our industry, in our end of town, to be a charity,” said another, a staff member of a real estate trust.

“Is that change going to come through not now, not in the next two, three, four, five years but it’s going to come gradually over the next 50 to 100 years and if that’s the case, do I really need to care?,” said a member of a consultancy firm. “I mean that’s a terribly selfish thing to say, but as a property owner, do I need to care?”

“It’s like the fake news thing? Is it really true?” said a staff member interviewed from a real estate trust.

The in-depth interviews revealed a lack of awareness of climate risk, and the absence of government regulation and direction, as key obstacles to climate change adaptation.

Dr Warren-Myers said that since the interviews were conducted, she had observed some improvement, with more players seeking out advice on how to achieve climate preparedness, and working groups established by industry bodies to share information.

In her latest analysis, she identified the “front runners” were primarily real estate investment trusts. Their practices – which included having a dedicated team working on climate risk and having this inform all decisions – showed how others in the industry could adapt.

“We’ve integrated a climate change adaptation plan as part of the due diligence in property investment. So that happens for every property we buy,” said one real estate investment trust.

Nonetheless, there was “still no clear direction” on recognising fast-looming climate risks.

This is despite a 2019 Climate Council report estimating that by 2030, $571 billion in property value in Australia will be lost to the climate crisis, and one in 19 homes will have insurance costs too high for owners to afford.

The recent IPCC AR6 report projected that floods and the intensity and frequency of fires would increase in Australia, and found that sea level rise had already contributed to increased flooding and retreating shorelines along Australia’s coast.

The problem, said Dr Warren-Myers, is “people think ‘sea-level rise is still 80 years away, we’re going to be fine’, but what they don’t realise is that storm surges, high-tides, flooding, they’re all going to be felt much earlier than actual sea-rise.

“What will happen in the future, if a council and a developer agree an estate can be built in a low lying area, but then in the next five to ten years there’s increasing flood events, and pumps and a seawall are needed to mitigate and adapt to this. Who bears the cost of this? It’s likely going to be the homeowner,” she said.

“But is there not a duty of care by both developers and the council to ensure that dwellings are reasonably protected?”

Emma Herd, a partner at Ernst and Young focusing on climate change and sustainability, said the property sector was in a transition phase – “building the plane while flying it”. Some decisions were well informed, and some not, she said. Tools to help them translate climate change scenarios into an assessment of climate change risk were still evolving.

The industry was still relying on historical data when deciding where to develop and build, rather than enlisting future focussed data taking climate heating into account.

“Traditionally you would look at historical flood levels, for example, and you would make a risk informed decision that this location is probably going to flood, but it only happens once every 150 years, and as a community we have tolerance to that level of risk,” Ms Herd explained. “But if you’re looking at climate informed risk based decisions, you would realise there’s a higher probability that it will flood once every 50 years and to a greater extent.

“There is an awareness that this doesn’t work anymore, but we haven’t yet fixed it. We haven’t come up with a solution.”

Dr Warren-Myers’ research revealed financial considerations were also stalling climate change adaptation, notably concerns around eroding profit for investors and losing competitive advantage. Climate change impacts were considered too distant to factor in investment decisions.

“Developers are very short-term interested – it’s bang for buck and it all comes down to money – even if personally they believe their personal ethics of wanting to do better – that goes out the window when they are back to their developer role,” said one staffer from a development group.

“This type of thing should be legislated – it is the only way you will get action from the property sector – it won’t happen from ‘goodness of their hearts’.”

Dr Warren-Myers’ conclusions urge government legislation – as is already occurring elsewhere in the world – as key to driving change. New Zealand and the UK have announced regimes for mandatory climate-related financial disclosures.

In Australia, responses vary depending on location. On Queensland’s Gold Coast, beachfront property owners are required by the local government to build their own seawalls. Meanwhile in Victoria, seawalls built in Queenscliff are funded by the state government.

Last year, the northern suburbs of Sydney experienced severe coastal erosion amidst debate over who should pay for a seawall. This year, 10 beachfront property owners in the suburb Collaroy paid $280,000 each to fund a seawall, with the state government and council chipping in 20 per cent of the costs for the $25 million project.

Tim Wheeler, national policy manager in sustainability at the Property Council of Australia, said better alignment between the various levels of government was required. The City Deals approach – a partnership between the three levels of government to achieve shared urban planning outcomes in a number of Australian cities  – was a model that could be used to achieve sector-wide climate change adaptation.

“Every layer of government has a responsibility in this space,” he said. “In the absence of clear guidance and alignment, we’re more likely to see developers build in risky areas.”

Ms Herd said the federal government made a stride in the right direction earlier this year when it  joined the global Coalition for Climate Resilient Investment, which supports factoring climate risk into investment decision-making.

Dr Warren-Myers said she feared that without some clear direction for developers and councils soon, there could be numerous liability cases in future, particularly following the recent landmark Sharma V Minister for the Environment case which found the government had a duty of care to protect young people from climate harm caused by an expansion of a coal mine.

The government has appealed the case, arguing it does not hold this duty of care, and Justice Mordecai Bromberg erred in his findings about global temperature rise.

The federal government’s appeal of the decision is due to return to court in October, but in the meantime, on 16 September, Environment Minister Sussan Ley approved the extension.