One million homes will be in "very high risk" zones by 2050 and effectively uninsurable, the National Climate Risk Assessment has warned, with the wider economy expected to take a hit from the effects of climate change.
Alongside a loss in property value of $611 billion by 2050 under a 2 degrees Celsius warming scenario, the first national assessment warns of $211 billion in lost wealth from reduced labour productivity.
It paints a picture for housing where, even under 2C warming, some areas will become too costly to live, and planning laws for construction and home insurance business models will have to change.
The report's release comes days ahead of the federal government announcing a 2035 target for reducing emissions. It will be taken to New York, where other nations will also submit their updated targets.
The Climate Change Authority says based on current global commitments the world is expected to warm by about 2.9C, if those commitments are met.
Emma Aisbett, economist at the Australian National University, said the $611 billion hit to property values modelled in the national assessment is only the accounting of an expected economic contraction.
"What's really driving in these models that loss in property value is actually the contraction of the economy. It's the fact that industries are dying, that people can't afford the houses," Dr Aisbett said.
"The property losses from disasters and rising sea levels, that actually comes on top of those effects that they are modelling."
Insurance collapse would halt mortgages, construction, relocation
The insurance industry has already sounded the alarm that its long-term sustainability is at risk from climate change.
Insured losses from "insurance catastrophes" have grown from 0.2 per cent of gross domestic product over 1995 to 2000 to 0.7 per cent of GDP over 2020 to 2024.
And already 15 per cent of household insurance premiums can be priced at more than four weeks of gross household income, according to the report, which forecasts insurance costs will also rise for properties that can be insured.
"There are homes at threat from bushfire, from flooding, from rising sea levels," Dr Aisbett said.
"All of these disasters are systemic risks, and the current insurance industry cannot support dealing with that systemic risk because the way insurance works is it's meant to be an unusual event and you got unlucky, and therefore we share that risk.
"[When] up to a million homes are at risk, the industry, as it is currently regulated and set up, cannot handle that.
"[And] if projects can't be insured, they essentially can't be built, because no-one can take that sort of risk on. … People don't always appreciate how crucial insurance is to actually getting investment happening."
The national assessment notes that the affordability and availability of insurance is likely to be worse for at-risk communities, and that northern Australia and the Great Dividing Range in south-east Australia are among the most exposed.
Ian Dunlop, a former Shell executive and Australian Institute of Company Directors chair, is now a senior member of the Australian Security Leaders Climate Group. He said if homes became widely uninsurable, it would have more significant consequences.
"Insurance is absolutely critical," he said.
"Once the insurance mechanism starts to break down, then we get into much, much bigger problems economically right around the country. It stops people getting mortgages, it slows up the process of people being able to relocate.
"So, it becomes extremely serious now in in terms of the economic consequences.
"You've got to start to set up flexibility for people to move around the country because of these impacts. And we just don't have a system that does that."
Alongside the major climate assessment, the government released a national adaptation plan in response. It sets out potential actions to mitigate risks raised in the assessment.
An "action agenda", developed in partnership with the states, will be finalised by the end of 2026 to respond to the risk assessment.
Disaster costs to total 4pc of GDP
While the assessment did not aggregate a single figure of national economic cost, it did spell out some risks in detail.
Labour productivity could fall about half a percentage point of GDP from heatwaves alone, for example, as the number of days when it was dangerous to perform manual labour rose.
Under 3C of warming, annual tourist numbers could also decline by 14 per cent as natural disasters forced the cancellation or postponement of travel. When the 2019-20 Black Summer bushfires caused 10 to 20 per cent of tourists to cancel travel, it cost the industry about $4.5 billion.
The total cost to the economy of disasters is expected to double to at least $73 billion by 2060, or 4 per cent of Australia's GDP, according to Deloitte modelling cited in the report.
"Four per cent of GDP would be an absolutely massive recession," Dr Aisbett said.
"If you were to think of it in short terms, a 4 pc drop in GDP will have implications for everyone. Of course, it is relative to where we would have been, but it would mean jobs are that much harder to get, everyone's incomes are that much lower.
"There will also be really high variance in the distribution of these impacts, and it will mean some people, some industries ... just don't exist anymore. Those jobs are not there, those livelihoods, those ways of lives, they're just gone."
Annual economic costs of natural disasters by 2050
Higher disaster costs are expected across every state and territory by 2050. Hover over each jurisdiction for a breakdown by disaster type.
And, even as the economy shrunk, disasters would concurrently put more pressure on the federal budget.[/p]
A conservative estimate of federal disaster payments alone could equal $130 billion over 40 years — roughly a third of the cost of the AUKUS submarine agreement.
Meanwhile the report notes lost productivity and other economic damage would erode the tax base.
Climate risk 'sadly' not an exaggeration
The report lays out a grim picture for the economy. However, both Mr Dunlop and Dr Aisbett stressed that the figures were likely a conservative estimate.
Mr Dunlop said exposure to climate risk was already occurring "far faster" than previously thought.
"We are, for all intents and purposes, now above 1.5C … at that point in time, all sorts of things are now going to be triggered that we may not see the result of for some time to come but they become irreversible," he said.
"We have to start asking: What do we value economically? What can we retain and defend, and what things are we going to have to abandon? Because there are things we are going to have to abandon."
Dr Aisbett said it was tempting to hope that the national assessment was "just an exaggeration, but I think sadly it's not".
"And I think the thing that we need to really pay attention to is how steeply those predicted costs, environmental, health, social and economic go up … depending on how many degrees warming we get," she said.
"So even if we might have passed the sort of 1.5C goal, we can still make a big difference and save ourselves a whole lot of pain by trying to stay as far below that 2- or 3-degree goal as possible."
Written by: Jake Evans, ABC News.
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