Physical and climate change-related risk identification in valuation practice: an Australian perspective
| DOI | https://doi.org/10.1108/JPIF-10-2020-0114 |
| Published date | 25 February 2021 |
| Date | 25 February 2021 |
| Pages | 14-37 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Georgia Warren-Myers,Lucy Cradduck |
Physical and climate
change-related risk identification
in valuation practice:
an Australian perspective
Georgia Warren-Myers
Faculty of Architecture, Building and Planning, The University of Melbourne,
Melbourne, Australia, and
Lucy Cradduck
QUT Law, Queensland University of Technology, Brisbane, Australia
Abstract
Purpose –The purpose of this research is to investigate Australian property valuers’identification and
consideration of physical risks to properties in valuation practice. The research further explores valuers’
considerations of climate change-related risks.
Design/methodology/approach–The research approach comprised an online survey of Australian valuers
who were members of the Australian Property Institute. The online survey included structured and
unstructured questions to explore types and extent of risk investigations in valuation practice.
Findings –The analysis reflects that while valuers easily identified and engaged with physical risks, there is a
lack of understanding of, and engagement with, climate change risks. This supports the need for better
informationsources andguidance to informvaluers of climate change risksper se, aswell as the developmentof
specific mechanismsfor consideration of such risks to be included in valuation processes, practices and reports.
Research limitations/implications –The research is limited by the small sample size achieved due to the
timing of the survey deployment, which occurred during the first wave of COVID-19 lockdowns in Australia.
Thus, the findings are not necessarily representative of the Australian valuation profession, but they do
provide indications of current approaches to risk identification in practice and the need for more guidance in
relation to climate change risks.
Practical implications –This research identifies that more support, guidance, information and tools, as well
as awareness-raising, are required to enable valuers to accurately identify all risks affecting a property.
Originality/value –The research provides a snapshot of current understandings of physical risk
identification in valuation practice. As investors and other organisations integrate and build up their analysis
of climate risks to their portfolios and organisations, this research indicates that valuers also need to be aware
of changing market assessment of physical and climate risks associated with property for consideration in
valuation.
Keywords Climate change, Valuation, Risk, Australia
Paper type Research paper
Introduction
As the saying goes, it is all about location, location, location, or, in the context of water, views,
views, views (Cradduck, 2016). This affects where we want to live, where we want to work,
what we do and, as is the focus of this article, to what risks we expose ourselves through our
choices. As the world’s largest island and, thus, one of the largest coastal states, the
Australian population is primarily situated along its coastal fringes. This desire to live near
JPIF
40,1
14
The researchers acknowledge the assistance of the Australian Property Institute in facilitating
distribution of the survey link through its online newsletter. Theresearchers also acknowledge the kind
assistance of MH and JMc (both Australian Certified Practising Valuers but currently working in
London and so outside of the research scope) in testing the survey on their PCs and mobile devices, and
in providing feedback on it, prior to deployment.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 8 October 2020
Revised 12 January 2021
Accepted 4 February 2021
Journal of Property Investment &
Finance
Vol. 40 No. 1, 2022
pp. 14-37
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-10-2020-0114
water has resulted in considerable residential, commercial and industrial development in
these areas. As an inherently dry and hot continent, there is also a strong desire to live in tree
change areas—that is, building or living among the cool of the trees—or, more remotely, in
small bushland communities. In climate change terms, living in either coastal or heavily
wooded areas puts those people, properties and businesses directly at risk from a variety of
adverse effects due to bushfires, storm events, sea level rise, inundation from riverine
flooding, landslides and subsidence.
Risk identification, and its appropriate consideration, can influence a decision of where to
build a home or business, as well as the value of the land on which to build (Cradduck et al.,
2020). Risks per se—their identification, nature and impact—require professional appraisal
by a valuer when valuing any land (Australian Property Institute and Property Institute of
New Zealand [APINZ], 2019). A valuer’s role is to identify a property’s market value, which
requires assessing any known threats or risks to that property in perpetuity. Australian
valuations are governed by International Valuation Standards (IVS) and Australian and New
Zealand Valuation and Property Standards (ANZVS), which require identification and
description “of any significant observable visual and/or known defects of hazards, e.g.
flooding, landslip, observable or known site contamination, inadequate drainage etc.”
(APINZ, 2019, sec. 4.11, p. 8). If valuers have concerns “they should make all appropriate
enquiries”(sec. 4.11, p. 8, emphasis added), refer to expert reports and report back to the client
prior to proceeding with a valuation.
Current approaches to risk identification in practice, and the extent of investigation/s
undertaken by valuers in order to identify risks, have not been explicitly explored in extant
literature. Therefore, investigating current valuation practices, and subsequently exploring
valuers’consideration of the risks associated with climate change, is essential. Climate
change will contribute to the extant risks to which properties are already exposed;
consequently, increases in extreme weather events, sea level rise and storm surges, as well as
severe temperature durations increasing heatwave events contributing to bushfire events,
will have increasing detrimental and significant effects on property. Limited research has
focused on climate change risk identification and its effect on property value. Early
indications of climate change affecting property have been observed, for example, in the
increasing severity of storm events, storm surges and rising seas, disturbing coastal areas of
the United States, as well as in the contribution of heatwaves to wildfires and bushfires,
observed in Australia and California in 2020. However, implications for values of climate
change risks are not being consistently found, and this is likely because the market is either
not aware of the risk, or is not pricing risk in their decision-making.
The rationale for this research is that the identification and specification of climate change
risks is an evolving area of concern (Cradduck et al., 2020;Warren-Myers and Hurlimann,
2021;Warren-Myers et al., 2020b). In particular, the issue of what party bears liability for such
risks requires direct consideration. This especially concerns whether, or should, liability be
shared and with whom, and whether this includes the necessity to consider governments’
responsibility for those risks (Bell and Baker-Jones, 2014). Further, given the role of property
valuers and their respective advice for investors and developers, valuers may also bear a
direct level of liability if they fail to adequately consider the effects of those risks in their
reports. A valuer’s role is to reflect what the market would pay for property; however, risk
identification is still required as a matter of course, as required in the standards and by
lending institutions and clients. The implications on value are reliant on the market pricing
those risks into their pricing decisions, which would/should then be reflected in market values
by valuers [1].
The aim of this research is to examine the practice of Australian property valuers in the
identification and consideration of physical risks that threaten property. In particular, the
focus is on examining the approaches of how risk is identified, how it is treated and how it
Physical and
climate change-
related risk
identification
15
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