When selling homes, too little account is taken of potential water damage due to floods or foundation problems due to drought. Houses may be oversold due to these climate risks and home buyers may face financial problems if they cannot afford repair costs. The Netherlands Authority for the Financial Markets (AFM) warned about this on Tuesday in its annual review of its supervision of the financial markets.
The regulator sees climate damage due to flooding and desiccation as a growing risk for the housing market, says chairman Laura van Geest. “We see that social awareness about this is lagging behind. We find this worrying, because it can pose major risks to consumers.”
If the groundwater level drops due to dehydration, oxygen reaches the foundation. Some homes – especially those built on wooden piles, which is often the case in Rotterdam and Amsterdam, for example – can cause subsidence. According to the AFM, the repair costs amount to an average of 50,000 euros and can amount to 100,000 euros. Insurers do not reimburse foundation damage. Damage caused by flooding of the so-called ‘primary flood defences’, such as the North Sea, the Wadden Sea and the major rivers, is also not currently insured.
AFM chairman Van Geest recalls the floods in Limburg in the summer of 2021. The damage caused by these floods is estimated at 1.8 billion euros. Damage was not insured for victims who live on the Maas River. The central government helped, including with a contribution from the National Disaster Fund and through the Disaster Damage Compensation Act. Insurers are in discussions with the government to make this type of damage insurable.
Flood or desiccation
The AFM advocates that climate risks be taken into account more in the asking price of a home. When purchasing a home, the risk must be ‘priced in’. This way, buyers will not be faced with any surprises. Anyone who takes out a mortgage can borrow up to the full value of the new home. If damage subsequently occurs due to flooding or desiccation, the value of the home may decline. “Then your new house is not only literally, but also figuratively under water. As a supervisor, we would like to warn about this,” says Van Geest. The AFM does not mention specific parts of the Netherlands that are at risk, but include coastal areas and other areas that fall below the NAP and are therefore vulnerable to the risk of flooding.
A special climate label could help in determining climate risks, just as energy labels already exist. With such a label, the risks for specific homes can be mapped out, so that prospective buyers know where they stand before they make an offer. Existing data on flood and subsidence risks must be bundled and made public for such a label. According to the AFM, the initiative for such a label should lie with the government, which should take this up together with financial institutions and brokers.
For current homeowners, ‘pricing’ climate risk could be disadvantageous; After all, the value of their home can drop considerably. The supervisory authority also sees a role for the government here. They can create policy to help homeowners in some areas finance foundation repairs. For example, there is already a Sustainable Foundation Recovery Fund, to which a number of municipalities are affiliated. Such a fund does not yet exist nationally.