Date posted: 29/05/2023 10 min read

Who’s paying? The cost of rebuilding on floodplains

Recent flooding events have raised questions on how governments and communities can manage the risk of living on floodplains, and when the decision needs to be made to abandon certain areas.

In Brief

  • Managed retreat from floodplains is one option that high-risk areas may need to seriously consider in the future.
  • Communities have to build resilience against flooding into their risk management plans.
  • Climate change will push the cost of natural disasters into the billions per year in the next three decades, which means it’s time to look at how to manage the risk.

When widespread flooding caused by Cyclone Gabrielle brought major damage and disruption to homes and businesses in New Zealand earlier this year, an unlikely source of power brought one business back to life. With thousands displaced by the flooding and landslides cutting off transport routes, it was a case of a community coming together to keep the lights on, literally.

The roads were closed, bridges were down and demand for diesel generators across the country meant they were impossible to get into the area. In desperation to get essential medication out to residents, the local pharmacist in Taradale in the Hawke’s Bay region of the North Island worked with a friend to hook up the battery from his electric car to power the business. It meant he could access the dispensary database and continue providing customers.

It was a brilliant work-around, and a great example of the resilience and innovation that thrives in communities in extreme circumstances. It also shows how precarious our relationship is with nature. It raises questions about why we continue to work and live in flood-prone areas when it is inevitable things will go wrong, and what we should do to better protect homes and businesses.

Sarah Walker FCA, director at accounting firm Epplett & Co in Hawke’s Bay and co-chair at the region’s Environment Centre, says the increase in frequency and impact of natural disasters means people need to build resilience into their risk management plan, or face the prospect of moving when it floods again.

Sarah Walker FCAPictured: Sarah Walker FCA, Epplett & Co

“The EV [electric vehicle] used to power a pharmacy in Taradale is an example of considering creative solutions when things go wrong. How do you keep a business running without power? People should be looking at their risk management plans and building in ways to get through a disaster.”

Walker was involved in the recovery efforts in the aftermath of Cyclone Gabrielle, helping clients get back on track, as well as participating in community efforts to deal with the damage. She says governments have a responsibility to take a long-term view and look at where developments are being approved and to stop building in high-risk areas.

“We need to be asking why developments are allowed. We’ve got some developed areas that have flooded twice in two years. People’s homes have been ruined twice, and still we rebuild again and again,” she says.

“We’ve got some developed areas that have flooded twice in two years. People’s homes have been ruined twice, and still we rebuild again and again.”
Sarah Walker FCA, Epplett & Co

Living on the land

Humans have lived and worked on floodplains around the world for centuries, managing the risk of flooding to varying degrees.

“The reality is that in any given year there is a 1% chance any floodplain will be inundated,” says professor Martin Thoms, chair of Geography and Planning and professor of Physical Geography at the University of New England.

Professor Martin ThomsPictured: Professor Martin Thoms, University of New England

“The reality is that in any given year there is a 1% chance any floodplain will be inundated.”
Professor Martin Thoms, University of New England

“There is always a small risk and that is what a lot of people call a one-in-a-100-year event. But, in reality, some parts of that floodplain will be flooded more frequently; we’ve seen that some are being flooded every year,” he says.

In Australia, instead of working with the natural cycles of the floodplains and practising flood recession agriculture, we have attempted to dominate nature and try to stop the flooding by putting up levee banks. The results are what we are seeing now, says Thoms.

“I am not an advocate of not living and working on floodplains, but I think we’ve lost the synergies to work with floodplains and we need to rediscover that balance and help people manage the risk,” he says.

Cyclone Gabrielle is just one of the disasters given the once-in-a-100-years tag recently. It came close on the heels of the devastating flooding seen in late February 2022 in Lismore, NSW and the damage caused on the floodplains of theMurray River in Victoria in October 2022. Queensland has also been severely affected by flooding in recent years.

With rebuilding underway in some flood-affected areas in both countries, questions are being asked about how communities can better prepare for these types of natural disasters in the future – including the trickiest one – should we even live on floodplains in the first place?

There is no simple answer to that question, argues Sharanjit Paddam, principal and actuary at Finity Consulting. Untangling the relationship we have with floodplains means looking at a range of issues, he argues.

That includes building resilience, and increasing options for households and businesses; making the hard call to abandon some areas through managed retreats; and, most importantly, addressing the fact that many people rebuild or buy on floodplains because that is all they can afford.

“From my point of view, we need to stop people building in flood zones, but we also have to understand the reason people do it is mainly because of affordability and because that is where their communities and social connections are,” says Paddam.

“For that reason, we also need to look at ways of helping people protect themselves from natural disasters and not just rely on bailing people out when disaster hits,” he says.

Retreating from danger

In some areas, no matter how resilient people are, the only course of action may be to leave through a process coined a managed retreat, or planned relocation. It’s a fraught topic and one that causes enormous trauma for communities that are affected, as well as raising questions about who foots the bill.

However, around 750,000 New Zealanders and about 500,000 buildings worth more than NZ$145 billion are located near rivers and in coastal areas which are already exposed to extreme flooding.

“In the future, it will not be a case of if more extreme weather events happen, but how often and how severe. Those who are already struggling are likely to be hardest hit, while least able to afford it,” says a spokesperson from the New Zealand Ministry for the Environment.

“We need to protect our people, especially our most vulnerable communities, as well as businesses and infrastructure. Options include building sea walls or levees or raising properties. However, in some areas it is already becoming clear that these can only be temporary solutions and communities feeling the most severe impacts of climate change face some difficult choices.”

In New Zealand, the country’s only managed retreat to date has been the coastal town of Matatā, which was inundated by debris flows in 2005, triggered by intense rainfall. Reports indicated the retreat was a difficult process and some important lessons were learned, namely: recognising the huge trauma relocating causes people. It may be the only retreat so far, but the introduction of the Climate Adaptation Act this year will lay the foundations of a system for managed retreat and adaptation, which may lead to more communities facing retreat.

In Australia, the prohibitive cost of insurance and the threat of natural disaster led IAG to release a report outlining the economic viability of planned relocation as a strategy in high-risk areas. “Finity, in a green paper for the Actuaries Institute in 2022, estimated that one in 10 Australian households already has insurance premiums that are likely to be unaffordable. They’re more than 10% of their gross income – and climate change is going to make that worse,” says Paddam. “IAG’s recently released report on planned relocation makes seven policy recommendations on how to manage the process.”

One of those recommendations is that community involvement throughout the process is essential for successful implementation.

James BradyPictured: James Brady inspects his street in March 2022. Floodwaters broke the levee and inundated Lismore, rendering more than 4000 homes uninhabitable. In some areas of the New South Wales town the water reached higher than 14 metres.


Who is covering the costs?

In 2021, Deloitte estimated natural disasters will cost Australia A$73 billion per year by 2060. Someone has to pay for the costs of rebuilding and, with insurance affordability a barrier, it falls to governments to provide assistance through disaster relief.

The Productivity Commission released a report on natural disaster funding in 2014, which included the recommendation that funding resilience building was also essential. Instead of picking up the pieces after the disaster, why not help people be better prepared?

The recommendations were rejected outright by the government of the day, but one of the first things the newly appointed Labor government did in 2022 was accept the central recommendation for increased Commonwealth Government funding for resilience measures.

As outlined in the October 2022 budget, the Disaster Ready Fund (DRF) will provide A$250 million in funding each year for five years, with state governments eligible to apply for funding to run resilience building programs. It was welcome news, says Paddam, and has brought a focus on the importance of working with communities on resilience measures.

“For the first time in my years of working in this area, we can be positive about the future. The focus has changed from after-the-event recovery, to looking at a range of solutions to protect people before the event. There is also a move towards community education to help people understand the resilience of their home and what they can do to make it more resilient,” says Paddam.

Thoms agrees and says individuals who want to live and rebuild on floodplains need to be aware of the costs they will incur.

“We need a range of options for people who want to live on floodplains and who are happy to live in high-risk areas – and they need to understand the costs of that. Can they adapt their homes? Can they afford to rebuild?” Thoms says.

Asking those types of questions is where accountants can often fit into the equation, Walker says.

“Cyclone Gabrielle really reinforced the role accountants can play in helping clients get through a disaster. Apart from the initial support and then helping access grants and so on, there is a critical role to play in assessing whether the business is viable going forward and whether you rebuild,” she says.

“Accountants really have a leading role in asking challenging questions of their clients, but also within their communities about how we can create resilience and sustainability. How can we use these recent flooding opportunities to think differently regarding how we rebuild and how we work and live – for generations ahead?”


Australia natural disaster resources

A range of resources and useful links to help members respond to, and recover from, natural disasters in Australia.

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New Zealand natural disaster resources

A range of resources and useful links to help members respond to, and recover from, natural disasters in New Zealand.

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