Environmental Risks in Real Estate: Essential Metrics for Assessment

Environmental Risks in Real Estate: Essential Metrics for Assessment

Driven by greater awareness and demand, environmental considerations are increasingly at the forefront of property development and investment.

Environmental factors can significantly impact site selection, regulatory compliance, property values, safety, infrastructure, sustainability, insurance costs, and the overall desirability of real estate.

To adequately build resilient properties for our future, understanding and assessing environmental risks in real estate is crucial.

Examining the key metrics and statistics used to measure these risks can also provide valuable insights for property stakeholders who are building climate intelligence as a means of value creation and strategic differentiation in the real estate industry.

On the other hand, the real estate industry contributes approximately 39% of total global emissions. This highlights how factors as broad as the choice of building materials, construction methods, real estate planning and development can influence and help to mitigate global climate change and environmental risk.

Environmental assessment metrics provide important intel to stakeholders and businesses in and around the real estate industry. 

Here we examine the top 16 key metrics used in assessing environmental risk in real estate.

1. Flood Risk Assessment

Managing flood risk is an important aspect of adapting to global climate change and flood risk assessments have become an important part of risk management practices. The estimation of risk is somewhat challenging and involves careful consideration of a number of varying factors such as location, historical flood data, and elevation.

Flood risk is a concern, especially for properties near water bodies.

Flood

2. Earthquake Risk Score

In earthquake-prone areas, earthquake risk score is vital. It evaluates the probability of earthquakes and their potential impact, factoring in seismic activity and building standards.

Earthquake risk metrics can support stakeholders in developing risk reduction measures such as emergency response plans, building design codes, or insurance-related decisions.

3. Wildfire Risk Rating

Properties in or near wilderness areas must consider the risk of wildfires. This rating looks at location, vegetation, and climate conditions. There are a number of data and solutions in the market that help decision makers with deeper location intelligence insights, such as CoreLogic with their climate risk solutions and Precisely with their wildfire risk data.

Then there are those protech innovators who actively incorporate environmental risks into their solutions, such as Nearmap who’ve recently acquired BetterView, will also be integrating risk ratings for data decisions given the ever-changing nature of bush fires, floods, and other disasters.

4. Storm Surge and Tsunami Risk

While storm surges and tsunamis are caused by different events, they both have the potential to cause significant harm and damage, such as substantial erosion of beaches and coastal highways, and waves pose a threat to boats and buildings along the shoreline. As the surging waters move inland, rivers and lakes may experience adverse effects, contributing to the escalation of flood levels.

Coastal properties are evaluated for their vulnerability to storm surge and tsunamis, crucial in today’s changing climate.

Sea levels

5. Sea Level Rise Projections

With climate change, assessing the long-term risk of sea level rise is essential for coastal real estate investments.

Climate Central’s Coastal Risk Screening Tool is a handy tool for quick future projections.

6. Air Quality Index (AQI)

Air pollution stands as the most significant environmental threat to global public health, resulting in an approximate annual total of 7 million premature deaths.

AQI impacts property desirability and occupant health, making it a significant factor in urban and industrial areas.

7. Soil Contamination Levels

Soil contamination can limit property use and affect value, necessitating thorough assessments.

Australian soil information is collected by government and held by the states and territories. Soil Science Australia, the national soil science body, shares a handy list of Soils Data, Maps and Information Sources for reference.

Soil

8. Water Quality Assessments

Our water systems, including surface and groundwater, catchments, as well as estuarine and marine bodies, constitute intricate ecological networks that we engage with daily. These waterways and wetlands play an important role in:

  • Providing drinking water
  • Supporting irrigation and agriculture
  • Receiving and purifying effluent and stormwater
  • Facilitating recreational and commercial activities such as fishing and boating.

The quality of local water sources is a key consideration, as it affects usability and desirability

9. Heat Island Effect

Urban areas influence the surrounding atmosphere and engage with climate processes, resulting in distinct microclimates within cities.

This heat island phenomenon leads to urban areas experiencing notably higher temperatures compared to their surroundings, particularly in areas with limited green cover and increased hard surfaces that absorb, retain, and emit heat.

Urban heat islands can increase energy costs and affect living conditions, and is an important factor in urban planning.

10. Noise Pollution Levels

The World Health Organization (WHO) recognises noise pollution—defined as unfavorable noise caused by human activity—as an underestimated threat that can cause a number of short- and long-term health problems.

As well as contributing to health, noise pollution is often seen as a less-than-desirable attribute contributing to liveability.

Properties exposed to high noise levels from traffic or industry can affect their value.

11. Environmental Regulation Compliance

In Australia, compliance with legislation including protection of threatened plants, animals and ecosystems, wildlife trade, hazardous waste, air quality and monitoring compliance with the conditions of approvals granted under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) is conducted by The Department of Climate Change, Energy, the Environment and Water.

Compliance with environmental regulations is critical to avoid legal issues and maintain property value.

Soil erosion

12. Land Stability and Erosion Rates

Land stability and erosion rates is affected by soils, surface cover, topography, and climate; all of which are interrelated.

Particularly in areas with unstable soils or steep terrain, assessing the risk of landslides or erosion is essential for many aspects of real estate such as site selection, development planning and insurance, while these risks can also have an influence on property valuations.

13. Proximity to Hazardous Facilities

Numerous research studies have indicated a correlation between living in close proximity to sites with hazardous wastes, industrial facilities, pesticide-treated cropland, busy roadways, nuclear power plants, and gas stations or repair shops, result in an increased likelihood of detrimental health effects.

Government may form regulations and implement procedures for permits and enforcement to limit pollution.

As such, properties in close proximity may face increased regulations, risks or insurance costs.

14. Biodiversity and Wildlife Protection Areas

With a sustained need for housing, urban planners and conservation managers are consistently exploring alternative strategies for residential development that aim to reduce adverse effects on biodiversity and ecosystem functioning.

Thus, proximity to protected areas can limit development options and affect property value.

Biodiversity

15. Carbon Footprint Analysis

Climate change is already underway, with an escalating impact that is increasingly affecting all of us around the globe.

Without immediate and systemic action to address its destructive consequences, the impact is expected to be substantial.

For greater visibility into the environmental footprint of transactions and impacts of our consumption and production activities, organisations such as FootprintLab provide current, credible and commercially ready carbon data. This information can aid consumers, producers and governments in decision-making that aligns with their sustainability goals.

Managing carbon emissions from the construction industry is one crucial step in limiting these effects on climate change and a property’s carbon footprint is becoming a significant factor in light of global climate concerns.

16. Sustainability Certifications

A green building certification is a verification process ensuring that a building is designed and constructed to enhance energy efficiency, decrease water usage, foster a healthier indoor environment, manage resources and waste effectively, and limit environmental impact.

The process generally requires adherence to specific guidelines and criteria, often assessed by an accredited third-party organisation, leading to the certification of the building.

There are different green building certifications around the globe, with LEED in the United States, BREEAM in the United Kingdom and NABERS in Australia, each with its own set of criteria and scoring systems.

Properties with these certifications are often seen as less risky and more desirable.

The Proptech Cloud’s Environment and Energy Efficiency Data provides energy supply data and NABERS energy rating data to guide decisions on energy sourcing as part of a robust sustainability strategy.

Managing Environmental Risks

Understanding and mitigating environmental risks is important in the real estate sector. By using these metrics, stakeholders can make informed decisions, adapt to environmental challenges, uncover business opportunities and invest in sustainable and resilient properties.

As the world continues to focus on environmental sustainability, these considerations will become increasingly integral to real estate assessment and development.

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Understanding the Real Estate Market: Key Metrics and Statistics

Understanding the Real Estate Market: Key Metrics and Statistics

Navigating the real estate market can be complex, whether you’re a buyer, seller, investor, or industry analyst. One of the keys to understanding this dynamic market is to familiarise yourself with the various metrics and statistics that measure real estate activity.

These indicators provide invaluable insights into market trends, pricing dynamics, and overall economic health.

We’ll cover some of the most common metrics used in real estate analysis to help stakeholders better understand this dynamic market.

1. Sales Volume

Sales volume indicates the total number of properties sold in a specific period. This metric is a primary measure of market activity. Relatively high sales volumes often point to a robust market, while lower volumes may signal a slowdown.

A number of organisations offer this data in Australia, usually by state or even postcode for a laser focused lens on particular areas of interest:

  • HtAG
  • CoreLogic
Property sales

2. Median Sale Price

The median sale price identifies the middle value in a list of property sale prices. This metric offers a realistic snapshot of the market’s pricing level, avoiding the skewing effect of extremely high or low prices.

3. Average Sale Price

The average sale price is calculated by dividing the total value of all sales by the number of transactions.

The average sale price provides a broader perspective of the market’s general pricing trends.

For sale

4. Days on Market (DOM)

As its name suggests, DOM tracks the number of days a property spends on the market before being sold.

Shorter DOM periods typically indicate a seller’s market, whereas longer DOMs suggest a buyer’s market.

5. Listing Inventory

Inventory is the count of the number of properties which are actively marketed and listed for sale, also referred to as “active listings” or “homes for sale.”

Understanding the number of properties available for sale at any given time helps gauge the supply side of the market equation.

6. Absorption Rate

The absorption rate is a real estate metric that assesses how quickly homes are being sold in a particular market over a set period. It is determined by dividing the number of homes sold during that time by the total available homes.

Additionally, this formula can be flipped to determine how long it would take to sell the existing supply.

This rate measures the speed at which the market is ‘absorbing’ or selling off its current inventory, offering insight into market demand.

7. Price per Square Metre (or Square Foot)

This metric is calculated by dividing the sale price by the property’s total square metres (or footage).

This metric is handy because it allows for a direct comparison between different properties of varying prices and floor space.

8. Rent Prices and Yields

Rental yield is calculated by subtracting the total costs of your investment from the income generated by renting out your property. Typically represented as a percentage, a higher yield indicates increased cash flow and a more favourable return on investment.

For investment properties, monitoring rent prices and yields (rental income as a percentage of property value) is crucial.

Soil

9. Foreclosure Rates

Foreclosure happens when a lender seizes a property because the person who took out a mortgage fails to make the required payments.

Foreclosure involves a legal procedure where the property’s title is transferred from the homeowner (borrower) to the lender, who then sells the property.

The purpose of selling the property is for the lender to recover the outstanding loan amount.

The process is usually lengthy and doesn’t simply occur because a homeowner misses just one repayment; it occurs with more substantial lapse in payments.

The number of properties in foreclosure can indicate both the health of the real estate market and broader economic conditions.

10. Mortgage Interest Rates

Mortgage interest is the cost a lender charges for taking the risk of lending you money. The mortgage interest rate directly affects your repayments – the higher the interest rate, the bigger your payments will be.

This is why mortgage interest rates on home loans significantly influence buyer demand and market dynamics.

11. Construction Starts

The number of new building projects indicates future supply and market confidence.

The Proptech Cloud’s data listing contains statistics for Australian construction activity helpful for planning, demand forecasting and construction cycle timing.

The Australian government publishes building activity visualisations which shows dwelling construction trends over time, and the Australian Bureau of Statistics provides estimates of value of building work and number of dwellings commenced, completed, under construction and in the pipeline.

Soil erosion

12. Building Permits Issued

Building permits are papers which confirm that a planned building follows the rules set by authorities. It’s a written approval from a building surveyor, either private or municipal.

This statistic reflects the level of future construction activity and developer sentiment.

13. Vacancy Rates

Vacancy rates indicate how many rental homes in an area are currently empty and available for rent. To find this rate, take the number of empty homes in that area and divide it by the total number of homes available for rent.

In rental or commercial properties, the percentage of unoccupied units at a given time can signal market health.

14. Capitalisation Rate (Cap Rate)

Especially relevant in commercial real estate, the cap rate helps estimate the return on an investment property.

To find the cap rate, take the property’s yearly income (after subtracting expenses) and divide it by the property’s value. This rate is useful for comparing how good of an investment a property is compared to others in the same area.

If a property has a higher cap rate, it means there’s more risk involved. And usually, when the cap rate is higher, the property’s value is lower because its yearly income is less.

Biodiversity

The Use of Property Metrics and Statistics

These metrics provide distinctive perspectives on the real estate market. Depending on your role—whether you’re a buyer, renter, investor, realtor, or other stakeholder in real estate—each metric carries unique value, caters to different requirements, and provides diverse insights.

By understanding and analysing these indicators, stakeholders can make more informed decisions, predict market trends, and grasp the market’s broader economic implications.

Regardless of whether you’re a seasoned professional or a curious observer, keeping an eye on these statistics is key to understanding the complexities of the real estate world.

Subscribe to our newsletter

Subscribe to receive the latest blogs and data listings direct to your inbox.

Read more blogs from The Proptech Cloud

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