Yves here. Richard Murphy has issued a dire warming on the impact of climate-change-induced flooding on UK housing and hence the mortgages on those houses. I went to the Oxford environs about a decade ago and my host Richard Smith graciously drove me around. He pointed out the high water mark of recent floods and how the entire area was historically subject to frequent flooding. These low lying areas, and the UK has lots of them, will only become more vulnerable.
We are also including a comment on Murphy’s post on the failure to properly implement existing protective/mitigation measures.
By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future.
I posted this video on YouTube this morning:
The transcript dealing with this pretty big, and vital claim is:
UK banks are going to go bust because of climate change. Now, that’s a big claim to make, but I think it’s right. And let me explain.
When you borrow money from a bank, at least when you borrow a lot of money from a bank, the bank will normally want what they call security from you. In other words, they want some form of guarantee that you can repay.
Well, you don’t wholly blame them, do you? But let’s explain the most common form of security that they ask for. It’s your house, or if you’re a business, it’s your business property. In fact, 85 per cent of all loans made by UK banks are for the purchase of houses or business properties, or are at the very least secured on the value of houses and properties.
So why are banks going to go bust because of climate change? Well, because as a very senior risk officer of a very large UK bank explained to me not so very long ago, the vast majority of the properties that they are using for the purposes of security could be underwater in the next 30 years.
They know, for example, that the Thames barrier is not going to protect London from flooding. It’s just not tall enough.
They also know that if you live in the area of the country where I do, which is in the Fens, just south of the Wash in Norfolk, there’s a real risk that you will be flooded at some time over the next 30 years. Well, unless you happen to live in the Isle of Ely, as I do, which is a hundred feet above sea level – in which case, you’ll just be back on an island again.
They know that means that Cambridge will be underwater.
It means that Bedford will be underwater.
No, not all the time. But enough of the time that those properties will not only be uninsurable, but they will also be subject to such frequent damage that their value will be impaired and they will be no use as security for repaying the loans that the banks have lent out. on the basis of those properties.
Now, if the banks know that, why are they still lending? Well, they all pretend that they’ll be able to shove their loan books – secured against the value of these properties which they know are going to flood, unless we take action to prevent it – onto some other bank in the next few years, and therefore they won’t be on their books when it comes to the glorious day when the waters have risen and these properties are underwater.
But that doesn’t work. They’re all making that assumption. And of course, if they all make that assumption, they won’t be able to pass on the loans to somebody else because that somebody else won’t take them because they’ll know that the property is at risk of flooding just as the ones already on their books are.
So we’re heading for a banking crisis unless we deal with the risk of flooding in the UK.
Oh, by the way, this is also true of much of the USA as well, and large parts of Europe, and other places. But, let’s just worry about the UK for now.
Unless we take action to control flooding in the UK, our banks will fail because the debts that are owing to them, secured on property, will not be worth the value that they have, because those properties cannot be sold. And, therefore, the banks will go bust. In which case, the most important thing we need to do to preserve UK banking from failing completely and utterly, in a way that will make 2008 and the Global Financial Crisis look a mere picnic, is to build flood defences.
But nobody’s talking about doing it. And that is an act of gross irresponsibility. Not just by our government, but by the banks who are not demanding it, because they know they need it, just as much as you and I do, because it’s our houses that could be flooded.
Richard Murphy’s reader tony added:
I wouldn’t use insurance companies as a goto for advice or analysis on applied hydrology.
It is perfectly possible for 100 year floods to occur in consecutive years anyway.
The periodicity of flooding is changing quite rapidly, as the frequency of high precipitation events of short duration increases, and river regime is thus altered, as is flood risk.
In England the EA [Environment Authority] has seen cuts of 70% under austerity.
Apart from devastating its regulatory functions it has also hollowed out the ability of this dedicated government agency to monitor and plan for the impacts of climate change, managing floods being just one. Recovery from this low base will take some time.
Meanwhile, almost 25% of existing flood management infrastructure is below acceptable maintenance standards.
The absence of an integrated upper catchment management programme on English and Welsh river basins, aiming to slow flow peaks, is a national disgrace, as the prescriptions are known and relatively cheap to implement, with rewooding and re-establishing sphagnum bog being the most obvious. But the ownership pattern of upland estates militates against the Tories doing anything much about that, and the SNP have fudged the same issue here.
Of course the costs of climate change – both insurance and equity losses for banks and insurance companies will be socialised, just as they were in the GFC.
Ignoring the externalities in their business models is typical of these financial institutions.
Even when I studied Applied Hydrology in the 70s there were ‘Fight Rising Damp” stickers in 4th floor windows of medium rise blocks at Thamesmead, and Harlow had no proper flood drainage system. Yet it seems little has improved since then with short termism dominating, and the sectional interests in satisfying the property developer caucus in the Tory party prevailing.
The Thames Barrier is already operating well beyond its expected operational frequency at 50 times in 2014. The barrier was closed four times in the 1980s, 35 times in the 1990s, 75 times in the 2000s and 74 times in the 2010s.
The continuation of flood plain building, especially in the south, and the short termism of Reeves wishing to reduce planning controls for new builds under a potential Labour government is a particular triumph of stupidity. SNAFU
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Its not just flooding. A significant proportion of housing in the south of England or built on clay soils. During exceptionally hot summers, such as occurred in 1976, the clay becomes dry enough to contract significantly, causing structural damage – usually to housing built after around 1880 (when cement replaced mortar, resulting in much more rigid, brittle structures). Floating or piled foundations are generally quite rare in UK housing.
An anecdote about flood hazards and mortgages insurance told to me by an English structural surveyor: A single dwelling in an area of Oxfordshire flooded several times over a number of years, resulting in a letter from their insurer stating that they would no longer cover the building. This made the house unsaleable. After much negotiations, the insurer agreed to maintain the insurance if the homeowner invested a high five figure sum in sealing the entire ground floor of the house to ensure it could survive floodwaters up to 1.5 metres above ground level. The works were completed, and the house was sold.
Two years later there was a flood and the entire ground floor was destroyed. The surveyors went to see what went wrong. They found the new owner had inserted a cat flap into the rear door of the house.
I doubt if that insurer, or any other, would accept such a risk again.
Building on flood plains is fine, but you have to build onto pylons or piles. The large-firm house-building industry in Britain is one of the most hidebound in the world. They refuse to adopt modern designs or materials, and concentrate on making houses with rooms as small as possible for the lowest possible cost and selling these travesties for the highest price the market will bear. They are large contributors to the tory party’s funds.
To your point, I saw only a couple of houses in the Oxford area on pylons, with an open parking area under the house and perhaps some free standing small storage units, which didn’t look too large to empty quickly in the event of an expected flood.
The usual engineering solution in the UK for small scale developments is to simply land-raise. This has the added virtue that ground down construction waste can be declared as an engineering material, and so not subject to landfill levies or taxes. One Oxford golf course built in the mid 1990’s (after the introduction of a landfill tax) is famously 6 metres above the original ground level for such ‘engineering’ reasons – it resulted in a tightening up of the regulations, but the principles still apply.
Well, those houses, even if uplifted by piles, will still be worth less to the banks if key infrastructure is not also “climatized”, as well. A house without sewage treatment, useable roads, dependable electricity and other services may be standing, but relatively useless.
The Thames is already experiencing contamination from both urban runoff and inefficient sewage treatment. Increase the propensity for flooding and an exodus will ensue. There goes value.
Yes, of course you are right. The whole ‘house’ concept needs to be integrated into one flood/drought proof unit. And preferably using bio-degadeable or re-useable construction.
I’m surprised that you saw any at all, Yves. Possibly these examples will inspire others to follow suit. Unfortunately these were probably individual architect designed houses – the big builders will have no interest unless they are regulated and forced into it. But the current tory party will not do that, and any new ‘Labour’ government under Starmer will not be likely to either. Maybe the insurance companies will force some action, in order to enable continuation of provision and thus profits.
No, large scale building on elevated piles really is not a sensible solution. It is a bodge.
Piling above estimated flood peak heights is a techno-fix suited only to a very few locations, and most definitely not for large developments.
In the UK at least, peak flood levels at any location in any given river basin are no longer that predictable.
Additionally, the current underfunding of the Environment Agency means that flood mitigation work is hopelessly inadequate.
We are in this limbo where the rate of warming is accelerating, and we still have not identified, let alone quantified, the impacts of feedback loops, so we no longer know how fast that rate of change is shifting.
The high estimate is of 10% higher rainfall for each degree of warming, but the risk of flooding is also compounded by regime – which is the rate at which river flow volumes increase and decrease after significant precipitation events.
The impacts of a 50mm storm are not going to be the same as a 100mm storm, and we are seeing more intense rain storms with very high rainfall over shorter periods of time.
Even a 5% increase in total rainfall can see a substantially higher increase in flood risks than 5%.
The whole point is that in major developments, the associated infrastructure of roads, parking, and concreting over previously permeable farm land massively increases runoff volumes into already overcapacity river systems, if they are in flood.
Of course, that will include the roof runoff from houses built on elevated piles.
That many river flood plains in the south of England are often on some kind of mostly impervious clay substrate, only increases flood risks further downstream.
It might concentrate minds politically if the Houses of Parliament suffer a major flood, and we then see an effective climate change mitigation programme, instead of current inaction, but that is probably the only plus of increasing flood risk frequency and magnitude.
Thank you, Jams.
Recently, a Polish contractor told me how his local peers don’t use modern equipment and have any formal training.
It’s not just the Tory coffers. New Labour (Blair and Broon) and New New Labour (Blair’s sock puppet Starmer) were and are also owned by developers.
If you can’t get into the stock market, get into the property market?
Sounds eerily familiar once more…
As you say, there is no engineering impediment to building on floodplains, but the main issue is that these invariably reduce the carrying capacity of the floodplain, potentially causing additional flooding downstream. Its not impossible, but it is very difficult and expensive to urbanise land without reducing its flood capacity.
The pressure in the UK is less from housebuilders wanting to save money on construction, but from land investors. Much of the land earmarked for housing (not necessarily zoned, just identified as such) has been bought over the decades by powerful financial interests, including pension funds and endowments who could afford to buy up agricultural land on the basis that in decades to come this land would eventually be zoned/developed. This includes of course the big Oxbridge college endowments. One unintended result of the adoption of Greenbelts in the 1950’s in the UK was to push out ‘potential’ building land to smaller towns and villages far from the main urban areas, which of course attracted the attention of investors.
Another issue of course with flooding is that rapid climate change will fundamentally alter floodplains. Many a chunk of land which has never flooded for a thousand years may well be subject to pluvial or fluvial flooding in the future.
Thank you and well said, PK.
Just one quibble: Oxbridge has always owned land and not needed to land bank. Much of the border between Oxfordshire and Buckinghamshire and further into the Vale of Aylesbury has been owned by Oxford colleges from the 13th century. Much of the area along the Grand Union Canal in Hertfordshire and the M11 corridor has been owned by Cambridge colleges from the 13th century. Farms are often called College Farm, but do not specify which college.
The investors you are thinking of, especially along the M1 and M4 corridors, include Legal & General and James Dyson. In addition to development, Dyson has been buying farm land in Lincolnshire, including off Lord Carrington, Norfolk and the M4 and M40 corridors.
You and I have often exchanged comments about land ownership. At the moment, the BBC and CBS are making a series about William the Conqueror for release in 2027, the anniversary of his birth. The dispossession is likely to be avoided. One notices many local authorities removing maps, links and other materials that refer to landowners from their websites.
Yes, you are absolutely right. The whole concept of building on flood plains needs large scale planning to include provision for the natural workings of the landscape. But whether anyone in government or anywhere else will bother is another question. Possibly it can be answered by asking: “Is there any money in it for ‘us'”?
Thank you, PK, not just for this comment, but yesterday, too, with regard to nitrogen*.
I have heard this anecdote and know the area well.
From July 1999 – September 2001, I worked at HSBC’s Lloyd’s insurance broking division, so around for the floods of 2000 and outbreak of mad cow disease. These affected clients, including the serially dodgy Essex abbatoir where the outbreak was first reported.
After the floods, many insurers refused to insure such risks. One of the riverside houses that insurers no longer had appetite to insure belonged to one of Ireland’s most famous exports to the UK. At this time of year, said export took a break from Blankety Blank and, later, his BBC 1 chat and BBC Radio 2 shows to present Eurovision**.
Having lived in Buckinghamshire most of my life and knowing the flood plains and marshes, it’s grimly amusing to watch estates, poorly built, but that’s another story, going up on such land. Why would one buy a house on an estate called Watermead or, across the road at Holman’s Bridge, on the site of three civil war battles where cavaliers on horseback got bogged down were ambushed by roundhead infantry? Many of the houses are sold to unsuspecting Londoners by builders and agents who have moved into the area in the past decade and been sold land by farmers taking advantage.
You and I have exchanged messages about our collections of antique maps. Some of these detail marshes since built on.
*This resonates with me as my employer is Dutch and part-owned by the Dutch government and grappling with the transition. We were talking about that this morning.
**As Johnny Logan sang in 1980, “What’s another year?” What’s another year wasted with regard to climate change denial and deflection.
I hope you are well and enjoying the racing seasons, cycling and horse.
Many thanks CS (and for the clarification on land ownership).
Years ago a Council senior engineer in Dublin got into big trouble after a flood when he said on a TV interview
He was right of course, but he was forced to apologise.
Old maps (I love them, I spend far too much time pouring over old OS maps for fun) give a huge insight into possible futures. Many people are very surprised at what they reveal – not least the enormous number of 19th and 20th century waste tips that are now beautiful countryside… or housing developments.
Thank you, PK.
Thanks PlutoniumKun, that gave me a good chuckle.
I would imagine that those banks are operating on two lines of thought. The first would be ‘I’ll Be Gone, You’ll Be Gone’ as the people in those banks will be long gone by the time that 50 year mark arrives. It would become somebody else’s problem and not theirs. The second line of thought would be that they would expect the UK government to bail them out ‘lest the economy crashes’ – or that would be the argument used. After all, it worked so well in the US in 2008. The UK government could just print the money needed they would reason. But knowing a bit of British history, when those homeowners came clamoring for help after the rising waters have taken their homes, I would be pretty sure that the UK government at the time will tell them that there is no money for them.
Thank you and well said, Rev.
We banksters love socialism, just for us, not other people. We also love rules as they are a barrier to entry. Trust me. I’m a bankster and a bankster lobbyist.
In addition to corporate welfare, the other trick is to securitise the loans and / or sell the portfolio of loans to another bank or buy side investor like an insurer or pension scheme. Securitisation rules now require a % of the loans / exposures / portfolio to be retained by the bank originating the loans, so that the bank / seller shares any pain that investors feel. This is to avoid the pre-2008 situation where banks sold dodgy assets to investors, aka “one shitty deal”, according to Senator Carl Levin when questioning a Goldman Sachs bankster.
It’s not just buildings inland and in Blighty. I often wonder on whose balance sheet hotels in the likes of Mauritius sit on.
When banks go bust, it’s everyone’s fault but the bankers’. When banks make loads of money, all the profit goes to bankers. Socializing losses and privatizing profits is what the plebs love.
I’d be curious to know what would happen to value of houses that are on hillls (or otherwise not prone to flooding under climate change) in the event of such a banking and property crisis. Would it tank along with the rest of the housing stock, swept away by the general crisis? Or would their value go up, being the rare exception of houses still insurable?
In the short to medium term, probably not a huge difference, except that the market would move towards houses suitable for mortgages (i.e. they can get insurance).
There are precedents – I know of areas surreptitiously blackballed by mortgage companies because of contaminated land issues or fire cert problems (the latter with apartment blocks). In one of my first jobs I was doing land research and I was bluntly told by a local government engineer that if the coal mining maps they had for internal use fell into the hands of mortgage companies, a major chunk of the urban area would be blackballed. In my city, I know of several apartment buildings where nobody has been able to buy with a mortgage for a decade due to fire cert issues. They are still occupied and look ‘normal’ from the outside, but there is a gradual deterioration as owners are less willing to invest in upgrades.
What tends to happen is that existing owners simply stay put or opt to rent out rather than sell. If you divorce, tough, you have to cohabit with your ex. In the long term, what happens is that either mugs with cash, or people with cash and a willingness to take a risk buy the properties without the insurance/mortgage. The impact on non-affected properties would probably be dependent on the attitude of the banks – they may feel it is wise not to be too generous with mortgages, so you may simply find they become scarce rather than inherently expensive.
Thank you, that makes sense
I have been Chief Risk Officer in a number of UK banks and a leading General Insurer
This article is ill-informed and misguided, perhaps in furtherance of a predetermined agenda
The primary threat to the Financial Services industry posed by Climate Change is regulatory in nature and driven almost entirely by bogus ESG initiatives (which have been fundamentally corrupted and increasingly discredited). The economic threat from collapsing residual values in e.g. electric vehicles and misguided investment in pursuit of nominally “green” alternative energy unicorns are of far greater economic consequence
Sorry, Chicken Lickin’ – neither the sky nor the banking industry is likely to fail due to climate change
Oh, my goodness. An argument from a self-proclaimed authority. Par for your self-important rant, you seem unaware that that is a logical fallacy.
Your ESG harrumph, and the bogus notion that financing EVs, when they are now only up to 16.5% of total UK car sales, and increasingly seem to be securitized, even dimly approaches the risk of housing finance, show you are not very good at math. That is consistent with your admission (if we are to believe your job claims) that you worked in a C-Level position for “a number of banks”. So unable to hold a job, hhhm?
And it’s pretty much a given you were on the wrong side of the global financial crisis, otherwise you’d be celebrated in the media as someone who got it right.
No evidence, factually challenged, high ‘tude comments, as in Making Shit Up, are not on here.
This article does seem to be heavy on the climate change advocacy and light on the banking numbers. Seems unlikely that the decline in real estate value from climate mitigation/disasters will outpace inflation over a long period, so the banks loans will still be collateralized…and since people are going to be paying for housing, won’t they be paying off their mortgages?
Would I rather buy on higher, drier ground? Yes, thank you. But climate real estate doom seems more appropriately directed at places like, say, Miami, than Cambridge.
I am surprised by this article because the problem is much deeper. Banks take money from the future. It follows that if, under climate change (the Polycrisis), the future is a declining asset then for-profit banking is inevitably threatened.
And it gets worse, capitalism requires exponentially increasing extraction from the future, which is inevitably unsustainable.
It is, now, increasingly well understood that banks do not loan out existing funds. Instead they mark-up deposit accounts (out of thin air) in return for a promise to make payments over a future term.
Notwithstanding all the above, the greatest threat to UK banking is not flooding but banking. When the majority of loans is not for productive purpose but to inflate the prices of existing assets, then you have what is called a Ponzi scheme. It is only a matter of time before it implodes and adding water will not be necessary.
“Adding water will not be necessary” … That makes two chuckles from the comments, thanks!
Not that long ago, I saw a comment from Russia that they would sink Britain. This article made the comment make sense. If there are so many low lying areas, then a Poseidon will do nicely.
Slightly worrying if Sergei Lavrov did indeed tell the Brits & French that their bases are targets… worldwide.
the convergence of finance and environmental collapse has been covered for a while at NC
https://www.nakedcapitalism.com/2019/02/climate-policy-buying-insurance-ignoring-cost-benefit-analysis.html
https://www.sciencedirect.com/science/article/pii/S0921800917315161
buckle-up – these are just speed bumps for what is up ahead for us
The idea that the Isle Ely rises 100 ft above the fens is a fantasy. Mapcarta gives it elevation as -3 feet, ie below sea level. As for the fens being flooded within the next 30 years, well that depends more on the pumps on the drains still working than anything else.
Guy lives there, so I think he’s probably right. I lived on the edge of the Fens to the South and could see Ely15km distant as a bump on a very flat horizon. Unlike the Dutch polders which do require pumping, most of the Fens are at or only slightly below sea-level and are no-longer inundated because the rivers and dykes have embankments which prevent water spreading at high tides but allow drainage through gates at low tide.
The article, to my mind, elides two scenarios. One is the result of sea-level rise which is certainly going to affect low-lying areas like the Fens, Somerset Levels and Holland – but this is predictable and can/could be countered by pumping, raising embankments or building tidal barrages. Expensive, but you’re protecting high value land.
The other scenario is flooding caused by higher rainfall than existing drainage schemes can cope with. This is going to potentially affect river valleys anywhere and everywhere, and can only be countered by passing the water, and problem, downstream until you eventually reach the sea. This is far less predictable, and providing the necessary infrastructure to cope with worst-case scenarios anywhere and everywhere is likely impossible.
Property becoming uninsurable and unmortgageable is going to become a problem, but people are going to need places to live and pressure on the Government to fund the necessary infrastructure to handle flooding problems in order to keep the banks happy and people housed is going to grow along with the problem.
Hmm, appears incorrect on all counts. topographicmap.com lists the lowest point of the Isle of Ely at 4 metres below sea level, and the highest at 29 metres above. Average 13 m.
The reason I checked is because the cathedral has been there for 800 years, and I’ve visited it. Draining the fens must have been in its infancy in those days, so an isle would stick out like a sore thumb. It would not have been below sea level, in other words. I lived in St Ives for a while and worked along the A604 in Bar Hill, 8 miles towards Cambridge. Travelled all over the region, and besides the spring flooding of a flat landscape, found the chippies were the greasiest anywhere I went in the UK and Scotland. Very rural.
https://en-gb.topographic-map.com/map-vc4s/Ely/
Have a gander yourself.