Home buyback scheme floated after Kensington Banks labelled flood-prone

Pressure is growing for a home buyback scheme after 900 properties in an inner Melbourne estate were suddenly designated flood-prone, which could cause house values to plummet and insurance costs to surge.

Property experts say house values could fall by up to 20 per cent after almost every home in Kensington Banks, in Melbourne’s inner north-west, was labelled flood-prone in Melbourne Water’s revised modelling for the Maribyrnong River catchment.

The Kensington Banks estate has been labelled flood-prone in Melbourne Water’s revised modelling.Credit: Jason South

The Age revealed on Sunday that the updated modelling shocked residents, who face the prospect of plunging house values and increased insurance costs for their homes in the award-winning estate, which was completed about 25 years ago with extensive flood mitigation works.

Amelia Hodge, chief executive of the Australian Property Institute, the peak body for property valuers, said the Victorian government should consider following in the footsteps of the Queensland and NSW governments, which introduced home buyback schemes after flood disasters in 2022.

“I do wonder what compensation might be available to those home owners given this change was brought on by something [out of their control],” Hodge said.

“I think Victoria should be investigating some sort of buyback scheme to be equitable to those home owners … It has been done in other states.”

Hodge said there was no doubt the new flood maps would hurt house values and that people might struggle to get loans to buy in the area due to a higher risk rating for lenders.

“This will impact people across a range of things, such as mortgages, insurance, and when they go to sell down the track, they may have fewer buyers that would look at a property with a flood overlay,” she said. “I feel sorry for the people there.”

Lou Rendina, founder of Kensington’s Rendina Real Estate, said the new flood maps could reduce the value of a home by as much as 10 to 15 per cent, even though no homes were inundated in the October 2022 floods when the Maribyrnong River breached its banks.

Rendina called on the government to consider further mitigation works before there was significant damage, and to address the Flemington Racecourse’s controversial 1.6-kilometre flood wall, which was built in 2007 immediately upstream of Kensington Banks.

“You have residents who have spent big money in Kensington Banks, from as little as $600,000 to as much as $1.8 million,” he said.

Tony Kelly, Victorian managing director of property valuation firm Herron Todd White, said the flood maps would cause a significant rise in insurance premiums and in some cases, insurers would refuse to cover a property, which in turn can prevent purchasing.

One Kensington resident told The Age his flood insurance had risen from $180 to $5000 a year.

Kelly said house prices dropped by 10 to 20 per cent in areas affected by the 2022 floods, such as Maribyrnong, the suburb worst hit. He expected similar falls in Kensington Banks.

“Even though water hasn’t come through [those houses], it’s a change, and the lenders and insurers will be the people to pick it up first,” he said.

Australian Property Institute chief executive Amelia Hodge says she feels sorry for Kensington Banks residents.Credit: GlennHunt Photography

“When it’s new and is a surprise, people are at a greater risk of seeing a short-term fall ... It might settle down over time but, at the moment, if I was a home owner, I wouldn’t be overly happy.”

Melbourne Water has also bowed to mounting pressure and on Monday committed to examining the impacts of the Flemington Racecourse flood wall on properties near the Maribyrnong River in a one-in-100-year flood, which the new flood maps are modelled on. As part of Melbourne Water’s flood inquiry, the wall’s effects were only analysed for a one-in-50-year flood scenario.

The Planning Institute of Australia’s Victoria vice president, Jane Keddie, called on the government to consider measures for managing flood risk, including preventing new homes being built in high-risk areas, adapting housing and infrastructure in lower-risk areas, and considering buyback schemes when risk levels became unacceptable.

Melbourne Water has not publicly revealed projected flood depths for Kensington. Home owners are instead being asked to call the authority to receive individual information.

A Melbourne Water spokesman advised residents to discuss their circumstances with their insurers and said the authority was not considering property buybacks.

“There is not the same level of risk in the Maribyrnong River catchment as other catchments in Australia where governments have used buybacks,” he said.

Melbourne Water’s flood review panel found last year that buyback schemes for flood-prone properties might be needed in some areas.

“We are updating all our modelling across Melbourne to ensure planning decisions are as well informed as possible to take account of climate change. We will continue to support community awareness and preparedness and investigate potential mitigations,” the authority’s spokesman said on Monday.

A spokeswoman for Water Minister Harriet Shing said Melbourne Water was investigating flood mitigation options and meeting with the Insurance Council of Australia to understand the effect on premiums.

Australian Bureau of Statistics data shows that insurance premiums nationally surged by 16.4 per cent in the year to March 2024, the highest annual rise since 2001. The bureau identifies natural disasters as a key driver behind the increase.

Politicians are scrutinising the insurance industry after the Albanese government last year launched a parliamentary inquiry into insurers’ responses to the 2022 floods.

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