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The Risk Business: Thriving in a Rapidly Changing World
January 2014
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My risky geo-design journey to Redlands
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Knowns, …Unknowns, …Super unknowns…
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Managing, Mitigating risk by Diversification or Spread…
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Natural disasters and media sensationalism
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New York New Orleans
Fukushima Brisbane
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Business risk
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• Measuring up
• Risk amplifiers
• Risk minimisers
• Costs
• Integrating geo-design
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Risky business… Corporates & Characters
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Shylock, in The Merchant of Venice Gordon Gekko, in Wall Street
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Risky business… Varying and …different… risk appetites
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Nathan Rothschild Goodfellas
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Risky business… And natural disaster strikes!
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Business risk
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• Risk is all about perspective… and sentiment…
• Financing of housing is increasingly risky… and expensive
• A new discourse: Integrating geo-design and business risk management
Geo-design – A sequence of practical steps helping improve the quality of urban environments and supporting decision makers in their efforts to minimise financial risk
• Proposed dialogue:
• Better understanding of a landscape’s layers
• Where investment are located
• Independent & composite risk
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The risks in our world… A complex value chain
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Hardware Software
Land-use management
Policy Regulation Governance
Social
Economic
Financial
Cultural
Environment
Planning
Engineering
Administration Coordination Control
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The risks in our world: Natural disasters
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Applying geo-analysis and geo-design scenarios to the Brisbane flood
• Analysis of population, housing, and financial indicators ‘at risk’
• The impact of the flood on the city’s housing market and its finances
• Geo-design responses
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Brisbane Flood Case Study
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Australia
South East Queensland
• Brisbane is the capital city of Queensland
• 3rd largest city in Australia
• Population of 2.19 million people
• Covers a land area of 5,950 km2
• Population growth 1971-2011: 2.22%
• Population growth 2014-2031: 1.96%
Map 1: Australia & SE Queensland
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Map 2: Land use map of South East Queensland
Figure 1: Southern Oscillation Index
Parkland
Residential
Brisbane Flood Case Study
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Map 3: Australian rainfall, 3 months to January 31, 2011 (mm)
Map 4: Queensland rainfall, week ending 27th January 1974 (mm)
Map 5: Queensland rainfall, week ending 12th January 2011 (mm)
Precipitation levels: Cause I
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Figure 2: Water inflow/outflow from Wivenhoe Dam
Wivenhoe Dam: Cause II
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Brisbane flooded: The effect!
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Map 6: Flooded area of Brisbane
Flooded Area
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Case Study: Inner Brisbane, Scenario 1
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Map 7: Case study area Map 8: Case study area by land-use type Map 9 : 500m buffer zone Map 10: 500m buffer zone by land-use type
500m Buffer Zone Flooded
Commercial Education Medical Industrial Parkland Residential Transport
5.38km2 2.38km2 0.09km2 4.44km2 6.39m2 8.98km2 0.12km2
19.36% 8.58% 0.31% 15.99% 23.00% 32.33% 0.42%
Commercial Education Medical Industrial Parkland Residential Transport
5.83km2 0.66km2 0.34km2 4.33km2 9.04km2 23.97km2 0.34km2
13.10% 1.48% 0.76% 9.74% 20.30% 53.85% 0.76%
Land Parcels Area km2 Persons Dwellings Persons per km2
622 27.78 39,183 18,722 1,410.46
Land Parcels Area km2 Persons Dwellings Persons per km2
1,522 44.51 115,040 23,963 2,584.59
Case Study: Inner Brisbane, Scenario 2
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Model A: Brisbane Housing Market: 2006 - 2016
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Figure 3: Supply/demand imbalance of houses Figure 4: Average price of houses, standard variable rate (interest rate)
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People & Housing: Demand, Supply, Density
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Figure 5: Population growth (%) Figure 6: Stock growth (%) Figure 7: Persons per dwelling growth (%)
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Housing Finance: Mortgages, Prices, Repayments
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Figure 9: Average price growth (%) Figure 10: Average mortgage repayment growth (%)
Figure 8: Mortgage growth (%)
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Would a geo-design approach help minimise risks?
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• Cities are complex systems with endless interactions
• Geo-design: an integrated framework using geo-processing tools capable of testing hardware and software (in)compatibility
• Causes:
• Analysing populations at risk to ‘existing’/’alternative’ hardware and software scenarios
• Taking a ‘holistic’ approach to: better understand, measure, and evaluate the impact of land use challenges, and the burdens in financial services
• Effects:
• Improving policy and market sentiment
• New land use strategies: how to manage & develop housing in flood risk areas
• Encouraging new strategies in property and financial services decision making
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• Brisbane: from country town to Metropolis
• The quest for home ownership… an asset, but a liability…
• Property development bonanza
• Impact: corners cut in land-use planning
• Onset of the GFC
• Reserve Bank of Australia (RBA) response gave rise to an out of sync and more volatile mortgage market
• Created more debt = more exposure = more risk!
• A highly leveraged residential market, then a flood = even more risk! • Impact: deterioration in credit quality =
• PROBLEM!
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Model B: The risk impacts of flooding on housing finance
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Housing Affordability (LHS), and Housing Affordability greater than 30%, (RHS), September 2011
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Map 11: Affordability Map 12: Affordability above 30%
Medium
High
Very High
Low
Very Low Medium
High
Very High
Low
Very Low
Medium
High
Very High
Low
Very Low Medium
High
Very High
Low
Very Low
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Average number of Mortgaged Houses & Average Loan size, September 2011 (Av loan size: greater than 1 standard deviation above mean)
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Map 13: Average number of mortgaged houses and average loan volume
Medium
High
Very High
Low
Very Low
Medium
High
Very High
Low
Very Low
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Mortgage repayments greater than $3,000 per month, September 2011
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Map 14: Number of households with a mortgage repayment greater than $3000
Medium
High
Very High
Low
Very Low
Medium
High
Very High
Low
Very Low
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Average level of mortgage debt (Loan to Value Ratio), September 2011
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Map 15: Average level of debt
Medium
High
Very High
Low
Very Low
Medium
High
Very High
Low
Very Low
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More debt
Negative Liquidity Growth, 3 year maturity (LHS), 6 year maturity (RHS), (% change)
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Map 16: Change in liquidity between Dec 2010 and Sept 2013 Map 17: Change in liquidity between Dec 2010 and Sept 2016
More debt
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The Good, the Good, and the not so Good…
• An overwhelming response from the Australian public (and taxpayer!)
• Overhaul of water and disaster management
• Geo-design: active and visible role in decision making (policy and financial)
• Geo-design: critical in the establishment of riverine insurance
• Geo-design: facilitating State Government accountability
Only 10% of the $2.1 billion in claims have been paid!
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• Risk mimimisation and asset protection
• Hedge funds, re-insurance, and CAT bonds
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One for the money, …Two for the money, …Three for the money
Recovery of Brisbane: At a cost!
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• Land Use Planning
• Nurturing hardware and software compatibility
• Financial Services and banking
• Overcoming cultural biases to non-conventional financial analysis (geography, geo-design)
• Flooding
• In Queensland geo-design and broader GIS technology is an active tool in planning, and now credit evaluation and decision making
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The geo-design code
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• A core concept in urban design, planning and financial management
• But how do we better manage, coordinate, and control our flooded cities in the 21st century?
• Floating cities
• Amsterdam, Venice, Kolkata, Bangkok, Alexandria
• The alternative… Flooded cities
• Atlantis…
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Future: geo-design strategy
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Paul M. Ross · Futurist & Data Broker
THANK YOU