Abstract
Recent major natural disasters in Australia have highlighted how some of the economic costs of living in risk-prone areas are borne by the rest of society. As it typifies expanding coastal development in areas prone to extreme weather events, the town of Exmouth (NW Australia) was used to investigate economic strategies for coastal disaster risk reduction. Recent marina development has amplified risk of storm-surge inundation, with a loss of disaster mitigating ecosystem functions, and increased risk to previously unaffected areas. The extent to which risk perceptions of cyclonic storm-surge inundation and flooding influenced the price buyers paid for residential property in Exmouth over the period 1988-2013 was examined using a Hedonic Price Model. This incorporated dwelling variables, proximity to the coast, cyclone Vance storm-surge levels and 1-in-100 year flood levels. The analysis indicated that prices did not reflect the real societal cost of risk. The overriding positive influence of greater access to coastal amenity, lower sensitivity to potential risk amongst buyers at Exmouth or the absence of a monetary signal of risk and its concomitant translation to economic behaviour, were indicated. To internalize these costs, a mandatory private insurance scheme for high-risk properties, penalties for local councils undertaking new high-risk developments and a hybrid economic instrument aimed at correcting the market failure in coastal land is proposed. This study is highly relevant in view of the expansion of industry along the coast of northern Australia and the predicted effects of climate change on sea levels and extreme weather events.