Insurance premiums have been rising because of soaring home prices.
Australia’s relentless property boom has developed a hidden sting for homeowners: the skyrocketing value of homes has meant the cost of insuring them is draining household budgets at record levels.
New research by Finder has revealed an explosion in the cost of home and building content insurance over the past year, with 78 per cent of households slapped with premium increases in the past year.
Finder estimated the rises would have impacted nearly 4.5 million households and remain one of the biggest cost of living pressures next to rising energy prices, food costs and mortgage payments.
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Rising building costs have pushed up insurance premiums.
Soaring insurance premiums were the result of a mix of forces.
They included a slew of natural disasters and rising construction costs, which have meant insurers have to factor in higher replacement costs when setting premiums.
Chief among these cost pressures was that insurers had to adjust their premiums to reflect the higher value of homes: properties have become worth much more and so the cost of insuring them has risen.
Finder insurance expert Taylor Blackburn said rising insurance premiums represented a growing counterpoint to the steep equity gains many homeowners have netted.
“Household budgets are being hit from all angles, and for many, their home insurance renewal is one of the worst shocks,” Mr Blackburn said.
Mr Blackburn added that everyday Australians were struggling to keep their heads above water in this environment.
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Finder insurance expert Taylor Blackburn said insurance costs were rising.
He pointed to compounding economic pressures in the property sector, noting that “sky-high construction costs, rising home values and a surge in extreme weather events all are helping to drive up the cost of protection”.
It comes as new PropTrack data showed home values have continued to rise at a phenomenal pace even as interest rates rise.
National property prices have surged by 9.1 per cent over the past year, adding nearly $90,000 to the average home’s value, PropTrack reported.
The price growth was even more explosive outside of the major eastern capitals.
Perth property values rocketed up by almost 20 per cent, a $170,000 jump in just one year, while Brisbane and Adelaide had jumps of nearly 16 and 15 per cent respectively.
REA Group economist Eleanor Creagh noted home prices in Perth, Adelaide, and Brisbane are on the verge of doubling compared to where they were just five years ago.
“A $1m median represents a significant shift in the housing landscape,” Ms Creagh said, adding that “demand is facing into tight supply”.
High property values mean insurance premiums are unlikely to plummet anytime soon.
For the millions of households paying a premium to protect their increasingly expensive assets, Mr Blackburn suggested they consider shopping around.
“Loyalty rarely pays when it comes to your finances – the best thing you can do is check to see if you can get a better deal elsewhere.”
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