The world’s hottest years over the past decade have coincided with stagnant economic productivity, rising prices and geopolitical instability.

Is this just coincidence or has the current level of climate change been one of the drivers? Climate change is often framed as a problem for the future. But how much economic damage has today’s current level of ~1.35°C of warming already caused?

To answer that question, we analysed the effects of climate change to date on the New South Wales economy. The results were released today as part of a Net Zero Commission report.

We estimate climate change has already caused median losses of around 18% (probability range 4–33%) to the NSW economy, the biggest economic jurisdiction in the country. At a median 18% loss, that translates to about A$21,300 per person on average in yearly income.

We show that it’s not local bushfires or flooding that are driving the majority of damage, but changing global weather that in turn affects our cost of living.

Imagine a world without climate change

Studies typically project the global economic damage that climate change will do by 2050 or 2100.

Some influential estimates have suggested climate damage would be fairly small. But our recent research and work by others shows the economic damage coming down the pipeline could be more than four times larger than previously thought.

Our research question for this report was different: “What would the NSW economy look like today if historical emissions of greenhouse gases had not caused climate change?”

This requires a thought experiment: imagining a past where we burn fossil fuels at the historical rate, but the additional carbon dioxide and other atmospheric gases do not cause changes to temperature or rainfall patterns.

Answering this question will allow us to understand the economic losses we have already endured from historical climate change.

How we did it

First, we collected data on historical economic growth and weather across the world over the past 70 years. We then modelled how weather changes (or shocks) impacted economic growth over this period. There is significant debate on how to do this, so we adopted a variety of approaches.

Then we had to plausibly guess at how the weather would have evolved in the past four decades without climate change. To create this hypothetical weather series, we simply removed any trend found in the weather data which we ascribe to human-caused climate change. This works because there is no evidence natural causes have contributed to the upward trend in temperatures.

Finally, we compared economic growth rates predicted by the models under the observed and under the hypothetical weather conditions. The contrast between the total economic production of the NSW economy in the two scenarios is the economic cost of historical climate change for a given year.

What we found

We estimate the median economic loss for NSW in 2024 was 18%. There is significant uncertainty in this figure, with the lower estimates around 4% and the higher around 33%.

The median loss figure of 18% translates into an average of $21,288 in losses per person in yearly income (in 2023–2024 dollar values). In other words, the model finds that if historical warming had not occurred then people living in NSW would each have $21,288 more dollars, on average, in their pockets every year. This amount is large enough to meaningfully improve the quality of life of the state’s average household.

The models suggest the primary mechanism through which this loss has occurred is the rise in the global average temperature. When people think about losses associated with climate change in NSW, they might consider how climate change exacerbated the bushfires of 2019–20, or the floods that followed. The damages they caused are, of course, real and significant.

However, the economic models suggest the majority of the damage has come from shifts in weather globally. Given the interconnectedness of modern economies through trade and global supply chains, it is reasonable to assume that climate shocks to supply chains affect the whole globe.

How we think about climate change

When pollsters ask Australian voters what issues they care about, “climate change” is often listed as one issue among many. Voters are asked to assess how important climate change is to them relative to the cost of living, public health, interest rates, secure employment, and other important things.

Presenting issues in this way reinforces a common misconception that they are independent, and that one can be prioritised over the other.

To the contrary, there is now good evidence that climate change is strongly related to economic outcomes, which in turn drive the cost of living, interest rates, investment in in health and education and the labour market.

It’s time to stop thinking of climate change as “merely” an environmental issue, which can be discarded when economic times are tough. Instead, we should recognise what it really is: a current and ongoing threat to our standard of living.

Timothy Neal receives funding from the Australian Research Council.

Ben Newell receives funding from the Australian Research Council

To say this year’s federal budget has ruffled some feathers would be an understatement. The Albanese government announced major reforms to two tax breaks long seen as politically untouchable – negative gearing and the capital gains tax discount.

In response, some banks are reportedly tightening their lending to property investors. And there are early reports of lower attendance at open homes, suggesting buyer caution.

The government’s budget changes are not yet law. But two weeks on from budget night, are we already beginning to see the first ripple effects hitting the Australian property market?

And how much of what we’re seeing in the housing market right now – such as falling sales at auction – can really be attributed just to the budget?

Auction sales have been sliding for months

Auction clearance rates – the percentage of listed properties successfully sold at auction – fell the week after budget. Despite a slight rebound last week, they remain lower than usual.

The longer-term average rate sits in the mid-60s – meaning more than six out of ten homes successfully sell at auction. The rate has now slipped to around 50–60% nationally, so it is clearly down.

But auction activity was already trending down months before the budget was announced, as interest rate hikes and economic uncertainty subdued the market.

Adding to this, figures from the Australian Bureau of Statistics show both investor and homeowner borrowing in decline since December last year.

Competing forecasts on house prices

Based on Treasury modelling, the federal government estimates house prices will still grow – but by 2% less than they would have without these tax reforms over the next couple of years.

Similarly, forecasts by the Commonwealth Bank predict slower growth over the next couple of years, not an outright fall.

Previous research estimating the effect of removing negative gearing on the Australian housing market suggested house prices would fall by just 1%, while homeownership for young people could rise by up to 3%.

At the other end of the scale, investment bank Morgan Stanley made a bold prediction: that housing could see “one of the largest price corrections over the past 40 years”, with falls of up to 10%.

However, as noted by most analysts, Australia’s property market was already softening ahead of the budget. Borrowers have endured three interest rate hikes already this year, with further increases still possible.

Why home ownership is still out of reach for many

For young people feeling locked out of the housing market, the media storm surrounding possible house price falls since the budget may be hard to understand.

House price growth has been highly volatile over the past two decades, from slight falls in some years to spikes of 10–20% in others.

But it has averaged about 8% per year – still far faster than the growth in most people’s wages.

The median home value is now more than eight times median Australian household income. That means homeownership is far less affordable than it once was.

Different markets, different impacts

Looking to where things might be headed, another important nuance arises from the fact investors and prospective owner-occupiers operate in different markets. That means the changes could impact prices unevenly across Australia.

Research has shown investors are far more likely to buy small properties, preferring apartments over houses. Investors purchase 25% of all one-bedroom properties, compared to only 16% of three-bedroom properties and just 10% of four-bedroom properties.

For those seeking to buy an inner-city apartment, where investors are more active, the government’s reforms may have a bigger impact on prices.

But for those buying family homes on the outskirts of the city, these changes may have only a small impact because investors were never as active in those housing markets in the first place.

Over the next few months, the Australian property market may continue to weaken, especially with the possibility of further interest rate rises before the end of this year.

In the short term, it does appear that many home buyers, investors and banks have reacted cautiously to this federal budget.

But it would be wrong to attribute the current cooling down of the market entirely to the reforms announced in the budget – as some commentators may try to do.

James Graham receives funding from the Australian Research Council and the Australian Housing and Urban Research Institute. James is a member of Sydney YIMBY (Yes In My Backyard), a grassroots group advocating for increased housing density in the inner city to improve affordability.