Climate change will increasingly create severe risks for  New Zealand’s coastal housing stock. Even a small amount of sea level rise will substantially exacerbate the costs of flooding and storm surges (Parliamentary Commissioner for the Environment, 2015). Under the Intergovernmental Panel on Climate Change’s (IPCC) three mitigation scenarios, global average sea levels are likely to rise by between 28cm and 73cm by 2100 (above the 1986–2005 average). Under the IPCC’s high emissions scenario the sea level is likely to rise by between 52cm and 98cm by 2100 (IPCC, 2013). Only collapse of parts of the Antarctic ice sheet, if triggered, could cause the sea level to rise substantially above these ranges. Some regions in New Zealand (including the main urban centres) have high enough quality geographic data to infer the number of homes at risk. In those regions, there are over 43,000 homes within 1.5m of the present average spring high tide and over 8,000 within 50cm.

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We develop a methodological approach through integrated assessment using System Dynamics modelling and Scenario Planning to investigate the economic vulnerability of coastal communities to the compounding impacts of sea‐level rise (SLR) and storm flooding and inundation associated with climate change. The approach uses a coastal flood risk assessment that quantifies physical drivers alongside socio‐economic well‐being for coastal communities to provide a methodology for managing uncertain futures through causal relationships in System Dynamics. A New Zealand case study is used to illustrate the long‐term economic impacts of inaction under different SLR projections and recognise critical tolerance thresholds to help exposed property owners plan their future. Modelling scenarios using this integrated approach identified two stand‐out drivers that influence a behavioural response of communities to coastal inundation at the local scale: first, the ongoing likelihood of risk transfer to the insurance industry, and second, the decisions of households and firms to accept risk for the added value of coastal living. Model outputs suggest that the threat posed by coastal hazards drives a behavioural, socio‐economic response that exceeds the initial economic exposure of capital assets. In the economic short term (1–10 years) and medium term (10–20 years), vulnerable communities accept the risk of capital loss and loss of insurability, favouring the amenity of coastal living. However, in the long term (+20 years), economic losses from repeat flooding increase risk‐based insurance premiums, promote insurance withdrawal and drive negative corrections in property valuations. Unanticipated insights were obtained from the modelling, including the likely timing of tolerance thresholds, particularly the insurance withdrawal point, which is critical to insurer/consumer decision‐making and community planning.