The Christchurch Solution – Part 1

Written By: - Date published: 6:15 am, June 23rd, 2011 - 56 comments
Categories: disaster, leadership - Tags: , ,

The Christchurch earthquakes have created a challenge which is unprecedented in this country (and probably very rare in the modern world). Large, densely populated areas are not safe to rebuild. Any government would have struggled with this.

National I think have done poorly so far. They appropriated an unnecessarily large chunk of power through CERA, then didn’t seem to do much with it. The emergency housing response was late (compared to a similar situation in Japan) and misguided (empty camper vans). The delay in getting information to affected residents has been too long, and mishandled by Gerry “blindingly obvious” Brownlee. Patience is not so easy to come by in a damp, freezing, damaged house with no functional plumbing.

But now it’s crunch time, and National could make good. If they get their response right, many in Christchurch will forgive them the delays. The stage show event for Key is today at 1:30, but substantial details have (as seems to be the norm these days) been released in advance. Favoured journo Duncan Garner reports:

Christchurch’s quake-damaged suburbs early details

Residents in Christchurch’s worst-hit suburbs will be told they can leave their homes tomorrow and the Government will pay them out. … The Government will formally name the worst hit suburbs as:

Bexley
Avondale
Horseshoe Lake
Burwood
Dalington
Avonside

3 News understands 90 percent of the houses in Bexley will be demolished.

The Prime Minister was confident he could give those in the worst affected areas clarity, but some tomorrow may have to wait further for a decision. …

Those people covered by tomorrow’s announcement will be offered the choice to stay or leave their home. Choose to go and the Government will pay out those who wish to leave to the value of their house just before the September earthquake. Residents will have nine months to make a decision. … 3 News understands 5000 homes are covered by tomorrow’s announcement.

And the payouts will cost the Government hundreds of millions of dollars up front – insurance companies and EQC will then pay the Government directly.

OK, first the good. A lot of people covered by this deal are going to be relieved, and happy. It will seem like a lifeline in a storm. They will take the money, and find somewhere else to live. Good on them. Furthermore, the system could be (on detail so far) simple and effective. No mucking about for individual households with the nightmare of insurance companies. The offer appears to be a one stop shop, cash up front, no questions asked. Simple and effective (with the government picking up the insurance legwork). Bravo.

Now the bad. A lot of people covered by this deal are going to be disappointed, and angry. The cash on offer is based on the most recent government valuation, which is typically well below market value. Furthermore, the last valuation was conducted in 2007 – prices had increased tens of thousands by 2010. Some people will feel torn by the desire to get out of their shattered suburb, and their anger at an offer which they feel is less than their house is worth (one such example was interviewed on Campbell Live last night).

Now the ugly. There are many many details here and the devil is within them. My first thought is for the uninsured, and families who decide not to take the offer. What to do with the last one or two diehards in an empty street or suburb? Presumably services will never be restored. What then, for those that remain? My fear is that the government will consider that the rescue package discharges their obligations, and that the diehards will be left on their own, in terrible conditions. (Eventually the areas will be bulldozed, and turned in to parkland or similar – what then – forced evictions?) That isn’t right.

A second obvious issue is the lines on the map. As so far described the offer applies to specific suburbs. That’s easy to administer, but liquefaction knows no boundaries, and it will only be an approximate fit to where the help is truly needed. We may get situations where sound houses inside a suburb are offered the buy-out, while damaged ones just outside are not. Then there are the grey areas. Suburbs which have not been listed, but where many houses are affected. What happens to them?

Finally, the missing. What is announced so far is a response to the most pressing issue, but it exists in isolation. What is missing is the plan for Christchurch, or a proposal to rebuild new suburbs to the North or to the West. A vision for the future, or a chance to rebuild together, may have helped many families make the decision to stay in the City that they love. A city that will need them, when so many are choosing to leave.

We’ll have more information following the stage show at 1:30, but I suspect that after it we’ll find that there are still more questions than answers for many families. I’ve labelled this post “The Christchurch Solution – Part 1” because I suspect that it is an issue that will need to be revisited many times.

Be strong, Christchurch.

[Update: According to The Herald “Government offers to buy properties won’t be made for a couple of months”. Why? Why the delay, through the hard months of winter? This is going to cause yet more anger.]

56 comments on “The Christchurch Solution – Part 1”

  1. The cash on offer is based on the most recent government valuation, which is typically well below market value. Furthermore, the last valuation was conducted in 2007 – prices had increased tens of thousands by 2010

    2007 was the height of the global real-estate bubble. It was the highest point for house prices in history.

    • IrishBill 1.1

      Nope. Growth hasn’t been as strong since 2007 but median sale prices are $10-$20k higher now than they were then (depending on which months in 2007 and 2011 you look at).

      That gap may be less in inflation adjusted dollars but we don’t know whether the GV payment will be inflation adjusted yet.

      [IB is correct. I’m sure there are better stats out there, but my source was here. It lists the average Chch house price as $325K in March 2007, and $352K in October 2009. See also this report (Page 15) for a median increase of 10K. r0b]

      • ghostwhowalksnz 1.1.1

        The revaluation figure of 2007 can be adjusted to the date just before the first quake. They have the sales figures from that time , its easy to do a ‘computer revaluation’.
        Remember in any sales process owners hardly get what they ask for and have to come down a bit to close a deal.

      • MarkM 1.1.2

        Median price is a reflection of the range of values of Houses sold.
        Danyl is correct that 2007 prices were higher

      • higherstandard 1.1.3

        [IB is correct. I’m sure there are better stats out there, but my source was here. It lists the average Chch house price as $325K in March 2007, and $352K in October 2009. See also this report (Page 15) for a median increase of 10K. r0b]

        ……………and what’s the average house price now ?

  2. Descendant Of Smith 2

    So they are going to bail out the uninsured and the under-insured?

    They are going to bail out landlords and trusts not just homeowners?

    Presumably banks will have first call on this money to clear their mortgages. There aren’t any guarantees of course that the banks will give the newly unemployed and the old another mortgage if they need one.

  3. burt 3

    rOb

    Nanny should just make the shaking stop.

  4. You’re right AR; the issue will have to be revisited many times, because the whole thing is a moveable feast. The September earthquake caused significant damage in Halswell, on the south-western edge of the city. Halswell School was closed, and to the best of my knowledge has relocated to temporary premises. There was widespread liquefaction. Where was the 5.4 earthquake on Tuesday night located? Just beyond Halswell, as were many of the aftershocks that followed yesterday.

    I agree wholeheartedly that this would have provided a huge challenge to whichever government was in charge. There has been much criticism of National for the length of time it has taken to reach today, but the issues involved are incredibly complex, and if the wrong decisions were made in haste, it could have a catastrophic effect. From what I’ve heard so far, I believe that the government should be commended for at least attempting to give affected homeowners some financial security, then handle the wrangling with the insurers later.

    This is, as you note, part 1, but it’s a start.

    PS: My 2010 RV is about 10% less than 2007.

    • Terry 4.1

      Some of you call this “a start”. I would like to ask what will be the ending? Dare one even think about it?

  5. nadis 5

    https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=A2D89DF1-B00A-462C-5EBB-E90911AA6B4D&siteName=reinz

    REINZ also produce monthly data by region and city (in the same part of the site as linked above). Average index value for 2007 = 2988.

    Average index value for the 6 months prior to September 2010 = 2920

    Highest index point ever in ChcH was Sept 2007 at 3093.

    Hard to make the case that 2007 valuations are designed to screw the householders.

    • r0b 5.1

      See my note in comment 1.1 above.

      No one said the 2007 valuation was “designed to screw the householders”. It’s just the number that they’ve got to work with. A much bigger issue is the difference between GV and actual market value prior to the quakes. THe market value now, of many homes, is obviously pretty close to zero.

      • Inventory2 5.1.1

        I think you’ll find that the Christchurch property market was at a pretty low ebb at the end of August 2010. Those most likely to have been affected adversely will be those in elevated suburbs, not in the low-lying eastern suburbs where the property market was pretty stagnant.

      • Lanthanide 5.1.2

        Nah, the market value won’t be 0 for these houses, it’ll be salvage value, depending on what you can take out. Double-glazed aluminium windows in new houses are worth a bit, kitchen cabinetry, hot water cylinders etc. You could go all the way down to light fittings and bathroom heaters if you really wanted. A lot of building material will be usable too, particularly individual bricks that aren’t damaged.

        For any large construction effort, a lot of these resources will simply have to be recycled into the new homes anyway.

        • r0b 5.1.2.1

          I certainly hope that there is a systematic effort to salvage what can be used. We shouldn’t be just condemning all those resources to landfill.

          • higherstandard 5.1.2.1.1

            Sometimes the best option is to have done with it and start again………. when all’s said and done most of what is salvageable there now will be landfill within 10-15 years anyway.

            • Draco T Bastard 5.1.2.1.1.1

              Still better to recycle than throw it in a landfill.

              • higherstandard

                Best you go to CCH and start looting then.

                • Draco T Bastard

                  Is it just me or have we ended up with two higherstandards? And which is the real one?

                  Calling lprent to comment 344305

  6. Lanthanide 6

    Ok, so this $1.5B bill, is it coming out of the already earmarked $5B the government has put on the books, or will this be in addition? Budget 2011 out the window already?

    • No; it’s coming out of the $5.5b set aside at Budget for earthquake recovery, so it is already accounted for.

      From the Herald:

      The cost to the taxpayer is unknown – it will depend on the terms of each individual policy and how much is recovered from insurers – but early estimates suggest it could be between $200 million and $500 million.

      The cash will come from the $5.5 billion budgeted in May for earthquake recovery over and above the $3.3 billion allocated for Earthquake Commission and Accident Compensation Corporation payments.

      http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10733937

  7. ianmac 7

    No one seems to have mentioned the replacement value insurance. Surely insurance companies would have to honour that as opposed to GV?

    • grumpy 7.1

      You would think so, but it only covers the house – not the land and assumes rebuilding on the existing site. With EQC payment capped at $100,000, that leaves quite a shortfall for relocation.

      Lets wait for the detail but as many mentioned before, this is a very complex issue and good for the Govt to take over all dealings with insurers – sort of a SCF solution really.

      • higherstandard 7.1.1

        “..sort of a SCF solution really”

        Apart from the fact that the SCF investors should have been the victims of their own avarice and poor judgement and the people in CCH are in the cak through no fault of their own.

        • grumpy 7.1.1.1

          True, but the idea is the same – Govt take over everything and wave the big stick at insurers (borrowers) etc.

      • Bill 7.1.2

        I really don’t see what is so bloody complicated about all of this…unless the primary focus is to look after insurance companies rather than people.

        If a house was covered by replacement value insurance, then the insurance companies should cough up. No ifs or buts.

        If the land is unsuitable for rebuilding, then under CERA the government has the power to make compulsory purchases of land (to the west?) thereby allowing for home replacement.

        For those without insurance…and I guess given the socio economic situation of many in eastern suburbs, that will be a not insubstantial number of people…then the same compulsorily purchased land can be built on by government in order to rehouse those people.

        Short/medium term, the kit set houses that featured on Campbell Live (20 built in 2 weeks) that are sitting around in a holding yard could be built and rolled out on government purchased land with the intention of constructing more substantial dwellings in their stead over the medium/ long term.

        In effect, some home owners remain home owners. Some become renters in government housing stock and renters remain renters.

        • Draco T Bastard 7.1.2.1

          …unless the primary focus is to look after insurance companies rather than people.

          It’s a government of Big Business – what do you think it’s primary focus is going to be?

  8. Colonial Viper 8

    r0b makes a good point – we appear to have a Government plan in place to help people in the worst affected suburbs cut their ties and leave (to where/how/with what assistance?).

    Still waiting on the plan forthe future of Christchurch however.

    Simple working assumption: Christchurch is going to continue having severe shakes for the next 5 to 10 years.

    • Lanthanide 8.1

      GNS Science seem to think that the quake action should fall back to pre-September levels (I’d previously felt 3 in 25 years) within 18-24 months.

      • Draco T Bastard 8.1.1

        But does mean that building between now and then is rather ridiculous? After all, there’s no point in building anything if it’s just going to fall down again.

  9. tsmithfield 9

    I think the leak last night was quite deliberate. Probably the worst case scenario has been leaked, and what comes out today will probably be better in most instances, and greeted with relief as a result.

    • D’you think so TS; Patrick Gower from 3News was on Twitter yesterday afternoon urging people who received any advice from government, CERA or CCC officials to get in touch with him. The Herald and Newstalk ZB were doing likewise. Personally, I’d like to see the media bugger off today, and let the people who are affected by this announcement digest and process the news without a microphone or camera being stuck in their face to record their emotions for the nation to see. This is one occasion where the MSM could actually earn plaudits for a “softly, softly” approach.

      • tsmithfield 9.1.1

        I heard Key on the radio this morning saying that the type of insurance policy will have an influence on the payout. (e.g. market value v replacement value policies) So I expect there is a bit more to it than a simple GV pay out on house and land.

        Perhaps a GV buyout on house and land will apply to houses in the designated zones that are undamaged. Houses like my parents that is in Horseshoe lake but written off might get a GV payout on the land, and then the insurance company builds them a new one on another section.

        Who knows. We will have to wait and see.

        My parents obviously will be very interested.

    • Colonial Viper 9.2

      Under promise and over deliver, its tried and true. Although NAT usually seems to have difficulty understanding the principle. (Seeing r0b’s update).

  10. r0b 10

    Just added the following update.  According to The Herald “Government offers to buy properties won’t be made for a couple of months”.  Why?  Why the delay, through the hard months of winter?  This is going to cause yet more anger.

    • grumpy 10.1

      Stuff that, if some people want to get “angry”, they should just tell the Govt to stuff their offer and deal direct with EQC, insurers etc.

      All this so called “anger” in the face of a huge natural disaster is ridiculous.

      • Colonial Viper 10.1.1

        All this so called “anger” in the face of a huge natural disaster is ridiculous.

        Exactly.

        People living in desperation and filth for months should not feel any “so-called’ anger (what the fuck is the difference between “so-called” anger and “actual” anger, BTW?)

        Facing ruined futures for their families they should not expect their Government to do more for them than provide unaffordable campervans, photo ops, royal tours and trite statements.

        BTW the earthquakes may be considered a huge natural disaster and of course feeling angry at a natural disaster is not very productive but it happens; Brownlee and his lack of leadership and planning, cannot however be said to be a ‘natural disaster’ even though the effects are similar.

        • prism 10.1.1.1

          grumpy – The earthquakes are of course one huge natural disaster. The second and connected disaster, is the political withholding of information with no or insufficient, discussion about the problems, the planned solutions and how the various agencies will co-ordinate. And after two distinct big earthquakes still the same approach so that when the third came along there was still an inadequate consultation process, instead of the badly affected people being kept updated about the planning and work..

          There should have been large weekly meetings open to the public and media, giving a listening ear to the urgent needs, with quick responses and explanations of progress and delays. It is quite reasonable and healthy for people to be angry, to be otherwise would show a mental breakdown, sunk in apathy and hopelessness.

        • grumpy 10.1.1.2

          Somewher a culture of “anger” has developed in all things that people can’t control, even extends to temper, jealousy, envy etc. etc.

          What good is “anger” in a natural disaster? What if we had a tsunami, bush fires, floods etc.???

          The Japanese seem much more able to withstand bouts of undirected “anger”. It seems clear that the older generations, many of whom remember hardship and WWII seem to be handling things much better than those who have never had to cope with adversity.

          • prism 10.1.1.2.1

            Gee grumpy did you even read my comment. I said that people were angry about the way that authorities have been running the assistance after the natural disaster. That’s what I was saying. Couldn’t you understand what I wrote. And you waffling on about the way that people should behave isn’t helpful or compassionate to Christchurch people. Recalling the past nostalgically – thinking of phrases like how we stuck it out in the blitz, how we took it on the chin, had a stiff upper lip, doesn’t indicate the slightest empathy. Shame on you.

            As for Japanese – their culture is different to ours. They repress feelings a lot I think.
            I heard recently about the Japanese Embassy in Paris having to assist their people visiting there because they couldn’t handle the culture shock of rude Parisians and the uncontrolled rather dissipated city that is so different from the romantic image presented by travel promotions. One man was sent home with a nurse in attendance. That’s just what I heard. E&OE

    • Colonial Viper 10.2

      I would say because the Govt felt it had to do something given the public mood and pressure from Labour MPs pointing out massive shortfalls, but it didn’t actually have any plans in place for this plan. It’s something they have cobbled together in the last 1 week.

      So in fact they have not set up any processes or systems to actually implement it yet.

      That is what the next 2-3 months will be for.

      And guess what…I bet the first few offers will be made in a “couple of months.” But it will be a long time before all 5000 offers get made. A long long time.

      I wonder when the timer on that 9 month window for residents to make a decision starts.

      • Lanthanide 10.2.1

        A “couple of months” ties in nicely with the RWC, so media reporting on it will be drowned out, although I’m sure local reporting in CHCH will be quite pervasive as we don’t have any local cup games of our own anymore.

        • Colonial Viper 10.2.1.1

          So they’d have to get all the offers finalised by the end of the RWC then; they wouldn’t want this dragging into November as it would pose multiple risks for them.

          A lot of people are going to be waiting a while longer to hear anything.

          (queue the astroturfers saying that assessing properties is time consuming etc and four months(!!!) isn’t enough time to have assessed the houses in those suburbs etc)

      • Draco T Bastard 10.2.2

        …but it didn’t actually have any plans in place for this plan. It’s something they have cobbled together in the last 1 week.

        Well, it’s been about a week since I suggested it…

        I wonder when the timer on that 9 month window for residents to make a decision starts.

        Well, if they were doing it correctly, the day the offer gets signed as received with witnesses present. But they’ll probably just settle for putting a public notice in the local rag.

    • NickS 10.3

      What. The. Fuck.

      It should be ready to go as of this week to reduce the hardship, heck there’s already far to many elderly and those with respiratory issues living without decent heating sources plus power/water/sewerage at present with is going to lead to more hospital admissions and winter deaths.

      It is unlikely the Government will deem any area so badly damaged it must be abandoned.

      Mr Brownlee said yesterday that no area was too damaged to be fixed.

      “All land can be repaired,” he said. “There is an issue then about how easily that is achieved, the time it will take and what will be the disruptive factors for communities.”

      /facepalm

      Generally fucked land stays fucked, and on top of that, many of the affect areas are within a couple of meters of the current sea level and thus at increased risk of flooding. So ruling these areas out for rebuilding would have a long term benefit of avoiding much higher sea level rise mitigation costs. Along with planning new subdivisions out west to factor in public transport, services etc, but instead it looks like National is going to provide a solution that fails to consider any future issues.

      Bravo you morons, bravo.

      • Colonial Viper 10.3.1

        At the very least, the saleable value of repaired land in any of these affected areas drops to $100 or so per sq m, and future insurance premiums go up quad times or more.

        So yeah, technically the land could be repaired, but whoever did it would suffer massive losses.

    • weka 10.4

      Someone pointed out to me yesterday that in the time it takes NZ to talk about what to do, Japan will have rebuilt much of its infrastructure and housing damaged in the tsunami.

  11. Chris 11

    National have done well. This sems a a fair deal. They have my vote.

    • Colonial Viper 11.1

      Only a third or a quarter of heavily damaged houses in Christchurch have anything resembling a resolution, and the first payments have not even been made yet.

      Maybe you could watch how things actually turn out and hang back from making a decision until say, Nov 25? 🙂

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