Major Quake Issues

It seems to be in our human nature to label.

We in the red zone in Christchurch certainly feel labelled. We have been told we are ‘ungrateful’, ‘money grabbers’, ‘whingers’, ‘want a new house for your old red zone dump’, ‘just take the bailout and move on’. Sadly, there will be a few who will try and take advantage of this situation. But for the majority of us we are mums, dads, grandparents, nurses, electricians, office workers, accountants ….ordinary everyday kiwis…. people just like everyone else.

We will leave our land. To remediate the land will cost our country billions of dollars I am told. We don’t want to load our nation with this kind of burden. It will cost our council millions to fix the infrastructure in our suburbs. We do not want to load our city with this burden. What we do want is for New Zealanders to truly listen to what is really happening with red zone suburbs.

We have paid EQC levies and full replacement premiums for decades in the event of a disaster. A disaster happens – and we are told by our insurance companies they will not rebuild our homes unless they are essentially ‘written off’. It seems they believe that is all they are obliged to do, even though the earthquakes have forced us off our land. They are, therefore, only having to pay the repair bill even though the house is being demolished; repairs they could not get a council permit for nor are the foundations stable enough for the homes to be repaired.

It looks like the government’s offers are designed to let EQC off the hook for the land and the insurers off the hook for the replacement houses. Or their reinsurers should I say, because that is where the bulk of the costs will fall. EQC and the insurers lay off their risks on reinsurers, so it is they who will foot the bill.

International Finance

It seems to me, the reinsurers, like Munich Re and Swiss Re in corporate Europe, have held our country to ransom. They are minimalising their legal responsibility to rebuild Christchurch. These corporates, having reaped exorbitant profits from our country for decades, do not seem to want to honour their legal contracts. Even with the so called ‘financial hit’ of Hurricane Katrina and the Japanese and Christchurch earthquakes, Munich Re are still making a €736 million profit for this quarter alone. This is an increase in profit from 2010. They have €34.8 billion in investment bonds alone. Can they not afford to honour our full replacement policies and rebuild our city?

With this distressing scenario, they will head into the most distorted real estate market in New Zealand history.

The government’s offer to us seems to be a win-win for them; limited financial responsibility and now a great reason to hike premiums and… they will hike premiums regardless of whether they rebuild Christchurch or not!

Rateable Value (RV)

This is why the Government has been forced into an offer with two options. They know many of us will need a fall back option as we will not have our insurance policies fully honoured. To use rateable value (RV) as the fall back option, however, is not appropriate. RV is a computer generated monetary figure used to assess our rates payment. The last time anyone viewed our properties may have been 25 years ago. RV was never intended to be used to assess the true value of a property… until now. A study published in The Press in 2009 showed any one house could have a 40% difference in sale price to rateable value. This is why a house sold for $410,000 before the quake yet had a RV of $285,000.

Roger Hallinan, a registered valuer in Christchurch for over 40 years, has been writing to the Government/CERA to explain RV is not always equitable when used to purchase red zone homes. He states that while many people will do fine with RV, up to 30% of all red zone homes will be undervalued, some seriously. RV does not account for any improvements to your home unless a building consent is involved. This means you can have upgraded your house with a fancy vanity, carpet, deck, kitchen, bathroom and this will have ZERO effect on your rateable value.

How then with any integrity can Mr Brownlee state, ‘rateable value is extremely fair.’ His use of averaging RV with sales price does not have integrity as averaging gives no justice to individual homes. If he truly desires an equitable price for Cantabrian’s homes, he needs each home to be accurately assessed. Mr Hallinan states we need a correct registered valuation for each home where it is believed the RV is low.

It is not an onerous task to have an independent registered valuer assess the September 2007 value on behalf of an owner and negotiate with the council’s rating valuer to arrive at a satisfactory outcome for the owner.

If the offers stay as presented many red zoners (who will eventually include thousands of orange and white zoners) will not have their homes rebuilt by insurance companies and will be given a rateable value not reflecting the value of their homes. With this distressing scenario, they will head into the most distorted real estate market in New Zealand history. Existing vendors on good land are able to add $30-50,000 on the price of their properties and sell within hours. Last week a home sold in 20 minutes. Sections on good land are $90,000 more than the price we are given for our own land. The result will be huge mortgages for many of us.

It will be our mortgages that will rebuild Christchurch. THIS IS NOT JUSTICE. Rather, it is a double whammy for red zone folk; burnt by the offer, burnt by the market. This is a disgrace and as it stands, most of the country seems unconcerned at this happening.

What should be the government response to Cantabrians leaving their homes?

1. Have a rateable value process where a registered valuer values the true equity in the home
2. New negotiations with the re-insurers that look to our insurance companies honouring our full replacement policies and rebuilding our homes
3. Government and/or council initiated land developments. Even one government land development will keep other property developers selling sections at an affordable price. This will level the distorted market conditions and keep existing market prices down.

In Australia, when the Lockyer District Council arranged a land swap for Grantham residents caught in the Queensland floods, this is what they said: ‘What we wanted to do was give these communities, something to aspire to, something to lift their spirits as well as the communities themselves.’

This is a multi dimensional response that requires an extra level of initiative from Government. It is a response that truly honours people being asked to leave their land, homes, schools, communities and neighbours. The present one dimensional solution using rateable value does not respond adequately to the biggest disaster in New Zealand history.

In Australia, when the Lockyer District Council arranged a land swap for Grantham residents caught in the Queensland floods, this is what they said:

‘What we wanted to do was give these communities, something to aspire to, something to lift their spirits as well as the communities themselves.’

On behalf of all Cantabrians leaving their homes we encourage the Government to reassess their response to the earthquake hit land and give us something to aspire to, lift our community and provide a way forward for everybody involved.