Christchurch is so screwed [UPDATED]

16/04/2012 § 23 Comments

I’ve just spent some time in the South Island. We listened to the news and got the Christchurch paper a few times. The contrast between the news there and the news in the North Island is stark. In Christchurch, the earthquakes and the recovery are front-and-centre all the time. For Wellington, these issues are just one of many stories, merging into the general cacophony of stuff-I-should-care-about.

Well, Christchurch is screwed. Sorry for the language, but it’s true. And the rest of the country should take notice, because this is what will happen to them in a big event. The problem is the government — EQC and Cera — and the insurance companies. It’s the eternal run-around. It’s your worst medical insurance problem while waiting to renew your driver’s licence at lunchtime on a Monday.

The government is doing what bureaucracies do. It is creating processes. It is making sure that everything is correct, that all the boxes are ticked, and, above all, that their asses are covered. So it moves slowly, carefully. Safer to keep people from doing something than allow them do the wrong thing.

Insurance companies are doing what they do. They are minimising their expenses and protecting their bottom lines.

Some stories:

  • TC3 land — Cera used to have three land categories, of  which Green was the safest. Then, they re-categorised land. Green was subdivided into TC1, TC2, and TC3. Now, although TC3 is still Green, it doesn’t actually mean ‘safe for building’ anymore. It means ‘we have no idea’. Something may happen, but maybe not, and you might want to build with that in mind, but we can’t tell you how. Sensibly, people aren’t buying TC3 properties. So now, the property market for big areas of the city has completely seized up.
  • Foundations — Cera says that they are working on figuring out what foundations are necessary for the different land categories. The problem is that Cera isn’t doing the rebuilding, the EQC is. EQC isn’t checking foundations unless there’s a good reason to check (house split in half or off its piles). The result is likely to be a bunch of repaired houses that either can’t be sold, sell at big discounts, or aren’t safe for the land on which they sit.
  • Rental properties — Payments to cover people’s rent while they can’t live in their houses have been a problem from the start. The latest story is an insurance company saying that it would pay, and then reneging on that. The Minister in charge has said that there are a number of ways the private market could and should be sorting things out. Robin Clements rightly points out that the market IS finding its equilibrium, but that equilibrium is socially unacceptable.
  • Red-zone repairs — The Red land zones are supposed to be beyond repair; the plan was to abandon these areas (e.g., these properties on the Avon River). [UPDATE:] Now, insurers have decided that it will be cheaper to repair houses on those sections than to pay out for them. Part of the reason they can do this is that the Government conveniently relaxed building regulations. What hasn’t been made clear is how you sell such a house, since the Government has decided that the land should be abandoned. In the comments and in his own post, Eric Crampton clarifies the situation. [END UPDATE]

These are familiar economic problems: the market for lemons, decisions under uncertainty, asymmetric information, moral hazard. They boil down to two common threads:

  • Increased uncertainty — Changing the rules and waiting for decisions have hugely increased uncertainty. These aren’t the result of the earthquakes, but of the subsequent policies. Uncertainty costs the economy, and Christchurch is paying dearly.
  • Shifting costs onto individuals —  People are having to paying out-of-pocket for rentals, fight to have legitimate bills paid, and take massive hits on their home equity. These are all costs that insurers and the government are shifting off their books and onto individuals.

Christchurch people paid their insurance policies. They paid for their earthquake coverage. They should be fully compensated. Instead, they’re getting shafted. Unless this changes, the Christchurch economy will be injured for many years. Not because of the earthquakes, but because of the aftermath.

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§ 23 Responses to Christchurch is so screwed [UPDATED]

  • wellygnome says:

    That’s interesting about the TC3 land. The worst thing about Christchurch is that you are shifting costs onto individuals when the economy is in no way recovering – household incomes are stagnating or dropping.
    Even though I spent 3 years in Christchurch, I can’t see any reason for ever returning there. Before the earthquakes, I definitely thought there was long-term potential.
    It disgusts me that $30 million for a temporary rugby stadium could be spent and there are already discussions about replacing the AMI Stadium, which had tens of millions of dollars spent on a new stand that saw a handful of major events before the earthquake!
    That will be built though, the housing crisis be damned…

    • Bill says:

      That’s a good point about the impact of the state of the economy. It doesn’t help that we’re in such a sideways-moving economy.
      The stadium raises all the old issues about public financing of stadia, but it’s worse when the stadium is prioritised over housing.

  • I have been saying this, in less and less couched ways, for rather a while.

    It is criminally insane that Council barred developers from building new houses on the outskirts of town after the quakes. More than a year on, how many new houses do we have compared to the number destroyed?

    Note on the “repair vs tear-down” – none of these houses will be repaired. They are deemed repairable and so the insurer gets to pay out based on their estimate of what a fix would cost, but they are never called on to implement the repair. When an insurer actually has to go ahead with the repair and faces a homeowner who can monitor if the job’s done well, they have sharp incentives not to lowball repair cost estimates when deciding whether to write a place off or repair it. Here, there’s no way they’re not going to wind up lowballing.

    • Bill says:

      I tried to find more genteel ways to express this, but finally decided that simple and direct was better. I completely agree on the insanity of the way land development has been handled.
      Thanks for the clarification on the repairing issue. None of the news reports made any sense. But still, as you point out, who says they are right? Massive incentives to low-ball.

    • Jo says:

      And this is why the government offered red zoners the option of buying their land and house. Those who took the land only option are the ones now battling with their insurance companies.

  • wellygnome says:

    Chronically Crippled Christchurch?

    • Wondering if it’ll take an angry mob and heads on pikes to fix things.

      • Bill says:

        I looked up a couple of Hugh Pavletich’s columns. He paints a maddening picture, but one that looks correct from here. However, I just don’t see Christchurch producing angry mobs. People are much more likely just to move away. Some families are very tied to the city, but they would be the minority. I think Ch’ch is on its way to becoming like Dunedin: a pretty little city underpinned by its university. A bit more ag and tourism, but that’s about it.

  • Manda says:

    Spending millions on a cardboard Cathedral and a new Rugby stadium when people still have no running water or sewerage is CRIMINAL!!!
    I have had to move to AK for work but visit frequently…people need working infrastructure NOT Rugby and Religion…although the media would tell us they are the same thing!
    Surprise Council…not everyone in NZ loves Rugby…

  • Elizabeth says:

    Hugh Pavletich is not well thought of by many people close to scene, he is a ranter who is obsessed with his own silly study of Texas (he had no interest in the plight of red zoners/Bexleyites post the first and nasty for them Sept quake), however, some things he may have got right but not a lot. Just saying.

    • Bill says:

      Thanks for the tip. I hadn’t heard of him before the earlier comment.
      I went around Ch’ch in late November 2010 and was appalled at the difference between Sydenham and the centre. It was like all efforts were focused inside the four avenues, and poor south Colombo was left for dead. Reactions to the September quake were awful in some respects.

  • Elizabeth says:

    Pavletich’s essential argument of supply and demand may be technically correct but his application is highly questionable – he advocates open slather zoning on the fringes of the city.
    The problem with this is not only infrastructure and transport funding but these are places (western and southern city outskirts) that large numbers of displaced red zoners are unlikely to embrace.
    After all, they chose Avonside/Dallington/Bexley for particular reasons. I know of displaced red zoners desperately seeking new homes in similar neighbourhoods such as Linwood, Richmond, St Albans, which may ultimately lead to a resurgence in popularity and value of these areas.
    However, if the city council and government employed energy and innovative thinking towards housing displaced red zoners they could investigate transforming some of the many inner-precinct parks that exist for new residential housing.
    The clearance of 7000 homes from alongside the Avon River will more than compensate and there would most likely still be a net gain in green areas.
    The only impediment is ideology and willpower.
    National and its allies in council simply won’t countenance “interfering in the market” when it comes to residential housing, but clearly see the importance of interfering in the inner city commercial market under the new arrangements being driven by Warwick Isaacs.
    Meanwhile, hundreds, maybe thousands of Christchurch residents continue to live in third world conditions that even the city’s westies seem blithely ignorant about.
    Take a bike ride along the Avon River from Avonside to Bexley – it’s a sobering experience.

    • Elizabeth,

      If builders had been allowed to put up temporary housing on cheap sections on town fringes, do you really think that people in Linwood who prefer to be in Linwood all else equal might not have preferred a temporary place on the outskirts to what they now have?

      I’ve not done the bike ride, but I live in South Brighton and regularly drive the places you’re talking about. I can’t see how a bit of sprawl is worse than what we now have.

      And boy wouldn’t it be nice if they put more land under L3 zoning to allow for denser use. Why not allow people to build up while allowing them to build out?

      If I had a button to push:
      1) congestion charging with dynamic time of day/route pricing
      2) change the default zoning for both in-town and out of town to “mixed use, any density, non-industrial”.

      There just aren’t enough existing houses in the neighbourhoods you’re talking about to accommodate all the red-zoners, and I can’t see how the regs would allow increased density in those places to do the job.

  • Oh – there was a clarification in this week’s press that the insurance change “is supposed to apply to green, not to red”. So maybe the folks in the red zone will get some relief on that one.

  • Chch building owners need to tear down the red zone fences.

    The continued lock up is needlessly holding up repairs.
    CERA is micro management gone mad- ie no progress.
    pesudo safety is the rage.

    Building owners are also afraid to speak out as we are “punished/ridiculed” if we do. (there is the perception that some have had their buildings pulled down for speaking out)

    There is already capital flight out of the city.

    Those of us in the east are living in appaling conditions

    Access across the east side of the city is a nightmare. Madras Street needs to be opened now

    Insurance issues- For building owners- most have been under insured and we are poorly served by our brokers and Insurance companies. Delay delay delay.
    EQC is badly run, impossile to deal.

    Chch Press is not reporting the issues. There is a news black out.

    We have been locked out of our building for 13 months, fixing it is a nightmare, we have had no assistance from anyone to help us, and we could be safely operating our business from there if we could gain access and power.

    You are right the rest of the country should be very afraid.
    Nanny state is alive and well in CHCH.

  • Respect says:

    Yep – there are major problems. There is always going to be when something of this magnitude happens. It’s very easy to point the finger but there are over 100,000 homes affected and this is 1 reason why it is such a long drawn out process. This is a ridiculous negative blog from someone who has been “down to the South island” and thinks he knows all the answers from a distance. If you lived here you would realise most people are just battling on trying to get back to normality. The place is not screwed – it is struggling and esp major problems with rent and house prices. A rugby stadium doesn’t fix peoples houses but it brings pleasure to a large number of people and gets people back into Christchurch. So enough of these doomsayers and negative people; Christchurch people are resiliant, tough and don’t give up easily, characteristics not apparent from the author of this negative article.

    • I’d love to see any evidence you might have on stadiums “getting people back into Christchurch”.

      The vast accumulated international literature points pretty much unanimously to stadiums being money pits that ought not attract public investment. The “public benefit” hurdle for building one here, when the money could be put to use doing things like, oh, just for example, stopping raw sewage from bubbling up onto the grounds of South Brighton Elementary School and getting working flush toilets, is going to have to be pretty high.

      Please provide me your sources showing stadiums to be better use of public funds in this kind of situation than flush toilets in schools, having a working roading infrastructure, or things that are more commonly taken as being the basic remit of local governments.

      • Respect says:

        Hi Eric. Obviously sewerage and living conditions shoudl be the no 1 priority. My point really is that after all this year of hell, it is nice to have something to attend, have visitors from other centres here, have something positive happening in the city and start moving forward because really there has been very little that is new going ahead. Psychologically it is important for the city’s feelgood factor to have something positive and enjoyable happening.

    • Bill says:

      Hi Respect –
      Thanks for commenting. I think you are making a mistake that the government is also making: assuming that Ch’ch can be treated in isolation. Actually, the city is connected economically and socially to the rest of the country. What happens there has wider impacts. The longer it takes to sort out the issues, the greater those wider effects. But it works two ways. If the rest of country learns to live without Ch’ch — moves businesses, moves family, routes work around the city — then the city will get that much more isolated. I think that’s the most worrying prospect of all.

      • Respect says:

        Of course i wished things moved quicker. And in an ideal world this would happen. But you have to remember there has not been just 1 earthquake. There have been very large quakes on Sep 4th, Dec 26, Feb 22, Jun 13, Dec 23 (which was only 3 months ago). Not to mention the numerous larger shakes throughout the year. All this has meant that we have basically had to start again and redo it all again from back to square one. Everything has had to be re assessed, roads have to be fixed again, further damage has been done. It would be nice to have Harry Potter here just to wave his magic wand over Christchurch and fix everything but unfortunately this is the real world and there are so many people affected, so many different scenarios, so many different areas affected after each event, that this is the reality we have to live with. The difficulties we are experiencing here are exacerbarted by comments like these from people who look in from the outside and they know all the answers without experiencing the reality of living in this city. We are fighting hard to be positive against the odds without hearing this negativity.

  • Elizabeth appears strong on ideological wishful thinking but unfortunately weak on urban economics.

    I stand by what I have written on these issues – and in particular, why the political management of the Christchurch events has been a dismal failure.

    There are two important differences between Elizabeth and me. Firstly, when commenting in the public arena I use my own name and do not hide behind a nom de plume. Secondly – I have a track record of success as a development practitioner and industry leader.

    I would be more than happy to debate these issues with Elizabeth in the public arena.

    Hugh Pavletich FDIA
    Co author – Annual Demographia Survey
    Cantabrians Unite
    Performance Urban Planning

  • [...] as I pointed out, it wasn’t working. Each quarter, the numbers suggest that Christchurch is providing a small [...]

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