The government must ensure there is enough new land supplied in Christchurch to meet demand from red-zone residents displaced by the earthquakes who are facing higher prices for new properties than the 2007 value of their destroyed homes, Labour Party leader Phil Goff says.
Prime Minister John Key responded by saying the government was dealing with the issue well, and that it had the power to push things through faster if it needed to under new laws giving the government and the Canterbury Earthquake Recovery Authority (CERA) vast power to deal with issues such as the release of land, development costs and Resource Management Act compliance.
Red-zone residents protested in Christchurch yesterday that insurance companies were in some cases not meeting obligations for full replacement costs for properties, while others said they would need to borrow money further on top of a government 2007 valuation payout offer because properties available for sale were priced above what they would receive from the payout.
There have been calls for government to free up land in Christchurch in order to provide cheaper section prices for residents being forced to move from the red-zoned areas of the city.
Speaking to media at his regular Monday afternoon press conference, Goff said the government needed to look at how it could help on the insurance issue, and that it needed to ensure there was enough land supply to meet demand from displaced residents.
Later on Monday at his post Cabinet press conference, Key said the Christchurch City Council had assured the government there was a range of new sections becoming available, and that the government had held discussions with land owners such as Ngai Tahu over the development of new sections. The government itself had also become the owner of a number of vacant sections through developments it inherited from the collapse of South Canterbury Finance.
Key said the issue of insurance companies not writing new policies was a difficult one, and that he knew of one insurance company trying to reduce its Christchurch book by cashing people out, often with payments "above rate".
There was mounting frustration in Christchurch from homeowners facing huge losses of equity, despite being promised by the government no one would emerge worse-off from the bailout package, Goff said.
“They’re caught in the situation where they have to accept the government offer, they’ll lose their equity when they sell, and they’ll pay inflated prices because of the huge demand on the new properties that they’ll be competing to buy,” he said.
When asked what the answer to that problem would be, Goff pointed the finger at the insurance industry.
“The government’s got to come in and knock the insurance companies’ heads together on this one,” Goff said.
'Can't allow land prices to inflate'
Asked whether it was an insurance issue, or whether it was in fact an issue of people having to pay more for a replacement property, Goff said:
“The government’s got to make sure the market works, and if it doesn’t work, they’ve got to do something about it. What we’re going to have is a huge amount of demand on a limited resource – on the sections, on the building materials, and on skilled labour. The government needs to prepare for that, and so far they haven’t.”
“The government’s got to make sure that the development land available, and being developed, is enough to stop huge inflation in land prices,” Goff said.
“Otherwise, those families that have lost tens of thousands of dollars in equity – sometimes hundreds of thousands – will lose out again when they have to buy a much more expensive [property],” he said.
'Supply must meet demand'
There was therefore a mixture of problems.
“The insurance companies of course are holding things up because they’re not insuring on new houses - and they should be [insuring new houses] in the green zone. There’s no reason why they can’t be doing that, and the government should make sure it happens,” Goff said.
“If we get those and that land developed now, rather than waiting for another year, that’s going to put less pressure on development,” he said.
Asked whether he would therefore back the release of more land supply around the fringes of the city in order to help make sections cheaper, Goff said:
“The government’s got to make sure that the resource management process does not hold the process up in a way that it shouldn’t be held up, and they’ve got to make sure that there is a supply that will meet the demand.”
'There's enough land there'
Prime Minister John Key said he thought the government was doing enough to deal with the land supply issue, with Cabinet last week having a number of discussions on it when meeting in Christchurch for the one-year anniversary of the September 4 quake.
“The council’s assured us there’s a range of sections becoming available, and we have the capacity under CERA to fast-track that if we need to,” Key told media at his post Cabinet press conference on Monday afternoon.
It was difficult to determine though whether the prices of spare properties would be in line with home-owners’ red-zone payouts.
“It depends on where they are, what they own, what they want to buy. There’s a range of different circumstances," Key said.
“One thing I do know is that Christchurch is blessed as a city that it has a lot of available land. That is the one difference say, between Christchurch, and say Wellington or Auckland. So yes, we need to speed that process up potentially. If we do, we can step in and we have the legislation to do it. But the assurances we’ve had from Christchurch is that that flow is happening quite rapidly. It’s a combination of making sure we work with those developers and get that right,” he said.
The government raised the land supply issue with Ngai Tahu, while the government itself, through its ownership of South Canterbury Finance, had effectively ended up owning a number of sections as well.
“There’s quite a number of subdivisions that are actually available there. If anything, the flow [of sections onto the market] might be so great later on that prices more reflect that," Key said.
"But there’s two things that are happening: Anyone in the red zone knows that they have an absolute categorical assurance from the government that they’ll buy their property at rateable value, and the second thing is the banks have indicated that they’ll lend against that," he said.
'Insurance issue more difficult'
The issue surrounding insurance companies not writing new policies was a more difficult one.
“Some of them are trying to deal with the risks there and what’s happening in terms of seismic activity and their reinsurers. But I think things are progressing reasonably well with the reinsurers in terms of the visit Gerry Brownlee’s having," Key said.
“It’s patchy, actually, when it comes to reinsurance – it’s not completely clear in terms of people getting insurance. Some people can get insurance on their property, they buy another property; other people are experiencing some difficulties,” he said.
One insurance company was trying to cash out some of its customers – trying to reduce its Christchurch business - sometimes at “above rates” to get them to cash out, Key said. When asked he would not name the company, but said it was not AMI, which has a government backstop.
Here is Key saying there are options open for elderly home owners in Christchurch who are not in the position to secure a loan to help them buy a new property. He also comments on the insurer cashing out customers, and says he has not had any update on the possible NZ$1 billion price tag from the EQC's High Court case against insurance companies a week ago:
Meanwhile, the ACT Party issued comments from leader Don Brash on the issue on Tuesday afternoon. See their release below:
Sensible New Zealanders will be hopeful that recent comments by Labour leader Phil Goff about the availability of new sections in earthquake-ravaged Christchurch herald the end of his latter-day lurch leftward, says ACT New Zealand leader Dr Don Brash.
"Mr Goff has expressed fears of a likely sky-rocketing of house prices in Christchurch as home-owners unable to rebuild on their existing properties seek out new sections," Dr Brash notes.
"He observed that one of the solutions was to ensure the resource consent process didn't unduly restrict the availability of new sections.
"I applaud that observation. I have been arguing for some time that consent procedures and zoning constraints under the RMA are distorting residential land prices all around the country. In Christchurch the situation is hugely exacerbated by the surge in demand for new sections in the wake of the earthquakes.
"Unfortunately the wisdom of Mr Goff's remarks is subverted by his talk about knocking the heads of insurers together. He is blaming them in part for the upsurge in demand because of their reluctance to insure rebuilt homes on existing sections. Is he saying they should be bullied or coerced by law into doing so? Does he want in effect to nationalise the insurance industry? That would indicate a serious relapse in his recovery from Kremlinomics.
"The willingness or otherwise of insurers to insure is a key signal of the viability of any project in an open market - and as Mr Goff himself acknowledged, the market should be allowed to work.
"The only heads that should be knocked together are those of government, the Canterbury Earthquake Recovery Authority and the Christchurch City Council. Among them they must make sure that zoning restrictions do not needlessly limit the availability of new sections and drive prices up artificially. Red Zone home-owners who've already lost huge amounts of equity don't deserve such a double-whammy," Dr Brash concludes.
(Updates with ACT comments, videos, comments from Key, quotes from Goff)