It will be our largest natural disaster, but it may give a fillip to the economy

It will be our largest natural disaster, but it may give a fillip to the economy

By John Grant

It's been talked about for years and there has been a bucket load of research done on the potential cost of a major earthquake. (Update 2 with the Prime Minister's comment about the overall cost of the damage.)

Most of this research has centered around the potential for an earthquake in Wellington. Christchurch was never a city that was seen as having the potential for a major event; well that was the case until 4.30am this morning.

An earthquake initially thought to have been of 7.4 magnitude and then downgraded to 7.1 on the Ricter scale struck just west of Christchurch city in an outlying rural area of Darfield.

It was estimated to be at a depth of 33 km's and was felt as far noth as the central parts of the North Island. People were woken from their beds in Wellington.

The previous largest eathquake to strike in a modern residential area was in 2007 in Gisborne, an earthquake that measured 6.8. The 1931 Napier earthquake measured 7.8

The damage caused by this event is extensive. Many facades on buildings have collapsed and their is considerable damage to infrastructure with some roads and bridges closed.

Water and raw sewage has been running down some local streets.

But the significant areas of cost will be in the numerous houses that have suffered damage to the structure of the buildings, and to the contents. Many precious items from TV's to antiques have been smashed to pieces during the 1 minute shake.

The Earthquake Commission (EQC) will bear the brunt of the residential losses. They cover the first $100,000 of damage to houses and $20,000 on contents. A 1% excess (minimum of $200) applies to every claim.

Insurers will also be counting the cost. They will foot the bill for all commercial losses including the majority of the infrastructural costs where councils insure this through specialist insurance companies.They will also foot the bill for residential claims in excess of the EQC limits.

Re-insurers will be impacted as catastrophe treaties are triggered.

What will it end up costing?

The cost of the cleanup could run into billions of dollars, Prime Minister John Key said. Treasury has advised him that their estimate is about $2 billion.

It's a real guesstimate at this early stage. However the Gisborne earthquake cost the EQC $28m. Christchurch is around 10 times the size of Gisborne and this earthquake is larger. It is therefore likely that the EQC share of the cost will likely be in the $300  to $500 million mark as a minimum.

The insurer's share of this can be also measured from the Gisborne benchmark. That earlier one cost insurers $31 million and on this basis Christchurch is likely to be something in excess of $750 million.

Uninsured losses (and those covered by insurers that are not part of the Insurance Council of New Zealand) are likely to add to this. This disaster is likely to end up costing something north of $1.5 billion.

It is somewhat ironic that this is a similar figure to the estimated initial losses surrounding recently collapsed South Canterbury Finance.

The upcoming remedial projects will however have a positive upside for the economy, as money is transferred from overseas re-insurers accounts to local builders, and others involved in repair work in Canterbury.

   Here are pictures from a reader, ChrisJ.

 

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68 Comments

Thank you Chris for your very impressive and moving article. I wish you all the best.

As I wrote many times before next to economic, social and political issues natural events, especially caused by Climate Change will increasingly influence the world economy. The combination is not only new, but can have devastating consequences in the current situation - circumstances, which most economy experts are underestimating.

This lead to the question: Is our “3 Pillar Economy” (Property/ farming (dairy) and tourism) to delicate ? Should we not develop a more diverse, versatile and more self- sufficient economy ? We are in many ways far to dependent from foreign countries, products, skill and money ?

Many thanks Chris_J. We've had different points of view over the years. But I really appreciate the effort you've gone to explain what you're seeing and what you think it might mean. Many thanks for the photos too.

I welcome any other anecdotes and views on what this quake means for business, finance, property and the economy.

cheers

Bernard

i just heard the govnment has signed off the crafer deal , any one know anything??????????

As I wrote many times before next to economic, social and political issues natural events, especially caused by Climate Change will increasingly influence the world economy. The combination is not only new, but can have devastating consequences in the current situation - circumstances, which most economy experts are underestimating.  

There is a reasonabe quetion to be answered, actually.

The external heating of a sphere tentd to expand it.

And if there are stresses wound up about to go, I can't see why they wouldn't be advanced. Not caused, but advanced.

didn't think you were that far underwater

Wonder if Parker, will enter into a Henderson Style Agreement with the people of Christchurch. The council buys all the junk property at above market valuation and gives the seller a call option to be used if the market increases. That would be wonderful thanks Parker!

This is a one off chance for the Chch authorities to move the city over to being known for 'green' buildings and away from being a pile of bricks. Time for Steel and solar technologies. That is what the govt should focus on. It is a chance for the nations real engineers, the top architects and the best builders to lead the city into the new century. I suspect much of the inner city is fit for being demolished.

5% while small is not insignificant. Add to that the infrastructure and other less obvious issues and quite big, Also need to factor impact this may have on world cup, both locally and generally

1%...rubbish. My guess is 50% of the structures have been stressed to the point they need reinforcing and the cost of that is usually greater than a rebuild. The new codes that will be enforced will result in many facades coming off. The stone structures will come down if they cannot be reinforced with steel.

That was 7.1 at 10km deep on an unknown fault. Conclusion: Other unknown faults are likely to exist. Had this happened at 11am Friday....they would still be looking for the dead. Had it been 7.5....even at 4am....damage would have been ten times worse.

I don't own any copper anon.

You mistake enthusiam for realism anon. Wait to see if any parts of the city have subsided...they will find out when the dunnies overflow!...Check out the time it has taken for wgtn to make progress in strengthening the city buildings...figure out the costs...think about the brick and stone Chch buildings as potential bombs.

None of that will be covered by insurance or govt!

So 20% of quake homes uninhabitable and 500 buildings damaged is minor? Yeah right.

I expect currency will tank on Monday. That has to be good for exporters, and interest rates will be on hold for a long while They may even drop! So while a disaster for Canterbury, and thoughts go out to them, is also a huge opportunity if grasped firmly!!!

Anon, you can expect a drop in the currency but not a huge one and it will be short lived, see what happened to the Chilean peso after the Earthquake of February 2010, as to OCR, Chile had to start hiking arround May 2010...  Mind you the Chilean EQ was 8.5 Richter and the destruction covered an area the size of NZ.....If history is any reference.

No big currency fall at this stage. NZ$ down only 0.2 USc to 71.8 USc.

http://www.interest.co.nz/news/90-seconds-9-am-bnz-what-our-biggest-fina...

cheeers

Bernard

Ah well - its good to be wrong sometimes :-)  I see the rates have gone up - go figure!!!!

Be glad you didn't invest in some sort of enterprise selling bricks down there matt!

Fletchers will do ok out of this. But I suspect the 'fillip' will be drawn out over a long long time period.

Losts of work for good architects and real engineers.

You are right about the wake up call for those who scream heritage at every corner. Don't fancy the chances for those Chch stone structures either.

 " The vast bulk of Chch's buildings and infrastructure has survived mostly intact and unscathed."

you don't know that cosmic man...you are guessing! You are hopeful!. Think again.

 "why would the local authorities do so"....because if they are told by qualified engineers that buildings which are not reinforced must be reinforced asap...then the authorities have no option but to act asap!

The assumption to date was that Chch was not near a major fault line...now that is known to be wrong. Clearly the city is near such a fault line.

Those brick faced buildings were up to code!..they collapsed...many will have been weakened...hundreds of tons of brick...the whole bloody lot will need to be either reinforced or knocked down. That cost is not covered under insurance. The authorities must act or face criminal action in the event of loss of life in a repeat EQ.

You're not in the area, are you?

Ask an engineer what will be the likely outcomes for buildings in the Chch region anon and enough of your silly comments. The local authorities are liable if they do not act in the interest of public safety. The falling facades and stone walls in the inner city area will be enough to see the codes revised overnight. Time limits will be put on owners to strengthen or demolish. They will not be asking the anons for advice. Expect many facades to be torn down. They may well be replaced with steel structures and fake facades made of polystyrene and GRP.

 "The government should step up with a conservtion fund to protect the remaining heritage buildings and strengthen them".... I don't fancy your luck with that one Chris. Priority will be housing people.

As for heritage....in wgtn they replaced the dozen or so chimney tops on the largest wooden building in the southern hemisphere, with 'plastic' lookalikes and demolished the inner chimney stacks. Few people know the difference. So I suspect you can expect polystyrene and fiberglass fake facades to arrive in Chch.

The building codes will be upgraded overnight.

There is already legislation in place to upgrade earthquake prone buildings which came in in 2006

Iin most cases they have about 15 years or so to upgrade, but it allows for the local government to define the extact time frames and other details.

It's taken quite seriously in some places like Wellington and Gisborne, and I think Christchurch hasn't been too bad, but they might tighten it there now possibly.

Some have like Auckland have basically treated it although they will never ever get a big quake, which may or may not be true.

The problem is always the balance between keeping the attractive older buildings that have lots of character and having safe buildings, and also the costs of upgrading.

Please correct me if I am wrong, the EQ was at  mid day Friday New York time ? .

If anything the percentage damaged would probably be revised upwards rather than downwards.  It's only been a day, so any current estimates will be based on driving around and eyeballing the obvious damage rather than any detailed inspections.  Thorough inspections will take a lot of time to complete, and will probably reveal a lot of structural damage that isn't apparent from a superficial look-over.

I thought 100k was enough to buy a mansion down south.

an unfortunate analogy

I have elderly  relatives (80+ year olds) living in Christchurch who were thankful they didn't listen to their kids and others who told them to take out their wood fire, when they installed a heat pump.  With no power they were still able to keep warm, have a cuppa and do some basic cooking.

In June Whakatane sustained heavy flooding.  Almost 3 months on there are still around 100 homes still inhabitable. Trying to get tradespeople is quite difficult so I can imagine what destruction on the scale as happened in Christchurch will mean.

Thoughts go to those affected by the earthquake.  Elley, are you folks affected?

Does anyone have any info onhow the irrigation canals, systems have held up out in the rural areas?

No, our house is fine but we're only about 20km from the epicentre (inside smallest red circle) so feeling pretty lucky right now. And feeling even luckier after being in touch with a number of friends in Chch and being told some of the damage their houses or neighbourhood have sustained. We may have a few people staying with us for the next little while.

I just don't think those saying it's "minor" realise that it's anything but to a number of people, not to mention the stress involved. The kids are going to be too scared to sleep well for a while. I'll never forget the roaring noise and shaking, and we didn't even get hurt or have any damage so I can only imagine how those who did are feeling right now.

Not sure about irrigation canals around here sorry. I just wish it'd stop shaking :( Just felt another big jolt now and one of the kids is crying yet again.

Elley, I lived for a couple of decades in an area where earthquakes were common.  Not necessarily big ones, though some did make the news.  After a particularly big one we had 6mths of after shocks every day - usually several a day.  The day the after shocks stopped it felt rather weird to be still again. The local school used to have 'earthquake drills' because of the prevalence of them-and that was long before the one that gave us the 6mths of after shocks.  Scary as it can be, you need to find a way to comfort the kids and not show any fear yourself as these could go on for a long time. Think long term strategy for handling them.  If you like you can email Bernard for my email address, if you need to 'talk'.

Thanks for this. I manage to pretend to be completely in control with the kids, downplaying the whole thing and telling them the shakes are nothing to worry about... all the while my heart goes crazy and legs go wobbly.

By the sounds of it I'd better get used to these small shakes. Not sure when I'll go back to our bed on the first floor though. I always knew we were in an earthquake-prone zone and felt a number of quakes over the 8 years we've been here but this big one really was something else altogether. We weren't scared and sprung into action right away when it happened but for some reason it's now that we realise what's happened that I'm on edge. I guess the gale force nor'wester we've been having since the middle of the night that seem to shake the house as well aren't helping!

Hang in there Elley.

We're all thinking of you here. Thanks for the updates.

cheers

Bernard

Bernard - if you were thinking of me and thinking, "I bet that put the shits up Les" - you'd have been 100% correct!

Cheers, Les.

What ever it turns out to be, first comes first: You have to send the police and the army to gard against looting next you must send the cleaning squads out in the streets first thing in the morning, get rid of all the rubble, pile it somewhere away from the public eye and after that is done you can count the damage... do  not count on insurance money because insurers are slow and there will be damage assesment experts shortage to cope with all there is to do.

Specialy with this external shock because most of insurances are covered by Australian Insurance Cos.

Insurance companies are even bigger crooks than finance companies. Trade on fear. And when you need them they are not there

I'm glad being the furtherest away isn't the only key factors of success. Definitely agree with the recent builds (our place is only 6 months old) and the underlying strata (I believe we're on firmer ground here, 20km north of epicentre than in Chch).

How can you be so cool and not worry with the jolts we're still feeling. I get wobbly legs for each one of them with the talks of another big one to be expected in the 48 hours after yesterday's big one (that said, I've also got a cuppa and lots of chocolate by my side! We didn't lose power though and have got a 20000l water tank so that's one positive thing I suppose).

Nice dream Santa but I think you will find the building firms will add a minimum 20% to their charge out rate as will all the trades. The suppliers of clobber will slap a margin on as well. Both will have gst added to them. Expect the Council to lift the fees for permits and inspections. Engineers and architects will also be in on the grab. They will see it as a chance to milk the insurance mob who will find a remarkable coincidence of pricing for tenders. 

Anon; In these cases market laws govern. If you own a construction Co and your demand goes up by 1000% I am sure that you would become a cherry picker. The only part that the Gov could asume would be to fund a part of  the cost... but price control, no. impossibe. They could try something like that but it would be totaly useless

 "Not much will survive an 8"....we built the Beehive to take an 8 anon...bugger all else will though, but at least the pollys will be safe as in their basement bunker if they are buzzing when it happens........ Bet that will make Wellingtonians happy.

"I wonder how NZ would cope, if say Wellington was struck by  the big one this week." - I sure don't wanna find out!!

My sympathy and good wishes to people that have been affected by this unforeseen event. I hope you can find your feet quickly and find comfort in helping each other .

 I have chosen to donate to the Salvation Army on the ground in Christchurch............they ..(I Know) do good work at times like these...and are able to offer many things in the way of appliances that may have been lost...bedding ...basic need........

even if that's just a cup of tea and a chat. 

Best Wishes and will help out as I can.

Wonder how many people will just leave Christchurch altogether if they can?  Renters especially will have little to keep them there, if they can find a job elsewhere rather than spend who knows how long staying with friends or family.  Stay and put up with all the hassle, expense and inconvenience of reconstruction, or take off for Australia?  I know which I'd pick.

Lincoln and Canterbury Universities would be winding down soon for the summer so should that not free up some accommodation options?

Uni year for most doesn't end until mid to late November.  Halls of Residence, boarding schools and hostels will definitely be a useful stop-gap, but past experience would indicate that it'll take a hell of a lot longer than one summer to sort this mess out.

Regardless of what everyone here is saying about insurers, builders etc ONE THING IS CLEAR!. The Government will screw this up BIG TIME because screwing up things is all they know. Councils will take advantage of the situation to screw over and penalise people even more than they do now and the canterbury 'water' debate will head even faster into private hands via the excuse of 'rebuilding costs' vs public purse. Watch and learn 

As for property prices in this area, they just lost half their value.

I reckon the authorities are playing down the reality of the infrastructure issues at this time.  I would imagine at some time in the not too distant future, the liquifaction affected suburbs/neighbourhoods will be temporarily condemed due to public health issues.  Folks won't be allowed to inhabit their homes, even if they are habitable.  I heard some landowner talking about everyone digging a hole in the backyard to toilet in.  This simply cannot be allowed to go on.  I'm surprised we haven't yet had news about the need for transport of portaloos to these areas - including the CBD - and these will be needed simply for use by the clean up/re-build crews. 

The news also talked about the need for empty plastic water containers.  I was surprised they were bringing in tank water as opposed to bottled water - and they are telling the people taking the tank water to boil it!!  Meaning, they suspect the water source of the tank water might be contaminated?

I suspect hundreds of individuals and families aren't going to be returning home anytime soon.  And I'd be loathe to drink reticulated water for sometime to come - what might be the effect on the city's aquifers - we just aren't getting much science surrounding all the public health issues/implications.

Kate.  NZ has good construction standards so I don't see a lot off damage appart from the obvious cosmetic side. Old buildings under old standards probably sufferd more but you will see that very little of the damage actualy hits the structure.  I assure you that in one or two months time you won't even talk about the EQ.

Micheal --I'm not sure your are right. Yes, we have some good building codes but that hasn't stopped new subdivisions being affected. A geologist was reported yesterday as saying that it is more important to pay attention to the ground on which the house is built , not just the building spec. Given the areas of ChCh most affected he is clearly correct. Bob Parkers comment that an earthquake can be like an iceberg --- ie. you cannot immediately see all the damage underneath , will probably be correct in many areas.

Dunno about uninsured properties but they'd be covered by the govt earthquake fund?

Right now we're getting very strong gales. If that's not hurricane strength it can't be far off! Maybe it's worse for us inland of Chch but it can't be great in the city either. I don't think we'll have power for much longer, it's real bad.

No, the gov't earthquake fund, or EQC, derives its revenue/fund from levies on insured properties - hence only the insured are covered by EQC.

My goodness, I just feel awful for you folks down there.  Hope the power stays on!

Hmmm, not good then for the uninsured people. Hopefully there aren't too many who'd put a lot of money into a house purchase and not insure it?

Not feeling optimistic about the power but we've got candles on the kitchen bench, several torches in strategic areas and hubby is walking around in the living with a solar cap on his head lol. The emergency bags are in the car that we've taken out of the garage and which is sheltered by the house in the driveway in case of another earthquake so hopefully we're prepared :) Better be since our closest neighbours are cows and sheep which seemed to be pottering around quite happily earlier, so I doubt we'd be the first people to be rescued. At least there are no power or light poles or even tall trees anywhere close to the house. Gosh, do I love NZ (I truly do, just not feeling the love quite so much at this precise moment but it's here).

Great, the kids swing set has just been lifted off the ground (and believe me, we had actually secured it pretty well and it had gone through a few nor'wester gales with no trouble) and the steel legs of the trampoline have been bent.

Looks like the wind has been causing trouble in Dunedin. I hope it's not gonna get worse here, I feel like I've had enough excitement for the week-end. Apparently Chch is not having much wind at all at present so at least that's a good thing since it's where most of the damage has occured.

I read in a report in the herald that looters have been seen in the suburbs at night. The public will sort them out if the police don't!

Both the Police and the Army have to be in the Streets till order is restored.

Steven-O... he is still forecasting at poor bookmaking odds.. as the closing points to..........

“There is a 40pc chance of double-dip recession in the US, and worse in Japan. Even if it is not technically a recession it will feel like it,” he added

you Kiwi's........ would suggest your offshore....or don't consider yourself as part of the wider community.

As to the non-contribution jibe...... World Vision is taking donations for relief...I had no problem forwarding one.

Take care with your collective statements as racism is  a batwing door....

Best wishes and luck to you ruru.

Glad you're OK Ruru. Been sleeping with clothes on too and in one of the kids'bed :) Also had torches on hand, and sure enough the power went off with the terrible winds. We found the kids' playhouse blown away and smashed up this morning. Our house is fine but our soon-to-be neighbour has had part of the roof of his brand new 3-bay-shed lifted off.

Glad your'e Ok  Elley.......keep busy as ..I'm sure you are...and talk it out as you need to... there is nothing wrong with being afraid....it's a natural response...but can work against us if we bottle it up.

Good luck to you and yours.

Thanks, and thanks to you and others for the support you're giving to the region. I've been donating to the SA and others for years and I'm sure they're putting the donations to good use.

As for talking it out, I probably talk too much actually :) Just as I was reading your post two minutes ago and feeling more relaxed (no big aftershock since 1pm yesterday and the wind has turned south, ie nor'wester gales are gone) there was a really good shake. Ran for a doorway again!

Nice Google maps animation of quake locations. HT Petergnz via Twitter http://picasaweb.google.com/lh/photo/nmdTTZiMuO8Fz_qXADPKXA?feat=directlink

cheers

Bernard

We're in Papanui, about 6km north-west of Christchurch centre.  In this area there are a lot of chmneys down; perhaps one out of three.

My take on it is that damage is highly variable.  Our house (20 years old, no chimney) is fine.  Just down the street the older Haralds fabric shop is partially demolished and has a big orange X painted on it.  Houses in Avonside are more of a concern; if the ground is no longer safe, your house there is a write-off and the ground cannot be used for anything more than a park, if it's not underwater (!) already that is.

I was thinking that the insurance payouts (from large international companies) would go to pay locals (builders etc.) and hence actually help the local economy in some warped way (at the expense of overseas economies).  Then I learnt that the earthquake commission will be paying out the first $100K.  So the insurance companies get significantly off the hook, and the people (the government) pay.  So, a lose lose all round then.

So I think (guessing) most families will make small claims for broken stuff in the home.  This will be covered by the earthquake commission and will be way under $100K (more like $1-$2k).  Then there will be a large gap in the claim size, to those where it is a complete disaster.  House and ground and absolute write-off.  There $100K will be nowhere near enough, and the insuarance companies will (I'm betting) do their very best not to pay out any more.

Real estate prices in the areas where there is liquification will surely plummet.

It's a bit surreal; on our street it's life as usual, while not far away I'm sure it's a complete and utter disaster zone.

Significant chunks of New Orleans were written off in Katrina, and still have not been re-built to this day.  While this is small by comparison, I'm betting there will be signs of the quake visible for years if not decades to come.

 

Thanks for setting that straight.

 

As a matter of interest, the background they have used for the 3 News for the last two days (which shows a crumbled building in the background), is the corner of Worcester and Manchester St.  The crumbled building had Alvorados mexican restaurant upstairs, and downstairs there used to be a jeweller, internet cafe and camping shop.  We're so lucky the quake didn't occur during work hours!

Yep...it looks like some areas have slumped and they were lowlying to start with. The Yanks could provide radar sat data on that if only the govt would ask.

We should ask Hugh P's advice

He's been on shaky ground longer than most

When you think about it, and as silly as it might initially sound, over-population once again is a contributing factor to this mess.  As the city has expanded homes have been built in less and less suitable areas.  The brand new homes in the new sub-division in Bexley that have all been destroyed are a case in point.  Forced with the fact that all the better places are taken, people build there, then when something like this happens, they're the houses to be destroyed.  Same for Kaiapoi, Marshlands (the name says it all really).

In any areas where liquifaction occured it would make sense to not build there again, but to choose solid ground instead.  Trouble is there isn't solid ground left in Christchurch.  I'm sure Al Barlett could say it better, but hey.

Oh no, Hugh P and Phil B would suggest otherwise.

Despite Chch being bounded by sea, Alps, water-table and now fault-line, they would have it that there is no limit to growth, and that the planet contains so much of everything that we'll never run out.

Just hope they don't allow more building on liquifaction areas (how did pegasus go?) , and give us notice when their mines get to 10 km down.

I'll be somewhere else that day.

Good luck Martin, we're only a day (or two) 's tandem bike ride away, if you need somewhere to stay.