International students and tourists are flocking to New Zealand, but many of them are steering clear of Christchurch, warns the Reserve Bank (RBNZ).
Five years on from the February 22 earthquake, the RBNZ says Canterbury’s education and tourism sectors aren’t showing the resilience seen in other parts of the country’s economy.
The RBNZ has red flagged plunging student and visitor numbers to the region, amid a thriving construction sector, solid employment and buoyancy in the housing and retail markets.
In a report released today, ‘The Canterbury rebuild five years on from the Christchurch earthquake’ it says:
“In 2009, Canterbury University made up about 10% of nationwide international university student numbers. That proportion fell to about 7% after the earthquakes and has yet to recover.
“Lincoln University international student numbers also fell after the quakes, from about 4% of nationwide international student numbers to about 3%.
“While international student numbers in these two universities have fallen by about 570 students since the earthquakes, the number of international students at universities in the rest of New Zealand is about 12% higher than in 2010, an increase of about 2,350 students.”
The value of the international education sector increased to $2.85 billion in 2014, from $2.60 billion in 2012, making it New Zealand's fifth largest export earner.
The RBNZ notes domestic university students are also steering clear of Canterbury.
“In 2009, Canterbury University made up almost 12% of domestic university student numbers – that proportion fell to about 9% after the earthquakes and has remained around that level, a loss of about 3,000 students,” it says.
“On the other hand, domestic student numbers rose at Lincoln, and have remained relatively flat across the rest of New Zealand.
“Lincoln University domestic student numbers have increased by about 250 students since the start of 2010, and currently make up about 2% of total domestic student numbers.”
As for international student numbers in Canterbury primary and secondary schools, the RBNZ says numbers have always been low, but have fallen by more than 40% since the quakes and are yet to recover.
Hotel and backpacker capacity halved
The RBNZ warns it could be a while before the tourism sector recovers.
This is despite visitor numbers to New Zealand increasing by around 20% between 2012 and 2015.
It says the quakes have halved the capacity of backpacker accommodation and destroyed more than half the hotel capacity.
What’s more, the RBNZ says, “Business contacts suggest that any such rebuild is unlikely to occur ahead of relevant ‘anchor’ projects such as the convention centre.
“The lack of available tourist accommodation, the destruction of tourist sites within Christchurch City, and risks associated with aftershocks led to a sharp decline in guest nights in the immediate aftermath of the earthquakes," the RBNZ says.
“International guest nights in Canterbury have yet to recover to pre-quake levels. Domestic guest nights were also negatively affected.”
Home insurance premiums more than doubled
The RBNZ says it’s essential for all the uncertainty around the rebuild to be reduced.
“More than five years on from the first major earthquake, the rebuild is still many years from completion. The reconstruction of commercial property has yet to begin in earnest, many of the anchor projects in the CBD remain uncertain, and many insurance claims have yet to be settled,” it says.
It notes that of the 170,000 building insurance claims related to the quakes, 16% exceeded the Earthquake Commission’s (EQC) cap so have had to be covered by private insurers.
Insurers have paid out $26 billion, with the median insurer having paid out 80% of estimated final pay outs.
“There is a wide dispersion between insurers, with some having already completed nearly all payments and others materially less,” the RBNZ says.
It points out the rate of insurance settlement following the quakes has been slower on average than that for the major quakes in Japan and Chile that occurred at similar times.
“In part this delay may reflect the much greater number of claims and differences in contracts,” it says.
For example, the rate of insurance coverage in Canterbury was 69%, compared to 19% in Japan and 27% in Chile.
The RBNZ notes, “New Zealand residential insurance contracts typically covered replacement of damaged property, whereas overseas insurance contracts typically pay out pre-approved sums in cash. Assessing the cost of replacement for a damaged property is administratively more complex than a cash settlement.”
Yet it recognises the fact that after the quakes, most insurers changed their residential building policies, tightening terms and offering insurance on a sum insured rather than replacement basis.
“The overall cost of dwelling insurance is now more than double its 2010 level, in part due to the tripling of EQC premiums in 2012 and initially higher reinsurance costs, although reinsurance premiums have recently declined from their post-quake peaks,” it says.
Continued activity needed past 2014 rebuild peak
The RBNZ concludes, “When faced with uncertainty about the future, businesses are reluctant to invest and employ.
“Reducing uncertainty is important since other sectors will need to expand activity in the region to absorb the productive resources released by the construction sector as the insurance-funded rebuild winds down.”
It estimates the total amount spent on construction during the rebuild will hit $40 billion, comprised of slightly more than $16 billion each for residential and commercial construction and around $7 billion for infrastructure.
While infrastructure work has largely been completed, and the rebuild of residential properties is well underway, the bulk of commercial reconstruction is yet to start.
The Bank estimates that rebuild activity peaked at just below 2% of potential GDP in 2014, and that the rebuild will extend beyond 2020.
The RBNZ warns that without continued increased activity in Canterbury, “the labour market in the region could see a reversal of the improvement that has occurred in recent years, leading to reduced participation, higher unemployment and outward migration”.