Labour says it would intervene in insurance market to get reconstruction moving in Christchurch as last resort, although subject to fiscal risks

Labour says it would intervene in insurance market to get reconstruction moving in Christchurch as last resort, although subject to fiscal risks

The Opposition Labour Party says it would intervene in the insurance market as a last resort to help kick-start rebuilding in Christchurch if it wins the upcoming election, although this would be subject to the fiscal risk to the Crown of doing so.

Releasing the party's earthquake reconstruction policy on Monday morning, Labour Party leader Phil Goff said Labour reserved the right to intervene in the insurance market as a short-term measure where there was market failure to give the confidence required to get the market functioning properly again.

Prime Minister John Key attacked the plan later on Monday, saying Labour would effectively be writing out a blank cheque which could incur large costs, as seen with the government's retail deposit guarantee of finance companies, which had provided valuable lessons.

"If the Government walks in today and writes a blank cheque it won't be a short term fix it could be tremendously expensive and it will be very difficult to exit," Key said at his post Cabinet press conference on Monday

"There is no free lunch here - if we want to be the insurer of last resort right here as we stand today everyone needs to understand what we're signing up for," he said.

Despite attacking Labour's policy, Key would not rule out the option of the government having to become the insurer of last resort.

"My view having assessed it all is that we need try and work with the private sector providers and if in the end having tried everything, that all fails then we'll come back and have another look at it but I'd rather give it a bit more time," he said.

Here is Key's take on Labour's policy from his post-cabinet press conference on Monday afternoon.

See Key commenting on why he is confident the private reinsurance market will resume cover in Christchurch without the need of government support in the video below.

Policy announcement

Labour's policy also included a promise that a Labour government would purchase an initial tranche of land in Christchurch sufficient for 1,500 new homes, which would be made available initially for red-zone homeowners to buy. The upfront cost of this aquisition of land would be about NZ$230 million, based on an average land value across Waimakariri, Christchurch and Selwyn of NZ$155,000.

Labour would also provide NZ$100 million from the Budget's NZ$5.5 billion earthquake costs fund for compensation to red-zone homeowners for home improvements made after the 2007 valuation date and not currently covered by the government's offer to purchase red-zone homes for their 2007 CV. Compensation would be set at a maximum of NZ$50,000, with a minimum of NZ$5,000 and proof required of the amount spent on improvements, Goff said.

An independent 'Insurance Commissioner' would be put in place with statutory authority to put in place a disputes mechanism and to review the operations of the private insurance industry.

NZ$2 million would be made available to fund test cases of disputes between Canterbury residents and their insurer, where the residents appeared to have been unfairly treated by their insurer, to try and establish precedent on major issues.

"The Government set aside NZ$3.2 billion of the NZ$5.5 billion Canterbury Recovery Fund as contingency funding. This recognises the difficulty of predicting just how much will be needed to rebuild Canterbury. Labour's plan is realistic and necessary. It recognises that Cantabrians cannot afford to wait any longer to rebuild their lives. The issues they face are immediate and real," Labour said in its policy document.

Insurance gridlock

"Private insurers are remaining highly cautious and conservative. The reluctance of large insurance providers to issue new policies is delaying the ability of Cantabrians to rebuild and businesses to reinvest and grow," Goff said in a media release.

"Without new insurance residents are unable to access the finance they need to build a new home or start a business. This uncertainty is stifling the recovery. Labour will explore all options with the industry to break this deadlock and provide certainty to residents," Goff said.

"As a last resort Labour reserves the right to intervene in the insurance market as a short term measure. The Canterbury earthquakes are without precedent and force us to consider all options. Labour is committed to ensuring that any specific option pursued will be subject to the priority of careful management of the fiscal risks to the Crown," he said.

1,500 new sections

There would be no obligation on the current 6,000 red-zone home-owners to buy the 1,500 sections to be made available by the government, Goff, and Labour Earthquake Revcovery spokesman Clayton Cosgrove said.

"However, the offer will benefit all residents by taking excessive developers' margins out of the equation and directly moderating property prices across the market," Goff and Cosgrove said.

"This deal may still leave some homeowners out of pocket, but not to the extent that they would be if purchasing privately where developers are charging their own profit margins," they said.

"If there is evidence of price gouging by developers as the Government attempts to acquire land the Labour will consider, as a last resort, using the land acquisition provisions in the Canterbury Earthquake Recovery Act to ensure a fair price is sought and paid. Labour will also undertake an immediate audit of Crown-owned land in the area to determine how much could be suitable and made available for development.

"The overall final cost to the Crown will be low. While we estimate the up-front cost to the Crown to be approximately NZ$230 million, this cost will be recovered through selling the properties at cost to residents. This will leave the Crown to meet a small financing cost. The up-front estimate of NZ$230 million is based on an average land value across Waimakariri, Christchurch and Selwyn of NZ$155,000. This is a conservative estimate as it is based on most recent developed land prices," Goff and Cosgrove said.

'Cash for post-2007 improvements'

Labour would honour the government’s currency buyout package for homeowners with affected properties in the 'red zones' based on their 2007 rateable value. This included compensation for consented changes since 2007 that increased the foot-print of a home.

“In addition to this, Labour will also compensate homeowners in the red zone for home improvements (e.g. a new kitchen or bathroom) above NZ$5,000, up to a maximum of NZ$50,000 which are not currently covered by the Government’soffer,” Goff and Cosgrove said.

Compensation would only apply to improvements made since the established date of rateable value, while applicants for compensation would be required to provide proof of the amount spent on the improvement.

“These improvements add to the value of the property and would have been taken into account in subsequent valuations if it were not for the earthquake. Officials have noted that 63 per cent of properties sold in Kaiapoi, for instance, in the 12 months before the first earthquake were sold above the 2008 rating valuation, indicating that these improvements make a material difference to the resale value,” Goff and Cosgrove said.

“Labour has capped the amount of compensation available at NZ$50,000 to ensure this is not an open ended commitment. While some residents may have made improvements above this cap, the taxpayer cannot afford to meet every cost. Under this plan these residents would not be left totally out of pocket. Providing a minimum level of NZ$5,000 will also ensure the process is not overloaded with a large number of small claims and also distinguish between general maintenance and home improvements which add the value of the house,” they said.

“We will ring-fence a maximum NZ$100 million from the Canterbury Recovery Fund as compensation for home improvements, made after the valuation date, not currently covered by the Government‟s offer. This figure is based on an average of NZ$10,000 per household. Although, we do not expect every red-zone house to fall into this category.”

(Updates with videos of criticism from PM Key, further policy details on post-2007 improvements.)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Goofey is getting desperate now...next he will promise a overseas vacation for anyone who will vote labour.

What is it about Goofy that reminds me so much of Bill Rowling ?

.... has Labour currently got anyone who does possess a personality , to oust Goofy , in the same manner that David Lange biffed out Rowling !

What is it about Goofy that reminds me so much of Bill Rowling ?

It's that feeling you get when someone leaves a room  and you don't remember them coming in....and your not sure who they were when they left.....a moment later you've snipped that passage of time through lack of interest.

Be loved

Be Hated

Never be ignored......

Neither observed this rule.

A desperate politician translates into madness.

The earthquakes haven't stopped yet but he's already saying we need a last resort.

Intervene simply means interfere and government interference aways means the costs for punters goes up.  He might as well say Labour is comitted to driving up insurance costs.

Is Phil Goff the same guy that has a big gut, wear a funny red suit, meant to come down my chimmey every year to give my 6 yrs old son what ever toy he like and I ended up paying for it !

Gosh we are so gullible!

 Ask your neighbour – over there it is just another Santa from another party doing the same thing.

Nothing wrong with the govt being a major developer.  This provides cheap land for those who need it once they get their insurance payout, and the EQC payout.  They also need insurance to build a house and live in it, to me this is a more socially responsible risk, then say paying out bondholders in risky companies. 

I can immediately think of a few problems.

1.  Private enterprise can never compete with a goverment.  So if a government sets up in an industry it creates an unfair and unjust environment that penalises the initiative of those who would have been developers.  Effectively opportunity is removed.

2.  Governments do not know how to create wealth, only tax it.  Therefore government run enterprises lose money even in monopoly situations.  Being political in nature also introduces stupid criteria into the business mix.  It could be argued the act of shutting down other developers makes the tax base smaller at the same time.

Governments are a mechanism to transfer hard work from one person to another.  They can't create anything, they can only take from someone who did create and give it to someone else.

There is a place for that mechanism in society - but if that's the goal just give people the money and let others get on with their business, development included.

What if the govt. already owns large parcels of land and provides this land cheaply to private enterprises but allows it's onselling to the consumer at inflated prices?

Why not provide the land at cost but use the private sector for the building work?  That would be a win win would it not - affordable housing for the purchaser and employment for the building sector when they'd otherwise be out of work.

Sure sounds like a deal that could work.  Do they have useful land like that?

http://werewolf.co.nz/2011/09/ten-myths-about-asset-sales/

posted elsewhere on the site. But can also be used as a rebuttal to the myth that government's cannot create wealth.

 

A rebuttal of sorts, although not that applicable perhaps.

Examples given all involve privatisation of what were previously government departments.  They only made money (became self sustaining wealth generators in their own right) once the government stopped running them.  Evidenced by the returns generated now they are privately run.

They also represent projects that were undertaken in areas of infrastructure development that were so large as to pose a problem for private enterprise.  Housing development is not like that.

Housing development is not a monopology, a key resource or key infrastruture.  The only reason for interference is political.

"Examples given all involve privatisation of what were previously government departments.  They only made money (became self sustaining wealth generators in their own right) once the government stopped running them.  Evidenced by the returns generated now they are privately run." Sorry, what are you talking about. This is rubbish, if you want to make such claims then get the budget figures showing these agencies financial performance.

"The only reason for interference is political ." The only reason for any kind of economic policy is political. There is no correct theory in economics which shows public or private sector business is more efficient.

 

 

The biggest real world experiments in government run command economies must be Russia and China.

Russia ended in economic collapse and the China experiment isn't finished yet but does have some enormous structural problems.

Updated with two videos of the PM attacking the plan

Reading the history of Daimond Harbour, it was the Lyttleton Borough Council which owned and developed the land. No capital gains to the private sector but rather the comunity through it's council.

Has anybody in Labour ever had real job,how do you give away free sections.Are they trying to build more District 9 areas,Auckland is full of them.

The last thing any city needs is another slum area full off statehousing,an unemployable people.

Go Labour promise the earth an deliver nothing,somebody needs to tell Labour that the Gravey boat is emtpy.

The country needs trained up people who can work now. 

Time limits on support an full training so people can get a job.

My brother has a business in CHCH an only employs Asians now,why because they turn up on time an work hard.

CHCH can be a great city again.

 

Are all these guys hare-brained?

The main red zone problem is that GVs DO NOT relate to a property's market value in any meaningful way.

If they are prepared to pay GV's that are on average 5% above market value, why not pay everyone 5% above market value? Rather than in some cases paying 50% above and other 30% below.  It's so simple.

On rezoning land, why not hurry up getting insurances sorted so that the many people who own wrecked properties that will be demolished in green zones can match up with the buyers coming out of the red zones.

And why are many of these zones red at all?

If Christchurch has taught the world anything, it is that buildings need not only to be survivable in an earthquake but easily fixable too.  If you build near a major fault on liqueficatable land don't use slab on ground construction.

Yet most of the country will continue to build in the same fashion because we've learned nothing from history. 

Think of the parts of NZ at extreme risk of liquefaction in event of an earthquake - nearly every town that sits on river flats, valley floors or alluvial plains.  Hamner had massive liquefaction in 1888, yet building continues there with concrete slabs on ground.  Westport had liquefaction (at least one house was demolished because of it) from the Murchison quake centred about 100km away.  Invercargill is built on drained swampy land, and so is South Dunedin and Mosgiel, while the rest of that city is on slip prone hills!  Then for the North Island, not only is the biggest city built on an active volcanic field, but the whole island is centred around the caldera of the biggest volcanic eruption in recorded human history (Taupo 180AD ejected 100 cubic kilometres of material - enough to bury the whole North Island a 1m deep). 

Flexibility in terms of construction (movable, liftable, fixable) should be the future of NZ construction.

Assuming it's not a problem and "it won't happen here" is not an option.  The Christchurch earthquakes are geologically minor events that have had nothing like the physical impact that Taupo, Rangitoto or even major Alpine Fault events had.

In total agreement with you Chris. And when will the CCC adopt building standards that suit the city's geology?

On a gossipy note: the drill at the Town Hall in Kilmore St/Victoria Square reached 50 metres and still had not hit rock. 

Are all these guys hare-brained?

They are incompetent on multiple measures, and given our culture that incompetence flows down to lower levels of governance. They will all need to be replaced.

"Oh great!", he said sitting in his new(ish) house with it's concrete slab in Christchurch...

Labour will intervene in insurance?

What can they do?

Duh! They could set up a new government department.

35,000 is a minimum Hugh.  Electoral roles tell us it's down 25,000 (I recall), then there's about 6,000+ Primary/Secondary students, 4,000 who've gone overseas (probably still on the role in their old electorates).  So we still have to add in the young children, the foreign students, the over 18s not enrolled and of course all those who just hadn't got around to sorting their enrollments yet. 

Christchurch Central and ChCh East only have a couple of thousand less enrolled in each electorate.  But in both electorates there are easily 10,000 houses currently vacant.

So on that basis I wouldn't want to guessimate, but I would suggest that we could be looking at another 20,000 already gone??

So 50,000 is a number within reason.

This could be verified if someone got out there and did a survey - take 2 pages from the electoral roll and find out how many people are living at their listed addresses.

My children's school ( hard-hit catchment, decile 9 integrated, committed parents) has losst 10% of its roll.

Quite a few refugees I know are temporary: renting out their undamaged houses for a year  then reassessing, but not planning long-term sell-ups yet.

Doubled up; as above.

sorry Hugh but you cant fight nature - Chch is kaput and govt should be planning on same

2 more over 4.0 this afternoon = govt gotta look at a plan B as its not  insurable or rebuildable for the forseeable future