EQC managing Christchurch post-quake construction inflation through contract with Fletcher Building, chairman says

EQC managing Christchurch post-quake construction inflation through contract with Fletcher Building, chairman says

The Earthquake Commission (EQC) is managing construction inflation in Christchurch through its contract with Fletcher Building, which has been hired by the government to carry out repair work on 100,000 houses needing repair, EQC chairman Michael Wintringham says.

Speaking to Parliament's Finance and Expenditure Select Committee (FEC), Wintringham said the last nail and the last lick of paint had yesterday gone on to the 10,000th house to be repaired under Fletcher's contract with EQC.

"We are an organisation that planned for, and was geared for, settling claims in cash. We had not planned for taking responsibility for one of the largest construction projects in New Zealand’s history, which is the repair of 100,000 houses," Wintringham told the FEC.

"That having been said, by the end of November 2010 we had the contract with Fletchers in place, under the wishes and instruction of the government," he said.

One of the reasons EQC was asked to take responsibility for that rebuild was to control post-event inflation, as well as maintaining the quality of the housing stock in Canterbury, he said.

"The control over post event inflation is managed by the rates which Fletchers pay [contractors], rather than having a whole lot of individuals out there all competing for the same pool of largely Canterbury contractors – that’s the first [way]. Second is the management and control that we exercise over the performance of Fletchers in the contract," Wintringham said.

The Reserve Bank of New Zealand has said it is closely watching inflation pressures arising out of the Canterbury region as rebuilding work gets under way as it considers when to raise the Official Cash Rate from its record low 2.5%.

Predictions of when major rebuilding work will ramp up keep getting pushed back due to aftershocks, with the RBNZ itself saying it does not expect reconstruction work to hit full swing until into 2013.

Economists are picking the central bank to leave the OCR on hold this Thursday, and markets are expecting the next rate hike to come in December this year.

6,000 26,000 sections coming onto market

Meanwhile, BusinessDesk reports CERA saying 6,000 26,000 sections should be coming to market for development in the devastated city of Christchurch next year.

Chief executive Roger Sutton told Parliament’s finance and expenditure committee the pace of the department’s work has accelerated since its inception last year, and it has paved the way for some widespread residential property development to house displaced locals.

“Twenty-six Six thousand sections within the greater Christchurch region are available for development,” he said. “Hopefully by next year we will have those properties on market.”

Property values are increasing in Christchurch, according to last month’s Quotable Value figures, and ASB’s housing confidence survey shows house price inflation expectations are greatest in the country’s second-biggest city.

Sutton said the speed with which it’s moving has attracted all kinds of investors looking for greenfield opportunities and he’s optimistic about the city’s future.

CERA is working through some $2.5 billion of infrastructure reconstruction, with water, sewage, electricity and telecommunications networks at the front of the queue before new roading is installed.

Sutton came under fire from Labour Party MP Lianne Dalziel, who said residents in the ‘red zone’, where the government decided homes were uneconomic to repair, were given a Clayton’s choice in voluntarily accepting the government’s offer.

Last year, Prime Minister John Key and Earthquake Reconstruction Minister Gerry Brownlee announced an offer to residents in the ‘red zone’ to either sell property and land to the Crown at a pre-September valuation, or sell the land only to the government leaving the resident to deal with the insurer.

CERA still has at least a year to work through demolishing buildings in Christchurch’s central business district, and the department is trying to recycle as much material as possible, Sutton said.

The Earthquake Commission also appeared in front of the committee and chairman Michael Wintringham said the department is working through ways to pay a cash settlement over the increased susceptibility of land to future events.

(with BusinessDesk)

(Updated with BusinessDesk article on new sections, corrects 6,000 figure to 26,000)

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Woop, woop, where's Wolly:
 
"The control over post event inflation is managed by the rates which Fletchers pay [contractors], rather than having a whole lot of individuals out there all competing for the same pool of largely Canterbury contractors – that’s the first [way]. Second is the management and control that we exercise over the performance of Fletchers in the contract," Wintringham said.
 
Which is what I was suggesting yesterday in my reply to your comment and questions about using reserve bank credit to build Bernard some houses in Auckland and fund repair and replacement of damaged public infrastructure in ChCh:
 
http://www.interest.co.nz/opinion/58152/wednesdays-top-10-nz-mint-magical-ecb-pixie-dust-christchurchs-section-affordability-o#comment-672416
 
Les Rudd | 06 Mar 12, 10:37am

Wolly - the stadium, the share that is public, yes. Other ND damage to public infrastucture elsewhere in NZ, yes. Stupid CCC decisions, let's learn, I kinda think we all will now, so yes, fix the prublic infrastructure that has been affected. Market price dislocations, the work is scoped and pretty much costed, against pre-damage market rates. However, I take your point, if, such funding was issued willy-nilly without regard for existing market pricing, so contracts get written based on existing market pricing, which is readily available. This, I think, would also apply to BH's build some houses idea. If anything with such a large programme, the programme could work to keep prices in check, a bit like we are seeing with Fletchers operating in the ChCh rebuild. Sure people will accuse them of rorting, being owned by RBNZ and Wolly Rothchild (because we can't do without a good conspiro theory can we, yawn.) etc, etc, however they also seem to be acting as a brake on gougey price escalation, I think. The FED manipulating, that's one reason we agree on LVRs - for whatever reason price hasn't worked has it. Cheers, Les."  

 
Restraint of inflation in these kinds of activities could be done Wolly - because it is being done, here is the evidence.
 
That being the case, can Bernard please get Gerry Brownlee, Bill English and Bob Parker in for a double-shot interview to discuss utilising QE style funding (or whatever you feel comfortable calling it Bernard) in the ChCh rebuild, as we've been debating. 
 
Cheers, Les.
www.changenz.co.nz

Jeez Les, talk about wishful dreaming....pleased to see you can at least see the potential for printing to lead to rorts scams and general pork slicing political behaviour...you seem to be having trouble sorting out exactly what the printing will be used for...one minute it's only to repair rebuild public stuff...next it's new housing...make up your mind.
If you wish to believe the blather that all the 'important pointy heads' are on the lookout for chch inflation ...good luck.
And now you extend the printing splurge to include every flood slip whatever across the country...am I right?
 

"School Teacher Syndrome", how disrespectful Wolly, tut. Your memory must be failing you, but that's ok, I will make allowances 'Teach'. This all started with BH's two articles that were about using QE style funding (as he calls it) for extra housing AND funding aspects of ChCh rebuild. I've majored on the latter given I live there, however, you might recall I've referred to the 1930's state housing project and how it was funded, as many others have, Iain certainly and Raf also I think. Raf made a similar proposal here:
 
http://www.changenz.co.nz/posts/money-and-inflation.aspx
 
As for flood induced slips, if it damages necessary public infrastructure, yes, I did write that - what's wrong, are your eyes failing you too? In this regard I see no difference between such damage caused by a variety of NDs - the politicians you hate and distrust don't initiate NDs, do they? Granted they can make them worse .... where is ChrisJ. Plus, as we agree dumb decisions, projects can be implemented that intensify consequence, however, we learn from that, either fix-up, or forget, given the benefit of hind-sight.

New build costs for a typical property (4 bed + the usuals box)  in CHCH up by $100,000 in one year - I would hate to see what it would be like if the good people at CERA and EQC weren't keeping inflation under control then.
I suppose after all thses centuries some genius had to find the magic silver bullet that killed inflation.

You got it Yoda...it's called lying.
 

Who is lying Wolly?

Who isn't Les.....name a country where the numbers are not sliced diced and given a good toss before being laid out to look just right.....or are you still of the opinion that bureaucracy and govts are letting it all hang out....

Indeed Wolly, but the comment by 'speckles' below does seem to support the notion that the arangement between EQC & Fletchers is going some way to restraining inflationary pressures, as stated in Alex's article:
 
"Fletchers ensure it has the supply chain tied up, nice profit for them and builders can not obtain more  than a standard wage for their trade and sign off with the risk."
 
However, it's something to monitor for sure, especially quality outcomes, as also noted by 'speckles' and Chris, who both seem to be quite onto it. Gougers and bodgers will rue the day.
 

Les...your final few words are bang on..."Gougers and bodgers (plus gst) will rue( rule) the day"
There are price falls in whiteware and flooring, trinkets and fluff....but when it comes to the core materials plus labour....those opting to risk it all on a rebuild are going to be fleeced every which way possible. Plus gst on top.
 

You must have missed this bit Wolly, "and builders can not obtain more  than a standard wage for their trade ..."  (Get those pies checked mate, or were you just ignoring information that doesn't suit, again ... ?)

Utter waffle Les...try building today and the wage demands plus gst will pop your opinion.

Yoda - it'd be interesting to know how that compares with other areas and against the last 5 years say? Plus, hear what you say, but maybe it could be worse? A counter used when anti-CGT's object with comparisons to other countries with CGT that have also experienced price bubble, ie. they may have had it a worse without their CGTs in place.

too sad,  people believe what they read. Is this Les for real? It amazing me they can get away with it, then again the MPs are not bothered to make their own inquiries.
One person I know  briefed one MP before todays meeting in Wellington. They said they simply have no idea what is actually happening down here.
Fletchers ensure it has the supply chain tied up, nice profit for them and builders can not obtain more  than a standard wage for their trade and sign off with the risk. The good builders an't interested and  are building houses outside the city which people are snapping up as nothing is moving in Christchurch. The quality of work is leaving so many angry. If this is speed for CERA I hate so them when the encounter a hold up. EQC makes no mention the lack of sign off by angry homeowners and rework required on the 10000 homes mentioned I see. Especially the number requiring total rework after 23 Dec.  LOL
It would be nice if they could show the same creativity in their actual work rather than their spin in Wellington
 

.

I know for a fact that the "10,000 houses" is actually 10,000 claims which includes emergency repairs to houses that still require further substantive repairs. The number of houses that have substantive repairs completed is much lower, more like 2,000 at best.
EQC's media spin drives me crazy - what is even worse is that the media lack any sort of investigative thirst beyond nepotism - which is the least of our problems here in ChCh.
THERE IS NO CONSTRUCTION INFLATION BECAUSE NO CONSTRUCTION IS GOING ON - although plenty of money continues to be spent....

Alex - can you verify please?

I know a lot of small repairs have been done - mainly paint jobs in the west.
 
My neighbour in Avonside had their repairs done before June, the house is now completely unlevel again and cracked because Fletchers didn't actually do any repairs to the foundations.  They need to start over again.
 
I've seem numerous dodgy Fletchers jobs including leaky homes that had "cosmetic" work done to claddings that had split open - I thought it was completely illegal to make good work that is so badly damaged without bringing it to the current code, this restricted building work should have required a permit (Fletcher's did not get one), but instead ChCh gets another bodged repair.
 
All over town bodge repairs are being made to foundation damage and damaged brickwork - many of these properties either should have nothing done (so that future owners know that it hasn't been fixed properly) or they should be done completely and entirely properly with consents and engineers reports (note the Govt change the building code after September so that some of these jobs could be bodged without permits).
 
All buildings with masonry removed should require bracing calculations done.  Many early homes ironically used the masonry as bracing against wind.  With the masonry gone they should all have bracing put in replacing it - many currently are not.
 
Are we setting up another disaster?  First we had "leaky" homes, now we might be getting "quake fixed" homes.

Yeah they are spending alright, got to try to keep GDP from totally cliff diving.

26,000 SECTIONS????
 
ARE CERA COMPLETELY OUT OF TOUCH!  Christchurch needs no extra sections.  Developers may as well file for bankrupcy now.  I NOW KNOW WHY ONE OF THE BIGGEST DEVELOPERS IS DUMPING HIS DEVELOPMENT LAND!
 
What we need is not this kind of stupidity.  Well over half the houses for sale in the city are by people leaving town (I've looked at 50 or so in the last week and the agents confessed (or in some cases promoted) the owner was leaving on about 2/3 of them).
 
There are so many more important issues than land availability.  How about insurance?  Or perhaps opening the CBD?  How about saving a little bit of our history?  Or fixing the houses that are actually damaged in the east or on the hills?
 
We are clearly in an IDIOCRACY!!  Where IDIOTS and those LEAST CAPABLE rule the land.
 

Chris, I believe the defining characteristic of systemic failure is the rise of the incompetent.

Chris, you could take each sentence in this article and provide an article showing where it is misleading or clearly wrong. We are totally F..ed up and no one is going to do anything about it. I did indicated divest back in May last year and it seems I was right, would have loved to be wrong on this one.

Chris, you could take each sentence in this article and provide an article showing where it is misleading or clearly wrong. We are totally F..ed up and no one is going to do anything about it. I did indicated divest back in May last year and it seems I was right, would have loved to be wrong on this one.

I agree, we have a large insurance settlement due and having considered spending it in ChCh, we are now spending it ALL outside ChCh.  That is over $5m in initial settlement with another $2m+ to come.
 
I would love to reinvest in ChCh but everything is being done completely wrong, and no one seems to care.
 
All these "developers" coming into town to do greenfields developments are complete dreamers.  The experienced boys are being very cautious.
 
One developer proposing about 3,000 sections firstly doesn't own the land (he's got it under contract at inflated prices) and secondly has never actually done a development himself nor has he actually ever owned any property other than his own home!
 
I predict most of the developments will be flops much like Pegasus.

Places like Pegasus...interesting thing is the builders terms they are offering for the spec builder tells the story. Look at the proposed sections around tram road. Didn't they just discover a fault line recently right up that road which explains why  they have felt the last series of EQs so severe. Yeah let place a supermarket there as well. Around North Canterbury thousands of sections are going in.
Not many people have a handle on the microeconomic implications of this and yet I still only seen one paper/article todate trying to actually factor in the consequence to our macroeconomic numbers and implications for NZ.
For those that have... this has been the worst of times however the best insider information on the future and allows you a jump on the market to switch investments.