Climate Change Minister Simon Watts says government objective is to mitigate genuine hardship not distort risk signals for homeowners hit by extreme weather

The Government plans to move towards an "end state" when it comes to buyouts for homeowners after major weather events, with Climate Change Minister Simon Watts signalling "the Government must begin to reset expectations of its role in providing financial assistance".

On Thursday, the Government announced its National Adaptation Framework. The framework includes creating a national flood map and introducing legislation clarifying the responsibility of local government by requiring adaptation plans in the highest priority areas.

Documents on establishing a National Adaptation Framework were also proactively released on Thursday, with a paper Climate Change Minister Simon Watts took to Cabinet outlining proposals.

Alongside this was a Minute of Decision document from the Cabinet Economic Policy Committee. In this document, the committee agreed: "The Government's intent is to move towards an end state where the Crown no longer distorts risk signals and blunts incentive to manage risk by providing financial assistance where homeowners suffer significant losses after major events (especially in the form of residential property buyouts)".

In the Cabinet paper, Watts says: “In the near-term, the Government must begin to reset expectations of its role in providing financial assistance where homeowners suffer significant losses after a major event.”

“Central government’s support for local government recovery planning primarily covers infrastructure rebuilding and resilience. In some instances, property level resilience measures (including buyouts) may be part of area wide resilience measures, where that is the most cost-effective option.”

The paper notes land and other cultural assets and sites held by iwi, hapū and Māori groups are “disproportionately located in areas vulnerable to climate driven natural hazards”.

Policy settings related to the Crown’s role in supporting homeowners experiencing significant losses after a major event would consider “the particular circumstances of Māori landowners and interest holders, including the unique legal and cultural status of whenua Māori, and other protecting land, and the collective ownership and decision-making structures”, Watts says.

Objective to mitigate genuine hardship not distort risk signals

Watts says the central government’s objective is not to fully cover losses suffered “but to mitigate genuine hardship”.

“Homeowners should not expect to receive financial assistance for property-level resilience measures based on a full pre-event property valuation.”

"The strongest signal we will send is any decisions relating to financial assistance if the next major event occurs before formal policy is in place," Watts says.

In the paper, he also says: “In the long run, it is crucial we move towards a state where the Crown no longer distorts risk signals and blunts incentives to manage risk by providing significant financial assistance (especially in the form of residential property buyouts) after major events.”

“A transition to this state is likely to be necessary to support a politically durable approach,” Watts says in the paper.

Watts’ comments echo that of the Independent Reference Group (IRG), made up of Treaty partners, banks and insurers, local government and others, which shared their recommendations for the National Adaptation Framework in July.

In its report, the group recommended putting the onus on people to know the risks that come with their properties and to make their own decisions. “While the Group sees an enduring role for central government to support those facing hardship to recover, it considers that people should not expect buyouts in the long-term.”

In the Cabinet paper, Watts says resetting expectations about support for property owners ahead of the next event is also important to "realign incentives for risk management".

Alongside the legislation that aims to clarify requirements for local councils, Watts says he intends to publish a response to the IRG's report. 

When it came to the cost of living, Watts says that the proposals in the Cabinet paper did not have “direct” cost-of-living implications.

“However, adaptation decisions that aim to minimise long-term net costs can be expected to have flow-on benefits to other costs (local rates, property losses actually borne by owners, loss of capital values, insurance premiums).”

“Those in high-risk areas may face higher costs as markets adjust,” Watts says.

“Specific implications are dependent on subsequent policy decisions and the extent to which housing supply in low-risk areas can be increased through other work programmes (Going for Housing Growth and RM Reform).”

‘Higher insurance bills, or no insurance at all’

Consumer NZ investigative team lead Rebecca Styles says the Cabinet paper does strongly suggest buyouts will no longer be available to homeowners after an extreme weather event, though there may be some money available as part of the adaptation process.

“It appears the Government will leave it to the markets (insurance, banks, property) to determine risk but there doesn’t appear to be any detail about how households will cope financially if they find themselves in a high-risk area,” Styles says.

“People in those areas will face higher insurance bills, or no insurance at all, while likely paying a mortgage on a property unlikely to sell.

“This will have a huge impact on financial stability, let alone physical safety or the emotional toll and stress of living in a high-risk area. Given the potential financial hardship, it’s likely people will stay in high-risk areas.”

Styles says Aotearoa needs a just and fair transition to adaptation.

“It’s hard to see how leaving it to the market will achieve that.”