Finance Minister Grant Robertson expects a buyback of homes under threat of flooding could cost up to $1 billion, although only some of that cost would be met by the Government.
On Thursday, the Government announced it would help fund a council-led scheme to purchase residential properties in Category 3 areas, where the risk of flooding is too high to safely manage.
It will also help fund protections for properties that fall into Category 2 areas, where severe weather and flooding risks can be managed.
The cost of both these schemes will be shared between central and local governments, although Robertson was unable to give even a broad indication of what the split would be.
Other huge details are also yet to be ironed out, such as how to value the damaged homes and whether to give extra money to uninsured homes.
Robertson said it was extremely difficult to estimate how much this will all cost, but officials had been using a ballpark figure of about $1 billion for the entire buyout process.
That figure was a very rough estimate for the whole programme, across the whole country and was not the Government’s share.
National Party deputy leader Nicola Willis said progress would be welcomed by those affected, despite the announcement lacking critical information.
“We understand there is not as much detail as people would like, so we’ll be encouraging the Government to bring that forward as soon as possible,” she said.
“We’ll be examining the package and listening to those affected to see whether there are any issues that need to be fixed up, but broadly it looks quite similar to what National did in Christchurch following the Canterbury earthquakes”.
The party was not proposing any changes to what had been put forward on Thursday, as the most important thing for people was certainty.
Ballpark figures
Early estimates are for roughly 700 Category 3 properties to be eligible for the buyout, with a further 10,000 homes in Category 2.
If the billion buyout estimate was spread between these 700 homes, each would get $1.4 million. The median house price in New Zealand is $780,000 and $995,000 in Auckland.
“That is very, very much a ballpark figure and depends very much on a lot of different calculations,” Robertson told reporters on Thursday.
One of those yet-to-be decided calculations is how to value the homes being repurchased and how private insurance is factored into the payout.
“We still have to go through the valuation process but, absolutely, one of the principles on this is being as fair as we can possibly be”.
The Finance Minister said the amount of insurance someone has on a property would be factored in, but no decision has been made about what will happen to the uninsured.
For example, it could be decided that the Government will reimburse a homeowner enough to cover the shortfall between their insurance payout and the estimated value of the home.
In this hypothetical scenario, an uninsured homeowner could receive the full value of their house or a lesser amount that factors in what they would’ve got if insured.
The second option would punish uninsured homeowners by forcing them to wear more of the loss. But since uninsured people are likely to be low income and needing support, the Government may want to avoid this option.
Insurance claims continue
The Insurance Council of New Zealand (ICNZ) welcomed the announcement and spelled out what it would mean for homeowners making a claim.
ICNZ Chief Executive, Tim Grafton said the buyback scheme would have no impact on people making an insurance claim for a property in Categories Three and Two.
“Your insurance policy pays for the physical damage to your house up to your Sum Insured or any other policy limits and benefits that may apply. Whether you repair in situ, make improvements, or move to another property, your insurance monies can be put toward your recovery," he said.
For properties in Category Three areas, claims for physical damage will continue up to policy limits, but the insurer will settle in cash so homeowners can have flexibility.
“The details of what will happen to your claim in the event of any property buyout are still being worked through,” he said.
The twin climate disasters of the Auckland Anniversary Weekend floods and Cyclone Gabrielle had already resulted in more than 100,000 claims at an estimated value of over $2.8 billion.
Auckland Mayor Wayne Brown said Auckland Council would start to communicate with affected homeowners about their categorization from June 12.
The scale of weather impacts had resulted in a huge workload for the council to manage, with about 400 of the 700 Category Three homes located in the Supercity.
“We are balancing the need to provide people with certainty as soon as possible, with the need to get this right and be careful about scarce ratepayer resources,” he said.
National’s spokesperson for Cyclone Recovery Chris Penk said the scheme so-far lacked detail and Labour needed to show more urgency.
“Finance Minister Grant Robertson has admitted the criteria for valuing properties under the buy-out scheme has not been worked out,” he said.
“Other areas hit hard by Cyclones Hale and Gabrielle and the Auckland Anniversary Weekend floods are still none the wiser about their fate”.
Uninsurable?
The cyclone task force, insurers, local councils and other government agencies have been working together to undertake these risk assessments as accurately as possible.
Robertson said he wanted to support local governments and affected homeowners, but warned the central government could not afford to foot the entire bill.
“The Government is in no position to be able to meet the total costs of these kinds of disasters. Unfortunately, they are going to be more regular events into the future.”
Decisions have to be made about how these costs would be met and how to treat those who have gambled on not having private insurance.
The buyout scheme will be voluntary, which means homeowners will be able to choose to stay in their damaged homes — at least in theory.
However, councils may refuse to give resource consents to reconstructions of damaged homes and insurers are likely to be unwilling to cover homes in affected areas.
Robertson noted that insurers had played a role in working out which homes should be classed as category three.
“This has been a very careful scientific assessment to say: we genuinely don't think these areas are places where it's safe for people to live now”.
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