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”.
46 Comments
A billion? Small change. It's just the start of the costs climate change is going to be inflicting on housing markets globally. And that's just housing markets, never mind commercial stuff too.
Some folk are starting to work it out........
https://www.cnbc.com/video/2023/05/29/dave-burt-a-big-short-investor-fe…
https://www.theguardian.com/commentisfree/2023/may/31/for-some-us-resid…
If only there were things we could have done/still do to lessen the ever increasing costs of climate change........
There were, but that's hindsight - and it NOT JUST CLIMATE CHANGE.
We arrogantly irrupted, when we tapped into the one-off stock of fossil energy - and it's the burn which is resulting in the exhaust; just one of many ways we're over-forcing the planet.
The question is: What do we do from here on? And that is a lot more complex that just addressing Climate. That involves de-growing, which more or less means collapse of the existing debt-issuance system.
Council especially, Esk valley was not recommended to have any housing built in it but the council allowed it regardless. Yes there's liability to those choosing to build there but council needs to be stern on these things. We all know when there's liability involved, councils go into cover-their-ar#e mode.
The small handful of hectares for which Kainga Ora paid over $6M in late 2021, and had previously flooded several times, went underwater yet again during the cyclone. As yet I've heard no talk of cancelling the project. I mean, what are the odds of it ever happening again? It's purely coincidental that roads nearby contain the words "river" and "water."
As a local council engineer told me last year when I spoke to him about an undersized roadside drain that overflowed in a heavy downpour, it was a one-off event and unlikely to ever happen again.
Experts know stuff.
A lot of areas don't flood, but we built towns next to rivers, and no one wants to retreat away from waterways as that would cost existing owners..
There are ways to mitigate flooding, such as stop banks. I recall the Hutt river they installed large stopbanks along it, and I think the flood risk is now about 1:400 on a lot of it.
...or a house in the shadow of Ruapehu, or Mt Eden for that matter... Taranaki is overdue a pop... so cant buy there...or even a house sitting on a major fault, like Wellington, cant buy there...a friend left Edgecumbe in 87 to the safety of Christchurch... or so they thought.. or how about a house in the shadow of Hi-cane instant cancer...theyll all want compo soon. Nowhere is safe from environmental threats, at least the oceans only lifting slowly largely offset by uplift in many places. NZ is classic pick your disaster zone wisely...
Haha I hear you
nowhere near poor enough to get a handout, and not a landlord or motel owner either
also was blessed to be a student at the start of the student loan era, allowances wiped and high interest rates accruing while study!
Not to mention no working for families as fairly poor first time parents in the late 90s
clearly I was born too early and too late
And thus the username, no doubt. Clears something up.
If you had turned up and made the conscription requirements for the orcs you may well have been killed by another guy I knew who got into the Riders of Rohan and was issued with a big cape. However, to get the part he kind of had to not turn up for work, which resulted in him having plenty of time to wear the cape.
I have had the same feeling for some time. When there is a debate about what the govt will or will not do, the answer is always obvious - "whatever would be of no benefit to me, or that I will pay".
There is such a bottomless pit of need now, anyone who is barely getting by or above is way down the priority list. NZ govt spending is about 40% of GDP - a giant blood sucking mosquito attached to a cow, a kiwifruit and a few motels almost collapsing under it's weight.
Interesting that National - the party that will eliminate wasteful spending - is supportive. And to top it off one of their drongos was complaining that $9m of unused govt flood aid from the $30m given to the chamber of commerce to hand out shouldn't be returned to the government, but should be thrown around at people that don't qualify for assistance. Does he understand the term wasteful or not??
Labour are going to be deservedly thumped this election, but I feel sick when I think what comes next.
Interesting that National - the party that will eliminate wasteful spending - is supportive
I don't think any party can be seen to be unsupportive of helping their fellow countrymen in a situation such as this and especially on the lead up to an election. Sensible financially as it is, it would be political suicide and portray them as heartless and unempathetic. Luxon is already cast as a robot, they're trying to pump some human emotions into his fuel tank
They shouldn't. They were not bailed out in Christchurch. But then again this is the Jacinda govt of Aroha and paying billions to the non working.
The govt should pay them for the land value, but they get nothing for the house. This should just be a land buyout situation, with insured folks getting the building repair or rebuild cost from their insurer. But that would be TOO fair.
I expect the govt with pay up to a value, for an entire property, less any building insurance payout. Some insurers have already paid $1mil or the policy limit out to the insured, as lots of the Hawkes bay properties are lifestyle blocks with lots of sheds and auxiliary structures.
The land will still have value for horticulture in the Hawkes bay, so it may not cost the tax payer too much for the process in the bay. On the other hand the govt won't get any money back from buying out Auckland sections.
You mean China the worlds producer of solar panels and who are spending more on green energy and environmental clean up than the rest of the world put together?
Don’t let narratives of 20 years ago blind you to the move up the ladder Chinese tech and society is making. President Xi is clever and plans strategically and for the long term.
Complete opposite of the morons we have here
My issue in the case of the valley that flooded, is that the area had flood before, with photos of houses with the same sort of silt up the walls, and it was a known flood area, and that was before climate change.
It does make me wonder about people who are building new houses in known flood areas, and the council requires they put something on their title before issuing a building consent, to say the council isn't liable if it floods. So would they get bailed out by the taxpayers if this occurs?
Yes, it's called a section 73 title notification under the current Building Act and was a section 36 title notification under the former Act;
https://www.legislation.govt.nz/act/public/2004/0072/latest/DLM306820.html
I've never had a property with one - and now they are requiring them even where one simply needs a building consent for a minor alteration - so lots of these around now.
I do wonder what the conveyancing lawyers generally recommend to clients when they find one of these on a title search. I'd probably avoid purchasing a property with one, but that's just me. Once it's there, very difficult to remove it even if whatever the hazard is is successfully mitigated, I suspect.
No idea how the government might treat titles with them in terms of this managed retreat policy.
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