Offers we can’t refuse; commitments we can’t trust – and other conditions for growing mushrooms

Now that the government has unveiled a multi-coloured map of Christchurch, that represents its current thinking on ‘retiring land’, compensation packages and mass internal migration it’s a good time to reflect on the state of play and highlight a few points.

1. Some ‘red zone’ homeowners are shocked that their insurance companies will not pay for full replacement of homes they must abandon if direct damage to the home is ‘repairable’. They will only get the costs equal to the repairs. In that case, of course, they can turn to the government. It provided two options: take the government’s payout for the land and negotiate with your insurance company; take the full payout from the government at 2007 valuations. For those who own homes that are not beyond repair there’s really only one game in town – take the government’s offer on everything (land and house). It’s an offer they can’t refuse. To refuse would expose them to huge losses in situations where many of them will still have sizeable mortgages.

But is the offer fair? First, this is clearly an offer for the insurers and not for the homeowners. It gets insurers off the hook and transfers their obligations to taxpayers. I’m not talking here about obligations arising from ‘full replacement’. I’m talking about obligations to fund the repair of damaged – but repairable – homes.

Second, the offer is at 2007 valuations. When it was repeatedly reported Gerry Brownlee had pledged to preserve pre-earthquake equity – e.g., “Mr Brownlee’s pledge to preserve homeowners’ equity at September 3, 2010” and “Mr Brownlee is preparing a package bringing together the EQC, private insurers and a top-up from the Government to fulfil his pledge to preserve the equity homeowners had on September 3 before the first big quake” and “The package the government is putting together is expected to bring together EQC and private insurance compensation for those whose homes or land is no longer viable, with a government top-up to preserve the equity homeowners had on September 3, 2010, little did most affected homeowners realise that the Minister had in mind a point some three years prior to the earthquake when the most recent rating valuations had been done (some were due to be done around the time of the first earthquake).

It’s understandable why they didn’t realise this. After the September, 2010 earthquake the preservation of equity was to be done through land remediation:

”We are trying to protect the equity that they’ve got in their properties. They are going to end up with suburbs that are very, very secure as far as future events are concerned and so they are going to retain the equity in their properties.”

In fact, equity may have been even better than previously, according to Brownlee:

”The information that is coming to them [householders] will tell them how we intend going about the remediation in their suburbs which will have good affect on their properties.”

Naturally, everything changed on 22 February, 2011 – except the promise. In addition to the links above, Vernon Small writing in The Press on 14 June again claimed that;

EQC and private insurers, with a top-up from the Government, are expected to offer homeowners compensation to preserve their September 3, 2010, equity if they are forced to move.

The obvious question is how is the equity on a particular date to be determined? If it is only some months after the last valuation, it would be reasonable to use that valuation. But, if it is several years?

2. Then there’s the idea that land was to be ‘abandoned’, ‘retired’ and generally lost to residential use. Turns out that wasn’t the government’s intention at all. On 25 June it was reported that Gerry Brownlee stated categorically that:

“It’s not our intention that it will become a park,” he said.

“We still consider that remediation is a long-term option.”

He said the land was being bought to give insured property owners the chance to leave so it could be remediated.

Yet, on 21 June – before the announcement – there was the strong implication that – while in some cases, having liquefaction wasn’t a reason to retire land – the decision to be announced (two days later) concerned specifying which land would be ‘retired’:

He [Gerry Brownlee] has confirmed that about 12,000 houses could face demolition, but it is not clear how many are on land that cannot be built on. He said liquefaction alone was not a reason for abandoning land.

Making announcements too soon could disadvantage some people, he said.

“You have to be absolutely certain about the criteria on which land retirement decisions are made.

“So you can clearly say that piece of land, Block A, is not suitable for residential occupation for a range of criteria and that block next to it, Block B, is totally suitable for occupation measured against similar criteria.”

Once again, affected residents could be forgiven for believing that when Brownlee was talking about “land retirement decisions” that meant the announcements would concern land that would no longer be “suitable for residential occupation” in the foreseeable future. Apparently not.

Now, people are being paid out “to give insured property owners the chance to leave so it could be remediated” (as above). The poor old land doesn’t get much of a ‘retirement’ after all. It’s straight back to work.

3. Facing the prospect of a payout from government that is less than what is needed to set themselves up in comparable accommodation, some affected residents may have thought they could perhaps salvage some chattels from their houses that were to be demolished. When mortgagee sales occur, for example, it is often experienced that, once bought, the previous owner may do a swiftie’ and get into the house (if the locks haven’t been quickly changed) and remove all the fittings, cupboards, internal partition walls and everything else other than the empty shell. Legally, there’s nothing a new purchaser can do about it.

But, that’s not the case when the government is the new purchaser. According to the Minister;

Brownlee said yesterday that the purchase deal would treat fittings and furnishings in the same way as a usual property sale. Residents should not start removing kitchens and bathroom furniture and the like.

“The Government expects to be buying houses in the condition that is reflected in their valuation. If people want to start ripping things out of them, that will simply reduce the value,” he said.

“If you sell to the Government, then all legal rights belong to the Government, like it would with any purchase agreement.

Perhaps that’s fair enough. After all, the government could re-coup its costs by ‘recycling’ the fittings and furnishings, kitchens, etc. – couldn’t it?

Well, it could. But that’s not the reason Brownlee gave;

“It costs a minimum of $15,000 to $20,000 to demolish a house. The demolition contractors will expect to get some salvage out of it.”

Think about that. The government will lower its ‘purchase price’ because of the absence of assets that it has no intention of, itself, salvaging to re-coup the cost (using taxpayer money) of the buyout. Instead, it threatens to reduce the payout so that the fittings and furnishings remain for the demolition companies to get as their ‘bonus’ – over and above the fee they get for demolishing the property.

It could be said that, as the ‘new owner’, the government can do what it likes with that property – including allowing demolition firms to pocket the profit. Yet, this is the government, forking out hundreds of millions of taxpayer dollars which, to this extent, simply preserve the ‘salvage’ value of demolition for demolition companies. It may be technically legal but politically – and certainly morally – it is reprehensible.

Once you start to look closely at the pronouncements and rhetoric by Ministers and officials on the government plan for the people of Christchurch it soon becomes obvious that it is not only the silt from the liquefaction that provides perfect conditions for growing mushrooms.

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