THE PERILS OF GOING RED

This is our street; these are our friends and neighbours:

• “Quake-hit residents forget it's Christmas” [NZ Herald 27 Dec 2011]
• “Depressing deja vu for quake victims” [ODT 27 Dec 2011]
• “Flooded area can't be fixed – expert” [The Press 27 Dec 2011]

The 23 December quakes seem to have broken the resolve of Monterey Place, Parklands, Christchurch. The street is flooded from liquefaction for the third time in a year. It looks like the entire street wants to be “Red-Zoned.” I live in Monterey Place, I’ve done the research, and I don’t want to be Red-Zoned. This article explains why. I'm not necessarily disagreeing with what Vanessa says (apart from, perhaps, the confirmed number of re-builds); it's the Red Zone compensation plan I take issue with. Forgive me if I sound bitter or cynical at times as you read this – you’ll see why.

I write with a lot of sadness, but understanding, when I hear about my friends and neighbours in Monterey Place who have had enough. To be fair, my family and I haven’t been around for the third clean-up, the clean-up resulting from 23 December’s quakes. I’ve a feeling that has been the final straw for some. We’ve only been through two clean-ups, and my family still wants to live there long-term. So, in 10-15 years, we hope the quake effects would be behind us. However, we all have different agendas, different experiences, and different effects from the quake. As you might appreciate, this article is written from my family’s perspective.

In June 2011, the New Zealand government determined a system of coloured “zones” for quake-hit Christchurch residents, following the quakes of September 2010, February 2011, and June 2011:

• White Zone – the land still has to be assessed.
• Green Zone – the land has been tested and is determined fit for habitation.
• Orange Zone – the land has already been tested, but is awaiting further testing and a decision. Such land will subsequently be determined as Red or Green.
• Red Zone – the land is condemned, unfit to place a dwelling.

http://www.landcheck.org.nz/

In the event of land condemnation ("going Red"), the government will put together an “offer.” I put “offer” in inverted commas, because it isn’t an offer at all – we don’t have a choice. If we don’t accept, we’ll be forced off our land. Well, that offer in question is the GV (government valuation) of our land-plus-dwelling based on the 2007 rateable valuation. Sounds fair? Read on. The “offer” doesn’t come anywhere close to giving my family the house we have, elsewhere in Christchurch.

http://www.stuff.co.nz/national/christchurch-earthquake/5179959/Crown-to-buy-worst-hit-Christchurch-homes

In our case, we would secure $542,000 from the government “offer” if our house is placed in the Red Zone, and we are forced from our home. This might seem a lot to anyone outside Auckland, but it’s about comparing like-with-like. We found that our house will cost in excess of $600,000 just to rebuild – before we even find a section. Lord knows what the cost will be in a few months time. The key issues here are; house-affordability, and securing that like-for-like. We have neither with the government “offer”

There’s a lot of talk about re-building for quake-hit residents. In the aftermath of the February and June 2011 quakes, Mayor Bob Parker championed “10,000 sections” that will be available for evicted homeowners. Sections in Halswell are kicking around the $250,000 mark at the moment – up $50,000 since the government announcement in June 2011. It’s a prosperous household in these times that can afford to pay $250,000 for a section to build on, before even thinking about the kind of house they’d like. Frankly, that’s completely out for most of us. Remember, the earthquakes have destroyed thousands of jobs and livelihoods.

So, the obvious cost-conscious solution is to buy an existing house, elsewhere in Christchurch. Guess what’s happening to those houses that are habitable and are in areas which have avoided the liquefaction? Yup – prices are on the rise. What did Gerry Brownlee say on Campbell Live, when a Bexley resident predicted this in June 2011? “Oh, I don’t think that’s going to happen.” Thousands of displaced homeowners, and Free-Market Gerry didn’t think that such demand would increase house or section prices?!! And what did Gerry say to those that said the “offer” isn’t enough to buy another house? “This is when you need to talk to your bank.” In other words, folks, we’ve got to get deeper into hock. And what did Gerry say in the run up to the offer being announced? “It’s all about equity preservation.” If the “offer” is “all about equity preservation,” why is he saying people should be talking to the banks to arrange $100,000 more debt?!!

When I explain this financial wrangle to people, those who aren’t going through this, I’m asked, “Well, you have insurance, don’t you?” Yes, we do. In fact, we have Full Replacement House Insurance. However, this is where the insurance companies are behaving quite cynically (albeit, to be fair, probably to the letter of their policies!). You see, our house is not a technical write-off. So even though the government condemns our land, AMI will say, “But your house is reparable – here’s the repair money.” And wait; that repair money will be deducted from the government payout!! So we still will receive only $542,000 to find a new house.

And by the way, that $542,000 has to include lawyers’ fees, any additional mortgage application, planning applications, surveying costs, moving costs, and anything else associated with buying or building a house. Remember, we don’t want to move – the government would force us to move.

This is why we can't embrace being "Red-Zoned.” Yes our market value will take a hit - but we won’t lose any money if we don’t sell! We don’t want to move – we love our house! In a couple of years, the quakes will settle down, our house will be repaired, and we will achieve that “new normal” that everyone keeps talking about. Yes, our market value will take a hit, but it’s still better than the government’s derisory “offer.” I accept that many of my neighbours want out, and some don’t. What might be a good idea in marginal streets like ours (Green TC3, Blue) would be to give homeowners the choice; take the “offer” or stay in the street.

The financial truth is that for most, the government payout is woefully inadequate. I accept that the government had to come up with some solution, but is this truly the best they could do? It was certainly the cheapest and least imaginative. I hear Gerry and John talk about “winners and losers.” Well, those “winner” stories are keeping awful quiet. Or maybe those winners are few and far between. The truth for my family is that we will NOT be able to buy like-for-like. When you have insurance, isn’t there an expectation to be compensated like-for-like in the event of your house being condemned? You’d think so. We hear arguments about how this is a major event, and an act of God, so insurance doesn’t apply. In defence of the offer, we also hear arguments about how our house is worthless now anyway, because of its location and the earthquake. All these arguments try to tell us the government offer is fair.

Well, if we didn’t have the EQC then that might be true.

When the Earthquake Commission (EQC) was formed in the wake of the 1931 Napier-Hastings quake, there was an expectation that we would be “covered” in the event of the next big quake. There was an expectation that we would get “like-for-like.” As part of our insurance premiums, we also put into the EQC fund which has since been put into off-shore government bonds. In other words, successive New Zealand governments have had sixty years to prepare for the next big quake. Sixty years. The government has created an expectation within New Zealand, and now it’s baulking. Prime Minister John Key makes us feel that we’re fortunate to be getting this “offer,” because this is the biggest government land deal in history. Well, we don’t buy it. It’s insulting, it’s belittling, and it’s not enough for another house.

The next phrase we get from worried taxpayers is, “But who’s going to pay for it all?” Answer: The government. Yes, the taxpayer. Get over it. Raise the upper tax rate; tax those who can afford it. It’s an emergency event for crying out loud. Europe’s doing it, and even America’s considering it!

http://www.stuff.co.nz/business/world/5653077/Obama-tax-rich-to-cut-deficit

In summary, here’s the reality if the government forces us out of our home:

• The government will give us $542,000 compensation for our section-plus-dwelling, if they condemn our land.
• We haven’t gone “Red” yet. So every day that goes by, in the event that we DO go Red, devalues that $542,000, as Christchurch house and section prices continue to rise.
• To rebuild our house on another section will cost in excess of $600,000 – before we even factor-in the cost of the land.
• Current equivalent houses, already built in Christchurch, are selling at around $600,000 to $650,000.
• Our house isn’t damaged enough to be an insurance rebuild. Even if the land is condemned, AMI insurance company will say, “We will repair your house, not re-build it.”
• Any repair money given to us by the insurance company will be deducted from the government “offer.”
• If we stay in our house, and resist the “offer,” we will be threatened with a “reduced offer.”
• We have Full Replacement House Insurance, yet we will have to find another $100,000 to buy the equivalent house for my family - because $100k is about the difference between what the government will give us and what the equivalent house in Christchurch ACTUALLY costs!

If we had a like-for-like offer, we might happily "Go Red". However, the recession-ridden, cold-hearted decision-makers of this government have delivered vulnerable, quake-shocked people into the hands of the banks, the property developers, and the lawyers. When such people are already down, they don’t have much fight left in them.