Editorial: Rethink how best to house quake victims

The Pyne Gould Corporation building in central Christchurch after the quake. Photo / Simon Baker

Opinion

Previous estimates of the Christchurch earthquake damage were wildly astray. The $3.05 billion budgeted in May to be the net cost of claims to the Earthquake Commission has risen to $7.07 billion in the commission's latest estimate. The revision makes nonsense of the initial work of assessors, or perhaps it reflects the experience of many small claimants who have marvelled at the scale of renovations and repairers' estimates the commission has accepted. Either way, the bill has more than doubled and the ultimate cost could be much higher yet.

Private insurers, responsible for repairs above the sum covered by the commission, are under pressure to follow the commission's decisions and their bill has yet to come in. The largest in Christchurch, AMI, has liabilities now underwritten by taxpayers and Finance Minister Bill English clearly expects it will be needed.

It should also consider whether it has yet done enough for nearly 6000 "red zone" home-owners whose land has slipped and their properties have been declared unsuitable for rebuilding. Since private insurance says its policies do not cover full replacement of houses in these circumstances, the Government has paid out the home-owners. It bought their properties at boom-year valuations, which appeared to be their good fortune until they went looking for a new house.

Most of the displaced are from eastern Christchurch where values were generally lower than those on the western side of the city even before the earthquakes. Now prices on that side are being driven even higher by their demand. Those people will need to take out mortgages if they want to stay close to families, friends and the facilities they know. Many are elderly or on modest incomes. They cannot afford today's mortgages.

Their predicament was predictable. Governments cannot intervene on one side of a market without creating distortions on the other. This intervention has put thousands of cashed-up home-buyers on to the Christchurch property market at once. It would be strange if developers and sellers of land and houses did not let prices rise in response.

If the Government leaves the supply of new land in private hands and lets demand drive up the price as far as it might, it is handing a windfall to private developers and sellers at public expense. It would do better to take on the temporary additional expense of buying land and building houses at values the evacuees could afford.

There is said to be plenty of suitable vacant land near Christchurch that could be made available through Housing New Zealand or the Canterbury Earthquake Recovery Authority. The expense could be recovered from section sales and established communities could be relocated reasonably intact. Many of these residents have forged closer bonds from the ordeal they have shared and state a wish to move as a community. It would be good for the city's recovery if these people could be kept together.

The Government will be reluctant to interfere in a market more than is necessary but one intervention often requires another. Markets are ideal for allocating resources economically when they function freely. When the market is removed from one side of the supply and demand equation, it usually will not function properly on the other side.

The February aftershock, shallow and close to Christchurch, released ground forces larger than any previously recorded in this country. It was probably optimistic to imagine the cost after earthquake insurance would not be much more than $3 billion. In another few months the same may be said of $7 billion. This was the country's worst natural disaster and the financial repercussions are not over yet.