Government has pulled the rug from underneath earthquake-prone apartment owners - A Capital Letter

Inner City Wellington spokeswoman Geraldine Murphy. Photo / Mark Mitchell

OPINION

A Government announcement about a long-awaited review of earthquake-prone building rules conveniently left out a devastating detail.

It turns out, Cabinet ministers also decided to end a scheme offering deferred repayment loans of up to $250,000 providing a lifeline to owners struggling to pay for strengthening their homes.

This has completely pulled the rug from underneath owners relying on these loans to remediate their earthquake-risk buildings after years of pain and sleepless nights.

Construction on one Wellington building was due to start in June with four apartments counting on the Government loan scheme to pay for it. These owners now find themselves in limbo.

They were so close to finally seeing the light at the end of a long and dark tunnel, only to have the door shut on them.

The Government should be credited for bringing forward a review of earthquake-prone building rules and extending remediation deadlines by four years.

Those in multi-owned residential apartment buildings have long argued this legislation is being used as a “blunt instrument” and that they are funding public safety outcomes even though the public does not use their buildings.

However, ending the loan scheme is unfair.

More than 50 owners have conditional eligibility approvals. This confirms an applicant meets the individual requirements for a loan under the scheme.

Approval is subject to a second-stage application process to make sure the building has a clear remediation plan. At the time of the Government’s announcement, there were no current loan approvals or loan applications awaiting assessment.

The Government should reconsider its decision and give those with conditional eligibility approvals the option to progress with drawing down a loan or waiting for the review’s outcome in case it changes their circumstances.

Owners have already spent hundreds of thousands of dollars on engineers and obtaining consent for planned work. They had every right to do that on the basis they could trust the Government’s loan scheme.

Buildings in central Wellington, including the Wellington Cathedral of St Paul and Parliament Buildings. Photo / Mark Mitchell

The uncertainty is the worst thing.

As one body corporate chair so eloquently said: “If, after the review, we are still found to be required to strengthen, we will need something like this scheme to help get owners over the line.”

Building and Construction Minister Chris Penk said the review will consider the role of these schemes in the future.

When he announced the review, he encouraged building owners to “use this time to continue to make improvements to their buildings, particularly due to the positive impacts that remediation has for insurance and their ability to get tenants”.

Commenting on the end of the loan scheme, Penk said: “As a review could result in changes to the obligations and timeframes earthquake-prone building owners face it would not be responsible for the Government to continue to fund remediations that may not be required.”

The Minister cannot have it both ways.

What is the loan scheme?

The scheme opened for applications in September 2020 and recognised getting finance to do strengthening work was difficult, if not near impossible, for some owners.

It was designed to help those most in need so people were not put in a position where they were forced to sell their homes or burdened by the stress of significant financial hardship.

A Cabinet paper on the scheme, which has been proactively released, shows the former Government was keenly aware of the need to balance fairness to taxpayers by minimising wealth transfers to homeowners.

They settled on the loan scheme as the best way to do this and decided it should only be available to owner-occupiers to limit this transfer of wealth.

However, a review found some previous owner-occupiers were being classified as investors after moving out of their units due to a change in circumstances like a job, divorce, or the mental strain from the earthquake-strengthening process.

“They are not traditional investors as they do not own another property, and selling their residential earthquake-prone building unit with outstanding remediation obligations is not possible,” the review said.

“They do receive rental income from their apartments, as the rental market for earthquake-prone units has been less affected than the market to sell.”

The review also noted that while many wanted to sell their units, some real estate agents refused to take the listing or could only sell at a price that would result in significant financial hardship.

The previous Government widened the eligibility criteria to allow some people who no longer live in their earthquake-prone units to make use of the loans, on the condition they either sell their property or move back into it within two years of the building being removed from the Earthquake-Prone Building Register.

Senior journalist Georgina Campbell’s A Capital Letter column takes a deeper look at issues in Wellington, where she is based. Georgina has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.