Tuesday 20 September 2011

Killing downtown

Regulatory uncertainty, delays in building approval, the central city cordon, lack of information about future building codes, and insurance delays really aren't helping prospects for a downtown recovery in Christchurch. Recall that somewhere around 60% of downtown buildings are being torn down and nobody in Christchurch gets any access to downtown while the demolitions continue; the cordon's not expected to come down entirely for rather a while. In yesterday's Press:
On Friday, the 14-storey Westpac building on Cashel St was approved for demolition, the last of Miles Middleton's four central Christchurch high-rises to be be pulled down because of quake damage. Middleton said he wanted to rebuild in central Christchurch, but without changes to the seven-storey height restrictions in the draft central city plan, he would be forced to take his insurance money to Auckland or even Brisbane.

"A lot of people that were keen to rebuild here have gone cold," he said. "I would love to rebuild here but at the end of the day I don't want to go broke."
Christchurch developer Ernest Duval, who fronts the CBD property group Core, said insurance money was already draining out of the central city, with owners who had been without tenants since the September 4 quake the first to look elsewhere to invest. "The simple solution for many property owners is to take their money elsewhere to restore their income stream," he said.

Most central Christchurch property owners were not developers and would rather buy a building in Auckland than grapple with a consents hearing, tougher building standards and the ongoing shadow of possible Government intervention in Christchurch, he said. Others simply could not afford to wait until the central city reopened in April next year, Duval said.
I don't entirely buy that delays of a up to a year wind up being the critical issue; if Christchurch's downtown is likely to be viable, I would have thought that developers could have thrown insurance money into bonds or term deposits while waiting to rebuild. But more plausible is that the set of restrictions and uncertainty just makes Christchurch a less attractive investment option; the added delays then help tip folks to take their investment elsewhere.

One bit of slightly good news:
Christchurch City Council has moved to douse concerns about the draft plan. At a meeting with property owners this month, council strategy and planning general manager Mike Theelen said owners of multi-storey building would retain the rights to rebuild to the same height. Theelen was unavailable for comment at time of print.
Two problems with this though.

First, if the grandfathered right is restricted to the location of the former building, we have the somewhat perverse result that you can only build really tall buildings in the places where really tall buildings did really poorly during the earthquake. Sure, we can fix some of that with better site compaction and stronger and deeper foundations. But if tall buildings are a bad thing due to earthquake risk, requiring that they be built in the place where old ones fell over seems a bit odd.

Second, if the right stays with the owner but isn't site-specific, why oughtn't we just let anybody who wants to risk his own money building a tall building that meets code go ahead and do it? I can get that we want to compensate those from whom Council has confiscated wealth through regulations barring that they replace a building with one of like quality, but if we're doing that by letting folks rebuild rather than giving them cash, it kinda suggests that there isn't any great reason for the six story building limit (or seven if you're green enough!).

Meanwhile, Labour's proposed an earthquake recovery policy [unconstrained by any prospect of forming government] that includes this bit:
"Under Labour's plan to acquire 1500 sections, the cost of buying and readying the land for rebuilding will be recovered when it is on-sold to Red Zone residents who have been paid out from the Canterbury Recovery Fund.

"We will do this at cost to keep the price low so as many residents as possible can make a fresh start without suffering extreme financial hardship.

"It is expected our plan will act as a signal to the market and help keep property prices reasonable in other areas.

"We will not rule out using the Canterbury Earthquake Recovery Act to purchase land in the face of any evidence of price gouging by developers if that is needed to ensure a fair price is sought and paid."
Ok. The main constraint keeping land prices up is the supply constraint stopping people on the edge of town from subdividing. There's plenty of land within reasonable driving distance of downtown that could be opened up for Red Zone residents if only the land were zoned for denser residential use. Wouldn't it make more sense to get rid of a regulatory barrier to building than to have government purchases help to bid up the price of inelastically supplied sections? And I can't see how it's helpful to threaten losses on developers working to build new houses for folks in the Red Zone by promising to intervene in property markets if prices don't meet Labour's standard of fairness.

Labour also promises that the insurance standoff would be resolved: insurers won't take on new policies in Christchurch, partially because, as I understand things, the reinsurers won't touch new policies until the aftershocks ease off. I really wish I knew more about what's breaking insurance markets currently. I can believe that an actuarily fair premium right now would be very high for the next few months and that some reinsurers would sooner delay than be viewed as profiteers. I'd expected that some uncertainty had been resolved by the recent court decision finding that EQC takes the first $100k of all earthquake claims on a property rather than of the cumulative total damage to the property. But that's not yet seemed to open up the insurance markets.

1 comment:

  1. I think that we have to consider that downtown was already doing badly pre-earthquake, with an exodus of businesses. I assume that for several building owners it would be more profitable to grab the money and invest it in other NZ cities (or even in Australia). On top of that, the draft central city plan added a number of restrictions that do not look at encouraging investment in the CBD (or in Christchurch in general). If a building owner is not a property developer, the incentives lead to abandon the idea of putting a building in the CBD.

    Labour's plan is strange. The idea of buying a bunch of sections assumes that people i- will not sort things out until 2013 (there is no way that you could buy the land, subdivide it and build on it before that), ii- will want to move to the predetermined location of said sections and iii- want to build houses from scratch rather than moving to an already established neighborhood.