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Compounding challenges for owners of quake-prone buildings

by Geraldine Murphy
Inner City Wellington (ICW) is pleased to read that the Mayor Justin Lester ‘would not pledge to prosecute those who dragged their feet’ in strengthening earthquake prone buildings.

As quoted by the DomPost last Saturday, he said ‘we’re going to use carrots, and we have that with incentives we can offer’. While he is talking about owners of buildings with URM facades and parapets, and not all earthquake-prone buildings, the stance is reassuring for all owners of apartments and commercial units in earthquake-prone buildings.

Consistency of enforcement across all earthquake-prone buildings must be paramount.

The Wellington City Council issued red notices on a number of buildings in 2011 as the previous round of strengthening had not been completed. Red notices means that the building must be vacated. A number of these buildings remain on the Earthquake Prone Building List with deadlines that have passed.

The Toomath Building and Ablemarle Hotel building in Ghuznee Street are two examples, with 2013 deadlines. ICW expects that the same leeway will be applied to owners of all earthquake-prone buildings.

The reality is that the costs of strengthening buildings being borne by private owners for a public good of safety is beyond the means of many owners who face losing their homes, businesses, savings and investment. Many owners who have completed mandatory strengthening do so at considerable personal costs, both emotionally and financially.

A 2013 Cabinet paper obtained under OIA shows that the average remediation cost used by the Government for a heritage building was $200,000-$400,000 per building. This cost was used for the analysis for the EQUIP fund of $12m over four years for Heritage NZ Category 1 and 2 buildings. ICW is aware of strengthening costs of $5m and $11m for heritage buildings.

An average of $200,000-$400,000 per heritage building is a substantial under-estimation of the costs involved in strengthening heritage earthquake-prone building. Many individual owners in heritage buildings, and in non-heritage earthquake-prone buildings, are facing that level of costs – and much more – for their share of the strengthening costs.

If the costs used by the Government for EQUIP are so wrong, how can we have any confidence in the costs used for the cost-benefit analysis that underpinned the Government policy?

The financial incentives of $25,000 to $65,000 from central and local government for owners securing URM facades and parapets that Mayor Lester refers to, are a small contribution towards substantially higher costs. ICW is aware of costs for this work in the order of $1m.

The WCC has a small fund for WCC heritage-listed buildings or buildings in heritage areas towards investigation costs. Owners of heritage buildings can access advice from heritage officers at WCC and at Heritage NZ.

WCC also has financial ‘incentives’ for owners of all earthquake-prone buildings but these are very small contributions. An average of $566 as the building consent subsidy across the 20 buildings that received it in 15/16 and 16/17 FY is not an incentive. This support is only available once the funds have been confirmed to start the project or after completion. There is no financial or advisory support for owners of non-earthquake prone buildings.

Despite what the DomPost editorial implies, owners ICW are aware of are not sitting on their hands. And yes, many owners are in complicated multi-owner body corporate environments. Many are trying to progress projects in multi-owner environments relying on variable advice from technical professionals to find a viable solution.

Some have a solution and a savings plan to gather the funds over a number of years, while others are in body corporates knowing that they, as part of the body corporate, will have to force some of their neighbours to sell so the project can progress. And others are talking about the possibility of bankruptcy.

The challenges facing these owners are compounding and there is no real help.

So, what to do? Prosecution and $200,000 fines will not help owners who are struggling to fund the costs, manage complex and technical projects, strengthen buildings faster. It will lead to fire sales of apartments, commercial units or whole buildings. A bargain for the buyers, but disaster for the owners.

The other reality is the cost of strengthening will continue to rise, the burden on owners will compound, and the burden on ratepayers will grow if councils take over the buildings to demolish or strengthen (if it is heritage), and then endeavour to recover the costs from the owners or through selling the property.

The Government needs to recognise that this is not just a Wellington problem alone. Wellington is facing it first and has more residential owners affected than in other places. It will begin to hit in the commercial streets of regional and provincial towns in high and medium seismic risk areas in the next 2-3 years. It will become even more apparent when priority buildings begin to be identified and the timeframe to strengthen is reduced to half.

In Wellington, and other high seismic risk areas, this means 7.5 years rather than 15 years.

Owners want to get the work done and get on with their lives, but many cannot. ICW continues to lobby central government for a lender of last resort facility, for tax transfers and rebates for all owners of earthquake-prone buildings funding a public good and for advisory support for all owners.

The WCC stopped any effort to address the real financial impacts on its ratepayers when the national policy was being developed. There is a dual central and local government responsibility to support owners to strengthen their buildings without driving owners out of their homes and businesses and potentially into bankruptcy.

Geraldine Murphy is deputy chair of Inner City Wellington, which represents residents, organisations and property owners who live, own and operate in the Te Aro and Wellington Central community.

17 comments:

  1. michael, 12. May 2018, 22:14

    Well done ICW.
    For too long now both central government and the council have skirted around this issue. It is totally unreasonable to expect home owners who, through no fault of their own find themselves facing huge costs, to strengthen buildings with no ability to do so.

     
  2. Trish Janes, 13. May 2018, 11:05

    ICW is quite right about the impact of earthquake issues on building owners. But what’s to be done? All across Wellington there are large amounts of money being poured into bottomless pits with no financial return, just needed to stay where we thought we were before these revelations. I see that Wool House has been sold on an “as is” basis so the new owner who can fix its structural problems. (That’s the highrise between Jervois and Featherston with the criss-cross towers at each end that only recently had two glass stories added on top and a new facade facing the harbour views.) It was valued on the owners’ books at $90m, but was sold for $10m. The owners of the Majestic Tower must have faced a similar situation when they were forced to spend nearly the full value of the building just on strengthening – although they eventually completed a bigger upgrade. Just imagine what progress the the city would have seen if all this capital had not been needed just to stand still. Geraldine is speaking for residential owners who are seeing their savings disappear down the same black hole.

     
  3. Helene Ritchie, 13. May 2018, 16:27

    Geraldine is so right.
    This is all a scandal which needs investigation and compensation.
    So many individual owners in their own apartment homes are financially and emotionally stressed through no fault or action of their own.
    They cannot live their lives in “quiet enjoyment”, yet their buildings and the structures are as safe before they were stickered ( red or yellow) as after. Nothing has changed ..except they now have a cardboard notice at the front door.

    This is a very unjust situation for them.

     
  4. Andy Foster, 13. May 2018, 21:10

    Helene – you are right that nobody is at ‘fault’. However let’s not kid ourselves that there is no issue here, and that it’s just bureaucracies putting stickers on buildings for no good reason. There are a bunch of faults involved. They are sitting right underneath us – and quite rightly Central and Local Governments are doing something about this. Christchurch didn’t do anything about it, even though history suggested it should have, and look what happened, and what that cost in lives and in economic and social cost.
    What we can say with absolute certainty is that Wellington City Council is by a country mile the most advanced in the country in earthquake preparedness. Given the shaky area we live in it is just common sense that we have to be prepared. That involves fixing or demolishing our own buildings, supporting private owners of heritage buildings to fix theirs, strengthening infrastructure, leading research and encouraging community preparedness. It is expensive as Trish says, but that cost will be dwarfed if there is a major earthquake and we are not ready.
    We aren’t there yet but I think within 10 years we will be. That doesn’t mean we avoid any death or damage, but it means the city is best placed to get back on its feet quickly. Christchurch is still trying to rebuild its heart 7 years on. Wellington just cannot gamble in the way that Christchurch did.

     
  5. Geraldine Murphy, 15. May 2018, 12:57

    The question is Andy, should private owners be fully funding the public good outcomes that are the drivers for the policy? Has WCC written to the previous or the current government in support of the Lender of Last Resort facility ICW proposed? Who is going to step in and support those owners who face losing their homes and/or financial ruin to achieve public good outcomes?

     
  6. Helene Ritchie, 15. May 2018, 14:32

    Dear Andy
    There are significant rights issues here which seem not to be on your radar at all. In simplified terms, people have been and are being deprived of their right to have a roof over their head – and one they have paid much for. They have a right as well to live without artificially imposed emotional stress.

    A comparison with Christchurch is fallacious in countless ways. In any cases, most of the damage and ongoing was in the suburbs with liquifaction and houses munted and ongoing stress…So a comparison might be that you would therefore demolish Kilbirnie and Miramar for starters just in case, or at least red and yellow sticker them. Surely Andy you are not making decisions affecting people’s lives like this?

    Geraldine has asked three good questions….People’s lives and living depend on your answers to them.

     
  7. Andy Foster, 15. May 2018, 17:24

    Dear Helene. You seem to be arguing that Councils (all Councils) and Government should not do anything about buildings likely to be earthquake prone. The first purpose of strengthening buildings so they are no longer EQP is to protect lives – most particularly the lives of building occupants. It is literally to ‘keep the roof over their heads’ (and preferably the walls staying upright too). If you go further (strengthen more) you can try to protect the buildings themselves so that they are likely to be fixable and ideally usable post a substantial quake.

    I used Christchurch as an illustration, but you could look at building stock in a range of countries where there have been major quakes. It is pretty obvious that there are widely varying death tolls, and that better buildings means much more chance of surviving. We all know, and have done for a long long time that Wellington is in a seismically active area and therefore we must be as well prepared as we can be. That’s why successive Councils have put such focus and resource into earthquake resilience.

    Your comment about Kilbirnie and Miramar is completely off beam. You know – or should know – that the legislative requirement to assess buildings’ seismic resilience does not apply to ordinary houses. An earthquake might indeed ‘munt’ houses as happened in Christchurch, and it is most likely to happen in areas prone to liquifaction. However, and this is the key point, there are unlikely to be many people killed by them in a quake (do watch chimneys and heavy furniture). That is completely different with heavy multi-storey, often masonry and concrete buildings, and they are the focus of legislation and of Council action.

    I’ve just looked up what I could find about Christchurch. Of the 185 people who died in the quake, 12 died outside the four avenues of the central city. Of those 5 were related to rock falls on the Port Hills/Sumner, and it looks like another 5 related to commercial premises. I found things like coronial inquests and comments about heavy concrete walls and piles of bricks. Somebody who has more information on this may be able to provide it, but the key point is that there were (2 at most it seems) deaths that occurred in suburban houses not hit by large rockslides.

    Geraldine – good questions. Not sure my thoughts are particularly material on them. There is certainly public good in protecting the public from being killed by somebody else’s building. There is certainly public good in heritage protection. There is also private good in strengthening one’s own building, whether it is an investment – or even more if you live in it. That work increases the owners’ building value and should reduce some outgoings (insurance) for any given value of building. At the moment the Council recognises public good through grants (heritage), rates rebates (all buildings when strengthened), advice and most recently the URM investment supported also by Government. I am sure there are other tools that can be looked at.

    Warmest regards, Andy

     
  8. Geraldine Murphy, 15. May 2018, 18:53

    Thanks Andy –
    At least one building that has been strengthened to over 70%NBS has had no reduction in insurance, despite assurances that would occur.

    The jury’s out on whether strengthening increases the value of the building or apartment/commercial unit. Some may come out winners. But some of the costs I’ve seen for a single apartment would be considered uneconomic and over-capitalising if it was optional. At best they may regain the lost value.

    It increases the ability to lease for commercial units (if you can afford to get over 67%NBS) and may increase the ability to sell, but that doesn’t necessarily mean you recover lost savings or all that you spent.

     
  9. Josie B., 16. May 2018, 10:20

    @Andy Did Defence ‘House’ on Aitken Street have an NBS and what was WCC’s part in the building consent process? Ditto for Stats House and BNZ port buildings. You’d think that newer buildings would be less earthquake prone but this is obviously not the case. It makes me worried about the solutions modern civil engineers come up with for fixing existing buildings.

     
  10. Roy Kutel, 16. May 2018, 10:41

    @Andy, Your 185 deaths ‘forgets’ 40 suicides which the NZ Herald has linked to the Christchurch earthquake. Eight were ‘battling the Earthquake Commission (EQC) and insurance providers’.

     
  11. Tim, 16. May 2018, 17:13

    @Andy, I think we all agree that these at risk structures need something to happen to them. It’s either strengthen them (prohibitively expensive), sell them to developers (basically loose your home and investment) or pull them down (often not allowed due to ‘heritage’ status). If the strengthening work benefits all of the city (present and future), why wouldn’t the city share some of the cost of the work? I understand the WCC is in great financial health according to a recent article from the Mayor. If the city can’t afford to do that, then surely it stands to reason private individuals can’t either. An interesting situation no local or central Govt agency has been able to adequately respond to or advise on. Although we may not have experienced the loss and devastation that Christchurch has faced, the distress and heartache felt by Wellington apartment owners particularly is real and has its own set of social and economic consequences.

     
  12. Margaret, 16. May 2018, 21:30

    Andy. The statement that the Council is leading the country is just grandiose spin. The Council is not even providing an adequate advisory service for unfortunate apartment owners who are told to spend millions on their homes along with their neighbours. The Council is not recognising the emotional stress, let alone its own assessment mistakes (by identifying the wrong buildings and the wrong potential damage. The costs of which fall unfairly fall on the home owners.)

     
  13. michael, 17. May 2018, 8:58

    @Andy: One solution here – the council have been banging on for so long now about need to increase the housing stock. So why don’t they buy out apartment buildings where owners cannot afford to strengthen them, strengthen them and then use these building for their increased housing stock, instead of spending millions lining developers’ pockets.

     
  14. Citizen Joe, 17. May 2018, 10:26

    @Michael, recent history shows the WCC has sided with institutions seeking to maximimise their private returns. Example 1) Vic Uni who bought Gordon Wilson flats to demolish and then land bank for 20 years (thankfully this has been stopped through an appeal by the Architecture Centre) and Example 2) developer Ian Cassels who bought Erskine College in 2001, let it fall apart over 17 years and then sought consent to demolish it at the end of 2017 (which he got, despite opposition from Save Erskine College Trust amongst others). Both buildings were heritage listed. [Though the historic convent building at Erskine is being demolished, the Chapel is being saved and restored at a cost of $7m.]

     
  15. Margaret, 17. May 2018, 12:56

    If the Council were a landlord, which it kind of is in this situation, it would never be allowed to “trap” tenants by demanding they spend hugely on rebuilding their homes when they cannot afford it, never expected it and cannot get out of the situation that the Council (aka landlord) has imposed on them. The “tenants” (apartment home owners) have no right of appeal or compensation. Fair? Unjust? Bully Council?

     
  16. michael, 17. May 2018, 21:14

    @Citizen Joe: I am afraid developer control over what goes on in our city is only going to get worse as they build buildings to suit their profit margins rather than creating mixed developments designed to ensure the people living in them can establish resilient and healthy communities.
    WCC officers seems to be intimidated by the developers. The WCC needs to look at the social and health problems created by poorly designed developments overseas to ensure best practices are mandated here.

     
  17. Citizen Joe, 18. May 2018, 11:58

    @Michael, I think we can add Karori Campus to the list. WCC has issued Ryman Health Care a couple of days ago with a demolition compliance certificate (meaning demolition is permitted under the current district plan).

    So the wrecking ball looms for another building that is considered to be an outstanding example of Brutalist and Late Modernist architecture.