Monday, March 30, 2015

Frank Newman: Earthquake rules threaten properties

Strengthen or demolish? That's the question many property owners will be forced to answer if a bill before Parliament passes into law.

Reviews by the Canterbury Earthquakes Royal Commission and the Ministry of Business, Innovation and Employment have triggered aftershocks that are now being felt throughout New Zealand.  Those reviews raised concerns about the lack of information identifying unsafe buildings and urged the Government to make sure that all buildings had at least one third of the strength of new buildings.

The result is the Building (Earthquake-prone Buildings) Amendment Bill which is currently working its way through Parliament. The bill is currently in the hands of a Select Committee which is scheduled to report to the House in July.

The key points in the bill include:
  • An earthquake prone building will be defined as one that does not meet at least 34% of the New Building Standard (NBS).
  • The standard will apply to all commercial buildings, farm buildings, residential blocks of two or more stories and contain three or more units, motels, hotels and other accommodation providers (regardless of whether they are single story or not), fences, bridges, schools, churches, museums, sport grounds and community facilities.
  •  A public register of earthquake-prone buildings will be created and maintained (by local councils).
  • Local councils will be required to undertake seismic assessments within five years of the Bill coming into force, and advise the property owner what is required to bring the building up to the new minimum standard, and when it must be done by. 
  • In general any required work will have to be carried out within 15 years of the assessment, or the building demolished. However, this does not necessarily mean property owners can delay the work the full time. For example, the Whangarei District Council policy requires, "The buildings identified in these reports as falling below 33.33% of the new building standard be upgraded within 20 years [5 + 15 years], or at the time of the next building consent whichever comes sooner." Any building consent application, even if for a relatively inexpensive interior fit-out, would trigger what could be a very expensive and uneconomic earthquake upgrade.
An article in the NZ Herald (9 August 2014) estimated 193,000 buildings will be caught up in the law change with 15,000 to 25,000 likely to require strengthening. Some estimates put that cost at $10 billion (slightly less than the cost of repairing leaky homes).

Most of these affected buildings are in provincial and rural areas. The Herald quoted Wanganui, which has 11 per cent of the country's at-risk buildings. Oamaru may lose its historic stone buildings. The historic town of Waimate may have to demolish 50 Edwardian buildings in and around the main street. In Dannevirke three-quarters of the town's buildings would fail the standard and not be worth repairing.

Virtually every small town in Northland would be seriously affected - Hikurangi, Kawakawa, Kaikohe, Kaeo, Kaitaia - as would many buildings in Whangarei's CBD.

The owners of aging commercial buildings are only now realising their investment may in fact be a very big liability. Most have not seen the tsunami on the horizon, but banks and insurance companies have.

Some banks are now requiring
a one page Initial Evaluation Process report before lending on commercial property. One bank says, "Banks are looking for buildings to be 67% compliant ideally before lending on them, but we will look at 33-66% if there is a clear strategy and short time frame to have them upgraded so that they meet the 67% standard."

A major insurer states, "Insurance cover will almost certainly change if...a building is earthquake prone...The minimum changes likely to apply are: The basis for settlement on the building will move to Indemnity Value...Seismic upgrade costs will be excluded from the cover." In other words, cover will be limited to the value of the building at the time of the loss, which arguably could be very little.

Then there is also the reality that many corporate tenants are not leasing property with a low NBS rating. The Property Council of NZ states, "Whilst, under legislation, building owners are only required to strengthen if their buildings fall below the level of 34%...many tenants (including local government and central government tenants) are already demanding that their premises are 70%-100%."

The bottom line is those owning earthquake prone buildings are unlikely to obtain finance, their insurance will be limited and expensive, and they will not be able to attract a tenant. Those effects
are already being felt, even before the bill passes into law.


Brian said...

Earthquake Risk....The new financial and Political Bonanza!
Fear is, as we know is the greatest of all emotions, not only has it in past reduced Empires to dust; but again we see its rise in New Zealand as a potent force by which the Government can satisfy the general public against any future earthquake risks.
In so doing it will gain an opportunity in rural and small town areas for the creation of employment for a rebuild, at the same time also promote the wilful destruction of sound old buildings on a pretext of a political concern.
This is NOT about safe or unsafe buildings, for a force 8 to 9 earthquake; followed by similar aftershocks will destroy most of our cities and towns. No, this is about the impact of fear on a population inundated by a Media anxious to gain “a first edition”. It is also an election nightmare for the Governing Political Party that they will be held responsible for not implementing this legislation.
As Bob Jones pointed out quite clearly in today’s NZ Herald, strangulation by red tape dominates this country. This is complemented by vast ever increasing bureaucracy to whom simplification means unemployment. To continue down this avenue will see New Zealand eventually become the Greece of the South Pacific. (Regretfully without the comfort of an European Union to bail us out)!
The real tragedy will be those who own these buildings scheduled as an earthquake risk, they will be forced through soaring costs to abandon their assets; but here again in a country that adheres to the principals of socialism this will not be a major concern to most people.
Not only do we require a complete review of the Resource Management Act, but also a review of the complexity of our rampant bureaucracy, but also a deal more common sense which is necessary in a country so prone to Earthquakes.
“There is nothing to fear in this world, but fear itself”.

KiwiBuzz said...

But this is only half the story. If you own a building that is an earthquake risk and somebody has declared it to be a heritage building you are in a serious bind.

In many cases, the best way of solving the earthquake problem is to demolish the building and replace it with a new one. But if it is a heritage building you do not have this option.

One option is to walk away and leave it to the council who were then faced with a building that cannot be demolished and cannot be adequately strengthened. So, I suspect, they will remove the heritage declaration. Upon which you can point out that they have effectively stolen your building.

paul scott said...

I have fought like a savage dog through this through this terrible EQC and Insurance. I paid the price, believe me.
At last small mercy for me and a pay out at last by MAS.
Tomorrow another day, another brother even older than me;
"can you help shave the door down so I can open it" Yes I will; I will see you about ten am tomorrow.