Peter Lynn ARCHIVE
Strengthening of Commercial and Industrial Buildings after the Christchurch Earthquakes
And now there is earthquake strengthening; In my view the worst case yet of theft-by-government that NZ has experienced; not in its level of injustice (difficult to beat Poanamu and SNA's) but in the range and scope of it's effect.
The need to make our building safe for occupants and passers-by is urgent and necessary, but the initial public policy response to this is at best a mess and at worst an outrage.
As an owner of various commercial properties I am effected by this, but on balance probably beneficially .
This is because we (my wife and I) are free of significant debt (which is an accident of timing in that being now 65 years old, if I hadn't used the last 30 years to get into this secure financial position then you'd be justified in asking why not). We can choose to either strengthen or demolish and rebuild the various properties we own- and will likely benefit from the increased tenant demand and rental creep that is sure to accompany the reduction in available floor space that closings and demolitions are sure to generate.
But as an engineer and a keen watcher of the political process, I am appalled by local and central governments responses and so far, and particularly by the miss-information they're putting out.
The relevant minister (Maurice Williamson) said last week that there are approximately 25,000 earthquake prone buildings. By extrapolating from the information that has been released so far by those local bodies who have done assessments in their areas, this figure is likely to be between 100,000 and 125,000 - without including individual residences or farm buildings.
Williamson also said that the likely cost of bringing all earthquake prone buildings in NZ up to 34% of the current code is estimated to be 1.7 billion dollars. Estimates I hear from local builders and other engineers is that, for buildings requiring substantial work, a ball-park number is half the cost of a re-build. How many buildings are going to be in this category is conjecture, but it's clear that Williamson's cost estimate is out by at least an order of magnitude. New Zealand will be up for at least $20 billion to lift our building stock to 34%- let alone to the currently aspirational goal of 67%.
Williamson also said that the chances of dying in a sub 34% building in an earthquake in any year are one in a million. Even back-of-the-envelope calculations based on NZ's earthquake history since 1840 suggest this is an overstatement by about eight times.
Why is the minister simultaneously understating the scale of the problem, understating the cost of remediation and overstating the risks?
Could it be that he's just the mouthpiece for his ministry and they don't have a handle on the problem?
Hard to believe - I'm just one private person down here in Ashburton listening to various media releases and to what people in the trade are telling me. His advisors are paid well to get this sort of thing right - and they have sources which I am not privy to. The real numbers, whatever they are, will be circulating in his ministry somewhere for sure.
Or perhaps he just doesn't want to scare the horses; better to let NZer's into the scale of the problem they are facing gently?
Or could it be that another grand theft is in progress here?
An obvious question, begged above, is why NZ would spend money on earthquake strengthening to save half a life a year when the same money spent on say roads or health care could save 100's or even 1000's. Our government undoubtedly knows this and they certainly always consider the costs versus the benefits before doing things- as they jolly well should.
But they're also subject to public opinion - and an election next year - and the NZ public is currently clamouring for earthquake safety, and for someone else to pay for it.
Owners of commercial properties are not best loved by our wider community, so could it be that they're being set up to take the fall in this?
Consider Alf, in his late 30's, living in a NZ town (not Ashburton) who just before the first Christchurch earthquake took out a substantial mortgage to buy an old but sound (permanent materials!) central business area property for his business. Within a year after the law change requiring all building to come up to at least 34% of the current code, his building had been assessed as an earthquake risk and he had to move out. His rates and mortgage repayments haven't ceased because of this - and he has the added rent cost of new premises. The council is now requiring demolition- or it will have it done and send him the bill. The bank won't lend him money for this- he's maxed out. Not having any earthquake damage, he can't claim on insurance. All of this has happened not because of anything that he's done or hasn't done- his current situation is the result solely of a change in the law - a change in the law that in any one year has a one in 8million chance of saving a life in the whole of NZ , and for Alf's building, a one in 800 billion chance of doing the same. . In its effect it's difficult to imagine a more stupid bit of public policy than this, but wait it gets even worse:
Say Alf's building was valued at $500,000 and the land value under it was also $500,000 before the law change. If strengthening is required, then the cost of this is capital, not an expense- it has to be done with tax paid money (for each dollar required the business will have needed to make a surplus of approx $1.50 before tax). Fair enough you may say- this strengthening adds to the value of the building so of course it should be capital. Which I agree with, except for the element of compulsion- it's bad public policy and imposes hardship, extreme in some cases, if the state arbitrarily requires you to spend money- what would you think if you were directed to go and by a new car, Yes you will have the benefit of using it from then - but it may not be convenient (or even possible ) for you to find the money to buy it when you're required to.
But if instead of strengthening, the decision is to demolish and re-build, then not only the value of the building when you acquired it, but the cost of demolition ( $100,000 would be a good price ) is added to the capital value of your land- now your land is valued at 1.1million dollars for tax purposes - though your bank will still only value it at the original $500,000 when it comes to supporting debt.
This really is grand theft by our government and is going to drive very many Alf's around New Zealand into bankruptcy.
Peter Lynn, 2012
