RIGHT: Ben Kepes is involved in a business that co-owns a $4 million Litchfield Street building, demolished following the February 22, 2011 Christchurch earthquake. It housed the factory for his outdoor equipment business (since relocated). Mr Kepes also co-owns an IT consultancy, Diversity, and has an interest in a business that owns a building in Timaru.
The past year or so have been ... a little crazy.
Anyone with even the remotest connection to Canterbury will have witnessed, at least second hand, the impacts of the quakes.
But it’s only those who live and work in the region who can really understand what the “new normal” actually means.
Of course regular readers will have kept up with my trials and tribulations - or at least those relating to buildings. (See: Chch building owner: CERA demolition charge is 'highway robbery' and For a Kiwi hard bastard, an overwhelming sense of hopelessness).
But what we’re talking about here is a “new normal” that is going to have repercussions throughout the country that will fundamentally challenge our way of life.
Most of us only realize just how far removed from reality this new normal is when we spend time away from the region.
I travel extensively, so have been able to slowly get used to this jarring. But for many, the summer holidays were the first chance that it was really driven home to them how much their lives had changed.
It’s also personally made me reflect a little on the much broader impacts that the earthquake will have on New Zealand.
The new normal for building owners
This week I returned home from a US trip to a full mailbox. One of the letters I received was from our insurance broker regarding a commercial property we own in Timaru.
While largely unaffected by the Canterbury earthquakes, Timaru, along with everywhere else in New Zealand, is facing a massive increase in insurance premiums to cover insurer’s losses from recent events.
So what does this mean in real life?
Well, our beautiful heritage building, which has actually had a degree of earthquake strengthening on it already, was previously insured for around $2 million with standard excess levels of a few thousand dollars.
The premium for this cover was around $7000 - a high figure for sure, but one which we could almost swallow. Bear in mind that despite our building being fully set up to be a hostel or backpackers, it has been vacant for a year or so – a victim of ongoing economic malaise.
Our latest insurance cover changes things markedly.
The insurer will now only cover our building up to a $1 million level, is forcing a 10% excess for every single claim onto us, and wants to charge over $15,000 for the luxury.
So roughly half the cover, on significantly reduced benefits, is costing us twice as much as before.
Appealing, huh? Add to that the fact that the property is not generating income and you have a double whammy of biblical proportions.
The new normal for building owners is decreased cover and increased cost.
The new normal for retailers and towns
I live close to Rangiora, a quaint little rural town that, until recently had been enjoying a mini-boom thanks to an influx of refugees from Christchurch, both retailers and shoppers.
That was until the local council decided to take a hyper-cautious approach to building safety and overnight red-stickered a large proportion of the central buildings – now the local Farmers store, cafes, travel agents, chemists and others are out on the street with no certainty as to their prognosis.
While I understand that councils have a duty of care to people in their areas, they also need to think more globally around the impacts of their moves.
Let’s work along the sequence of events that these changes will cause.
Councils and central government will increase compliance and safety levels for buildings (a good thing).
In taking this cautious approach a significant proportion of our building stock will fall below the minimum requirements.
Building owners will be forced to evict tenants and then will be faced with the decision whether to simply bowl the buildings and walk away, or try and strengthen the buildings up to code.
The problem with this approach, however, is that the New Zealand economy simply won’t allow for building owners to significantly up their leasing rates to claw back the cost of strengthening.
Why not? Because consumers won’t be able to absorb the price rises that business owners will be forced to pass on to them to cover the steeply increasing cost of renting premises.
It might work in buoyant and bubbly economies; it certainly doesn’t in a country with our size, industry type and unfortunately high level of non-compliant building stock
The new normal for local communities is closed buildings, far higher rents and higher costs of goods and services passed on to the consumer.
The new normal for Christchurch city
While Christchurch may still be able to lay claim to the first word of “Garden City” by virtue of the glorious Hagley Park, it’s nothing that resembles a city to me.
Over a year on from the earthquakes, most of the CBD is still out of bounds, a huge number of buildings need to still come down and there is no coherent plan for the city.
When planning the rebuild of a central city building we own, we were going through the process of applying to the council for planning permission.
Ever the sticklers for process, council officers came back to us saying that our 600 square metre site needed several dozen car parks and would fall within maximum height constraints.
After going through the numbers, we worked out that perhaps we could fit a single portacom on the site around the carparks that the council was forcing on us.
While it is possible that these planning rules will be relaxed, it is safe to say that there is no feeling of coherence from within council, perhaps due to a great extent that the earthquake recovery minister is, many folk agree, lacking in competence.
Suburban shift, decade of CBD desertion
But beyond any of the planning or personality, there is a far bigger issue.
Most businesses have now signed long term leases on suburban properties, and the ones who have not are unlikely to be able to afford the new rental level that Christchurch building owners look set to expect.
Add to this the fact that people have started to forget the very existence of the former CBD, and you have a situation that could potentially lead to a many decade existence of a deserted, barren and dead CBD.
The new normal for the Christchurch CBD is one of decentralisation, a dearth of smaller, independent retailers and a multi-decade period of flux.
Luckily there are still smart people in Christchurch running businesses that, luckily for them, don’t require physical property or a vibrant CBD.
From iPhone developers like Polar Bear Farm, to design-led companies like YikeBike, this “knowledge economy” could be the savior for the city.
Of course the risk is that the people behind these businesses simply lose the energy to face the massive hurdles we all face in living and working in our city.
This is a significant risk, not only for Christchurch city itself, but more broadly on our region and entire country. The new normal is anything but.
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