Seismic upgrade may boost housing intensification
"There are earthquakes in Italy but they don't appear to require them to pull down their ancient buildings, so why are we contemplating it?"
Featured commentNew research suggests Auckland’s housing intensification plan can be helped by the conversion of seismic-prone commercial buildings.
Colliers national director research and consulting Alan McMahon told a Property Council outlook breakfast meeting that when earthquake strengthening rules come into play many owners will not be able to afford to save their older buildings.
“I would say the majority of the owners of buildings built before 1976 are individuals who will not have the half a million to a million dollars needed to fix the buildings.
“Especially if, after you’ve spent it, it is only worth what it was before anyway.”
Mr McMahon says research suggests half of buildings built pre-1936 and 20% of those pre-1976 will be removed from the commercial market by either being demolished or upgraded.
This means the same number of Auckland tenants will have to fit into 90% of current stock, while in Wellington it will be 85%.
“This issue will inadvertently play into the hands of Auckland Council. Looking to the Auckland plan and the unitary plan we would expect the council to encourage residential development in urban areas,” he says.
The Auckland unitary plan, which will become the rulebook for what can be developed in the city, is in a consultation phase.
Ray White Auckland commercial managing director Bruce Whillans agrees that conditions are ripe to convert commercial property into residential buildings.
He says while 18 months ago surplus stock meant industry rates were $3500m2 they are now about $5500m2.
This makes conversion viable, he says, but does not mean all apartments will be able to switch to residential because of factors such as location.
“Residential conversion just doesn’t suit a number of buildings because their floor plates are so big. If you were to convert them there would be dark areas in the back that wouldn’t work.”
Mr Whillans says he insists all vendors get an Initial Evaluation Procedure (IEP) rating as issues relating to seismic strengthening are often misunderstood.
“In my experience, marketing commercial buildings on a daily basis, earthquake strengthening is often not as onerous as the general market perception.”
More by Victoria Young for NBR NZ Property Investor
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Comments and questions2
l think the strategy re the earthquake risk is seriously flawed. Most of the deaths in Christchurch were in a building built in the 1980s, yet there is no requirement for those buildings to be examined. There were a large number of glass-clad buildings built at that time, too, which one would think need further investigation. It would be a great pity for NZ if all our old heritage buildings are pulled down just because the parapet and verandahs are dangerous in an earthquake. Surely sense will prevail and the work be required to keep the public safe while still preserving the buildings. There are earthquakes in Italy but they don't appear to require them to pull down their ancient buildings, so why are we contemplating it?
I concur with Mr McMahon but would like to add that another unexpected consequence is the fact that insurers in NZ are currently lunging, with premium increases that in some cases are nothing other than a try on rather than from any actuarial basis.
At what point does a mortgage free unencumbered owner say he will risk maybe a decade of no insurance and then the saving will pay easily for any strengthening or bulldozing? Hardly a desirable risk or outcome for the community or even tenants, if any. Simpler to call the old building a land bank and put up the shutters.