Seems a fair compromise

August 29th, 2013 at 12:00 pm by David Farrar

Will Harvie at The Press writes:

But the two groups are distinct and should be treated differently. First are the people with empty sections, who could not buy insurance in the marketplace and were expressly forbidden from buying insurance under the EQC Act.

The second group is people who chose not to insure their residences, or forgot or made some mistake that meant they were uninsured.

It’s unfair that bare-land owners were offered just 50 per cent. It should be 100 per cent. These people did nothing wrong, took all steps practicable and suffered as a result of a natural disaster.

Those who did not have insurance when it was available should be offered 50 per cent. They also did nothing wrong, but did not take all steps necessary to protect themselves and their investments.

I accept the ”moral hazard” argument that compensating the uninsured at 100 per cent would encourage people to skip insurance in the hope that the Government would bail them out.

That sounds pretty fair to me.

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34 Responses to “Seems a fair compromise”

  1. BeaB (2,123 comments) says:

    I agree that’s fair but there perhaps should be some ring-fencing so that this doesn’t set a precedent for every future land slip etc.

    I know insurance for land is generally unavailable but any review of EQC should take a look at how people can be better protected in the future.

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  2. Ian McK (237 comments) says:

    Reasonable, but if one does not insure, then they are really leaving themselves vulnerable; it should not be the responsibility of the next door neighbour, who was fully insured, to pay for their short sightedness. It is not the Government doing the paying, it is, once again, the poor old taxpayer, probably also in limbo, but having paid their insurance, instead of buying a new car.

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  3. kowtow (8,439 comments) says:

    Genuine question.
    What insurance can you get for an empty ,bare section?

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  4. rouppe (971 comments) says:

    kowtow: none. Erect a small shed, maybe with a sink in it. Then you can get insurance.

    But I was just thinking… If the property is being compulsorily acquired, isn’t this just like a purchase under the Public Works Act?

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  5. Elaycee (4,392 comments) says:

    Those who did not have insurance when it was available should be offered 50 per cent. They also did nothing wrong, but did not take all steps necessary to protect themselves and their investments.

    Why should they be offered 50% at all? How about zero? Nothing!

    If the property had been razed, there would be no taxpayer hand out. If their property had been hit by a plane falling out of the sky they would get nothing. If their property had suddenly become a sink hole – nothing. But because the city was hit by an earthquake, they believe the taxpayer should fork out. With the same levels of ‘protection’ enjoyed by homeowners who had paid for insurance.

    The sense of entitlement is staggering.

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  6. metcalph (1,430 comments) says:

    Rouppe

    If it were a public works purchase then the property would be acquired at its current value (ie next to nothing) rather than its value as of the last valuation.

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  7. swan (665 comments) says:

    metcalph has it exactly right. The media is saying thing like they are getting 50% of the value of their land. Not true. They are getting more than the value of their land, they are just getting 50% of the 2007 valuation of their land.

    I dont accept that bare land owners should get compensated. They invested and there are always risks with investment. One thing that is not often mentioned in the media is that THE LIQUEFACTION RISK WAS WELL UNDERSTOOD BEFORE THE EARTHQUAKES. It was on the LIM reports. There was a 2005 study that got it pretty right in terms of level and location of the hazard. The fact that people chose to buy land without getting advice (e.g. a geotechnical report) is their problem.

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  8. burt (8,269 comments) says:

    It’s unfair that bare-land owners were offered just 50 per cent. It should be 100 per cent. These people did nothing wrong, took all steps practicable and suffered as a result of a natural disaster.

    Yes, totally unfair that people who made a choice to invest their money in something that was risky are not bailed out using tax payers money. All the tax payers who can’t afford to own property should be paying to make sure people who can afford property don’t loose their money…..

    FFS – Socialism – stealing from the poor to give to the rich …. why ????

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  9. burt (8,269 comments) says:

    swan

    THE LIQUEFACTION RISK WAS WELL UNDERSTOOD BEFORE THE EARTHQUAKES.

    But these people are from Labour voter heartland – it’s not fair that having taken a risk with their capital that we (the tax payers) are not covering that risk for them … it’s the socialist way you know !!!!!

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  10. RRM (9,917 comments) says:

    It’s amazing how fast confusion arises around that word “unfair”.

    The earthquake was a natural disaster that happened to those uninsured landowners.

    The Residential Red Zone is something entirely man-made, done to those land owners by the government.

    If the Government wants to tell people they’re no longer allowed to live there, the Govt should pay them their 100%.

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  11. burt (8,269 comments) says:

    RRM

    Yes, because it’s a god given right to have the government underwrite your private property equity.

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  12. Tristan (63 comments) says:

    I’m interested in arguments for and against compensating the non insured for a major event. John Campbell thinks that if it were a fire or something similar the uninsured shouldn’t be compensated but for something like this they should. I have some sympathy for this but cannot construct a reasonable case on why it should be different.

    As for empty sections. I think they should be 100 percent because the government has red zoned the land meaning even if they don’t accept the offer they can’t do anything with the land. I’m sure some of those land owners would be prepared to take the risk and build on their land but they are not allowed to through no fault of their own.

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  13. swan (665 comments) says:

    “If the Government wants to tell people they’re no longer allowed to live there, the Govt should pay them their 100%.”

    RRM. They havent said anything of the sort.

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  14. burt (8,269 comments) says:

    Tristan

    No fault of their own… So if I purchased a property in a town where the main employer closed down and the value plummeted as the town closed down – The government would compensate me 100% because it wasn’t my fault the value of MY PRIVATE PROPERTY went down the drain…

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  15. burt (8,269 comments) says:

    People remember this: The government never forced people to take a risk and invest their own money into Christchurch property – bare land or established property.

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  16. swan (665 comments) says:

    Tristan,

    They couldnt do anything with the land anyway.

    The banks wouldnt lend money for building on this land. Insurers wouldnt insure said buildings. The council would not give you a building consent.

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  17. burt (8,269 comments) says:

    Tristan

    Land is perceived as low risk and perceived as having a guaranteed increasing value. People do however invest into land of their own free will and the fact they underestimate the risks is not the tax payers problem. Would these people have accepted massive capital growth is that had been the outcome caused by a boom rather than the outcome we have now ?

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  18. RRM (9,917 comments) says:

    Burt – I’m not talking about providing everyone with free Govt earthquake insurance.

    I’m saying the earthquake and the residential red zone are not the same thing. In fact they are quite different things.

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  19. burt (8,269 comments) says:

    RRM

    Burt – I’m not talking about providing everyone with free Govt earthquake insurance.

    So you get to choose who is eligible for this special treatment ?

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  20. peterwn (3,271 comments) says:

    I have had a quick look at the judgment concerned and a whole lot of law has been thrown in the mixer and mixed together. One aspect that causes concern – the concept that the ‘red zone’ takes away rights. It seems the court is trying to turn a negative obligation ie not interfering with landowners’ rights into a positive obligation, that is central and local government has an obligation to reinstate infrastructure and if it is not prepared to do so, it must fully compensate landowners. In this light it is not surprising that the Government intends to appeal.

    IMO the appeal and decision making are two rather different matters. The Government and CERA could re-decide the matter in accordance with the judgment and probably come up with the same or similar outcome. An appeal would not then be necessary at least in theory. The other aspect concerns the separation of branches of government. I perceive this case as being ‘judicial creep’ into the administrative branch of government. Any government would wish to resist the country being run by the legal profession and the judiciary. Hence the appeal.

    The same thing is being attempted in the Bain compensation case. His lawyers are trying to persuade the court to place a judicial overlay over a matter which is at the sole discretion of Cabinet. This is IMO another attempt at ‘judicial creep’.

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  21. RRM (9,917 comments) says:

    So you get to choose who is eligible for this special treatment ?

    There is no special treatment.

    If the Government wants to create a new motorway over the top of your property, they pay you your full value to get out.

    Similarly if the government wants to create a new “residential red zone”, they should pay people their full value to get out.

    The residential red zone is not a natural disaster. So it should not be framed as an insurance issue.

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  22. burt (8,269 comments) says:

    RRM

    If the government wants to…. Yes they wanted to clear the center of Christchurch – they bloody well decided that people shouldn’t live there and they kicked them out…. Naughty government – they could have just kicked them out – they didn’t need to make the ground shake and get them all scared and stuff ….

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  23. Michael (909 comments) says:

    I agree that the uninsured landowners should get 100% as it was legislation that prevented them getting insurance, and the Government has acted to make their land less than worthless – they would have to pay to sell as they are still liable for rates.

    However, if you choose not to have insurance then you live with the consequences. They should be treated the same as those with uninsured landowners and be offered 100% of the land value, with cost of demolition and reinstatement deducted.

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  24. burt (8,269 comments) says:

    Michael

    So if you choose to invest in something you can’t insure then that’s different to not insuring – I see what you did there.

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  25. burt (8,269 comments) says:

    BTW. I recently subdivided and hold legal title to a new section. In the sale process I had to get a geotechnical report done and if that report had deemed the land unsuitable for building – would I get compensation ???? The ‘gummit’ let me subdivide, I paid all thy fees and stuff for that – it wouldn’t be fair if the new rules made that land useless… Other people should surely pay me out of my bad decision ?????

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  26. cctrfred (42 comments) says:

    A suggestion from our tea-room is the Government could create another land category, green TC4 and allow all the previously red-zoned section owners to build on their sections. The section owners may need massive foundations or build on stilt-like piles (to prevent flooding) but would then be able to develop their land.

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  27. burt (8,269 comments) says:

    BeaB

    I agree that’s fair but there perhaps should be some ring-fencing so that this doesn’t set a precedent for every future land slip etc.

    I know insurance for land is generally unavailable but any review of EQC should take a look at how people can be better protected in the future.

    Perhaps we could make a law such that any capital gain is taken by the government to compensate for loss that occurs from time to time. If it’s fair for the gummit to underwrite private capital then surely it is fair for the gummit to confiscate all private profit ?????

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  28. kiwi in america (2,441 comments) says:

    RRM
    The decision to create the residential red zone arose from an insurance event – for a property to be designated red, engineers had to examine the land to determine that post earthquakes it was too unstable to remediate without unreasonable cost.

    To expect all tax payers to pay for the folly of the uninsured undermines the entire economic foundation of insurance – from now I I’ll not insure my car and when I have an accident and my insurer refuses to repair/replace because I forgot/chose not to insure I’ll just cry to The Press and form a lobby group to get the government to repair/replace my car. The fact that the government has offered 50% when there is zero obligation to do so is very generous.

    I worked for an insurance company that did insure raw land – the premiums were cheap and it included EQC cover – we paid out on a claim under the policy because it was a steepish section in Nelson and it was washed away in floods – we along with EQG paid out a total of $150k. It was available if you looked but that said, I accept that it was not common place. The ambiguity of this situation and the widespread assumption that no land cover was available makes a claim for 100% of GV for the red zone section owners more reasonable.

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  29. nasska (11,468 comments) says:

    One small detail missing from the discussion to date…..no one was/is going to build on the red zoned land for the simple reason that no insurance company would ever cover what was built. Effectively the land is valueless unless utilised as an army firing range.

    Therefore whatever the owners are offered is a gift. They should accept it & give thanks for the generosity of their fellow countrymen.

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  30. m@tt (629 comments) says:

    Burt, you are missing RRM’s very valid point entirely. In most of these cases the bare land could have a new house built on it right now, and be perfectly fine. The fact the government choose to ‘red zone’ it means the land is now worthless to the current owner. The government was perfectly entitled to make the red zone, and rightly so, but they can not claim moral hazard here because the loss of value is not the national disaster, it’s the governments decision to red zone, they owe the owners full value.

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  31. Akld Commercial Lawyer (165 comments) says:

    With an appeal in the pipeline, there is still quite a bit to play out here. As a result, I will try to avoid commenting on the merits of the decision.

    And as noted above, it is not an easy read as there is an overlay of a number of different principles. This is not a specific criticism, as the judge (and the Crown for that matter) had to deal with submissions from what are effectively two camps – a property developer camp and an ‘outcasts’ group who, amongst other things, want the right to stay in the red zone.

    Instead, I thought it important to underline one point – namely that the Valuer General suggested at the time of the Cabinet decision that the land might might only be worth 10% of CV. Cabinet decided to make the offers at 50% – in an attempt to help red zone owners of bare land move on and redevelop. This has both a human rights slant and a pragmatic one – namely that there would be costs and risks to the ratepayers of Chch and ultimately the taxpayer if a critical mass stayed in areas where the expert advice indicated should become parkland (and not be rebuilt). This included not having to rebuild infrastructure for a small residual population – in an area where that infratructure would be difficult and expensive to retain / maintain.

    So, may I suggest that it doesn’t help to go off down the “entitlement” cul-de-sac – like many pragmatic decisions, the lines of demarcation can become arbitrary.

    As there is quite a bit at stake and the lives of so many Chch folk have been changed so radically – I think we might be relaxed that the higher courts have another look at the decision-making process. Ultimately, an overwhelming majority of red zone residents have decided that the offer was one they should accept – and have moved. We may all end up a little wiser, after the appeal process, should (God forbid) this issue happen again in NZ.

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  32. kowtow (8,439 comments) says:

    rouppe

    Thank you.

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  33. Hamish_NZ (46 comments) says:

    I have sympathy for all residents of chch, have friends and family there that suffered damage in the quakes. But that said I don’t agree with any payments to the uninsured what so ever. They took the risk to not insure for what ever reason. They need to sadly accept it didn’t pay off for them and wear the consequences of their decisions. The government/taxpayer isn’t there to make you whole again when your decisons back fire.

    For the bare landowners I have some sympathy given the lack of easy access to bare land insurance. But I think the offer of 50% of pre earthquake valuation is more than fair. Based on the fact the owners took the risk of buying the land, knowing they didn’t have it insured, and at the time they were happy with that risk. They all knew, or should have known the land they purchased was at risk of liquidation during a strong earthquake event. I understand it was on most if not all of their LIM reports. So they should have been awre of the risks of their investment decisions, and the psossibility that following such an event the land could be so severely damaged that the government would have to declare the land off limits for housing. Thus reducing its value hugely. They have to wear this cost. It was their risk to take, so its their cost to bear.
    We all know bare land thats not zoned residential has a far lower value than residential land, so for the govt to offer 50% of previous zoning value is already a huge subsidy to the owners.

    Its sad that these people have lost money, but the world is full of people who have lost money in bad situations.
    I myself lost a heap of money when I had shares in Air NZ when it went pretty much belly up in 2002. That was meant to be a low risk investment, like property is seen. Should the government pay me out the difference to pre failing levels? After all it was actions of government that lead to it having such low share value.
    I don’t the they should.

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  34. scrubone (3,099 comments) says:

    The fact the government choose to ‘red zone’ it means the land is now worthless to the current owner.

    I’m not convinced by that as an argument, because I’ve spent a lot of time in what is now the “red zone”. It was the earthquake that destroyed the land, and hence the value. The government merely created the zones to enable to council to remove services from an area that very few were going to build on, due to the fact the earthquake made it uneconomic to build a house on that land. The only question was where to place the boundary.

    You can *always* build on *any* land. The only question is how much work you need to do. Foundations on this land would be incredibly expensive. I was talking to a builder just the other day who told me that even green zone foundations (in TC3 areas) can be an additional $30k or more for a house now. Even if the government had done nothing, the red-zone land would not have been built on, certainly not to the requirements of the building code.

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