Buildings To Remain Earthquake-Prone Unless Cost Addressed

MEDIA RELEASE

8/03/2013

Buildings To Remain Earthquake-Prone Unless Cost Is Addressed

Property Council warns that New Zealand buildings will continue to be earthquake-prone if the Government does not address the un-affordability of earthquake strengthening.

Property Council chief executive Connal Townsend said both small and large property owners struggling to meet the costs of proposed new legislative requirements will hinder objectives to make building stock safer and impose an impossibly high burden on some local authorities tasked with enforcing national requirements.

“Local authorities will, quite possibly, be left with the clean up job after some owners are forced to lock up and walk away from their properties because strengthening is simply uneconomic. Ratepayers will end up paying this bill.”

Property Council generally supports the Ministry of Building, Innovation and Employment’s discussion document on our earthquake-prone building system and the way MBIE has encouraged open dialogue with property owners.

“Taking a national approach creates a more efficient system that provides building owners with certainty and MBIE has made steps to ensure its proposals are as practical as possible without overly impacting the risk to public safety. However, the cost issue remains a white elephant.

“MBIE’s discussion paper acknowledges that the cost burden will fall largely on building owners. But there are wider implications for the public, including business viability and the loss to local communities from the demolition or neglect of valued heritage properties, and the loss of a rating base to cities and districts.”

In response to MBIE’s discussion document, submitted today, Property Council argues:

earthquake strengthening costs can be substantial with no economic return – particularly for older buildings and heritage buildings

insurance premiums are escalating significantly for buildings that require strengthening. Small businesses and building owners are either already bearing significantly higher insurance premiums, or are unable to afford insurance

banks will not provide mortgage finance for uninsured properties, further adding to the financial pressure faced by small businesses and prospective building owners

current health and safety legislation is inconsistent with proposed earthquake strengthening standards and timeframes, causing tenants to vacate buildings and increasing the financial distress faced by small businesses and building owners.

“In many cases the property owners will be forced to strengthen to at least 70% of New Build Standard, rather than the proposed 34%, because tenants (including local and central government) are already demanding their premises are 70%-100% of NBS.

“If property owners want to retain their tenants, they are being forced to strengthen to these levels, yet they cannot increase the rental yield. Tenants’ expectations have changed but their willingness to pay has not. Businesses and building owners will struggle to get finance for this work.”

The New Zealand tax system does not recognise the sizeable economic loss building owners will suffer. “This is a significant anomaly considering the tax system provides relief for other taxpayers with income-earning assets that need upgrading.

“Incredibly, there are no tax deductions for fixing a building to meet earthquake standards, but under current law, a deduction is available to property owners that do not fix a building that then collapses as a result of an earthquake.”

Property Council is calling on the Government to address affordability issues or risk totally derailing MBIE’s proposals.

Property Council New Zealand

Property Council is New Zealand’s commercial property voice. Property Council represents New Zealand's office, industrial, retail, property funds and multi-unit residential property owners, investors and managers. Property Council’s branches throughout the country represent some of the largest commercial property portfolios in Auckland, Waikato, Bay of Plenty, Wellington, East Coast/Hawkes Bay and the South Island and Otago region, the value of which exceeds $30 billion.

ENDS

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