Quake-prone Wellington buildings lose almost half their value: Motu
Wellington commercial buildings which were identified as quake-prone have lost almost half their value, according to a new report.
The report by economic thinktank Motu and GNS scientists found that since the Canterbury earthquakes nearly five years ago, if a commercial building was declared earthquake prone, its sale price fell on average by 45 per cent.
Motu senior fellow Dr Arthur Grimes said that, curiously, the price discount only applied to buildings that were officially "yellow" or "red stickered".
If a building was not labelled as quake-prone, but an engineer's examination would have found it such, it did not lose its value.
"This came as a real surprise, and we believe it may be because the council's policy legally requires remedial action, whereas an engineer's report does not," Grimes said.
The Wellington City Council has been proactive since the Canterbury earthquakes, speeding up the establishment of a register of all pre-1976 buildings in the CBD.
But Wellington city councillor Iona Pannett, who has the building portfolio, said she found it hard to believe anyone would buy a building in Wellington without first assessing its strength.
Building owners were not required under the Building Act to put up yellow stickers but the council took the view that the public had a right to know, she said.
"I'm extremely sympathetic toward the building owners. If you've lost a huge amount of value in your building and you can't get tenants, you need the tenants so you can do the strengthening."
Mike Cole, an architect and president of the Wellington branch of the Property Council, said most building buyers did not pay much attention to whether a building was stickered.
"Generally they would have an assessment done and make their own assessment as to whether they needed to be doing work or not."
He also doubted many building owners were too scared to find out their buildings seismic rating.
"Most of them have had to do it because their tenants have asked them to anyway, or because of their insurance premiums. They have them assessed to try and reduce their premiums."
"It hasn't really mattered what the owners wanted."
The Motu report followed 832 sales of Wellington commercial buildings between 1998 and June 2015. Sixteen were properties classified as earthquake-prone at the time of the sale, and 132 properties were declared earthquake-prone after their sale.
In the post-earthquake period, 14 earthquake-prone buildings were sold and 14 buildings that were subsequently declared earth-quake prone were sold.
"We don't have large sales numbers, however the effects we found are strong" Grimes said.
The estimated discount across the wider Wellington area for commercial properties was an average of 25.5 per cent.
Pannett said the cost of strengthening for smaller businesses was so onerous that the Government needed to come to the party.
At present, quake-prone building owners in Wellington had 15 years to meet the minimum for seismic strength, and the council had done what it could in terms of rates relief and limited grants for heritage buildings.
But commercial property sources said tax breaks from central government were the key.
Cole said the United States had such incentives, although it had also had a different tax system, and work by an American economist showed that money spent on strengthening would come back to the government through other avenues.
"It's not just the old buildings. Buildings like Majestic Centre which was a comparatively new building, because of Christchurch, they had an assessment done and found out they needed strengthening, so it's affected everybody."