Insurance premiums hit pre-1935 buildings
Government ministers are contemplating some form of relief for building owners struggling with the burden of earthquake strengthening their properties.
Throughout the country, public buildings are being closed for repairs and councils are reminding private owners of their obligations after Christchurch's devastating earthquakes.
Those lobbying for aid include the commercial property group, the Property Council of New Zealand.
Immediate past president Chris Gudgeon said without incentives seismic strengthening was ''completely uneconomic'' for commercial landlords.
''It really needs to be looked at for all property owners and from a 'New Zealand Inc' point of view, it's this whole concept of earthquake strengthening as a public good.
''Many building owners will be facing reasonably significant capital outlays to strengthen buildings for no commercial return... That's why the tax system needs to kind of recognise that.''
Government ministers will not comment until the Royal Commission of Inquiry into the Christchurch earthquakes has reported back in November.
But Deloitte NZ chief executive Thomas Pippos said the nub of the issue was a change in the tax treatment of buildings two years ago.
Less structural work might still be deductible as a maintenance cost, but the ability to capitalise and depreciate major building work had been wiped.
The problem businesses had with earthquake strengthening was that they could not recoup their costs because it did not change the building's functionality, Pippos said.
''The only thing that earthquake strengthening does do is it enables you to maintain a tenant, because in some instances tenants are pretty wary about being in buildings that aren't sufficiently up though the code.''
Tax-wise, he felt there were parallels with the leaky building situation.
The Government had stepped in even though most leaky homes were not within the tax base, whereas most quake-prone buildings were commercial and within the tax base.
Gudgeon, who is chief executive of Kiwi Income Property Trust, said earthquake strengthening should be treated as a business cost.
''Dealing with structural obsolescence is a cost of doing business just the same as dealing with the obsolescence of your photocopier or your computer.''
Revenue Minister Peter Dunne said policy work was being done on earthquake-prone buildings but nothing would be decided until the Royal Commission made its next report.
''It would be pre-emptive to come to any decision about whether the Government would be in a position to provide assistance on this until that has been completed."
The commission is due to release its report on November 12.
OLDER BUILDING HIT HARD
Earthquake strengthening is becoming vital for commercial building owners, both to keep tenants and to cut soaring insurance rates.
Insurance premiums have risen across the board but particularly for pre-1935 buildings, when construction methods changed.
Heritage areas such as Auckland's Ponsonby Road, Grey Lynn, lower Queen St and Wellington's Lambton Quay are some of the hardest hit.
Without earthquake strengthening, some of these buildings face at least three to fourfold increases in premiums, insurance sources says.
''It's everywhere, all over New Zealand,'' said James McGhie of insurance brokerage Apex General.
He cited a 1910 building in Auckland's Fanshawe St where the yearly premiums had jumped from $7000 two years ago to more than $45,000.
If the premiums were passed on to tenants, they could well move, he added.
''What would you do? I'd look for a newer, more modern building.''
In Wellington, where many buildings have been on notice for years, the prospect of tax relief for earthquake strengthening would be greeted warmly, city councillor Iona Pannett said.
''Building owners are suffering and they do need some carrots as well as sticks. Regulation is good but they do need some incentives.''
Her council was considering offering incentives of its own to bring buildings up to standard.
One suggestion was to tie earthquake strengthening loans to rates bills to make them more palatable to banks.
Wellington has 435 unreinforced masonry buildings, which would cost $535 million to bring up to code.
Cr Pannett, who holds the council's built environment portfolio, said the council walked a fine line with building owners to get compliance.
''If you bring timelines in, it makes it much more difficult for people to get an economic return on the building and we can't have a whole lot of buildings empty... Because as you know, there's not a lot of development going on the city at the moment.''
- © Fairfax NZ News