Uncertainty holds Christchurch down
It seemed so simple last September – once the aftershocks settled the land would be stabilised and battered buildings mended.
A year later, property owners face a smorgasbord of uncertainties depending on their colour-coded zoning. Everyone is waiting for some sort of inspection, report, announcement or payout, and managing to find insurance for a rebuild is like winning Lotto.
As property owners dusted off after the quakes, a two-tier real estate market quickly emerged. Undamaged houses on the west side of town sold well but even intact homes proved hard to sell on streets lined with road cones and portable toilets.
Time has since shown a moderately cracked home is not necessarily a liability if it is liveable, insurable, and its future looks OK – and there have been many successful transfers of insurance claims from seller to buyer.
Many sellers, though, are still holding off.
House prices are up slightly in the less shattered parts of Christchurch, more so in surrounding towns, and are holding steady in damaged neighbourhoods.
QV valuer Melanie Swallow expects "continued pressure" on cheaper housing.
Predicted severe shortages of rental homes have not happened, and the government's temporary housing remains under-occupied.
Against a background of an already slow market, the quakes took industry casualties. Real estate groups merged or closed offices, and a quarter of agents and salespeople in Canterbury-Westland either left the business or left town.
The biggest question facing the region now is where and how to rehouse the residents of over 6000 red-zone homes, and those who will follow them.
Valuer Bevan Fleming says red-zoners should hire the best lawyer they can get and fight for the best payout possible. "This is not a time for a call to the family solicitor, or a ring-around in the Yellow Pages," he says.
Free market models do not function well in a crisis and government intervention has already been called for in both the insurance and land supply markets. A functioning insurance market, whether private or public, is essential for new housing.
And while Canterbury has plenty of good land, much of it is tied up by zoning regulations, airport noise or aquifer restrictions, or the business plans of land developers.
Property consultant Graham Crews says affordable sections, not upmarket subdivisions, are needed. The rehousing is so unprecedented that the direction of the market is "almost impossible" to foresee.
There is already evidence of recent section price rises, and any rush of demand or holdup in supply could cause a price spiral which could be made worse by speculators.
A steady roll-out of new sections and staggered relocations should work, but a fear of being priced out of the market could cause a stampede by red-zone buyers. Especially if they must compete for homes with migrants arriving for the rebuild.
And what about those watching from the limbo of orange or white zones while the market accelerates away from their 2007 rating values?
Freeing up restricted tracts and using incentives to speed developers' release of sections would help stop inflation from hammering those further back in the queue.
Another uncertainty is capacity in the construction industry. While a slow rebuild may help the economy – economists warn rapid activity would trigger steep inflation and boost interest rates – it will frustrate those keen to move on. As it is, construction analyst Rider Levett Bucknall is forecasting a 3 per cent rise in building costs in Christchurch by the end of this year, three times that expected in the other main centres.
Westpac chief economist Dominick Stephens believes new homes could be under way on stable land soon, and by mid-2012 on unstable land. Little commercial building is expected inside the central city red zone until 2013. Stephens is forecasting bottlenecks with planning, consents and construction.
A year ago business owners had little idea their accommodation, too, would face such uncertainty for so long. Suburban landlords reaped the benefits as offices and shops filled fast after the quake, and are now meeting a second wave of demand for medium-term premises while the central city stays shut.
With so many downtown office buildings gone, quality office space will be sought after when the central city reopens, especially if it comes with the parking tenants are enjoying in the suburbs.
Landlords and developers on the fringes of the central city are already moving to meet that forecast demand – witness the rebuilding in Victoria St and leasing activity in Moorhouse Ave. Some developers have been very active in buying up sites.
Commercial property prices are down 10 per cent on a year ago and Hamish Doig, head of Christchurch commercial realtor Colliers, says hesitancy from buyers and insurance hassles are to blame.
But commercial rents will go up and already investors from as far afield as the United States and China are looking at sites in Christchurch, he says. He had feared a flight of capital from the city but says a Government tax incentive will encourage commercial landlords to stay.
"We are on the cusp of a very exciting time – you can't help but have a phenomenal economy with the billions that will be coming in for the rebuild."
In one respect, uncertainty is behind downtown property owners – most now know whether they will repair or demolish. But while insurance impasses are paralysing some, many are also waiting to see the final shape of the new central city plan, due for approval around Christmas.
Already property investors have been vocal about infringements they see the plan having on their rights – particularly regarding building heights and parking.
In the industrial sector, the rebuild will boost demand for premises such as storage facilities and builders' depots. In retail and hospitality, the shape of the new town centre will determine how many and what types of businesses re-establish there, while in the suburbs the need for retail property will shift as populations relocate.
A year on from the first big quake there are more questions than answers. In another year what shape will the city's property markets be in? Will people and businesses find the accommodation they need at a price they can afford, or will they have been pushed out, priced out, or have left through frustration?
Quietening of seismic shocks aside, a steady government hand and tenacity from Cantabrians will be needed.