Rebuild momentum hit by recent quakes
Reserve Bank governor Alan Bollard says the time frame for the Canterbury rebuild has slipped substantially back into 2013, with builders and insurers saying the December aftershocks have contributed to further delays in getting insurance on new projects.
The bank's estimate of how much damaged property will be rebuilt had increased to $20 billion-plus from $15b.
The bank now estimates the total cost of claims stemming from the earthquakes, including claims for business interruption and temporary accommodation, could be much higher, at $30b.
"In the meantime, it is the insurance sector that's the prime thing holding up the rebuild," he said. "That's not to say there aren't regulatory problems behind that, but until there is some better degree of seismic stability, that is their response, and one can understand that.
"We're obviously looking for that to loosen up and start to see new insurance get into place."
The Canterbury and wider New Zealand economy continue to face uncertainty from both the quakes and the European sovereign debt crisis, meaning the bank's official cash rate (OCR) was likely to stay at a historic low of 2.5 per cent for the rest of the year.
Asked when he might change the rate, Bollard said the OCR was in a "sweet spot" and the market held the view it was likely to be unchanged in 2012. "We're reasonably comfortable with that view at the moment," he said. "But, of course, we will keep looking at those things."
Bollard was making his traditional first public speech of the new year to the Canterbury Employers' Chamber of Commerce. Last year, the address was made in the Hotel Grand Chancellor, one of the high-profile quake casualties.
He noted significant aftershocks were still occurring 16 months after the first major quakes, with 400 greater than magnitude-4.0, and more than 40 greater than magnitude-5.0, not to mention the city's "unusual propensity to liquefaction".
He noted that Prime Minister John Key said this week that nearly 70 per cent of 1357 buildings approved for demolition had been demolished.
With 80 per cent of Christchurch insured, the bank's working assumption was that about $20b of damaged property would be rebuilt. That was equivalent to about 10 per cent of New Zealand's gross domestic product (GDP) - "a very large shock indeed".
By comparison, the massive earthquake and tsunami that hit Japan in March last year was estimated to have caused damage equivalent to about 3 per cent to 4 per cent of Japan's GDP.
Central and local government faced significant costs as a result of the quakes, the largest being an $11.7b Earthquake Commission (EQC) cost and another $2b cost on Government accounts, with total claims expected to exhaust EQC's natural disaster fund.
While the rebuild might not start in earnest until 2013, the number of quake-related building consents for buildings had spiked "quite a lot" since September, Bollard said.
"A lot of people are making decisions . . . and going through and getting regulatory approval, often in advance of being able to get insurance and putting work in place."
Residential investment and consumption in the city was picking up more than elsewhere in the country.
New Zealand's GDP growth was expected to run at 2 per cent to 3 per cent in 2012, lower than the 3 per cent forecast given in December.
The rebuild was eventually expected to add 1 percentage point to the national growth figure.
It was projected to provide a boost to demand similar to the mid-2000s housing boom.