OPINION: David Kelly, of the Business, Innovation and Employment Ministry, says TC3 category property in Christchurch is not "munted" and is likely to recover value.
Anyone living in Auckland will tell you that house prices are driven by perception as much as reality. A few people decide that old villas in Herne Bay are desirable. Demand increases and the value of these houses and their land rocket.
Perceptions are driving housing prices in Christchurch, but sometimes in the opposite direction.
Immediately after the earthquakes, property values in some areas have dropped. But international evidence shows that house prices almost always fall after natural disasters.
It happened after the 1989 San Francisco earthquake. Prices in areas perceived to be at most risk took an immediate hit. Houses outside the risk areas, however, increased in value.
The same pattern is emerging in the Canterbury housing market today. Residential properties on TC3 land are selling at prices significantly below capital value, sometimes up to 13 per cent below value.
However, residential properties on TC1 and TC2 land are now selling at prices above capital value - up to 14 per cent higher in TC1 and up to 5 per cent higher in TC2.
The good news is that property values in San Francisco did rebound and rebalance over time, and the same is likely to happen in Canterbury.
The key is good information. The more people know about the actual level of risk and what can be done to reduce it, the more confident about investing they become.
Breaking down negative perceptions and misunderstandings about the technical categories is the first step to rebuilding the local property market.
That means explaining what they are all about to all parties involved in the housing market, not just homeowners.
Homeowners probably know more about the land beneath their house than a real estate agent, insurer or a bank. They've had to understand the implications of zones, categories and rating systems. Each home is now a colour, a number, a letter.
Everyone needs to understand that these categories are not "hazard maps". They are a guide to what sort of investigation is required to work out the most appropriate foundations for repairing or rebuilding your home.
The technical categories are area-wide and represent an extensive analysis of the land performance in each area. The guidance that has been prepared for repairing and rebuilding homes in Canterbury has been peer reviewed by experts at Cornell and Berkley Universities (USA) and Canterbury University (NZ).
The technical categories give information to geotechnical engineers about how much site investigation is required, and they can then work out which foundation designs will work best for the particular land and building.
This is not a new approach in New Zealand.
There are plenty of places where local councils demand site-specific foundations to suit the soil conditions. This happens in parts of Auckland, for example, where there are extensive areas of clay, or on hill sides like the Port Hills where specific engineering design is also required for foundations.
Most land in Canterbury has not changed significantly as a result of the earthquakes - we just know more about it now. More about liquefaction, more about the level of earthquake shaking that can happen in Canterbury, and more about how foundations behave when liquefaction occurs.
That's enabled us to recommend stronger foundations that will perform better in future earthquakes and in the long term, that's a positive step in restoring confidence, increasing resilience, and protecting the investment that people have in their property.
As long as houses get the right type of foundation repair or rebuild for their land and are building code compliant, they will perform well in a future earthquake, and their value will be subject to the ebb and flow of the market, just like elsewhere in the country.
The message is simple - TC3 land is not "munted".
David Kelly is the director of Canterbury Rebuild and Recovery at the Business, Innovation and Employment Ministry, which now incorporates the former Department of Building and Housing.
- © Fairfax NZ News
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