Action, not sympathy – what’s wanted by apartment owners

Funding in the Budget for a residential earthquake-prone building financial assistance scheme, with $23.3m of operating and capital expenditure, is an important first step. But support can’t stop there.

The scheme is a suspensory loan, available to owners of residential units in earthquake-prone buildings in high seismic risk areas (such as Wellington) who are facing financial hardship, with properties acquired before 1 July 2017. We have no detail on how this will be implemented as yet. Grant Robertson says he sees this as a starting point in the support that is needed and he knows that it won’t address all the issues.

Details are being developed for Cabinet approval. This will include eligibility criteria, the form and amount of assistance available, and how the scheme will be administered.

Inner City Wellington has lobbied the Wellington City Council since 2015 to provide advisory support for body corporates facing the need for earthquake strengthening. This year, the Council has indicated that advisory support will be more widely available, but the indications are that the Council want to target it to owners of priority buildings. The support must be available to all body corporates of residential apartment buildings – the Budget announcement will increase the demand for that service.

A number of body corporates are struggling to access reliable technical and professional advice about earthquake strengthening, and often end up paying multiple times to get advice they can rely on. ICW has pushed for MBIE to set up this service, but to date it hasn’t. The conclusion in the Wellington City Council’s external review of the URM facades and parapets project shows that funding and advisory support are critical to helping projects progress.

ICW submitted on the consultation document and interim report of the Tax Working Group calling for tax relief for owners who have already paid or are paying for mandatory seismic strengthening and saying there must be an equitable approach for residential owner-occupiers. The TWG recommendation was to reinstate depreciation for buildings. We wrote to the Ministers of Finance and Revenue stating that this would not help owner-occupiers.

We called for new thinking on how to fairly provide the same tax relief for residential owner-occupiers and to make it retrospective. There are precedents for retrospective tax relief following the Canterbury earthquakes. Grant Robertson has been instrumental in ensuring that residential owner-occupiers do not get lost among the commercial property owners, including investor-landlords, and he has said the Government is committed to making the work on seismic strengthening costs a priority in the tax work programme.

When ICW started lobbying, the scale of the costs was not known. While the legislation allows for demolition, neither the Government of the day nor the Parliament as a whole considered the impact on private home owners who happen to live in an apartment and the viability of them demolishing and undertaking a development project.

The only option for some owners when the estimated costs and the financial risks of strengthening are so high is to sell – but that will be at discounted prices, with ‘strengthen or demolish’ deadlines looming, and prosecution threats by councils. There has to be some compensation mechanism for this group too.

Grant Robertson helpfully wrote a DomPost opinion piece in 2016 which called on the government of the day to provide financial support for owners facing seismic strengthening. We are holding him to that – and he has delivered with the Financial Assistance Scheme. Our collaborative lobby group has met him regularly since then and we are getting traction on some of the issues we’re raising.

ICW submits on EQPB issues whenever there is the opportunity – and has been supported by owners speaking about their experiences at the oral submissions. The City Council has latterly become more explicitly engaged with advisory support, and announcements of $500k for non-heritage building owners to apply for funds to help pay for reports and investigations. This has been spurred on in our view by Grant’s engagement. The council has a rates rebates scheme for those owners who have completed strengthening – but the challenge is starting and funding the project.

Clr Pannett has been engaged for many years and was instrumental in the rates rebate and the most recent announcements in the annual plan, and has sought ICW’s input on papers, eg around priority buildings. Councillors are sympathetic, but owners don’t want sympathy – they want action, and they expect councillors and the mayor to be lobbying on their behalf as the four provincial mayors recently did.

MBIE and its Minister in the current and previous Governments have been constantly difficult to engage with. They have not responded to frequent requests for meetings. Frustration at every turn, with Official Information Act requests being refused, left to the last day and extended, then released after a complaint to the Ombudsman. We have felt that the residential owners’ perspectives were not being taken into account, but they would probably engage with the Property Council. ICW and BCCG did meet with an MBIE official in early 2017 and we felt we got a good hearing but then he moved on.

MBIE will be implementing the Financial Assistance Scheme and we have written to the Minister offering to work with officials to provide input – as we have done on numerous previous occasions – so we hope they will take us up on our offer. Minister Salesa has asked for copies of this material.

The National Spokesperson for EQC asked to meet us to get an overview of the wider seismic strengthening and insurance issues, not just EQC.

Neil Cooper and I met with Engineering NZ to raise our concerns about capacity, about variability in assessments and how Engineering NZ could participate in advisory support provided via WCC and/or MBIE in a similar manner to the Christchurch Residential Advisory Service.

In our meetings with Grant, we have raised the issue of the capacity of engineers and other professionals to do the work that is required.

We have heard of engineers not wanting to work with body corporates, of three engineering firms telling one body corporate they can’t even consider looking at the work – come back in six months and we’ll see; having to use engineers who are retired and no longer registered – which then means a registered engineer is required to sign-off the work; of waiting six months or longer for engineers to provide the reports; detailed design working taking a year.

Identifying priority buildings and reducing timeframes will add to the pressure on the sector, on prices and on ability to meet timeframes. THE WCC has until December to formally identify priority buildings. While these will mainly be buildings on the EQPB List, there is the potential that others could be added as the WCC has indicated it is still identifying buildings. A number of buildings that aren’t identified as priority buildings have a similar shortened timeframe. We reject totally views that owners have ‘had 15 years to do the work, they should have got on with it’. We know the challenge many are facing.

The wider demand on new infrastructure across the country, including Kiwibuild, is having an impact on the wider sector – and small players such as body corporates struggle to get into that space. The looming issue of the precast and hollowcore floors will also impact on capacity in the wider construction sector. We think there is a looming problem that will begin to affect body corporates’ ability to achieve legislated timeframes – despite best efforts to do so.

We have raised this with Grant and he has advised that given these issues MBIE are looking at the scale of the programme now and what it means for timeframes.

Precast/hollowcore floors began to be used in the 1980s building boom, with various standards issued in mid 2000s.
MBIE has issued a new guidance document that can be used to assess the seismic ratings of buildings with precast/hollowcore floors. But the buildings assessed under the new voluntary guidance cannot be determined as earthquake prone, as the new guidance is not part of the methodology that is set in legislation. This is the case with the Central Library, where the floors are assessed as below 34% NBS. MBIE is taking several years to gather feedback on the new guidance and how it would change the assessments of potentially earthquake prone buildings. It then has to undertake consultation prior to the new guidance being incorporated into legislation. All this creates ongoing uncertainty.

What does it mean for apartments and owners in buildings that may have this type of construction? This raises lots of questions and we don’t have the answers. Owners in some of these buildings may already have been assessed after receiving a letter from the Council saying the building is ‘potentially earthquake prone’, which determined the building was not earthquake prone. But could banks, lawyers (on behalf of potential purchasers) and insurance companies start asking for new assessments under this ‘voluntary’ guidance? What are body corporates rights in these situations?

We think MBIE should be providing guidance specifically for body corporates in residential apartment buildings of this type. Each residential body corporate should not have to source and fund an interpretation of what this means for them – it leads to variability of interpretation, confusion and more costs.

And insurance. We have raised this broader issue of huge premium increases with Grant as well, as it is affecting residential body corporates across the board to some extent – though it is a double- whammy for those facing – or have already faced – seismic strengthening costs. We know that Grant is engaged on this issue and has met with the Insurance Council and with CEOs of the main insurance companies. In our view there is market failure as there is no choice. When body corporates opt not to take natural disaster insurance because they know that some owners will not be able to afford it and that it’s not sustainable for all owners – or they face having to sell – that is market failure.

We are concerned about the lack of transparency of brokers’ commissions, especially when faced with huge premium increases; reports of pressure selling where body corporates are only given a few days to decide and basically told there isn’t any point in looking elsewhere; and reports that body corporates are told that if they go directly overseas they won’t be able to get back into the NZ market. We are concerned at the inconsistent approach to measuring what is residential for EQC purposes in mixed use buildings to determine if the building is commercial or residential – only what’s behind your front door of the apartment, when standalone EQC cover is much broader than that.

The Mayor has called an insurance forum which ICW will be attending. ICW and the Body Corporate Chairs’ Group is also meeting Dame Silvia Cartwright who is undertaking a review of EQC. California has set up under legislation an EQ insurance body to provide affordable earthquake insurance. The policies are available to single family homeowners and apartment buildings.

A new building in Chch has been assessed by multiple engineers, including peer reviews,and is now the subject of a determination case before MBIE. How can a new building have such widely varying views on its compliance with the code?

We hear about the building code needing to change (the insurance sector is saying this), we hear people saying the threshold needs to be 67% NBS not 34% NBS. We hear people saying what if the thresholds change again? There is new ‘voluntary’ guidance being used that is resulting in closed buildings, buildings at risk of closure and buildings where commercial tenants are moving out because the seismic rating (%NBS) has been reduced.

There is no certainty.

Geraldine Murphy is the seismic issues spokesperson for Inner City Wellington. This article was published on Scoop and is part of a speech that she made last week to a meeting of residents concerned about the costs of strengthening earthquake-prone Wellington buildings. ICW is part of a collaborative lobby group that emerged in early 2018. Participants include Neil Cooper, a body corporate chair and Founder of the Body Corporate Chairs’ Group, and four owners of units in residential apartment buildings.