OPINION: It’s not easy being a homeowner in New Zealand – or at least it shouldn’t be.
The geological record of the last century is a symphony of earthquakes razing cities, and their rebuilding, like an urban hokey cokey – in, out and shake it all about.
Risk like this should make it impossible to build and insure houses in New Zealand, or at least make them prohibitively expensive.
But we’re a fair-minded and pragmatic people. And since World War II, New Zealanders have enjoyed the peace of mind that comes with knowing the state heavily subsidises earthquake and disaster insurance in New Zealand through EQC.
This has had the effect of insulating our housing market from the reality of the shaky ground it’s built on. Home values have risen thanks to government-endorsed denial of the fact that all anyone really owns is a patch of dirt that girds one of the most volatile fault lines in the world.
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The EQC system as it was set up was more or less fair. It’s paid for by a levy collected on home insurance, which means that people who own homes pay the cost of the insurance that banks require in order to give them a mortgage.
But, as always, there’s a catch. EQC’s Crown Guarantee means that when the fund that those levies gets paid into runs dry, all taxpayers foot the bill for private homeowners’ earthquake insurance. Thanks to the seismicity of the last decade, we’re in a period in which EQC is drawing on the Crown Guarantee. That means taxpayers, whether they own a home or not, are underwriting the insurance of private homeowners.
In an age when home ownership is becoming the preserve of the privileged few, questions should be asked about the social licence of a regime in which general taxpayers socialise risks while private homeowners reap massive rewards in the form of almost completely untaxed capital gains.
And the system could be about to get worse. Labour is mulling the recommendations of a landmark review into the Resource Management Act. The review, released earlier this year, recommended repealing the RMA and replacing it with two pieces of new legislation, which Labour has said it would like to do.
But the report also mentioned the need for a third piece of law, that would create a regime for managing the cost of climate change to homeowners.
Labour isn’t yet committed to this legislation, but the word on the street is that the party is fairly keen on it.
The RMA report is fairly vague on what the new law, tentatively entitled the Managed Retreat and Climate Change Adaptation Act, would do. One thing the law will look at is how to deal with the ways in which our towns and cities retreat from land vulnerable to the effects of climate change.
This could be something along the lines of what happened in Christchurch’s Red Zone, where homeowners were offered compensation to leave properties that were on land no longer safe.
The report acknowledges that affected homeowners or even local government bodies can’t wear these compensation costs alone, but central government will need to think carefully whether it’s fair to then pass those losses on to future taxpayers, many of whom will never benefit from home ownership.
The report’s authors say this needs to be done in a way that doesn’t encourage “moral hazard” (which would mean people moving to nice seaside properties knowing the government would bail them out if things went wrong), and it also needs to find a way to balance the fact that the people who benefit from a nationally subsidised compensation scheme won’t necessarily be the people who pay into the scheme.
The moral challenge for the Government is that New Zealanders still indulge in a certain level of self-delusion about what a home really is. In part, we think of home ownership as one piece of the quartet of must-haves exemplified by former prime minister Norman Kirk’s partly apocryphal slogan: “Someone to love, somewhere to live, somewhere to work and something to hope for”.
Kirk’s is a fair point, and it elevates housing to the level of a government-guaranteed human right.
But the often-unacknowledged truth is that for many New Zealanders a home is also an investment; the single-largest investment they’re likely to make in their lifetimes.
New Zealand and its politicians need to decide which of these things a home actually is.
Residential property is currently caught in the middle of two quite opposing value systems. If housing is a human right, the government needs to intervene more to deliver that right to more than just the privileged few.
If, however, property is just an investment class like any other, it needs to leave the market to do its thing.
The government could and should manage the way earthquake and climate change risk applies to property, but the people who reap the gains from speculating in the sector should be the ones who bear the cost of insuring it.
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