David Killick reports from earthquake-ravaged Christchurch. Can it ever recover? And what does the disaster mean for property owners?

Landlord June Peka, son Dino, and tenant Bryan Constable sit on the shattered chimney in front of their Avonside house in Christchurch. Their faces are determined, but careworn. There’s a lovely view of the Avon River, but nobody’s looking. A woman with a pram jogs past; otherwise the street is uncannily empty.

Around the house the signs of devastation are all too clear: brick walls caved in, broken glass, huge cracks in the driveway and side of the house, a water pipe bent weirdly to one side. Inside, walls lean at an odd angle, there’s more rubble. There’s no power, water, or sewerage.

“It’s buggered,” says Bryan. “Munted” is the other word you will hear a lot around Christchurch these days.

The house has been red-stickered, which means it’s unsafe, but Bryan is staying here for the time being, just to salvage what he can, such as original wallpaper showing the Bay of Naples. Looters are a problem.

For June, a longtime landlord and property investor, the killer earthquake of February 22 has put a temporary hold to her retirement plans. In the ’80s, with kids grown up, June and her partner sold their family home in Aranui and invested in property. They bought two properties in the more desirable suburb of St Albans.

“We’ve worked hard, and twenty five years further on, we were asset-rich and feeling pretty smug. We’ve knocked off three mortgages, retirement’s just months away, and now it’s time to reap the rewards.”

The second rental was the Avonside house, in shared ownership with Dino and family who live in Western Australia. After the first big quake on September 4, 2010, the sturdy, single story 1950s brick bungalow “took quite a wallop.”

Although a structural engineer reported it OK to live in, the tenants vacated. Looters did further damage, breaking in to steal the hot water cylinder. Bryan undertook to caretake the house, bringing his 1950s furniture and appliances, and extensive library. Then came February 22.

“Our own home is battered, too, ditto the other rental, next door,” says June. “We’re covered in liquefaction, the driveways and drains are munted. Our broken assets are worth almost nothing. Thank goodness we’re not still paying for them. Who would buy then from us? Our plans have changed course – who knows when, where or even if we’ll build that retirement home?”

Look around Avonside and it quickly becomes apparent June’s plight is not isolated. A new grey house leans drunkenly, like it wants to slip beneath the ground. Many others are red-stickered. Getting here has not been easy. I have biked across the city, about an hour’s journey. Traffic is gridlocked, many roads are closed, others are cracked with big humps and holes. There’s a stench of sewage and the howling easterly swirls up the dust.

I cycle past ruined buildings and army troops guarding checkpoints to the city centre. I was here when the earthquake struck, in the central library. Shock. Terror. People screaming. The floor buckled and heaved, but I took cover next to a massive concrete pillar and beam. That building stood up well. Unlike The Press building, where the top floor collapsed, killing one and seriously injuring several others. The death toll from the quake is expected to climb over 200. It wasn’t just old buildings that crumbled, but newer ones, too. Who would want to go back into a high-rise now?

After the quake, I recall walking home past the shattered Christ Church Cathedral, and through streets bubbling mud and water.

The city centre is a mess: it’s munted. Can it ever recover? Who would want to live here?

Tens of thousands have fled. Thousands may have to relocate –10,000 homes may have to go, according to Prime Minster John Key.

And yet, Christchurch is not totally wiped out. The city centre can be rebuilt. It will take a long time, perhaps a generation. The cost is forecast to be $30 billion. Many businesses will never return.

We’re lucky at our place, in Spreydon, at the base of Cashmere hill in the southwest. We had some liquefaction, but not too bad, and the house looks good, with only very minor damage as far as we can tell. We were without power for a while and sewerage and running water for the first week and a half. All our services are now back. The same holds true for most of the western parts of Christchurch.

Walk around some parts and you would never know there had been an earthquake. Some parts of the Port Hills are fine; others houses on the hills have sustained substantial damage. The reasonably affluent suburbs of Redcliffs and Sumner are in a bad way, many homes still without water or sewerage.

The eastern side of the city is worst. Much of the reason has to do with unstable soil, which liquefied. There’s talk of abandoning whole areas, such as Bexley, and relocating people to new locations in Canterbury.

From here on in there will be a fundamental realignment of real estate values. The top selling points will be still-intact walls and roof, toilets, running water, and electricity. There will also be a big demand for rental accommodation in undamaged areas of Christchurch; supplies will be at a premium and rents are likely to rise.

My belief is that if houses had better foundations they could have survived – and that it would still be possible to build back better. But that will cost. What’s needed now are political vision, innovative ideas, and real leadership. So far, there have been few signs of any of those. I spoke to a senior consultant in London for the giant multinational Bechtel Corporation, which specializes in massive infrastructure rebuilds and master plans. Bechtel could help, if requested.

William Cairns, principal of Auckland-based mortgage firm Cairns Lockie, believes several factors have aligned to create “the perfect storm.” The earthquake has coincided with recession, stagnant wages, and now soaring petrol prices.

“The big issue for Christchurch is getting labour to rebuild it. The problem is the average wage in Christchurch is around $30,000 per year whereas in Auckland and Wellington it is nearer $50,000.
“Since Key has got in, our standard of living has dropped against Australia, which aggravates this issue…in a few years we may have more Kiwis living in Australia than the whole of the South Island. This may be telling us something about the wage rates in the South Island.”
Cairns, a former Auckland city councilor, says Christchurch charges its citizens some of the highest city council rates in the country despite having low incomes. “It cannot put them up any more.”
Christchurch people fleeing to Auckland will find it tough: there is already a rental crisis in Auckland, with a shortage of accommodation, says Cairns.
Meanwhile, banks have practical advice for property-owners affected by the earthquake. Erica Lloyd, external relations manager for BNZ, says following the September 4 earthquake, banks have a process in place “to utilize cash payments made by EQC (for those claims where the total damage exceeds the EQC maximum) to provide financial assistance to those customers with a home loan.” Various options are available, and mortgage-holders should contact their bank. “Most banks have in place assistance packages to help those customers who need immediate financial support.”
Lloyd says property transactions can still be completed in Christchurch. “There are, however, some practical issues that parties need to be aware of before committing to such a transaction.” Availability of finance depends on getting insurance. Some insurers are not accepting any new business at present. Bottom line: It’s tricky.

Also to be factored in are tax implications for investment property. “If you have been using the investment property to earn income and, as a result of the earthquake, the building has become irreparably damaged (and rendered useless), you can claim any loss on the ‘effective disposal’ of that property. The deduction is available for the building, not the underlying land,” says Mark Lodder, director of KPMG Tax.

“We are currently lobbying at policy level the suspension on depreciation recovery income which may have arisen as a result of the earthquake.”

Depreciation on buildings was effectively to be removed from April 1. “There is some discussion regarding the reinstatement of depreciation and some softening. This is on the basis there have been arguments that commercial properties do depreciate. At this stage, it would be bit of a push to think that depreciation will be reinstated for residential property investments though.  In my view, I’m not 100% sure that depreciation reinstatement is enough for Christchurch at the moment.  It might be part of the package, but I’m not convinced it would be the golden egg that will encourage a decision to reinvest – being sceptical, depreciation would serve to increase losses in the short-term, so where is the immediate relief?”

Lodder says property tax rules do need to be reconsidered because of the earthquake. He also believes tax credits could be used to encourage investment into property. A “proportional ownership,” now underway in Queenstown, could help provide affordable housing for residents. Homeowners put up the majority of costs, and Government and other organizations pick up the rest.
June Peka is putting on a brave face. “The only thing we know for sure is that we’d do it all again. If we’d put our hard-earned dollars into finance companies or the stock market, we’d have been lucky to see a cent in the dollar after the catastrophic crashes of the past few years. It might take a long time, but thanks to our country’s EQC scheme, we feel confident we will recover from this earthquake with our equity largely intact. “

She has a point. A friend in California tells me few homeowners there have earthquake insurance; they can’t afford it.

Finance companies may have sunk, but world stock markets have begun to bounce back. Christchurch will take longer. Thirty seconds of shaking has changed everything – not just for New Zealand’s second largest city, but also for the whole country, for years to come.