As part of my role with the Canterbury Employers’ Chamber of Commerce I am often asked to speak publicly about where we are at in post-earthquake Christchurch, particularly from an economic perspective. Given the ever changing nature of the recovery I often just speak “off the cuff” without notes, however I am frequently asked for a summary of my address (particularly the facts and figures) which many in my audiences have found of great interest. So here is my up to date assessment of where we are at in the story of the regeneration of Christchurch.
2016 will see us halfway through the reconstruction of our city. We have a total of approximately $32 billion of reconstruction activity out of a total earthquake cost of between $45 and $50 billion. This year we will have spent to date around $17 billion on residential reconstruction, commercial reconstruction and public sector rebuild. The total expected cost of residential repairs is around $12.7 billion, commercial reconstruction will total around $13 billion and public sector/civil reconstruction around $6.5 billion. These costs do not include the costs of land damage, land remediation and regeneration activity outside physical construction. We are currently spending $100 million a week on the rebuild which totals around $5 billion per year. That is expected to continue through to the end of 2018 when it will gradually decline through to 2024/2026.
The good news is we are halfway through our reconstruction; the other good news is we still have halfway to go. Any perception that the rebuild has peaked needs to be eliminated from our thinking. The rebuild has plateaued and we will continue to spend $100 million a week regenerating our city for some years to come.
One of the interesting aspects of the rebuild that is not well understood is the role of insurance. Insurance monies, including private sector insurance of $20 billion and EQC of around $13 billion, is very much underpinning the regeneration of our city. Total insurance of $33 billion being applied to a population of around 360,000 is unprecedented worldwide. Although we have had our issues with the insurance companies the reality is that Christchurch was the best insured community ever to have been struck by a major disaster when measured on insurance cover per capita. Also, when looking at the total cost of the earthquakes, I know of no other community of 360,000 people anywhere in the world that has incurred the damage of $45 billion in such a confined area. We are all living through a unique experience.
The other interesting issue about insurance is how it is playing out in terms of the regeneration of Christchurch. The $33 billion of insurance proceeds is underpinning the rebuild. Just looking at our housing stock $3 billion of insurance proceeds has already been applied to repairing 70,000 houses that had under $100,000 of damage through the Fletchers EQR programme (which is now complete). A further $10 billion of insurance money is being applied to rebuilding and repairing approximately 25,000 houses that had in excess of $100,000 worth of damage or were red zoned or destroyed altogether. We lost a total of around 10,000 of those homes completely.
The really interesting statistic is that of those 25,000 homes, approximately 5,000 will be rebuilt or repaired through insurance managed processes. The balance of 20,000 homes will be cash settled and the cash proceeds will be in the hands of the homeowner to affect the rebuild or repair. We can expect some slippage with some of those insurance proceeds with people deciding to spend money elsewhere, however it is very evident that a lot of people who are repairing or rebuilding homes are applying more money to the rebuild or repair than their insurance company has paid them. This will mean that we are going to end up with a lot of high quality, new, energy efficient, strong and safe homes in our city.
From a commercial perspective we are also seeing a massive amount of insurance money being reinvested into the commercial rebuild in our city. The total of $13 billion that will be applied to restoring the commercial building fabric of mainly central Christchurch will result in a high quality offering of accommodation, hospitality, office and retail space. There are some signs that there may be a short term over supply of office space, particularly in the central city and in the suburbs of Christchurch, as people start to move around and back into the central city. That will be a normal part of the process of regeneration and we can expect a bit of bouncing on the way through in the terms of supply and demand. However, again the end result will be a high quality building stock which is well designed, strong, functional and offering much better accommodation of all types than was the case prior to the earthquakes.
Our civil construction is advancing satisfactorily with the horizontal infrastructure largely due for completion by the end of 2016 at a total cost of around $3 billion. The other civil and public sector investments are starting to manifest themselves in the city. The most obvious of which are clearly evident with the Justice Precinct, Environment Canterbury’s new building, the Bus Interchange and the Avon River Precinct redevelopment all making their presence felt.