What is ‘fair’ compensation for owners forced from climate-threatened homes?
Sunday, 15 October 2023
ANALYSIS: Tasha Gray from Piha is waiting to hear what category Auckland Council will give to her 70-year-old home.
A landslide hit her property in the Auckland Anniversary Weekend flooding in an “awe-inspiring and scary” night.
“I will just have to wait for the categorisation, but it doesn’t look very good to me,” she said. “It’s so unstable above the house.”
If it is designated category 3, unsafe to ever live in again, she will receive an offer to buy her home from the Government and council for 95% of its pre-disaster value.
It’s a wealth-preservation scheme that parallels the Red Zone buyouts a decade ago, which recognised the moral obligation society had to people living in homes in places that climate change renders unsafe.
But creating ad hoc compensation schemes after disasters is not sustainable, and there’s growing consensus that Parliament must write national climate adaptation laws, including nutting out the compensation property-owners will be offered when their homes, farms, baches and business premises are no longer safe to use.
Auckland mayor Wayne Brown voiced his thoughts after the council was strong-armed into sharing the costs of buying out about 300 homes exposed as unsafe in the Auckland Anniversary weekend flooding.
“As a council we do not and cannot insure private properties against the hazards of coastal erosion and climate change. Rates are not insurance premiums. We have made it clear throughout this process that the Government needs to come up with a national scheme, so we’re not just doing things piece by piece with future weather events.”
The shape of what compensation might look like was set out in the Ministry for the Environment’s report of the Expert Working Group on Managed Retreat, but it is all caveated by the warning that any government intervention is bound to change house prices in a locality.
The report sobering reading for owners of climate-threatened properties already facing predictions of falling property prices as insurers withdraw cover from flood and slip-prone homes, banks refuse to lend on them, and potential buyers become wary.
Compensation should not be about the “preservation of wealth”, the group says.
“We do not recommend full compensation for all affected homeowners. Instead, the focus is on assisting people to rehouse themselves so that they can get on with their lives.”
For residential owner-occupied homes compensation should be based on the rateable value of homes, with a fixed cap, though the group did not say what the cap might be.
Taxpayers should not be in the business of preserving the full wealth of owners of multi-million-dollar homes, the group felt.
Compensation for land should limited to land under homes and outbuildings, and within 8 metres of them.
In some cases, the cap and land limits would mean people with mortgages losing all or most of their equity, the group said. Some could even be left with residual debts to banks.
The group saw no place for compensation for holiday homes, but some money might be made available to demolish them so rotting carcasses of buildings did not disfigure coastal and low-lying land.
Compensation for business premises would be limited, and for rental owners, compensation would be tied to them using money to establish a new rental in a safe location.
In relation to iwi, hapū and Māori communities, a “full compensation” approach should be adopted, the group said, as well as the Crown making safer land available, and providing assistance to move buildings and structures of cultural significance to safer locations.
Gray, and other flood-hit homeowners, including Nina Mardell from Piha, and Lyall Carter from Massey, bristle at the idea that the ad hoc buyouts are “wealth-preserving”.
Data gathered by owner-groups indicates the costs of paying for alternative accommodation, geo-tech reports, insurance excesses, and the continued costs of owning a home they cannot live in have eroded the wealth of everyone displaced in the flooding.
Younger owners who bought at the peak of the market in 2020 may even be left owing banks money, even after getting their buyout money, Carter says.
“We have a number of people who have said to us, ‘We bought at the height of the Covid market. If we get bought out at the market value just before the flood, not only are we going to walk away with nothing, we will walk away with debt’,” he says.
He also fears the process could be so slow that by the time people get the money, house prices will have risen significantly thanks to rampant immigration, and political change.
The Expert Working Group said the current buyout plan should not be precedent-setting.
Mardell says it must be. Society allowed properties to be built. Insurers insured them. Climate change is the work of everyone. It would be unfair to visit the costs on individual homeowners.
“Are people expected to walk away from hundreds of thousands of dollars? I don’t think that’s fair,” she says.
Academic Raewyn Peart from the Environmental Defence Society, says the country simply can not afford a compensation strategy that was designed to preserve people’s wealth.
The country needs a climate adaptation act supported by all the main political parties, and it needs to be focused on proactive retreat, rather than waiting for events like cyclones to drive it.
“It’s cheaper to move people onto safe ground before disasters happen in a planned way,” she says.
There needs to be a realistic model for funding it – possibly by building a fund using a new tax on existing properties.
There were many different ways to approach fairness in compensation, a 2022 study of overseas managed retreat schemes, Peart co-authored, showed.
“(But) I don’t think anybody thinks we should be bailing out a $3 million bach in Omaha owned by a well-heeled person.”
By contrast, it is fair for taxpayer money to be used to help lower-income residents of south Dunedin move to safer ground.
“These are very, very hard questions. Just look at the debate about a wealth tax. We can’t even have that debate. This is not something that is going to be resolved in a hurry,” Peart says.
A survey by insurer IAG showed the public is divided on compensation, with many feeling people buying property should accept the risks. It found 39% said managed retreat compensation should be no more than half the value of a property, while 17% said it should be 25%, or nothing at all.
Politicians have to navigate this fiscal and moral minefield, but they must not ignore it.
“What we saw with the Auckland Anniversary floods, and Cyclone Gabrielle in Hawke’s Bay was just a small taster of what we are facing as a country,” Peart says.
“It’s not something we can ignore, because it’s going to happen to us. We either take some control and manage this situation, and reduce some of the worst costs and social trauma, or we don’t, and we leave things to take their course, and leave individuals to fend for themselves.”
Gray says, “we can’t go back to sleep. Those of us who have had this happen to us just know this is coming for people that we love. This is not a one-off event.”
Party thoughts on managed retreat
Labour
Minister Megan Woods said before the election the party had committed to developing a Climate Adaptation Framework if it was re-elected which would ”develop new processes for managed retreat and long-term sustainable funding sources to build resilience against more frequent and intense weather events.” Labour would not be drawn on principles of compensation, but “different kinds of properties may be treated differently for compensation.” Labour’s climate manifesto included limiting development in at-risk river valleys, flood plains and coastal areas.
National
“National will bring together all stakeholders including local government, insurers, banks and communities to develop a legal framework.” the party says in a statement. The current buyout scheme was not precedent-setting, but National would not be drawn on whether compensation should be “wealth-preserving”, or whether different compensation for different kinds of properties. “National is not starting this process with a pre-determined position on this,” it says.
Green Party
The Green’s priority is to pass climate change adaptation laws to drive a long-term policy response through an equitable, Tiriti-based framework. “Decisions we take now, about how to prepare and adapt, will have a lasting legacy,” the party says. That’s why the Greens in government started a national conversation about community-led retreat, and how the costs of taking action to adapt could be met and shared, the party said. It initiated a select committee inquiry to provide a forum for public discussion on climate adaptation measures, including on the principles of compensation.
Te Pāti Māori
“Central and local government must take responsibility for ensuring that managed retreat is planned for including that grassroots communities do not lose the value of their assets,” the party said in a statement. “Many whānau and communities who are being hammered by extreme weather events and rising sea levels are experiencing entrenched poverty and are suffering from generations of dispossession and confiscation. They should not be abandoned while government is responsible for decades of inaction.” Homes and whenua Māori should be the priority. it said. “Given this country’s history of dispossessing Māori of their land, what little remains in Māori ownership must be protected at all costs.”
ACT
Climate change spokesperson Simon Court said any managed retreat laws must uphold the rights of property owners and enable them to take their own action. Resource management reform was needed to make it easy for people to “defend” their property and for councils to protect assets. “It should also make it easy to develop property, so it is affordable for people and businesses to relocate.” ACT would increase council funding available for infrastructure using GST-sharing. But, the government should avoid moral hazard through things like subsidising insurance for people to live in flood prone areas.