Preserving people's wealth in face of climate change not a priority, MPs say

Tuesday, 1 October 2024

Lawmakers have warned that it is not government’s job to preserve the value of New Zealand homes as climate change makes living in certain parts of the country more difficult.

The Finance and Expenditure select committee has published its report into how the country needs to adapt to climate change, and changing weather patterns, following weeks of hearings.

One of the issues it grappled with was in what circumstances taxpayer money should be used to compensate people who own homes in areas climate change renders too dangerous to carry on living in.

Government has stepped and used taxpayer money to bail out property owners after natural disasters made it clear some places were too dangerous to live in, most notably the Red Zone in Christchurch, and some parts of Auckland flooded in 2023.

Those homes became uninsurable, and unsaleable, leaving the owners in a very vulnerable position with their wealth massively reduced without “compensation” from the public purse.

But MPs on the select committee, from across all political parties, said they agreed with the Expert Working Group on Managed Retreat, which said: “We did not consider that preserving people’s wealth or protecting property owners from the risks of property ownership were legitimate objectives of the funding system.”

The MPs felt it was a priority of Government to ensure people were adequately housed, but that did not mean guaranteeing their wealth.

It said Government needed to do more work to determine the circumstances, and extent of help from taxpayer funds, that homeowners can expect after a disaster.

The public needed to have certainty about Government financial responses to disasters, and that those responses were “predictable, principled, fair, and rules-based wherever possible”.

The report also acknowledged the possibility that the country would need to pre-fund managed retreat schemes through a levy on insurance, an idea touted as a companion to the Natural Hazards Fund (previously the EQC Fund).

Around the world various models of managed retreat have been adopted and proposed for managed retreat.

MPs acknowledged that after repeated examples of taxpayer-funded managed retreat payments, the public was coming to expect that bail-outs after disasters were the norm.

However, there was one category of land and property ownership the MPs on the select committee saw as a special case: whenua Māori.

“We agree with submitters that there should be bespoke arrangements for whenua Māori that consider loss of marae, multiple landholdings, and the different models of Māori land ownership,” the committee report said.

But overall, the MPs felt that asset prices, including house prices, needed to better reflect climate risk, while acknowledging that “allowing asset prices to better reflect long-term natural hazard risk … may be considered inequitable” as climate change renders some property less valuable or even worthless.

This would result in better decisions about where new homes were built.

Just this week, the Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa called the need “to stop building in dumb places”.

It also recognised that some properties may find insurance becoming unavailable or prohibitively expensive and recommended government work more closely with banks and insurers on the threat.

For asset price changes to happen there needed to be better data available to buyers and sellers of property.

The paucity of the data also raised a threat to human life, the MPs found.

“We were advised that there is currently only a limited understanding of how many residential properties are exposed to intolerable risk and are no longer suitable for residential use,” the MPs reported.

“There is also little information on how much that exposure might increase in the future as climate risks increase and as the number and value of assets increase.”

The report said it was estimated New Zealand would experience between 20cm and 30cm of sea-level rise by 2050.

Niwa, the government’s National Institute of Water and Atmospheric Research, estimated that in 2019 $12.5 billion of buildings were exposed to a 1% or greater chance of coastal flooding in a given year, but that 30cm of sea-level rise above present day levels would expose an additional $6b worth of buildings (replacement value), 409km of roads, and one airport to coastal flooding, though the estimate did not include exposure to inland riverine flooding.

The select committee reported: “Central government should focus on ensuring that others, including banks and insurance providers, have the incentive and ability to reduce risk where they can.

“Decisions and resourcing for adaptation should sit at the lowest level that internalises costs. This will encourage a more efficient response and reduce moral hazard created when individuals or groups do not face the downside risk from their own decisions.”

The country’s largest insurance company IAG said the most important thing about the report was that it showed political consensus across the political parties that action was needed on climate adaptation.

“It’s the first time we have had all the political parties saying it. Previously it was various working groups, and academics saying these things, and now its parliamentarians saying these things.”

“There are no dissenting voices,” said Bryce Davies, IAG’s executive manager for corporate relations. “I think they went into this thing with the right attitude. They needed to find consensus.”

However, there was a lot of work to do, and the devil would be in the detail, he said.

The Government has 60 days to respond formally to the select committee report.

Minister for Climate Change Simon Watts said: “We will be working through how we will take it forward as we develop future adaptation policy.”