Govt to work out principles for residential managed retreat ‘cost sharing’

Thursday, 30 January 2025

Low-lying parts of Dunedin flooded in October. It was yet another wake-up call for the country that many homes are in areas prone to flooding.

Owners of homes in flood and erosion-prone areas could learn later this year more about the government’s appetite for bailing them out, should their homes have to one-day be abandoned.

The Government has published its response to the Finance and Expenditure select committee report in October last year into how the country should adapt to climate change, and changing weather patterns.

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.

The message from the select committee report, which had cross-party support, was that it was not government’s job to preserve the value of New Zealand homes as climate change made living in certain parts of the country more difficult.

Government has stepped in 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.

But the Wednesday response to the select committee report sends some sobering signals to owners of at-risk properties.

Prime Minister Chris Hipkins surveys the damage caused by the flooding in Auckland.

A significant proportion of people lived in areas susceptible to increasing natural hazard risk as a result of acute extreme weather and long-term impacts of climate change, such as sea-level rise, the response acknowledged.

And, flaws in New Zealand’s systems were resulting in development in risky areas still taking place.

The response said the Government was in “broad alignment” with the select committees recommendations.

It set out ‘the minimisation of cost to the Crown and society’ as the first of its key objectives, and it warned contentious trade-offs would need to be made.

Part of its work this year would be to work out principles for cost-sharing for managed retreat from some areas - the term used for abandoning properties no longer safe to live in.

This would include “addressing the uncertainty of what will be available to assist property owners with recovery from an event or take action in an affected area before or after a natural hazard event occurs”, the response said.

“The new reality of climate change could impact the stability of our housing, finance and insurance markets,” the response said.

The Government would take a market-based approach to adaptation in the property market by empowering individuals and local communities through better access to natural hazard data.

“Central government should focus on ensuring others 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,” it said.

Flooding in west Auckland in 2023 led to around 700 homes being bought from owners using council and central government money.

The Government intended to introduce legislation in 2025 to progress the adaptation framework, the response said.

The Government has also committed to a National Risk and Resilience Framework that drives a proactive and strategic focus on reducing risk and building resilience to New Zealand’s most serious hazards and threats.

Following the 2023 flooding and cyclone disasters in Auckland and other parts of the North Island, and extensive flooding in Dunedin last year, there has been a growing realisation that central and and local government has limited appetite and capacity to compensate home owners for their losses, should their homes no longer be deemed safe to live in.

Severely at-risk homes can become 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 Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa (ICNZ) welcomed the Government’s commitment to introduce legislation to Parliament this year on climate adaptation.

'New Zealanders need certainty about the way natural hazard risks from climate change are going to be managed and Government leadership in this critical area is welcome,' its chief executive, Kris Faafoi, said.

“'New Zealand is a risky country, and we are committed to finding solutions that reduce our exposure to natural hazard risks by avoiding building in dumb places and by investing in infrastructure that protects communities as well as better preparing for recovery from future natural disasters,” he said.