Rebuilding from Gabrielle: 'Cheapest is not always best … do the goddamn thing properly'

Friday, 17 February 2023

Chris Barber hugs his brother Philip after the pair were reunited on the thick silt and mud that destroyed Chris's home when floodwaters swept through Esk Valley near Napier.

New Zealand has spent over a century unwisely building crucial infrastructure on the equivalent of sand; flood or slip-prone areas. Now we’re paying the economic price for so many decades of short-term thinking.

Cyclone Gabrielle has swept away lives, livings, roads and power lines, doused crucial farmland in floodwaters, and increased anxiety in the wake of Covid trauma.

Even those not directly affected by torrents of water are headed for a hit, with likely effects of more expensive groceries, increasing inflation, and rising insurance costs.

With the Government and councils in the gun for millions, tax and rates rises go on the table alongside even more eye-wateringly expensive fruit and veges.

* Transpower knew Napier substation was 'critical' risk in worst case flood

* Reserve Bank should pause interest rate hikes following Cyclone Gabrielle, Kiwibank says

Flooding devastation in Hawke’s Bay’s Esk Valley raises two questions: How do we build back better? And should we build back at all?

* Insurance claims after flood and cyclone 'absolutely unprecedented'

* Government accounts in 'good shape' to meet cyclone challenges despite debt rise

Flooded farmland at Ashhurst near the Saddle Road where people are rescued on a tractor's pallet fork.

And we can’t say we weren’t warned. Alarm bells had been ringing well before Gabrielle and the Auckland monsoon arrived.

In 2019, Niwa released a report that warned 700,000 people and 411,516 buildings worth $135 billion were exposed to river flooding, Those numbers would have expanded in the intervening five years.

As well, there were 19,098km of roads, 1574km of railways, 20 airports, 21,173km of water pipelines, and 3397km of national grid transmission lines. It was a low-lying disaster waiting to happen, the report warned. Gisborne was the most at-risk area.

There seems little doubt Cyclone Gabrielle is now most expensive weather event, even without official numbers, or the cost of rebuilding factored in.

Flooding at Tairua Bridge on the Coromandel during Cyclone Gabrielle.

Astonishingly, 2023 is already a record year for insured losses from extreme weather events, overhauling the $350 million record set by 2022 in just six weeks, Insurance Council chief executive Tim Grafton told Stuff.

“We've got 10 months of the year to go. It is huge,” Grafton says.

“So yeah, we had cyclones in the past, but the scenario for the future is more frequent, more intense cyclones.

Cameron Bagrie: People thinking you can fund this with tax cuts as well, are whistling dixie.

“You have 7% more moisture in the air, because it's a warmer environment and therefore you get more of a deluge when it comes.”

Gabrielle will affect the Government’s operating and capital spending plans and is being factored into planning for the Budget, Treasury says.

Investment in the Christchurch earthquake rebuild was put at $40 billion, all in a much more tightly confined area.

Gabrielle could be three or four times worse than the 2004 lower North Island floods, in which damage and economic impact was put at $300 million, Federated Farmers Policy and Advocacy general manager Gavin Forrest estimates.

Manawatu River in flood - He Ara Kotahi bridge

“While it’s too soon to put a number on the cost, there will undoubtedly be a big hit to the economy both immediate and longer-term,” he said.

Horticulture New Zealand and BNZ also say it’s too early, with the bank saying “everyone wants to know what the economic impact of the devastation will be, but we will not be playing the game of making wild guesses based on massively incomplete information.”

Gabrielle would have been less damaging had risk been a key factor in what was built, and where it was built, economists, infrastructure specialists, insurers and Climate Minister James Shaw have all surmised.

Swiftly action needs to be taken, so that the risky status quo is not reverted to.

If there is a silver lining to the cyclone cloud, it’s that investment in infrastructure will follow, and it might change the way New Zealand goes about it - with potential risk at the heart of decision-making, rather than economic frugality, independent economist Cameron Bagrie tells Stuff.

“Do we have a number on this at the moment? The answer is no. I suspect that is ultimately going to be a very, very big number because I think it's going to be a big catalyst for change,” he says.

Doing the same thing over and over, expecting a different result is not an option.

Federated Farmers estimate huge costs to their members.

“It's a wake-up call. The old model has just not worked,” he says.

“We need to learn to manage living with climate change and managing the risks around it. What we're seeing globally is there is a big push now in security - security in things like food, energy, technology.”

In essence, New Zealand must shift from a ‘she’ll be right, do things just in time’ model, to one that anticipates there will be massive climate events and says “just in case, we're going to do this”.

“We haven't applied some basic risk management principles,” Bagrie says.

“Cheapest is not always best. Sometimes it's going to be a case of do the goddamn thing properly,” he says.

31012023 News Photo: TOM LEE/STUFF - Recent rain has seen some maize become inundated with flood water. A maize crop is seen under water on the western banks of the WaipÄ River in Pirongia. Crops underwater. Flooded. Generic.

“There's a potential here for one hell of an investment boom. I'm not talking about the next two years, I'm talking about a 20-year plan, we are going to need cross-party alignment on this.

“Forget about tax cuts, they are just not fiscally affordable. We've got some real-world challenges on the other side we can no longer kick down the road.

“People thinking you can fund this with tax cuts as well, are whistling dixie. The Auckland floods were one thing, but this is a pretty big food bowl of New Zealand that takes the economic costs up significantly.

Edgecumbe has adapted to the situation, since the 2017 flood.

“The destruction we are now seeing here is no quick fixes, you can't go out there and replace the bridge overnight.

“We need to think about it carefully, where these roads now go. We suddenly found out if you don't have electricity, well you don't have communication.

“And this is where we put a risk management cap on it, it's not just about maximum efficiency or the cheapest price. It's about security, security of supply and making sure the system is going to be durable, going to work.

“No system is ever going to be 100% failsafe, but you want it to be able to absorb some pretty decent knocks. We should have done better with this one.”

Private sector firms are willing to help, global infrastructure specialist Morrison and Co executive director Steven Proctor tells the Sunday Star-Times.

Tim Grafton is the chief executive of the Insurance Council of New Zealand. He says the shift in the sector is driven by the “realisation that the world must transition to a low carbon economy to reduce climate risks”.

Proctor, who has long experience working in partnerships with government departments, says resilient infrastructure is both important and a huge challenge.

“We believe it requires a shift in mindset which sees Government and the private sector working as partners,” he says.

“This means moving away from a cost minimisation mindset which sees Government wanting to squeeze every bit of capacity out of a piece of infrastructure – whether it’s a hospital, school, road or transmission line – before considering new investments.

“Resilience must be considered at every part of the process of infrastructure investing, in light of increasingly complex disasters such as the recent cyclone. This means having adequate funding at the early stages of an infrastructure project to allow for risk and resilience analysis.

“The infrastructure deficit is significant before we even begin to consider resilience. Other countries do this better. They are bigger and have created greater capacity, built more infrastructure, therefore developed sharper processes. They have a much stronger appetite to partner with private sector infrastructure providers.”

Proctor says Morrison and Co and other companies in the sector would welcome being part of a discussion on how we finance infrastructure to be built to withstand natural disasters, climate change, cyber-attacks, economic downturns and global disease.

“Investment firms can help improve the resilience of essential services such as water, transport, energy and digital communications and ensure that health, education and energy supplies function effectively.

“We see this as a win-win. With fewer failures, faster recovery and lower near misses, investors can feel more confident about the financial returns, while there is also a reduction in the environmental harm, less waste and better public health and wealth.”

The Government is working through several pieces of legislation aimed at combating climate change, though Climate Minister James Shaw warns about regarding any as a silver bullet solution.

Among the “build better” proposals favoured by Bagrie, Procter and the Insurance Council, are moves to build in smarter places, even not rebuild in areas constantly flooded.

Options are:

Do nothing, keep getting flooded.
Accommodate nature; rather than move away, build higher and expect floods
Defend: build seawalls, build stop banks (expensive)
Relocate (managed retreat): decide the property is uninsurable, and move away.

Grafton warns of severe headwinds for the insurance industry. Overseas reinsurers who cover local insurance firms are wary of New Zealand with its floods and seismic activity, and inflation is walloping the construction (or reconstruction) industry.

“When it comes to house insurance, the relevant inflation marker is construction inflation, and that was running at … certainly somewhere between 15 and 20% last year,” he says.

“So if you're repairing or rebuilding a property, that's the level of inflation that's in play. Then you've got the general cost of living inflation running at 7%, so that's putting pressure on costs right across the board.”

Reinsurance has been described as the most challenging in a decade and those costs are about 20% of New Zealand house insurance cost.

Supply-chain woes mean construction materials are hard to get, so there are delays, even ahead of finding sufficient carpenters to do the work.

In Christchurch, Niwa hydrodynamic scientist Dr Emily Lane is leading a team digitally mapping flood risk, the first attempt to do it across the country rather than local body by local body.

“You need to know where are the places that flooding hazard and risk are really bad, and what's it going to look like under climate change, and we don't have that initial picture at the moment, to be able to make the right decisions,” she says.

Once completed, the map can be updated and adapted to changes in weather. It could still be a couple of years away.

Strategic decisions will be challenging even with the best information. Where and how do we build in a climate-changed world? And if some areas are off limit, who pays compensation?

It’s likely to be a mix of homeowners, banks, insurers, local and central governments.

And it’s likely to cost. A lot.