Government lifeline or 'coercive debt'?: Hundreds of owner of earthquake-proofing can now get a government loan

Sunday, 27 September 2020

Wellington City has hundreds of earthquake prone buildings, with many now being covered by a new low-interest loan scheme to help with strengthening.

Owners of earthquake-prone units can now apply for cheap Government loans to fix their home, but some are already slamming it as “coercive debt”.

From today, owner-occupiers of units and apartments in earthquake-prone buildings can apply for up to $250,000 in low-interest loans. The scheme would help those facing financial hardship over earthquake strengthening.

There are still 561 buildings overall, including units and apartments, registered as earthquake prone in Wellington City. One survey of apartment owners estimated the average cost of repairs was close to $500,000 per owner.

Carol Brown is a pensioner being required to earthquake strengthen her flat.

Minister for Building and Construction Jenny Salesa said the scheme aimed to help owners avoid being forced to sell their home or face “huge financial hardship”.

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Fixing an earthquake-prone building with multiple unit owners was complicated, she said.

Minister for Building and Construction Jenny Salesa says the new scheme would help owner-occupiers facing severe financial hardship.

“Getting the finance to do this work can be difficult, if not near impossible, for some people in this situation.”

The Government allocated $23.3m to the initiative, including overheads, in the 2019 Budget.

Salesa said as of July there were 19 expressions of interest.

Wellington’s Carol Brown is a pensioner who could benefit from the new scheme but she is not sure it will be of much use to her and is quite stressed.

“Based on conversations with building owner groups it is assumed between 5 and 20 per cent of owners could be in, or facing hardship.”

Inner-city apartment owner Carol Brown said this loan was an imposition and not a solution.

Brown said a $250,000 loan was not something worth considering.

“It’s completely unnecessary and will just be a weight around your neck for the rest of your life.”

Brown called the loan “coercive debt” and interest would not be that low when added to the loan.

Inner-City Wellington’s spokeswoman on seismic issues, Geraldine Murphy, said while the loan scheme was beneficial for owners who want to leave their quake prone apartments, there was uncertainty for those who wanted to stay.

“It’s not the solution to the problems that have been imposed on owners with respect to the earthquake-prone building legislation.”

Inner-City Wellington has long been asking for change to the earthquake-prone building laws as it believes the rules are “fundamentally flawed” when it comes to multi-owner residential buildings.

Based on her organisation's analysis, there were about 668 affected apartments with more than 1000 owners in Wellington.

Their report found it was “impossible for apartment owners to comply with the legislation, without incurring financial losses averaging $400,000.

Responding to claims the loans would be a “coercive” debt, Salesa said “the settings aim to balance fairness to taxpayers by minimising unnecessary wealth transfers to building and homeowners”.

She said the MartinJenkins report backing the loan scheme estimated most units could be fixed for less than $200,000.

Who can get the loan?

Kāinga Ora would run the residential earthquake-prone building financial assistance scheme.

Salesa said interest was calculated at 60 per cent of the sum of the Reserve Bank’s five-year average mortgage rate and a 1.25% low-equity margin.

In August 2020, this would equate to an interest rate of approximately 3.1 per cent per year. This was roughly in line with bank lending rates for the same period.

Eligible unit owner-occupiers will not need to pay back the loan until the unit is sold or 12 months after the owner dies. They also have the option to pay back the loan earlier.

It is only available to unit owner-occupiers who are New Zealand citizens, or permanent residents.

It is available to people who can't get finance from a lender; or who would have to sell their unit when it is fixed, to pay off the loan. Or if the loan would cause significant financial hardship.

The unit would need to have been bought before July 2017, be in a high seismic risk area and be subject to a council-issued earthquake prone building notice. The buildings must have at least two storeys and three units.