Bloomberg News

Christchurch ‘War Zone’ Forces Out Locals as Areas Condemned

July 13, 2011

(Updates with city bond sale in 11th paragraph.)

July 13 (Bloomberg) -- Paul Ward imagined retiring in his “dream home” on Christchurch’s landmark river, the Avon, where he watched his two children grow up. Instead he’s selling his five-bedroom house to the government so it can be demolished along with half the suburb.

“We have loved living in Avondale from the time we went there and loved our home,” Ward, a 59 year-old real estate agent, said in an interview. “Now it’s just like living next door to an open sewer with a bog around it.”

Ward’s home is one of about 5,100 in Christchurch marked for destruction after a series of devastating earthquakes, one of which killed more than 180 people. While the wrecked business district of New Zealand’s second-largest city is to be rebuilt, entire neighborhoods will vanish from the map, driving up rents elsewhere and adding to an exodus of residents.

A resulting drop in demand for new homes in the city may slow the pace of Christchurch’s recovery, forcing central bank Governor Alan Bollard to keep borrowing costs at a record low to rekindle economic growth. The timing of rate increases will be based on the speed of the economy’s recovery, including the South Island city’s reconstruction, Bollard said last month.

“The big uncertainty is where those 5,000 households decide to move to,” said Philip Borkin, an economist at Goldman Sachs & Partners New Zealand Ltd. “I still view negative population growth as a negative for the country.”

Borkin expects Bollard will keep the benchmark interest rate unchanged at 2.5 percent until the first quarter of 2012.

‘Worse and Worse’

The government offered to buy properties in the city’s condemned “red zone” from insured owners, which will cost a total of as much as NZ$635 million ($521 million), according to a June 23 statement. Alternatively, residents can negotiate with insurers on their homes and the government will offer to buy their land only.

The condemned houses are mainly in Christchurch’s eastern suburbs, toward the coast, where the earthquakes caused soil to melt. Many streets are coated in layers of sludge in a phenomenon known as liquefaction.

“This road has been dug up and resealed about five times. It’s just getting worse and worse,” said Tony Bennett, a 54 year-old resident of Avondale Road, which is on the border between the condemned “red” and the livable “green” zones. Bennett owns two homes on the road, a red-zoned rental property and his own green-zoned residence two blocks down the street.

“I’ll actually be a bit better off,” said Bennett, who plans to accept the government’s offer for his red-zoned house, which will be based on 2007 state valuations. “I had it on the market for sale just before the earthquakes, so obviously we had to take it off.”

Economic Growth

New Zealand faces a NZ$15 billion damage bill from the February earthquake and an earlier, magnitude 7 temblor that hit Christchurch and surrounding districts in September. The first temblor prompted the economy to shrink for the first time in six quarters. The city’s council today raised NZ$100 million from a bond sale, according to a statement from Westpac Banking Corp.

The rebuilding of Christchurch is likely to boost New Zealand’s economic growth even as it displaces thousands of residents. Bollard said reconstruction may boost gross domestic product growth by 2 percentage points in 2012, in comments on June 9 after he held the official cash rate at 2.5 percent. Interest-rate swaps show a 100 percent probability he will keep borrowing costs unchanged until at least December to ensure growth, according to prices from Westpac Banking Corp.

The first quarter’s GDP, which includes the effects of the deadly February earthquake, will be released tomorrow after being delayed twice. It rose 0.3 percent from the prior quarter, when it increased 0.2 percent, according to the median estimate of 17 economists in a Bloomberg News survey.

Ghost Town

Ward, an agent for Christchurch-based Homes Realty Ltd., lives on a red-zoned street parallel to Avondale Road. He works in the worst-hit eastern suburbs, where about 80 percent of his clients are. Many local agents have closed as new leases are rare and sales non-existent. Rental markets are stronger in the least-affected areas as people flee wrecked suburbs, he said. As many as 10 people may compete for one house, offering to pay above-market rates, he said.

Parts of Avondale have been largely abandoned, with workers’ trucks occasionally interrupting the silence. Bexley, a suburb to the east of Avondale, is mostly deserted. Many houses are part-wrecked or empty, with front yards and footpaths transformed into swamps of silt.

“There’s hardly anybody left. They’ve gone,” said Karl Stewart, a 53 year-old produce worker who rents a red-zoned house on Avondale Road. “Everybody was getting back on their feet and then they just got slammed again.”

Red Zone

The first Christchurch earthquake on Sept. 4 struck in the early morning, wrecking homes and parts of the central business district. A 6.3-strong temblor hit Feb. 22 in the middle of the day, devastating much of the city center in New Zealand’s deadliest quake for 80 years. Aftershocks have struck almost daily since, the worst ones coming on June 13, when two major temblors caused more damage throughout the city.

The government on June 23 split Christchurch into four zones -- red, orange, green and white -- according to the degrees of land and property damage. The red zone may not be livable for a “prolonged period of time,” Earthquake Recovery Minister Gerry Brownlee said in a statement that day. Some areas would need up to 3 meters (10 feet) of new soil to bring land to a legally compliant height, he said.

“There’s nowhere for people to go,” said Fiona Lucas, 37, who lives in her parents’ house on Avondale Road in the red zone. She is worried that her parents won’t be able to afford to stay in Christchurch.

Residents Flee

Residents have little option but to relocate out of the city or face higher prices within Christchurch, said Ward. Prestons, a suburban development 5.5 kilometers from the center, is to create homes for 6,000 people on about 200 hectares, according to its website. Pegasus is a new town being created on the coast 25 kilometers north of the city, and will offer homes for up to 7,000 residents.

“I don’t think they want to leave, but I think financially people will have to,” Ward said.

Permanent departures of Christchurch residents in the three months through May were 1,300 more than the year-earlier period, according to Statistics New Zealand. The country’s home-building approvals rose in May for the second time in the same quarter, bolstered by new houses for Canterbury residents displaced by the earthquakes, according to the same agency.

More areas in Christchurch are likely to be red-zoned. About 10,000 properties are in the “orange zone,” where engineers need time for further assessment. Some of the damage in those areas was caused by the magnitude 5.6 and 6.3 earthquakes on June 13. The homes’ fate will be decided in the coming weeks and months, according to the June 23 statement.

“You don’t know until you wade around through the mud and get around the back of houses or get inside some of the houses what we’re living like,” said Ward. “It’s like living in a war zone.”

--With assistance from Tracy Withers in Wellington. Editors: Malcolm Scott, Garfield Reynolds.

To contact the reporter on this story: Chris Bourke in Wellington at cbourke4@bloomberg.net;

To contact the editor responsible for this story: Malcolm Scott at mscott23@bloomberg.net


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