Investing in Christchurch 'doesn't stack up'
Tuesday 30 Apr 2013 9:59 a.m.
Prime Minister John Key is doing his best to portray the economic fallout of the Canterbury earthquakes in a positive light, despite an economist's darker view of Christchurch's future.
Speaking on Firstline this morning, ANZ chief economist Cameron Bagrie said at the moment, a dollar invested in Christchurch won't give as high a return as a dollar invested elsewhere.
"It's strategically important as an investment hub and it's going to attract capital, but I guess the issue I'd have at the moment is whether those returns are actually going to stack up," says Mr Bagrie.
"At the moment behind the scenes there's a lot of debate. You know, if you invest a dollar in Christchurch in the building industry and you line it up with what the construction costs are, and you look at the return on that investment, well, the investment doesn't stack up compared to redeploying that capital towards the like of Auckland."
Mr Bagrie says construction costs in Christchurch are soaring, but yields are not.
"So at the moment the temptation is for that capital to get redeployed to other centres, and that could come at the expense of Christchurch.
"The returns, the investments still need to stack up."
Earlier this week the Government upped its estimated cost of rebuilding the city from $30 billion to $40 billion, much of which will come from the private sector in the form of insurance payments and construction. Mr Key says a positive spin on this extra spending is that it shows confidence in Christchurch's future.
"The long and short of it is that this rebuild's going to take quite a considerable period of time… and therefore the payment of that will be over a considerable period of time," he says.
"But one of the reasons why I think it is a little bit more of a positive story, if it's possible to say it's positive that you're spending $10 billion more, is because it is reflecting that private owners are investing more in their buildings than they were. In other words, they're not replacing like for like, apples with apples – they're upgrading the building that they're going to replace.
"Now that actually shows confidence in Christchurch and the future of the city, and I think that confidence is well-founded, actually."
Mr Bagrie says there will be a lot invested in the city over the next 10 to 15 years, but it's going to take 50 to 100 years to fully pay it off in the form of insurance premiums.
"Christchurch is an economic event that's bigger than Ben Hur… Christchurch is going to be, I guess, a bit of economic glue for the economy growth-wise over the next sort of 10 to 15 years, but there's going to be these costs, because the more resources we throw at Christchurch… the less resources are going to be available towards the rest of New Zealand."
Mr Key agrees higher insurance premiums are probably here to stay, but again takes a positive view.
"The reinsurers have stayed with Christchurch, the insurers have stayed with Christchurch," he says.
"People are charging a bit more to reflect that extra risk, but they haven't walked away, and that was always a risk that we were concerned about."
Paying for Christchurch without cutting funding to other government services is why the Government is so focused on economic growth, says Mr Key.
"It doesn't really matter whether the issue is paid parental leave, paying for Christchurch, more doctors, whatever it might be – in the end, the country has to live within its means," he says.
"So that's one of the reasons we're very focused on economic growth – it's not economic growth for the sake of it, it's to allow New Zealanders to have a lifestyle that they want to enjoy and deserve to enjoy."