Canterbury Earthquake Response

Strategic Information for Businesses, 2015

Canterbury earthquake response – key questions

1. How big is the rebuild expected to be? • $35 bn in 2012 dollars (15% of annual national GDP)

2. How long do we expect activity to continue?

• Peak in 2015/16, long tail for non-residential activity

3. What is the profile for activity? • Construction has increased, further increases expected over the coming year

• Construction to remain elevated through to 2017

• Shift towards higher value residential construction, increases in non-residential spending

4. What are some of the key challenges? • Costs of construction• Availability of labour• Prices and rents• Duration of demand

How big is the rebuild expected to be?

• Westpac estimate: $35 bn (2012 dollars, i.e. excluding cost increases)

• Lower estimate than government

• Cost increases will make some planned spending uneconomic, especially in the commercial sphere

• Spending will still occur, but at a later date (BAU vs. rebuild)

• Around half of spend is residential, half non-residential (breakdown over page).

Reconstruction profile

Westpac forecasts

How big is the rebuild expected to be?$bn

(2012 dollars)

Estimated spend to date

(% complete)

Comment

Residential Land

Westpac’s assumption

$5 Assumed $1 to $3 bil

(20 to 60%)

• As of January EQC had completed around 77% of land settlements.

Some of this will relate to cash settlements.

Repairs (properties with damage

less than $100k)

Source: EQC/Fletchers

$2.5 $2.2

+ Privately funded repairs

(95%)

• Around 69,000 properties in the repair program.

• As of 23 January, Fletchers EQR had completed 64,802 repairs.

• Completion targeted in early 2015.

Rebuilds/major repairs

(damage over $100k, funded

privately or through insurance)

Source: ICNZ and Westpac

estimates

$7 to $10 Insurers: $1.1 bil

+ Private: Around $1 bil

(10 to 20%)

• Around 24,000 properties, many are likely to be rebuilt to higher than

pre-quake standard. There will also be a number of new builds.

• As of 1 Jan 15: 2,890 homes fully rebuilt by insurers, work on

another 1,744 homes was underway and 5,700 in pre-construction.

TOTAL RESIDENTIAL $14.5 to $17.5 $5 to 7 bil

Non-residential Public and infrastructure

SCIRT (Horizontal)

Source: CERA/SCIRT

>$2.5 Around $1.6 bil

(65%)

• At the 12 February 2015 around 65% of the total SCRIT program

was complete

• Targeted completion at end of 2016.

Other including councils

and community assets

Source: CERA/CCDU

$7.5 to $8.5 $0.9 to 1.1 bil

(~13%)

• Design and construction has begun on a number of projects.

• Spending to remain elevated over 2015/16.

Commercial

Westpac’s assumption based on

insurance payouts

Around $7.5 to

$10

$1.3 to 2 bil

(around 20%)

• Includes replacement of damaged assets, and significant betterment,

excludes costs acceleration

• $8 bil in commercial claims paid (current dollars)

TOTAL NON-RESIDENTIAL $17.5 to $21 $4 to 5 bil

TOTALAround $35

$9 to 12 bil

(around 30%)

How long do we expect activity to continue?

• Total rebuild spending projected to peak over 2015/2016, 80% completion around 2018.

• Residential construction has been increasing strongly • Peak projected over 2015/16, 80% completion by end of 2017• Completion around 2020

• SCIRT (horizontal infrastructure) peak spend of around $40 mil month, completion in 2016 targeted,

• Public/social asset spending ramping up now, planned spending to remain at high level through 2015 and 2016 before tapering off through to 2020

• Commercial spending ramping up more gradually, projected peak over 2016/2017, long tail

Profile of activity - Residential

• Work to date has predominantly related to EQC’s repair program. The vast majority of spending in this program will be complete in early-2015.

• Residential construction is shifting towards full-rebuilds/overcap repairs (around 24,000 homes), plus some new builds

• Current consent issuance consistent with around 7000 new homes a year (around 21,000 new homes between 2015 and 2017)

• Questions around strength of activity further ahead, and how many new builds/medium-density projects will be required

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Source: Statistics NZ, Westpac

Sept 2010

Residential consents (annual totals)

Profile of activity – Infrastructure and public

• Spending to rise over 2015, remaining elevated though 2016, tail out to ~2020.

• CERA - $1.1 to 1.2 bn (e.g. Metro sports, stadium, convention centre)

• Councils - around $1.1 to 1.2 bn (e.g. art gallery, library)

• Education (Ministry of Education and tertiary providers) - $2.1 to 2.4 bn

• Lyttelton Port - around $1 bn

• Also health, justice, roading

Public sector construction profile (Source: CERA, MBIE)

Profile of activity - Commercial

• Around $800 mil of work was consented in 2014 (roughly double the pre-quake level), with a significant increase expected over the coming year

• Extended period of strong activity

• Betterment of assets occurring

• Questions around timing of spending vs cost (economics of investment decisions)

• Rents• Building size• Cost increases

• When will spending occur? Is it rebuild or BAU?

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Source: Statistics NZ, Westpac

Sept 2010

Non-residential consents (annual totals)

Labour market

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CanterburyAucklandNZ

Source: Statistics NZ, Westpac

Sept 2010

• Unemployment in Canterbury is 3.5%, not far from pre-recession levels

• Net immigration an important source of labour

• Increases in construction and economic activity more generally will absorb spare capacity

• Increasing construction activity in other regions, especially Auckland, will result in increased competition for resources

• Between Dec 2011 and Dec 2014 base rates for construction labour rose 10% in Canterbury vs. 6% in the rest of NZ

Unemployment by region

Residential building costs

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$/sq mtr$/sq mtrCanterbury

Auckland

NZ

Source: Statistics NZ, Westpac

Sept 2010

Ave. build cost in Canterbury: June 2011: $1307 sq mtrDec 2014: $1753 sq mtr (up 34%)

Non-residential building costs

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$/sq mtr$/sq mtrCanterbury

AucklandNZ

Source: Statistics NZ, Westpac

Sept 2010

House prices and rents in Christchurch (s.a.)

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House prices

Rents

Sept 20102012 2013 2014

House prices 11.8 7.1 3.7

Rents 16.4 8.9 1.7

Source: Statistics NZ, MBIE, Westpac

Year to Dec % change

Population growth and housing demand

• Most of the damaged housing stock forecast to be repaired or replaced by end of 2017.

• Rebuild estimates also include new builds.

• Stats NZ projections imply growth in Canterbury’s population of around 53,100 people between 2018 to 2028 (range of estimates: 13,400 to 92,800)

• Medium estimate implies the need for about 23,000 homes over 10 years (around 2,300 per year).

• Comparison• Current: around 7000 new homes consented over the past year• Pre-quake: around 2500 to 4500 new homes built per annum.

So, now what?

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