The August 2022 severe weather event caused significant damage to the region, including to private property. Some Nelsonians have suffered damage to their properties and face uncertain futures. Council wants to support the most affected residents but we need to know what you think about the options available.

Central Government cost-sharing support package

The Mayor of Nelson has advocated strongly on behalf of our region and has been successful in securing a one-off deal for Nelson which is similar to those offered to North Island regions affected by Cyclone Gabrielle/severe weather events.

The Government has offered to pay up to $12.3 million to support the city’s recovery:

• $6 million towards repairing slips from public land so that land is safer than it was before the event. This amount is 50% of the betterment portion in dealing with slips that have originated on Council land and are affecting private properties. (Betterment here means improving resilience instead of like-for-like replacement.)
• $300,000 towards ongoing monitoring of the Tāhunanui slump ($30,000 per year over the next decade).
• $6 million (which is 50% of the total cost less any pay-outs from other sources like home insurance) to purchase up to 14 impacted properties where the landslide risk is too high for the property owners to return to their homes, and the cost of works to reduce that risk is prohibitive.

Like the offers to North Island regions, the support is offered as a package – Council needs to accept all three parts to be able to access the funding. Council has accepted the support package offer subject to consulting with the community on the buy-out component.

The buy-out support offer

Central Government is offering to support buy-out of properties that have been severely impacted as a result of the August 2022 severe weather event, where there is an intolerable risk to life and it is not feasible to mitigate that risk. These are similar to properties that have been “red-stickered” as a result of the severe weather-event.

The offer to contribute to buy-outs is based on a $6 million cap from Central Government with Council contributing the other 50%. It also comes with conditions on Council, including responsibility to:

• liaise with affected residents, administer the overall programme of all purchases, and manage insurance claims that are assigned to Council.
• take ownership of the land purchased and ongoing management of that land (including demolition).

The cost of any buy-outs will be less any Toka Tū Ake Earthquake Commission (EQC) and insurance settlements that property owners have received or will receive for damage to their properties. And any buy-out would be voluntary for property owners.

We want to hear your views on the buyout support offer

Council is proposing to accept the Central Government buy-out support offer and purchase up to 14 eligible properties impacted by slips from both public land and private land.

Progressing these buy-outs would aid the wellbeing of the affected property owners.

Taking this approach has costs and requires careful consideration. So, we want to understand if you support Council purchasing private properties affected by slips before making a final decision.

Although there is no distinction in the Central Government offer, there are two different categories in the buy-out approach:

Council has certain obligations, as a neighbouring landowner, to private properties impacted by slips from its (public) land. In this situation, Council may choose to purchase individual properties on a case-by-case basis. For instance, we are doing this in relation to some properties impacted by slips from Council land in the Brook Valley.

Council does not have any such obligations where slips are from private land.

To purchase properties affected by slips from private land would be a significant new activity for Council, as Council has no obligation to get involved and there are ongoing financial consequences for Nelson residents from taking ownership of slip-prone land, including immediate remediation costs and costs of managing future instability. Council would not contemplate these purchases of private property if it was not for the 50% funding offer from Central Government.

We would also like to hear your views on the eligibility buy-out principles (the methodology for eligibility and buyouts required by Central Government) that would apply to any purchases (see the full draft eligibility principles in the background information in the panel to the right).

Central Government requires these principles to be reasonably consistent with the approaches adopted by the weather event affected North Island councils.

The principles Council is proposing incorporate principles relating to eligibility and a fair purchase price and include the following: homes that are not insured would be purchased for a lesser amount (maximum of 80% of market value pre-August 2022) than those that are insured (maximum of 95% of market value pre August 2022), given that insurance payouts will reduce the total purchase price required. Council would not contribute towards relocation costs and Council’s offer would lapse after 12 months.

If Council proceeds with the buy-out of property, we will likely use some of the Central Government funding to offset already completed property purchases that are eligible under the support package funding agreement.

As noted above, it is a condition that Council has to take on full responsibility for the ongoing land management of any properties purchased and the associated costs.

The final costs to Council will vary depending on the final eligibility buy-out principles and what work needs to be done on purchased properties to lower the risk of future slips. After taking into account the $6 million funding from Central Government for the buy-outs, the estimated remaining cost to Council could include:

Don’t accept the buy-out support offer

This option would mean we would not carry out a programme of voluntary buy-outs for residential properties impacted by slips. This is the lowest cost option for Council (and the community as a whole) as it avoids purchase costs and the ongoing costs once we take responsibility for slip-prone land. However, all of the $12.3 million Central Government funding would be lost and Council would need to cover all of the costs for monitoring the Tāhunanui slump and the betterment portion of public land slip repairs.

This option protects the community from subsidising risks and liabilities impacting private property owners, where there is no current obligation for Council to provide financial assistance. However, this would leave those property owners with ongoing uncertainty as to their future, as they are unlikely to be able to afford repair costs that exceeds the property’s value, and won’t be able to live in the properties because of the risks. Slip-related issues on the private properties are unlikely to be resolved, with properties left derelict and with the potential to cause additional damage and costs to the community during future storm events.

In the proposed Long Term Plan budgets, Council has provided for $6 million towards the purchase of private properties. This $6 million would be removed, while the other recovery costs would need to proceed as planned. Council would also lose access to the $12.3 million funding provided by Central Government. Therefore, the total cost of this option would be $6.3 million.

Impact on rates: Additional $6.3 million of rates to repay the additional debt over the 10 years of the Plan. There would also be additional interest to be funded by rates annually on the outstanding balance of the $6.3 million until it is fully repaid. This would be $306,000 in year 1, with the amount per year decreasing as the balance reduces.

Impact on debt: Additional $6.3 million of debt to be repaid over the 10 years of the Plan.

Accept the buy-out support offer and apply the draft eligibility buy-out principles (Council’s proposal)

This option would involve purchasing up to 14 eligible properties impacted by slips from public and private land. The draft eligibility buy-out principles would apply to purchases, including maximum payment of 95% of the market value for insured properties and 80% of the market value for uninsured properties. Council will assess properties against the final eligibility buy-out principles, however at this time we are unaware of any potentially eligible properties being uninsured.

Council’s contribution to purchasing properties would be capped at a maximum of $6 million to match the 50% funding offered by Central Government and depending on the number of eligible properties these percentages may need to be adjusted to fit within that cap.

It would support Nelson’s most affected property owners, no matter the origin of the damaging slips, and give them a purchase price which is close to the market value of their home. This option would secure the rest of the Central Government funding for other resilience and risk mitigation projects.

Having different percentages for insured or uninsured properties makes clear that Council is not the insurer of last resort. While this is a one-off package, it highlights for the community the importance of being responsible for their own insurance and reflects private insurance pay-outs. It would also align with the buy-out approaches of other North Island councils, such as Auckland Council.

On the other hand, Council (and the community as a whole) would take over the current property owners’ liabilities as the new owner. This could also create an unrealistic expectation that Council will take the same approach to damaged properties in the future.

This option would be one of the most expensive with ongoing financial consequences for the community due to taking ownership of slip-prone and, including short-term remediation costs and any future land management costs.

The remaining cost to Council (after up to $6 million Central Government buy-out funding taken into account) is estimated to range up to $13.5 to $17.5 million over the 10 year period. Council has provisionally budgeted for $6 million of this cost in the Plan. The timing and amount of the remaining costs are too uncertain at this stage to include in our budgets.

Impact on rates: $6 million of the $13.5 to $17.5 million has already been included in the proposed Long Term Plan budgets, and is proposed to be repaid by the $300 (including GST) Storm Recovery Charge over the 10 years of the Plan. The remaining costs and repayment timing will be budgeted when we have more certainty.

Impact on debt: As outlined above, $6 million of additional debt is included in the proposed Long Term Plan budgets (and repaid from the recovery targeted rate). Additional debt will be budgeted when we have more certainty on costs.

Accept the offer and apply amended eligibility buy-out principles

This option would involve purchasing up to 14 eligible properties impacted by slips from public and private land. The draft eligibility buy-out principles would be amended to incorporate feedback on how best to set a fair purchase price, subject to what Central Government will accept as being consistent with approach of the North Island councils.

This option would have many of the same advantages and disadvantages of option 2. The key difference would relate to the upfront purchase costs. Alternative eligibility buy-out principles are summarised below, and could include others suggested by the community through this consultation.

We could, for example, set a maximum purchase price of up to the Nelson median house price (which is $765,000 based on sales for the 12-month period prior to August 2022). This would limit the initial cost to the community for something Council is not required to do. Owners of higher value properties would likely receive a lower proportion of their property’s value compared to the proportion received by owners of lower-value properties.

We could proceed with purchases at 100% of market value (based on a market valuation pre-August 2022). This would mean property owners would receive full compensation, which is the approach taken by some North Island councils.

This would support affected property owners’ wellbeing, particularly property owners with higher-value properties who would receive buy-outs that match the asset’s value. However, it would result in the highest upfront costs to the community.

We could apply lower maximum purchase prices for properties impacted by slips from private land of 75% of the market value. This principle would recognise that Council has no legal obligation to purchase properties impacted by slips from private land and that acquiring this slip-prone land will expose Nelson residents to more ongoing costs.

The savings to upfront costs would help with the expected ongoing land management costs, while still providing a reasonable level of support for the wellbeing of affected property owners.

For all of the above alternative principles we could differentiate between insured and uninsured properties where 15% less would be offered to owners of uninsured properties. This would recognise the greater cost to the community of purchasing uninsured properties and the responsibility of property owners to protect their asset.

The remaining cost to Council (after Central Government buy-out funding is taken into account) could increase or decrease the upfront costs compared to option 2 depending on the eligibility buy-out principles chosen. The costs are estimated to range up to $12.5 million to $18 million over the 10 year period. Council has provisionally budgeted for $6 million of this cost in the Plan. The timing and amount of remaining costs are too uncertain at this stage to estimate.

Impact on rates: $6 million of the $12.5 to $18 million has already been included in the proposed Long Term Plan budgets, and is proposed to be repaid by the $300 (including GST) Storm Recovery Charge over the 10 years of the Plan. The remaining costs and repayment timing will be budgeted when we have more certainty.

Impact on debt: As outlined above, $6 million of additional debt is included in the proposed Long Term Plan budgets (and repaid from the recovery targeted rate). Additional debt will be budgeted when we have more certainty on costs.

Seek to renegotiate the buy-out offer with Central Government

This option would involve Council attempting to renegotiate the terms of the buy-out support offer with the new Government to target properties impacted by slips from Council land only.

This option would avoid Council entering into a significant new activity of purchasing properties impacted by slips from private land when it has no legal obligation to do so. It would set a clear expectation that Council will not subsidise private individuals’ risks and liabilities related to slips on privately owned land. If successful, this option would limit the number of properties purchased and level of responsibility and cost taken on by Council to manage land purchased.

The key downsides are it would not provide certainty for affected property owners impacted by slips from private land and would delay resolving slip issues, running the risk of potential further damage during future storm events. Also, it is a high risk option – Central Government is unlikely to support a change in the intent of their support package and all of the $12.3 million funding could be lost to Council.

There would be less immediate cost to Council, except for prioritising staff resources to renegotiate with Central Government. Following negotiations there may be a decreased cost to progress more targeted buy-outs, however there is an increased risk that Central Government funding would no longer be available. The likely impact on rates and debt would depend on the renegotiation, so the implications are unclear at this stage.