A Brash idea for Christchurch

By Bill Kaye-Blake 22/01/2013

Don Brash gave the nation his ideas for improving the Christchurch rebuild. I’m not entirely clear why he has received any news coverage. Brash, you will recall, was pushed out of the leadership of not one but two political parties. The last election — they got 1% — suggests he may not have much of a following.

Brash’s idea is that the government should take a relaxed approach to labour laws for the rebuild:

The Government should turn a blind eye to illegal migrants working in Christchurch’s rebuild because the city needs all hands on deck, former high-profile politician Don Brash says.

Generally, I’m not too worried about ‘illegal migrants’. I’ve worked in California. Undocumented workers get vilified there, but they are absolutely vital to the economy. We need these workers but can’t admit it.

But that doesn’t make Brash’s comments sensible. Of all the problems Christchurch has, enough labour isn’t the main one. In economics speak, construction labour is not the binding constraint preventing a faster rebuild. Brash is looking to solve the wrong problem. Promoting illegal migrant workers wouldn’t speed things up.

I’ve just been down in the South Island and met up with friends from Christchurch, including business owners. They shared lots of horror stories. If I had to pick two things to sort out, it would be housing and insurance payments.

Lack of housing — The supply of housing is tight for all the residents plus all the temporary rebuild workers. Adding more migrants would, of course, only make the situation worse.

This lack shows up a few ways. First, potential workers are staying away.  The Otago Daily Times reported that Dunedin workers are choosing not to shift to Christchurch, for example. The cost of living — especially rent — is too expensive.

Secondly, the city actually needs a surplus of housing where people can live while their own houses are being fixed. It isn’t a lot — an extra 5% or so of housing stock would do it — but that’s some 8,000 houses or flats that need building. Some interesting background is in this Market Economics report. Offsetting Behaviour has been tracking some of the housing problems and potential fixes — here is a sample.

Insurance woes — I don’t know the ins and outs of what the insurance companies and EQC are dealing with, but it’s pretty clear that (a) they are being difficult, (b) they are trying to hold onto their money as long as they can, and (c) more money flowing more easily into Christchurch would help the rebuild.

Here are some of the stories I heard over the summer holiday. Insurers have paid out money and then demanded it back. Assessors have visited properties over and over again without coming to a decision about whether to repair or rebuild. People have been told to vacate their properties, and then left in rental accommodation for over a year. The insurance money runs out, and they are left out of pocket.

The point of this sort of insurance is that when an asset is damaged, you swap one bit of wealth (the damaged asset) for another (the insurance payout). Instead, people are relying on income to pay for the damage, which puts a crimp in the Christchurch economy. Plus, the associated uncertainty leads people to save rather than spend or invest. That’s not a good way to get the economy moving.

The number of construction workers isn’t the problem. There is nowhere to house them and no money to pay them with. But maybe Dr Brash already knows that, and that’s why he suggests using undocumented workers for the task.