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The negotiations behind the Government's attempts to reach a solution for residents hit by the Christchurch earthquakes had not been easy and had not been fun, Prime Minister John Key said in Queenstown yesterday.
The Government's offer to effectively buy 5100 of the worst-affected insured properties was the right thing to do, he told a National Party breakfast co-hosted by the Queenstown Chamber of Commerce, at the Hilton Queenstown.
The Government had been negotiating for some time to buy the properties, which would cost about $1 billion by the time houses outside the worst hit areas were fully assessed.
"It's a very complex set of negotiations behind the scenes ... they haven't been easy ... and they haven't been fun," he said.
"We won't be building on that land [in the red zone, the most-badly affected area] any time soon.
"They [houses] have dropped 1.5m - they are either at or below sea level. That's a huge amount of liquefaction."
He likened the situation to having a car accident, when the cost of repairing the vehicle was not economically viable, so the car was written off. In this situation, "the land is written off".
"We can fix it, but not at a cost that would make it economical to do it," he said.
However, on balance, the arrangement with insurers and EQC - where homeowners would get a fraction of the land and property value - was "totally unacceptable".
He gave an example of a $600,000 property, of which $200,000 was land value.
Following an earthquake like one in Christchurch, the homeowner may only get about $110,000 of the land value and, if there was 20% damage to the home, about $80,000 from the insurance company - even if the land had been written off.
"They [the insurance company] say 'tough luck'. That's what we're faced with in Christchurch.
"Would that be acceptable to the New Zealand public?
"It's unacceptable to middle New Zealand ... and it's totally unacceptable if you live in those houses."
The cost to fix Christchurch following nine months of earthquakes was between $20 billion and $25 billion - about 9% of New Zealand's GDP.
Putting the Christchurch earthquake into perspective for those in Queenstown, he described it as a "major, major event".
"It's hard to get your mind around how large they are.
"There is no natural disaster that's occurred in a developed economy that's had a bigger effect on GDP than the Christchurch earthquake."
As an example, Hurricane Katrina came at a cost of about 1% of GDP, while the recent Japan quake was 3.5% of GDP.
Liquefaction in Christchurch was to the worst degree "ever in the world", with buildings moving so quickly sideways on February 22 they were "pulling two and a-half Gs", he said.
"The McCully Index measures the lateral land movement, it's measured out of 12. On February 22, it was 9 out of 12 ... at 10 it's a catastrophic [event].
"We're having a look at the building code ... but Christchurch was built for a one-in-500 year event, Wellington was built for a one-in-1000 year event ... [February 22] was a one-in-2500 year event."