Recently the Government announced measures to assist businesses hit by the February 2011 Christchurch Earthquake. Historian Michael Fowler looks at how the Forbes coalition Government implemented measures to restore business after the 1931 Hawke's Bay Earthquake.
Barely a handful of building owners had proper earthquake insurance, and worse was to come. THE circumstances and issues surrounding the rebuilding of Christchurch after its February 22, 2011 earthquake are not too dissimilar to those that were faced in Hawke's Bay in 1931 - only that the scale in Christchurch is more than 10 times bigger.
What the 1931 Hawke's Bay 7.8 magnitude earthquake did not destroy - fire finished off. Napier's CBD was almost completely fire gutted. Hastings's CBD escaped fire on that scale, but only a few well-built Victorian and Edwardian era buildings survived, and around half a dozen 1920s Ferro-concrete structures.
Barely a handful of building owners had proper earthquake insurance, and worse was to come. When the owners contacted their insurers, they were pointed to the small print on the back of the policy stating fire caused by an earthquake does not form part of their fire insurance. (These clauses were introduced after the 1906 San Francisco Earthquake by insurance companies who felt they should not pay out for natural disasters on ordinary fire insurance).
Prime Minister George Forbes announced four days after the quake that State Insurance (then Government owned), would make ex gratia (voluntary) payments to State Insurance fire insurance holders - although the Solicitor General said they were not obliged to.
This angered private insurance companies, who took legal action to stop this - but did not succeed. Others, such as the chambers of commerce and newspapers editors, attacked the payment as being political motivated.
The majority of CBD building owners - with no insurance payout, were left with a wrecked building, little or no stock, and a mortgage. In most cases negative equity arose - that is, they owned more money than their land was worth.
Similar to Christchurch, the Forbes Government wanted to restore Hawke's Bay back to the New Zealand economy as soon as possible. New Zealand was already in the grips of the Great Depression, so more unemployment, a smaller taxation take and reduced productivity was an unwelcome diversion. And, as is the current situation, the 1931 government was facing a significant budget deficit.
Napier had built "Tin Town" of wood and corrugated iron in Clive and Memorial Squares to temporary house their post-quake businesses, and Hastings simply cleared away the rubble and put up wooden, corrugated iron structures - which made the town look like a western cowboy movie set. More permanent structures, however, would have to be constructed, and the Government had to find a solution to fund this.
To give the authority to provide the financial assistance, the Forbes Government created the 1931 Hawke's Bay Earthquake Act, which was passed into law on 28 April 1931. One part of the bill which had been considered was a property tax to repay the funds advanced to rebuild Hawke's Bay - but this was decided against as it was likely to be politically unpopular.
Funds for the rebuilding would come from a national reserve, created by general taxation, and invested in London initially by Joseph Ward's Government.
The Act outlined the procedures before this money could be given to restore businesses. It created the Hawke's Bay Adjustment Court and the Rehabilitation Committee, whose members contained a small number of lawyers, accountants and judges.
The purpose of the Adjustment Court was to make sure that existing debts would not prevent the business from having a fresh start. The powers it had were wide, and mortgages and bills could be wiped. Bankruptcies enforced by creditors after the earthquake could even be undone.
Once the liabilities were sorted, a business could apply to the Rehabilitation Committee for loan finance or a non-repayable grant from the government fund.
To illustrate how this works, the Masonic Hotel in Napier will be reviewed. Before the earthquake the building's managing director was George Ebbett, a past mayor of Hastings. The value of the Masonic Hotel before the earthquake was £100,000 ($9.6 million today), and was mortgaged for £40,000.
Fire destroyed the hotel building after the earthquake and an insurance payout of £25,000 was paid to the mortgagor - leaving a mortgage of 15,000 - and land worth far less than this.
An application was made to the Rehabilitation Committee, which agreed to lend £21,000 to erect a new building, which ranked as the first mortgage. With the £21,000 not enough to rebuild, funds of £8000 were secured from the Unemployment Board on a third mortgage.
The Rehabilitation Committee received over £2 million ($192 million) worth of funding and grants requests, but only lent £805,000, and approved grants of just £35,000 - and was therefore criticised as acting more like a loans board. The Committee funded stock replacement in only a few cases, which caused anger amongst retailers - who then had to rely on suppliers extending credit.
Despite the controversies of the scheme, very few businesses went broke - although many struggled for years under the weight of the loans.
Local bodies were given £250,000 for restoration from the Government fund, but the main share went to Hastings and Napier, with smaller towns such as Havelock North forced to find additional funds.
A different approach to the above was outlined in February's 1931 NZ Financial Times. Insurance companies would be asked to pay out their policies in full, and the government would borrow money from London to repay them, of which £10 million pounds was available at 4.5 per cent interest.
Overall the earthquake cost the Government £1,770,000 ($170 million), and almost emptied the emergency London reserves with just over £200,000 left in the account.
Looking back to the future for recovery
AdvertisementAdvertise with NZME.