One Question Quiz
Image: Tina Tiller
Image: Tina Tiller

BusinessFebruary 16, 2023

How three torrential weeks will impact a whole year – and beyond

Image: Tina Tiller
Image: Tina Tiller

The heartbreaking human toll of Gabrielle is still being assessed. Yet it’s already becoming clear the economic impact of 2023’s extreme weather will run and run.

It feels premature to even address it, with houses still underwater, hundreds of thousands without power and Wairoa essentially cut off. But estimates of the cost of the floods and Gabrielle start at 10 figures and go well up from there, which does not begin to count its broader impact. Which is why it’s important to start to grapple with what its economic echo might be even before its immediate bounds are known.

Because Auckland’s floods and Cyclone Gabrielle did not land on a country which was running smoothly. They dropped into one which was suffering through that debilitating modern phenomenon known as the polycrisis: interlinked crises covering inflation, housing, infrastructure, health and more, all operating against and influenced by the climate crisis.

While economists say it’s far too soon to ballpark the financial cost of the recovery, it’s relatively easy to forecast some of the short-to-medium term impacts of the double-whammy of the floods and cyclone. Bank economists, whose job it is to process enormous volumes of data and attempt to imagine how events might impact them, have already begun working through how the two weather bombs that have scarred Aotearoa this year will impact three of the biggest immediate challenges confronting this country. This is a synthesising of those research notes and first-cut assessments of what we’re now all staring down across three of our most pressing areas of national need.

Note: sharp-eyed readers will see that climate change is not among this trio. That’s manifestly the bedrock challenge, but one far too large and complex  for a 1000 word column.

Flooding in Wynyard Quarter, Auckland. (Photo: Lynn Grieveson/Getty Images)

Inflation will be stranger and longer

Earlier this year, The Spinoff noted that in the swift transition from Covid-19 to inflation as the preoccupying challenge of the moment, we switched from being transfixed by former director general of health Ashley Bloomfield to current Reserve Bank governor Adrian Orr. The latter already had a very difficult challenge in front of him, and these weather events will not have helped him one bit. That’s because the recovery will have a paradoxical split impact on inflation.

In the immediate term, it might prove deflationary. Lost days of work, and a complete inability to shop for many – particularly during a big retail day like Valentines – will mean spending in February could well be down on 2022. Yet further out, it will likely swing the other way. Economists suggest that the demand for construction to rebuild will bid up the price and slow down the pace of work across the entire construction sector – one already suffering, with large firms recently plunged into liquidation and major projects stalled.

In addition to the impact on construction, the location of the flooding – Northland, southern Auckland and Hawke’s Bay – also coincides with some of our biggest food-growing regions. Images of onions strewn across Pukekohe streets are a harbinger of shrunk and spoiled crops all over the country, leading inevitably to even more eye-watering food price spikes than those we have already dealt with in recent years.

It leaves Orr in a bind: does he continue raising interest rates against a very fragile economy, or hold off and risk further increasing what will already be rampant sector-specific inflation? Neither choice is very appealing, yet one must be made.

Flood and slip damage in Piha caused by Cyclone Gabrielle. (Photos: Valentina Rocca)

Housing must be repaired as well as built

In Auckland, the combined result of the floods and the cyclone has seen almost 300 homes red-stickered as of Wednesday, meaning no one is able to enter them. That number will surely rise, before getting into the less visceral impacts – the repairs, the sleepouts rendered uninhabitable, the half-built projects suffering damage and delays.

House prices are now 16% below the level of their November 2021 peak. While there are some positive effects in terms of housing affordability, those are largely wiped away by the much higher cost of borrowing. Kiwibank’s Jarrod Kerr summed up the deeply challenged state of the market on Tuesday. “Sales are still down over 30% on last year, and raw sales data was the lowest recorded by REINZ outside a Covid lockdown,” he wrote in a research note. “We need to see a sustained increase in activity. And we’re in the middle of a cyclone.”

Above all else, New Zealand remains a country in which far too many of our most vulnerable live in repurposed motels, many in the worst-hit areas of the upper North Island. Construction resources, which are desperately needed to build new fit-for-purpose housing across the public, community and government sectors, will now face a long-tail of competing demand to repair the damage of the biggest weather event of the century so far.

Near Napier, the Waiohiki bridge and surrounds are inundated by the Tutaekuri River. (Photo: Getty Images)

Our infrastructure deficit just got longer

Finally, consider infrastructure. We’re loath to do it in this country, preferring to wait until we see sewage in hospital walls, a road sliding down a hillside or deaths from drinking tap water before grudgingly acknowledging that we need to… start arguing about the governance arrangements of our new utilities.

The infrastructure deficit is one of our most pernicious political problems because replacing infrastructure is so expensive, and invariably the politician who bears the cost of its failure is not the one who let it go to ruin, and the leader who commissions a new tunnel is unlikely to be the one who cuts the ribbon when it’s open. Yet the combined force of the floods and the cyclone in shockingly quick succession should bring about some kind of non-partisan consensus that something must be urgently done across many different stripes of our infrastructure.

Unfortunately, the volume of work is now that much higher again, and remedying that which was wrecked by the weather must be the immediate priority. The water pipe into Gisborne, communication into Wairoa, along with blocked and broken roads everywhere – all that will take engineers and earth-moving equipment and steel and concrete which might otherwise have been tasked with building out our future needs. And despite the screaming need, somehow our major infrastructure companies are not thriving, with Fletcher Building announcing just yesterday that its half-yearly profit shrank by over 40%.

There’s more where Gabrielle came from

It’s tempting to hope that the truly bizarre confluence of factors which created these two storms won’t happen again, and that we can get back to worrying about inflation, housing and infrastructure. But yesterday’s edition of Ellen Rykers’ superb environment newsletter Future Proof pointed out that the raw energy which created them remains in our looming work programme too.

“We are embarking on a crazy experiment, fundamentally terraforming the planet into a different kind of place,” Niwa’s Sam Dean told Rykers. “And there are massive risks associated with that. We don’t necessarily have a good understanding of how some of these most extreme events are going to behave when you give them that much more energy to work with.”

Which all suggests that while we work on our big rebuild and try and tame inflation, we should do so in the knowledge that this won’t be the last time we pick ourselves up, dry out and rebuild.

Keep going!