The Gordon Wilson flats have been in the news a bit this week. For me Wellington could do so much better than keep these flats. The opportunity cost is just too high and the commercial reality is they will never be restored. I would love to see us build something better.

Most of what I've seen and heard are ideological views about why this building is an important monument to our heritage. So, I thought I'd spell out the commercial realities and the trade-offs for the city of keeping this building.

The Gordon Wilson flats are currently a black hole on the edge of the CBD, sucking the life from that part of town. Despite being prime property with expensive infrastructure capacity on its doorstep, the owner pays effectively zero rates. No matter what the owner does, the cost of fixing this building will be more than what it is worth complete.

“Don’t do the earthquake repairs” – Do you know anyone who would let their children live in this building as a hall of residence without it being earthquake strengthened? Would you buy an uninsurable apartment that a bank will not give you a loan for?

“Bite the bullet and restore it” – Having watched the Town Hall saga play out would you be prepared to take on the financial risks? Would you pay $1,500 a week to rent a two bedroom apartment in this building once work has been completed?

The benefits of redeveloping this site could be huge for Wellington! Think vast amounts of centrally located new housing, built to a modern, energy efficient standard, plus thousands of m2 of ground floor commercial space. This site could be a shining jewel in a now vibrant part of Wellington – and for anyone worried about rates – a massive new source of rates revenue for the Council.

Redeveloping is also the best option from a climate change perspective. The increased housing in the central city, built to a new and energy efficient standard will result in significantly more carbon savings than any gain from reusing the existing structure.

Wellington has a problem with heritage listings that restrict redevelopment of dilapidated and earthquake prone buildings. The problem is apparent for anyone walking around town. This problem stems from the fact that the building owner only has options available to them that will result in losing money. The best option for the owner is to limit losses by leaving the building dilapidated.

Most of these buildings have no resale value and are unoccupiable, every dollar the owners spends on maintenance is a dollar lost. Trying to completely fix the building is a highly risky venture (just look at how the Town Hall went). It is almost certain, that once repairs are complete, the building will not be worth as much as was spent on it.

Making the switch to land value based rates (which I am campaigning on) would actually help to resolve cases like this across the city. Basing rates on land values increases the cost of doing nothing for dilapidated building owners and effectively reduces the cost of fixing the buildings. This means owners have greater incentive to restore or redevelop their buildings. The result would be fewer derelict buildings and more housing, office and retail spaces.

When I worked at Kāinga Ora I did the financial analysis for the redevelopment of the sister building to the Gordon Wilson flats at 137 Greys Ave in Auckland. So have some idea of the commercials and trade-offs involved.

For the Gordon Wilson flats specifically, with the heritage status intact the options facing any prospective owner of the flats are:

• Do nothing. The owner does not generate a return on the capital investmed and loses a little money paying rates ($12,000) and security each year.

• Refurbish, but do not resolve earthquake status. This is a lot of work. The cost of this option is likely as high as the cost of building new. It is substantially more than the owner will be able to recover in rents for flats that will still have questionable earthquake safety. The units are uninsurable due to earthquake status, meaning there is a limited market for selling them as unit titles. Highly likely that owner incurs greater loss than in (1), and their rates bill grows to ~$470,000 pa.

• Refurbish, and resolve earthquake status. Costs significantly more than (2). Owner now has 87 refurbished one and two bed flats. Rents required to earn a return on this investment are much higher than the market is prepared to pay. Resale value is much lower than repair cost. Highly likely that loss is greater than in (2) and rates bill grows to $740,000pa.

By removing the heritage restrictions a fourth option is put on the table with huge potential benefits for the city:

• Demolish and redevelop. This one gives the owner an option to potentially generate a commercial return on the site. For example, Kainga Ora was in a similar situation with the sister building to the Gordon Wilson flats, at 137 Greys Ave in Auckland. As a result 280 new apartments were built, along with two floors of commercial/ community space, a new courtyard garden and rooftop garden. The Gordon Wilson site is actually twice the size of the Greys Ave example and in a more prime location, its potential is even greater, if fully developed it could be earning the city $3.5m a year in rates…

My view would be that in some situations leaving these heritage structures derelict might be ok, but Wellington is highly land constrained and our Council is strapped for cash. We simply can't afford to leave sites like this unused and generating little in the way of revenue for the city.