Broad-stroke regulations for buildings must not stand

Dr Eric Crampton
9 April, 2024

The way the government tries to protect us against earthquake risks, and to protect heritage buildings against change, share a common problem.

Government agencies have a very difficult time generating the information necessary for making good decisions in both cases. Rather than design institutions enabling discovery of whether a building really should be protected, government tries to compel that protection through broad-stroke regulation.

It does not work well. In both cases, building owners easily face too great a cost, relative to the broader public benefits. And when the two sets of regulations affect the same building, the problem compounds.

This weekend, Auckland Mayor Wayne Brown argued that central government officials are a bigger threat to Aucklanders than the earthquake risks that the government is targeting. Seismic risk in Auckland is low, retrofitting buildings is expensive, and the latest view on best-practice strengthening changes too quickly.

It’s a defensible case.

Martin Jenkins undertook an indicative cost-benefit assessment of various earthquake standards back in 2012, after the Christchurch earthquake. Strengthening Auckland City’s most risky buildings would save about three hundred lives if a very large earthquake hit in the middle of a workday. But the report also pointed out that there is next to no risk of such an earthquake in Auckland.

If no strengthening work at all were undertaken, Auckland City could expect, on average, about 0.00066 deaths per year from very large earthquakes. Earthquakes large enough to cause Auckland building collapses, in that modelling work, arrive about once every 8,900 years. Few buildings stand for centuries, let alone millennia.

By contrast, seriously damaging earthquakes hit Wellington City every 400 years and enormously catastrophic ones arrive every 8,500 years, on average. Failure to strengthen in Wellington would mean 0.5 deaths per year.

On those figures, the then-existing strengthening rules provided just under $0.03 in benefits for every dollar of cost. Other options for hitting higher standards or hastening timeframes or both had even worse results.

It’s a good case that seismic regulations overshoot considerably.

But even if the regulations were not out by such a large margin, they would still have difficulty picking the right level of strengthening for any particular building. Reports on a building’s seismic strength can vary substantially across different assessors. And buildings impose vastly different risk depending on whether they’re adjacent to a busy sidewalk or in a paddock.

Consider a different kind of regulation aimed at discovering which buildings are worth strengthening. Make a building’s owner liable for the cost of deaths or injuries caused by the building to those outside of the building in an earthquake. Require that the building carries insurance against the largest possible loss. Give it enough lead-time, so those insurance markets could develop. And see what happens.

In places like Auckland, where the risk is trivially small, the insurance would likely be added to most commercial policies at trivial cost. In places like Wellington, premiums would be higher. Owners would want to bring those premiums down by credibly demonstrating that their buildings are reasonably sound. If insurers took too conservative of a view on risk, they’d lose clients; if they were too eager to insure risky buildings, they’d expect to lose money.

Insurance markets are far from perfect. But it seems unlikely that they’d be as far out as regulations providing less than 3 cents of benefit for every dollar of cost, on the Martin Jenkins numbers.

The country’s regulatory regime around heritage preservation suffers a similar problem.

By listing a building on the district plan, councils can compel owners to supply potentially-valuable public amenities. Councils do not face a budget constraint when deciding how many buildings to list: if a council’s officials want to list more buildings, they need only follow a not-particularly-rigorous process. Resulting costs, including the cost of fighting against designation, fall on the building’s owners.

Given that process, it is hardly surprising that too many buildings overall fall under heritage designations on district plans.

The process hardly encourages discovery of which buildings are worth preserving. Even if two buildings had equivalent heritage value, that still would not tell us whether both, neither, or only one of the buildings should be protected. Protecting an older villa on a site where an apartment tower could house dozens of families may make less sense than protecting an identical villa on a site with limited redevelopment opportunities.

How could we better discover which buildings are worth protecting? Shift the burden of providing heritage amenities from building owners to the public more generally, through Crown funding, council funding, and crowdfunding – while removing regulatory restrictions on those buildings’ owners.

As I had suggested in an earlier column,

Suppose that government and councils shifted to providing an annual subsidy to the owners of important heritage buildings for the value they provide, while lifting restrictions on changing or strengthening those buildings.

Owners would be free to modify or demolish their building – but could lose some or all of the heritage payment.

Immediately, the Government and council would be forced to prioritise. While crowdfunding and philanthropy would certainly also help, budgets would still be limited. Under limited budgets, how much would governments really be willing to spend to stop Wellington’s Gordon Wilson Flats from being demolished? Would it be enough to make Victoria University of Wellington happy to preserve them? If not, the university would be free to demolish them.

The current regulatory approach is especially costly when earthquake strengthening mandates intersect with heritage preservation mandates.

In places like Auckland, it can mean compounding the cost of strengthening works that are already excessive relative to rather low overall earthquake risk.

In Christchurch, after the September 2010 earthquake, it meant procedural delays to the demolition of risky but council-listed buildings – and twelve deaths in February 2011.

And in Wellington, it’s meant that seriously risky buildings of dubious historic value like the Gordon Wilson Flats sit vacant, unable to be demolished. That a council wanting to prioritise broken water pipes finds no other option than to spend hundreds of millions of dollars strengthening its Town Hall because delisting buildings is simply too hard. And that other owners are simply trapped with buildings “too expensive to fix, too weak to safely occupy and too protected to knock down.”

Wellington Council has asked Minister Chris Bishop to ensure resource management reform makes it easy for councils to remove heritage encumbrances.

It would be a great start, and a strong complement to Minister Chris Penk’s suggested review of the earthquake strengthening rules.

In both cases, setting policy to help discover the right amount of protection, rather than dictating levels of protection through regulation, may be in order.

To read the article on the Newsroom website, click here.

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