On 4 June, The Dominion Post published a lengthy and disturbing article highlighting the woes and dilemmas of earthquake safety regulation in Wellington.
It highlighted the arbitrariness of current building standards and decisions. The article cited one property developer and owner as saying that he would never build again in Wellington “unless lawmakers promise not to change the [earthquake] code as often as their underpants".
Nor is it just the standard set by the code, expert assessments are also problematic. Two opinions on the same building can differ disturbingly.
The safety standard itself is disputed. Should a building be built to survive for 100 years, or can it be built merely to prevent loss of human life during a major earthquake, but have to be demolished in its aftermath?
Another issue raised was flawed incentives. The Wellington Public Library was closed on ‘moral’ rather than legal grounds.
One expert said he would be happy to attend a concert in Wellington’s quake-prone Town Hall. But if on the Wellington Council he would have voted to close it “because my liability is much wider”. He might have added that the cost of unnecessary closure falls on others.
These problems of skewed incentives and inadequate information are intrinsic to government regulation. Is there another way?
There is. Private insurers will assess building risks. So will lenders where the building is collateral for the loan. Builders will not gold-plate a building for safety if tenants cannot afford to rent it. Competition for tenants could see landlords providing potential tenants with reputable building safety assessments.
That market process is how tenants, landlords and developers discover what range for levels of safety private tenants are willing to fund. We would expect less risk averse tenants to occupy riskier buildings. (Public service tenants will likely seek gold-plated safety.)
What about problems of a public good nature? Bits might fall off a building and kill passers-by and customers in a ground floor café or shop could be equally unwitting casualties of an unsafe building.
Liability laws and the above disciplines imposed by insurers and lenders should help. A no-fault (ACC) system reduces that discipline.
This is not to rule out the case for some more directive government regulation to protect the general public.
Nonetheless, allowing tenants to trade price for risk is desirable. One standard does not fit all.