Preserving heritage when others foot the bill

Dr Eric Crampton
The National Business Review
27 May, 2016

Heritage buildings provide real value. They are often cherished by their owners, who bought them for their character. But old buildings need maintenance, and can need earthquake strengthening. And, sometimes, even an old beautiful heritage building is not the best use for a piece of land that should be supporting apartment towers.

One way of balancing things would have the community, council, and government purchase easements from owners of heritage buildings, on a renewable basis, reflecting the value that the community receives from those buildings. Since funding is limited, prioritisation would be needed: some buildings are beautiful, but simply too expensive to save. And a little bit of funding could go a long way for other buildings.

And both owners and government would need to strike a sensible balance when repairing buildings. In a lot of cases, the 80/20 rule of thumb applies. Building strengthening alters a building’s features. If preserving the last 20% of the heritage value carries 80% of the cost, then is it better to keep one building perfectly authentic, or to have five buildings strengthened to a good condition but with minor alterations to heritage features?

That balancing changes under a regulatory approach. When listing a building on the district plan can require the building’s owner to shoulder the burden of providing and maintaining heritage amenities for the public good, councils can be less careful in choosing which buildings to list. There is no real budget constraint other than the time and process cost of adding buildings to the list.

And the costs involved in owning a listed building have increased where earthquake strengthening requirements mean heritage buildings need more repairs that require resource consents and consultations with heritage advisors. And insisting on preserving every bit of heritage is easier when the costs are borne by someone else.

The country’s approach to heritage preservation illustrates a larger problem. Regardless of whether it is better to achieve a policy objective by spending money or by issuing regulations, there is a thumb on the scales. Every year, the government must present a budget to Parliament. The budget must list all spending items. If there are cost blow-outs down the track, they too must be accounted for. And budgets must not overrun tax revenues, or at least not persistently.

Spending money then gets a fair bit of scrutiny. Regulation is simpler.

Regulatory Impact Statements are supposed to include a tallying of costs and benefits. But if a Minister really wants to do something, a Ministry can be pressured into putting together a rather inadequate RIS in a hurry. And there is less appetite in Cabinet for knocking back shoddy RISes than there should be. Why? Because the costs of bad regulations are not obvious to voters, so there is little pressure on politicians to insist on good ones.

And things are little better for local government, where Section 32 requirements for cost-benefit assessments on regulations are thin at best but where voters balk at tax increases.

Last week, The New Zealand Initiative, in conjunction with our member Deloitte, released a research note exploring Wellington’s earthquake strengthening of heritage buildings.

Wellington is well ahead of the game. The earthquake risk facing Wellington has been known for rather a long time, and so earthquake strengthening is not a new thing. Building assessments began a decade ago. Council provides rates relief for listed buildings and has allocated $3 million over three years to assist heritage buildings’ strengthening. And Council has been willing to de-list buildings like the Gordon Wilson flats, where strengthening costs far outweighed what the strengthened building would be worth.

Despite that, the remaining problems are far from trivial. Council provides owners of heritage buildings a longer period to effect repairs, recognising that issues are more complicated for those buildings’ owners. But those same buildings are among the more dangerous ones. Financial assistance for earlier strengthening could do more good.

Repair strategies for heritage-listed buildings can require tens to hundreds of thousands of dollars in studies and consultants’ reports. When a heritage building is owned under unit title by several lower income apartment owners, even getting started can be challenging. Owners need to coordinate to raise funds to hire engineers to provide expert assessment. If works are necessary, raising mortgages across dozens of separate owners to fund reports and strengthening, when the units themselves may be uninsurable due to the earthquake-prone designation, can be even more challenging. And repair costs can be very high if repair strategies must not damage any part of the building’s façade.

Owners expecting complicated and expensive processes can then be reluctant to take the first step where they bear costs for others’ benefit. Council could do well in providing an engineer’s services to help owners over that starting line.

But the fundamental problem remains that the bulk of the work in providing an important public amenity has been imposed on the owners of historic buildings. In that environment, government can be less sensitive to the costs of preservation than it really should be. Shifting from off-budget regulatory expenditures to on-budget appropriations would encourage better prioritisation. Barring that, so too would caps on the number of buildings that each city could list on the district plan.

That failure in prioritisation was best exemplified in Christchurch.

After the September 2010 earthquake, the listed building at 605-613 Colombo Street became rather unsafe. The owner knew it, as did the engineers. There was no economically feasible way of strengthening given the buildings low real value. The building’s heritage value was also not particularly great: while the building was listed on the district plan, it was not listed by the Historic Places Trust.

The owner applied to demolish the building. Council decided not to use its available power to authorise demolition but instead insisted on a consenting process that would take six months. February’s earthquake intervened, and the dangerous façade fell on a bus, killing twelve.

The Royal Commission that followed insisted that securing dangerous buildings “should not be impeded by the consent process and that life safety should be a paramount consideration for all buildings, regardless of heritage status.”

Wellington has done far more than most councils in simplifying strengthening for heritage buildings. But can we really say that securing dangerous buildings here is not impeded by the consent process, regardless of heritage status? There is work yet to do.

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