Monday, 13 February 2012

In praise of liability

Christchurch City Council helped ensure that a dozen people died last February. Ann Brower, who lectures at Lincoln, narrowly missed being one of them; she was the only survivor when an old dangerous building fell on top of the bus she was in. She catalogues the failures that led to her very close brush with death.
Regulatory failure at its most murderous made Colombo St run red that day. Responsibility falls at the feet of the building owners, Parliament, and most of all the Christchurch City Council.
In the Building Act 2004, Parliament encouraged and enabled, but failed to require, councils to enforce a minimum safety standard for known "earthquake prone" buildings.
Christchurch City Council chose a "passive" policy, of no strengthening requirements. Parliament failed to require, the council failed to enforce, and the owners failed to reinforce - in 1982, in 1991, in 2005, after September 2010, and after December 2010. For 30 years, the owners and the council did nothing.
On Day 1 of the hearing, the building owners blamed the council, for delaying demolition with the consent process. Council solicitors blamed the Resource Management Act, for requiring consents, and said they had no discretion in the matter.
Council's hands were tied, they said.
Yet, on September 14, 2010, a unanimous Parliament untied council's hands when it passed the Canterbury Earthquake Response and Recovery Act 2010. It gave the Crown power to amend or repeal any law, in the interest of public safety and earthquake recovery. Then they issued an order in council that expanded the situations in which council could demolish without consent. City council had the power.


The evidence, five centimetres thick, makes it searingly obvious that everyone knew what would happen. It was predicted but not prevented. It's not a case of trying, but failing, to protect public safety. Everyone failed to try, likely because neither council nor the owner bore the risk of deaths and injuries.

ACC bore the risks. I bear the scars. And 12 died. Under ACC, the government absorbs all liability, no matter who is at fault. So to the owners, safeguarding the building was all cost and no benefit. Since council failed to enforce building standards, why repair? Absorbing all liability creates a moral hazard. That's economist-speak for unwittingly encouraging risk by cheaply insuring against it. This rewards irresponsible behaviour by failing to penalise it.

The regulatory framework in place on February 22 forced taxpayers to subsidise risks that should have been borne by building owners and their insurers. Subsidies render unaffordably risky activities affordable, like repeatedly failing to reinforce an unreinforced brick building less than 200 kilometres from the Alpine Fault.

Without the taxpayers' subsidy of the risk through the no-fault ACC Act, many of the unreinforced masonry buildings would have been too expensive to insure, and the 12 who travel with me might still be alive. If there are to be subsidies, it is better to subsidise safety with public funding for earthquake strengthening than to subsidise risk.
I wonder to what extent other nested bits of regulations caused problems. I've often heard rumours about that some of Christchurch's charming deferred maintenance on older buildings stemmed from that getting consents to do any upgrading triggered requirements to bring older buildings up to newer code. And then this will interact with regulations on heritage buildings making any particular level of structural engineering upgrade far more expensive and time consuming. Small marginal upgrades that could have made small bits of difference for some buildings, if that's correct, then required owners to take on reasonably large upgrading costs. In worse cases, heritage regulations effectively barred earthquake strengthening altogether, although 603-13 Colombo was not on the Heritage Register. [Update below]

What's a way forward?
  1. Require building owners to carry liability insurance for risks their buildings pose.
  2. Establish Council funds, to which people would be invited to provide supplementary voluntary contributions, that would pay owners of buildings with heritage amenity value an annual subsidy for the positive contribution they make to the City. The burden of heritage preservation ought to fall on those enjoying the external benefits; that's best captured through payments by Council and voluntary contributions from high-demanders.
  3. Abolish existing heritage protection legislation and fix the RMA - make it extremely easy for building owners to demolish or make safe their buildings. While CERA can stomp on RMA in Christchurch for the time being, I wonder how tough it is for an owner of an older Wellington building to get the permissions to fix it.
New Zealand building insurance markets seem relatively seized up; it could take a few years before private insurers are willing to start writing contracts on these risks. But that's no reason not to start the ball rolling. Announce this year that liability insurance will be required as of say 2018 and that the regs easing up on demolitions and building strengthening will be in place for 2015. That gives Councils a couple of years to start figuring out which buildings really merit subsidy and for owners to figure out whether their buildings are viable in a world in which they bear the risks of failure.

If the choice were between ACC and America's broken tort system, I pick ACC. But I'm not sure that we can't make improvements at the margin.

Full disclosure: Ann is a coauthor of Canterbury's Phil Meguire and, back before the earthquakes, sometimes joined us for drinks at Canterbury's Staff Club. I hope to be able to buy her a drink when the staff club is repaired and when she's again up for the trip out to Ilam.

Update: Ann emails:
Also it was a category 4 heritage building, meaning it was municipally (not regionally, nationally, internationally) significant and it was desirable (not important, very important, or essential) to keep it.  So under the city's own plan, they had the discretion to demolish without consent, even without resorting to the special powers granted by parliament.

Council staffers were far more rigid than the legislation required. Rigid structures collapse in earthquakes. We can't afford non-ductile Councils in earthquakeland. See also this excellent post from TheAntiplanner.


  1. I'd also update the existing Building Warrant of Fitness process so that it has to be clearly displayed at all entrances to the building and clearly lists whether the building is earthquake prone and what percent of code it is (altho' I appreciate that estimating that can be quite difficult). People can then make informed decisions as to whether they do business with tenants in those buildings.

  2. We have a 'Vehicle Account' in ACC (paid by vehicle owners) to cover the human costs of vehicle accidents - why not look at creating a similar 'buildings account' - paid into by owners of buildings - to cover the costs of harm caused to humans by their buildings? Unlike the vehicle account, though, it would need to be tied to risk-related factors such as code compliance, foot traffic through/past etc. Not a perfect solution, but one that recognises that at the current point in time, the private markets may not be willing to price/take on this risk. At least this would require owners to internalise the external costs of deferred maintenance, failure to demolish, etc.

    I note that ISCR has in the past examined issues associated with the costs of imposing heritage orders on buildings in Wellington - albeit in the frame of the failure to require councils to compensate building owners for the costs of their impositions when placing conditions on future maintenance/renovations that in large part benefit the public, in the manner that is required of (say) Transpower when acquiring access to rights of way for power lines. The consequence is likely more designating of historic preservation zones than is economically efficient. Non-Compensation - its Not Just,14989/14989_July_2009_ver7.pdf