Friday, May 4, 2012

Worst of both worlds

Unsafe buildings impose probabilistic costs on passers-by. There are two basic ways of solving the problem. You can make the building owner liable for damages his building imposes in case the downside cost eventuates, in which case he buys insurance against that potential liability and is charged insurance premiums proportionate to the risk he imposes, or you can enforce mandatory standards on building owners limiting the maximum risk the building can impose. Either one can yield decent outcomes. In the former case, building owners invest in safety improvements up to the point where they're no longer worth the cost, and if liability is roughly right, that's also roughly the socially optimal amount of safety investment. In the latter case, outcomes are a bit less responsive to heterogeneity in actual imposed risk but at least we avoid terrible outcomes.

But things go a bit screwy when you socialise downside costs, don't charge building owners any actuarily-adjusted insurance levy for provided insurance, and don't enforce the actual building code.

And so 605-613 Colombo Street fell onto a bus, killing 12 and leaving only Ann Brower to write about the failures in building regulations. Before the earthquakes, Council failed to enforce the building code despite pretty serious problems. After the September and December quakes, when the building became incredibly unsafe, Council didn't let the building owners tear the thing down. Ann writes:
At the beginning of February, the Royal Commission of Inquiry heard two days of evidence about this one building that caused 12 deaths and my injuries. On Day 1 of the hearing, we heard the building owners say that re-attaching the façade that had separated from the cross-walls by 44mm would have cost $200,000. Repairing the building enough to make it safe to occupy was impossible (the $200,000 strapping job would have protected passers-by in the street, but would not have made the building safe to occupy). So, the building owners approached the council with their plans to demolish the building due to imminent danger to the public of the façade leaning out over Colombo Street, which is after all the main street of town. Council staff replied that they had no choice but to follow a consent process, which would take six months at least to complete. So on Day 1, the building owners blamed the council for delaying demolition with the consent process. Council solicitors blamed the Resource Management Act (RMA) for requiring consents and said that they had no discretion in the matter. The Council solicitor asked the witnesses, “Is it your testimony that we could just flout the RMA?” Council’s hands were tied, they said.
The trouble is that, in September, a unanimous Parliament had untied Christchurch City Council’s hands. Parliament gave the City Council precisely the power to flout the RMA in order to protect public safety.
On Day 2 of the hearing, council staff admitted that they were aware of this power, but found it draconian, so used it only three times. Neither heritage nor the RMA was to blame here. Council ignored the powers that Parliament granted. Since when can a city council second-guess a unanimous Parliament?
I should also add that this hearing was originally scheduled for early December. But, Council solicitors requested it be delayed for several months after new evidence about Council’s delays on demolition and its failure to put up a fence posed “reputational issues” for the Council. “These two buildings are particularly fraught,” the Council solicitor said in The Press.
There weren't heritage regulations preventing Council from allowing that the building be demolished. But whether the insistence on drawn-out consenting processes for the demolition stemmed from Council worries about annoying heritage activists, or just from the love of process... who knows.

Either moving to a liability system or enforcing a stricter set of earthquake building codes on older buildings is sufficient for fixing things. And both will put a ton of pressure on owners of older buildings, some providing substantial heritage amenities, to tear them down in favour of newer buildings. Moving to a system that pays owners of older heritage buildings to strengthen them moves the burden of heritage protection onto the public that enjoys the heritage amenity and encourages a focusing of effort on the most important buildings.

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