Monday 20 February 2023

Managed retreat - some basic principles

EDS has put up a lengthy paper on managed retreat.

I have an alternative, shorter proposal. Or at least a starter.
  1. People should be able to build where they want.

  2. Insurers should be able to set premiums to reflect risk. EQC could make that safer for private insurers by leading the way. They have decades of claims history. 

  3. Councils should reserve the right to discontinue services in places that are too expensive or difficult to maintain. In such cases they could offer existing residents a choice:

    1. Special ratings district that imposes a differential higher levy reflecting higher costs of providing council services in those areas, and a promise that there will be no cross-subsidies from safer places, reminding that that means that if their road washes out and they want it reinstated, the levy will have to go up;

    2. Setting of a special purpose local board that becomes the owner of local infrastructure, governed by its residents, and able to set its own levy on properties for service. Councils would need to sharply reduce rates for those properties to reflect that council is no longer providing those services.

  4. Ability to set those special purpose local boards should be extended more broadly, such that a group of farmers could set one to take on the debt that funds flood protection works and finances that debt through a levy on protected properties, on approval of those properties’ owners.

  5. EQC to recognise mitigation works when setting premiums. Private insurers would do similarly so long as that market is sufficiently competitive.

  6. Make damned sure that there aren’t regulatory barriers unduly hindering insurance entry, including provision of parametric insurance products.

  7. Land values in high-risk places no longer cross-subsidised by low-risk places would drop. If government worries about the equity implications of that, it could provide a one-off payment in compensation. Ideally it would set a cap on such compensation because it will disproportionately go to rich people living in unsafe places who have been cross-subsidised by poorer people living in safer places for ages. 
We find that the northern regions of both islands are the source of most claims, that only a handful of weather events caused a large proportion of EQC’s weather-related pay-outs, that the average property lodging a weather-related claim is located twice as close to the coast as the national average, and that properties with claims usually are cited on much steeper land than the typical property in New Zealand.

We also explore their relation between claims and socio-economic characteristics, finding that higher income neighbourhoods appear to be those most benefiting from the EQC coverage for weather events. 

The usual complaint about abolishing implicit subsidies is around equity issues. But normal equity considerations here run opposite to what you might have thought. It wouldn't stop those concerns from being raised as reason not to do this, but do look behind the curtain. 

Seems simple enough. No need for government or council to decide who's allowed to live where. If you want to live in a risky place at your own expense, that should be up to you. 

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