Infrastructure roulette

In some respects it's reasonable to think about city council as being a kind of club.

Everyone who owns property in Wellington is a member of the Wellington Council club. The club levies itself to provide things that the club members want, and to cover off the cost of stuff that central government wants the club to provide that club members may or may not want. For some reason, renters were added as voting members of the club. But the debt that the club issues is ultimately backed by each of the club properties. We'll leave that messiness to one side for now.

The club finds that part of its infrastructure is in terrible shape - partially because of decisions of past club executives; partially because of a recent earthquake. 

The club can choose to rapidly replace all of that infrastructure. That would be very expensive. But it would sharply reduce the chances of very bad outcomes where infrastructure blows out.

Or it could choose to pace itself in that infrastructure replacement. That will be much less costly. So much less costly that you could, at least in principle, compensate anyone who suffers from those infrastructure blowouts if it's really the infrastructure that's to blame. 

The latter could be a very reasonable deal. Behind the veil, none of us know which of our properties is sitting on top of a water network pipe that will collapse catastrophically and destroy our home. But we'd all be bankrupted if we tried replacing all the pipes in a giant hurry - it's just impossible. So we're each better off if we all agree to take a more cost-effective path on the infrastructure refresh while compensating any club member who draws the short straw.

The alternative, with no compensation, is more like the club members agreeing to play a giant game of Russian Roulette. We don't know which of us will draw the short straw, but we hope to heck it won't be us because whoever it is will be ruined. 

It could be that the numbers don't actually work out this way. But it seems a reasonable stylised example. 

And in any particular case of blowout, you'd want to be sure that the club member hadn't contributed to the failure through their own negligence. 

But if it were clear-cut, it shouldn't be a legal battle. It should just be compensation. 

I mean, if a private company accidentally drove a bulldozer through your house and wrecked it, nobody would think it reasonable to force you to go to court to get them to compensate you. Everyone would pillory the company. There would be boycotts. Some Vic Uni quasi-academic might call for the company's chief executive to be hanged. 

Here's The Post.

Wellington City Council is refusing to pay for repairs after one of its own burst water pipes triggered two landslides that has left two families facing bills of up to $600,000.

A council-commissioned geotechnical report found the Wadestown slips were “most probably” destabilised by a failed drinking water main, owned by the Wellington City Council and maintained by council-controlled organisation Wellington Water.

The 50mm pipe ruptured on August 4, saturating the embankment, and the slips forced both households to evacuate. Residents are still living in temporary accommodation.

I Am Not A Lawyer. 

But it seems likely that the homeowners could sue council for nuisance, and win, and have costs awarded against council, but the costs won't likely be anything like what would be needed to make them whole as compared to council just providing compensation. 

Council is not a good club. 

Morning roundup

The survivors in the browser tabs, each of which likely deserves its own post.

• The mess at Tolaga Bay seems one where you should get the right solution by applying liability. It's impossible for you or I to tell how much value the forestry companies get from leaving slash on hillsides - it can be important for soil regeneration. And it's impossible for you or I to tell how much it would cost them to avoid landslips and mess during storms. But if companies are liable for damages caused, then they'll have incentive to weigh that all up properly. 


• Drunk people are better at creative problem solving. Well, tipsy people (just under .08). Harvard Business Review only just wrote this up, but it looks like the underlying research by Jarosz, Colflesh and Wiley is from 2012. Or at least I think that's the underlying research. HBR doesn't link it and doesn't mention either the name, year, or journal of the study. Usual skepticism about small-n psych experiments should apply, but it does accord with fairly common experience (drink while writing, edit sober), and with a later similar study. 


• Colby Cosh on the history and robustness of the Dow Jones Industrial Average.


• The Taxpayers Union' finds a continued, and growing, public sector wage premium. The correct first response to this kind of finding is that the public sector will be more likely to draw a different skill mix than the private sector. What you really then want isn't the difference between average pay in the private sector and average pay in the public sector, but rather whether workers of similar characteristics enjoy different earnings in the private or public sector. On that one, the most recent New Zealand work I know about is John Gibson's 2009 piece showing a rising public sector pay premium from 2003-2007, adjusting for everything then observable about workers.
  
  From Gibson's abstract:

  This note reports propensity score matching estimates of the public sector pay premium in New Zealand for each year from 2003 until 2007. Comparing with observably similar private sector workers shows that public sector workers have received a pay premium that has grown in each year, from almost zero in 2003 to 22% in 2007. Unless there have been unmeasured changes in worker qualities or in the attributes of public sector jobs that give rise to compensating pay differentials, this rising public sector pay premium is most plausibly attributed to an increase in non-competitive rents. 

  Remember too that an employee's total compensation bundle isn't just pay - it's also conditions and job security. If public sector employment is, on average, viewed as having more security and less onerous conditions than private sector employment, we should not expect a positive wage gap. Perhaps there are other conditions in public sector employment that require paying a premium to draw in suitable staff.


• The government's to be subsidising firms who take current beneficiaries as new apprentices. I expect wage subsidies are an appropriate solution here. I note that countries like Switzerland that have robust employer-provided training schemes don't constrain firms with a minimum wage - young trainees start on very low wages and quickly move up to wages closer to those of skilled workers as they develop those skills. If you ban firms from starting apprentices on wages that reflect productivity, you'll have to subsidise firms taking on apprentices. In this case, I expect that the subsidy would also help ensure meeting a participation constraint on the employee side. UPDATE: I've been corrected! Wages for Swiss trainees remain low during the training phase, though it varies by sector. In a lot of cases, they remain between 10% and 25% of skilled workers' wages. But it enables a sector that can train skilled workers. 


• Katherine Rich is awesome. I don't know how many times I've seen the public health brigade shout about how industry should be denied a place at the table and should never be consulted about anything, and that the loudness of industry screams is a proxy for the benefits of a policy. Well, know what happens when you shut out industry? You wind up making stupid mistakes that you could have found out about earlier if you'd only bothered asking people who know more than you do. So instead of a referee report allowing you to fix errors before publication, you get an embarrassing letter in the journal your article was published in from Katherine Rich pointing out important problems.

  Madam
  The paper by Chepulis et al.(1) published online by this journal contains errors, inconsistencies, unsubstantiated statements and a lack of evidence to support its conclusions. The following comments refer to the different sections of the paper as published.
  
  Abstract
  There is an error in the abstract and on p.4 of the paper, which reports that New Zealand had the highest percentage of beverages with added sugar while the UK had the lowest with 9%. The UK figure should have been 39%. The erroneous figure was seized upon by the New Zealand media to demonstrate how far behind New Zealand was from the UK and to highlight the potential impact of a sugar tax. ...

  It goes on from there. Katherine talks more about it here, and notes that the journal now has an updated corrected version up - which will be covered in zero of the newspapers that pointed to the original work. All of this is consistent with a model of public health research that cares far more about getting a couple days of screaming headlines with incorrect figures than about truth-seeking. 


• Brendan Harre pulls together several of his suggestions around housing affordability. I agree with the broad thrust - we have an incentive-alignment problem where central government reaps the bulk of the benefit of growth but local councils have to find ways of funding the infrastructure to enable it. Interesting suggestions throughout.

Risk averse schools

The government keeps enacting legislation with potential for substantial fines for getting things wrong. The government then keeps being surprised when schools take a very risk-averse attitude to compliance with those rules despite ministry assurances that, so long as they're following and documenting sound practice, they have nothing to fear.

This time it's the Vulnerable Children Act

It has traditionally been a free and convenient way to accommodate students on school trips, but new legislation could spell the end for billeting.

As schools work out the best way to approach the Vulnerable Children Act some have canned billeting altogether because of fears they could be liable if something happened to their students, while others are police-vetting every parent willing to take in billets.

Principals say billeting has become a "grey area" for schools, despite the Ministry of Social Development saying parents involved in billeting are considered volunteers, making them exempt from mandatory safety checks.

Is this required?

Sandy Pasley, president of the Secondary Principal's Association, said exactly what was required of schools around billeting was a "grey area".

If a decision was made at a ministry level that it was critical to police vet parents willing to take in students then more schools would consider paying for accommodation, making school trips cost more.

Schools were asking for more guidance over the legislation as they came to terms with it, Pasley said.

Sue Mackwell, the Ministry of Social Development's national children's director, said mandatory safety checking did not apply to volunteers, and parents billeting school children were volunteers.

Katrina Casey, head of Sector Enablement and Support at the Ministry of Education, said the ministry had developed a resource that provided an overview of police vetting requirements under the new Act, and had held workshops to help schools better understand it.

Perhaps the government should spend a bit of time figuring out why schools don't seem to trust the ministries to behave reasonably.

Anecdotally, I've also heard of schools that have started using scaffolding rather than stepladders to replace lightbulbs because of the rules around working from heights.

Meanwhile, real estate agents don't know what counts as good enough for having taken all "reasonably practicable" measures to ensure health and safety during open homes:

Some open home registers now require potential buyers to formally acknowledge they have read a list of risks and hazards, will follow the salesperson's instructions on how to avoid them, and agree to closely supervise any accompanying children.

Christchurch house hunter Mel Street has attended at least 20 open homes since March and first noticed the beefed up health and safety rules about six weeks ago.

On two occasions she was asked to sign a waiver saying she had read the list of hazards - such as tripping on a laundry step - and took responsibility for any injuries she might suffer.

"I thought it was really odd, very much treating me like a child. It felt very American, cover your back and don't sue me for anything."

If you don't know what counts as 'reasonably practicable' as it would be judged after a freak accident by somebody who might be happier to throw you under a bus than to acknowledge that low probability events happen sometimes, and where the penalties are big, you're going to go a bit over the top in proving you did enough to avoid the risk. It is not hard to blame people for thinking Worksafe is unreasonable when Worksafe assigns $40,000 fines for not wearing a helmet on a quad bike.

One of the things I loved about moving here from the States in 2003 was the absence of this kind of nonsense. If the UN doesn't want Helen Clark to run things there, can we get her back as Prime Minister? This kind of thing didn't happen on her watch.

That all houses be bomb shelters and also be made of gold

It really isn't all that puzzling why Councils run such pedantic building consenting rules if they're on the hook for all the downside costs if anybody doesn't bother getting a building inspection report later on.

Here's the NBR's Victoria Young:

Auckland Council says it has reservations over a High Court decision which means it has to pay $25 million to leaky building owners.

Claims manager Sally Grey says the decision is “complex and lengthy” and the council will take time to consider an appeal.

Justice Murray Gilbert ruled substantially in favour of apartment owners in the Nautilus apartment building case.

The lawyer who took the suit, Tim Rainey, says Auckland Council will be left with the bill as other defendants in the case have been relieved of liability or are unable to pay.

Read the whole thing. Fixing liability here and legislating around the Supreme Court ruling on leaky buildings might be important.

The Asylum creeps in: health and safety edition

A reader emails me that the revised health and safety regime, which brings criminal penalties for company directors, will also apply to voluntary organisations. He writes:

I know you write periodically about crazy laws and being inside the asylum. As you might know, I'm a scout leader. A volunteer. One of things that I have enjoyed in scouting is the ability to let children and youth take risks. You know, tackle bullrush, climbing trees, crossing rivers, hiking, making and playing with gun powder, making their own bows and arrows (one shot an arrow clean through a window without breaking it :) ) and so on.

They keep making changes to health and safety laws which potentially undermine the ability to do this. The first was throwing in volunteers in the Health and Safety in Employment Act back several years ago. That added to our paperwork and probably did restrict some activities at the margin (but not hugely), which was a pain at the margin but that seemed to be all. But they are currently making a couple of other changes which increases costs to volunteer organisations and I'd predict the benefits are negative once they take into account lost consumer surplus from eventual changes and reductions in volunteer activities. You can find one mentioned at 
http://www.stuff.co.nz/manawatu-standard/news/63962701/New-safety-reforms-threaten-volunteers  

and another at
 http://www.scoop.co.nz/stories/BU1412/S00202/new-sentencing-act-exposes-businesses-and-individuals.htm 

They might not have any impact, but.....! Since volunteer organisations fall under the jurisdiction of the health and safety in employment act you can see why the sentencing act changes are a potential problem for them. It also seems to me to undermine the no-fault basis of the ACC scheme. I think ACC has some problems, but the no-fault provision is incredibly useful in not having to worry about frivolous lawsuits to extract payments to avoid the costs of the suits going to court, which then result in noticeable restrictions on people's activities, such as children playing where there is any tiny risk of an injury!

The link to the Manawatu Standard article has since died; I don't know whether they pulled it because the government has issued a very recent clarification, or if some other error has occurred. Can anybody confirm how the changes to legislation will be affecting volunteer organisations?

I also found a press release from an insurance company warning outfits to get liability insurance because ACC no longer shields against lawsuit:

Ms Cross says that under the previous legislation even the most serious accidents would rarely result in reparation awards over $100,000, “but with this new law, the figures are likely to be significantly higher.”

Ms Cross says that businesses should seek advice from their broker whether their statutory liability policy has the required level of cover, as this amendment will have potential impact when there is a breach of the Health and Safety legislation.

She pointed out that companies would not be able to insure themselves against any penalties but could get insurance that would cover reparation and legal costs.

Ms Cross says she will be working closely with her clients at Crombie Lockwood to prepare for this law change.

“At this stage it is still a bit unclear how the courts are going to use this new tool, but you wouldn’t want your company to be the guinea pig.”

I'd thought that the basic deal with ACC was that we gave up our right to sue in exchange for a mandatory kinda-ok-but-really-kinda-not insurance programme, with the whole thing making sense because U.S.-style tort excesses are worse. I suppose that potential damages are here limited: if the most that a party can be liable for is 20% of the total ACC claim, and if ACC doesn't really pay that much, then potential liability stays below that in the States.

Connecting dots

If the government makes company directors personally liable for criminal charges if they've not exercised sufficient due diligence around employee health and safety risk, should we act all surprised when companies start deciding that a lot of things are too risky?

Earlier this year, MBIE sent around the draft guidelines. It's not law yet, but it's coming. Here's one precis:

Having already released a Guideline document for Directors on managing health and safety risks [Good Governance Practices Guideline for Managing Health and Safety Risks ] the government has now released an Exposure Draft for the proposed new legislation, expected to replace the Health and Safety in Employment Act 1992 sometime in 2014.  The Exposure Draft contains a raft of wide-ranging reforms.  However, the purpose of this article is narrow; to look at the new Directors’ obligations under the proposed legislation. 

What is changing?

The new Health and Safety at Work Act will impose an active duty on those in a governance role to proactively manage workplace health and safety.  Under the present legislation, the Directors of a company can only be held liable for a breach of the Act where they have participated in, contributed to, or acquiesced in their company’s failure.  The new laws will impose a due diligence role on Directors with regard to health and safety. 

...

What happens if an Officer doesn’t meet the obligations?

An Officer of a PCBU can be convicted of a failure to meet the due diligence requirements whether or not the PCBU has also been convicted of an offence.  However, if an Officer hasn’t met his or her specific duty, chances are pretty good that the PCBU itself has also fallen down somewhere along the line.  Consequently, a Director of a business could be facing liability in respect of his or her Officers’ duties, as well as the business facing liability as a PCBU in relation to the same event.

There are three tiers of liability under the proposed legislation:

	Reckless conduct (where a duty-holder engages in conduct that exposes any individual to a risk of death or serious injury or illness, and is reckless as to that risk):	Failing to comply with duties and exposing individual to risk of death or serious illness or injury:	Failing to comply with any duty (including the due diligence requirements for Officers):
Individual but not a PCBU or Officer	Up to $300,000 fine and/or up to 5 years’ imprisonment	Up to $150,000 fine	Up to $50,000 fine
Individual who is a PCBU or Officer	Up to $600,000 fine and/or up to 5 years’ imprisonment	Up to $300,000 fine	Up to $100,000 fine
Body Corporate	Up to $3m fine	Up to $1.5m fine	Up to $500,000 fine

Is it any surprise that Solid Energy reckons that Pike River still isn't safe enough to enter?

Kevin Hague is likely right to point to personal liability as a potential issue; I wouldn't follow him in characterising this as putting commercial interests ahead of grieving families though.

It is heroic to require corporate directors to assume heavy personal liability including up to five years' imprisonment if their due diligence on entry risk wasn't 100% up to spec, under a new incoming legal liability regime with great uncertainty about potential application.

One wonders what other risky, but efficient, actions might be deterred under the new regime.

Earthquake-prone buildings

Owners of earthquake-prone buildings now have a bit more time to bring them up to spec. The owners are mad because they say it isn't long enough; people who experienced Christchurch are mad because buildings will still fall on people and kill them in another quake. They could both be right.

It is perfectly plausible that there are buildings that need never be compelled to be brought up to 33% of new building code. Imagine a building in the middle of nowhere, with no nearby pedestrian traffic, and occupied only by those who know about the risk or who are well-advised about it by a sign at the doorway. There is no reason for the government there to get involved, or at least no reason that comes from economics. People can trade off cost and beauty against risk - that's allowed. And so a national rule that forces the owner of such a building to make costly investments to bring it up to code imposes cost in excess of benefit. The owner either will sink money into the building where it isn't warranted, or he will demolish the building that he otherwise would prefer to keep.

On the other hand, imagine a building in downtown Wellington with an unreinforced masonry facade. Everyone in the building knows about the risk and accepts it in exchange for lower rental rates or enhanced amenities on other margins. And that's all fine. But passers-by on the sidewalk and buses driving by on the street have uncompensated risk forced upon them. While the owner will there rightly claim that it does not pass his cost-benefit analysis quickly to bring the building up to 33% of code, he is not accounting for the costs he is imposing, probabilistically, on every passer by. It can easily be the case that, when accounting for the risk of death he is imposing on each person walking past his building, upgrading the building or demolishing it would pass cost-benefit. But he does not care about the costs imposed on others. The new rule is too lax in this case.

What then is an optimal rule? We'd need some way of accounting for the true risk that a building imposes. That risk depends not only on structural features of the building but also on the building's surroundings. And it would be pretty hard for central government to be able to come up with a clean rule. As we saw in Christchurch after the September quake, City Council had a rule in place requiring the closure of footpaths adjacent to risky buildings; Council interpreted the rule in perverse ways. Instead of blocking busy Colombo Street, Council decided that the engineers must have meant that 605-613 Colombo imposed risk instead on tiny alleyway beside the building. And then the building fell on a bus and killed a bunch of people and left Ann Brower to work out the series of spectacular regulatory failures that led to her being the only survivor on that bus.

There's an easier way. Honestly, we do not know when another quake will come or which buildings will collapse. Engineers can put up widely varying assessments of the true structural risk imposed by a building. What do we do when faced with this kind of uncertainty? Impose a liability rule. Instead of giving building owners 15-20 years to get their buildings up to 33% of the new building code, give them five years to get an engineering assessment, to put a safety letter grade prominently at the door, and to get liability insurance. At the end of the five year period, have every building owner liable for damages for every person killed or injured if their building falls down on passers-by. There should not be liability for deaths and injuries incurred by persons inside the building: we can and do voluntarily assume some risks, and we should not prevent people from taking on those kinds of risks. But if your building falls down and squishes a bus, you should be liable for the deaths of each of the people inside of that bus.

The Ministry of Transport currently sets the Value of a Statistical Life in New Zealand at $3.77 million. That's arguably too low, but it's a great benchmark: arguing about $3.77 million versus the $5 million or so you'd get from a back-of-the-envelope application of revealed-preference measures from the United States to New Zealand, accounting for the income elasticity of safety preferences and differences in income across the two countries is second order. First order is getting a consistent benchmark across different regulatory and liability sectors.

A building owner potentially liable for $3.77 million in damages paid to the estates of those who his building kills will adequately take their interests into account in deciding whether to fix up his building. It would not be that hard to require that building owners carry insurance sufficient for paying such liability claims, or to prove assets sufficient for covering the potential liability. If you've got a building in the middle of nowhere with no passers-by, your insurance premiums will be very small. You then will make the optimal choice and not upgrade your building. If you've got a brick-facade building in downtown Wellington, you'll have to weigh up the costs of insurance against the cost of fixing the place up.

Right now, we are in the worst of all possible worlds. Building owners face neither liability for the risk their buildings impose on those outside their buildings, nor any sufficient regulatory regime to ensure that owners are making appropriate investments in ensuring that their buildings do not impose excessive risk on passers-by. This is why Wellington scares the hell out of me. It's pretty, and I love seeing the old buildings that we no longer have, but they terrify me. I have absolutely no confidence that even really rather dodgy buildings are getting the attention they deserve.

Were the Government to have any interest in implementing a regime such as that described above, I'd recommend one further change. Flip the heritage building regulations around such that heritage boards have zero regulatory power but instead get an annual budget. Owners of risky heritage buildings should be free to demolish them if that's what make sense, given the risk they impose and the cost of upgrading them. Heritage boards' main role should be the payment of annual stipends to owners of heritage buildings for the provision of heritage amenities. Give them a generous budget, funded partially by local Council, partially by central government, and with ample provision for voluntary donation from the public. Let them decide, within that budget, where they can do best by spending money. And then just let go of the rest.

I will absolutely hate saying "I freaking told you so" after Wellington gets a big quake in which unreinforced masonry winds up killing a bunch of people needlessly.

And, in anticipation of the likely critique: yes, I am here absolving building owners from liability for those who chose to be inside their buildings. But current policy absolves them of that liability for those both inside and outside.

Previously:

• In praise of liability
• Worst of both worlds
• VSL and earthquakes
• Heritage preservation

VSL and earthquakes [updated]

Bill Kaye-Blake starts running the cold calculus on the weight we ought put on earthquake safety.

That is, given the known risks of earthquake, we should be willing over the next 50 years to invest over $5 billion $26om on earthquake safety in order to save the lives of people in Wellington. If we think that saving all those lives is impossible (which it likely is), then we can scale the total back. For 1,000 lives saved, the amount is $3.5 billion  $175m. This calculation doesn’t say anything about the 13,000 injured however. They need to be added in, too.

This is an example of an explicit cost-benefit analysis of the trade-offs we might be willing to make. We can spend some money to make buildings safer and save lives, or we can spend it on other things that also have value (health, education, and margaritas).

Dear reader, before you accuse me of being a heartless economist, let me point out that decision-makers are already making this trade-off.

The faster we move towards a liability regime, the better. Announce that, as of a five years from now, building owners will need to carry liability insurance for potential fatalities caused by their buildings. Insurers will set premiums to reflect building-specific risk. Owners then weigh the ongoing insurance cost against the cost of repairs and rebuilds. At the same time, switch from regulatory heritage preservation to local councils' paying annual subsidies for provision of heritage amenities.

Give it a few years so that we don't run into construction capacity constraints with the Christchurch rebuild, or import a pile of European and American unemployed builders on two-year work visas.

* Update: Bill corrected an error in his original figures - the relatively low risk of earthquakes makes the efficient level of expenditure lower. That also makes the actuarialy fair insurance levies lower.

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.

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.