Member log in

Consultant warns against national policy for quake-prone buildings

Wellington risk consultancy Tailrisk Economics is warning against the country’s estimated $10 billion earthquake-strengthening policy, saying it could have “detrimental effects” on the economy and communities.

The consultant’s just released report Earthquake strengthening policy formulation in New Zealand 2003-2013: A study in failure claims there are serious flaws in the way earthquake-prone buildings are designated.

The report’s author, Ian Harrison, says New Zealand’s attempt at an earthquake-strengthening policy will cost more than $10 billion but produce benefits of less than $100 million.

“No other country applies across the board national earthquake strengthening standards because it is economically illogical to do so,” the report’s author Ian Harrison says.

Mr Harrison, a principal with Tailrisk, is a specialist in low-probability, high-impact events, such as financial crises and natural disasters. He has worked for the Reserve Bank, the World Bank and the International Monetary Fund.

Christchurch tried to set its own standards for certain buildings following the earthquakes but that has since been shut down by the Insurance Council of New Zealand through the courts. The case is now headed to the Supreme Court.

Mr Harrison also says the critical earthquake-prone building trigger point of 34% of new building code was decided arbitrarily and has no supporting analysis or regard for costs and benefits.

Policy decisions were effectively made by industry groups, rather than informed ministers, he says.

Jordan Williams, executive director of the Taxpayers’ Union, says if the Tailrisk report is correct, the government is about to force more than $3 billion to be spent on earthquake strengthening in Auckland.

“While it isn’t a tax, it's a massive regulatory burden which appears to lack evidential foundation,” he says.

It’s not just a burden by the private sector. In terms of government-owned buildings, a recent budget report by Auckland Council shows a current $16 million shortfall for the next fiscal year. That number does not yet take into account “the cost of inspecting and strengthening of any council-owned earthquake-prone buildings.”

The latest annual report by Auckland Council Property says the council-controlled organisation managed 1074 properties and its property portfolio topped $910 million.

Comments and questions
8

Surely though when any body is facing a similar set of decisions over and over with recurring themes and fact patterns, it is wise to develop a policy?

The report, which you can access at a link above, outlines an argument against the current policy, not just having any policy. At the heart of the argument is perhaps what is good for Christchurch isn't necessarily good for Auckland. As NBR has reported, most reinsurers will not underwrite south of Hamilton, particularly for older and quake-prone buildings.

The spin doctors have got away with saying the Christchurch earthquake was good for the economy.

I presume the spin doctors will try the same b/s that building upgrades are also good for the economy.

I feel sorry for the people left with the debt.

Regardless of the arbitrary nature of the 34% NBS level, many businesses are increasingly unwilling to buy or lease space in buildings with less than 67% NBS (also arbitrary). A property owner's cost benefit analysis, which proposes to delay strengthening work may not provide much comfort for employers who want to show regard for the safety of their employees.

The economic costs of this policy may well be large. What is needed first is an engineering risk assessment process that identifies a building's place of priority in the required strengthening timeframe.

There is also a question of the availability of professional and technical resources to achieve such a massive upgrade to building EQ strength in the timeframe proposed.

...and a bigger, more immediate issue for building owners and tenants is the current OSH laws and their liability pertaining to this.

Employers must take "All practicable steps to protect employees and visitors"

So occupying any premises that is knowingly less than 67% NBS exposes both the tenant/employer and building owner to all manner of liability under existing OSH laws?

In the instance of a major event where injuries and loss of life occurred, would OSH not fall back on case law and attitude claiming "the business preferred profit over staff safety - so hence are liable and culpable"

Or would that not be the case? Would love to read a comment from an OSH legal professional please...

When will they start building dykes in Christchurch to deal with a tsunami event? GNS have warned about tsunami risks in many reports, yet everyone carries on like it will never happen?
If the IPCC report is correct, Christchurch will be devastated by just 0,5m increase in sea levels, never mind a tsunami on top of that?
Mind you, I haven't seen the Ducth increasing the heights of their dykes, so perhaps it is just more rubbish from the IPCC. I note that WarrenBuffett hasn't noticed any increase in severe weather claims!!
See http://www.cnbc.com/id/101460458

This is an impost on business. Mind you Blokeintakapuna is right on director liability. I'm not going to prison.

My wife was in Wellington during the recent major shake. She was in Te Papa and pleased to be in an earth quake ready building.

We can't see a repeat of CCT building, however the hard part is where to draw the line. And will we have an earth quake in volcanic Auckland or stable Hamilton?

So we raise $4.6 billion by selling income yielding assets and spend $10 billion to hedge against what this analyst sees is an outside possibility. Hmmm. Unless of course mates of the government, big business and the rich, are profiting from both - then it all makes sense!