Mike Butler: Bureaucrats bungle earthquake policy

A toxic mix of greed, fear, liability protection, zealotry, secrecy, technical errors, and complexity has led to an earthquake prone building policy that will cost $10-billion to save seven lives over 75 years, according to a report released this week.

Economist Ian Harrison, who wrote “Error-Prone Bureaucracy”, has a Master of Public Policy from Johns Hopkins University and has become an expert on policy formulated without regard to evidence, logic, or common sense.

Draft legislation was introduced into Parliament last December to amend the way the Building Act deals with seismic risk to buildings. The key element in the legislation is the “earthquake prone” building definition which intends to apply the existing calibration of 34 percent of the new building standard.

Harrison points out that the policy would cost building owners over $10-billion, would disadvantage tens of thousands of people, it would have a potentially devastating impact on heritage buildings, while the benefits will be less than $100-million, and could be expected to save just seven lives over the next 75 years.

By contrast, Harrison writes, if $10-billion were spent improving road safety and health, thousands of lives could be saved.

No other country applies across-the-board national earthquake strengthening standards to existing buildings. The United States has a legal requirement that Federal building strengthening proposals must be supported by a positive cost benefit analysis.

The calibration of the strengthening requirement contained in legislation before parliament has been bungled and this will lead to bizarre results, he wrote.

1. The life safety standard that is applied in Auckland is about three thousand times stronger than the one applied in Wellington when they should be the same;

2. Compliance with the minimum standard could cost over three billion dollars in Auckland, but is expected to take 4000 years save a single life. Three to eight Aucklanders are expected to die as a result of financial stress caused by the policy;

3. Aucklanders will be forbidden to attend church in earthquake prone buildings when this is tens of thousands of times safer than alternative activities such as riding a bike.

These bizarre outcomes result from a lack of analysis behind the calibration of the framework when it was introduced from 2004 to 2006, and the badly flawed framework was never tested, Harrison wrote.

The New Zealand Society of Earthquake Engineering started using the “earthquake prone” building definition in the 2004 Building Act by establishing an arbitrary link to the new building code without serious regard to the costs and benefits of doing so, he wrote.

This increased the life safety standard applied in Wellington by a factor of 5 to 10 above what a conservative cost benefit analysis would show to be appropriate. It also exaggerated the measure of earthquake risk in the low seismic zones of New Zealand by using an artificially large earthquake based on the largest possible earthquake, rather than actual earthquake risk.

The Ministry of Business Innovation and Employment has claimed that 15,000 to 25,000 New Zealand buildings are earthquake prone, but applying a sensible cost benefit analysis and internationally recognised life safety standards, it is likely that:

1. Only a few percent of the buildings currently designated as earthquake prone would truly be excessively risky

2. More than half could be effectively risk free.

The interpretation of “earthquake prone” used by the New Zealand Society of Earthquake Engineering and promoted by the Ministry of Business Innovation and Employment is not consistent with the definition of earthquake prone in the Building Act. Local Authorities have been unlawfully applying excessively high standards when they have been designating earthquake prone buildings, Harrison wrote.

Bureaucrats rather than politicians are to blame for this faulty policy. Advice to Cabinet based on the Ministry’s risk assessment analysis fails to point out that:

1. The regime failed to account for regional differences in seismesticity.

2. The strengthening requirements implementation was based on a definition that was completely at odds with the legal definition.

3. Cost-benefit analysis does work for low probability events

4. An implication that there was analysis that captured a wider and substantial set of benefits than those captured in the cost benefit analysis was not true.

Since earthquake strengthening costs are about 50 percent of replacement costs, and since the proposed legislation is based on a number of significant errors, building owners face substantial losses.

Harrison asks whether the parties that have been involved with the New Zealand Society of Earthquake Engineering recommendations be guilty of obtaining by deception or causing loss by deception under Section 240 of the Crimes Act 1961.

Building owners may appeal a council designation to the Ministry of Business Innovation and Employment. The grounds for doing so are that under law an earthquake-prone building must be likely to collapse in a moderate earthquake - which is close to a physical impossibility.

If the property owner disagrees with the Ministry's determination, they can appeal in the district court.

Source
Error Prone Bureaucracy: Earthquake strengthening policy formulation in New Zealand 2003-13: A study in failure, March 2014, Tailrisk Economics, http://www.tailrisk.co.nz/documents/ErrorProneBureaucracy.pdf