Wednesday, April 17, 2024

Dr Eric Crampton: Clarifying the absurdity

A couple days ago I pointed to NZIER's figures on the case for strengthening the Christchurch cathedral.

I think it's better to view this whole exercise as making clear what we'd need to believe if we wanted to believe that the regulatory apparatus surrounding the cathedral since 2011 is other than massively value destroying.

Recall that the Bishop wanted to demolish the cathedral and build a facility more in tune with current needs. Reinstating would be too expensive, and the final building not suitable for modern purpose.

A bunch of people who figured they knew better than the then-Bishop what to do with the Anglican Church's property decided that they would interfere. The Wizard. The Heritage People. All the stickybeaks who love to block anyone ever doing anything, but who won't stump the cash to give effect to their preferred views on things.

If you are happy to believe this set of things, then The Wizard and his cohort were right all along. If you don't believe these things, then the case for blocking the Bishop from running a bulldozer through the thing over a decade ago destroyed enormous value.

  • Revenue from climbing the tower will be 5-15 times higher than before the earthquake
  • Revenue from the gift shop and cafe will be 1-3 times higher than before the earthquake
  • A half a million people per year each get $5 to $10 in enjoyment benefits from having a look inside
  • Visiting the museum gives each of 114k to 159k people per year $10 to $20 in enjoyment benefits
    • There is no practicable way of charging for entry to either of those
  • Regular churchgoers get $5-$10 in benefits from attending mass; special services provide $10-$20 in value
    • There is also no practicable way of charging for these as the number of visitors would then fall
  • Each of the 398k - 467k people in Christchurch get $2 to $20 in benefits from knowing the cathedral has been rebuilt and that they have the option to go and see it sometime. And $1 to $5 for each of the 4.8-5.3 million non-Christchurch New Zealanders
    • And that it is also okay to count the value of the option when exercised (visiting) and the value of the option in the same tally of annual benefits. You might instead count only the value of attending in the year of attendance - exercising the option
  • There is meaningful and policy-relevant benefit to people working on cathedral restoration over and above the wages they are paid, and they wouldn't otherwise be working on similar stonemasonry at, for example, the Arts Centre
  • Each international tourist will spend between 0.1 and 0.5 extra nights in Christchurch because the Cathedral has been restored; at least half of this will be a shift from other NZ destinations, 0-50% of the extra nights will be net increases in total time spent in New Zealand. Oh - and spending by tourists should be judged on gross spend, not on profit from that spend.
 NZIER makes some of the problem really rather clear in Table 6.

The largest portion of the benefits, dwarfing everything else, is non-use value that they deem to be of low reliability. The point estimate of $19.7m is more than half of their total quantified benefits of $32.4m.

Click to view

If don't believe that tourists are going to spend a lot of extra time in NZ because of the restored Cathedral, or that each and every Kiwi outside of Christchurch gets $1 to $5 in annual feel-good benefits about the Cathedral's restoration, then the government erred in blocking the Bishop from running the bulldozer through it.

If the government is going to require the Anglicans to provide a reinstated cathedral, then the government should be the ones to front the cost. If the government believes the numbers in the NZIER report, then it should be happy to do so.

If none of us believe those numbers, perhaps the Anglicans should be compensated for the stupidity they've been forced to bear here. I do not believe the numbers, but you have to believe numbers like these if you want to believe that this whole thing has been other than a horrible mistake.

From where we are:
  1. Void the heritage encumbrances on the site.
  2. Tell the Anglicans how much money central government (and council, and crowdfunding) is willing to put toward different reinstatement options.
  3. Let them bulldoze and build as they like if that's what they prefer instead.
Update: hoisted from the comments on the "Afternoon roundup" post where I'd first linked the NZIER report, from Glenn Boyle:

Re the cathedral, these sorts of exercises are always difficult and hit-or-miss, but there are certainly some features of NZIER's report that caught my eye:
  1. I'd love to see the parameter values used in the option valuation.
  2. A discount rate of just 5% (essentially the riskfree rate) is interesting, especially given the costs are all incurred in 6 years but the benefits carry on for 40.
  3. There is, apparently, no uncertainty about costs!
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE

1 comment:

Anonymous said...

anyone who cares too much about heritage to stop demolition of a building by an owner should be asked to pay up or shut up.