Time to Review Earthquake Prone Building Policy?

In Daniel Kahnemen's modern classic of psychology and economics, Thinking Fast and Slow, the author explores individuals' tendency to overweight low probability events, particularly ones with an element of perceived risks. Likewise, we particularly over-value steps that are perceived as fully eliminating a risk.

This individual bias, which we can all probably recognise in our own behavior, has a tendency to make its way into collective decision making, including national policy making. One area where I am concerned that this may be the case is in our requirements around Earthquake Prone Buildings.

Following the Canterbury Earthquakes and subsequent Kaikoura Earthquake, a series of policy and operational technical changes significantly altered the seismic standards, and required response, for New Zealand buildings. Many of the changes are described well in these two 2022 Stuff articles: https://www.stuff.co.nz/opinion/128998481/we-must-have-a-debate-on-quake-risk-management https://www.stuff.co.nz/national/explained/128833023/reasonable-caution-or-hysteria--why-are-wellington-buildings-being-deemed-unsafe-and-evacuated

The motivation behind these changes is understandable, particularly in the wake of the tragic loss of life in Christchurch. No one would want to be responsible for earthquake deaths in the future, particularly when we should have learned from before.

Nevertheless, over a decade on from the delivery of the Final Report of the Canterbury Earthquakes Royal Commission, the fact remains that the required widespread strengthening of the earthquake prone buildings cannot be justified in terms of the benefits it provides to avoiding loss of life and destroyed buildings.

To quote from the 2013 Regulatory Impact Statement associated with the post-Canterbury reforms , "Monetary NPV analysis comparing estimates of indicative quantifiable direct costs of strengthening with direct benefits of reduced fatalities and injuries (and estimates of reduced property damage) indicates that the direct costs of the proposals strongly outweigh the direct benefits (based on the best available information and reasonable assumptions) under any scenario, including under the current system."

The results from the Cost benefit analysis (CBA), were not just poor, they were almost as poor as possible. Under the preferred proposals, the benefit cost ratio was roughly .02. That is to say that for every dollar invested approximately two cents in benefit was expected.

But of course we haven't spent dollars, we've spent billions of dollars. Exactly how much is unclear, but just three projects in Wellington, the Town Hall, St James Theatre and the Library, will likely be over $600 million when complete. Three courthouse strengthening projects were funded last year at $150 million. Information on private costs is of course more difficult to track.

The very low benefit cost ratios provide a prima facie argument for taking a fresh look at this issue. However, it isn't as simple as to say that a poor CBA result means a policy is bad. Ultimate there is a choice as a society as to how much risk we are willing to bear.

But even if our risk tolerance is low, we could still be smarter about how we invest to mitigate that risk. Current regulations mostly do not consider the use of the building when determining the requirement to strengthen. The Michael Fowler Centre, recently assessed as Earthquake Prone, is a large, complex building with presumably very high strengthening costs. Yet, it has extremely low occupancy most of the time (as compared to an office or residential building). This vastly reduces the benefit of strengthening, but has little to no bearing on the requirement to do so.

Likewise, the ability of individuals to make their own judgements about risk could be considered. A worker may have little choice but to work in a particular building; being unable to manage their risk we might prioritise their protection. In contrast, an apartment owner should be in a better position to make an informed choice about safety versus cost.

Other jurisdictions that require the proactive assessment and strengthening of earthquake prone buildings, such as Japan, appear to provide greater flexibility in determining whether strengthening is justified, including taking account of the costs of strengthening particular buildings. Surely there is room for more such pragmatism in New Zealand.

The costs of Earthquake strengthening has been on the order of a natural disaster. In some cases this has been borne by local authorities, in particular the Wellington City Council, but others as well. This has added to debt and rates burdens while crowding out other critical investments. Businesses, in particular commercial property owners have been the least visible face of these costs, but they have been substantial and ultimately flow through in many ways to the wider public. Saddest of all are the individuals who have lost some or all of their life savings by having had the misfortune of owning an apartment in a building deemed earthquake prone. Some of these projects surely were necessary and justified. But are we truly confident they all are?

It a time of increasing demands for infrastructure investment to meet the needs of a growing population and deferred renewal of aging assets, our investment in strengthening earthquake prone buildings is a major commitment of money and sector capacity. Lives are precious and there are no easy trade-offs here. But a decade on from the decisions that set us on the current path, its time undertake a broad, open-minded and evidence-based review.