Error Prone Bureaucracy – summary version*
In December 2013, draft legislation was introduced into Parliament 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. The intention is to apply the existing calibration of 34 percent of the new building standard. At this level, the policy will cost over $10 billion, will negatively affect tens of thousands of people and have a potentially devastating impact on heritage buildings. It is critically important that the analysis backing the framework is soundly based. It is obvious that it is not. The benefits will be less than $100 million.
The policy can be expected to save just seven lives over the next 75 years. 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, because generally it does not make sense. In the United States, there is a legal requirement that Federal building strengthening proposals must be supported by a positive cost benefit analysis.
In New Zealand the calibration of the strengthening requirement has been bungled, which will lead to bizarre results.
- The life safety standard that is applied in Auckland is about three thousand times stronger than the one applied in Wellington. They should be the same;
- Compliance with the minimum standard could cost over three billion dollars in Auckland, but is expected to take 4,000 years save a single life. Three to eight Aucklanders are expected to die as a result of financial stress caused by the policy;
- 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.
The reason for these outcomes is that there was no analysis behind the calibration of the framework when it was introduced over 2004-2006, and the framework was never tested. It was badly flawed. The ‘earthquake prone’ building definition in the 2004 Building Act was operationalised by the New Zealand Society of Earthquake Engineering (NZSEE), by establishing an arbitrary link to the new building code without serious regard to the costs and benefits of doing so.
This had the effect of increasing 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 has the effect of exaggerating 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. For Auckland, this meant that risk was boosted by a very large margin and a large number of safe buildings fell into the ‘earthquake prone’ net.
The largest possible earthquake used in the framework is similar in magnitude to the largest possible earthquake that could occur in the United Kingdom. This means that if the British were to apply the New Zealand framework they would have hundreds of thousands of ‘earthquake prone’ buildings, which would cost hundreds of billions of pounds to strengthen, and their built heritage would be placed at enormous risk. Fortunately for the British they have more sense.
Correcting the errors in the measurement framework gives a very different picture of earthquake building risk in New Zealand. The Ministry of Business Innovation and Employment (The Ministry) has claimed that 15,000 to 25,000 New Zealand buildings ‘are earthquake prone’. Applying a sensible cost benefit analysis and internationally recognised life safety standards, it is likely that:
- Only a few percent of the buildings currently designated as ‘earthquake prone’ would truly be excessively risky
- More than half could be effectively risk free.
The interpretation of ‘earthquake prone’ currently used by the NZSEE, and promoted by the Ministry, 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.
The Ministry intends to apply the current, flawed, interpretation of ‘earthquake prone’ when it implements the amended Act. It has left the key term in the definition of earthquake prone building undefined to give it the flexibility to set the earthquake prone trigger point wherever it likes. The legal definition of earthquake prone building is likely to be ignored, and thousands of safe and very low risk buildings will be designated as earthquake prone.
A review of the Ministry’s 2013 Regulatory Impact Assessment confirmed that the assessment was a sham. There was no intention of reviewing the earthquake prone building threshold setting, despite a requirement to do so under the terms of reference for the inquiry, and despite overwhelming evidence that it had been miscalibrated. Options imposing lower standards, which would have clearly generated higher benefits, were never considered.
We assessed the Ministry’s Regulatory Impact Assessment against the key requirements set out in the Treasury’s Regulatory Impact Assessment handbook (2013). The Ministry’s analysis failed on all but one of ten major criteria.
Our score for the assessment was 9.25 out of a possible 100. A competent agency should have been able to score a mark above 80.
Our review of costs and benefits showed that the costs of the policy will be much higher than the Ministry previously estimated. A broader assessment estimate put the total economic costs at $10.5 billion.
We also report on surveys we conducted to assess New Zealanders’ capacity to understand earthquake risk and to make informed choices. Contrary to the Ministry’s assertion that people cannot be relied on to make sensible decisions about earthquake risk, we found that respondents were broadly rational and did not believe that risk should be reduced at almost any cost.
Our overall conclusion is that the draft amendments to the Building Act are not based on a coherent analytical framework and are fundamentally flawed. They will result in substantial economic and social damage with very limited safety benefits.
Our key recommendations are that:
- The definition of earthquake prone building should be more precisely defined in legislation;
- The Government should go back to the drawing board and develop earthquake-strengthening standards and policies that are evidence based;
- An independent authority such as the Productivity Commission should be commissioned to do the analysis;
- The Health and Safety in Employment Act should be amended so death or injury in an earthquake are not grounds for prosecution under the Act;
- The current system that grades the earthquake risk of buildings according to their estimated strength relative to the new building code should be scrapped. It should be replaced by a measurement system that directly informs building occupants of their life safety risk, and provides a ready comparison with other risks commonly faced in daily life;
- The NZSEE should withdraw its earthquake strengthening recommendations;
- Territorial authorities should withdraw existing earthquake prone classifications that are not based on the legal definition of earthquake prone;
- The Government should use its powers and resources to strengthen buildings over a short time horizon, in the very few localised areas where this would generate a net benefit for New Zealand.