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Socialising the benefits, but privatising the costs

by PCGM
There’s a slightly alarming trend in Wellington of thinking we can cure public ills by piling costs on private individuals. In an inversion of the usual claim that capitalism “socialises the costs whilst privatising the profits”, we seem to be on a headlong rush to do the opposite – with potentially disastrous effects.

Case in point: the earthquake strengthening costs inflicted on apartment owners by over-zealous regulators.

Now, it’s hard to argue with the idea that our public buildings need to be safe for the public to use – hence the debate about strengthening the Library.

But it’s a bit harder to see the argument for retrospectively upgrading every private apartment building to the latest earthquake codes when there’s no conceivable financial benefit to the owners involved, and quite a lot of cost to boot. Presumably, if the owners are happy to live in a building that meets a lower standard of earthquake resilience, then that’s their choice.

The counter-argument seems to be that we don’t want buildings collapsing onto the street and killing passers-by, which was a cause of some deaths in the Christchurch earthquake. But this is a public good, not a private one – so presumably as a society, we should be prepared to put our hand in our pockets to be safe in public spaces, just the same as we’re prepared to put our hand in our pockets to be safe in public buildings.

There’s no obvious reason why apartment owners should be paying to ensure the safety of passers-by, when the same passers-by aren’t financially contributing to their own safety.

One of the concerns from this line of thinking is that apartment owners will refuse to upgrade their buildings, and they will gradually become low-quality slums housing people who can’t afford to live anywhere else. That’s clearly not a desirable outcome – although there have been poor-quality houses where rapacious landlords have “sweated the asset” long past its replacement date for as long as there have been landlords, so it’s not exactly a new problem. But again, this is a public problem rather than a private one.

In an ideal world, the answer to the rapacious landlord problem is to have adequate and affordable public housing. That way, there’s a minimum price and standard for rental properties so the poor-quality slums become un-rentable, forcing rapacious landlords to upgrade them to an acceptable level – or get out of the market and do something else with their properties.

Obviously, we’re not doing any of this. There’s no plan (or budget) to build lots of public housing, so we’re inflicting the costs on apartment owners and developers instead. We expect them to pay once to protect us as we walk down the street, and to pay again to ensure their buildings don’t become slums. These are laudable social goals – but they are social goals, not realistic ones that an apartment owner in the CBD should be expected to fund out of their own pocket.

Sadly, this all-sticks-and-no-carrots approach is being duplicated across the city. For instance, the preferred solution to on-street car parking doesn’t seem to be better public transport or cleverer road allocation or anything of the sort – it’s simply to hit car owners with higher parking charges. And many of the people who will have to pay the charges being advocated don’t have any effective way of avoiding them.

In the absence of more affordable solutions than buying a car and driving it to work, the only effect will be to make Wellington a more expensive place to live, with negligible impact on our transport issues.

The seeds of the same issues are floating around the debate about the Spatial Plan. Clearly Wellington needs more affordable housing – but somehow, the obvious solution of the Council (or the government) buying land and building affordable apartments seems to be the least likely outcome, despite the clear and obvious public good that will result.

Instead, we’re talking about putting mandates on private sector developers to deliver something the council won’t. Quite why this makes sense is anyone’s guess.

Obviously, we’re all in this together – we all live in the same city, and it’s up to all of us to make it a better place to live. It’s fair and reasonable that we all play our part, as companies and individuals alike, and sometimes that comes with a financial cost. But the current trajectory doesn’t look like everyone sharing the burden – it looks like the council and the government expecting its citizens to pick up the tab to pay for things that should rightly be done by central and local government.

The reasons for this are obvious to see: pushing costs onto someone else is easier and cheaper than trying to find money in existing budgets, and making it someone else’s problem lets politicians claim they’re doing something about the issue. But if affordable housing is important to our society – and study after study underlines that it is – then it’s up to society to fund it collectively. Just the same as it’s up to us collectively to keep ourselves safe from sub-par apartment buildings collapsing on us in a major earthquake as we walk down the street, and to provide efficient and affordable public transport so people don’t have to own a car and park it on the street.

Right now, we’re on the wrong track. We need fewer sticks, more carrots, and some political leaders with the courage to play their part in the solutions.

16 comments:

  1. K, 16. October 2020, 10:07

    Apartment owners are not being made to bring up their buildings to “the latest earthquake codes”. It is only buildings that are below 34% of current NBS code that are being made to strengthen – therefore there are buildings with a rating as low as 34% that have been allowed to remain as is. A building really has to be a death trap to receive the below 34% rating, and no one should be living there (in fact it should be illegal to rent these out to tenants). And the strengthening “recommended” by council is to bring it up to 67% of current code – so nowhere near the “latest earthquake codes” which are of course 100% minimum for new builds.

     
  2. greenwelly, 16. October 2020, 10:34

    “There’s no obvious reason why apartment owners should be paying to ensure the safety of passers-by, when the same passers-by aren’t financially contributing to their own safety.” What a crazy position to take. Of course apartment owners should be responsible for ensuring that their apartments don’t fall onto public spaces and potentially kill people. By the same logic, passers-by (presumably via the council) should be funding fences and leashes for people who own dogs, to stop the dogs roaming and biting children who are walking by on the footpath.

     
  3. PCGM, 16. October 2020, 10:47

    K – Owners are indeed being required to bring their buildings up to the latest codes, which were updated after both the Christchurch and Kaikoura earthquakes. You’re right that they only need to get above the 34% threshold, but that’s 34% of the latest code, not the code that applied when the building was constructed.

    And this stands in stark contrast to the requirements on regular home owners. If you own a villa built in 1890 that has unreinforced brick chimneys dating from when the house was built, which are now held together by nothing more than habit and spiderwebs, there is no-one forcing you to reinforce them or replace them or tear them down by a set date. Yet falling chimneys killed and injured people just as effectively as falling masonry facades did in the Christchurch earthquake.

    So why are apartment owners being singled out for rectifying these alleged “death traps” when house owners get a free ride? It’s neither consistent nor equitable.

     
  4. Amacf, 16. October 2020, 11:04

    As the owner of a Newtown located, double-storey villa (built in 1899) that we renovated in 2012, I was very pleased to get rid of the old brick chimney from the original kitchen that ran up through the middle of the house. It proved to be held together by nothing more than faith and gravity. However the Council’s engineering requirements for the RSJs and concrete footings that we had to replace it with, cost a small fortune.

     
  5. Conor, 16. October 2020, 11:09

    Generally the council provides suburban on-street car parking for free or very close to it. People with off street parks – or without cars – are subsidising drivers in that instance. It’s all carrot at the moment. Given rates are about to explode, not sure why this should continue.

    Regarding the Spatial Plan, it doesn’t have anything to do with developers being mandated to provide affordable homes. Whether or not it’s a good idea, it’s an unrelated red herring. And given council is currently selling social homes, the idea council will build a whole bunch more is too. They didn’t under Green or Labour mayors.

     
  6. PCGM, 16. October 2020, 11:18

    Greenwelly – We don’t expect house owners to ensure the safety of passers-by, so I’m not sure why we require it from apartment owners.

    Say your house is at the top of a big retaining wall that collapses in a heavy downpour, crushing the poor soul sitting in the car below. Your insurance company might be involved through any public liability insurance you hold, ACC will be involved in compensation for the accident, and maybe regulators might have a view about where liability should lie. But what doesn’t happen is MBIE and the Council proactively going around the entire city looking for potentially dangerous retaining walls and requiring their owners to upgrade them by a set date at their own expense.

    I’d suggest that requiring apartment owners to have public liability insurance is a much better approach to the problem than enforcing relatively arbitrary standards on a select group. If the building is genuinely unsafe to passers by, then insurance companies won’t insure and owners will need to bring it up to an insurable standard. And that’s fair enough. But the requirement for apartment owners to proactively take a level of responsibility that isn’t being applied to regular house owners looks rather arbitrary and capricious.

     
  7. k, 16. October 2020, 11:33

    I’m not sure comparing brick chimneys on single storey houses to large multiple-storey apartment buildings, containing dozens/hundreds of people each, that are likely to fail in a major quake is a fair comparison. There were thousands of chimneys that collapsed in Christchurch, but all combined they killed nowhere near the amount of people who were lost in a single multi-storey building that failed (the CTV building). And Wellington has a lot more earthquake-prone apartment buildings than Christchurch had.

     
  8. PCGM, 16. October 2020, 11:46

    Conor – You’re right about the car parking being a subsidy to car owners, but so what? At the moment there aren’t affordable or viable alternatives for far too many people, and simply waving our hands around about the merits of pubic transport or cycling doesn’t change that. Both WCC and GWRC have failed to invest in better solutions.

    If we wanted to genuinely change people’s behaviour – which, for the record, we do – then we need to make it as easy as possible for them to make better decisions. We need to offer incentives for the new behaviours as well as disincentives for the old behaviour – and my contention is that our political leaders are excellent at costs, taxes and punishments, but entirely absent when it comes to proactive investment in better approaches. Case in point: the stubborn refusal to take advantage of the changes our transport network. I even wrote an article about it back in 2017 …

     
  9. PCGM, 16. October 2020, 13:00

    K – It’s an entirely fair comparison. No-one was killed in a single apartment building in Christchurch, yet people did die and were injured under falling chimneys. And the number of dangerous chimneys in the Wellington region probably vastly exceeds the number of sub-34% NBS apartments – yet here we are enforcing apartment strengthening rather than doing anything about the chimneys – go figure. So whatever this policy is, it can’t be called either consistent or rational.

     
  10. Great article PCGM. On the mandatory strengthening requirements for earthquake prone apartment buildings. The 2016 legislation changes were driven by public safety drivers in response to Canterbury EQs. The MBIE-commissioned cost benefit analysis was ignored by the previous Government and Parliament; the CBA said the costs far exceeded the benefits, and even under extreme sensitivities, this relationship doesn’t change.

    The financial and wellbeing impacts of the compliance costs on apartment home owners were ignored; the parliamentary debates focused on public safety and the financial impacts on businesses.

    Inner City Wellington’s analysis of the CBA finds that the safety benefits for residential buildings nationally are 4 lives saved over 75 years, and even less just for Wellington. Apartment owners are expected to pay hundreds of thousands of dollars each just in strengthening costs, let alone the total costs that can include moving out for however long the work takes, to provide that benefit. Owners in some ‘earthquake-prone’ apartment buildings are now facing selling the whole building (ie, their homes) because the costs and risks cannot are too high to be borne by home owners.

    ICW has called for an independent review of the earthquake prone legislation with respect to multi-owner residential buildings as it is unreasonable, harmful, unjust and morally indefensible. This week in an RNZ interview the Minister of Building and Construction,Jenny Salesa, said she would consider doing a review to ensure legislation was fit-for-purpose and to ensure faith in the system.

    In an email to an owner, Nicola Willis and the National Building and Construction Portfolio spokesperson have also stated that a National Government would do a review. At the Wgtn Central candidates’ meeting on 18 Aug, Grant Robertson, Nicola Willis and James Shaw all agreed to work together over the next term to progress issues (impact of mandatory seismic strengthening, insurance and the constraints of the Unit Titles Act) that affect owners in the electorate.

    ICW will continue to lobby for urgent progress on the review.

     
  11. carolbrown215, 16. October 2020, 21:35

    When I bought into my ‘death trap’ apartment building, erected in the late 1920s, it met the building code. During the Kaikoura earthquake, although the building rocked and rolled, it sustained no damage whatsoever. Newer builds in Wellington, supposedly constructed to a much higher standard, failed. So perhaps the buildings with ‘earthquake-prone’ stickers affixed in Wellington, might not actually be the danger the City Council has labelled them? Perhaps the science is inexact?

    The number of people harmed in and around apartment buildings in earthquakes in New Zealand, is negligible. Nevertheless, private citizens, ordinary home owners, amateurs, are being coerced by the might of the state into egregious expenditure and charged with overseeing a complex, major construction job for a possible event, at a possible time, for a ‘public benefit’ that may prove a chimera. Good citizens are in danger of having their health wrecked and being financially ruined. Futures have been upended.

    The law-abiding owners in my apartment building have expended over $300,000 (and counting) trying to do the right thing and attempting to meet the requirements of legislation. The requirements keep changing. To date, not one centimetre of quake-strengthening has occurred. Legislation that is impossible to comply with is, by that fact alone, bad legislation. It must be re-examined.

     
  12. K, 19. October 2020, 14:48

    I cant believe there are people that still think earthquake-prone buildings are not hugely dangerous in Wellington. A lot of people in Christchurch died in multi-storey buildings that collapsed in the quake; just because they were office buildings and not apartment buildings is meaningless. Saying that no one died in an “apartment building” in Christchurch is somewhat disingenuous, seeing as there were very few apartment buildings in Christchurch pre-2011. Wellington has vastly more people living in apartments than Christchurch.

     
  13. Julienz, 19. October 2020, 17:25

    @K The Christchurch earthquake was undoubtedly tragic with 185 deaths but the fact is a lot of people died in two multi-storey buildings (CTV building 115 deaths, Pyne Gould Building 18). The majority of multi-storey buildings performed as expected. Damaged but no deaths.

     
  14. Keith Flinders, 19. October 2020, 20:55

    K: In earthquakes since 1929. Killed were Murchison 1929 – 17, Hawkes Bay 1931 – 256, Inangahua 1968 – 3, Christchurch 2011 – 185, Kaikoura 2016 – 2. Total 463.

    Of course every life cut short is a tragedy but the killing fields which are a combination of poor roads and too many inept drivers have seen 39,686 killed from 1929 up until yesterday. Several times that number suffered serious injuries and several thousand were left with life long disabilities.

    The 2016 Kaikoura earthquake which saw the demise of three relatively new buildings, BNZ Centre, Defence House and Statistics House only saw the one building constructed in the 1960s or earlier demolished as far as I am aware.This being 61 Molesworth Street, the former ICI building, which developed a crack in a beam and according to the WCC along with its advisers was on the brink of imminent collapse. The long winded demolition process showed quite clearly the amount of structural redundancy in the rest of the structure which I believe to have been overlooked in the rushed process to get that building down.

     
  15. Julienz, 19. October 2020, 21:55

    @Keith Flinders – thanks for adding up all those road deaths. I was going to make your point but I couldn’t find a total. Similarly bowel cancer from which death is preventable if testing is done early – 3000 cases and 1200 deaths per year. We need to appreciate the real risks rather than perceived risks when deciding how to allocate scarce resources.

     
  16. PCGM, 20. October 2020, 12:45

    Julienz – I think the bowel cancer statistics underline the problem nicely. Addressing 1200 public health deaths per annum is clearly a job for the government, so there is slow progress due to perceived affordability issues – the government is obliged to balance priorities within an overall budget. Which is one of the reasons the path to a national screening programme has been so torturous.

    However, insisting on hundreds of millions of dollars of earthquake upgrades within a defined timeline is easy if it’s not the government’s money. Simply passing some legislation to force other people to spend their money on mitigating already-low risks is trivial in comparison to funding more public heath.

    For some reason, “we don’t have the money” is an acceptable excuse for the government, yet it cuts exactly no ice at all when homeowners try the same line with regulators.

     

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