Press Release – Tailrisk Economics
A report released today by a Wellington risk consultancy, Tailrisk Economics, finds that there are serious flaws in the way earthquake prone buildings are designated, which will have hugely detrimental effects on New Zealand’s economy, communities and individuals.
The report’s author, Ian Harrison, states that the critical ‘earthquake prone’ building trigger point of 34 percent of new building code was decided arbitrarily and has no supporting analysis or sufficient regard for costs and benefits.
“No other country applies across the board national earthquake strengthening standards because it is economically illogical to do so,” Mr Harrison says. “New Zealand’s attempt will cost over $10 billion, but produce benefits of under $100 million. The current framework values an Aucklander’s life at about 3,000 times higher than a Wellingtonian’s”.
“Applying a sensible cost benefit analysis and internationally recognised life safety standards would likely show that only a small proportion of the buildings currently designated as ‘earthquake prone’ would be excessively risky”, he says.
The report also finds that policy decisions were effectively made by industry groups, rather than the Government, and that ministers were not properly or accurately informed of the process.
Ian Harrison is a specialist in low probability, high impact events such as financial crises and natural disasters. He has worked for the Reserve Bank of New Zealand, the World Bank and the International Monetary Fund.
The report is available online at www.tailrisk.co.nz/documents/ErrorProneBureaucracy.pdf
Questions and Answers
Who are Tailrisk Economics?
Tailrisk Economics are a Wellington economics consultancy, specialising in low probability high impact events such as financial crises and natural disasters. Tailrisk economics also provide consulting services on general economics, financial regulations and financial modelling.
Who is Ian Harrison?
Ian Harrison is the principal of Tailrisk Economics. He has a Bachelor of Commerce and Administration (Honours) from Victoria University Wellington, and a Master of Public Policy from the School of Advanced International Studies at Johns Hopkins University. Before setting up Tailrisk Economics, he worked with the Reserve Bank of New Zealand, the World Bank, the International Monetary Fund and the Bank for International Settlements.
What was the reason for investigating and reporting on this issue? Who funded this report?
This report was a personal project of Ian Harrison. It was not commissioned by a client or any other person. Mr Harrison chose to write this report due to his extensive knowledge of the economics of low probability, high impact events. This provides him with the ability to conduct comprehensive analysis of earthquakes and their associated economic effects; particularly the economic impact of deeming buildings as ‘earthquake prone’.
Are your source materials, such as the emails between government officials referred to in the report available?
Due to the large number of documents and evidence collated from various sources which the basis of the report’s conclusions, it is not viable to publish it all. Relevant material is available on request.
How did these problems with earthquake strengthening policies arise?
The critical ‘earthquake prone’ building trigger point of 34 percent of the new building code was developed arbitrarily with little supporting analysis or costs and benefit consideration.
What is the key recommendation from this report?
The report recommends that earthquake strengthening legislation be amended to ensure standards are evidence based, and to provide New Zealanders with useful and practicable knowledge of earthquake risk. The Government should targeting its resources to fix the localised risk hot spot now, rather than taking up to 20 years to do so and wasting money on low risk areas.
How does New Zealand’s approach to earthquake safety compare to other countries? Considering our seismic activity, are we getting value for money?
No other country applies across the board national earthquake strengthening standards to existing buildings, and it is economically illogical to do so. New Zealand’s attempt to do this will cost over $10 billion but will produce benefits of under $100 million. For example, in Auckland, the current framework is expected to cost well over $3 billion but will take 4,000 years to save a single life. This is not value for money, for example if the same amount were spent improving road safety or healthcare, thousands more lives could be saved. The Government’s analysis also values an Aucklander’s life at about 3,000 times higher than a Wellingtonian’s.
The largest possible earthquake used in New Zealand’s framework, applicable to low risk areas such as Auckland, is similar in magnitude to the largest possible earthquake that could occur in the United Kingdom. If the British were to apply the New Zealand test they would have hundreds of thousands of ‘earthquake prone’ buildings, which would cost hundreds of billions of pounds to strengthen for almost no gain. Fortunately for the British they have more sense.