Government and Institutions

The economics of disaster relief

Dr Bryce Wilkinson is Senior Research Fellow, and Dr Eric Crampton is Chief Economist at think tank The New Zealand Initiative. They are co-authors of a report into the response to Christchurch’s 2011 earthquake.

Kiwis know a lot about earthquake preparedness. We know that we have to store enough water and supplies to last for an extended period. We know that our houses need to be fixed to their foundations, and roofing tiles need to be tied down. And we know that our disaster plans must be up-to-date, so family members can find each other if cell phone networks are down.

But government must also be prepared – not just for the immediate civil defence response, but also for the longer term recovery.

The need for better preparation was demonstrated in the aftermath of a severe earthquake that hit Christchurch, New Zealand’s second-largest city, in February 2011. The earthquake killed 185 people and caused widespread damage. Over 50% of the buildings in the central city were severely affected. Insurance claims were lodged from greater Christchurch for 170,000 dwellings (89% of the 190,000 stock).

The recovery from Christchurch’s earthquake has clearly shown that he government must attend to its own earthquake preparedness. It has provided a few more important lessons for policy. Government must plan ahead to make post-disaster recovery simpler. And it must avoid creating the prolonged policy and regulatory uncertainty that hindered Christchurch’s recovery.

Though the government responded quickly, and achieved much that was important, shortcomings became increasingly evident during the recovery phase.

Recovery in the central business district (CBD) lagged and faltered for several reasons. The over-riding Canterbury Earthquake Recovery Act 2011 had more virtues than weaknesses, but the latter damaged recovery.

The virtues included setting up the Canterbury Earthquake Recovery Authority (CERA), a time-limited special purpose recovery agent, to oversee and lead the recovery. It conferred it with special powers to set aside undue red tape ‘business as usual’ impediments. It set clear timetables and accountabilities for preparing rebuild plans.

CERA started well, but increasingly lost sight of its oversight role. And CERA’s governance structures did not make it easy to get back on track.

A major weakness of the 2011 Act was that it allowed recovery plans to be developed without sufficient regard for fiscal cost or commercial realities, including the need for regime certainty for households and businesses alike. Recovery depends on decisions by multitudinous firms and individuals on where to live, work and rebuild. Undue uncertainty impairs those decisions.

Private recovery depends on timely reliable detail about infrastructure rebuild and clarity about rights to rebuild private property and resume business. Areas containing almost 8,000 houses were classified as red zones – damage to the underlying land made repairs simply too expensive. Since they meant people had to leave their homes for good (with compensation), these decisions shocked people, but they provided much regime certainty. The CBD plans developed under the 2011 Act did the opposite. They failed to provide the necessary detail.

Central government launched a major planning process for the CBD, which produced a master plan in just over three months. The plan consisted of several precincts, where certain types of businesses were expected to cluster. Anchor projects would form cornerstone developments, led by CERA, Christchurch City Council, and various ministries.

The misguided precinct concept further stymied private recovery in the CBD. The plans sought to dictate where private investment should occur, rather than to free up spontaneous private recovery.

The 2011 Act gave the planners too much power to egregiously impair private property rights, without compensation. The elitist presumption was that government needed to build major downtown projects if the business confidence for downtown recovery were to return.

Yet, in the event, the government lacked rebuild competence, and worsened downtown outcomes.

It is telling that the most substantial downtown recovery has happened outside of the main areas of government control.

Meanwhile insurers and many households were mired in many complexities. Major aftershocks caused multiple insurance claim events. Land damage complicated repairs and insurance payouts. There were interface issues between a government insurance agency and private insurers, and some serious legal uncertainties, with insured homeowners caught in the middle. And the government insurer, the Earthquake Commission, had a very difficult time in scaling up to the challenge at hand.

The overarching lesson of the Christchurch earthquakes is that policy and regulatory uncertainty is terrible for recovery. Homeowners and business owners need to know quickly what the rules are for rebuilding their homes, lives and businesses. Our report recommends that government should pre-plan for future disasters such as by:

  • establishing an off-the-shelf framework for a recovery agency;

  • including disaster contingencies in Council long-term plans rather than playing SimCity after an event;

Pre-planning should allow government to quickly establish certainty about policies, plans, and regulation in any future disaster. This will support private recovery from disaster, rather than stymie it.


Published in partnership with Commonwealth Values Exchange UK. Relevant Commonwealth Value: Good Governance

Leave a Reply

Your email address will not be published. Required fields are marked *