Law Of Unintended Consequences

It is with a wry sense of humour that the results of a certain policies or actions are referred to as examples of the said law – similar to “Murphy’s law”. In the online world a particular kind of consequence has been identified as the “Streisand Effect.” It specifically deals with attempts to hide or remove specific pieces of information (or pictures), which perversely results in the more widespread dissemination of that information. It is named after the episode in 2003 when Barbara Streisand (unsuccessfully) attempted to sue a photographer for $50mn and to have an aerial view of her mansion removed from a publicly available collection of 12,000 shots. The photograph was taken as part of a government sanctioned and commissioned project, and the resulting publicity drove 420,000 visitors to the website over the next month. In the UK numerous public figures have tried to obtain injunctions preventing newspapers publishing details of their affairs only to find the information being ‘tweeted’ and ‘retweeted’ thousands of time, and garnering far more interest in their private lives than their own celebrity deserves.

However, some unforseen outcomes of public policy are very real and very damaging. Consider, for example the covert funding of the Afghan Mujahideen by the CIA, which eventually contributed to the rise of Al-Qaeda and the terrorist activities of that organisation.

The Canterbury Earthquake Recovery Authority (CERA) has a predilection for colours – first we had four – red, green, white and orange zones.  Since Friday October 28th we have 3 more (hitherto unknown shades of green) – grey, yellow and blue – Technical Categories 1, 2 & 3. By introducing these new zones with little specific information on requirements for TC2 & 3 in particular, a new layer of uncertainty and complexity has been added to the real estate market. Further, insurance companies in Christchurch are imposing various policies and diktats on their clients which are distorting an already distorted market in (I assume) unintended ways, to the detriment of many other buyers and sellers. An example that we are becoming aware of is that of at least one company, when funding the purchase of a replacement home for their client,  specifying that those clients may only buy a home in the Technical Category 1 Green zones (grey). Clearly that policy will adjust prices of TC1 homes relative to TC2 and TC3, without any specific justification. What if a home in the TC2 or 3 zone has been built to the requirements and has no damage – why should the buyer not be able to proceed if they wish? Clearly the insurer has the right to set out terms if insuring the property, but if the buyer takes over the insurance of the vendor and it is a different company, then I question the right of the buyer’s insurer to dictate where they can buy a home at all.

We are hearing also of buyers spending their insurer’s money on a new house and then immediately on selling to obtain the cash. Presumably the insurer is offering such a large discount on the cash settlement alternative to make this an economically viable and wholly rational exercise for the buyer. Possibly it is the only way that people can end up in a house in the area they want to live in. It seems to be a nonsense that people feel that this is the best path to take – what justification can there be for an insurance company to have such a difference between what they will allow a client to buy and what they would pay them in cash? Answers on a postcard please…

Another colleague has reported a client of theirs was unable to get a lender to advance the money on a property in TC3 (blue) zone. If that becomes standard policy, then TC3 becomes, in effect, a red zone – without the Government offer to buy the property.  I do not know how this will resolve itself, much of our experience in real estate over that last 14 months or so has been learning ‘on the job’ and on a case by case basis. However, I suspect the time is fast approaching when New Zealanders will have to accept that it is no longer possible to get insurance for Earthquake related damage, or that the Government will have to provide that cover – either through a state-owned entity specifically writing that insurance and operating as a business, or through a revamped EQC. Funnily enough this does not seem to be a big election issue!

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