Generation screwed?

I gave a short talk for a new student group last week, Generation Screwed. The event was joint with Students for Liberty, who seem to be setting up in NZ!

They'd asked about debt, tax burden, and intergenerational issues. I put together a few starter-notes to let them know where I was coming from; I've copied those below. 

1. The cleanest measure of the tax burden is government spending. Governments will try to hide the burden by shuffling it off to future through debt. Always watch spending rather than just taxes. The only real tax cut is a spending cut. The Public Finance Act tries to constrain govt use of debt, but it doesn’t enforce itself.
2. As a rule of thumb, governments should not spend more than they earn in tax revenue. Fine to take on debt in a crisis or downturn and pay it back on the upswing. But funding normal expenditure through debt is a terrible idea. It only works until it doesn’t. And when it doesn’t, things can get very bad indeed.
3. Debt for long-term infrastructure, funded by payments from the use of that infrastructure, is of a different category entirely – so long as the accounting is sound. What’s a good way to make sure the accounting is sound? Ban bailouts of that debt from government’s main balance sheet. Interest rates on it will be higher because they reflect real commercial risk. If a project is then not viable, it was a bad project to begin with.
4. Getting that kind of ring-fenced debt in order is vitally important in bringing housing costs down. Why? It lets the beneficiaries of the infrastructure needed to support new housing pay for that infrastructure over a long period of time, rather than spreading its cost across the entire community over a shorter period of time. The current setup means every other ratepayer has incentive to restrict new infrastructure because they’re stuck paying for it. Going back to basic principles of beneficiary-pays means we’d get to have more nice things. The housing shortage is fundamentally a zoning issue, and it’s a zoning issue because councils experience housing growth as a cost to their balance sheet to be managed through zoning rather than a benefit to be sought through infrastructure provision. Fix that and most of the problem is solved.

Seems like a fun group. I had fun anyway! 

Competition in Consenting

This week's column over in the Stuff papers wonders about getting some competition into building consenting. A snippet:

Getting building consenting authorities out from under joint and several liability would help. And especially where the government is keen on encouraging the use of quality, lower-cost materials certified overseas.

But so too could easing the local monopoly on building consent and code of compliance issuance.

Government has already recognised that building consents and sign-offs are part of the problem. Kāinga Ora, the government’s housing provider, has its own arms-length consenting authority: Consentium. It provides consents for Kāinga Ora developments along with building inspections and code of compliance certificates.

Consentium then provides a small bit of contestability in the market for building inspection certificates. Kāinga Ora developments can ignore idiosyncratic local interpretations of the Building Act and build to a common national standard. It can also decide to try out new and innovative materials to help bring costs down while improving quality.

But only buildings that will be owned and retained by Kāinga Ora can apply for consenting through Consentium. If a private developer is building two adjacent identical houses, one for Kāinga Ora and the other for private sale, Consentium would only provide consenting services for the Kāinga Ora home. One potential reason: Kāinga Ora is not likely to sue Consentium if they discover a problem down the track.

It’s a bit of a shame.

Consentium is hardly perfect. It was reported earlier this month that it took almost two years for Consentium to decide that an above-ground stormwater storage tank didn’t impose a fire risk. But council consenting systems can be even more broken.

If building consenting authorities had to compete for business, outcomes could be different. If private developers had the option to seek consent from Consentium, both Consentium and councils could have reason to improve performance – so long as the liability issue were sorted out.

I recently returned from Vancouver where the Squamish Nation has autonomy over its Sen̓áḵw apartment tower development near Vancouver’s downtown. A New Zealand equivalent could allow iwi to establish themselves as building consenting authority on iwi-held land. In places where councils were underperforming, iwi might take up consenting for their own construction projects. That too would provide greater competitive discipline on building consenting.

Afternoon roundup

A closing of some of the tabs

First, a set from closing a pile of the week's accumulated stories from the Stuff papers. I wonder whether the people who complain about the absence of real journalism bother reading what The Post and Sunday Star Times have been putting out lately. 

• National's 'tax relief' won't be a tax cut "because the only real cut is a spending cut, anything else is just rearranging who pays what and in which generation."
• "If Health New Zealand can't find doctors, his iwi will." Some of the social services already being provided by Ngāti Toa.
• Andrea Vance asks "How did the cost of moving two schools blow out to more than $400m?"
• Promising work on methane vaccines for cows. Including great context from Dave Frame. [And here's Dave Frame and Adrian Macey over at Business Desk on methane]
• A path from John Birch through to anti-fluoride activism in NZ that runs through ZAP - a group I'd not heard of for at least a decade. Just great stuff from Charlie Mitchell here. 
• Poor response rates in the 2023 Census, and speculation that it might be the last census as we know censuses. 
• This one is just beautifully written. Joe Bennett on a walk up a hill.

  There’s a lot to be said for being a cattle beast. You live with friends. Your food is all about you. You own nothing but an ear tag. And castration frees you from the main source of worry and expense. Admittedly you make one bad journey in the end, but you don’t see it coming, and your mates go with you. And you’re spared the horrors of old age.

And the rest of the tabs. Or some of the rest. I'm drowning here but the computer needs to be rebooted.... 

• One hypothesis on why Google Search doesn't work as well as it once did.
• Another climate stress test, another finding of zero systemic risk justifying RBNZ's continued prudential excursions into climate issues. Unless prudential reg now is meant not to guard against systemic risk and instead starts from assuming that bank directors are idiots and that bank shareholders need to be protected against bad decisions.
• NZ's NPS-UD doesn't go hard enough. British Columbia's enabling apartments up to 20 stories near transit stations. 
• A new (to me anyway) metastudy on workforce diversity. Effects are significant and positive, "but insubstantial."
• "If the government believes making it more difficult to recruit offshore is going to get 50,000 people off the dole they are as deluded as all those who came before them who wanted to believe the same thing. I get the politics. I don't get the economics."
• RBNZ now investigating whether we should have a central bank digital currency.
• The Government really ought to push ahead with the Rule of Two for Medsafe Approvals. It would unlock access to RSV vaccines. Come on......
• Taiwan wants NZ to do more in supporting anti-authoritarianism. I wonder whether we ought to be doing more in supporting scholarships for promising students from the Islands to study in NZ.
• After my Insights column on the Christchurch Cathedral cost-benefit assessment, a reader pointed us to the business case for a major Tauranga city redevelopment project. I'd hope that, if central government is putting money into this, it pushed hard on checking whether the increases in tourism are plausible (and net national rather than within-country diversion). And whatever arguments one wants to have about appropriate discount rates for social projects as compared to infrastructure projects, expect infrastructure spending (like museums) to be portrayed as social investment where the lower discount rate allows a higher NPV for purported benefits. Bit of a Lil Lisa's Slurry problem here. 
  
  
  

Even Lowerer Hutt

One annoying thing about writing a Saturday column for the Stuff papers is never knowing whether a piece will show up in print.

I'd thought this one was a banger. 

I'll be talking about related issues tomorrow night as part of a panel for A City for People. 

🟨🟪 Our speaker line up has dropped! 🟪🟨

Join us on Thursday to express your concerns about the District Plan recommendations, demand action from Councillors, and learn from the experts 💡

Make sure your voice is heard by registering here: https://t.co/bRv7lfvs4v pic.twitter.com/J7yO4eElfB

— A City for People (@CityforPeopleNZ) March 4, 2024

Anyway - the column.

Even Lower Hutt 

Transport historian Dr André Brett has suggested that Wellington be renamed Lowerer Hutt, perhaps to help avoid confusion within the region.   

Economists Matthew Maltman and Ryan Greenaway-McGrevy have been looking at Lower Hutt’s housing boom. Their paper, released this week by the Economic Policy Centre at Auckland University, suggests Brett was onto something.  

Wellington City could use a bit more Huttite thinking. And especially while Wellington’s response to the Independent Hearings Panel’s report on the district plan is still in play.  

While Wellington City mulled over whether it should be legal to turn rotting wooden tents into townhouses and apartments, Lower Hutt started building.  

From late 2016, Lower Hutt started a sequence of plan changes. They reduced parking requirements and introduced new zones allowing taller mixed-use developments and medium density housing. They allowed greater density within general residential zoning. And they quickly implemented policy changes set as part of Labour’s urban growth agenda – like medium density rules and upzoning requirements near public transport. 

The paper tests whether those changes to zoning had any effect on building.  

It might sound like testing whether water flows downhill.  

The New Zealand Association of Economists surveyed its members this month. 96% of economists agreed or strongly agreed that district plan land use restrictions reduce housing supply. 94% agreed or strongly agreed those restrictions reduce affordability. And 98% agreed or strongly agreed that easing district plan restrictions will tend to increase housing supply and affordability. 

But Wellington’s Independent Hearings Panel instead seemed convinced by one expert’s odd argument that zoning to allow more building, even in an obvious housing shortage, may not lead to more building.  

And perhaps the Commissioners saw no reason to believe that evidence from faraway places like Auckland could also apply in Wellington.  

So the Lower Hutt evidence is important. At least for those who need very specific local proof that water also flows downhill in the Wellington region.  

On notification of the plan changes, and especially after the changes started taking effect, Lower Hutt started issuing a lot more consents for townhouses and rowhouses. In the new zones enabling medium density and mixed use, there was the same jump in consents for townhouses and rowhouses – and also apartments.  

But perhaps that was just coincidence and Lower Hutt was only following the same trend as other councils.  

The authors used a variety of ways of checking that the zoning changes made the difference. For example, after the plan change, Lower Hutt shifted from being a moderate fraction of overall consents in the Wellington region to overtaking Wellington City.  

The economists also built a synthetic Lower Hutt and compared what happened there with the actual city. This method basically sets a complicated average of patterns in other cities that tracks how Lower Hutt’s consenting rates behaved before the change. Following that ‘synthetic’ Lower Hutt after the zoning change gives a comparison.  

Lower Hutt consented approximately 3260 more units than expected – a tripling the number of housing starts over the six-year period. More houses. More apartments. A few more retirement village units. And an awful lot more townhouses and rowhouses.  

It also affected building in Wellington City. Because it became relatively easier to build in Lower Hutt, some development shifted to the Hutt. Overall, about a quarter of the new consents in Lower Hutt were consents that might have happened in other places otherwise.  

This also matters for theories that a region may only have so much ‘absorptive capacity’ – another dubious argument relied on by Wellington’s hearings panel.  

The vast majority of new consenting in Lower Hutt, about three quarters of it, was new building. It did not just displace building that would otherwise have happened elsewhere. Lower Hutt’s reforms, all on their own, provided a 12 to 17% increase in housing starts for the whole metropolitan area.  

Lower Hutt then helps to keep rents in Wellington lower than they might otherwise be, by providing some of the housing that Wellington City would otherwise block. Every renter in Wellington owes a bit of thanks to Lower Hutt council.  

If Wellington Council cannot see fit to propose a district plan more enabling than the economically illiterate plan proposed by the Independent Hearings Panel, the combined Upper and Lower Hutt populations could well wind up exceeding Wellington’s. 

If that happens, I think we should look back at the good Dr Brett’s suggestion. The Hutts’ ascendancy ought to be properly recognised.  

Wellington would become Lowerer Hutt, as Dr Brett suggested – or perhaps my preferred ‘Even Lower Hutt’. All of it would be part of the Greater Hutt Regional Council. Somes Island would of course become Hutt Island.  

And the ‘special character’ that drove Wellington’s residents, and tax base, out to the Hutts could stand as warning to other cities to at least try to be less stupid than the country’s capital. 

Meanwhile, The Spinoff's suggesting abandoning Wellington for the Hutts and young professionals are abandoning Wellington for points farther afield like Christchurch. 

Buchanan said Christchurch felt more vibrant and there were plenty of young families who’d moved from the likes of Wellington and Auckland.

“Talking to my peers, former colleagues, family, and being out and about around the city, Wellington has a brain drain.

“Whether it be young teachers, firefighters or psychologists, people are unhappy or moving.”

Christchurch offered about 1000 housing options to choose from, Buchanan said, thanks to an increased supply of medium density homes in suburbs close to the city.

In Wellington, he was left with just 190. Most were in places like Wainuiomata, a Lower Hutt suburb with notoriously poor links to the city centre for commuters. A friend had recently paid $1.1 million for a small section and an old three-bedroom house in Upper Hutt.

...

According to a December 2023 Infometrics report, the average house price in Wellington City is $1,023,966 – roughly $100,000 more than the national average.

By contrast, CoreLogic measured the average house price in Christchurch as $757,881.

Wellington has long fought new-build developments, especially in the older inner city suburbs.

These “character areas” where Victorian villas still cling to the hills were described in a recent opinion piece in The Post by Eric Crampton as “wooden tents”, while by contrast he praised Lower Hutt’s initiative at constructing new-builds.

Buchanan attested to this, arguing the new builds in Christchurch only added to the character of the area.

I also had a podcast chat with Danyl McLauchlan on related issues - though we ranged a bit more broadly.

The New Zealand Initiative · What's going on with Wellington?

The Uncompetitive Urban Land Markets Theory of Everything

The Housing Theory of Everything has one of those wonderful self-explanatory titles. A good title matters. The recent and thorough essay explains how the anglosphere’s unnecessarily expensive housing affects, well, everything. Or at least almost everything.

Zoning makes it too hard to build houses where people want to build. Urban containment policies block new subdivisions, so downtown land no longer competes with land further out for developers’ attention and for residents. Land prices then inflate across the whole urban land market. Zoning that blocks new townhouses and apartment towers in places where people want to live further worsens scarcity and affordability.

It's at the root of a host of pathologies.

People aren’t left with much to live on after housing costs; inadequate housing causes misery.

The most productive cities could be even more productive if more people were allowed to live near each other. Bans on density are then taxes on productivity improvement, with existing landowners reaping the rewards. Those bans also make it harder than it should be to reduce carbon emissions.

The essay is superb. And it has been influential.

I’ve heard it cited by both Labour and National MPs, which shouldn’t be surprising as it explains a whole lot about New Zealand.

Uncompetitive urban land markets are at the core of the problem. Current practice requires council plans to demonstrate that they have zoned for about twenty percent more housing supply than expected demand. But expected demand will depend on whether housing is affordable, and tight zoning means unaffordable housing. 

Me over in Newsroom this week. 

I riff on a chat I'd had with Kevin Counsell on our podcast series about the economic consultancy reports that developers have to put up showing that there's massive excess demand if they want to get a building consent. 

A new supermarket then has to prove that there is so much excess demand that the new supermarket will not impinge on existing competitors’ viability.

And maybe that kind of outcome sounds great to the kinds of people who get involved in town planning. There’s already a supermarket, why should there be another one unless there’s enough customers for it?

The result is the neutering of competition, and substantial harm to consumers. If an existing business is seriously underperforming, a new entrant provides a service by driving it out of business. Even the threat of that kind of entry provides competitive discipline.

However, in New Zealand, that kind of entry would have a hard time getting a resource consent. The government likes to wring its hands about poor productivity performance while, at the very same time, making it almost impossible for new competitors to drive unproductive incumbents out of business.

Last week, I chatted with NERA director Kevin Counsell for the Initiative’s podcast series. When councils require evidence that a new development provides overwhelming benefits, someone has to write the economic analysis. Counsell writes a lot of the reports demonstrating whether there would be sufficient demand.

It isn’t just supermarkets. Consider potential entrants who need land at the edges of town.

In 2022, the government set a National Policy Statement on Highly Productive Land. That statement sets a very high hurdle if anyone wants to do anything other than farming on the 14% of the country that is classified in the top three soil categories.

Most of that protected land is dairy and sheep paddocks. Converting it to any other use requires proving a substantial benefit from that conversion.

Counsell has been working on a proposed new industrial park outside of Morrinsville. The National Policy Statement on Highly Productive Land requires that there be substantial benefit before anyone can build anything on a paddock.

How can you demonstrate substantial benefit? You have to prove that there is huge demand for the new use. The dynamic benefits of competition in forcing everyone to strengthen their game aren’t enough. They would be harder to prove in any case. Entrants wind up having to show that there is excess demand given current supply.

The effect is harshly anticompetitive. If a group of existing businesses organised in a smoke-filled room to block a new competitor’s entry, they could face criminal cartel prosecution. But resource management provides even stronger protection against competition whenever resource consents are required.

I titled this column ‘The Uncompetitive Urban Land Markets Theory of Everything’, but it’s never easy to tell whether a columnist’s draft headline will survive. The uncompetitive urban land markets theory of everything subsumes the housing theory of everything. Just about everything wrong in housing is downstream of uncompetitive urban land markets. But the same processes that block new housing also block new supermarkets, new commercial premises and new industrial parks. 

Go listen to the podcast. Our resource consenting systems entrench anticompetitive effects by making it difficult to set a new competitor unless the incumbent's existing rents are above a threshold, and dynamic Schumpeterian competition is largely blocked. 

Maybe, just maybe, if the government is worried that NZ markets are often less competitive than they'd like, and if they're also worried that the country's less productive than it should be, it could have a look at this?

Maybe would-be competitors shouldn't have to produce reports like this?

I swear a good third of government activity is creating giant problems, not noticing that they caused the problem, then running endless inquiries about the consequences. 

YIMBY opt-outs

Marko Garlick makes the case for keeping the Medium Density Residential Standards but allowing small blocks to opt out through petition, with deed restrictions expiring within 25-30 years. 

If Houston was anything like cities in New Zealand (or Australia, the UK, or other big US cities) these density-enabling changes would’ve been fiercely resisted by density-hating homeowners. But by most accounts, these changes were largely uncontroversial. Why? Perhaps because Houston allowed pockets of homeowners to ‘opt out’ of these city-wide changes.

Anya Martin’s excellent article in Works in Progress goes through this opt-out process. Landowners within small blocks could collectively opt out of the density-enabling rules via private deed restrictions – similar to covenants in New Zealand – which are automatically recognised by the city. These deeds could be used to, amongst other things, set a higher minimum lot size than the new city minimum – effectively banning townhouses. A simple petition needed to attract just 51% support from landowners. These private deed restrictions would typically expire after 25–30 years.

In short the opt outs:

• Apply to small geographic areas only; a block, not a whole suburb.
• Require a majority consent from landowners in that area; a few people can’t decide for everyone.
• Have a sunset clause; they don’t last forever.

It seems an easier way of operationalising opt-outs from MDRS than having it at district plan level, subject to easy-to-game requirements for immediately releasing 30-years worth of supply. 

Around the traps on housing

Wellington's Independent Hearings Panel put up its recommendations on the Wellington District Plan. 

They note that Council's plan provides far more than the minimum required zoned housing to keep up with projected demand and so scaled it back.

A few bits from me on all this.

Oli Lewis and Dileepa Fonseca at BusinessDesk

Wellington already suffers from infrastructure challenges, and restricting housing development in existing areas may worsen it. 

That’s the view of Geoff Cooper, general manager for strategy at the Infrastructure Commission, Te Waihanga, who commented to BusinessDesk expressing surprise at recommendations made by an independent hearings panel (IHP) convened to hear submissions on a proposed district plan put forward by the Wellington city council.

...

Cooper said that the NZ infrastructure strategy, produced by the commission, also highlighted a need for national direction to help guide planning decisions. 

“The aim of this national direction is often about balancing economic matters, like enabling housing supply for future New Zealanders, with other factors.” 

Economic considerations needed to be given appropriate weight, he said. 

“We note that as of today, the list of 999 accredited RMA independent commissioners includes just 12 that report having expertise in economics – amounting to 1.2%.” 

Crampton was far more scathing, saying the Wellington IHP clearly needed economic assistance. 

“Their engagement with the economic evidence presented was incredibly poor; they were unable to distinguish academically credible arguments from academically risible arguments, and they provided a series of recommendations that will worsen housing affordability,” he said. 

“All in all, the report discredits the IHP process and the methods used to select panellists. Wellington council would be right in dismissing the IHP report’s conclusions.”

Tom Hunt asked what I'd thought about it:

The New Zealand Initiative chief economist Eric Crampton said the council’s proposed district plan had a larger buffer between planned-for supply and projected housing demand in Wellington in coming decades. The new recommendations significantly reduced that buffer, which particularly mattered when Wellington was starting from a housing shortage.

But he believed the whole system may need to change to rely less on forecasts of whether housing demand would be met by zoned supply. If housing was unaffordable, people could be expected to leave town, reducing forecast demand, he said.

Instead, councils and the Government could watch land values. If those prices showed that zoned land was scarce, as work by the Infrastructure Commission had shown, then the Government could get councils to zone for more development.

There had been 2016 work by Covec and MRCagney for MfE looking at how prices could be used as signals of zoned scarcity. This was part of the prep for the older National Policy Statement on Urban Development Capacity. NPS-UDC was replaced by NPS-UD, and none of it took price signals as seriously as it should have. They're mentioned as one of many possible things to look at when they should be a trigger compelling release of more zoned land. 

I talked about this a bit more over at The Herald. The full column is gated but I've snipped a couple bits. 

In short, it’s a backward kind of way of setting urban plans. Forecasts of demand are not only highly uncertain, they also depend on housing affordability.

If you start with overcrowded, poor-quality housing, you will have a hard time fixing it. And if the resulting unaffordability discourages people from moving here while encouraging young families to flee, projected demand is the wrong measure entirely.

None of it faces a simple sanity check. Land prices can quickly show whether councils have zoned sufficient land for development. Last year, the Infrastructure Commission compared the 2021 price of land just outside of city limits to the price of land just inside the boundary. They accounted for the cost of turning rural land into urban land, like earthworks, surveying, planning, and development contributions. And they found urban zoning quadruples the price of land inside Auckland and Tauranga’s boundaries, while more than tripling land value in Wellington, Hamilton and Queenstown.

Those ratios had increased substantially since 2010.

Since the commission’s work accounted for land development costs, the price multiples at the boundary largely reflect scarcity caused by zoning.

If it were legal to turn rural land around Wellington, like in Ōhāriu, into housing, land zoned for housing in Wellington would not cost $490 per square metre more than land just outside the boundary. As the typical Wellington section is about 600sq m, the commission’s figures mean zoning at the boundary added almost $300,000 to a Wellington section’s price in 2021.

This simply would not happen if the council had really zoned enough land for development.

But the problem is not just at rural-urban boundaries. It will also be at every other zoning boundary where zoning creates scarcity.

On the plus side, the IHP work really didn't mess around. Some reports are just kinda bad. And then inertia sees them adopted. But this one's bad enough that it's unified everyone other than the more hopeless NIMBYs against it. So it's more likely to be tossed.

It also seems to have inspired the latest NZ Association of Economists member's survey. If you're an NZAE member, do check your inbox for that survey. It asks member whether zoning provides a binding constraint against housing supply and consequently affects prices. 

And on the fun side, Twitter urbanist Boxcar Joey mapped the conspiracy of Twitter urbanists against the IHP proposal.

Felicity Wong trying to ‘Atlas Network’ YIMBY twitter. pic.twitter.com/5GFAL0c0QN

— joey🦫 (@boxcar_joey) February 9, 2024

Afternoon roundup

Sure doesn't take long for the tabs to pile up after summer break.

Some worthies:

• CPI y/y now at 4.7%, q/q 0.5%. Remember that the y/y figures will be comparing current CPI, where fuel has full excise, with Dec quarter 2022, when fuel had a substantial excise discount. Treasury had figured that removing excise had meant something like a half percentage point effect on y/y CPI figures when Labour put in the discount; should be roughly the same in reverse currently. So y/y is overstated relative to actual inflation. It's still over the top of the target band. But the quarterly result is encouraging: annualising 0.5% gets you a titch over 2%. 
• While talking about CPI, remember that normal drill has annual inflation adjustments to tobacco excise from the accumulated prior-year inflation. And that would feed through into the subsequent year CPI figures. RNZ says the government may pause the CPI increases to tobacco excise. If you think that tobacco excise is set at a level commensurate with social cost, then you'd want the real value of excise to not be affected by inflation. If you, like me, think that excise is multiples of actual social cost while incredibly punitive for lower-income smoking households, then you'd be happy with holding it and happier with reducing it explicitly. 
• The Government Economics Network is surveying government-employed economists and non-economists about what training they might be needing. I think they need a lot more background in what the mainstream consensus actually is, rather than a pile of heterodox conference keynotes. There's an important place for heterodox thinking: in the academic economics departments, which then sort out which bits have to be incorporated into the academic mainstream. 
• GEN's survey of Ministry chief economists was interesting though. They note difficulty in matching market rates for economists, which can't be good for the quality of economic policy advice. I liked this bit: "Economics is not the only area where the prize for being good at something is to be promoted to another job with less of the thing one was promoted for and more meetings. Nevertheless, respondents said that this seemed to be more apparent in economics than general policy roles."
• Farmers Weekly on some of the issues for NZ with the pirates/terrorists having closed the Red Sea. BusinessDesk notes a $1600/container surcharge because of it. That NZ has sent six (6) NZDF staff to help reopen that route has melted some peoples' brains. 
• Walking around town, I notice a whole lot of leaks that were around before we left on summer holiday are still there, some worsening. The one on Tinakore Road outside the daycare is going to wreck the road where it's been bubbling out for months. Wellington Water is also not proving itself particularly competent: a pressure valve installation led to a new leak, repeatedly reported by residents, culminating in an explosion with trees knocked over and footpath wrecked. Wellington's power lines are owned by a private company; they're fine....
• I hadn't seen this before. App that traces out how people commute to and from various suburbs, from Census 2018. 
• We live in an age of wonders.
• I endorse every one of the City for People's recommendations for the Wellington district plan. Would go further, but each of these is good. 

A belated look at the coalition agreements

Things got a bit busy after the National-ACT and National-NZ First Coalition Agreements were released. 

A fair few things showed up in those agreements that we've been working on at the Initiative for rather some time, whether through reports, submissions, columns, panels and whatnot.

So that's been a bit busy, and I've been trying to clear through a few other bits before heading back to Canada and the US for a few weeks over the school holidays. So posting has been unduly light.

But I've been particularly pleased that these showed up in the agreements. 

A Rule of Two for Drug Certification

The government will require Medsafe to approve new pharmaceuticals within 30 days of them being approved by at least two overseas regulatory agencies recognised by New Zealand.

Loyal readers may recall series of tweets, blog posts, and columns from me on this one. I worked with a couple student teams at Canterbury to get a report up on the likely effects of a Rule of Two. 

It is in both coalition agreements and will be legislated. No "will investigate" or "will consider". It will happen. 

I am rather pleased about this one. 

Incentives for Growth

Weak incentives for councils to encourage housing development hasn't been the only problem blocking housing growth, but getting more housing despite current incentives requires heroes. And policy can't reliably depend on there being heroes around. The coalition agreements will introduce financial incentives for councils to enable more housing.

This has been core for the Initiative since before I got here. And now it will happen.

Easing Foreign Investment

The Overseas Investment Act will limit ministerial decision-making to national security concerns and make such decision-making more timely.

NZ has one of the OECD's most restrictive FDI regimes. Other places try to attract foreign investment; NZ does the opposite. 

Easing restrictions on FDI have been core for the Initiative since before I got here. Fingers crossed that the legislation interprets this as broadly as is implied by the text of the coalition agreements. 

Market Studies

Commerce Commission market studies will focus on reducing regulatory barriers to new entrants to drive competition. 

So far, ComCom has produced about one giant study per year. But the first-order problem is going to be in areas where ComCom has hitherto been precluded against poking around: matters falling under statutory exception. If a matter is authorised by Parliament, it doesn't get cartel investigation even if it is definitely behaving as a cartel. 

Instead of doing one giant study per year, ComCom would do a larger number of short studies focused simply on checking whether it is actually possible for a new entrant to get through NZ's regulatory and land use hurdles to provide potential competition. 

So here I disagree with my friend Donal Curtin. He worries about instances where the issue isn't regulatory barriers. Maybe I'll agree with Donal after the revised regime has run for a few years. But the low-hanging fruit simply is not going to be in places where ComCom has been able to use other tools. It will be in the place where they've been unable to shorten the way.

This shift in approach is something I've argued for in columns, submissions, at a CLIPNZ session, and in various conversations around town. 

Ben Hamlin and I have been, I think, the only ones really worried about the statutory exceptions. Ben's piece on it in the latest Law Review is very good; his gratuitous citing of my columns is inframarginal to that assessment. 

Monetary Policy

The Remit will be narrowed to focus only on price stability.

This too is excellent. In a normal environment, a dual mandate shouldn't matter. The long-run Philips curve is vertical. Maintaining price stability is the best way the bank has to ensure maximum sustainable long-term employment. 

We have worried about the broad Remit, which includes a preamble that encourages the Bank to give regard to basically the entirety of the government's policy agenda, for some time. 

Employment 

The government will consider setting an income threshold above which a personal grievance could not be pursued.

Our Chair, Roger Partridge, has been writing on this for some time. The measure would make it far simpler for firms to dismiss underperforming high-paid managers who really aren't the people that employment law protections should focus on anyway. 

Pseudoephedrine

The government will allow the sale of cold medicine containing pseudoephedrine.

This is another one that loyal readers may recognise. I think me and Twitter's @BoxcarJoey have been the only ones making the case for this obviously sensible move. And now it will happen. 

There's a lot of other stuff in the agreements, mostly good, some less good. 

As another bit of fun, the Dom Post put out its latest 'Wellington Power' list. I think it needs an accompanying 'Wellington Mystery' list so we can figure out whose power is exceeded only by their mystery, or vice-versa, or both, somehow, simultaneously. 

But in any case, I made the cut for inclusion this time. But only barely. And possibly only because I also write a column for them. 

45. Eric Crampton

The stocks of think tank New Zealand Initiative’s chief economist have soared, with the ascendancy of ACT into Government. The Canadian is a prolific report-writer and commentator, with a free market bent, and incoming ministers are sure to be paying attention to his sharp, original (and often witty) thinking.

Afternoon roundup

The tabs!

• “Is it unfair on everybody else that has paid for that road and doesn't use it? I mean, this equity stuff's bollocks, this is about traffic. ...Consultation’s bollocks as well.” Mayor Brown ain't wrong.
• Predictions that Labour and Te Pati Maori will strike a deal where TPM seeks only the electorate votes in Maori districts and Labour seeks only the party vote in those districts. Biggest question is why MMP has avoided these kinds of rorts so far. They're the obvious play. 
• Good time to be a liquidator.
• 35 kilograms seems like a lot of cocaine to seize in one go for a country of 5m people. Are there reasonable measures of demand elasticity? One could perhaps work out the size of the market based on price movement. If the price doesn't move much, either the market is huge or suppliers are able to quickly plug even a 35kg hole. If it moves a lot and stays high for a long time, less so.
• My normal drill on carbon forests and biodiversity is that if you want more biodiversity, don't screw up the ETS accounting - use a separate policy instrument. But if this is right, then biodiverse forests sequester more carbon. And if it also applies to NZ forests, then making sure the settings accurately reflected sequestration would encourage greater biodiversity. 
• Don't envy Shane Reti this hospital pass. The health system is not in good shape. 
• Works in Progress on Upzoning NZ
• Maybe post-prison half-way houses should be next door to judges' primary residences. Skin in the game and all that.
• NZ needs a dedicated agency whose only task is infectious disease. Indeed.
• Andrew Norton on Australian attempts to centrally plan higher ed.
• Why We Need Taiwan.
• Mercatus on cutting zoning down to size. Tons of good stuff in here on problems with single-family zoning. 
• Good News! New Zealand is at less of a competitive disadvantage relative to Australia! Bad news: it's because they dropped by more than we did.

Afternoon roundup

Eight browser windows each full of tabs. Something's gotta give.

• Excellent quips from our Treasury Secretary in response to RBNZ pleading for even more money.
• All the BS speech restrictions that apply on election day. 
• I don't get how Brian Albrecht doesn't yet have a syndicated national column in the US. Gold!
• Bits from me and a few others on whether National or Labour is 'better for business'
• My column at Newsroom this week expanded on last week's post on the NIMBY problem. 
• British Columbia's Supreme Court backs the Squamish Nation's push to build a pile of needed apartment towers on Squamish land in Vancouver, batting back NIMBYs. 
• A Commerce Commission that were on its game would be checking into just how the existing cartels have managed to block a new nurses' training school from training new nurses. 
• Excellent piece by Bill Watson on competition policy versus actual competition.
• Interesting ideas from Andrew Body and Simon Jensen on improving prudential bank regulation in NZ. But there's still the bigger question of whether we ought to split monetary from prudential.
• Noah Smith thinks a three-state solution is needed. I can't see how that works while Hamas runs Gaza, but maybe somebody will figure it out.
• "The region's pipes are ageing at a faster rate than they can be fixed." Wellington is such a mess. But I simply don't buy the claim that "Our councils are pushing their ratepayers to the limit in order to fund [Wellington Water]." Our council is set to spend $350m earthquake strengthening a building that could be bulldozed and just built a convention centre and is spending $100m more than necessary on a central library.  
• Queenstown has the country's worst housing shortage. The Infrastructure Commission points out that Queenstown's new plan will enable about 31-149 houses over ten years. Neither National nor Labour are really serious about housing.
• The final chapter in BusinessDesk's excellent series on the state of the NZ public service and the legacy of Peter Hughes. I still think an incoming government should fire Hughes pretty much on day 1 rather than let him see things through to February. 
• Years back we'd been arguing for a variant on city deals. They're in fashion now, with some risk of monkey-paw problems. 

The NIMBY Problem

Standard drill in a lot of the urban econ lit is that governments need to pull planning up to higher levels to get around local NIMBYs. The small number of loud people with infinite time to stall local planning just don't get the same hearing if planning's decided at a regional or state-level rather than at town council. 

And there's some decent evidence for that. Auckland's Unitary Plan is more enabling than the prior underlying plans were. A pile of apartments were built because of it. 

David Foster and Joseph Warren go through a countervailing force in the Journal of Theoretical Politics.

Nimbyism is widely thought to arise from an inherent tradeoff between localism and efficiency in government: because many development projects have spatially concentrated costs and diffuse benefits, local residents naturally oppose proposed projects. But why cannot project developers (with large potential profits) compensate local residents? We argue that local regulatory institutions effectively require developers to expend resources that cannot be used to compensate residents. Not being compensated for local costs, residents therefore oppose development. Using a formal model, we show that when these transaction costs are high, voters consistently oppose development regardless of compensation from developers. But when transaction costs are low, developers provide compensation to residents and local support for development increases. We conclude that nimbyism arises from a bargaining problem between developers and local residents, not the relationship between local decision-making and the spatial structure of costs and benefits. We suggest policy reforms implied by this theory.

Ben Southwood goes through it here, arguing that when NIMBYs can't be paid off at the margin, they instead aim to wreck everything: throw so much sand into every set of gears that nobody can ever build anything anywhere because building is just too hard. 

I've liked the idea of giving councils a share of the upside that central government enjoys when councils facilitate growth, so that councils can both find ways of dealing with costs they have to face in facilitating growth, and so they have the resources to provide whatever local amenity improvements are needed to overcome local opposition. 

Afternoon roundup

The tabs. There are too many.

• Dan Brunskill asks 20 economists how they'd define recession. A bunch of us pointed to how NBER does things. 
• Believing that recycling does much of anything to reduce GHG emissions is wrong and gets you laughed at. Believing that reducing your consumption of things covered by the ETS will reduce GHG emissions is also wrong, but generally gets you plaudits. 
• A paranoid person might start to think that government-funded media goes on crusades to name and pillory pseudonymous critics of the government who do not share their cultural views. 
• The last $5b of the Covid fund was blown on a bunch of populist vote-buying exercises. Good luck getting cross-party consensus to take on just-in-case debt in the next crisis. Labour has really poisoned this well. It is very bad if you think that future governments need to be able to do this. 
• Harvard should protect whistleblowers.
• Michael Gordon has a substack. And he provides a helpful reminder about SNZ's work trying to figure out why the jobseeker numbers are so out of whack when compared to the unemployment figures. 
• Susan Edmunds checks on CTU Craig Renney's claims that the economy's doing great. I pointed to a couple cautions, but also one area where he might have understated things: employment rates were at or near historic highs before Covid hit. 
• Oliver Lewis points to the ways that National's housing policies will likely fail. I still wish National and Labour could have maintained consensus on MDRS by setting a price target for exemptions. 
• There were a lot of appropriate condemnations of poor forestry practice leading to bad outcomes during the recent floods. And a lot of that turned into the usual "it's all neoliberalism's fault" nonsense. Anyway, here's Queenstown Council doing exactly the same thing, causing similar problems.
• I still think the funniest chaos outcome for the election would be Labour winning, but only because it loses enough party votes to the Greens that it gets a substantial overhang from its electorate seats. One can engineer scenarios where National and ACT get 51% of the vote and still lose. It's not entirely plausible, but it would make for a chaotic election night. Here's Greg O'Connor stumping for the electorate vote.
• Remember how I wanted a public health agency laser-focused on contagious disease so it wouldn't just shift back to its usual BS? Pandemic's still going, and they're already back on their usual nonsense. 
• Ngāi Te Rangi is importing houses from the US to build here. I still think that iwi should declare themselves to be their own consenting authorities and tell naysayers to sue them if they don't like it. If council makes it tough for iwi to build houses on their own land...
• BusinessDesk has a series on cost blowouts on infrastructure. On average infrastructure costs have been 23% over their initial budgets. The paper's really worth the sub. 

Afternoon roundup

The closing of a few tabs. 

• Tim Harford's cautionary tale about the Sydney Opera House and how megaprojects bring heartbreak is a must-listen. One bottom line: if you're not real clear at the outset just what problem you're trying to solve, you're going to be causing problems. 
• My weekend column in the Stuff papers compares the current draft Government Policy Statement on Transport to the old 1998 proposed reforms - Better Transport Better Roads. The column also echoes a lot of what turned up in my submission on the draft GPS - which I don't think is yet on our website.
• Central Banking covers The Initiative's proposals around RBNZ: split prudential regulation off into its own separate institution, focus the monetary authority on inflation-alone, and not go ahead with deposit insurance. With comments from former RBNZ Chair Arthur Grimes and Mike Reddell. 
• Labour promises rebates for rooftop solar. Weird thing to promise when there's a lot of grid-scale solar going in without subsidies. The balance between grid-scale and rooftop shouldn't depend on subsidies to the latter. 
• Great piece in Quilette on the 2003 BMJ controversy over passive smoking and mortality. I remember having pointed at this literature when the Helen Clark Labour Government was banning smoking in pubs; I'd figured it should be for the venue owner to decide, especially where the risks from second-hand smoke really seemed nebulous. Not a popular view it turned out. The trendy 'let's get more government grants' people had banked their wins on second-hand smoke and were trying to argue that third-hand smoke (residue on surfaces, basically) was its own new terrible thing that needed a lot of grants. Ah well. 
• Kainga Ora is doing some really neat work in getting construction cost and build times down. The kind of thing that you'd normally expect the private sector to have led ages ago. But when councils allow very little building, who'd have the scale to front that fixed cost in process systems? Nobody would have invented automotive assembly lines if the global market for cars was a thousand a year...