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.

Valuing food security

Suppose you got $500 in annual value from owning your car. Would you consider paying $6500 per year to insure that car? I'm not talking about third party liability or anything like that, just insurance for the value of the car. Would it make sense to pay thirteen times the annual value of the car for insurance against the car failing?

Obviously not, right?

My last couple of columns over at Newsroom go through the latest report from the Infrastructure Commission on the cost of the Auckland urban-rural boundary, and the proposed Auckland Future Development Strategy.

Together, they mean that Auckland is blowing about $1300 per square meter in real value (or about $65 per year at a 5% discount rate) in order to protect precious agricultural land that might generate maybe $5 per square meter in gross (not net) potato revenues.

Bonkers. But such is the Cult of the New Zealand Potato. 

Adherents of the Cult of the New Zealand Potato and Ancillary Horticultural Products worry greatly that if houses are built on Precious Agricultural Land, there will be no food. 

Normally we'd figure that, as developers buy agricultural land for housing, the price of remaining agricultural land will go up if it's actually scarce. And that that process is an automatic governor. But the Potato Cult knows that markets don't work that way and that markets undervalue that which is truly priceless: potatoes, grown on very specific pieces of land, decades from now. 

The Potato Cult, combined with restrictions under the National Policy Statement on Highly Productive Land, and a few other bits of wiggle room, gave Auckland Council all the room it needed to ban new subdivisions. 

So. 

My column at Newsroom, a fortnight ago, covered the latest paper from the Infrastructure Commission. The Commission found that a square meter of land just inside Auckland's urban boundary is worth about $1300 more than a square meter of land on the other side of the boundary, after accounting for the costs of making ag land ready for urban use. 

$1300 per square meter. $600k added cost for a 500sqm section at the edge of town. $5 million per acre. 

If you're willing to pay half a million more for a home close to downtown amenities, as compared to one out in the suburbs with a long commute, just think through the effect when a house at the edge of town costs $600k more than it really ought to. Prices are inflated across the entire urban gradient. Density is great, but rules banning building at the fringes make central townhouses more expensive too. 

So far so good. The rules at the fringes are dumb, but our enlightened leaders will see that and fix things right?

This week's column went through Auckland's draft Future Development Strategy. The FDS is, I think, the first to be produced under the new sets of rules. It doesn't bode well for the future. You see, Auckland Council reached for every possible excuse for restricting development. The incentives they face have not changed, so of course they would. 

The FDS basically forbids the private plan changes that have otherwise enabled paddocks to turn into housing. 

There are lots of reasons. 

Since NPS-HPL restricts turning ag land into housing, they've noted the importance of that highly productive land. Sure, NPS-HPL allows building on ag land if there's a good case for it, but Auckland Council doesn't want a good case for it. They want to prevent development. 

Since councils are now supposed to consider carbon emissions, that gets brought in here too. Never mind that urban emissions are covered by the ETS. And ignore that it would make sense to set new bus routes to any big new developments anyway. 

Neither of those are the underlying reason. They're the palatable excuses. The former appeals to the potato cult. The latter to cargo-cult notions of how to get emission reductions. 

If we took the potato cult seriously about what they claim to want, it would almost certainly be more cost-effective to build a giant cold-store facility for a Strategic Potato (and Ancillary Horticultural Products) Reserve. Keep five years' supply. Pretend we're in Game of Thrones and Winter is Coming. Every year, release the oldest frozen supply from the reserves while replenishing with fresh. Would tide us through all manner of implausible scenarios.

It would be really really stupid. But it would be less stupid than banning building on Precious Agricultural Land when letting housing be built on that land is worth an extra $1,300 per square meter - or about $65/sqm year if you run it at a 5% discount rate. 

As compared to about $5 gross revenue/sqm/year from potatoes. 

Which is where I got the numbers for my stupid insurance example at the start. You shouldn't be willing to pay more than the value of a thing as an insurance payment against the thing ceasing to exist. But that's what we're doing. We are foregoing $65 in value-as-housing per year to protect $5 in gross potato revenue per year, just to be sure we never run out of potatoes (which can be imported way more easily than housing services, if we don't impose anti-dumping duties, which NZ has threatened before when frozen European potatoes were cheap). 

Except that's just the rationalisation.

The FDS points to the real reason. Council doesn't like out-of-sequence or leapfrog developments because that makes it harder to plan, fund, and finance infrastructure. They want development to happen exactly in council's planned sequence, so any new water pipe very quickly has lots of users to help cover its cost, because council at its budget constraint has to pay off infrastructure very quickly, because infrastructure funding and financing is a mess. And because council sees little of the upside from growth but has to deal with the potato cultists, why bother? Failing to fix the problem also helps prop up property values for existing owners in town - they vote, while those unable to move to Auckland don't vote in Auckland elections. 

Fundamentally silly outcome, but right in line with what you'd expect given the incentives. 

These restrictions will worsen the problem that the Infrastructure Commission pointed to. Making it harder to build at the urban/rural boundary will reinforce that land price differential and help ensure that the carbon-friendly walkable downtown developments remain unaffordable. 

How to get out of the mess?

• Let councils use project-based funding with long-term infrastructure bonds, ring-fenced away from council main balance sheets, financed by payments over time from the beneficiaries of that infrastructure. Making it not impossible to fund and finance the kit needed to support growth would get rid of one important barrier. 
• Let councils share in the benefits when they enable, rather than block, urban economic growth.
• Over the medium term, have tighter restrictions than NPS-UD and MRDS on councils where the median house price is very high relative to median household incomes - with freedom earned by restoring housing affordability. Council cultures will take a long time to shift otherwise. 

Afternoon roundup

Let's get these browser tabs back under control

• Shutting down a late-night food-truck because it's too popular and reducing options for celebrants isn't going to improve nightlife. Hi Auckland. 


• About one in four mild COVID cases wind up with brain damage. 


• Things true in a self-selected cross-section may not hold up in an RCT. Doubt you could get funding to run this as an RCT though. Well, maybe Loewenstein could.


• Businessdesk reports that investments tied to investor visa applications worth at least $3 billion are just sitting around at Immigration NZ, unprocessed. 


• I'd be less uncomfortable about this if there'd been smaller promising pilot studies with rigorous evaluation frameworks first. 


• Emma Vitz maps out how far a woman might need to travel in NZ to access abortion services.


• I've occasionally complained about Medsafe approval delays for vaccines. Wanna know how the booster for over-50s got authorised? It took an Act of Parliament. And they worried that "treating a fourth dose as other than "new medicine" undermines the scheme and purpose of the Medicines Act and the consent process under the Act." We're just not going to get vax for under-5s, or the updated formulations, in any reasonable amount of time with Medsafe as it is. 
  
  

Ports and Portability

Alas, Bernard didn't keep the headline I'd picked for this week's Newsroom column. 

It's about whether it makes sense to move Auckland's Port. I don't know whether it makes sense to move it or not, but I do think that the first step is figuring out just how much value could be unlocked by turning 55 hectares of waterfront real estate over to other uses, whether residential, commercial, or anything else other than a stadium.

So: Ports and Portability.

Bernard went with "Hard numbers needed before 'blue sky' Port talk".

Ah well. I still like Ports and Portability. He's the expert though.

A snippet:

Moving Auckland’s port might make sense – someday.

But I do wonder about some of the talk of moving Auckland’s port to put in a waterfront stadium, or museum, or other large, iconic, and expensive facility.

Stadium maths are almost invariably bad. Rather than revitalising cities, stadiums more typically become white elephants needing ongoing financial support. Putting one on some of the city’s most valuable property would not only ensure it could never cover its own real costs, but would also forgo far better uses for prime commercial and residential land.

If you owned a quarter-acre section in Epsom, with a sprawling ramshackle workshop and shed in the back yard, rising property prices might eventually convince you to make some changes. Clearing the workshop out could be a bit expensive – and especially if you needed to find some other facilities for your projects. But subdividing could let you clear the mortgage and pay off a few other bills.

Unless you had money to burn, deciding to take on all the expense of clearing out the shed and finding another place to work might be a bit silly if you decided instead to put in a swimming pool. It could be nice on a warm evening, but it certainly would not help with the problem of covering the mortgage. And the bank might have something to say about it.

As downtown property values rise, eventually the Council-owned Port’s fifty-five hectares of land and wharves will be valuable enough in other uses to cover the cost of clearing the land and building new facilities elsewhere. Those costs will not be small, with consultancy reports battling over just how close to $10 billion the bill might wind up being. But the value of the underlying property will not be small either.

I worry that where the government wants to decide on whether to move the port before deciding on what to do with the waterfront land, we could too easily wind up with a waterfront stadium.

In the Hitchhiker’s Guide to the Galaxy, Douglas Adams wrote of how numbers written on restaurant bills within the confines of restaurants do not follow normal the laws of normal mathematics but instead follow Bistromathics. He imagined spaceships powered by this new math. Numbers used in economic impact assessments of stadiums are even stranger than bistromaths. To put the academic economic consensus simply, public investments in stadiums do not deliver the promised benefits.

A waterfront stadium the size of Eden Park would sit on about $600 million dollars’ worth of property, if that waterfront land winds up being worth about $10,000 per square metre; construction and running costs of a stadium would be additional. If the stadium had zero running cost and zero construction cost, it would still need to generate revenues of almost $50 million per year to cover the capital cost of the land alone.

And Eden Park’s total operating income last year was just short of $16 million. A stadium might not be the best possible use of waterfront land. It is just too easy to imagine combined governments spending billions of dollars to move the port based on business cases involving selling the port’s land, only to then spend easily over a billion dollars on a new stadium for the site instead.

Reader mailbag - Licensing trusts edition

Karl du Fresne had a great 2017 story on New Zealand's anachronistic alcohol licensing trusts.

The West Auckland trust is coming under a bit of pressure from a residents' group that would like to see things opened up, removing the trust's monopoly.

TrustAction's Nick Smale writes to let me know what they've been up to:

I believe most of the licensing trusts' public support results from misinformation and misunderstanding. I've been surprised and disappointed with the actions of both our licensing trusts and our local public health service (ARPHS) in informing the public. For example, the Advertising Standards Authority recently found against The Trusts for making claims about alcohol related crashes. Also attached is a flyer published by the ARPHS which I think is effectively campaigning on behalf of The Trusts.

As a group of non-expert residents advocating for change, we feel somewhat overwhelmed by the public resource being used to support the status quo.

The Auckland Regional Public Health Service has been campaigning to keep the trust, at least according to their flyer Nick passes along.

For those of you living in West Auckland, here's the petition against the Trust's monopoly. 

Valuable upzoning

Allowing greater density can bring down housing costs while increasing the value of existing property. It isn't magic. A piece of land that can be turned into townhouses is more valuable than one that cannot be. Each of the townhouses would be more affordable than the prior house, but the property becomes more valuable even before the townhouses are built.

Auckland Council's economist has run some of the numbers since the unitary plan. 

Our results show that in the most densely upzoned areas of the Auckland isthmus (Glen Innes, Mt. Wellington, Onehunga, Mt. Roskill, and Pt. Chevalier – areas B, C, D, and E on the map), upzoned properties sold on average for a premium of more than $90,000 when compared to neighbouring properties that were not upzoned, controlling for all of the observable attributes of the property as well as the strong overall price changes Auckland experienced over this period.

Across the city as a whole, upzoning added $34,000 on average to the value of a property. 

Council economist Shane Martin makes the case for taxing those windfall gains to help fund the infrastructure needed to enable development, and notes one difficulty: since markets are pricing in the value of upzoning very quickly, Council might want to hasten any announcements of how it would fund the infrastructure so that that could also be priced in. 

The timing of the land value increases also has policy implications. We now have evidence that markets in Auckland react to announcements of policy changes rather than waiting until policies are enacted. That is, when council signals that a policy change is being considered, and the market believes that signal to be credible, prices react. This means that council must consider how it plans to fund new policies (through various mechanisms, including targeted rates), not only before the policies are enacted, but before they are announced. 

It would be difficult for Council to use that kind of infrastructure financing policy if the property turned over between the upzoning announcement and the infrastructure financing announcement. It is easier to announce a policy bundle that provides a net small windfall for current owners than to do it in two parts, the first part of which provides a windfall gain and the second part of which imposes costs on potentially different owners. 

Morning roundup

A few of the worthies as I close out the browser tabs before Chrome eats every last bit of my system's resources:

• Thomas Lumley's travel guide for Auckland visitors for a statistical computing conference may be useful beyond that conference's attendees.
• The Washington State Institute for Public Policy's evaluation of boot camps suggests that they're very effective. I had previously thought there was a typo in their tally: they had a negative cost listed for the things, which had me thinking they had a spreadsheet error. But it's correct - confirmed by email. Boot camps are cheaper than other juvenile detention facilities in Washington State, and so they're of negative cost relative to the counterfactual. And they also seem effective: 100% chance of providing net benefits. 
• Vlad Tarko's take on apparent deregulatory trends: you can reconcile survey measures of declining regulatory burden with other data on increased staffing and budgets for regulatory agencies in a model in which competing regulators offer the regulated opportunities to select the one that sucks least. He says regulatory capitalism is a better term than neoliberalism for the current state of play. 
• Where the state is weak, others can be strong. In Nigeria, churches are building what look like private cities. Attention Charter Cities fans. 
• Great piece by Andrew Sullivan on tribalism in American democracy. I don't share his optimism about Trump yet being able to come around to solve all this, but the diagnosis in the first three quarters of the piece seems right. 

And hopefully on closing Chrome, there will no longer be a long lag between moving the mouse and seeing the cursor move. It's really annoying. 

Asset sales and infrastructure funding

Christchurch's refusal to sell the Port during earthquake reconstruction was ridiculous. The city needed a pile of money for new infrastructure to cover uninsured losses. The Port had just received a giant insurance payout that, in some views, covered the harms of decades of deferred maintenance. There would never be a better time to sell the port than when it was set to be all fresh and shiny, before the next decades of deferred maintenance did their work.

Instead we had talk about not selling the family silver. Know when it's time to sell the family silver? When you need to rebuild the house because of a big stupid earthquake.

Auckland's position on asset sales hasn't been much different. Auckland needs a pile of new infrastructure to let it fund its continued growth. But it faces a strange debt constraint: rules on how much interest Council can pay as a fraction of its tax revenue. Debt-funded infrastructure then needs very quickly to provide a return well in excess of the debt's interest cost. Laying out trunk infrastructure with a century's lifespan that enables growth more than repaying the investment 10 years out doesn't work if it has to pay for itself faster than that. And that's part of the current mess.

Asset sales can then help. I covered it in last week's Insights newsletter. Subscribe at the link (it's free).

The macroeconomic effects of Auckland’s housing crisis are felt throughout the country. If Auckland could better accommodate growth, central government would reap the resulting income tax and GST revenues.

Immigrants pay more in tax, on average, than they receive in government services – but those estimates do not include the infrastructure costs that fall on local government. If Auckland’s infrastructure mess forces central government to close the door on immigration, that could easily be to the long-term detriment of central government finances.

But councils coming cap-in-hand to central government for help face a fair bit of scepticism for the simple reason that councils have not been making some of the harder choices necessary to finance their own growth.

During the Christchurch earthquake recovery, some of Christchurch City Council’s pleas for more central government funding rang a bit hollow. National campaigned in 2011 on a programme including partial privatisation of state-owned enterprises to help fund other programmes. Meanwhile, Christchurch Council refused to consider privatisation of Lyttelton Port of Christchurch or a host of other Council-owned assets.

From a central government perspective, some of the calls for help sounded a bit like your kid asking for financial help while refusing to replace his flashy car with a more thrifty model – after you have already traded yours in.

Phil Goff’s willingness to consider partial privatisation of the Ports of Auckland is then a very welcome first step. But Auckland Council could be bolder. The land under Auckland Council’s golf courses alone is worth over a billion dollars. Selling that land for housing development would not just provide more houses. It would also provide funds to service further intensification and further greenfield development.

And if Auckland were doing its share, we would hope that central government might consider doing its bit as well by passing on some of the benefits it receives from a thriving Auckland.

Stonefields

I know you're supposed to hate the game and not the players, but the people living at Stonefield sure make it hard.

Anne Gibson reports that Auckland Council's knocked back developers' plans to add three apartment blocks and 11 terrace houses at Stonefields.

Matt Maingay, who leads neighbourhood action organisation Stonefields Lobby Group, welcomed the council's decision.

..."We support what Todd Property have achieved, but people need to make sure developers don't overstep this balance, that design doesn't completely ignore its surrounding, and that compromise can be beneficial to everyone. The benefit of Auckland growing at such a late stage is that we have the chance to avoid other cities' mistakes.

"If it hadn't been for a unified, concerned, and proud community, Aucklanders would have lost a little bit of themselves," Maingay said.

It struck Aaron Schiff as odd:

@EricCrampton the thing that struck me about this is, Stonefields is a new development but already residents are NIMBYing.

— Aaron Schiff (@aschiff) March 29, 2017

And Conan (surely not his real name) reminded us about this from last year:

@aschiff @EricCrampton is this the same amazing group that got the flying fox removed as kids having fun were making too much noise?

— Conan Gorbey (@arnie03) March 29, 2017

He's right:

A flying fox in a children's adventure playground has been temporarily disabled after noise complaints from residents.

An Auckland Council sign at Playtime Park, next to the Stonefields estate at the base of Mt Wellington, explains that tests carried out showed that noise generated by flying fox users "exceed levels permitted in the residential area".

According to the sign, the council was looking at options - including relocating the flying fox - and the community would be advised on the next steps soon.

Orakei local board member Kit Parkinson confirmed the flying fox had been disabled, but said he would know more about what had happened after a meeting today.

In November, the Herald reported that residents had complained about noise and kids' "squealing" coming from the flying fox at the playground, which opened in September, as well as large sand areas used to create a landing zone beneath the equipment.

I really really hope that the government moves on the Productivity Commission's recommendations around better urban planning.

Update: Does anybody know whether the original consents had apartments/terraced housing in them on this timeframe, or whether this was a new request?

The costs of golf

Auckland Council owned thirteen golf courses as of last year. The NBR talks with Julie Anne Genter and Jacinda Ardern, the two candidates for the Mount Albert by-election, about whether Council should turn the Mount Albert golf course into housing.

I don't know, but strongly suspect, that that land would be of much higher value in housing. Julie Genter is almost certainly correct that the place should be in housing.

But here's how you'd find out.

1. Zone the land for the highest density of housing that's possible given the infrastructure around the place (or higher, if development could fund upgrading the infrastructure).
2. Put in an SHA allowing fast development for any future owner. 
3. Sell the land to the highest bidder, letting the owner keep it as a golf course or develop it.
4. Tax the land on its market value, whether it's used as a golf course or as housing.

If the golf course can turn a bigger profit from greens fees from paying customers than a developer could earn by turning it into housing, then it should be a golf course. Otherwise, it shouldn't. 

The NBR quotes the golf club's treasurer on that the club currently turns a profit. I wonder what Council charges itself as rent on land that would be worth a fair bit in alternative uses. 

Amazing that anything gets built

The Three Kings saga helps illustrate why landowners might become land bankers, and why Auckland housing has been such a mess.

I'd noted it in my piece in June at The Spinoff:

Just look at the mess in Auckland where a developer wanting to build housing for 1500 households in an old gravel pit at Three Kings, turning much of it into parks and open spaces, has bought almost a decade’s worth of objections and processes and hearings. How can anybody build anything to scale under those conditions? In the middle of a housing crisis, with daily news stories about the number of children having to live in cars with their parents because there are not enough houses to go round, NIMBY activists block new construction. 

Every time a NIMBY cries, an angel has to sleep in a car, or in a garage.

The NBR reported last week that the mess continues:

Fletcher Residential’s controversial $1.2 billion Three Kings quarry development may have to be substantially redesigned after an interim decision from the Environment Court.

The court has heard an appeal from the South Epsom Planning Group and Three Kings United Group over Auckland Council’s plan change allowing Fletcher to rezone 15.1ha of the former quarry and Auckland Council and the Crown to swap 6.5ha of reserve land with Fletcher Residential for the development.

The court has laid out 13 issues – from land contouring, protection of volcanic features, building form, sports fields, view shafts and connectivity – in the development that South Epsom Planning Group, Three Kings United, the council and other parties need to comment on before a final decision on the appeal is made. Fletcher Residential is excluded.

The court says it became clear after looking at the evidence and witness statements before the hearing the real issue was not whether Fletcher Residential’s development should go ahead but rather what form it should be.

They've been in community consultations since 2008. Eight years.

The moustache-twirling developer is a hackneyed theatre set piece. Here's Circa Theatre's version from 2014, when a horrible horrible developer proposed buying Granny's cottage to put up some townhouses.

And from their promotional materials:

I’m having a blast in this production as Sir Roger Bounder, the evil property developer with no heart and a lust for profit. Nothing can touch Sir Roger for devilish good looks and a mind like a steel trap. He’s obviously the main role that everyone will admire – or else! It’s always great fun to be booed!

We reminded the kids after the show that building houses lets people not be homeless. Would that the theatre could get its darned villains right. Hint: when you're in a housing shortage, the ones trying to build housing probably aren't your villains.

Poverty, homeownership, political economy, and a modest proposal

The New Zealand Initiative today launched a report on the state of poverty in New Zealand. Two key findings for us today:

1. Poverty in New Zealand, relative to other countries, is highly concentrated among children. The elderly have very very low poverty and hardship rates. Children, not so much.
2. Poverty is substantially affected by housing costs. Before housing cost measures of income poverty are much better than those after housing costs. 

This is in part due to NZ Super. Every old person gets a transfer from the government equal to two-thirds of the median wage. Since poverty lines are generally defined around that fraction of the median wage, you don't get old people in poverty. You also have disproportionately high homeownership rates among the elderly, so the rise in housing costs doesn't really affect them.

Yesterday's Auckland Council meeting on the Unitary Plan demonstrated much of what's wrong with urban planning in New Zealand. Elderly home-owning people, resistant to any potential change anywhere near them, are very likely to vote, do not care about the costs of home ownership (and, indeed, mock younger people showing up at those hearings), and are able to bully councillors into blocking any increases in density. Renters' interests then are not particularly well represented.

And so, my modest proposal:

Henceforth, eligibility for NZ Super will be means-tested, but in a particular way. Eligibility will be restricted to those who do not own a house, either themselves or through a trust, and who do not rent their home from a family member. Those approaching retirement would be entirely free to sell their home, bank the proceeds, and rent a home; or, they could maintain their home while foregoing NZ Super.

I'm still not sure whether I'm serious on this one.* But it is fun to think about.

Update: The money saved from the NZ Super bill could, in this proposal, be redirected towards targeted programmes in lower decile schools.

* Update 2: It is likely impracticable. Just think of all the workarounds. Prohibited from owning? Sell to a younger friend with a long-term lease agreement and an option for your own kid to buy back at a fixed price at a later date. But it's still fun to think about.

Update 3: I was far too quick in the paragraph about NZ Super. NZ Super is set at two-thirds of the average after-tax wage for a couple, and single elderly get 65% of that rate. That won't get either a couple, or an individual, up to the relative poverty line on its own. The elderly don't show up in the relative poverty stats when a 50% of median household income line is used, and don't show up in material hardship measures, and don't show up in AHC measures of poverty, but do show up in the "relative to 60% of BHC median income" measure. I thank Bryan Perry for the reminder.

Pricey golf courses

Bernard Hickey trawled through 269 pages of Auckland Council reports to find this gem, reported in this morning's Hive News:

Elsewhere, Auckland Council released 269 pages of reports by Cameron and Partners and EY on Friday on alternative financing sources, including an estimate that its golf courses are worth NZ$2.1 billion if they were put to other uses, including for housing. The report estimates just four of the courses -- Remuera, Pupuke, Takapuna and Chamberlain Park -- are worth NZ$1.4 billion, but have a rateable land value of just NZ$47 million.

Remuera, for example, only pays rent to the Council of NZ$130,000 per year, yet EY estimated the fair market ground rental at NZ$16 million a year.

"This represents a significant subsidisation to private interests and raises questions about whether at least parts of this asset – the land the golf course occupies – could be considered for higher value uses," EY wrote.

The Cameron Partners report looked at Auckland's debt limit. Auckland is constrained by a 250% debt-to-revenue ratio limit. While they've about a billion dollars in additional capacity to take on debt, nobody wants to be right at the binding limit.

And so if Auckland's to use debt to help fund infrastructure in a growing city, how can they do it? The report discusses options for asset recycling: selling off, in whole or part, some of Council's assets. The report says Council owns $506 million in commercial parking buildings. Releasing 5% of Auckland's parks and reserves for use as housing could bring $2.25 billion. Auckland's golf courses are valued at $61 million for accounting purposes but the top four alone would be worth $1.4 billion as housing.

The report also highlights Council's failure to think hard about the opportunity cost of its asset ownership, failures in its cost of capital analysis, and political incentives preventing divesting of assets owned at the Ward level where returns flow to the general Council budget.

The nonsense around use of Council-owned land is one reason I like the idea of applying a land tax to Council and Crown-owned land. Council would pay the Crown based on a proper valuation of Council's land assets, and the Crown would pay a similar tax back to Councils. Councils seem to have a very hard time thinking about the opportunity cost of their asset holdings; turning some of those opportunity costs into annual on-budget expenditures could sharpen thinking.

Thanks to Bernard Hickey for the pointer. If you haven't subscribed to his Hive News yet, and are interested in NZ policy, you should.

Crisitunity revisited

Who's got two thumbs and got 'crisitunity' into a Herald headline? This guy here.

I there expanded on the arguments I'd made at the Initiative's blog: if there is any big flood of foreign money that wants to be involved in Auckland housing, it is ridiculous that we make it near impossible for that money to build new housing. 

Many thanks to the Herald for publishing it - and for highlighting one of my favourite Simpsons' words. 

The article's not yet on the Herald website, but it's available via PressReader.

Update: Herald version here.

Dead capital: Council ownership edition

I've worried that perhaps Councils haven't fought back against the NIMBYs because they haven't quite enough skin in the game.

The basic model in my head has run as follows:

Councillors need to be re-elected. High preference intensity local NIMBYs get disproportionate weight because they're vocal and very likely to vote. And so things like Auckland's Unitary Plan unravel: local pressure pops up, local Councillors stand by their neighbourhoods, and Council has little incentive to push back.

Any new development that goes in does add to the ratings base, but the link to Council revenues is weak: absent other changes, an increase in the value of land in one place means a greater fraction of a fixed tax bill falls there with minute and diffused cuts elsewhere; the increase in the rateable base can allow the total budget to increase if Councils are discretionary budget maximisers, but the hassle costs involved in dealing with the NIMBYs just might not be worth the small increase in Council budget that could come from it.

Maybe allowing some site to be turned into low-rise apartments would allow Council to raise another $150k/year without increasing any other property owner's taxes, but is that really enough to be worth the years of town hall meetings with angry people all promising to throw out the local Councillor because of it?

If that's the issue, giving Council a bit more of a stake in development could help out. The NZ Initiative a while back proposed, for example, giving Council the GST on new construction activity. On a $20 million construction project, that would be a $3m kick encouraging Council to allow appropriate land use. Council then has a better reason to find solutions that compensate the NIMBYs at the margin while allowing development.

That's still the model that's in my head, but what are we to make of this kind of case?

Auckland Council owns massive vacant-lot car parking spaces in Tekapuna. They could transform the space, with parking built into whatever complex went up, if there were compelling public interest in having those parking spaces there. They'd then appropriate almost the entire surplus from the project: put it up to competitive tendering, take the money from the best proposed development, use the money for other projects that compensate the NIMBYs enough to make the deal go through.

Maybe the existing use - the weekend market - is just really really important to local residents. But what of all the other surface parking lots owned by Council? They could easily be turned to commercial or residential use, with a parking garage built into the facility if needed.

Perhaps the opportunity cost of the land just isn't considered by Council when setting priorities.

Empty houses?

Metro Mag ran a feature on empty houses in Auckland, pointing a finger at empty houses with overseas owners as a cause of Auckland's skyrocketing housing cost.

In Auckland, more than 33,000 houses were registered as unoccupied in the most recent data from 2013. A breakdown shows about a third had residents away. The remaining 22,152 properties are listed as empty.

Who owns them and why no one lives there is information that’s not readily apparent, although ask around and you’ll hear all sorts of theories – from land banking by foreign investors who see New Zealand as a bargain-priced bolt hole to families future-proofing their children’s education by buying a second house in a desirable school zone.

Whatever the real story, it’s not that the owners (or tenants) just happened to be out when the collectors knocked at the door. Census workers are given clear criteria on the various definitions of an “unoccupied” house and need evidence no one lives there (the appearance of the property, talking to neighbours) before it’s officially classified.

The rest of the article is pretty heavy on anecdote. Little of it made sense to me: why would you forgo rental earnings in a house you'd decided to buy as an investment or bolt-hole? Maybe legislation being too tenant-friendly could do it, but it seemed odd.

So I checked the figures. From Auckland Council's report on the 2013 census.

2.3 Very small increase in number of unoccupied dwellings 

There was almost no change in the number of unoccupied dwellings in Auckland between 2006 and 2013 – the number increased by only 30 to a total of 33,360 across the region. This was a significantly smaller increase than the previous inter-censal period, when the number of unoccupied dwellings had increased 3,744, or 12.7 per cent, and was also significantly smaller than other regions across New Zealand.

This could be a reflection of the housing shortage in Auckland at a time of economic slow-down and a contraction in the construction sector.

In 2013, the local board areas with the highest number of unoccupied dwellings were:

• Rodney - 4,185 unoccupied dwellings
• Waitematā – 3,696
• Hibiscus and Bays – 2,274
• Franklin – 2,055
• Orākei – 1,929

A third of unoccupied dwellings in Auckland (33.6%) were due to the residents being away, while two thirds (66.4%) were empty. The five local board areas with the highest proportions of empty dwellings were:

• Great Barrier – 87.4 per cent of unoccupied dwellings were empty (396 empty dwellings)
• Rodney - 80.6 per cent (3,375 empty dwellings)
• Waiheke – 73.4 per cent (1,323 empty dwellings)
• Ōtara-Papatoetoe – 73.0 per cent (615 empty dwellings)
• Franklin – 72.8 per cent (1,497 empty dwellings)

If the number of unoccupied houses increased by 30 from 2006 to 2013, the proportion of unoccupied houses would have dropped significantly. Further, if there are about 470,000 dwellings in Auckland and about 22,000 were unoccupied at the time of census, that's under 5%. That's not really inconsistent with houses being empty during sale or between tenancies, is it?

How can a decreasing proportion of empty-on-census-night houses be the cause of increasing housing costs in Auckland?

The asylum creeping in

What possible reasonable justification could there be for Auckland Transport's implementing a surveillance grid? Here's the reporting:

Surveillance technology that uses high definition cameras and software that can put names to faces and owners to cars is coming to Auckland.

The surveillance has the capability to also scan social media and news websites.

Auckland Transport, the regional transport provider, announced the multi-million dollar deal in June, and California's Hewlett-Packard Development Company said today it has the contract.

No dollar sum is given.

They call it a "visionary Big Data" project and in a statement said Auckland has selected HP "to drive groundbreaking future cities initiative".

All the data gathered by the cameras will be processed by HP cloud servers based in Palo Alto, California.
Auckland Transport's Chief Information Officer Roger Jones is quoted by HP as saying: "The safety and well-being of our citizens is always our top priority and the Future Cities initiative is a big step in the right direction".
...
The system "should not be used for surveillance or monitoring of specific individuals (whether or not identifiable by name, and whether not facilitated by supporting technology) except in respect of specific criminal acts or organised crime or other reasonably suspected criminal behaviour (including terrorism) on the basis of such evidence or reasonable suspicion of criminal offending," the principles state.

Police are also told they should not provide access to the data to any other agencies in New Zealand or abroad except where that complies in all respects with the terms of these surveillance principles and New Zealand law.

There's good case for traffic monitoring cameras for adjusting traffic light timing. There's possible case for surveillance cameras in bus and train stations so that security people can check back on the footage if there was an assault or theft. But face and licence plate recognition? Why?

This is the dumbest kind of dumb. Economists, left and right, love road user charging. Implementing road user charging properly, with time-of-day charging, would require a bit of monitoring of which cars are where and when. The biggest obstacle to that kind of system is worries about the government's using that collected data to track everybody. I've not worried about it, 'cause I couldn't imagine that the New Zealand government wanted to track everybody. And now Auckland Transport wants to put in face recognition systems for tracking everybody. Well, screw congestion charging then and build me more roads instead.

At least we're not as bad as Australia.

Despite concerns raised by dozens of academics, lawyers, rights groups, the dumped national security legislation monitor Bret Walker, SC, and human rights commissioner Tim Wilson, new national security legislation that will jail journalists and whistleblowers if they reveal information about covert "special" operations passed the House of Representatives on Wednesday.

The legislation, which also enables the entire Australian internet to be monitored with just a single computer warrant, is a disgrace. Our Parliament, especially the Labor opposition, has failed us.

When I'd started reading about the Oz news, I reckoned NZ could do well by highlighting how Oz had fallen into the asylum and that Australians who care about freedom should move here. Then Auckland went and wrecked that plan. Thanks, Auckland.

Update: TransportBlog has a statement from Auckland Transport.

Update: AT have provided this statement

Auckland Transport publicly announced the agreement with HP at its June board meeting. The information was picked up by the NZ Herald which ran a story in July.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11297578

Auckland Transport currently has five video systems which it inherited, this will bring it down to one processing system.

We are not installing new cameras, this is a “back end” system for the approximately 1800 cameras we have access to covering intersections, railway and busway stations. Initially we will be doing a trial using 100 cameras.

The system will be used to monitor traffic flows, vandalism and safety. We will not be using any capability which identifies faces or number plates, our cameras do not have the ability to do that.

Let’s be very clear NO information is being sent to the United States. Information can be stored on our system in Auckland for a maximum of 7 days.

We are working through draft policies with the Privacy Commissioner and will make the policies public before any changes are made.

This is a $2million upgrade of a system we have had for 10 years, there is nothing new here other than that we are going to one processing system and we are introducing some automation.

I'm not sure this entirely makes sense. Surely facial recognition is a software rather than a hardware issue, so long as the cameras' resolution is good enough. If the cameras have very poor resolution, then it could be a hardware issue. But it's at least encouraging.

Auckland parking

NBR reports that the supermarkets aren't happy with Auckland's proposed new parking regs [gated, sorry].

It seems that Auckland's proposed limiting supermarkets to one car park per 200 square meters of floor area. The supermarkets are right that this will put a substantial hindrance on their operations; I'm glad they're opposing it.

At the same time, the supermarkets are opposing the removal of minimum parking restrictions on smaller businesses, figuring that those businesses' customers will free-ride on supermarket-provided parking. They might, but supermarkets are also perfectly able to place restrictions on permitted parking within their facilities. The most obvious solution is to gate the exit and provide free exit on scan of a supermarket register receipt. You don't even really need staff on it - the airport here in Christchurch does it all automatically. It might not be cost effective to do it, but it's then pretty debatable whether the potential externality is big enough to justify compelling all small businesses to supply parking.

Further, much of the potential externality gets internalised where supermarkets serve as anchor tenants in malls or strip malls.

Why do Councils figure they have to regulate this stuff? Is Auckland going from mandatory parking minima to mandatory parking maxima? Can't we just let property owners decide how much parking they need and how to restrict access?

Brownean motion

There is one big rule in local public finance. Do not use local income taxes to fund city governments. Ed Glaeser helps explain why:

In addition, some cities, like New York and Philadelphia, also have income or wage taxes that generate significant revenues. Typically smaller jurisdictions are not granted the authority to  levy these taxes, and many would not want to anyway, given the fears of repelling businesses and wealthier individuals. Indeed, Haughwout et al. (2004) estimate that the elasticity of earnings in cities with respect to the tax rate is so high that income tax rates quickly become counter-productive for producing revenue. 

...But the property tax also has several key virtues for a locality. First, property is considerably less mobile than income or other forms of wealth. Even the tiniest community, like a business improvement district, can levy a charge based on the amount of real property in the community. That property will not just get up and walk away, while an attempt to have a neighborhood level income tax would surely lead to considerable out-migration by the wealthy. 

...Income taxes, of course, can be far more redistributive than sales taxes and that is one of the reasons for their attraction to many cities. The problem with local income taxes, of course, is that they potentially repel wealthier individuals. That provides one reason why many forms of local redistributive services are actually funded by higher levels of government. 

Bottom line: income taxes are a reasonable way of funding redistribution from rich to poor. Rich people prefer not having to pay them. So, run your big income redistribution programmes at the national level, funded by income taxes, and leave local government to provide local public goods, funded by land or property taxes.

Glaeser and Shleifer also showed that Detroit's Coleman Young and Boston's James Michael Curley's use of high local income taxes encouraged their richer opponents to move outside of their cities' limits, beggaring their cities but helping to ensure their continued re-election.

Here's Auckland mayor Len Brown [ht @MarkHubbard33]:

Making all Aucklanders pay a council income tax may help elderly people in affluent areas who can't afford their rates, mayor Len Brown says.
The current system is "inherently unfair" on people living on fixed incomes and paying high rates because of the value of their properties in areas like Devonport-Takapuna, Brown says.
Introducing an income-related tax for local council services that everyone pays is an option, he says.
Only property owners pay rates but the council is spending money on infrastructure and services for everyone, Brown says.
He believes the only way to mitigate the rates burden as property prices rise is to rethink how local government is funded.
Brown won't express a view on what alternative might work saying he is "quite open minded".
Options could include funding through income tax, GST, user pays charges, or bed taxes from hotel.

A few things worth noting:

1. Everyone in Auckland pays property taxes, though only homeowners and business owners make direct payments to councils. Renters bear some of the burden through their rental payments. Shoppers bear some of the burden through their purchases from local taxed establishments. 
2. An income tax is only feasible if Auckland Council is now large enough that commuting in to Auckland from outside of its rating zone is infeasible, or if the amenities it provides to rich folks are just super-awesome and don't do much for commuters. Otherwise, the richest folks keep their residence just outside of town and maybe have a small commuter apartment in town.
3. Property taxes are a way of taxing wealth rather than income. They're then a nice complement to existing national taxes on income and consumption. The elderly person on a fixed income, sitting on a million-dollar Davenport property, is really really rich, even if she has little income. Getting rid of the only wealth tax we have in favour of more taxes on income does even more to screw up the system. The existing system already has big transfers from less wealthy people on high current income to very wealthy people on low current income: superannuation payments going from young mortgage-holders to old homeowners. Brown is proposing to make this even worse. 
4. Further, a reverse mortgage can solve the problem for many wealthy but low income elderly. 
5. For those for whom the annuity wouldn't be enough, well, is it really worse to have a few wealthy but low-income elderly move to a smaller house or apartment than to wreck your local council's ratings base with an income tax? And you know that Councils can, in some cases, put in a limited property tax abatement scheme for those on lower incomes, right? 

User charges for some Council services can make sense. If Gerry Brownlee hadn't somehow banned Auckland from putting in congestion charging, that would have been a good one for Auckland. But local income taxes are a pretty bad idea.

Ban the bottle

I'm a fan of Charles Tibout's arguments about local government competition: lots of small local governments competing with each other for residents and cooperating with each other for provision of services that are more efficiently provided on a wider scale.

I was surprised when Rodney Hide led the charge for Auckland's amalgamation. The best case I could make for amalgamation would be that the small scale of local government means it has a very hard time attracting talented people to make reasonable decisions; Council policies can be stuck on the stupid setting for rather a while. A merged Auckland encompassing a million or so people ought to be big enough to attract more talented bureaucrats able to make more sensible decisions.

Neil Miller points to one less-than-sensible decision coming out of amalgamated Auckland Council [HT: Nolan @ TVHE]. They're pushing bottle shops to ban single-bottle sales. Neil writes:

Craft beer plays little or no part in the problems around heavy drinking, particularly among younger people.  The streets on a Saturday morning are not awash with bottles of Emerson’s Pilsner ($6.10) nor the car park studded with empty magnums of Liberty C!tra IIPA ($22.10).  The Council has simply made a series of assumptions and come up with a one-size-fits-all “solution” so it can say it is “doing something.”  I doubt any thought was given to the sales of craft beer or the people who want to purchase them responsibly in central Auckland. 

"Something must be done" is a rather persistent problem. And, with a merged Council, craft-beer lovers will have a harder time driving to an outlet that can help them out. I hope that the bottle shops are able to get around it by requiring that people buy at least two bottles and sticking a rubber band around them to make a package when the customer comes to the till.* At least there are mail order options.

Neil again:

However, at this stage the Government is looking to avoid the single container issue saying people with problems should contact the Council as it is their policy.  It seems yet another drift net policy with unintended consequences, something we will probably see a lot more of as Parliament considers the key provisions of the new Alcohol Reform legislation. 

This kind of local nonsense is one of my bigger worries in the proposed Alcohol Reform Bill, which will provide a fair bit more scope to local Councils for alcohol regulation. Compliance costs are higher when retailers face a patchwork of regulations across the country; I would expect local activists with time on their hands have more influence over policy at the local level. I consequently expect the equilibrium to turn rather more meddlesome in most places.

* My local dairy, for a while, sold cans of Coke labelled "Not for individual resale." Above the cans he had a small sign saying "Buy two!". I liked that.