YIMBY strategies

How can YIMBYs overcome the NIMBYs? Local action and state-level policy reform says Kenneth Stahl.

Stahl argues that NIMBYs block development because of worries that increased supply will hurt the value of owners' biggest asset - their homes. I'm not sure that's right though. Upzoning will reduce the cost of housing while increasing the value of the newly upzoned land. And this should be especially true for neighbourhood-level upzonings as compared to broader upzonings, and it's the local ones that seem to draw the most local opposition.

But the problems with incentives facing councils have a lot of parallels with New Zealand's problems. 

Where local government there is debt constrained due to unfunded pension liabilities, they're debt constrained here because of debt limits, poor prior spending decisions, and voter reluctance to authorise debt because of sensible worries brought on by poor prior spending decisions. Where councils there get a share of sales tax revenue that distorts council decisions in favour of zoning for business rather than housing, here councils get the costs of new development offset by rates revenue while central government gets the bulk of the benefit of growth. 

And does this sound like the RMA?

Streamline Environmental Reviews.  Some states require all new development to go through an extensive and costly environmental review process.  This process can easily be manipulated by neighbors to fight development they dislike for reasons having little to do with environmental protection. The California Environmental  Quality Act (CEQA), for example, has become a preferred tool of homeowners looking to squash new development, as they can force developers to spend additional time and money on environmental reports. Previous efforts to streamline CEQA in order to lower the cost of housing have failed due to opposition from environmental groups, and it is notable that amid the flurry of housing bills passed by the California legislature in 2017, not a single one touched the CEQA process.

The article doesn't explain why California's such a mess while Houston and Atlanta aren't. Better mechanisms for financing urban expansion is part of the answer.  

Food fights

Hoisted from the comments, here's Donald Ellis's take on NZ's food safety regime.

This is a slightly nuanced situation. The newspaper report seems to say that one part of the DHB shut down the operation of another part of the DHB and are using the new legislation as a reason. To be honest there is nothing new about caution over freezing food and re-heating it for later service. So I read it as the DHB auditing all of their food handling practices (spurred on by the change in legislation) and finding a practice they would have been unhappy with at any time had they known about it.

Although the new Food Act is largely a re-packaging of the old Food Act there are two relevant new inclusions in the legislation. The first is a specific reference to applying appropriate standards to food prepared for "vulnerable populations". This provision clearly applies here. The second is the duty of regulatory authorities to "... promote standards and control mechanisms that are, as far as practicable, risk-based and science-based...".

The new Act was sold to the industry as liberating because compliance requirements would now reflect the actual risk of each operation. Market stallholders would be allowed to prepare food in their home kitchen. We could do away with the nasty old "one-size fits all" regulations. Unfortunately the likely outcome will most likely be the complete opposite. From what I have seen so far a multitude of standards promulgated by Foodsafety NZ will simply be enforced on everyone with no reference to actual risk (let alone science).

This story in Tokoroa is just the beginning of a general shutting down of the food industry rather than a liberation.

In defence of flogging, revisited.

I'm a fan of Moskos's essay on flogging.

It looks like Zach Wienersmith is too. Hit the link for proper viewing. And for the red button.

Costly discrimination

Danish kids are happy to pay to avoid having to work with someone of a different ethnicity. In this clever field experiment, Danish kids with traditionally Danish-sounding names were willing to forego expected earnings in order to avoid being paired with someone with a Muslim-sounding name - and vice-versa. 

It's a great experimental design. Kids do a first round stuffing envelopes on their own, paid a piece rate. For the second round, they have to choose a day to come in, and they'll be partnered with another kid with a joint payoff for how much the team gets done. They're given information on what the other kid achieved in the first round. Because the framing is choice of day to come in for the task rather than choice of partner (though the day determines the partner), there's less chance that the participants would expect the experimenter to be inferring racial preference. 

Team productivity in this task depends on the productivity of each of the workers in the prior round - there's no diversity benefit or penalty. Of course it's just envelope stuffing.

Preference-based discrimination is symmetric. Participants with Danish-sounding names were willing to pay to avoid being partnered with participants with Muslim-sounding names, and vice-versa. 

The insignificant estimate on Danish-sounding indicates that the tendency to discriminate is not different across ethnic types, after controlling for differences in prices. We think that this is a remarkable result for two reasons. First, attention both in the literature and policy debates usually focuses on discrimination of the minority group by the majority group because members of the majority group are more often in the position to discriminate, and workers from the minority group tend to be disadvantaged. However, our results suggest that observing more frequent discrimination of minorities may simply be due to the fact that majority decision makers have more opportunities to discriminate rather than a stronger ethnic animus.

This too was interesting:

Second, this result highlights the importance of controlling for prices when measuring discrimination. From simply looking at discrimination percentages, a layperson may be misled to conclude that decision makers with Danish-sounding names are more likely to discriminate. In fact, decision makers with Danish-sounding names discriminate in 44 percent of the cases, while those with Muslim-sounding names do so in only 33 percent of the cases (however, p = 0.517, χ2 test). Yet, these differences do not reflect differences in animus because decision makers with Danish-sounding names face a lower price on average than decision makers with Muslim-sounding names (€5.2 versus €7.8, p = 0.078, KS). The reason is that workers with Danish-sounding names are systematically more productive (116 letters) in round 1 than participants with Muslim-sounding names (100 letters). According to regressions (2) and (4) in Table 3, these price differences explain the observed differences in taste-based discrimination across ethnic types (Danish-sounding is insignificant, but Price is significant).

They conclude:

Using a sample from Denmark, we find that discrimination is common even at a substantial price, that majority and minority groups are equally likely to discriminate for given prices, and that the demand for discrimination is highly elastic. Our best estimate is that the probability to discriminate falls by about 9 percent if the price of discrimination goes up by 10 percent.

Denmark may be more polarised than other places; would be very interesting to see this repeated elsewhere.

There are a host of interesting implications for policy, which the cautious blogger leaves as exercise for the reader. The elasticity of immigration restrictions with respect to the stringency of workplace diversity mandates or the legal status of repugnant homeowner covenants is one fun one to think about. Second best policy in a world of crooked timber....

Oh: Jean-Robert Tyran is one of the paper's authors. He also wrote my most favourite ever experimental economics paper.

Fix the Official Information Act

My colleague Sam Warburton is clever. When the Ministry of Transport stonewalled on an Official Information Act request, he made another Official Information Act request for all of the documentation around the prior Official Information Act request. 

Forty-two Ministry staff were involved in processing the request. Here's Sam.

At no point in all of this did any staff member refer to the Ombudsman’s guidelines, or even the Ministry’s own internal guidelines. (De Montalk can be perhaps excused because of how obvious it was that all the information should have been released.)

Similarly, there’s zero discussion of the public interest in releasing the information. If not for the release of the information, the ministry might still be saying the road toll’s trending down.

At least 50 people were involved in this request, 42 of those ministry staff.

Despite my request for details of any verbal conversations or thoughts staff had particularly about the treatment of the OIA request, and despite there being “lots of drama on this OIA”, not a single staff member raised a concern about the redactions or misuse of the OIA. Not a single discussion or thought.

Either this is true and at least a third of the Ministry of Transport are grossly unaware of the law, or information about concerns has been accidentally unreleased or purposefully hidden.

There’s a lot that’s rotten here, and sadly it’s not much different from what other researchers and journalists experience daily. The New Zealand Initiative looks forward to joining with other researchers and journalists in the Coalition to lift OIA performance by our agencies.

Not the Outside of the Asylum

Tokoroa Hospital has been freezing surplus patient meals for distribution through Meals on Wheels. Sounds great, right? But the health & safety brigade have shut it down: it would have to be frozen in a blast freezer instead of the hospital's standard freezer.

"Sometimes I have been picking up 10 meals a week. I take them out to Mangakino to some of my clients because there is no Meals on Wheels out there," she said.

"Often they may be living on their own, have dementia or disabilities so they are unable to cook their own meals and for those who can't get Meals on Wheels this is their lifesaver.

"They have everything in there a person needs. They are healthy, nutritional, tasty, and home cooked.

"I am very very saddened by the fact that this is going to stop as a lot of people rely on them."

She said the frozen meals were ideal for her clients as they could heat them up when she wasn't there.

"It is no good me taking a fresh meal from Meals on Wheels in Tokoroa because I would have to do it every day and at a specific time," she said.

"I have looked into the frozen meals at the local supermarkets but the cost is too great and the meals are not nutritionally satisfactory anyway.

"I also have clients with special nutritional needs and some of the supermarket meals don't cater for those either but these meals are made for hospital patients so they are perfect for my clients."

Better they go hungry I guess. 

Paying for the infrastructure

A great map made the rounds on Twitter a couple of weeks ago showing all the places in New Zealand where there are no people living within a square kilometer.

Ping everyone claiming NZ is full and we can't have more immigrants... https://t.co/Xy22pa8TEP

— Eric Crampton (@EricCrampton) December 10, 2017

Somebody asked who'd pay for the infrastructure for all the new people. Stephen Selwood in the Herald has one good answer: let the new residents pay for their own infrastructure via municipal utility districts.

I gave a short talk on MUDs a couple of weeks ago and put together this note on them for the attendees. It might be useful background for others too.

Problem:

Infrastructure financing has proved to be a binding constraint on development in growing communities where Councils are approaching their debt limits. In those cases, issuing bonds to finance new infrastructure for development can pass cost-benefit assessment, but would breach debt covenants and trigger higher interest rates.

As consequence, New Zealand’s housing affordability has suffered. Councils zone what seems to be sufficient land for development and growth, but market prices reveal substantial value uplift when land is zoned for development, suggesting that zoned land is actually scarce. Regulatory scarcity of land on which development is allowed also enables land-banking.

Better infrastructure financing mechanisms can be transformational. Credible measures for rolling out more infrastructure for development and for routing around or leapfrogging current landbanks would completely change the dynamics of land markets in constrained areas. If owners of banked land expect that development will leapfrog them and that future housing costs will consequently be lower, they will wish to bring their development plans forward – and quickly to beat the rush. Market prices can then adjust to restore housing affordability where urban housing costs would be limited by the cost of building houses and infrastructure on paddocks outside of town.

Potential solutions

National proposed new infrastructure financing vehicles to allow new infrastructure roll-out without hitting Council books. That will help. Phil Twyford has suggested a suite of other measures that also are credible, including value uplift charging.

Municipal Utility Districts (MUDs) are an excellent complement to the changes currently under discussion.

Current within-subdivision infrastructure is typically funded by the developer, and interconnection costs or trunk infrastructure upgrade costs are handled through developer contributions. Both of these load costs onto the developer very early in the development cycle and then are reflected in higher section prices and higher house prices. In the end, the infrastructure winds up being financed at the new homeowner’s mortgage borrowing costs when the new owner borrows to purchase the serviced section or house.

The MUD alternative sees a developer establish a special ratings area over the new development. The MUD is able to issue bonds to fund infrastructure development, and the bonds are paid off through a special rating on owners in the development. Where the MUDs borrowing costs are lower than the homeowner’s mortgage interest rate, this reduces costs to homeowners over the longer term. It also reduces costs to homeowners by shifting the timing of costs and the underlying riskiness of the related debt. A developer is a more risky proposition than a stream of tax payments from a new development, so bond financing costs backed by taxes on a new development can be lower than the capital costs for a developer.

MUDs are most prominent as part of Houston’s overall story of housing affordability. Typical MUDs range from 200 to 400 acres (81-162 hectares), with the District covering water, sewer and drainage facilities. Some MUDs also cover major roading thoroughfares, and also parks and recreational facilities. They result in masterplanned communities where the community’s residents bear the costs of their infrastructure and take over the management of their infrastructure.

They must purchase access to wastewater treatment services, or provide their own local or regional treatment facilities. They also share in central city water infrastructure costs.

MUDs can also be used for in-city development on brownfield sites where Council cannot handle the resulting infrastructure costs - though they may be most suitable on larger brownfield sites.

The New Zealand Initiative has explored the potential for Municipal Utility Districts to unlock infrastructure in two reports. Different Places, Different Means: Why some countries build more than others described Municipal Utility Districts in Houston and Austin, Texas. Free to Build:Restoring New Zealand’s housing affordability applied the lessons to a New Zealand context.

The Initiative argued that where a group of landowners or developers wished to establish a Community Development District (CDD), they might submit an application to the regional or unitary council outlining the geographic scope of the development, its environmental impact, its water source, and the financing arrangements. A developer board would be established and building would begin. The developer would be reimbursed for initial infrastructure costs on the CDD issuing its infrastructure bond. The debt would be paid off through a tax on homeowners, businesses and commercial enterprises in the new CDD. And as later stages of development proceeded, more bonds would be issued. And control of the CDD would pass to a residents’ board as sections were developed and sold.

Council Long-Term plans would need to specify any areas they viewed as unsuitable for CDD development on grounds of environmental or cultural sensitivity, or notified practical considerations but the total area excluded could not exceed a set proportion of the jurisdiction’s area. Regional water and electricity lines companies would check that compatibility with broader networks were maintained when approving infrastructure plans. And, once approved, the CDD would be exempt from RMA constraints on any decisions regarding their internal operations except for issues like storm water overflow that might impose costs on neighbours.

We suggest further that where debt issued by CDDs would be subordinate to any Council tax claims on properties, this debt should not affect Councils’ balance sheets.

The key benefit to CDDs, or MUDs, is that they enable new development to occur wherever there is demand for it by uncoupling infrastructure provision from Council debt constraints. They can leapfrog existing landbanks or existing planned trunk infrastructure rollout and, in so doing, can make all urban land more affordable. And the new Auckland Unitary Plan allows for new development outside of traditional urban boundaries.

CDDs then provide a nice complement to other measures currently under consideration.

MUDs aren't just a way of unblocking an infrastructure financing constraint. They're a way of making the supply of local government services like infrastructure contestable - and making housing far more affordable in the process.