Tuesday, 23 May 2017

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.

Monday, 22 May 2017

Regulatory incidence and housing

Knowing a bit about tax incidence is useful if you want to be able to figure out what policies might help with Auckland's housing affordability issues. Here's me in last week's NBR:

Auckland’s housing markets are a mess but they are not the hell of perfectly inelastic supply. The burden of taxes and regulation in housing markets are shared between buyer and seller. If we expect that housing will become relatively more elastic as the unitary plan takes effect and as central government policy around infrastructure improves, then effects of other policies change.

Measures like rental warrants of fitness could actually provide net benefits to tenants – if we do not expect supply conditions to improve. But as soon as regulations around housing and infrastructure shift to allow more supply, then those same rules flip to making tenants worse off.

When supply is working properly, tenants sort into the quality and price tier that best suits their preferences and budgets. Rental warrants of fitness then at best compel landlords to provide what tenants were already demonstrating that they wanted, and at worst make rental accommodation too expensive for some tenants.

And so politics makes for strange policy bundles.

Labour proposes fixing regulation so that more housing can be built: abolishing the rural-urban boundary and improving infrastructure financing. But Labour’s promised Healthy Homes Guarantee makes the most sense if housing supply issues are not addressed. And if zoning and infrastructure are sorted out, there is little need for the government to be directly involved in building more houses.

Meanwhile, National has spent the past nine years avoiding fixing the underlying urban planning and infrastructure financing problems. It has blamed coalition politics but has remarkably managed to fail to take up those opportunities that have arisen.

Its general preference to avoid undue intervention into rental markets should really be coupled with policies that would allow new development.

Tax incidence can yield counterintuitive conclusions about who benefits from policy. A simpler question for voters to ask: will this policy make it easier for new housing to be built? If it does, then builders could get on with the important task of exercising their comparative advantage: easing the housing shortage.
Do subscribe, but you can read the whole thing here.

Thursday, 18 May 2017

Coming to the nuisance

I simply don't understand the mentality that leads people to move next door to music venues then push Council to shut them down. Even more baffling is why we have developed institutional arrangements that give every jerk a veto right.

Just read it and weep.
The Barrytown Hall - a popular venue for New Zealand music for at least 40 years - has been shut down after a noise complaint from a neighbour.

The rural village hall is well known on the New Zealand and international music circuit as an alternative live music venue.

Hall committee chairman Roger Ewer said because of one complaint the committee was now having to jump through hoops to resume staging live performances.

It has already cancelled gigs through until at least August, including the latest Arts on Tour offerings, which incurred a $1000 financial penalty for cancellation.

"It's ridiculous. One person can do this. We've got one person able to complain to stuff things up," Mr Ewer said today.

"It is very frustrating when I've been involved in these types of things since 1972 and there's never been a problem."

When the hall began to host live music the surrounding environment was totally rural.

He said the noise complainant was a relatively recent arrival in Barrytown, living in one of the former railway houses that were shifted from Otira to a site opposite the hall about 18 years ago.
This is what you get when you abandon common law coming to the nuisance principles in favour of a stupid Resource Management Act.

It gets worse.
The hall committee had considered a legal challenge but decided instead to work with the council.

"They seem to be quite responsive about helping us through it. We've gone along with their requests rather than fighting it legally, which we could have done."

They had been working on the basis of "existing use rights".

"It's interesting. It's turned out that they can impose a residential noise limit on us after 9 o'clock at night, which is ridiculously low."

Mr Ewer said the hall had now applied to adjust the decibel level in its consent.

Two affected residents opposite the hall had assented to the hall's application.

Another two households had declined and the hall also had to get sign off from absentee property owners.

"It's really stuffed things up and is losing us a lot of money."
Folks who put houses next to an existing music hall, or who move into them, should not have standing to complain about noisy music.

If we're moving towards increased intensification in urban areas, we likely need to get existing neighbours' use rights written down in the LIMs for the surrounding area - both so that buyers have no way of pretending that they didn't know that they were moving next to a bar or music venue, and to diminish their standing to complain about things that predated their move.

HT: Darian Woods, who notes that he had a great time performing there in 2008. Pity the fool who complains about hearing this from next door.

Monday, 15 May 2017

Uber Me

Morgan Tait has a great writeup at Newsroom on Uber's third (NZ) birthday. She includes a couple of bits from me.
Dr Crampton said Uber was ultimately an example of how new technology and business models could very quickly show gaps between the intent of a law and its seemingly outdated execution.

“They want a level playing field, the taxi industry is saying everyone should have the same rules but we need to step back and look at what the purpose of those rules are.

“The existing sets of taxicab regulations, the point of them is to make sure people are comfortable and safe getting from A to B.

“A lot of the things that the regulations are trying to achieve are already being achieved by the Uber app.

“So you have to think, should a level playing field be in terms of regulation or be a standard that the regulation should bring everyone up to?”
I'd hit on a couple of related themes over in our Insights newsletter recently:
I’m a fan of classic episodes of The Simpsons. In Cape Feare, Sideshow Bob sneaks a ride under the Simpsons’ car, with murderous intent. After an unpleasant ride, he steps out from under the car, and onto a rake. And onto another. Every time a rake hit him in the face, it got just a little bit funnier.

Watching the Transport Select Committee’s handling of Uber is funny too, but not ha-ha funny.

Back in November, Uber faced the Transport Select Committee. They should have had a lot to talk about. A lot of the rules around taxis are there to solve problems that really do not come up with app-based systems – and impose a lot of costs at the same time. Working through those details would have been a pretty worthwhile use of the Committee’s time.

Instead, the Committee seemed baffled by even the simplest details of how Uber works. They wanted assurances that Uber would not be picking up passengers trying to hail cabs at taxi stands. Uber’s Richard Menzies had to explain, over and over again, that their cars can only be booked through their app.

The government took some well-deserved rakes to the face from the press after that debacle, with the Transport Minister having to defend his “clueless” committee.

Maybe you’re an optimist and thought they’d have learned from that. And maybe you’d have thought Sideshow Bob would have stopped at just one rake.

Last week, the Committee released its report on the Land Transport Amendment Bill. The Report promised to update the rules to respond to emerging technology. But they kept the rule requiring drivers to keep paper logbooks. That’s Sideshow Bob’s second rake to the face. And keeping the rule that would require multinational Uber to be based here in New Zealand if it wants to operate here – that’s the third rake.

Sideshow Bob stepped on nine rakes before he was done. I wonder what the Transport Select Committee might think of next. Requiring Uber hire people to walk in front of their cars with a red flag? Mandatory “I am not a taxi” signs on the roof? Making Uber legal, but only if you book using a Blackberry? Maybe Ubers could be forced to carry printers to provide hardcopy of the emailed receipts.

There are a lot of rakes yet out there. Get your popcorn. 
They could at least change the rule requiring Uber's CEO to move to New Zealand. 

Friday, 12 May 2017

Friday Fun

This week's Insights 3 column takes on the case for breaking up the Commerce Commission's Competition Policy conference into separate competing conferences. A snippet:
The Commission’s 2017 Competition Matters conference has a stellar line-up – and a price that more than matches it.

The Early Bird price for the two-day conference is $1175, with a $1295 fee for later registrations. If we take a perfect competition benchmark, this kind of price discrimination would be impossible. And any difference between blackboard models and the real world suggests something foul is afoot. Something in need of investigation – and potentially action.

The programme lists two parallel sessions of speakers. Has the Commerce Commission inappropriately merged what could have been two separate and competing conferences?

Even worse, there is evidence that New Zealand’s Commerce Commission has colluded with Australia’s in this anticompetitive activity. The Australian Competition and Consumer Commission (ACCC)’s Commissioner, Roger Featherston, will be presenting with the NZ Commerce Commission’s General Manager for Competition, Antonia Horrocks, in a panel session inappropriately tying the two separate conference streams together.

Quis custodiet ipsos custodes? Who ensures the Competition Commission is not behaving anticompetitively? What agency might break up their cartelised conference so competition consumers might have more affordable seminars?

Thursday, 11 May 2017

Bad Bus Equilibrium

I don't see any way of fixing this one, but maybe you do.

Current Wellington bus rules have cheaper fares for students for a reduced class of carriage: if the bus is full, full-fare passengers get to sit and students get to stand.

That's all fine, but the resulting equilbrium isn't. Students clog up the path near the rear exit of the bus. Empty seats are behind them. Adults queue up in front of them, unable to reach the empty seats. And then the driver sometimes breezes past bus stops because, from the driver's perspective, the bus is full.

There are ways of solving it, but none of them work:

  • Simplest would be a norm where adults sat at the back first, kids sat at the front first, and then kids start yielding to adults (starting near the back door) as the bus fills up. I don't know how you get there from here. Also, some adults would resent having to walk past the kids. I wouldn't because efficiency, but others might. 
  • If high school kids weren't idiots, they would get out of the way by sitting in closely adjacent seats, let the adults move to the empty seats at the back, then resume their prior position. And we would all have ponies too.
  • If kids had to yield to adults on request rather than having to stand if there are adults unable to take a seat, that could simplify things - and especially if adults were sensible and made the request of kids at the back first. But it would conflict with Kiwi politeness norms around asking them to yield their seat, which then in a politeness-jamming equilibrium with the kids standing anyway to avoid having to be asked to yield, and we're back where we started from. 
File under "Trivial but sad and likely non-remediable imperfections of a world that's still rather good on the whole". Or First World Problems. But it was frustrating watching the usual mess unfold from the back of the bus this morning. 

In related Helpful Efficiency Tips for a Better World: unless you have good reason not to, always choose the seat that is currently most difficult to reach when entering a room or bus if the table/room or bus is likely to be close to capacity. Your sitting in any other place means somebody else has an even more difficult time of reaching the currently most difficult to reach seat. 

Wednesday, 10 May 2017

Rebel with a cause

I love Roger Beattie.

Weka are endangered, but they breed easily on his farm at Banks Peninsula. He's just prohibited, by dumb rules, against breeding them for profit. Whether this is DoC bloodymindedness, Vogonity, or refusal to be shown up by somebody doing a better job of conservation that DoC is - that's anybody's guess.

And so, annoyed with silly DoC rules around farming weka, Roger's making a point. He's adding weka feathers to some hats and selling them.

I apologise for the poor quality scan below - it's all I've got.

Farmed species don't go extinct. 

I look forward to Roger's eventual book, the promised title of which is "Why Bureaucrats are Bastards." 

Update: the toque comes with two tags. Read 'em. 

New Zealanders should be known as 'Weka' because they are closer to our psyche than Kiwi. Weka are a vulnerable species of flightless bird endemic to New Zealand. They are cheeky, outgoing and vivacious. We are using Banks Peninsula as a base for the re-introduction of the Eastern Buff Weka back into Canterbury. We fully support the farming of the Weka as a means of saving them from extinction. No farmed species has ever died out.

The Weka feather in our Weka Woo Hat symbolises our support to them.

Weka Woo Hat