Killing downtown

Regulatory uncertainty, delays in building approval, the central city cordon, lack of information about future building codes, and insurance delays really aren't helping prospects for a downtown recovery in Christchurch. Recall that somewhere around 60% of downtown buildings are being torn down and nobody in Christchurch gets any access to downtown while the demolitions continue; the cordon's not expected to come down entirely for rather a while. In yesterday's Press:

On Friday, the 14-storey Westpac building on Cashel St was approved for demolition, the last of Miles Middleton's four central Christchurch high-rises to be be pulled down because of quake damage. Middleton said he wanted to rebuild in central Christchurch, but without changes to the seven-storey height restrictions in the draft central city plan, he would be forced to take his insurance money to Auckland or even Brisbane.

"A lot of people that were keen to rebuild here have gone cold," he said. "I would love to rebuild here but at the end of the day I don't want to go broke."
...
Christchurch developer Ernest Duval, who fronts the CBD property group Core, said insurance money was already draining out of the central city, with owners who had been without tenants since the September 4 quake the first to look elsewhere to invest. "The simple solution for many property owners is to take their money elsewhere to restore their income stream," he said.

Most central Christchurch property owners were not developers and would rather buy a building in Auckland than grapple with a consents hearing, tougher building standards and the ongoing shadow of possible Government intervention in Christchurch, he said. Others simply could not afford to wait until the central city reopened in April next year, Duval said.

I don't entirely buy that delays of a up to a year wind up being the critical issue; if Christchurch's downtown is likely to be viable, I would have thought that developers could have thrown insurance money into bonds or term deposits while waiting to rebuild. But more plausible is that the set of restrictions and uncertainty just makes Christchurch a less attractive investment option; the added delays then help tip folks to take their investment elsewhere.

One bit of slightly good news:

Christchurch City Council has moved to douse concerns about the draft plan. At a meeting with property owners this month, council strategy and planning general manager Mike Theelen said owners of multi-storey building would retain the rights to rebuild to the same height. Theelen was unavailable for comment at time of print.

Two problems with this though.

First, if the grandfathered right is restricted to the location of the former building, we have the somewhat perverse result that you can only build really tall buildings in the places where really tall buildings did really poorly during the earthquake. Sure, we can fix some of that with better site compaction and stronger and deeper foundations. But if tall buildings are a bad thing due to earthquake risk, requiring that they be built in the place where old ones fell over seems a bit odd.

Second, if the right stays with the owner but isn't site-specific, why oughtn't we just let anybody who wants to risk his own money building a tall building that meets code go ahead and do it? I can get that we want to compensate those from whom Council has confiscated wealth through regulations barring that they replace a building with one of like quality, but if we're doing that by letting folks rebuild rather than giving them cash, it kinda suggests that there isn't any great reason for the six story building limit (or seven if you're green enough!).

Meanwhile, Labour's proposed an earthquake recovery policy [unconstrained by any prospect of forming government] that includes this bit:

"Under Labour's plan to acquire 1500 sections, the cost of buying and readying the land for rebuilding will be recovered when it is on-sold to Red Zone residents who have been paid out from the Canterbury Recovery Fund.

"We will do this at cost to keep the price low so as many residents as possible can make a fresh start without suffering extreme financial hardship.

"It is expected our plan will act as a signal to the market and help keep property prices reasonable in other areas.

"We will not rule out using the Canterbury Earthquake Recovery Act to purchase land in the face of any evidence of price gouging by developers if that is needed to ensure a fair price is sought and paid."

Ok. The main constraint keeping land prices up is the supply constraint stopping people on the edge of town from subdividing. There's plenty of land within reasonable driving distance of downtown that could be opened up for Red Zone residents if only the land were zoned for denser residential use. Wouldn't it make more sense to get rid of a regulatory barrier to building than to have government purchases help to bid up the price of inelastically supplied sections? And I can't see how it's helpful to threaten losses on developers working to build new houses for folks in the Red Zone by promising to intervene in property markets if prices don't meet Labour's standard of fairness.

Labour also promises that the insurance standoff would be resolved: insurers won't take on new policies in Christchurch, partially because, as I understand things, the reinsurers won't touch new policies until the aftershocks ease off. I really wish I knew more about what's breaking insurance markets currently. I can believe that an actuarily fair premium right now would be very high for the next few months and that some reinsurers would sooner delay than be viewed as profiteers. I'd expected that some uncertainty had been resolved by the recent court decision finding that EQC takes the first $100k of all earthquake claims on a property rather than of the cumulative total damage to the property. But that's not yet seemed to open up the insurance markets.

An interesting error

I'd last week wondered whether long term decline in celebrity search interest predicts release of private photographs.

Turns out, my results were wrong. I'd provided search traffic data on "Scarlett Johannson", not on "Scarlett Johansson". The former, a typo, had long term decline, followed by a surge in interest with the release of artistically-shot nude photos from her cell phone; the latter has a noisy but flat long term curve with, again, a massive spike in search interest with the photo release.

In my defence, I'm not the only one that got the name wrong. This one's funny as the misspelled name in the Washington Post headline is matched with a cover of GQ (as part of the WP story) where the name is spelled right.

The graphs are up as an update to the original post.

It's interesting that the version with the typo has long term decline while the correct spelling has noisy but stable interest: the proportion of people interested in searching for Scarlett is increasingly made up of folks who know how to spell her name. But, with the photo release, we get a spike in all searches on the name, including those spelling it incorrectly. Unfortunately, you can't compare search volumes unless you put them on the same graph; when you put them on the same graph, volume on the typo normalizes to zero for the period prior to the photo release, after which it increases to 1 (searches on the properly spelled name normalize to 100 with the photo release). It would be mildly interesting to see if a greater proportion of searches post-photo include the typo.

Cowardice?

Every set of polls for the last year have National comfortably able to form the next government. The most recent ones have National able to govern alone. iPredict says that National has a 94% chance of forming the next government and is likely to take 49% of the List Vote; Matthew Hooton (a known National sympathizer, but likely right here) suggests the Vote Share market prediction is on the low side. Full disclosure: I'm heavily long on National.

The Retirement Commissioner made the modest suggestion that the age of eligibility for government-provided superannuation be raised by two months for every year from 2020 until 2033, at which point the age of eligibility would have risen from 65 to 67.

That's exactly the kind of recommendation that should be easily implemented given political constraints. Financial problems from Superannuation obligations obtain in the medium to long term. Moving now to commit the plan to starting hiking the age of eligibility in eight years' time, and then with only very mild annual changes, hardly seems politically courageous. Indeed, it's the kind of thing where a government could position itself as caring about the longer term with very little political cost. Even someone expecting to retire in 2020 has eight years to save up enough to prepare for a two month delay in eligibility.

What does our Prime Minister instead do? Rules out the changes he easily could have sold as desirable or at least have fobbed off on the Retirement Commissioner.

Speaking on TVNZ's Breakfast programme this morning, Key said raising the age wasn't a straightforward exercise. “If you’re in a desk job, it might be imminently possible that you could work to 66 or 67, and in fact, one in four people do work aged over 65 in some form or another – part time or full time," Key said.

"But actually, if you’re in a manual job, by the time you get to 65, that probably is a very legitimate age to retire. So it’s not quite as straightforward as saying across the board the age is just going up,” he said.

Asked whether National would look at look at these issues if re-elected, Key said he was comfortable with the current policy settings. 

And so if he thinks about changing his mind next term, Labour's next leader will hit him for breaking promises (even if it's not quite a promise); if he sticks with stupid policy, those who normally don't like stupid policy will back him up saying it's more important that he not do anything scary or back down on what could have been viewed as an election commitment.

I can't tell whether Key's a coward or whether he's deliberately leaving room on the right so that ACT doesn't disappear. If it were the latter, wouldn't we expect that National would have given ACT at least a couple of political concessions this past term?

See also interest.co.nz on other bits of the Retirement Commissioner's recommendations that National's ruled out...

Which came first, the marketing or the policy?

I'm a huge fan of Yes Minister. "Hollowmen" seems to be the Australian equivalent set where the bureaucracy sees its job as keeping the Government in office rather than as keeping the Government from messing around with its prerogative. Kinda like Canada under the Chretien Liberals. Commenter "V" pointed to this particular bit of awesomeness, for which I thank V.



I'm going to have to buy the series. If this clip is representative, it's wonderful. All the stuff I recommend as what not to do in honest cost-benefit analysis taken as recommendation as to how to sell a policy.

Searching for Scarlett [Updated]

Update below: scroll to bottom please. Yesterday's Twitter feed brought news that Scarlett Johannson's phone had apparently been hacked and that nude pictures had been posted on the web. Let's see what Google Insights for Search can tell us.


First, we can see a long decline in search interest after a peak in January 2006. There have been spikes along the way, but the trend isn't good for Scarlett if search interest correlates with other measures of star appeal. But see that little up-tick at the end? That's what happened after the apparently fairly tame (I haven't looked, honest) pictures found their way out of her phone and onto the web.

Let's zoom in on the past year:


I wonder whether long term decline in search interest can predict whether nude pictures or sex tapes accidentally find their way onto the web.*

Apologies if the embedded graphs suffer a form of link-rot; it seems not to let me embed particular date ranges but rather only "2004 to present" or "last 12 months". If the effect looks odd and you're reading this sometime after the post date, just hit the link back to Google and restrict the search range appropriately.

* You might also wonder whether bloggers that put some value on inflating SiteMeter stats have incentive to come up with excuses to add words like "Scarlett Johannson" and "nude" into their posts. And I would be shocked! if you thought that such considerations ever entered my mind. I'd tweeted yesterday predicting a spike in Search Insights; I'm today pleased to see the prediction bear out. Nothing more. If you've come here searching for "hot nude photos of Scarlett Johannson", I'm sorry to have disappointed. But folks with such prurient interest might like to check out my posts on the economics of pornography and of prostitution, though I promise that those posts are only intellectually titillating.

UPDATE: The results above are erroneous. Why? Because the search above includes a typo. If we search on "Scarlett Johansson", the proper spelling of her name, instead of "Scarlett Johannson", we get a different picture. Instead of long term decline, we get a noisy stable level of interest:
The massive hike in interest with the photo release is real though. Just look at the numbers for the last year:

Earthquakes and monetary policy

From today's Monetary Policy Statement, in which the RBNZ (as entirely expected, and as entirely reasonable) did not change the interest rate:

Repairs and rebuilding in Canterbury will have a substantial influence on the New Zealand economy.  Construction sector activity will be boosted for several years, creating resource shortages in the building industry and other parts of the economy more generally.

The eventual volume of repairs and rebuilding is highly uncertain. Since the March Statement, the Bank has based its projections on a working assumption of $15 billion of reconstruction in 2011 dollars. Recent assessments from the EQC and additional damage from aftershocks have highlighted upside risk to this working assumption. As a result the Bank has revised up its working assumption to $20 billion. The Bank will continue to update this assumption as more information becomes available.

While some properties have been repaired, so far only limited rebuilding has occurred. Continuing aftershocks have hindered planning and building, and made it very difficult to secure insurance for new buildings. It seems unlikely that construction sector activity will pick up as soon as was projected in the June Statement. The updated projections assume major aftershocks soon cease, allowing EQC contractors to step up repairs on moderately damaged properties from early next year. Furthermore, seismic stability would be expected to help free up the private insurance market. It is assumed that rebuilding of severely damaged properties gets under way from the middle of next year.

In terms of the influence on monetary policy, it is the pace of reconstruction and the resultant degree of pressure on resources, rather than the eventual magnitude of reconstruction, that will have the greatest influence on interest rate settings. It is unclear how rapid reconstruction will be.

Earthquakes do bring spending. But only with long and variable lags. Even leaving aside wealth and capital destruction, the unavoidable uncertainty induced by ongoing aftershocks imposes large costs. Nobody knows when they'll be able to rebuild. Add on top of the natural and unavoidable uncertainty the regulatory uncertainty induced by that Council's still deciding who will be allowed to rebuild where and subject to what building codes. Earthquakes just don't seem that great a Keynesian policy prescription.

There's a limit to the extent to which resource shortages in building will wind up generating resource shortages; at least some of the supply pressures in construction will likely be handled by importing workers from a flagging Australian construction sector. Wages will be bid up to the point at which Kiwi construction workers in Oz come back home.

I would like to revise one prior post where I had things partially wrong. I'd not been pleased that the Earthquake Commission's asset base consisted largely of New Zealand government securities and suggested foreign investments as preferable, or at least a portfolio the value of which ought to be higher after an earthquake: construction companies and the like. An earthquake large enough to require EQC's portfolio liquidation would, I'd thought, cause the Kiwi dollar to tank with an NZ credit downgrade. I'd missed that reinsurance inflows would push the dollar higher. So I'd retract the part where I suggested a strong foreign-bias in the EQC investment portfolio; reinsurance inflows for anything big are going to dwarf the currency effects of EQC portfolio liquidation. But it still seems a bad idea to have EQC having to sell off a couple billion dollars worth of NZ government securities at the same time as the government has to go to the debt markets to cover the parts of earthquake cost for which government has assumed responsibility.

Rugby Benefits

The latest Rugby World Cup benefit estimates has this gem:

If New Zealand is able to capitalise on their hosting of RWC 2011 to attract more events, as well as developing its reputation as a destination for sports tourism, combined with continued development of domestic involvement in sport related activities, the longer term impacts could be:

Consumer expenditure in the New Zealand sport economy by the end of the decade:
     US$1 billion (NZ$1.2 billion)
Sport-related economic activity in the New Zealand sport economy by the end of the decade:
     US$11.7 billion (NZ$14 billion)
Number of people working in sport-related occupations in New Zealand by the end of the decade:
     Between 52,000 and 58,00

You sure can pack a lot into conditional statements. If we make a whole pile of other investments of unquantified cost, the long-term benefits of the Rugby World Cup (ignoring the costs of those ancillary investments) could be huge!

The big numbers have been getting a fair bit of press. Note that they're aggregated over a decade with no hint about whether any kind of time discounting's been used. Maybe that's the expected horizon of effects, or maybe it's just a convenient period for getting a big number. And never mind that "economic activity" doesn't have any particular connection with benefits: you have to net costs from measures of international visitor spending to get the activity's benefits.

They say international visitors, net of substitution and time switching, will provide consumer spending of $411 million that would not otherwise have taken place. But again, that's not net of the cost of providing services. And, if it includes visitor spending on tickets, the only way it counts as a benefit is by defraying the costs of hosting the thing; in the absence of the RWC, that portion of spending would disappear but so too would a not unreasonable quantum of cost.