Welcome back to Sunday reading. This week, let’s start off with an impressive rant from Newshub reporter Lachlan Forsyth: “Auckland’s housing market is broken and it’s a lie to deny it“:

Why is an entire generation being shut out of the housing market? Did all those people suddenly up their expectations? Or was it because supply dried up, and house prices started rocketing?

Auckland needs 13,000 houses a year, for the next 30 years. We’re currently building about 8,000. By 2018, it’s estimated the shortfall could rise to 25,000 homes.

Anyone denying it’s now harder to buy a house is lying, stupid, or quite possibly both.

Older generations, you know, the ones who received free healthcare, education, and superannuation for their ENTIRE LIVES, now sit snug in their homes, enjoying tax-free, triple-digit capital gains; while subsequent generations are being left out in the cold, watching helplessly as their home ownership dreams dissipate into the air.

Let me simplify things even further. They’ve done okay for themselves, pulled up the ladder behind them, and are now blaming their kids and grandkids for the situation they find themselves in.

“Lower your expectations!”

“We started at the bottom of the ladder!”

“Interest rates were much higher back then!”

A question: at what point did half-a-million dollars become synonymous with affordable? When did ‘affordable Auckland housing’ come to mean a house in Waikato?

Those who advocate urban sprawl bemoan the cost of the infrastructure and connections that requires.

“Building on the city fringes is so expensive! Better sell some assets!”

But any plan to intensify within the city, where utilities and infrastructure already exist, is met with further opposition by those who don’t want to see their lifestyle or leafy neighbourhoods impinged.

“Build out, not up! Why ruin the city with three-storey apartments?!”

Forsyth makes an excellent point on the political economy of urban growth that I seldom see people acknowledge. Current homeowners have little incentive to vote for intensification, as constraints on housing supply keep their property prices high and reduce change in their area. But they have even less incentive to vote for lots of urban sprawl, as it means paying higher rates (or central government taxes) in exchange for a policy that will, if it succeeds, reduce the value of their homes.

In the long run, I wonder whether solving these issues will take new governance models and policy tools. That’s what US law professor David Schleicher argues. The Economist, which takes an interest in urban planning from time to time, reviews some of his ideas:

Most onerous planning restrictions reflect the difficult political economy underlying urban growth. Would-be migrants to rich cities stand to benefit handsomely from access to lucrative jobs, but lack a political say in the places that are building too little. Within cities the balance of costs and benefits favours NIMBYs. Everyone in the city stands to gain from growth; productivity in skilled cities rises with population, so when more people move in, all workers’ incomes should rise. But the gains from any particular property development are relatively small and thinly spread, whereas the costs are highly concentrated.

Those in the immediate vicinity of a big new project must put up with noise and other inconveniences during construction, and increased competition for parking spaces and places in good schools after it, not to mention blocked views. Because affected residents live near each other and often share local-government representatives, the cost of organising opposition to new projects is low (and the motivation to do so is high). Even those who see urban growth as a positive have strong incentives to oppose development in their own backyards. Since almost every part of a city is someone’s backyard, far too little construction takes place.

Clever policy, however, can help balance the concerns of NIMBYs with the broad benefits of growth in productive places. One approach is simply to neutralise local opposition to development by compensating neighbours for the costs they bear when new construction is approved—to bribe, them, in effect. David Schleicher, a professor of land-use law at Yale Law School, has proposed the use of “tax increment local transfers”, or TILTs. New buildings normally generate extra property-tax revenue for the city once they have been completed. Some portion of the expected rise in the tax take associated with a proposed new development (the tax increment) could be promised to nearby residents in the form of a temporary property-tax rebate, scheduled to last ten years, say, if the development went ahead. As Mr Schleicher notes, TILTs would enhance the signalling value of local opposition to new projects: residents who fight against a proposed development despite the prospect of direct financial gain from it are more likely to have reservations worth addressing.

Interesting ideas. If they worked, they could make a big difference to the way our cities functioned. They could, for example, bring us back to the halcyon days of the early 1900s – a period in which we simply built more (tall) buildings. Michael Andersen at Bike Portland reviews the historical record:

Portland’s “huge population boom” and “explosive growth” have driven such a painful housing shortage that it’s not uncommon these days to hear Portlanders wish the city would stop creating so many jobs.

Since 2008, the city’s population growth rate has been about 9,000 net new residents per year, or 1.5 percent.

But when many of the buildings that continue to define northwest Portland were built, Portland’s population was growing by 7 percent every year for years on end. In the decade of the 1900s, the city that started at 90,000 residents added 11,679 new ones every year on average…

Portland’s situation wasn’t unique. Seattle grew even faster in the same decade, and Los Angeles faster still. San Francisco’s similar boom came in the 1870s. For St. Louis it was the 1850s; for Philadelphia the 1860s; for Chicago the 1890s; for Detroit the 1910s.

How did cities survive population booms four or five times larger than Portland is going through today?

And why, somewhere around 1920, did U.S. cities never see population booms again — even in an age of deep geographic inequality that is watching smaller cities like Urbana, Illinois continue to shed jobs while some bigger ones, including Portland, add them hand over fist?

You can see the answer any time you ride a bike through northwest Portland. Growing cities built and built and built — because until 1920 or so, there were no laws that said you couldn’t.

2110 nw flanders 1908

2110 NW Flanders, built 1908.

120 nw trinity 1912 21-50
120 NW Trinity, built 1912.

Incidentally, Auckland’s a bit different than Portland (and the other west coast US cities)… it was a comparatively slow starter. A quick look at the urban population database produced by Motu a few years back suggests that Auckland’s growth – in terms of added people per year – accelerated after World War 2 and is now accelerating again. However, growth in percentage terms was much, much higher in the early part of the 20th century – between 1901 and 1926, Auckland’s population grew at an average of 4.3% per annum. Big changes.

On a completely different note, it turns out that people react differently to you depending upon how you solve the trolley problem. (No, not Auckland LRT, although we’re always looking for new answers to that one!) Cornell University researchers have been studying the social implications of classic moral dilemmas:

Imagine that an out of control trolley is speeding towards a group of five people. You are standing on a footbridge above, next to a large man. If you push him off the bridge onto the track below, his body will stop the trolley before it hits the five people. He will die, but the five others will be saved. Should you push the man off the bridge?

Before you make your decision, you should know that your popularity could depend on it. According to a new study of more than 2,400 participants, which we carried out with David Pizarro from Cornell University, the way you answer the “trolley problem” can have a big impact on how much people trust you…

Statistically, more people think that it’s wrong to push the man off the bridge to save the five others. On one level, this makes sense – we shudder at the thought of a friend or partner doing a cost-benefit analysis of whether you should be sacrificed for the greater good. So why do more people prefer this rule-based approach to morality?

Some scholars have argued that deontological intuitions arise from “irrational” emotional responses. But we thought there might be another explanation: namely, the power of popularity. We proposed that if people who stick to moral rules are considered to be better social partners, that might explain why more people take a deontological view.

There probably aren’t too many implications for transport policy, other than the obvious, which is to design transport systems that don’t kill people.

Elsewhere, a seemingly new blog (The Aspiring Economist) writes a good review of an essential paper on the New Zealand economy: Phil McCann’s “Economic geography, globalisation, and the New Zealand productivity paradox“. Worth a read:

This leaves us with some kind of a puzzle: New Zealand has been outperformed by comparable OECD peers but pursues best practice in many regulatory and institutional areas, as assessed by the Doing Business and World Governance Indicators. This phenomenon is also known as New Zealand’s productivity paradox

What McCann argues is that New Zealand’s position in the international marketplace has worsened in the globalisation era in which the world has become flat. The cause for this worsening is New Zealand’s unusual economic geography compared to other advanced economies. What do we mean by ‘unusual’? Hendy (2010) names four indicators for New Zealand:

  1. Low population density
  2. Large share of primary/ agricultural goods in exports for an advanced economy
  3. Low export diversity compared to other advanced economies: New Zealand’s Export Diversification Index were at 2.28 in 2010 (IMF, 2014)
  4. High geographical isolation

Let’s look at this in more detail. Where is the link between these indicators and the productivity paradox? For McCann this stems from the fact that there are low value-added and high value-added goods in today’s international marketplace. For the former he assumes falling spatial transaction costs in the era of globalisation. For high value-added goods, however, spatial transaction costs have actually increased coupled with increasing economies of scale…

While we’re on the subject of economists, Paul Krugman had some pretty interesting thoughts on policies for addressing climate change. His key argument is that we shouldn’t avoid implementing workable policies in favour of theoretically pure ones:

Econ 101 tells us that if you want to reduce emissions of a pollutant, the most efficient way to do that is to put a price on emissions, so that all possible routes to reduction are taken, and the marginal cost is the same for all routes. It’s a real insight, and has had positive impacts on real-world policy — cap-and-trade has worked very well at reducing acid rain.

That said, there are reasons Econ 101 may not be right here. There is some evidence that consumers aren’t hyper rational when it comes to conservation, that they may pass up conservation opportunities even when it would save them money — and in that case rule rather than prices may be the right way to make them change. And to the extent that we’re talking about innovation, the Econ 101 case says nothing at all: the efficiency case for carbon pricing is about making best use of existing technology, not about providing incentives to develop better technology.

But leave all that aside, and ask: how *important* is it that our carbon-emissions strategy take the form of a universal or near-universal price on carbon?

The answer, in principle, is that it depends on the complexity of the required response. If reducing emissions really has to involve moving on many fronts, anything that looks like an administrative solution — telling, say, power companies what to do or not to do — is going to be much more costly than carbon pricing that exploits all the possibilities. But if a large part of the solution is going to involve a fairly limited set of measures — such as putting a quick end to the practice of burning coal to generate electricity — getting to broad-based carbon pricing is much less central.

Krugman’s really just elaborating on the implications of the “theory of the second best” in climate policy. But this is an insight that has broader applicability – say, for transport policy. I’ve argued in the past that efficient congestion pricing would be a great “first best” solution to many problems of urban transport. But there are a number of practical roadblocks to actually getting there – not least the cost of setting up a congestion charging system!

Does this mean we have to give up on the idea of efficiently managing congestion? No, not necessarily. But it might mean cobbling together a raft of policies that look unrelated at first glance – a mix of transformative investments in rapid transit and cycling, bus lanes or high-occupancy-toll lanes on more roads, and changes to parking policies. Could be interesting.

But is congestion really that bad? That’s also a good question. The fact that so many people participate in it suggests that perhaps it’s not as big a problem as we assume.

Over at Vox, Libby Nelson does the maths on Free Cone Day at the Ben & Jerry’s ice cream chain. It’s a classic value of time question – people spend time to get something (an ice cream cone) that they could buy instead. But is it worth it?

Even if the federal government is right, and a half-hour of leisure time is only worth $6.45, that’s still more than it would have cost to just buy the ice cream cone another day and use the time to do something more fun than standing in line.

But the cold economics of the value of time don’t allow for the joy of getting something for free that you’d otherwise have to pay for. And, yes, there’s psychological research to back up the commonsense conclusion that people love free stuff.

In a paper written at the Massachusetts Institute of Technology in 2006, Kristina Shampan’er and Dan Ariely argued that people like free stuff so much that they don’t just think of it as a smaller price to pay, but as an added benefit.

According to Shampan’er and Ariely’s research, a free ice cream cone isn’t the same as an ice cream cone you paid for — it’s better. And that means that wasting your time standing in line for it might mean you’re still getting a pretty good deal.

This has important implications for congestion pricing. Feel free to discuss in comments!

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    1. In todays Stuff is a piece arguing that NZ Exporters should “get on the grass”.

      Grass in this case being Medicinal Marijuana.

      However, due to the present governments position on legalising the substance for medical or any use, that certainly won’t happen here any time soon I and they expect.

      Big question is really how much money it would make NZ as an export crop [compared to any other crop we grow and export now].

      Because shipping bulk (unprocessed) Marijuana leaves around the world in containers to other countries is probably a non-starter for all sorts of valid reasons, it would have to be processed on-shore in NZ first [say into a oil/concentrate] before being exported. So this would probably mean NZ Inc could capture more of the value-add from doing so which is good. As far too much of our exports leave too much value add on the table before exporting.

      The Poster children for all this is of course California and recently Colorado which legalised personal consumption and makes about $113 million in [sales] taxes currently from doing so.

      However, whatever the value per tonne of medical grade dope processed in to oil, (indications are about $USD20m “retail” per tonne at $20-$60 USD per gram of oil/concentrate – and 1 million grams per tonne).
      Say “wholesale” is only 1/4th of that. $5m USD per tonne.

      However thats currently a smallish market I’m sure, so for sheer bulk profit making, the profits to be made from that crop won’t come close the money you can get from Organic Dairy milk powder – about 7 times the current price per tonne of the regular stuff I heard recently ($USD14,000 a tonne).

      If 1/4th of our dairy farms converted to fully Organic, we’d double level of export receipts for that alone. Of course, costs per tonne would also higher, but at 7 times the price I’m sure it won’t be 7 times more expensive to produce over the regular stuff. Which we’re told loses farmers money for every tonne they make currently. So all up Organic dairy farmers could make more money with smaller herds.

      But maybe we should get a head start by combining the two – grow (organic) Marijuana, have the organically raised cows feed on it and organic grass exclusively, then process the resulting milk into Medical Grade milk-powder, and export that as both Organic and Medicinal.

      Might be worth maybe $500K per tonne? Might kick start a whole new industry of folks “smoking” milk powder for their hits.
      Or let you give your morning latte an extra bit of kick in the morning.

      1. We should formulate and manufacture cannabis-derived medicinal products here, to capture most of the value chain. Much like cheese or neutriceuticals are a smarter export focus than bags of raw milk powder.

        1. Tasmania makes $80 million -$100 million per year from poppies grown for pharmaceuticals. There is a cost in securing them and a few idiots die from brewing a tea from them but it is a high value crop. As you say we can do better than milk powder.

      2. Interesting idea, not sure how easy it will be herding the cows to the dairy shed in the morning if they are high though.

  1. I don’t get why I as a property owner want to see increasing prices…

    1. if i want to improve, the gap is wider. e.g. if my “C grade” house cost 100,000 and then an “A grade” cost 300,000 that’s only a 200k extra mortgage. Doable. But if my C grade house bought for 100,00 is now worth 500,000 and the A-grade is now worth 1,500,000 then that’s a 1m mortgage. Growing house prices are terrible for everybody, because you can’t spend your house’s capital value (you can BORROW against it, sure), and if you sell/rebuy you are doing so in the same market.

    As a house owner, I want to see lower prices, so I don’t feel “trapped” in the same house.

      1. Even then, you face essentially the same dilemma: “You mean I have to pay more rates so more people can occupy the pleasant fields next to my city? Nope, not voting for that, they can go elsewhere instead!”

  2. As wild climate events and patterns become more prevalent, we’ll need to implement first-best solutions as well as second-best, and throw more than Econ 101.

  3. The trolley problem depends on your view of ethics and morality. If you view yourself as a demigod who gets to make everyone else’s decisions for them you will probably thinking pushing the man off is fine- justified on the basis of a greater good even. But if you figure the 5 people in danger have an obligation to try and save themselves and understand that the man’s life is not yours to take then you won’t push him. It is more a test of how you view your own position in society rather than right or wrong.

    1. In the case of autonomous vehicles, “you” is Google, Tesla, or whoever did the programming. What is their view of ethics and morality, or their position in society? Demigod, or what?

    2. The trolley problem is a simple deontological/consequentialist quandary. You can always spot those sneaky Kantians

    3. I think you’ve taken a somewhat easy-out there mfwic, i.e. the trolley problem is a situation where the other people could possibly avoid the situation themselves. It’s easy to imagine other situations, however, where the same moral dilemma would exist but where the other people (who would be negatively affected by your inaction) wouldn’t have any foreknowledge. What would you do then?

      More broadly, I think both Kantian and Utiliatarian philosophical perspectives have some value. And I think it’s perfectly reasonable for people to be individually Kantian, while simultaneously expecting our collective institutions to adopt more utilitarian approaches while working within certain normative bounds. E.g. I’m happy for Pharmac to say we’ve got $XXX budget for YYY, even while individuals wouldn’t normally put a value on a life. The other philosophical perspective that should be mentioned is virtue ethics; I think a lot of what drives people’s sense of right and wrong is relative to shared notions of what constitutes “virtuous actions.”

        1. I guess that depends on how you view the philosophical contributions of people like aristotle and aquinas? And to what end your ethical philosophy of choice is to be used.

          I would argue virtue ethics best predicts actual human behaviour, and in particular how such actions are viewed by others. Do you think its more likely that people wouldn’t push the man on the tracks because to do so would violate 1) Kant’s golden rule or 2) an ingrained sense of virtuous actions? #2 seeks more plausible to me.

          Virtue ethics also provides some sociological flexibility to what constitutes “ethical” decision-making, which kantian and utilitarianism lack due to their focus on a single rule to guide ethical behaviour. In this way virtue ethics can accommodate variation in ethical norms between cultures, which the others struggle more with.

          Ultimately id expect most people to deploy a combination of all three ethical approaches in real life. Such is life!

      1. As you say “It’s easy to imagine other situations, however, where the same moral dilemma would exist but where the other people (who would be negatively affected by your inaction) wouldn’t have any foreknowledge. What would you do then?,

        How do we fix our transport needs in a world where we don’t recognize the problem, we use many energy slaves to transport us who will be dieing off later this century, we could save them but we would have to suffer hardship and sacrifice our own needs to save them.

        1. Not sure what you’re asking. But i agree that whatever you consider to be ethical behaviour is something that should be applied consistently. Don’t forget that people operate within time, money, and information constraints, under which ethical behaviour (however defined) can be more challenging. Personally i take a fairly liberal approach to trying to reduce my own social/environmental impact, without going cold turkey on things like oil. Because to consume none would be, well, difficult right now!

          1. Looking at the dilemma from a personal point of view, then the fat man is “transport” and oil in the form of the 128 slaves per gallon of petrol or diesel it will save if we kick him of the bridge, the oil industry has said we have about 50 years of oil at present consumption, that’s not long to find an alternative and build the infrastructure to replace it, we won’t do it if we waste the very thing we need to build the replacement energy slave supply.

            What the oil industry is not saying is how much energy returned on energy invested is going to drop during that time and how they will manage oil depletion because it King Hubbard is right oil will follow a bell curve and start to decline, we will never run out of oil just won’t have enough for our needs.

            From memory I used the figure of 128 energy slaves per US gallon

      2. It isn’t the easy out. It is fair to ask by what authority some Joe standing on a footbridge gets to act in a unilateral manner with other people’s lives. Lucky for us we don’t live in that world. The mistake the researchers make is in assuming five lives are worth more than one so that must be the right answer and the rest of us are somehow flawed for not seeing it- we are either irrationally emotional or we are craving popularity. Maybe the right answer is dont purposely try to kill someone regardless of the potential ‘benefits’. If 5 people loitering on a trolley track are in danger that is certainly not worth the life of one ‘large man’ using a footbridge. The essence of the problem is to appeal to the reader’s own ego or narcissism. “You are so important and looking down on others what outcome do you choose”?

        1. “The mistake the researchers make is in assuming five lives are worth more than one so that must be the right answer and the rest of us are somehow flawed for not seeing it”

          I’m not sure you got the point of the article. On my read, the researchers weren’t saying that there was a *right* answer, they were trying to understand how people reacted to others *conditional* upon how they had answered the question.

          Intellectually, I can see how there may be a case for either response, but I’m probably not going to go around pushing people onto train tracks either.

          Ultimately, this is why people invented bureaucracy (in all of its public and private incarnations): to allow people to choose to sacrifice one to save five (or vice versa) without feeling as though they’d shoved anyone on the tracks.

          1. I have reread and you are right I missed the point. Reading further there are a number of variants of the trolley problem. The one stated above is the so called ‘fat man’ version by Judith Jarvis Thomson. https://en.wikipedia.org/wiki/Judith_Jarvis_Thomson In other versions you can pull a level to send the trolley into a sand pit but there is a man there who will die. The so called doctrine of double effect says its ok to do things with bad side effects but wrong to do them intending harm. A lot of people say it is ok to pull the level but not ok to push the fat man. But my original criticism holds. The dilemma relies on getting the respondent to think they are in charge of the fate of others, when more realistically we are in charge of ourselves and shit happens. To then infer an evolutionary cause seems a stretch when the whole thing requires you to imagine you have a God like status before you can answer.

          2. When this was brought up in an eithics class I took many moons ago, they specifically outlined a scenario where neither the crowd of five nor the fat man could be aware of their predicament, and none had the opportunity to avoid it or act for themeselves. Something about a trolley car conductor who has a split second to act before the thing rolls into a footpath full of people. So no easy out of neolib personal responsibility “their fault if they die”, and focusing on whether an act of commission to kill one is better or worse than an act of omission that kills five.

        2. I don’t think there is a right answer. But i personally wouldn’t feel comfortable hanging out with people who would push someone onto the tracks.

          I do however want our collective institutions to act in a utilitarian fashion. Provided they are required to observe some boundaries defined by kantian/virtuous norms.

          1. Stu, I am (assuming) from your posts you know your political philosophy.

            Bentham begat Mill, who begat Hegel, who begat Marx. If you want a utilitarian political system, you need socialism. Just sayin’

          2. And I know enough political philosophy to know that Marx was extremely ambiguous about what socialism would mean in practice. His intellectual heirs included both extreme statists (e.g. Lenin) and critics of statism (e.g. Kautsky). They also include social democratic parties throughout the developed world, most of which were influenced by Marx’s thought but which have also gone on to implement wildly divergent policies.

            So even if we agree on socialism, it’s not necessarily clear what that means in practice. I’m firm on one thing, though: no Stalin.

          3. EC, assumptions are the mother of all screw ups, so I wouldn’t assume I know anything at all. Sceppticism is essential, and one should be especially sceptical of one’s own knowledge simply because human ego prompts us to go easier on ourselves than others.

            I have to say: Your comment is rather curious given the reality of the legislation that we already have.

            That is, New Zealand’s legislative frameworks already blend Kantian and Utilitarian ethical philosophies. In terms of the latter, which you allege naturally leads/requires socialism, Pharmac is a good example. I’m personally happy that Pharmac is funded on the basis that it invests in the treatments that deliver the best outcomes per $$$ spent. This cold-hearted utilitarian benefit-cost analysis, however, is complemented and managed within a legislative framework that allows for other considerations. So it is perfectly possible for the government of the day to identify additional funding to fund particular treatments if it so chooses. What is not possible is for the government of the day to direct Pharmac to fund particular treatments. I think that’s an appropriate balance of power.

            If you can’t understand that our legislative frameworks already incorporate aspects of utiliarian and kantian thinking, then I”m afraid you’re living in something of a thought bubble. Now there is a debate to be had about whether our current legislative framework has struck the right balance or not. But you can’t simply say that utiliarian outcomes can only be achieved via socialism.

            I’d suggest you think about this a bit more!

  4. Housing was affordable for young families in the post war period simply because it was in new suburbs – Massey, Papakura, Manurewa, Glenfield, etc, and the government was an active partner in the housing market through the State Advances Corporation. Those loans, at well below the going interest rate, were available to first home buyers, and the Family Benefit payments could be capitalised on for first house payments. But once you sold that home you had to fall back on the private lending market – the banks weren’t that interested in those days – with its interest rates in the 20 percent region. The whole market was orientated towards the first home buying young families, with large swathes of pretty unimaginative group-housing areas springing up. The inner suburbs of Auckland were little more than slums, and 20 miles out of town was an easy commute, especially once the motorways had been built. But the land needed for those sort of suburbs has pretty well been swallowed up. New suburbs are available as Auckland reaches into the surrounding countryside, but those houses there aren’t within a young family’s income. The cheap and chearful houses that young people were only too happy to call their own back in the 1950s and 60s have been replaced by what have been labelled McMansions, with prices to match. As an aside – who remembers the Reid Group housing jingle from the 1960s – “Reid Built homes are built much sooner, pre-built in Takapauna. In just eight weeks you could be living, living in a Reid Built house.”

  5. So the implications for congestion pricing is… the market clearing price may not need to be very high once you get rid of the people only driving ’cause it’s free.

    1. Yes. This is good news for road pricing, and bad news for attempts to use revealed preference techniques to ascribe a value to non-market (“free”) goods.

      1. Revealed preference usually also suffers from the fact you only have one point on a graph ie if we make it free X people drive. The ARC used stated preference to ask people if they would swap to trains from cars when the Perth Diesel units were introduced, they then followed up with revealed preference and found it was just under half of the stated preference mode change.

    2. I keep coming back to that fantastic TED talk by Jonas Eliasson on how they solved Stockholm’s congestion problems with a very small congestion charge. Conjestion literally disappeared overnight and people don’t know where it went. Jonas’ central thesis is you don’t have to plan the details – just nudge people in the right direction with a small charge. This charge was strongly objected to initially, but now is strongly favored. Anybody who hasn’t sen this entertaining TED talk should:

  6. If a $5/day road use charge is introduced then it will be perceived as $5 plus (minus the additional utility I get from driving for free) – implicitly people arguing against such a charge are bundling the cost from the charge with the ‘not-not-cost’ (economists please tell me what the right word is) from using the road for free. It would be interesting to see how much the additional utility that people gain from using the road with lower congestion balances this bundle.

    On the other hand again, I doubt that the utility from using the road for free balances the disutility (and vehicle costs) of using the road when congestion is higher because there isn’t a charge at all!

  7. Peter – I’d be interested in your view on reducing GST on new housing to 7.5%. I’ve been promoting it a bit recently, including in my article in Friday’s edition of the NBR.
    I think it could help get new housing supply to the market more readily. And it won’t necessarily reduce govt revenue, if a lot more housing is actually built.
    It’s not exactly novel. Several countries in Europe have done it, or are looking at it. As is the Aus govt, apparently.
    Surely a centre-right government can entertain the idea of a tax reduction?
    I’m pretty bipolar on housing…either let the market do it’s thing (free up planning, reduce taxes etc) or tax the living bejesus out of everything:
    – Introduce a punitive CGT
    – Taxes on foreign property purchases
    – Increase income tax on income over 100K (yes I would be affected) to build more social housing for MIDDLE INCOME households as well as ‘the poor’
    I’m not quite sure why Labour isn’t going further to the left on this sort of stuff. For example, higher taxes. Their core constituency is middle or lower income earners. The chardonnay socialists who earn heaps would never vote for the centre right anyway.
    I’m quite convinced, in my bipolar way, that we either need to free things up big time, or go down the old school socialist line. I’d prefer the former, but if its not done properly, go the other way!
    Screw this beige stuff in the middle somewhere! Matt

    1. Lower GST on new builds – not a bad idea, but it raises the question of whether we should introduce distortions into our tax system in order to offset distortions in other areas of policy. Historically the line that Treasury and IRD have taken has been “hell no” and I can see the sense in that. (Fill out a US tax return sometime, and you’ll see the benefit of NZ’s simple tax system with few deductions or special rates.)

      That being said, I think there’s something to be said for not getting trapped somewhere in the messy middle on policy. It gets back to the “second best” policy point that Krugman made. While first-best policy (e.g. a housing market with neither subsidies for housing nor restrictions on its production) may lead to the best outcome, incremental moves *towards* the first-best outcome (e.g. removing subsidies for new builds without removing restrictions on development) may make matters worse, not better.

      But this being New Zealand, we’re going to be trapped in the middle fiddling with incremental tweaks for a while… at least until someone comes along and throws out the whole system.

      1. The land component of GST could be removed -land isn’t really consumed. Maybe replaced with a LVT. The construction component could go to the local transport authority -in Auckland -AT. With records, statistics kept of the locations/GST tax paid of the completed buildings.

        This might incentivise AT to provide transport infrastructure to areas that allow growth. Possibly combating some NIMBYism?

        I doubt a Minister of Finance would agree to it. But in my head at least in theory it seems like a valid idea.

        Of course it is not the whole answer -the bigger issue is how to reform the whole system to get out of being trapped in the middle….

        1. Brendon – 15% added on top of houses / apartments to sale price: that’s a big additional cost. If several European countries can consider a decrease, why can’t we?
          Why do we seem so determined to turn a blind eye to what other countries do?
          The Irish government are seriously considering it. Check out this report, it reckons a VAT (GST) reduction would actually increase revenue, as a lot more housing is likely to be built:
          I get a bit frustrated promoting things people don’t acknowledge / consider until it’s way too late. I was writing multiple articles / submissions back in 2007 / 2008 saying planning rules around density etc. needed an urgent overhaul.
          Many, certainly not all, people looked at me like I was some sort of oddball….
          In 2014 I overhauled Queenstown’s Dwelling Capacity Model. Again people questioned me, and thought I was on the wrong track (‘why do you need for competition in capacity? That’s not a role for planning!!! There’s more than enough capacity!!! ‘) . Now in 2016 the government is shortly releasing a National Policy Statement on Development Capacity
          which aligns with pretty much everything I did in 2014. Luckily I’m a pretty strong character and stick to my guns.
          Sorry, for the rant. Too much red wine.

        2. Hmm, but taxing land at a lower value sounds like it will allow people to build on larger sections, which may not be the most affordable way forward.

  8. I see your point and have heard similar objections before (from an ex Treasury economist!!!). But isn’t that a rather ‘purist’ view of economics? If we face a major policy crisis, which poses a whole lot of economic and social risks (of a major scale, potentially – in fact I think we are already there), is there not a case of some muddling of the system’s purity / simplicity?
    If most other countries in the world can handle a little extra complexity with their GST/VAT programme, for what are considered to be essential policy reasons, can’t we?

    I look at it pragmatically. and the reality of several development projects that my company has looked at recently is, is that GST is often the difference between feasible and non-feasible projects.

    1. FYI, when economists admit there is a case for “second best” policy, it means that they are taking a pragmatic view without taking the final radical step of communicating that in plain English.

      A more serious question: Wouldn’t you just expect the value of the GST deduction to be capitalised into the price of the land? I mean, there’s evidence that the value of property tax deductions simply gets capitalised into land prices. Things adjust, basically…

      1. Those that believe land is fixed in quantity believe it will. A miss reading of Ricardian economics according to Evans. It is false because the use of land can change and therefor land has a supply curve similar to other factors. Such as Labour and capital.

        1. Land is fixed in quantity, unless we’re talking about geological timeframes. However, the supply of *housing* can be considerably more elastic, if we’re willing to build up.

          Also, there’s an empirical literature on the capitalisation of property taxes into land values. This isn’t a matter of belief – it seems to be something that we can observe in practice.

  9. I think the “trolley problem” (as outlined above) has effectively been taken care of by NZ’s Health and Safety legislation.

    Considerer that this is a country in which officialdom forbade a team of willing rescuers to go into the Pike River mine and potentially save 29 lives. Why? because it was deemed “unsafe”.

    Back in 1990, 12 year-old Shirley Young was trapped under the wreckage of a burning petrol tanker and a firefighter Royd Kennedy rescued her from the blaze at grave risk to his own life. Today there would likely be a team of ‘safety police’ restraining him from performing this act.

    So if you can’t risk your own life to save someone else’s, how is it conceivable that you could push an innocent member of the public off the bridge in order to save the hapless five on the tracks below? The fat man wouldn’t even be allowed to throw himself off the bridge.

    But the “trolley problem” can usefully be re-framed to illustrate another moral dilemma: Supposing there is a risk that a group of people could be on the tracks at the same time as a trolley is coming, what steps should the transport authorities be taking to ensure that this can never happen?

    Much work has gone into preventing death and injury on rail, to the extent that it is now ring-fenced with regulation and restrictive legislation. Likewise now, coal-mines.
    But unfortunately, precious little has been done to prevent a recurrence of the petrol tanker accident, or many other identifiable hazards of road transport which it is fully-expected will kill hundreds and injure thousands every year in NZ. This is the real “Trolley problem” and it definitely isn’t a theoretical discussion-exercise.

  10. I did mean to ask what the cartoon meant. OK it is easier to go upstairs if the stairs are the size of your step. That has nothing at all to do with block walkability so if we makes stairs that are too big – umm -that still has nothing to do with walkability. Clearly I dont understand this propaganda type shit.

  11. Peter there’s no point in trying to make old people your scapegoat. None of then asked for Auckland prices to go mental. Very disappointing when you pick on any particular group when you go off half cocked. The rampant prices in Auckland are fuelled by foreign money, mostly Chinese. Keys is finally admitting that. Time you did too.

    1. So on the one hand, you think that I shouldn’t “pick on any particular group”. And on the other hand you think I should “finally admit” that “rampant prices in Auckland are fuelled by foreign money, mostly Chinese”.

      Do you even notice your hypocrisy in calling me to stop scapegoating one group while simultaneously demanding that I start scapegoating another group?

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