Welcome back to Sunday reading: The first edition since it’s been confirmed that we’re getting a new Government. But that’s not what I’m going to talk about!

The first article of the week is some new research into house prices from the US: Issi Romem at BuildZoom has published an insightful new analysis of why prices are high in some places but not in others: “Paying for dirt: Where have home values detached from construction costs?

Here’s the take-away points, but the whole article is worth reading:

  • In the expensive U.S. coastal metros, home prices have detached from construction costs and can be almost four times as high as the cost of rebuilding existing structures. However, absent restrictions on housing supply, competition among developers tends to maintain average metropolitan home prices tethered to the cost of construction.
  • This study estimates the average home value to replacement cost ratio for the largest U.S. metro areas, as well as several related measures, and maps them by zip code area within each metro.
  • The high cost of housing in expensive coastal metros is not driven by construction costs. It is driven by the high cost of land which, in turn, reflects a scarcity of zoned units, not a scarcity of land per se.
  • The scarcity of zoned units afflicts the expensive coastal metros in their entirety but, even within more affordable metro areas, sought-after districts suffer from such scarcity.
  • The disconnect between home values and construction costs in the expensive coastal metros does not imply that real estate development is necessarily lucrative. Because developers must acquire valuable land, construction costs can still be pivotal with respect to the viability of projects and, as a result, they can still influence the housing supply. The timing of developers’ land acquisition vis-a-vis the housing cycle can be crucial.

Definitely read the whole article, but I thought this was a pretty clear policy recommendation:

When home buyers are paying for dirt, someone is being excluded, and the solution is to densify

High home value to replacement cost ratios are a good indication that the housing supply is restricted, meaning that people who are willing and able to pay enough to support new housing construction are being excluded by limits on density.

Both expensive coastal metros and affordable expansive ones would benefit from the relaxation of restrictions on housing density, but for slightly different reasons. Whereas the former need greater housing density to combat a full-blown housing affordability crisis, the latter need it in order wean off sprawl without creating an affordability crisis of their own.

As for what these figures look like for New Zealand: Watch this space! In professional life I’ve been assisting with developing a suite of similar measures for NZ cities.

Also from the US, and also about data: in Politico, Danny Vinik writes about the strong possibility that the US government is about to bungle its 2020 Census. As the NZ Census is coming up next year – eagerly awaited by tragics like me – it’s a nice reminded of the importance of competent statistical agencies. Thanks Stats NZ – you’re great!

For more than 200 years, the federal government has regularly taken an immense survey of American business called the Economic Census. Though not as well-known as the decennial census, the big population count in which enumerators tally Americans house to house, it has been conducted at least every five years since 1905, with a gap only during World War II. Its basic measurements of economic activity, like jobs and revenue, are crucially important to companies, policymakers and anyone trying to track the nation’s economic health.

The next Economic Census was supposed to start in January, five years after the previous one, as usual. But earlier this year, the Census Bureau quietly changed its deadline, pushing it back at least six months. The agency told POLITICO that it has not publicly announced the delay but confirmed that aspects of the Economic Census were “re-planned,” and the results would be out six months late.

“If the Obama guys had quietly suggested delaying the Economic Census by six months, there’d be holy hell to pay,” said a former high-ranking appointee in the Commerce Department.

According to multiple statistical experts who spoke with Census Bureau officials, the reason was money: The Census needed the money earmarked for the Economic Census to prepare for the 2020 decennial, which Congress has underfunded by hundreds of millions of dollars. In a tight budget environment, the bureau was effectively forced to choose between two of Washington’s most important efforts to collect data on the country. Even if it’s conducted on the new schedule, the delay of the 2017 Economic Census will have negative effects down the line; it leaves outdated baseline numbers in place for policymakers, and creates problems for companies that need to comply. Said another census-watcher of the 2017 survey: “It will always have this asterisk.”

Such asterisks are popping up more and more in the sleepy world of federal statistics…

Speaking of statistics, I thought this was a fantastic map:

On the topic of maps, Interest.co.nz has just released a brilliant set of visualisations showing how New Zealand’s cities have expanded since the 1870s. Unfortunately, I can’t embed the videos, so you’ll have to click through to their site. But as a sample here’s three slices of Tauranga’s history: in 1917, 1967, and today:

On a completely different note, Dale Husband at e-Tangata had a thought-provoking interview with academic Veronica Tawhai about how NZ is working:

We know that the current system has never served Māori well. We have only to look at our history to see that good governance has never occurred for Māori, despite the few gains that have been hard fought for by Māori and a small number of allies. And yet there is still this obsession with things the way they are.

The whole idea that Māori are doing so much better than indigenous people overseas is part of that. When I went overseas, I saw that that’s simply not true. In terms of wairua, in terms of self-healing and being connected to your place in the wider universe, many overseas indigenous communities are fine. They are fighting colonisation, are connected to their lands, and know strongly who they are.

The notion that Māori are more privileged than indigenous peoples overseas is entrenched through things like “we’ve got the Māori seats”, or “Māori is an official language”. And “Oh look: We have kura kaupapa.” Things like that.

But that conceals the decades of struggle that our people have gone through to get those things in place. And when you render those things invisible, what it tells people is: “It’s because we’ve got a fabulous political system. We’ve got a fabulous government that actually delivers things for Māori.” Even though we know that’s incorrect.

So the question must be posed: “Who is well served by this idea that Māori are doing so much better than indigenous people overseas?” Well, the hierarchies that are put in place by the colonising system are well served, that’s who.

The illusion that we’re doing great, and the pressure to be thankful for what we have, keeps us passive in the face of ongoing colonial oppression. This is instead of demanding and wrestling back what is our birthright — wrestling back the authority and control over our own lives and lands and communities and resources.

If there’s a significant difference between ourselves and indigenous communities overseas, it’s our numbers. Some of the places I visited overseas have an indigenous community of maybe one percent of the overall population.

Back here, there are people arguing that we’re going to be fine because Aotearoa will be “browned” in terms of numbers by 2030 or some such date. But that’s a dangerous suggestion because, obviously, if we’re not conscientised, then we might as well not be brown. Right? We’ll be brown people who’re thinking and acting like non-Māori and carrying on with colonising, destructive behaviour.

She’s making an interesting and valuable point. I recently read Annie Proulx’s new(ish) book Barkskins, which is a multi-century work of historical fiction about the cutting down of the great North American forests. One of the recurring themes of the book is white settlers arriving in new lands, looking at the forests, saying “these are too vast to ever be exterminated”, and proceeding to clear-cut the lot. Then their children move further west and repeat the cycle…

It made me wonder what my settler ancestors and I have been doing: are we simply trapped in that same destructive cycle? If so, how can we get out? Can others help teach us a different way? Pre-Treaty Maori environmental practices may not have been perfect, but I still think that there’s more that pakeha could learn from Maori in terms of valuing and sustaining the place that we both live in today.

Speaking of our shaky isles, ArsTechnica’s Chris Lee (a Kiwi living in the Netherlands) has written a great piece on disaster preparedness around New Zealand’s fault lines and volcanoes. We don’t often think about this, but it’s vital for living here:

Rotorua is not alone. An hour’s drive away, the town of Taupo sits on the edge of an even more spectacular caldera. Its largest eruption put down a 200m thick layer of ignimbrite—a frozen foam of volcanic ash, rock, and gas—over much of the central north island. A thousand kilometers farther away, the ash was still 18cm thick. Auckland, New Zealand’s largest city, sits on top of no fewer than eight volcanic vents, all powered by the same churning pot of molten rock. Go south and you’ll find a string of volcanoes and vents: Tongariro, Ngauruhoe, Ruapehu, and Taranaki. All are home to popular recreational spots, farmers, villages, Iwi, and city-folk alike. And, in the case of Taranaki, some areas are even covered in cows.

Taupo, despite its massive caldera, actually has a history of much smaller caldera-repairing eruptions.

“It’s had 28 eruptions,” Brad Scott, a volcanologist from a New Zealand research institute called GNS Science, told me as he pointed to a chart. “Of which these 19 here—we could have sat in a cafe on the Taupo lakefront and watched.” For the eruption that formed the caldera, however, he said, “a cafe in Sydney would have been more appropriate.”

Approximately half of the population of New Zealand lives in the shadow of one or more volcanoes, built by the conjunction of the Pacific and Australian plates. And that makes understanding volcanoes and knowing how to live with them kind of important. Volcanoes tend to do what they’ve done in the past. So, by studying previous eruptions—what sort of rock, the chemistry of the ash, the size of the eruption, and other details—you can come up with a pretty good indication of what the volcano will do in the future.

The unfortunate part, of course, is that this does not tell you when and where a volcano will erupt. At present, there is no way to know. But with a good enough understanding, you can determine when a volcano is getting restless and therefore may blow…

To close, an interesting article from Neil Irwin in the New York Times about why ‘surge pricing’ – ie putting up prices to take the edge of higher demand – isn’t always a great idea. It’s got a lot of important implications for the transport sector:

Technology is making “variable” or “dynamic” pricing — the same strategies that ensure a seat on an airplane, a hotel room or an Uber car are almost always available if you’re willing to pay the price — more plausible in areas with huge social consequences.

Dynamic pricing of electricity could help bring down pollution, reduce energy costs and make renewable energy more viable. Constantly adjusting prices for access to highways and congested downtowns could make traffic jams, with all the resulting wasted time and excess emissions, a thing of the past. Any sector where supplies tend to be fixed but demand fluctuates — the water supply, health care — would seem like prime candidates for variable pricing.

But technologists, entrepreneurs and regulators who would go down this path first need to learn a few lessons from Mr. Thaler — and Mr. Springsteen.

“A good rule of thumb is we shouldn’t impose a set of rules that will create moral outrage, even if that moral outrage seems stupid to economists,” Mr. Thaler said.

As it turns out, when you look at when and how dynamic pricing provokes outrage, you detect some patterns — and a guidebook on getting some of the benefits of economic efficiency without fueling outrage that dooms the entire project.

[…]

[Uber] cut back on passenger complaints by giving a clear estimate of the price of a ride before a person books a car, a practice that began last year. It turns out it’s easier to decide whether it’s worth $30 for a car ride and act accordingly than it is to be told that a surge multiplier of 2.5 times is in place and that the normal rate would probably come to about $12.

Restaurants have long known that charging a fee for a reservation offends people’s sensibilities — but that on a big night like New Year’s Eve you can require everyone to eat an expensive fixed-price menu with lobster and filet. Diners will happily pay a surge price without thinking of it as such.

What the successful examples of variable pricing have in common is that they treat customers’ desire for fairness not as some irrational rejection of economic logic to be scoffed at, but something fundamental, hard-wired into their view of the world. It is a reality that has to be respected and understood, whether you’re setting the price for a highway toll, a kilowatt of power on a hot day, or a generator after a hurricane.

“If you treat people in a way they think is unfair, then it will come back and bite you,” Mr. Thaler said. And it doesn’t take a Nobel to understand that.

That’s it for this time! Enjoy the long Labour Day weekend!

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8 comments

  1. Coca Cola tried surge pricing with dispensers that increased the cost of a can of coke on hot days. They withdrew them once they figured out how cross they were making their customers.

  2. Singapore uses “surge” pricing well. The congestion tolls are set and made publicly available. They stay at the notified level and are then reviewed about every 6? months and adjusted up or down depending on the congestion levels over the last period.

  3. A little off topic Peter, but the change of government got me thinking about a post you wrote just over a year ago that I really enjoyed: https://www.greaterauckland.org.nz/2016/08/17/local-governments-democracy-problem/

    You wrote about the health of democracy in NZ, pointing out that we have big issues with young people not being engaged enough (focussing on local government in that article, but some of it is transferable to national government).

    A year later and we’ve just elected our youngest PM in 150 years, and our youngest MP in 40 years, due partly to a bigger than normal turnout of young voters. I don’t know if your article helped cause this or not, but it certainly wouldn’t have hurt.

    1. Good point Chris! I hope that we are headed for growth in civic participation among people of all ages.

      And can I say – I’ve been impressed by the Electoral Commission’s approach to consistently doing more to make it easier for people to register and vote. Voter turnout increased 1.9% at the 2017 election and 3.7% at the 2014 election, in significant part due to the good work they’re doing.

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