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| Roger Partridge | Chairman and Senior Fellow | roger.partridge@nzinitiative.org.nz | ||||||||||||
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The story reminds us why New Zealand’s housing is among the least affordable in the world – and why successive governments’ attempts to fix it have failed. Restrictive planning laws play a part. But at its heart, the problem is the way local infrastructure is funded – and the anti-growth incentives councils face. With population growth, central government’s tax take rises instantly. More people means more income tax, GST and company tax. Little wonder successive governments have favoured high immigration – it helps balance the Crown’s books. Councils, however, get nothing in real time from population growth. Yet they bear the brunt of the costs. New subdivisions require roads, public transport, parks – and, critically, water pipes – all funded by council (and council-owned organisations like Watercare) through rates or borrowings. But ratepayers do not want rate hikes, and growing councils bump up against debt limits. That creates every incentive to delay, down-spec or block growth – especially when the benefits of new ratepayers arrive years later. Since July, Watercare has been separated from Auckland Council’s balance sheet, removing borrowing as a constraint on Watercare’s growth. But the new framework still bears little resemblance to a profit-driven utility. Unlike Auckland’s privatised electricity distributor Vector, Watercare is prohibited from paying a dividend to its shareholder, Auckland Council. In contrast, Vector is incentivised to connect new homes because its shareholders require it to maximise profits – meaning it must strive to meet demand. The Ōrewa case fits a broader pattern where incentives dull the commercial drive to meet demand for new infrastructure. Without shareholder pressure to pay a dividend, Watercare has little incentive to meet demand quickly. The outcome is Soviet-style rationing. With the right incentives, we would see less rationing and more of Watercare's pipes turning up when needed. If Watercare could pay a dividend, Council would champion growth, rather than lose sleep over it. Until we change how we fund and finance local infrastructure, stories like the Ōrewa family’s will keep repeating. Land will be zoned for housing but locked up by infrastructure bottlenecks. The lesson is simple: if you want affordable houses, make growth pay. |
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| Dr James Kierstead | Research Fellow | james.kierstead@nzinitiative.org.nz | ||||||||||||
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What Rojstaczer, a former professor, has found is that grades are going up, and have been going up for quite some time. Until the 1960s, only around 20% of grades awarded at US colleges were As. The most common grade was a C. During the Vietnam War, grades moved up across the board as professors tried to save young men from the draft by keeping them from failing out of college. After a brief downturn in the early 80s, grades started rising again. Just before the turn of the millennium, As became the most common grade at US universities, and now look likely to exceed half of all grades in the not-too-distant future. Grade rises of this nature aren’t unique to US universities. In England, the percentage of first-class degrees rose from 8% in 1996-1997 to 36% in 2020-2021, more than quadrupling in less than a quarter of a century. At a selection of Canadian universities, meanwhile, the percentage of A grades increased from 16% in 1973-1974 to 21% in 1993-1994. And a recent study at the University of Sydney revealed that the percentage of high distinctions awarded there increased from 8% to 26% between 2011 and 2021, more than tripling in a decade. Grade rises in themselves could be a good sign if we had reason to believe that they were simply tracking improvements in student performance. Unfortunately, researchers have learned to test for that possibility, and in most cases, they’ve found that better performance can’t explain the full extent of the grade rises that have occurred. Grade rises that can’t be explained by student performance constitute ‘grade inflation.’ Like monetary inflation, grade inflation has costs. Bright, hard-working students struggle to signal how well they’ve done to employers, who are faced with piles of CVs from students with impeccable academic records. Less motivated students, for their part, have very little reason to up their game, since they are likely to get good grades (or at least passes) whatever they do. Is grade inflation a problem at New Zealand universities? It is. And that will be the subject of my next Insights column, which will summarise the findings of our upcoming report on the topic. |
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| Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz | ||||||||||||
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One recent paper in The Journal of Political Economy caught our attention: “Subversive Conversations.” The title sounds more like a spy novel than an economic investigation. But its idea is pure genius. Imagine two people who want the same thing but cannot just say it out loud. That is because someone else is listening in and might try to stop them if it becomes clear what they are up to. And so, the two speak in hints and half-sentences. Each drops clues that only the other will understand, but never enough for anyone else to catch on. Imagine two colleagues at mandatory compliance training with their boss watching. “Fascinating topic,” says one. “Absolutely unmissable,” agrees the other. “Especially slide seventeen on procurement.” Both know slide seventeen is when they will slip out. Once you know this trick, you start spotting it everywhere, especially in politics. Coalition ministers are so busy, they rarely meet directly. Which is why their real conversations happen in public, through the media. Take the Interislander ferries saga. In December 2023, Finance Minister Nicola Willis cancelled the iReX mega ferries project. “Only 21 per cent of these costs are associated with replacing ageing ferries,” she said. “Ministers do not have confidence there will not be further increases.” A year later, the Government unveiled a new plan. ACT leader David Seymour called it “a win for taxpayers” at “half the cost of iReX” and praised private investment. The next day, Winston Peters, by now in charge of finding new ferries, shot back that Seymour was wrong. “He’s wrong on the figures… wrong on the question of privatisation… wrong on what it’s going to cost.” To the public, this looked like a coalition at war or talking past each other. But perhaps, after reading “Subversive Conversations,” we should see it differently. Maybe the apparent quarrels were really coded signals. What if they knew exactly what they were planning all along? They could be steering us towards two new, rail-enabled ferries by Christmas 2029, while we thought they were just bickering. The Journal of Political Economy has opened our eyes. What looked like coalition chaos may have been a clever way of running the country. Absolutely unmissable. |
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