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Insights 5: 23 February 2018
Upcoming event: Dinner lecture with Katharine Birbalsingh
Latest report: Recipe for disaster, building policy on shaky ground
Dr Eric Crampton talks to Newstalk ZB about the economics of ticket scalping

Build the rules, and the houses will follow
Dr Eric Crampton | Chief Economist |
The housing supply shortage is worse than expected. That makes it even more important that government focuses on the key barriers to getting more houses built.

Perhaps counterintuitively, that may mean putting Kiwibuild to the side. 

Last week, Phil Twyford announced the results of his commissioned stocktake on the housing crisis. The results are damning. The growth in housing stock since 2012 has been far too low.

The consequences of the housing shortage are seen in the overcrowding statistics and their health consequences, in the proportion of people with high rent or mortgage costs, and in the often-poor treatment of tenants in a very tight market.

If the costs of the housing crisis felt especially by those on lower incomes are not bad enough, the government too feels the pinch. The housing crisis makes it more expensive for the government to provide housing assistance. Last year, those costs tallied almost $2 billion, or about 2.5% of core government spending. In a tight housing market, much of the benefit of the accommodation supplement flows directly to landlords.

One of the housing report’s authors, Shamubeel Eaqub, suggested that Kiwibuild would need to scale up from Twyford’s promised 100,000 homes to 500,000 to deal with the shortage. But, it seems almost impossible that that could be done without simply displacing private building.

Government has no particular advantage in building houses. Large-scale building projects are risky, even in a seller’s market. If costs overrun because of shortages of subcontractors, for example, costs will be higher than expected or projects will be delayed. And Kiwibuild will consume one of the scarcest of Wellington resources: the attention of competent people in the bureaucracy.

The housing shortage was never due to government building too few houses. The cause lies rather in zoning restrictions that prevented developers from building where people want to live: more downtown apartments, more terraced housing for inner-city suburbs, and more expansion at the city’s fringes. And those restrictions are themselves due to broken incentive structures for local government and infrastructure costs.

Minister Twyford understands the infrastructure financing constraints and local government incentives underlying the housing shortage. Fixing those problems has to be the most important task for this government. We should be prepared to give this government a pass for any missed deadlines on Kiwibuild, if it is focusing its attention on the barriers preventing either state or private housing from being built.

Why ‘Tomorrow’s Schools’ has far from run its course
Briar Lipson | Research Fellow |
Imagine buying a house, or choosing a spouse without knowing anything about them. You wouldn’t do it. It’s too big a commitment, too pivotal to future flourishing and happiness. You wouldn’t make such a decision before scrutinizing all the information you could muster.
For many New Zealand parents, choosing the right schools for their children is an equally important decision. And yet we expect them to do it in the almost dark.
This week Education Minister Hipkins announced a fundamental review of 1989’s Tomorrow’s Schools policy. He says it is needed because the policy has resulted in competition for students rather than improved education outcomes, and so its benefits have run their course.
The Minister is right that schools compete for students rather than improved results. This is how markets work. Just like shops, airlines, and drug companies, schools compete for customers, with improved outcomes usually the fortuitous by-product.
So why then, if shops, airlines and medicines have improved so much in the last 30 years, can we not say the same for our schools?
The answer lies in Chapter 1 of your economics textbook: to function effectively, markets require adequate information.
We all make reasonably well-informed choices about which shops, flights and (via trusted doctors and pharmacists) drug companies we buy from. However, unfortunately, the available information on primary and secondary school outcomes is woefully inadequate.
It need not and should not be so. And yet in New Zealand, we make a huge song and dance about assessment, to the detriment of all involved, especially our disadvantaged children.
In our upcoming report ‘Spoiled by Choice: How NCEA hampers education, and what it needs to succeed’ we analyse NCEA’s history, evolution and impact. Born out of discontent with the former university-dominated system, NCEA was not designed to provide information. Rather it was designed to provide flexibility so that all students could leave school with a qualification. This has advantages, but NCEA’s flexibility has also been bought at unquantified cost to students’ learning, teachers’ workloads and the information available to end-users.
These end-users include the parents, trustees, teachers and school leaders supposedly empowered by Tomorrow’s Schools to drive up educational outcomes. Until we have a government prepared to provide them with the information they need to be able to do this, we should not wonder why the benefits of Tomorrow’s Schools appear to have ‘run their course’.

Time to raise a glass to our intergenerational wellbeing
Dr Bryce Wilkinson | Senior Fellow |
When I was a lad, Treasury was a home for bean counters. Many a fine public servant did an accounting degree part-time at evening classes at Vic. Full-time study was unaffordable; they needed a day job for income.
They knew their day job. It was to run a surgical eye over departmental spending proposals. Noes were more satisfying than Ayes. Noes could help a minister of finance keep the budget healthy. Noes saved ‘the country’ money.
The proportion of Noes that won the day in Cabinet was a measure of one’s batting average.
They wrote short, incisive reports with recommendations based on a few well-chosen facts, knowledge, and experience. Cabinet deadlines were tight. A succinct one-page report was good. It would be read. A longer one might not be.
Looking back, one has to feel sorry for these investigating officers. The poor chaps never had a chance in these short reports to muse about such lofty matters as intergenerational wellbeing.
Happily, today’s Treasury is not so constrained by cold-hearted value-for-money considerations. Your and my wellbeing and that of our children and their future children are ever closer to its throbbing heart.
This week it added to the warming embrace by releasing four discussion documents on its wellbeing framework. Treasury wants “government agencies to be more cohesive so public policy on wellbeing, spending and other government interventions is aligned with improving intergenerational wellbeing”.
At long last the public service will overcome its silo tendencies. We look forward to seeing agencies graciously deferring to each other: “No, please cut our budget to help you expand yours, what you are doing is more important for intergenerational wellbeing”.
The Treasury old-timers probably never conceived that this might be possible.  One can almost imagine them applauding in unison from their graves.
It is comforting to know that the public service will be focusing on how much you want to cut back on your spending to bequeath more to the next generation. You won’t need to think about that for yourself as much.
Perhaps the day will come when the sign outside Treasury, coined from a Christchurch art exhibit, reads: The House of Wellbeing, Resilience and Sustainability: All Welcome, bar Bean Counters.
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