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Insights 28: 28 July 2017
Next Generation Debates: Auckland Semi-Final
 
New Zealand Initiative Research Plan 2017 - 2020
 
Next Generation Debates: Wellington Semi-Final

A big step towards affordable housing
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
If you are a regular Insights reader, you will know that housing has been a key issue for the Initiative since we started in 2012.

In our reports, speeches and opinion pieces we have repeatedly made the case for reforms to planning, local government and infrastructure finance. In doing so, we convinced many commentators, officials and politicians.

Last Sunday, we finally saw the first of our big ideas implemented by Government.

Prime Minister Bill English and Minister of Finance Steven Joyce announced a new body, Crown Infrastructure Partners (CIP), to finance infrastructure needed for new residential housing.

CIP will deliver new trunk infrastructure through special purpose vehicles. In this way, infrastructure costs will be recovered from users through special rates over the lifecycle of the infrastructure assets. The total investment volume will be $600 million, and the private sector will over time play an important role in financing new infrastructure.

By using this model, new infrastructure will be taken off councils’ balance sheets. This will make it easier for councils to develop new land and deliver new housing. And crucially, it will make houses more affordable.

We first proposed such a scheme in our 2013 report Free to Build. It was inspired by a visit to Texas, where our researcher investigated their Municipal Utility Districts. This is very similar to the model now announced by the Government.

In the future, councils will be able to gain new ratepayers without having to provide infrastructure for them. This will allow councils to go for growth because they will benefit financially from it. It is an incentive scheme in all but name.

It is encouraging to see that there is broad political consensus behind this new policy. In fact, Labour had already proposed a similar scheme a couple of years ago.

We need more such cross-party thinking on housing because there is still a lot that needs to be done.

We hope that in the next Parliament, the Resource Management Act will be repealed and replaced with a better planning system. And, of course, we want to see a new local government finance system which directly allows councils to share in the proceeds of growth and development.

For now, however, we welcome this important step towards restoring housing affordability. It shows that big ideas can have big impacts.

And that is what The New Zealand Initiative is all about.


Embarrassingly-bad economics from The Economist
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
Are Aesop’s fables, such as “The Ant and the Grasshopper” still taught to school children? When winter arrives the industrious and thrifty ant refuses to share its food with the hungry grasshopper who had frivolously spent the summer singing.

When I was of primary school age, there was no doubt that virtue lay with the ant. Survival required diligent work, foresight and prudent saving. The grasshopper’s plight made the point.

Later at university, I encountered Paul Samuleson’s introductory textbook on economics. One instructive parable was of a benevolent ruler who kept grain prices low when people were starving from a shortage of grain. His dying subjects blessed him, unaware that by making supply uneconomic he was causing greater starvation. The heart should not rule the head.

But it is human nature that old lessons must be relearnt. Hence the enduring power of fables.

Earlier this month, the UK magazine, The Economist, asserted that the ant is the villain in the story.

Well not in exactly those words. To be precise, it blamed the Germans (the ants) for being too productive and saving too much. Spendthrift countries (the grasshoppers) were its victims.

Ouch. Back in 1817, UK economist David Ricardo explained the theory of comparative advantage. Mere productivity differences can’t cause trade imbalances. 

Okay, Ricardo’s insight is a bit counterintuitive and takes a few minutes to understand. But, really, what economist could overlook it? Even more gallingly, The Economist was founded in 1843 to espouse free trade. An elderly moment perhaps?

In another blunder it claimed that German thrift caused a global lack of demand. Oh dear. This can’t explain why unemployment rates are very low in countries like Japan and Germany and very high in some much smaller economies. Mispriced labour could explain such differences, but the grain parable seems to be lost on The Economist.

Unhappily, the professional embarrassment about the mantra of a deficiency of aggregate demand runs deeper. French economist Jean-Baptiste Say pointed out in 1803 that the income earned from production suffices to purchase that production.

But, even if Say’s and Ricardo’s insights are too impenetrable for The Economist in 2017, why abandon common sense? Why blame the productive and thrifty for the problems of others?

Aesop did not. And he was Greek no less.

But then again, he did not write for The Economist.


Steaming mad
Dr Rachel Hodder | Research Fellow | rachel.hodder@nzinitiative.org.nz
The Whanganui District Council has taken the bold step of banning the use of electronic cigarettes (vaping) in public areas.

Experts recognise that vaping is a much safer alternative to smoking and has been a critical factor in helping people quit. But thankfully, Whanganui mayor Hamish McDouall does not bother wasting his time informing himself on the “research” or “evidence”. The mayor ‘knew of’ young people who had become smokers after starting vaping.

Who needs a body of international research when the mayor has some contradicting anecdotes? The council has every right to be concerned that vaping will impede efforts to reduce smoking. According to the mayor, "[vaping] is normalising the idea of inhaling something hot."

This is the real danger of vaping. If people think inhaling something hot is normal, chain smoking is the next logical step. But it is not just vaping that could lead to this dangerous normalisation. Children are bombarded with portrayals of adults consuming hot vapours everywhere they look.

Think carefully who is watching next time you take an indulgent sniff of your winter soup. Avoid the pleasant steam from your Earl Grey by drinking it through a straw. Block your nose next time you walk past Mrs Higgins Cookies. If you breathe in the wafting aroma of baked goods next thing you know you’ll be hooked on the durries.

The problem with the vaping ban is that it does not go far enough. If the council really want to take action on smoking they should adopt a harder stance on all activities that involve inhaling hot vapours. Lest impressionable young minds start thinking that breathing in warm vapours is a safe, carefree activity.

A good place to start would be with the highly addictive hot substance peddled on every street corner: your morning coffee.

Part of the mayor’s concern with e-cigarettes is that they offer appealing flavours like strawberry and cherry ripe. Imagine his outrage when he hears about pumpkin spice lattes.

There might be some resistance to a coffee ban since the filthy habit is so widespread. But let’s not let personal liberty get in the way of a well-meaning public health initiative.

However, councillors should be careful not to go too far. If they start cracking down on all sources of hot air they might find themselves out of a job.
 
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