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Insights 11: 8 April 2022
NZ Herald: Eric Crampton writes about the folly of council climate policies
International Outlook: Germany's response to the war in Ukraine
Newsroom: Oliver Hartwich on Germany's slow changes to foreign policy

Housing games
Dr Eric Crampton | Chief Economist |
New Zealand’s longest-running, most-damaging, and stupidest game of Cluedo might finally be over. The killer has been nabbed. But dealing to the motive still matters.

The median house should not cost more than five times median household income.

Auckland crossed that line 17 years ago, with the country as a whole following about seven years later. Pundits and politicians have played a stupid game of Cluedo ever since, trying to find the culprit. Was it the speculator, in the backrooms, with cheap money? Or was it the immigrant, in the auction room, with British pounds or a Chinese-sounding name?

Meanwhile, economists like Arthur Grimes built evidence pointing to the real killer: restrictive land-use planning rules.

The game played on. Checking the cards to identify the real killer would make it harder to keep blaming speculators and migrants. Why fight NIMBY homeowners who like rising property prices?

This week, the Infrastructure Commission’s Peter Nunns and Nadine Dodge bludgeoned everyone into looking at the cards.

The culprit cannot be immigration. Population grew more quickly in the 1950s and 60s. House prices did not explode.

Maybe construction capacity got sucked into building larger houses? Nope. Houses are bigger now. But the country’s builders provided more growth in total dwelling floor area in the 1950s than 2010s.

The problem goes back decades.

The 1961 Auckland District Scheme provided capacity for the downtown population to more than triple. The 1970 Scheme halved development capacity. Emphasis shifted from development to protecting existing residents’ amenities.

The Town And Country Planning Act 1977 made it harder to build and easier to object. The RMA made things worse. A district scheme of less than 200 pages helped Auckland grow in the 1960s. Modern ones take over a thousand pages to stop building.

Development at city fringes kept things in line for a while. But infrastructure could not keep pace with congestion.

And now we have a disaster that has only started to unwind with the Auckland Unitary Plan, the National Policy Statement on Urban Development, and the Enabling Housing Supply legislation.

The culprit has been obvious for years. Restrictive planning rules and failure to build infrastructure to accommodate growth killed housing affordability.

But solving the problem also requires unravelling the motive. So long as councils have every incentive to restrict growth, they will find new ways to do it.

Change the incentives to finally end this destructive game.

Educational inequality matters
Dr Michael Johnston | Senior Fellow |
New Zealand has a major problem with educational inequality in its school system. The reasons are complex and not all of them are in the control of the education system. Some key things are, however. A recent NZ Initiative report shows that New Zealand's approach to teaching reading is not based on science.

PISA data suggest that the gaps between New Zealand’s most and least literate students are amongst the largest in the OECD. Literacy unlocks access to the rest of the curriculum. The variables most associated with inequality in literacy are being poor, Māori or male. These same variables are also associated with inequality in qualifications.

NZQA data show that, in 2020, just 33% of Year 13 students decile 1-3 schools attained University Entrance (UE). This compared with 70% in decile 8-10 schools. UE attainment by Māori and Pacific students was 34%, compared with 59% by New Zealand Europeans and 64% by Asian students. Girls also attained UE at a much higher rate than boys – 60% compared with 47%.

Educational inequality between boys and girls is a topic for another day. However, the sources of socioeconomic and ethnic differences are likely to be similar. Māori and Pacific households are poorer, on average, than New Zealand European and Asian households.

Another NZ Initiative report shows that family background explains the bulk of educational differences between deciles. Adopting science-informed methods of teaching literacy would be good for everyone. It would be especially good for children from lower-literacy households. Less literate parents are less equipped to make up for poor teaching at school.

All taxpayers, many of whom are parents, contribute to the education of the nation’s children. We should therefore expect all children to receive education of high quality. Education should break, not reproduce, intergenerational cycles of disadvantage.

We simply can’t afford to waste human potential by failing to provide children with the best education possible. Recent work commissioned by UP Education from NZIER points to substantial costs of poor education.

It’s encouraging to see that Christopher Luxon is now arguing for a structured literacy approach in New Zealand. Structured literacy won’t cure educational inequality. But given the link between literacy and educational achievement in general, improving the way we teach it would be a very good start.

Fair play and unfair pay
Dr Bryce Wilkinson | Senior Fellow |
Too many people think that what people get paid should bear some relationship to effort, merit or responsibility. Useless economists think it should have something to do with supply and demand.

As all right-thinking people know, both propositions are absurd. What matters instead is that people are fairly paid -- or at least they would be if someone could afford to hire them.

Imagine for example, if athletes were paid in proportion to their ability to attract an audience and to sell sponsored products. Imagine if actors were paid in some proportion to movie revenues. Obscene and unjustifiable income differentials would be the result.

Sadly, some of that malaise is creeping into New Zealand government policy. I am referring of course to the proposal that painters be given a proportion of the price at which their paintings subsequently change hands.

That path is a slippery slope. It will lead to richer and poorer painters from patently unfair differences in audience appeal.

We only have to look overseas to see the end result. A Michael Jordan or Elvis Presley get obscenely rich at the expense of every other basketballer or entertainer. No right-thinking person could call that fair.

In short, discerning audiences are unfair. Fair play produces unacceptable outcomes.

Back in the 1990s, then Prime Minister Jim Bolger came under fire for his outrageous salary – of under $200,000 a year. An unemployed chap offered to replace him at a fraction of the cost to taxpayers.

Happily, for Jim, unions are there to protect the likes of him. They know there must be no race to the bottom, “dog don’t eat dog”. That unemployed chap should have been levelled up.

Two recent cases illustrate the impulse to put supply and demand ahead of fairness. Desperate kiwifruit orchardists are offering $60 an hour for workers, plus cash bonuses and Auckland DHBs are paying nurses and midwives a bonus of $500 per night shift.

Such developments are obviously unfair to all those unable to do that work. There should be a law against it. All or none is fair.

Happily, Jim Bolger has put his shoulder to that cause. He chaired the Fair Pay Agreement Working Group. Government legislation is to follow.

Admittedly the initial scope is small. But it is a step towards the ultimate goal of equalising pay regardless of supply and demand. Fairness is everything.

On The Record

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