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Insights 40: 29 October 2021
Webinar Invitation: Thurs 4 Nov 11am-12pm. The path to the next global financial crisis with Rt Hon Sir John Key
Podcast: What the Three Waters reforms will mean for councils with Oliver Hartwich, Matt Burgess and Eric Crampton
NZ Herald: Roger Partridge asks Is the Govt's plan a road map or an impenetrable maze?

How to fix three waters
Matt Burgess | Senior Economist |
Constitutional progress usually start with a bad government. Back in the 13th century, King John lost wars and paid for them by taking his subjects’ property. John was above the law and he took full advantage.

Then came the correction: Magna Carta. John signed it under duress and immediately tried to renege. But a principle was established and it stuck.

Eight centuries later and half a world away, the Crown is at it again. Labour will use its majority to take water assets worth $54 billion off councils and give them to four new entities. Councils will not be compensated.

The central plank of the reform is cost savings. The government says economies of scale will cut water bills by as much as 90%. Economic consultants Castalia reviewed the evidence and found the government’s claims fanciful.

The problem with water is not cost. It is scalability.

Urban councils have made it persistently hard to build a house mainly because of the way water infrastructure is funded. Water competes with other council spending for funding, and it is expensive. Councils have managed their financial exposure by restricting land use.

The result of this unholy nexus of planning and poor incentives is the worst-performing housing market in the OECD.

The solution is not to take water off councils. It is to put water on a commercial footing within councils, at least in urban areas.

Two changes are needed. First, water users should pay the full cost of water services including, crucially, a return on capital. This is how electricity lines and other essential public infrastructure is priced.

Second, water should be ringfenced within councils so that it can borrow in its own right, off councils’ balance sheets and without troubling ratepayers.

With these changes, pipes go wherever people are willing to pay for water. The pipes would just turn up, which is how it works in most other countries. Growth pays for growth.

Households will pay more for their water. But each council will receive a healthy dividend from their water business each year, a return on capital. That money could offset rates. Households need not pay more overall.

The government’s plan is based on a dubious theory and questionable evidence. It could lead to constitutional questions about the limits on what a government can do with its Parliamentary majority.

After all, it took King John to get Magna Carta. What will be this government’s legacy?

Do last week’s housing announcements diminish your property rights?
Dr Bryce Wilkinson | Senior Fellow |
A long-standing mate stopped me in the street last week. He asked me if I was livid about property rights.

I was bemused, I had to ask him what he had in mind.

What he had in mind was the joint National and Labour Parties’ statement on housing. People will be able to build up to three three-story dwellings on a section without a resource consent.

My mate’s view was that this removed an important right protecting his property. He could no longer hope to use the resource consent process to stop a neighbour from doing this.

I could understand his ire with respect to privacy and views. But I saw the measure as enhancing his property right, and likely the value of his property, along with everyone else’s. It was his turn to be bemused.

From an economics perspective, property rights involve the right to: 1) determine what use your property is put to; 2) retain any income derived from that use and 3) to dispose of the property.

Freeing up people to build houses on the property enhances attribute 1). Security in attribute 2) gives owners an incentive to develop their property for a profit.

Greater freedom for owners to put their land to a higher-valued use should widely lift affected land values. This is so even if privacy and hours of sunshine fall.

This view incorporates the judgement that ill-justified government regulations restricting development have effectively disenfranchised would be home-owners, particularly in Auckland.

Most importantly: Strengthening property rights will also help get more homes built.

Population needs for space change through time. Land use needs to be able to respond to changing needs. Rules that aim to resist change have a cost. That cost is borne by both landowners and, even more so, by people priced out of the housing market.

The opposing view is that the measures will reduce property values overall rather than raise them. This view proposes that properties will be worth more in their existing low density use than if used to house many more people.

But, if that were so, it might not pay a developer to buy them to build up. Developers could be outbid by buyers wanting the property as is. Developers would shift to suburbs where the rewards for building up were greater.

None of this is to argue that Labour and Nationals’ proposals are optimal. They may be unduly permissive in some important details and inferior to better designed remedies overall.

Now is the time for public scrutiny and debate.

A Curley election question
Dr Eric Crampton | Chief Economist |
James Michael Curley, Mayor of Boston four times between 1914 and 1950, knew how to win an election. Curley’s key to victory? Make sure that people unlikely to vote for you cannot vote at all.

I hope it is not what is driving the treatment of voting rights for Kiwis abroad who could wind up disenfranchised.

A century ago, Boston was split down ethnic lines. Curley was popular with working-class Irish Catholics, to whom he delivered political perks and public spending. Wealthier English Protestants footing the bill were less impressed.

Economists Ed Glaeser and Andrei Shleifer looked back over Curley’s record. Curley’s policies were economically ruinous. But they helped to ensure Curley could be elected again and again. His opponents left town, taking their money and their votes with them.

Boston became poorer, but Curley’s support strengthened. Those more likely to vote against him were no longer on the city’s electoral rolls.

It is a sneaky way of achieving the disenfranchisement that the Jim Crow-era southern states handled through rigged voter literacy tests.

New Zealand citizens and permanent residents lose the right to vote if it has been too long since they last set foot in the country. Citizens lose the right to vote after three years, permanent residents after a year.

New Zealand closed its borders in March 2020, with little real possibility of re-entry for either citizens or residents since then.

The MIQ system was vital in keeping Covid out.

But Kiwis abroad, and especially those who often otherwise travel home, have been rightly frustrated by failures to make MIQ work.

About a million Kiwis live overseas. MIQ will ease in 2022. But Kiwis unable to make it back by 2023 will not be able to use the ballot box to express any frustration about the border.

Earlier this month, Justice Minister Kris Faafoi set a review of electoral law, with overseas voting in-scope.

But it will only report back by late 2023.

Faafoi signalled some changes might happen in time for the 2023 Election. Political donation transparency may change. And there may be changes to how Kiwis can shift between the Māori and General Electoral Roll.

But no mention of patching the overseas voting rules for 2023.

Hopefully, the pandemic’s border restrictions will not disenfranchise a million Kiwis abroad.

If the Government chooses not to fix the rules, James Michael Curley might help in explaining why.

On The Record

Initiative Activities:
All Things Considered
  • Graph of the week: Bitcoin hits record price again after record drop in July 2021
  • The Curley Effect: The economics of shaping the electorate
  • The claimed success of Reading Recovery is based largely on a myth
  • A brilliant art scheme
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