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Insights 11: 9 April 2021
The Dominion Post: Eric Crampton says cities need clear-cut options for expansion
Podcast: Eric Crampton on safety measures ahead of the opening of the trans-Tasman bubble
NZ Herald: Matt Burgess says to support lower emissions, oppose the Commission's plans

Stronger borders
Dr Eric Crampton | Chief Economist |
Bubbles are beautiful but fragile things. Not letting the new one break matters.

New Zealand’s coming free-travel area with Australia is not the world’s first. Covid-free Palau and Taiwan beat us to it last week. But it will be the most substantial one thanks to strong trans-Tasman links.

The closed border imposed massive costs on families kept apart; on communities that relied on trans-Tasman tourism; and, on businesses that depend on travel between the two countries. The last on that list may be underappreciated. In 2019, the stock of Australian foreign investment in New Zealand was $129 billion. Not being able to pop round to check one’s investment for over a year can have consequences.

Maintaining quarantine-free travel with Australia is important. Expanding the bubble to include other Covid-free places like Taiwan and the Pacific Islands should be next. Both require keeping Covid out. Localised outbreaks would cause travel headaches, but broader outbreaks could break the bubble.

New Zealand’s MIQ system has barely held together over the past year. Otago public health researchers tallied thirteen border failures since July, and at least six internal MIQ facility failures. Despite being a year into this, basic errors continue to be made – like gathering visitors from different facilities onto the same bus for trips out to the park.

Australians do not bring Covid into MIQ, though they might catch it there. Poor MIQ practice means new arrivals can infect departing guests. Because the government knows that MIQ practice has been shoddy, it does not trust the system to handle more people from riskier places like America, Canada, and the UK.

So the government will de-commission MIQ spaces rather than let them be used, and has halted travel from India entirely.

If there were no way of improving safety in MIQ, limiting risk by limiting numbers would be the only option until we are all vaccinated.

Alternatives are worth trying.

Testing every guest every day would sharply reduce transmission within MIQ. Infected people could quickly be shuttled to quarantine.

Cheap, accurate, and non-invasive saliva-based PCR testing is available. Rako Science has capacity to test every single person in MIQ, every day. But the Ministry of Health’s Request for Proposals only seeks testing of border workers – who are now vaccinated and lower risk.

Tightening the border system matters if we want to keep the bubble. It could also let us re-commission those MIQ spaces, so more Kiwis could come home.

Planning is the externality
Matt Burgess | Senior Economist |
Data from the OECD reveals extraordinary increases in the cost of housing in most countries.

Since 2000, house prices have gone up 39% after inflation across the OECD. The worst-performing countries include the United States (up 46% since 2000), Great Britain (85%), Australia (119%) and Canada (159%).

At the top of the list, coming dead last, is New Zealand. House prices here have risen a whopping 177% after inflation since 2000.

And this dreadful result precedes the Reserve Bank’s quantitative easing which began in March 2020.

Since 1991, when the Resource Management Act passed, real house prices have risen at nearly 10% per year. The OECD average for the same period was 1.5%. New Zealand has made it too hard to build a house.

In theory, urban planning promises to bring better knowledge, information, data, theory and methods to land use.

In practice, planning is the know-nothing recent graduate from the University of Whatever who declines your request to put a turning bay on your property because that would affect the aesthetic appeal for passers-by. Your family will just have to reverse out onto the four lane urban motorway.

For thirty years, the RMA has led to nonsense like this for the crime of trying to build a home.

It does not have to be this way. Planning exists to protect homeowners from ‘externalities’ – the risk that a factory or skyscraper could go up next door.

But planning can do this job without making life so difficult for house builders. The US economist William Fischel has shown the invention of comprehensive zoning in 1916 did not lead to rising house prices. Only after environmentalism found planning in 1970, and later when houses came to be a class of investment, did house prices take off.

Planning has become the externality, and nowhere more than in New Zealand. Our runaway house prices are the inevitable result of putting delays and risk onto developers.

The solution to the housing crisis is not more planning, as last year’s Randerson report on the RMA concluded. And it is not more subsidies and taxes.

Instead, we must recognise planning’s core function, re-consider the role of central and local governments in land use decisions, and fix the council incentives underlying all of this chaos.

Rocketing house prices suggests New Zealand has got urban planning more wrong than any other OECD country. Above all else, planning reforms must make it easier to build a house.

Own it all!
Steen Videbeck | Research Fellow |
After much finger-pointing, the Government has finally found the real culprits behind high house prices. Yes, it was the evil ‘speculators’ all along.

But what would drive seemly normal people to want to own two, and in some extreme cases, three properties? How do speculators become speculators?

The surprising answer is Monopoly. Yes, the beloved board game, enjoyed by millions worldwide, has been secretly corrupting Kiwi children for years. It makes perfect sense when you think about it. The game is literally about buying up all the properties and charging high rents to unsuspecting tenants.

Thankfully, Hasbro, the makers of Monopoly, have seen the error of their ways. Fresh from their successful Potato Head rebrand, they have now set their sights on making the world’s most popular property trading board game more caring.

How? By modernising the Community Chest cards. You can even vote for your favourites here.

On the way out are boring real-life events like, “Doctor’s fee - PAY $50”, “Bank error in your favour - COLLECT $200”, “You inherit $100” and the plausible, but unlikely, “You have won second prize in a beauty contest - COLLECT $10.”

In come new ‘it’s cool to be nice’ cards.

Unfortunately, the proposed cards have left me feeling a bit confused.

And it’s not just the “Meow! You knit sweaters for the hairless cats at your local animal shelter - COLLECT $20” card. There are deeper problems.

And yes, these are all official proposals.

Take, for example, “You volunteer to run the social media accounts for a non-profit art centre, and you meet some pretty talented people! - COLLECT $100”. Wait, isn’t the whole point of volunteering that you don’t get paid?

Then there is “You help your neighbours clean up their yards after a big storm - COLLECT $200”. Profiting during a disaster. Nice one!

And what about “You didn’t shop local! - PAY $50”. I wonder if buying a Chinese-made American board game counts as shopping local.

This is followed by “You organise a bake sale for your local school - COLLECT $25”. Charity embezzlement isn’t cool.

The turtles will be pleased with the “You help a neighbourhood party – but you didn’t recycle your trash - PAY $100” card.

But the final straw is, “You rescue a puppy - and you feel rescued, too! - GET OUT OF JAIL FREE”

This has gone too far. It is time to take back our favourite game. So, I urge you to play unadulterated Monopoly with your children over the school holidays. Let them experience the thrill of exorbitant rents and untaxed capital gains. While it is not as fun as real life, it’s still fun.

On The Record

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