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Insights 2: 2 February 2024
Newsroom: Dr Eric Crampton on the effects of ratcheting up government spending in a crisis
Podcast: Max Salmon discusses the current global foreign policy situation with Dr Oliver Hartwich
NZ Herald: Dr Bryce Wilkinson the problem of rising welfare dependency in NZ

A campaign for Wellington, and beyond
Dr Eric Crampton | Chief Economist |
If a council’s zoning plans are wrong, it is hard for anything else to be right.

If building enough housing in places where people want to live is forbidden, housing will be scarce, rents and house prices will be too high, and every other ‘wellbeing’ that councils try to deliver will suffer.

And if plans are too prescriptive about what is allowed where, they will quickly be out-of-step with the needs of a living city.

Wellington’s District Plan comes to a vote on March 14. Council must weigh the advice of the Independent Hearings Panel, which effectively suggested that normal laws of supply and demand do not apply to housing.

Better advice is available.

The City for People coalition of housing affordability groups has pitched a set of measures for the revised plan.

They propose increasing or removing height limits in the city centre.

They would broaden the definition of ‘walkable’ catchments, and of mass transit, so taller buildings would be allowed in more places.

They would maintain the now-optional Medium Density rules so more housing could be built across the entire city.

And they would not expand ‘special character’ protections beyond those set in 2021.

Their suggestions, which reflect the broad consensus of the country’s urban economists, would help enable a lot more housing.

But they do not go far enough.

For too long, New Zealand urban planning was a battle. Some wanted denser development in town while prohibiting suburban expansion. Others wanted suburban expansion and tight restrictions on inner-suburb density. Each blocked the other. Building could not keep up with demand. House prices skyrocketed.

The City for People proposals are excellent for enabling density. But outward expansion also needs to be allowed.

When cities can grow both up and out, it is hard for downtown land prices to skyrocket. Land prices across the whole city are anchored by the ability to turn paddocks into subdivisions. Without that potential competition, urban land prices inflate.

The ability to build new suburbs, even if never taken up, helps make downtown apartments more affordable.

And if new suburbs have higher infrastructure costs than downtown apartments, letting those suburbs cover their own infrastructure costs over time makes far more sense than prohibiting development.

Wellington’s councillors should embrace the City for People’s proposals over the Panel’s, while also allowing development more broadly.

And the Minister for the Environment should support Council if it does.

A legacy to be proud of
Max Salmon | Research Fellow |
James Shaw announced his resignation as co-leader of the Green Party earlier this week. Although retirement was not announced, one assumes it cannot be too far away.

Shaw has remained an interestingly divisive figure throughout his tenure as co-leader. He was respected by many on the right for his pragmatism and disliked by a core of the left for his perceived openness to compromise. All this, despite having led the Greens as they embraced a dramatically left-leaning US-style politics of identity and culture.

Regardless of his political palatability, Shaw will leave office with that rarest of political prizes – significant, positive, and effective policy change. He achieved this in the form of the sinking cap on New Zealand’s Emissions Trading Scheme (ETS). Possibly the greatest achievement in climate policy of our lifetime.

The ETS operates through Carbon Credits issued by the government. Each credit purchased entitles the user to emit one ton of CO2, or to sell on the credit. Companies can generate credits by removing carbon from the atmosphere.

Prior to Shaw’s intervention, there was no cap on how many credits the government could issue. This rendered the ETS functionally useless. If the government was concerned that total emissions would exceed the emissions budget (the number of credits released that year) they would simply release more. The lack of credit scarcity kept prices low and did little to induce behavioral change in emitters.

Shaw changed this. The introduction in 2020 of a decreasing cap on the number of credits released per year reinvigorated the ETS. A cap on the number of credits creates scarcity, causing credit prices to increase, as prices better reflect the value companies place on their ability to emit CO2. A continued decrease in the number of units means that the price will continue to rise, providing companies with a constant incentive to invent, invest, and alter their emissions-producing activities.

Not only this, but the legislation governing the ETS is strong enough that government attempts to tamper with the system have seen them brought before the courts. 

Of course, there is still more work to be done. A cap on total emissions from the present day to net-zero needs to be implemented. The government would also do well to consider a carbon dividend.

Nonetheless Shaw’s contribution is remarkably impressive. A capped ETS is elegant in its simplicity and practical in its adherence to market principles. Shaw should be proud of his achievement.

Local elections
Benjamin Macintyre | Research Assistant |
For those of you who aren’t residents of Wellington’s coffee-infused bubble, you may not be aware that we’re on the brink of yet another local election.

Political nerds around the world have rejoiced at the prospect of the Lambton General Ward by-election – a name as enticing as it is short.

The by-election is to fill the vacancy on the Lambton General Ward Council when Green MP Tamatha Paul achieved promotion from council to parliament.

There are seven nominated candidates, all but one of whom are declared independents. Their visions for Wellington vary wildly, from focussing on our water infrastructure to advocating for a return to feudalism.

However, it is our position here at the Initiative that none of the candidates really get Wellington. None of them has put forward a programme that can revitalise our little capital and inspire a new sense of civic pride in living in the world’s second-most famous windy city.

We have compiled a list of local policies that candidates would be wise to adopt if they have any ambitions of winning. These are:

More road cones: the council has already done an excellent job of piling the streets of Wellington with road cones. Not only do they guarantee that commuters get to spend even more time in their cars, they also provide free housing decorations for Wellington’s large student population. Two benefits for the price of one? It’s a no-brainer!

Free street showers: After nearly four decades of local council bravely ignoring Wellington’s decaying water pipes, we now lose approximately 40% of our water - much of which leaks onto the streets.

Trying to fix all the pipes at once will be too expensive, so instead, it’s time for a cost-effective and innovative solution: reconvert the leaks into free street showers! It’s environmentally friendly, cheap, and would save time for those in a rush to get to work in the morning.

Increase town hall funding: Many councillors support big spending to save Wellington’s heritage-listed town hall. But they don’t go far enough. We need to not only save the town hall but also put it on wheels so we can whip it up Mount Victoria in case of an earthquake. It’ll cost billions and inconvenience everyone, but it’ll be worth it.

If any councillor is brave enough to adopt these policies, they are almost guaranteed victory.

Disclaimer: After this column was written, but before it went to press, Wellington Council announced serious deliberations on spending priorities. We wish them all the best in this task!

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