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Insights 20: 3 June 2016
Dr Eric Crampton discusses our latest report 'Deadly Heritage'
Wellington's 'Deadly Heritage'
Thursday 14 July - Dinner Lecture with Stephen Jennings - Auckland

Social housing policy needs mates
Dr Eric Crampton | Head of Research |
In the mid-2000s, when inflation was running hot and the Reserve Bank was having a tough time keeping things under control, the former Business Roundtable’s Roger Kerr warned that monetary policy needed mates. Government made the Reserve Bank’s job even harder by running expansionary fiscal policy when labour markets were tight and inflation was a problem.

Social housing policy needs mates too.

For a long time, social housing policy in New Zealand meant state houses. But as family sizes changed and people moved, the stock of social housing became less fit for purpose. And much of it was due for upgrading.

And so the National government worked to shift from providing houses to providing income support that helps families rent houses privately.

On first principles, it is an excellent policy.

Selling Housing New Zealand stock in areas where land prices have appreciated considerably can fund accommodation for far more people. Instead of being constrained by available government houses, families would be able to find the rental houses that best suit their particular needs. And private sector providers, knowing that supported tenants would be guaranteed to pay the rent, would be more comfortable in renting to riskier tenants.

But that policy simply does not work as well when zoning is broken.

Building is heavily constrained by rules that restrict new apartments from being built, new townhouses from going up, and new subdivisions from developing. When planning stops developers from building to meet demand, then accommodation supplements mostly fuel bidding wars among tenants. Landlords benefit. Renters – not so much.

It is not rocket science. It is the basic theory taught to intermediate undergraduate students in economics, available in any standard microeconomics textbook. When you tax something like cigarettes, where demand does not change much with taxes, smokers bear most of the burden rather than tobacco companies. If you subsidise rents when housing supply is relatively fixed, renters do not see much benefit.

National’s push away from providing housing to providing income support for vulnerable tenants needed mates in council zoning policies, and in central government’s willingness to help councils make the necessary changes.

The mates seem now to be coming to the table. For those families living in cars, it is just a bit late.

Fishing in troubled waters
Dr Randall Bess | Research Fellow |
‘Give a man a fish, and he’ll eat for a day. Teach a man to fish, and he’ll steal your fish’. At least that is what comes to mind following recent news about commercial fisheries and MPI.

The exposure of misreporting discarded fish and the failure to prosecute is damaging to New Zealand’s longstanding reputation. Since 1986, the quota management system has attracted international admiration for invention and a willingness to try something new.

The system works if fishers comply with reporting rules, but it will not work well if they don’t. It is well known that systems like ours can generate perverse incentives. The worst of these is discarding unwanted fish. This is a serious problem, which is why the Minister is fast tracking a new reporting and monitoring system.  

However, before further stones are thrown at commercial fishing, let’s acknowledge that discarding is a problem worldwide. And it is not just a problem with commercial fishing. It is a widespread problem in recreational fisheries too.

New Zealand’s recreational fisheries management actually requires discarding by making it an offence for a recreational fisher to retain undersized fish. And it does so without any reporting rules.

Minimum size limits and daily bag limits are used for various reasons, including reducing effort, creating a more equitable distribution of catch, and protecting fish that might survive catch and release. Yet their use may not contribute much to improve fish stocks if discarded fish are likely to die.

For example, the mortality of fish pulled from deep water is generally high. Any increase in their size limit could be counterproductive, as undersized fish will likely die when discarded. The use of bag limits could lead to discarding of smaller fish, if fishers prefer to fill their limit with larger fish.

Fortunately, many recreational fishers are aware of the effects of discarding and keep within limits. But, the extent of discarding is unknown, and estimates can have wide margins of error.

There is another saying, ‘Any population of fish in a natural state does not need to be managed. What fisheries managers are trying to do is manage people in relation to their impact on fisheries.’ In other words, fisheries management is a difficult, though required, duty of government.

Over the next year or so, The New Zealand Initiative will aim to work with government, stakeholders and iwi leaders to explore new solutions to problems in the commercial and recreational fisheries, so watch this space.

Treating symptoms is not a cure
Dr Oliver Hartwich | Executive Director |
Auckland’s housing crisis produces some strange side effects. One of them is that the word ‘boarding school’ might acquire a new meaning.

Previously, boarding schools were schools that provided their students’ accommodation. But now that teachers are struggling to find affordable housing, at least one school is trying to organise accommodation for its teachers.

Newspapers reported this week that Macleans College is in the process of buying million-dollar houses it can then let, at a subsidised rate, to its teachers.

Secondary school teachers earn somewhere between $46,000 and $75,000 on average, so they are effectively priced out of Auckland where the average house value now stands at $955,793.

A school buying houses for its teachers is only the latest in housing market quick fixes. Last week, Social Housing Minister Paula Bennett presented a plan to pay social housing tenants $5000 to leave Auckland.

Ironically, this is a premium paid by the very same government that is prepared to pay beneficiaries $3000 to move to cities such as Auckland for work. Let’s just hope that no-one turns this into an $8,000 round trip.

But why stop at schemes to pay people to move or subsidise their accommodation? Maybe it is time to rethink living completely, boarding school style?

It is only fitting that car brand MINI recently entered the housing debate with a few proposals. For a start, if house prices remain maxi then house sizes will need to become mini. And MINI has ample experience of cramming people into small spaces.

At this year’s Salone di Mobile furniture show in Milan, MINI presented a concept apartment. Surprisingly, it’s not about sleeping in their cars.

In beautiful marketing language, they described it as follows: “A chic bedroom and bathroom remained exclusive, while other sections of the home embraced the implicit energy in shared space.” Which is to say that people may only be able to afford a bedroom with an ensuite. They can cook, entertain or work elsewhere.

The MINI idea followed furniture giant IKEA’s presentation at last year’s show which proposed combining kitchens and children’s rooms. The new multi-purpose room could then be used for cooking, washing and playing.

Unfortunately both the MINI and IKEA concepts might fall short of Auckland Council’s minimum apartment size standards. But at least there is no shortage of ingenious ideas for the housing crisis.

I prefer a simple one, though: Build more homes. And build them now.

On The Record
All Things Considered
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  • Please fasten your seatbelt: The longest flights in the world.
  • Team bonding or time wasting: A Post-It battle between two New York office buildings.
  • Sue us: Satirical news portal has a brilliant idea for the Uber App.
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