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Insights 9: 17 March 2017
Read about the Initiative's achievements in 2016
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Eric Crampton: To tax cut or not to tax cut - RadioLive

Time to slash housing’s Gordian knot
Jason Krupp | Research Fellow |
This week business journalist Bernard Hickey took his pen to the subject of housing, listing the factors that have unintentionally conspired to create New Zealand’s housing affordability crisis.

It is a piece worth reading because it offers a glimpse into the complex and intertwined regulations and constraints that prevent the housing market from functioning like every other market.

Hickey calls it a Gordian knot.

At the core of this entanglement lies an infrastructure problem. As he describes it: “[Auckland] Council has few incentives to invest heavily for growth when the Government in Wellington gets most of the benefits and does not have to pay for local roads, some of the railways and none of the pipes.”

This is a point the Initiative has been making since 2013.

Fast growing councils have been quite open about limiting the amount of land they release for development because it means less expensive infrastructure investment. These investments may pay off decades later, but the costs have to be worn by ratepayers now.

Our solution then was bold and simple: Central government should incentivise councils to embrace development by providing them with a grant equivalent to the GST for a set period.

We are doubling down on this recommendation today by making it our first policy recommendation for the 2017 election.

If this policy were enacted for one parliamentary term fast-growing councils would push housing-related infrastructure projects to the front of the line because there was a financial reward for doing so. And a strong incentive it is too: the value of residential building in the January year was $12.5 billion, and 15% of that is $1.9 billion.

The policy will have other positive spill-over effects too. Local officials are likely to take a very dim view of any red tape or bureaucratic processes that threatens their new revenue stream.

In short, this policy would make the home building boom that New Zealand so desperately needs to tackle the affordability problem a real possibility.

As Hickey’s article makes clear, there are other tangles to the housing knot. But our research in Europe shows that complexity is a small barrier where the incentives are clear and strong enough.

With surpluses in hand, it is well within the government’s power to adopt this policy. Whether it does so depends on if there is a will to cut through the Gordian knot, or if we policymakers are content to fiddle while Auckland’s housing market burns.

In search of the perfect planning system
Dr Eric Crampton | Head of Research |
One decent policy rule is never to make the perfect the enemy of the good, but to always keep the perfect in mind anyway. But sometimes there really is the chance to aim for the perfect.

The Productivity Commission’s Better Urban Planning report is due for release in two weeks. The Commission’s blue-skies remit was a thorough restructuring of the urban planning system.

There is reasonable consensus now on the current system’s problems.

While the RMA provides a flawed framework for developing reasonable urban plans, it broke thoroughly in implementation. Urban planners shoehorned restrictive development plans into the new framework, with onerous consultation mechanisms layered over the top. This was partially due to planners’ existing outlook, and partially to very real infrastructure financing constraints.

Councils consequently dribbled out zoned land to ensure development contributions would more quickly cover infrastructure costs. And they saw little gain in fighting back against NIMBY opposition to intensification.

They also saw little gain in other obvious approaches: While Auckland Council could fund at least a billion dollars’ worth of infrastructure development, debt-free, by selling off Council-owned golf courses for housing development, people living in tarpaulined carports in South Auckland are less likely to vote in Mayoral elections than are more affluent golfers.

A better planning system would start from the ground up, setting incentives so Councils would want to allow development. Better infrastructure financing would let the owners of new developments pay those costs off, over time. Levies on the increase in property values that comes with upzoning could sometimes be appropriate for funding infrastructure needed for increased density. And planning processes should look rather more like the speedy Independent Hearings Panel.

But even if the Productivity Commission delivers us a high-level vision of the perfect planning system, it would be a long time until it helped ease the housing crisis. Legislative drafting alone could take years.

Worse, the prospect of better rules to come could encourage people to delay development.

Easing the housing crisis requires faster measures: ones that are good, but might not be in the perfect plan. Giving Councils the GST collected on new residential construction in their districts for the next few years, as Jason Krupp suggests in our Insights 1 column, would encourage them to bring forward development, and help cover infrastructure costs.

And, hopefully, at the end of that period, a far better planning system will be ready.

Bad and Annoying Animal Management Act
Jenesa Jeram | Policy Analyst |
Any cat owner will tell you that cats are magnificent and regal creatures, descended from royalty and that they deserve to be treated like nothing less.

Those cat owners are, of course, deluded. Behind the contented purring and affectionate head nudges lies the heart and mind of a killer. A bird killer, to be precise.

Most of us already know that cats are evil. But other animals are just plain loud and smelly.

Thankfully, local government is looking to reduce the things I find annoying, regardless of whether some people bizarrely find them enjoyable. While the Prime Minister has bravely opened the public debate on superannuation, Wellington City Council is opening up the debate on animal bylaws.

Wellington City Council is determined to not only herd in the cats of this great city, but the goats, roosters, alpacas, bees and pigeons as well.

What we need is a comprehensive set of animal planning laws: a Bad and Annoying Animal Management Act (or the BAAAMA, as it will be affectionately known).

First, we should assume that what is good for most people – and particularly children – should be good for everyone. Alpacas are adorable and bring many people joy. We should therefore legislate to have at least one alpaca on every street corner.

Rooster ownership, on the other hand, ought to be zoned. While rooster numbers in Wellington’s urban areas are low, there is a “high probability” they will crow loudly. They are likely to be a nuisance. Not unlike pesky first year students who are also very loud when the rest of the city is trying to sleep. Zone the two groups together, I say.

The council is proposing a ban on feeding animals in public places. That seems entirely reasonable. There is nothing worse than relaxing on the beach next to a bunch of kids feeding their leftover chips to a swarm of seagulls.

By the way, don’t even get me started on those darn pigeons treating the world as their toilet.

Sure, feeding the ducks is a treasured childhood memory for many. But why should the rights and freedoms of future generations get in the way of (excuse the pun) pet peeves? Besides, who could possibly regret a planning policy that has the good intention of protecting our own backyards?

And if there is any disagreement, luckily the council will consider establishing a “resolution pathway” for pet-related dramas.

This piece was in no way influenced by the fact Gareth Morgan’s Opportunities Party is currently on the hunt for candidates. That would be putting the cat amongst the pigeons.
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