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Insights 17: 13 May 2016
Roger Partridge: To get the teachers our children deserve we need to pay them what they are worth
The Health of the State
Thursday 14 July - Dinner Lecture with Stephen Jennings - Auckland

Lessons learned best from others
Dr Eric Crampton | Head of Research |
It is bad enough when the government compulsorily acquires your house for a public purpose, like building a road or railway line. Sure, the government will hopefully pay a bit more than the going market rate for the property. But people’s lives are often tied up in their homes. The price on offer, though above the going rate, would not be a price some of those owners would accept without the underlying threat of force.

The owners pushed out might be able to console themselves that, at least, it was all for the good of the country. But that gets a bit harder to do when the government turns around and hands the property over to a developer to build strip malls or apartments.

The Productivity Commission’s 2015 report, Using Land for Housing, suggested compulsory purchase as a promising way for city councils to accumulate small parcels of land for larger redevelopment. Individual owners of small lots in lucky locations can overplay their hands in negotiations with developers, ultimately blocking redevelopment. And so compulsory purchase can look like a useful tool.

George Mason University law professor Ilya Somin wrote the book on American eminent domain powers for private redevelopment. When a public interest veneer allows public takings for private profit, the consequences can be rather unfortunate – and especially so for communities that have a harder time making their voices heard at city planning meetings.

But things in America have started turning. Many states now restrict cities’ use of eminent domain so it is harder to use eminent domain powers for private redevelopment. 

And there are alternatives to compulsory purchase.

Here in New Zealand, one prominent businessman reports that he got his start in development decades ago by buying options to purchase promising sites, then selling those bundles of options to the supermarkets that were then starting up. This kind of option contracting is hardly new and is surely preferable to forced sales. But it requires that Council zoning be flexible enough to allow development in different places.

Some lessons are better learned through others’ experience. America’s experience with public takings for private redevelopment is not one New Zealand should wish to replicate. It would be particularly disappointing for New Zealand to take up an American practice just as America starts turning away from it as being just a bit too draconian.

Slow, complex and unclear
Khyaati Acharya | Policy Analyst |
The Overseas Investment Act 2005 is a piece of national legislation doused in controversy. It is complex, time-consuming, and difficult to navigate. And yet, since 2005, there have been markedly few attempts to alleviate its onerous requirements.

Suffice to say, a fresh look at the overseas investment regime is well overdue.

Much of the antagonism towards the legislation revolves around the slow, cumbersome and unpredictable investment application process. But all applications are assessed on a case-by-case basis; key to a robust regime is ensuring the legislation operates efficiently, with clear guidelines and explicit reasons for why an application may be declined.

It was a relief then, to see a government press release last week, announcing future changes to the overseas investment regime aimed at improving its efficiency.

Some of the current constraints facing the Overseas Investment Office and impeding the timely processing of applications include limited resources and insufficient staff numbers. Land Information Minister Louise Upston announced that boosting investment application fees between 8 and 166 percent will enable LINZ to “hire more staff to reduce the time it takes to assess applications and improve monitoring and reporting”.

Fees as they stand are not inconsiderable, averaging around NZ$20,000 per application. But for a potential investor looking to purchase an asset worth upwards of $100 million, they probably care less about higher fees and more about faster application processing times and getting on with business.

While government has conceded to this change, it does not mean they should not also consider other, more substantive and potentially more effective changes.

“The reality is,” as MinterEllisonRuddWatts Chairperson Cathy Quinn recently argued, “that New Zealand has relied on, and continues to need, foreign investment to grow and develop New Zealand business for the economic prosperity of our nation”.

Quinn’s recommendations for overhauling the existing regime broadly align with the Initiative’s policy recommendations. Our first priority is to adopt a general policy of non-discrimination towards overseas investors. Foreign investors should be neither subsidised nor discriminated against as compared to local investors. Further, the legislation should consider the sale figure received by the vendor as a benefit in assessing applications. Better still would be to narrow the definition of ‘sensitive’ land as public opinion permits.

All the same, this is a small victory towards an improved investment regime and, hopefully, the first step towards legislation that better reflects the major role foreign investment naturally plays in a small, open economy like New Zealand's. 

Today is bittersweet, as it is Khyaati’s last day at the Initiative. We have had the privilege of working with her for three years, and wish her the very best as she prepares to move to Melbourne.


If it walks like a dog
Jason Krupp | Research Fellow |
The first rule of journalism is that “dog bites man” is not news. But “man bites dog” is worth a news story, an editorial demanding government do something about it, and an in depth feature exploring the motivations of the biter.

The second less well-known rule of journalism is that if all you have is “dog bites man”, then shave the dog, slap a pair of trousers on it, and encourage it to bite.

Then there’s some stuff about objectivity, fairness and balance as I recall from my days at journalism school, but that was a long time ago and I’m not sure it still holds.

Don’t believe me about rule one and two?

Well, consider a recent story in the Herald which claimed that nearly 60% of homes sold to foreigners in the last three months went to Chinese investors. For race baiting politicians, it must have seemed like all their dreams had come true. But when you dig into the figures it turns out foreigners only accounted for 474 of the 12,000 house sales that took place in the three-month period under review.

And if attacking New Zealand’s favourite pastime of foreigner shaming were not enough, the media has also shaved the sausage dog. That is to say recent reports claimed that eating processed meat could increase the chance of contracting colorectal cancer by 17%.

The big-C is no joke, and neither is a 17% increase, until you look at the chance of contracting colorectal cancer in the first place. According to the Centre for Disease Control, a 40 year old American man has a 0.26% chance getting this type of cancer in the next 10 years. A diet heavy on sausages and bacon bumps that up by 0.0442%.

When you put it this way the extra rasher at breakfast starts to look less and less like a painful death sentence.

It would be ridiculously naïve to expect the media to stop repackaging dogs as men. This is particularly so in an environment where the industry is in major consolidation mode, and this kind of content is cheap to produce. The onus instead falls on the reader to be critical. If it walks like a dog, barks like a dog, ignore the trousers, it’s a dog.

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