Perverse consequences

August 29, 2018

Doing something is not the same as doing something useful and can often have perverse consequences.

Exhibit 1:

I used to take bags to the supermarket most of the time.

Now I know they’re being canned, I never take them so I can stockpile them to use to line bins, hold shoes and dirty clothes while travelling, and the myriad other uses I find for so-called single-use bags.

Exhibit 2:

Two friends who own resthomes say they support the increase in caregiver earnings after last year’s pay equity settlement, as do I, but it hasn’t made it any easier to recruit and retain caregivers.

It has also made it harder to recruit and retain nurses who say the difference between their pay and that for caregivers doesn’t make the extra responsibility worth it.

Exhibit 3:

Proposed changes to tenancy law is designed to make renting more secure for tenants.

It will have the perverse consequence of reducing the stock of rental housing when landlords opt for Airbnb or other arrangements which give better returns with fewer hassles.

Exhibit 4:

Home Start grants were supposed to make it easier to buy their first house. But giving people more money without increasing the supply merely pushed up prices.

If government doing something has perverse consequences would it be better if they did nothing?

 


More welfare for well-off

July 6, 2018

KiwiBuild is yet more welfare for the wealthy:

KiwiBuild promised to deliver 100,000 affordable houses to help first-home buyers realise the Kiwi dream.

It promised to help average Kiwis into their first home.

But the income test is anything but average. The income caps are so high they may as well not exist.

KiwiBuild promised to deliver 100,000 affordable houses to help first-home buyers realise the Kiwi dream.

It promised to help average Kiwis into their first home.

But the income test is anything but average. The income caps are so high they may as well not exist.

A solo buyer can earn up to $120,000 a year. A couple can earn up to $180,000.

The median income in New Zealand is just under $50,000, and median household income is just over $82,000. . . 

If the government was serious about helping people buy houses it would address the underlying causes of the shortage – the RMA and zoning constraints; the consent requirements and processes; and the high cost of building materials.

Buying houses that would have been built already, selling them to anyone but the top 8% of income earners, regardless of their asset backing and allowing them to sell again and pocket the windfall gain after only three years is economic and political stupidity.

If the well-off can’t afford to buy houses without assistance there’s something wrong with their money management and/or the housing market.

Providing more welfare for the wealthy won’t solve either of those problems.

As the Taxpayers’ Unions shows, the government promised a masterpiece and has delivered a doodle.


KiwiBuy Kiwi Beg KiwiFail

May 15, 2018

KiwBuild was supposed to add 100,000 houses for those struggling to get into their first home.

But KiwiBuild has turned into KiwiBuy or even KiwiBeg.

The government buying houses that were going to be built anyway will put public money at risk without adding a single extra dwelling to the nation’s housing stock.

The housing shortage is caused by an imbalance between supply and demand.

There are several reasons for that including a consent process akin to trying to run through a river of treacle in gumboots.

Not PC gives some examples of the hoops that add time and cost to the process:

. . .In recent months, for example, and like every regular applicant for building consents, I’ve spent many, many hours replying to council’s Requests for Further Information (RFIs). These days it’s often less about being a designer than it is about being a lawyer, explaining the building code clauses to the processor at the other end of an email.

The simplest RFI responses are to tell the questioner where precisely in the document set they can find the answer to their question, already addressed. But in recent months it’s been getting worse. Among other things, in order to keep things moving I’ve been required to tell council the make and model of a shower and the finish of a bathroom cabinet; the colour of bedroom carpets (accompanied by a calculation to show they’re bright enough); the normal process by which to pour a concrete footing in engineered soil, to abandon approved details because the territorial authority has decided they don’t like them, and to replace them with those they’ve now decided they do; to discuss the acoustics of polystyrene sheets (that are not being used for acoustic purposes); to resupply calculations and statements that the processor has already received, but lost; to explain why handrails are not required on steps with fewer than two treads, and how an opening window into an open lightwell allows light and air into a room; to draw up a list of a project’s “construction and demolition hazards”; to provide mechanical ventilation rates for areas we’ve shown will use natural ventilation; to draw up simple diagrams because processors are unable to read fairly standard plans; to confirm the use of smoke detectors (when they’ve already been clearly placed and labelled on drawings); and (in the absence of council finding anything else to ask about) to draw a detail of a bathroom splashback — just some examples of recent Requests from processors, all of which have wasted my time and theirs, unnecessarily dragging out the consenting process, and all at the time and expense of clients who were once very eager to build. . .

The worst example that I’ve come across was an applicant being asked to draw on a plan where the furniture would go.

If the government was really serious about a long-term solution to housing it would be addressing problems with the Resource Managment Act and building regulations.

It would also ensure council staff stop playing silly beggars with the consent process.

Until that happens KiwiBuild, KiwiBuy and KiwiBeg will be KiwiFail.

 

 

 


$600,000 is cheap?

March 26, 2018

Housing Minister Phil Twyford announced what looked like a big boost to Auckland’s housing supply yesterday.

It didn’t take National’s housing spokeswoman Judith Collins to point out it was old news:

“The previous Government signed off on Unitec’s investment plans to consolidate their campus and develop the spare land for housing.

“The plan change has already been through Auckland Council. We know that because various local councillors were opposing the development.

“All that has happened here is that a land development that was owned by one part of Government is now owned by another arm of Government. A pure re-badging exercise.

“The development at Unitec has already been factored into the plans and predictions for housing development in Auckland.

“All that seems to have happened here is that Mr Twyford wants to use taxpayers’ money to subsidise the building and selling of homes that were going to happen anyway. . . 

Involving the government is likely to add to costs and delays.

It would be far better to leave building to the private sector rather than tying up taxpayers’ money with all the complications that brings.

Then there’s the cost which Corin  Dann raised on Q&A:

PHIL: So, you’re talking medium-density, as pretty much all the KiwiBuild homes in Auckland are going to be medium-density, apartments, flats and town houses, terraces. 500,000 to 600,000 is the kind of range we’re talking about.

CORIN​: So somebody is going to get a $600,000- what, two-bedroom, three-bedroom house in Mt Albert?

PHIL​: Yes. Two to three, yes.

CORIN​: That’s really cheap.

PHIL​: Sure.

Cheap? Since when has $600,000 for a two to three bedroom house been cheap?

Since demand for houses outstripped supply so badly and as Act MP David Seymour pointed out the government isn’t addressing the root cause of that problem:

. . . The Government’s own officials have said that, in Auckland, land use regulation could be responsible for up to 56 per cent, or $530,000, of the cost of an average home.

“ACT has revealed from Written Parliamentary Questions that Cabinet hasn’t even decided whether to consider reviewing the Resource Management Act – rules that determine what can be built where – after 150 days in the Beehive.

“New Zealand does not have a free market in housing. It is a market created and manipulated by government.

“The Government – whether central or local – controls the Resource Management Act, zoning, consents and other factors that influence the market.

“Our housing market isn’t a case of market failure but an example of regulatory failure. New Zealand has planning rules which mean that the market is not able to increase the supply of houses in response to increases in demand. . . 

The RMA and zoning are a big part of the housing cost problem.

So too are building regulations.

Economies of scale with bigger populations don’t explain all of the difference in the cost of building a house in Australia and New Zealand.

If the government is serious about affordable housing it needs to look at building regulations which require more expensive materials on this side of the Tasman than the other.


Popular yes but will it work?

November 1, 2017

Labour will make residential property ‘sensitive’ which will be a de facto ban on foreign buyers.

Anyone who was not either a citizen or resident of New Zealand would not be allowed to purchase existing homes.

“The Government will introduce an amendment to the Overseas Investment Act to classify housing as ‘sensitive’ and introduce a residency test,” Ardern said in her first post-cabinet press conference. . .

Ardern expected the legislation would be introduced by Christmas and passed in the new year.

“This does not impact our Korean FTA, nor will it impact the TPP – if we pass it before it takes effect,” Trade Minister David Parker said.

“Our underlying ethos here has been that if you have the right to live here long-term you have the right to buy here.”

The ban needed to passed fast because if New Zealand signed up to the Trans-Pacific Partnership (TPP) without passing the legislation the TPP provisions allowing foreign investment would then effect other trade agreements under “most favoured nation clauses,” effectively taking away the right to do this for good, Parker said. . .

National’s Finance spokesman Steven Joyce describes the proposal as half-cooked:

The first and strangest thing about Labour’s announcement is that it isn’t an actual ban. Putting houses through a sensitive land purchase criteria is definitely bureaucratic but does not constitute a ban on such sales,” Mr Joyce says.

“There are also all sorts of definitional questions. Is an apartment on the fourth floor of a building ‘sensitive land’? Is a two hectare property with two houses on it that’s being sold for development able to be sold to an international investor?

“This proposal would also be a massive compliance cost for house buyers of all types. For example, will somebody with a foreign sounding name have to prove their citizenship to the real estate agent?

“The whole announcement was very strange,” Mr Joyce says. “There has been no paperwork released and the Prime Minister indicated many of the detailed decisions remain to be made.

“This smacks very much as a ‘bright idea’ with absolutely no detail or evidence base behind it. The Prime Minister even spoke as if the Auckland property market was still rapidly appreciating whereas in actual fact it’s been flat to falling for the last year.

“Finally, if the idea gets over all the hurdles, would it actually work in terms of satisfying the concerns of our trading partners? It appears on the face of it that it would treat investors from other countries less favourably than New Zealand investors.

“This is a policy that’s designed to solve a political problem. Evidence in both Australia and here in New Zealand is that overseas buyers don’t have a significant impact on the housing market.”

Eric Crampton writes on the issue at Offsetting Behaviour and asks whether those on work-to-residence visas will be able to buy houses under this policy.

Even if they can, migrants on work visas will be caught by the ban. That will be many of the skilled people we need for jobs that we can’t find New Zealanders willing and able to do.

Liam Hehir also questions whether the proposal would be effective:

. . . Figures released earlier this year showed that home buyers without citizenship or residency accounted for about two percent of transferees. So while it might be effective as a ban, I wouldn’t be holding my breath about it doing much more than the scratching of a populist itch.

This will be popular but will it achieve its aim of making it easier for New Zealanders to buy houses?

Popular policy isn’t always good policy and only time will tell if this will help make housing more affordable without compromising any free trade agreements and deterring skilled migrants from coming here.


$un$hine has a value

July 12, 2017

It comes as no surprise to me that sunshine has a value:

It is a truth commonly acknowledged that a house that gets more exposure to sunlight is more attractive, especially in ‘temperate’ climates like New Zealand’s. Until now, however, the value of that sunshine has not been calculated.

A study released today by Motu Economic and Public Policy Research Trust is the first research anywhere in the world to specifically evaluate the value buyers place on the sunshine hours received by different property.

“We found that each additional hour of direct sunlight exposure for a house per day, on average across the year, adds 2.4% to a dwelling’s market value,” said Arthur Grimes, Senior Fellow at Motu and co-author of the study.

“We know that sun is important when choosing a house. At present the impact of a building that is designed in a way that will shade its neighbour is controlled by often inflexible regulations that specify building parameters,” said Dr Grimes.

“This research is designed to put a value on sunlight, so that the change can be priced, potentially enabling compensation for affected owners and better valuation of development sites.”

The research looked at houses sold in in Wellington between 2008 and 2014. Wellington was chosen as the city is small and its local economy and housing market were stable over the study period.

“Perhaps the most important attribute of Wellington for our analysis, however, is its geographical topography and how it has intensified. It is not difficult to find houses that, while located in the same neighbourhood, have very different exposure to direct sunlight due to the effects of hills, valleys and nearby buildings,” said Dr Grimes.

 The research used REINZ data and allowed for number of bedrooms, total floor area, the decade when the house was built, access to off-street parking and the date of sale. The researchers then used fine-resolution topographical models from Wellington City Council to determine how much sun a given property received throughout each day of the year, assuming a clear sky.

“For places other than Wellington, the value of sunshine hours may be higher or lower depending on factors such as climate, topography, city size and incomes. Nevertheless, our approach can be replicated in studies for other cities to help price the value of sunlight in those settings,” said Dr Grimes.

Example: Developers are considering building a new multi-storey development that will block three hours of direct sunlight exposure per day (on average across the year) to two houses, each valued at $1 million. The resulting loss in value to the house owners is in the order of $144,000 ($1,000,000 x 2.4% x 3 x 2). Instead of regulating building heights or the site envelope for the new development, the developer could be required to reimburse each house owner $72,000. In return, the developer would be otherwise unrestricted (for sunlight purposes) in the nature of development. If the development cannot bear the $144,000 then the efficient outcome is that the development does not proceed. Conversely, if the development can bear that sum, then the socially optimal outcome is for the development to occur and, from an equity perspective, the neighbours are compensated for their loss of sunlight exposure.

I don’t think anyone could afford to pay enough for me to agree to losing some sunshine.

I was a tomato in a former life. I love the warmth and light and nothing beats the natural sort from the sun.

If I could, I’d pay more for a house with all day sun and pay to protect it.

A sunnier house costs less to heat but it’s not just the financial benefit.

A warmer house is healthier.

Where I live, it’s more important to be warm in winter than cool in summer and there’s a psychological boost from the sun.

Sunshine definitely has a value, but for me it’s a long way above a dollar one.

 


Million $ madness

September 8, 2016

Friends took us to an open home on Waiheke Island.

When they told us the price it was expected to sell for my farmer said,”How many stock units could you run on it?”

At the time we were buying a few hundred acres on our farm boundary for less than that house on a quarter acre section.

That was a few years ago. It seemed mad then and it’s got worse.

The average Auckland house now costs $1 million the price of the average house in Queenstown isn’t far behind and the rush to buy is spreading.

I walked past a real estate agent in Oamaru on Tuesday. Three quarters of the posters had  sold stickers across them. Of those still on the market, one house was had an asking price of $200 and something thousand, a couple were selling for $300 and something thousand and the rest were $400,000 plus.

Houses aren’t assets for most people. Unlike productive land they usually cost more than the owners can make from them.

Even if the value of properties is increasing, the owner only realises the gain when they sell and if they are able to buy somewhere else to live which costs less.

So why do we have this million dollar madness?

Demand has outpaced supply.

Solving that requires reducing demand and/or increasing supply.

Capital Gains Taxes haven’t stopped steep price rises elsewhere and Eric Crampton cautions that it’s too early to tell if Vancouver’s tax on foreign buyers has worked and anyone telling you otherwise is trying to sell you something.

If buying a house for eye-popping sums, is silly, what about the $1.35m paid for Colin McCahon’s painting The Canoe Tainui?

The artwork was owned by the late Tim and Sherrah Francis, and was on the market for the first time in 50 years as part of a sale of their extensive private collection last night.

They bought the painting in 1969 for $500 and took it with them on their diplomatic postings around the world. . . 

Paying so much for it now might look like million dollar madness.

But only time will tell if it’s a good investment and that might not be what motivated the buyer anyway. Not everyone who can afford fine art is looking to make money from it, sometimes the beauty of the buy is enough in the eye of the purchaser.

 

 

 

 


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