Insights Issue 30/2013 - 16 August 2013

In this issue:
• National’s hand-out to home owners | Luke Malpass
• What is the RMA's real purpose? | Dr Bryce Wilkinson
• Europe's demographic lesson | Jenesa Jeram
• All things considered ...
• On the record

National’s hand-out to home owners

Luke Malpass | Research Fellow | luke.malpass@nzinitiative.org.nz
At the National Party conference last weekend there were a number of announcements around housing; some were helpful, and some were less helpful.

The well-reported aspects of the housing announcement have been an increase in the availability of Kiwisaver subsidies and the expansion of ‘Welcome Home’ loans.

Currently, you can claim up to a $5,000 subsidy from Kiwisaver for a first home, with a joint income of $100,000 on a house up to $400,000. This is being increased to an income level of $120,000 on a house priced in Auckland at $485,000.

Despite their prominence in news reports, these policy changes will do nothing to help housing affordability, or to build a single new house. It will make potential purchasers feel a bit better – but the extra subsidy will be absorbed within the price of the house. In fact, it is extending what amounts to a cash hand-out to vendors from taxpayers, mediated through homebuyers, and is poor policy.

‘Free’ cash always seems like a good deal to its recipients. People looking to sell, particularly in the first homebuyer market should be happy; the government has just bumped up their likely sale price.

The Australian equivalent of this, the ‘first time homebuyers’ grant, is widely considered to be poor policy that doesn’t achieve its objective.

Although the headline reform is for councils to have a 10 years’ supply of residential land in their local plan, this is not the most important change. Indeed, this change is unlikely to make much difference. Under the Auckland Unitary Plan, Auckland already has an (albeit, theoretical) similar buffer.

Useful changes to the Act to make virtually all subdivisions non-notified, and this is a positive step forward. This means that if a given subdivision complies with the relevant plan development can go ahead without any extra planning processes. Fixed-fee consents and application processing timelines are also being introduced, as is a sped-up process for small additions to homes, such as a new deck. This is low-hanging fruit, but it is a welcome change regardless.

Long-term supply-side reform is important for the housing market, but the government should avoid the temptation to subsidise people into homes.
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What is the RMA’s real purpose
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
The National-led government is introducing changes to the Resource Management Act (RMA) and fears are being expressed that they will favour economic development ‘at the expense of the environment’.

The Prime Minister implicitly acknowledged this fear last weekend when he referred to the need to strike the right ‘balance between our environmental responsibilities and our economic opportunities’.

Yet is there really a conflict? People naturally want ‘more pay for less work’ and a cleaner environment. The productivity gains from economic development make both increased leisure time and a cleaner environment more affordable.

Indeed, increased leisure time, better health, higher incomes and a cleaner environment is what economic development has delivered in the last century, at least among developed countries.

Danish statistician Bjorn Lomborg documented the gains for practically every measurable indicator at great length in his book The Skeptical Environmentalist: Measuring the State of the World. (His book immediately added that this did not mean that everything was good enough, although that did not save him from a torrent of abuse and denial.)

So if the purpose of the RMA is to help New Zealanders improve their well-being it would not be anti-development. Indeed, it is a myth that the National government that took it through Parliament in 1991 ever intended it to be anti-development.

Of course, in any particular case there could well be a trade-off between higher material incomes and a cleaner environment, just as there may be between higher material incomes and more leisure time.

Take dairy farming. It adds to the income of New Zealanders, but is polluting waterways. By sacrificing some of this income, New Zealanders could have cleaner waterways. There is the trade-off. Both aspects matter for the wellbeing of New Zealanders.

Enter the RMA. Its purpose statement is ambiguous. One part of it requires consideration to be given to the wellbeing of New Zealanders. Doing so requires a balanced approach. Another part advocates ‘avoiding, remedying or mitigating’ the adverse effects of an activity on the environment. That part considers only one side of the trade-off. This is unbalanced.

In short, perhaps the real debate is about what the RMA’s purpose should be – to improve the wellbeing of New Zealanders by acknowledging the need for balance in a particular case, or to sacrifice the wellbeing to the higher cause of ‘protecting the environment’.

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Europe’s demographic lesson

Jenesa Jeram | Research Assistant | jenesa.jeram@nzinitiative.org.nz
Remember the days when economic news coverage of Europe wasn’t about its impending collapse? After years of doom and gloom about the eurozone’s economy, figures released this week from Eurostat suggest that the dark stormy recession cloud may soon be lifted. This may be a relief to New Zealanders, many of whom view Europe as the wise older sibling we can learn much from.

But before the balloons and party poppers come out, let’s take a step back and consider Europe’s challenges. While the headlines about Europe’s economy are encouraging, it might only serve to hide its demographic challenges, specifically the problems faced by an ageing population.

Most countries’ populations are ageing; but they are not ageing at the same rate. With the notable exception of Japan, Europe is greying faster than the rest of the world. While the projected median age for Finland in 2050 is 45.8, for Germany it is 46.8 and for France it is 45.1. Compare this with the East where China’s median age is projected to be 43.8, and for India only 37.9. New Zealand sits in the middle, with a projected median age of 43.7.

So what does this mean? It means fewer people in the labour force to support a larger proportion of state-funded retirees.

This shows up clearly in the old age dependency ratio: the ratio of workers to retirees. Finland’s ratio is projected to be 37% by 2020, meaning 37% of the population will be dependent on 63%, or there will be approximately two workers for every retiree. For Germany and France it is projected to be around 35% (3:1). For China and India the future for workers is not so demanding, with China’s age dependency ratio projected to be 17% (6:1) and India 9.5% (10:1). Again, New Zealand sits in the middle at around 25% (4:1).

Looking at these figures it is obvious that Europe faces big challenges that can only be mitigated by drastic policy changes or large scale inward migration.

But how worried should we be?

Like Europe, New Zealand is also facing an ageing population. However, that doesn’t mean New Zealand must automatically follow Europe’s trajectory. While Europeans may have shattered the illusion of the older sibling that could do no wrong, it has alerted New Zealand to what mistakes to avoid.

New Zealand’s fate will be sealed by the policies put in place today, particularly policies on welfare, immigration, healthcare and pensions. As the middle child between East and West, perhaps it is about time New Zealand policy-makers started asserting a clear identity, standing apart from the old West.

All things considered ...
• Graph of the Week: courtesy of The Economist. The browser wars: it is amazing how competition has done in the internet browser market over time. Netscape anyone?
• Well, there’s the problem with the United States. America’s last three presidents have been left-handed.
• Apprenticeships are back … turns out (surprise surprise) that not everyone needs to go to uni, and that sending lots more people there isn’t necessarily good policy.
• There are clearly problems with both sides of Australian politics, but it is beginning to look like Kevin Rudd’s messianic comeback might not yield electoral returns.
• When the New Zealand grounds were announced for the Cricket World Cup, Christchurch’s allocation was dependent on resource consent for Hagley Oval. A consent has been given, and here is what the ground will look like.
• ’Doctors told: prescribe work ethic’. This must be the headline of the year, and it does point to a serious and difficult issue; the proliferation of sickness and invalid’s benefit recipients over the past couple of decades.
• The Standard website highlights a rather amusing Daily Show Australian election coverage. There are some pretty poorly prepared candidates out there.
• Brian Fallow gives his thoughts on the proposed LVR the Reserve Bank might be putting in train. Unsurprisingly, it might help those with bigger deposits.
On the record
• New weeds choke Europe’s green shoots, Dr Oliver Hartwich, Business Spectator, 15 August 2013.
• How RMA undermines rural property rights, Dr Bryce Wilkinson,The National Business Review, 16 August 2013.
• Rule of law or social licence to operate?, Luke Malpass, The National Business Review, 16 August 2013.

Nick Cater on social media (TVNZ Q+A)

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Nick Cater - The Lucky Culture (Christchurch)

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Dr Oliver Hartwich (TVNZ Q+A)

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