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OECD warns on vulnerabilities from Auckland house prices; Calls for housing densification; Suggests raft of measures to improve NZ's dire labour productivity; Wants RBNZ to have DTI tool

OECD warns on vulnerabilities from Auckland house prices; Calls for housing densification; Suggests raft of measures to improve NZ's dire labour productivity; Wants RBNZ to have DTI tool

By Alex Tarrant

You face economic vulnerability from high Auckland house prices. You need to give the Reserve Bank power to limit debt-to-income ratios. Densify your cities. Consider cutting corporate and income taxes while introducing potential new tax bases. Sort out labour productivity. Start planning for the future of work. Charge for water. Raise the carbon price. Allow more foreign investment. Boost R&D.

Oh, and well done on the growth front these last few years.

Translation: You’re a good student, but spend too much time talking about what you’ll do rather than just getting on doing it. And start thinking what you want to do when you leave school – it’s not that far away.

Like the typical seventh form pep talk, the OECD has basically told New Zealand it’s doing well, but could do better.

When we join the real world after high school we’ll need to become more productive. We’ll need to figure out what sort of jobs we want. We’ll need to take a bit more responsibility for the future.

Basically, it’s time to become an adult.

The OECD (Organisation for Economic Development – a group of rich countries around the world) has released its latest economic report card on us. Quotes are from its executive summary.

“Strong economic growth is being driven by booming tourism, strong net inward migration, solid construction activity, and supportive monetary policy. The fiscal position is sound, with low public debt and a balanced budget.”

That’s alright then.

“The major vulnerability facing the economy is high levels of household debt associated with rapid house price increases, particularly in Auckland.”

Here we go again.

“New Zealand is also exposed to protectionist trade policies abroad and to slowing Chinese economic growth. While the short-term economic outlook is strong, there are long-term challenges from low productivity growth and a changing labour market.”

Everyone keeps saying that. So, what should we do?

“Labour productivity is well below leading OECD countries, restraining living standards and well-being. Productivity is held back by a lack of international connections, agglomeration economies and scale; weak competitive pressures; low rates of capital investment; and meagre research and development activity.”

Thanks. Just rub it in why don’t you.

“Opportunities to address these factors include reducing barriers to foreign direct investment, lowering the corporate tax rate, expanding infrastructure funding options to increase housing supply (preferably through densification), reviewing the insolvency regime and the current provisions for misuse of market power, and increasing support for business innovation.”

Densification? Good luck with that one.

“Employment has shifted towards high-skilled occupations, a trend that is likely to continue with further diffusion of digital technologies, including Artificial Intelligence. New Zealand has high levels of skills but also high levels of mismatch between jobs and qualifications.”

We bring migrants in to sort that out.

“As in other countries, people will need to acquire more initial education in fields in demand and upgrade or reorient their skills during their working lives. Improving education achievement in mathematics would provide more young people with good job prospects in fields such as engineering and computing.

What? We should focus instead on better educating the local workforce? We’ll have to think about that one.

“With more workers likely to be displaced over the next 10-20 years, there may be a need to strengthen New Zealand’s limited arrangements for supporting displaced workers.”

Start planning for adulthood.

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23 Comments

Looking at a list of OECD members wouldn't inspire anyone to shout out
'''Trust them,they know what they are doing'''

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That's a weird statement.
Why not?

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...the OECD, warned about the dangers of property bubbles, and the risk of the subprime turmoil spreading to other asset classes. But in the final analysis, the OECD moved with the consensus: that the situation was not as bad as it seemed. This working paper assesses the OECD’s projections for GDP growth and inflation since the start of the global financial crisis, and asks what went wrong and what lessons can be learned. The authors find that OECD projections repeatedly over-estimated growth, failing to anticipate the extent of the slowdown and later the weak pace of the recovery

http://oecdobserver.org/news/fullstory.php/aid/4344/Getting_the_forecas…

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I don't contest one bit that the OECD is a crappy institution.
The original statement was about the member states, however.

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National Government and who cares about long term impact definitely not national.

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To be fair, if you had to re-apply for your job with your employer every three years, even you wouldn't care about the long-term vision of the company; the short-term projects at hand would be your sole priority.

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Opps. The current democratic system or election system as risk of malfunctioning? Cannot be, can it?

Eric X. Li: A tale of two political systems.

https://www.youtube.com/watch?v=s0YjL9rZyR0 

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Agency theory is a well known phenomenon...you'd hope that perhaps occasionally you might get a politician interested in doing something about it, but perhaps that's too much to hope for. Maybe make 50% of their pay packet deferred for ten years and subject to the country's performance (on various criteria) at that point in time?

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I do very much support this point from the report: “Employment has shifted towards high-skilled occupations, a trend that is likely to continue with further diffusion of digital technologies, including Artificial Intelligence. New Zealand has high levels of skills but also high levels of mismatch between jobs and qualifications.”

The thing is that if we're to remain a economically successful nation, we really need to work with global players such as China who are also shifting to a technological driven economy as they move away from manufacturing.

One thing that is dragging us down is our high cost of living and high NZD since it discourages investment in this area for tech development.

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The problem is what this is getting at is a shift to greater complexity in skilled jobs ... and a widening gap between wages of the masses.& of those who do these (few in number) jobs...

You soon close in on a point when the masses cant afford the output of the economy, - the high skilled workers are equally useless at this point.

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I agree. We need to promote and invest in programmers, coders, engineers, robotics experts, drone pilots/technicians, R & D, 3D printing, alternative fuel sources, renewable energy and so on. As Bob Dylan wrote, "times they are a changin'." NZ has to adapt to the push towards IT and technological advances, or get left behind as the country cousins relying on ideas and concepts that are constantly out of date.

The government of the day could begin developing an area in the regions specifically for the IT and technology fields, along the lines of Silicon Valley. Build some affordable housing, warehouses, labs, offices etc, around large areas of green space, with easy road access in and out with a high-speed train line to the nearest large city to allow easy commuting for city workers.

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You are taking logically, which doe's not happen in Politics

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The problem is how do you keep the averagely to low skilled and educated occupied and out of prisons? They can't all be highly skilled as some are suggesting. This is a problem that not not only does every country in the world face, but many are now facing push back from those disenfranchised groups - manifested by Trump, Macron, Brexit, so called "Islamic" terrorism (I am less inclined to accept that Islam is a cause, rather angry disenfranchised individuals looking for an excuse and support, which any radical will do).

The cracks in the empires are showing as the music begins " Do you hear the people sing? Singing the song of angry men ......"

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Labour productivity growth requires capital investment and better management so won't happen. We have endless supplies of cheap labour so who needs it anyway. Watch out, Third World!

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Our major export commodities are bulk-traded, standard quality products. A very interesting phenomenon called the Dutch Disease occurs immediately following a period of rapid inflation in the price of such commodities. Countries that have traditionally relied on bulk extraction as their economic mainstay see a rise and fall of growth in tandem with its price and volumes. Moreover, the best and the brightest skills chase the prospects of bulk extraction over research and innovation.

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I've uploaded the OECD chief economist's presentation - video in there now. About 17 mins. Some good charts...

Cheers

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Get ready for adulthood!!! but when the country is governed by a party that is for the select few, why on earth are they worried about the future state of the economy that more than 55% of he nation relies on!!!

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The OECD comments , while having some benefits for us , should be duly noted and largely ignored .

We are doing way better than our peer OECD nations , and while our policies are not perfect , they seem to be working for us .

We do need to watch domestic non -government debt , and we do need to lower house prices , we do need to increase productivity , and wage rates will increase in tandem .

The OECD , lest it be forgotten is known for being packed to the gunnels with left leaning academics and bureaucrats who are to say the least tax-happy .

Among some of their more preposterous suggestions is to increase Corporate Taxation , now that 's a good idea to kill the goose .

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Errrrm their suggestion for NZ is to reduce Corporation tax actually.

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Who would want to live in an apartment after the
Grenfell Tower fire
Various leaky building fiascos
NZ laws that do not protect or clearly spell out the position for apartment owners
The grotty, small, battery hen enclosures that they try to pass off as accomodation

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Vote for national and should be blessed if are able to buy even a studio apartment in a suburb of Auckland and who cares about quality, definitely not national as those apartments will be purchased by local average kiwi (As that is what they will be able to afford) and the rich elite kiwi and overseas will easily buy lifestyle house, where national party interest is.

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Maybe okay to rent one, but think twice about buying one. A well-made building with decent sized apartments seems to be a rarity in Auckland. As for buying off the plans...? With the industry's track record here that's taking your future in your hands.

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Thanks OECD, you keep making recommendations and our government will keep ignoring them as per the usual arrangement.

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