Alex's politico-economic blogroll: The Greens' Clendon doesn't like sprawl; Farrar says our borrowing's unsustainable; How Auckland's rate rise could hurt Hide

Alex's politico-economic blogroll: The Greens' Clendon doesn't like sprawl; Farrar says our borrowing's unsustainable; How Auckland's rate rise could hurt Hide

Here's my politico-economic blogroll for the week. Some good fun down here in Wellington what with the government accounts, Savings Working Group and everything else over the last few days.

Week also included the annual press gallery party which Bernard came along to as well (he actually stayed longer than me - that fizzy water was pretty good eh Bernard). (Cheers Alex- ed)

What's more, I just bought a holiday cricket set from Kathmandu for NZ$30. It was down from NZ$90. That is called pre-Christmas discounting folks. Fantastic. There is no depression in New Zealand.

I welcome any links to other posts you've seen in the comment space below. Hope you have a great weekend all.

From the right

1. NZ$300 million a week is unsustainable, cut spending! This is from Kiwiblog's David Farrar after the government announced it would increase its borrowing program to NZ$300 million a week when it released it's half year economic and fiscal update.

This level of borrowing is simply not sustainable. The answer is not to tax and spend as Labour has promised (they have indicated they will increase at least the top tax rate) but to restrain or even reduce spending.

The OBEGAL (Operating Balance Excluding Gains and Losses) is forecast to just his surplus in 2015. To achieve that will require massive fiscal discipline – no spending sprees in both the 2011 and the 2014 election years. And even after 2015, massive restraint will be needed to give us a cushion going forward.

By 2015 core expenses are forecast to be 31.7% of GDP, down from 34.9% this year. That is going in the right direction but still too high in my opinion. I’d like to see both National and Labour indicate what their desired level of spending as a % of the overall economy is. These would not be legal straitjackets, but targets they can be measured against.

I think a realistic long-term goal is in the mid 20s – maybe as high as 28% but no higher. If we keep spending down, then the average economic growth will be significantly higher – and that is how we create jobs, grow wages, and close the gap with Australia.

2. Will Auckland's rate rise be the (political) death of Rodney Hide? NotPC has a go at Rodney Hide after the Auckland Council indicated it would look to raise rates by 4.9% in the 2011/12 year. This comes after an Auckland planning document (which was written by Hide) indicated a rate rise of 3.9%. Hide said he was disappointed about this as a ratepayer, but he wouldn't tell me what he thought as Local Government Minister. I should have asked what he thought as MP for Epsom.

Ironic, isn’t it, that the both the super-sized government and the rates increase were delivered by the leader of a party purporting to believe in lower taxes, smaller government, and restraints on political power.

Apparently not.

So given that Epsom voters will be opening their rates demands about the same time next year they’ll be opening election campaign literature—many of whom will be wondering why their MP devoted all his party’s hard-won political capital to raising their rates, and to expanding the power of planners over their lives and property—I’m looking forward to watching voters to take a very large Rodney on him at every public meeting, and in the final vote.

3. Here is Hide in Parliament last year avoiding saying how much the implementation of the Super City would cost. Rather farcical.

From the left

4. Drown government in a bathtub. The Standard bloggers have been having a good ole go at the government for managing to run a hefty deficit while maintaining the tax cuts were fiscally neutral. Eddie at The Standard reckons he knows what's going to happen next.

Grover Norquist put it colourfully when he said “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

This is what is happening all over the world. During the boom years, governments everywhere cut taxes, even Left ones like Labour, who at least cut them to the bottom end more. It seemed like they could afford to, with the massive surpluses they would otherwise have been running (except the UK and US, which ran deficits even in the boom years). Along came the great recession and more tax cuts, this time to stimulate the economy – even though the evidence is that greater government spending is more stimulatory.

Now, the deficits are out of control here and abroad. Does anyone say ‘hey, lets just return tax levels to where they were when we didn’t have a structural deficit?’ No. Because the Right has been very very successful, with the centre-Left’s meek acquiescence, in making raising taxes nearly impossible. Instead, the ‘only solution’ is austerity cuts to public services.

There’s no crisis without opportunity, and this crisis is playing perfectly into the right’s hands. We’ll be told that ‘extravagant’ public services are no longer affordable and health and education will get big cuts. We’ve already been softened up for welfare cuts. And asset sales will also become ‘necessary’ to pay off our debts.

We’ve been here before – 20 years ago. Starve the beast worked then, and it’s working now.

5. Solution to Auckland housing is not sprawl. Greens MP David Clendon elaborates on his thinking about Auckland house prices and how to provide cheaper housing in our biggest city. He doesn't like the sprawl idea because we would have to provide costly infrastructure to the fringes. Releasing greenfields for development is only a short-term solution, he says. We'll get his solutions next week.

Unfortunately, it seems the government has brought into the myth that the best way to increase housing affordability in Auckland is to encourage greenfields development on the fringes of our cities.

This is at best only a short-term solution to housing affordability. Houses on the urban fringe may cost less for first time buyers but over time they’ll cost us all more. Why? Well, the cost to local and central government of providing new infrastructure and services (e.g., waste disposal, water, electricity, roads, public transport) to spread out developments on the peripheries of cities is high.

...

Right now, it might still be cheaper to buy a house in Ranui and commute than live in the CBD. But given the various reports coming out about the likelihood of increases in oil prices (and petrol has cracked the $2.00 / litre mark again) , it seems very likely that the cost of transport (particularly private vehicles) will rise dramatically in the near future.

Finally, the more people live on the outskirts of our cities in areas with poor public transport the more likely they are to commute by car. Added congestion on motorways heading into the cities costs us all in terms of lower air quality, wasted time, and stress.

And, of course, when they get into town they need to park their cars somewhere - taking more space in the centre of our cities that could otherwise be used more profitably for housing or commerce.

Economics blogs

6. We borrowed to buy bigger houses. Economist Matt Nolan at TVHE thinks we were spending too much building bigger houses. Matt was reading Stats NZ's new Institutional Sector Accounts, which showed we are still spending more than we earn, although our dis-savings have been getting smaller.

The key thing to differentiate for me here is – were we spending too much building houses, or simply building up the mortgage in order to consume excessive amounts of non-housing goods.  My impression is generally in the former camp, and I’m hoping that a bit of time looking at this data will give me a clearer idea of which view is more reasonable.

I continue to believe that any adjustment in the NZ economy will come through investment in housing, rather than through a large scale shift in household consumption (which if anything has been restrained in NZ).  In this view we borrowed to build bigger houses, not to buy plasma TVs.  So it will be interesting to see.

7. Our youth unemployment high relative to adult unemployment. Eric Crampton at Offsetting Behaviour blogs about a chart in the Economist showing we're up there with only Sweden and Luxembourg in terms of our youth unemployment rate being more than four times higher than our adult unemployment rate.

I'd noted that youth unemployment during the current recession, relative to adult unemployment in prior recessions, seemed really high. I'd argued that it looked likely due to the elimination of the differential youth minimum wage.

...

It would be awfully interesting if anybody had compiled a dataset of OECD countries' youth minimum wage policies. The multiple's correlate with the ratio of youth to adult minimum wage, coupled perhaps with some measure of the bindingness of the minimum wage, would be worth investigating. 

Video

8. Here's Labour's Jacinda Ardern seeking to table her own press statement in Parliament. Ha, was that was because no one would have read it otherwise? I guess you learn from experience.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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15 Comments

That " pledge card " showing John Key saying " What she said  " , opposite the pledges made by Helen Clark's niece ............... oh man , that is priceless !

But for sheer unadulterated  pathetic-ness , Jacinda Ardern takes the cake ( or looks like she just dropped it on her shoes ) ................ And she is paid how much , by the tax-payers ? And  she does what  , in exchange for all that moola ? ........... Classy lass ........ ah ha ha de haaaaaaaaaaaaaaaaaaa !!!!!

At least $138K by the look of it....I googled her.....had to, 2  1/2 years.....wow she's achieved a hell of a lot I bet...

not.

regards

'Our debt levels are not low, we are infact one of the most indebted nations in the world. You need to divert your eyes away from the government debt sector they have us trained on and divert them for a minute to all sectors of debt which currently stands at June 2010 $442,775 billion, 332% of GDP, annual interest $34,623 billion which was 18.27% of GDP, $101,876 per person.'

Golly, thanks for clueing us in to something we've already been discussing here for years.

Oh but the rabid right think private debt is good as that means its uh.....um....productive, yet our productivity is ooh dropping....

Well spent by the private sector....and of course that debt has to be serviced which means that something like 7% of a businesses costs is being lost?....just how much left is profit?  I wonder what the effect on GDP is? and here the right is whinning on taxes.....yet noting on debt costs.......if rates start to rise I have to wonder jsut how many businesses will gout out of pretty quickly.....those with cash move in at that point...

regards

 

Ever since John boy got in we have been hearing what our weekly borrowings are so for interests sake could someone tell me what our weekly overseas borrowing were for the last decade - an average would do for each year.  

 

I think Labour paid down overseas debt so it was -ve....and we've gone from a booming economy to a collapsing one....so really there is no comparison....

What we do have to do is raise taxes....which it seems is off the political agenda in all parties at the moment....instead we get tax cuts will boost the economy....which in the last decade simply have not worked....but as long as the voters are stupid thats how it will go.

regards

Do try to put down the red flag for a bit steven....you clearly have stuff all understanding of what went on for the last 12 years....if you want to pay more taxes who is stopping you...just send English a cheque...oh of course you mean you want others to pay more tax.....figures!

Yes, that seems a reasonable position steven. And don't let the jack-booted goose-steppers put you off.

But I don't agree with you about productivity and immigration though.

See you are not alone steven...there are others who want others to pay more in tax...aint that right John Kelly...!

Clendon parrots the myths about urban sprawl and the need for density, that are doing just as much damage as the early 2000's myths about the new paradigm for endless economic growth based on low-interest debt.  Just as very few people were right in 2003 about the existence of a new bubble based on mortgage debt, very few people are right today about the futility of "urban limits" and their role in economic bubbles of an unprecedented magnitude to anything experienced before.

It is my opinion that World Bank Economist Alain Bertaud should get a Nobel Prize in Economics, for his papers that show the following:

".......While a high or a low density does not have necessarily negative effect per se, a positively sloped density gradient constitutes always a liability for a city. For a given average density, in a city with a positive gradient, the median distance per person to the CBD will always be longer than in an equivalent city with a negative gradient. It is reasonable to infer that in a city with a positively sloped gradient ALL trips would be longer......:"

".........SPATIAL DISTRIBUTION OF DENSITY itself is more important in city performance than whether a city is monocentric or polycentric......"

"...... As predicted, land prices are going up because of the supply constraint imposed by the UGB, developers respond by developing higher density housing in the vacant areas between the limits of the current built-up area and the UGB. This of course has a tendency to reverse the slope of the gradient.........In the long run, the higher density which will built-up on the vacant land along the UGB will increase the accessibility of suburban shopping malls at the expense of the relative accessibility of the CBD. This is not the outcome that the planners intended......."

 "......instead of being able to make a trade-off between distance and land consumption........"

".......the practical outcome of a positive density gradient is longer trips for more people....."

Bertaud's "Figure 9" plots outcomes for his sample of cities with "Average distance per person to the CBD" on one axis, and "City built-up area" on the other, to compare the efficiencies of each city's "spatial distribution of density".

"....... The calculation of d allows us to have a measure of the diseconomy brought about by a positively sloped density gradient. Moscow, because of its positive density gradient has an average distance d per person to the center that is 32% longer than an equivalent city (i.e. same population, same area and of course same average density) that would have a negatively sloped gradient similar to, say, London or Marseille. While the variations in the value of d represent a geometric concept, there is no doubt that there should be a strong correlation between d and the average distance traveled everyday, whether the city is monocentric or polycentric. Portland and Curitiba perform barely better than Moscow and significantly worse than the other cities, this is the effect of the "disturbed" density gradient of these 2 cities....."

Bertaud's "Figure 10" graphs the cities according to "comparative dispersion index".

".......We can see that market cities have different values for ρ that are clustered between 0.82 for Jakarta to 1.03 for Hyderabad. The three utopian cities are clear outliers, with the milder utopian cities Portland and Curitiba performing significantly better than the utopian cities but not as well than the market cities.

We should note also that many urban commentators often associate higher densities with more compactness and shorter trips. We can see from Figure 9 and 10 that there is no necessary correlation between shortness of trips and densities. The way densities are distributed in the built-up area is far more important than the value of the average density........"

".....Dispersion increases the operational cost of a city by increasing the length of networks. It also increases the use of energy for transport and as a consequence it increases also air pollution. One should note that there is no direct inverse correlation between density and dispersion, contrary to what is generally thought.......

"........When planners try to improve urban design, i.e. when their intervention stays at the neighbourhood level, the market can easily test their success or failure. For instance, the impact of a well designed, planner initiated, pedestrian street can be assessed by the increase or decrease of property values along the street, reflecting the positive or negative acceptability of the design by the general public. It is expected that by trials and errors planners could develop an experience, probably unique to each city, which allows them to improve the quality of the urban environment by designing and regulating the use of public space in close harmony with the demand driven use of private space. This coordination is always difficult if not impossible to accomplish by the private sector alone when relying on pure market mechanisms. However, planners often attempt to apply at the metropolitan level the practice of designing by the proxy of regulations. Attempts to "design" or reshape an entire city through land regulations have unpredictable negative side effects, as the examples in this paper have shown. Measuring the economic costs and benefits of shaping a metropolitan area through regulations is a complex operation very different from measuring the performance of planners intervention in urban design. At the metropolitan level, positive or negative results appear only after a long time. Given the time resilience of urban shape, it is dangerous to engage in experiments that may prove to shape cities in an irreversible way......."

I have said this on here before: if you look at the worst cases of unaffordable housing in the Demographia surveys, then look at them on Google "Earth", you can see for yourself the effect that Bertaud is describing. DENSITY, DENSITY, DENSITY, MILES AWAY FROM THE CBD; ending at the urban growth boundary with an abrupt cut-off into green fields or wilderness. Look at Los Angeles, look at Sydney, look at Vancouver. Look at Auckland.

"Spatial Distribution of Density" - THAT is the term that the urban planning profession desperately should have got its head around years ago when Bertaud published his paper. When land prices are low, the "spatial distribution of density" is WHERE IT SHOULD BE. The density is greatest near the CBD, and tapers off to the periphery. The result of what Bertaud calls a "disturbed density curve gradient", is LONGER AVERAGE COMMUTES. THAT is what Urban Planner are doing to us; loading us with mortgage debt, for NOTHING. They are NOT EVEN ACHIEVING THE "BENEFITS" they claim, by way of "offset" to the costs of houses and mortgages.

Let me refer to some more studies: the ones done by Paul Cheshire and Stephen Sheppard of the London School of Economics on "The Welfare Effect of Land Use Planning".

"Although directed to the British system of Town and Country Planning this paper has relevance for many OECD countries, including some with systems of land use regulation which evolved entirely independently of the British. The paper starts by characterising the basic features of the British land use planning system, viewed from the resource allocation point of view of an economist. A conclusion is that the system explicitly excludes any use of price signals from its decisions. The paper then summarises the problems which the exclusion of price information has given rise to. Because the UK planning system has deliberately constrained the supply of space, and space is an attribute of housing which is income elastic in demand, rising incomes not only drive rising real house prices but also mean that land prices have risen considerably faster than house prices. Several housing attributes other than garden space are to a degree substitutes for land but the underlying cause of the inelastic supply of housing in the UK is the constraint on land supply........."

".......Policies of containment and densification limit the supply of land (and also space), not just for housing but for all non-agricultural land use in Britain. Our system of designated land use categories and development control imposes considerable costs. Where a full net welfare evaluation has been possible – for a tightly constrained urban area in South East England – it shows that the increased costs of space for housing substantially exceed the value of planning amenities generated, imposing a net welfare loss equivalent to a tax of 3.9% on incomes.
Eliminating that welfare loss by substantially relaxing the constraint on land supply policy was estimated to increase the urban land take by 70%. Given that the total area of greenbelt land alone is 1.5 times the total urbanised area, even such a strong relaxation of containment policy as this would leave very substantial areas of greenbelt, and even if all additional urban land was taken from existing greenbelt areas.
This evidence is now quite old. But given what has happened to prices for housing land relative to agricultural land over the intervening period, and the evidence that the valuation of greenbelt amenities has fallen rather than risen, it is almost certain that the net welfare cost today would exceed the earlier value. There is also evidence that the planning system is imposing higher costs on productive uses of land.........."

"......Making the planning system responsive to price signals and less arbitrary in its impact on land supply may seem problematic. But doing nothing is in the long run even more problematic. House prices may not collapse from the 2004 boom; but they may. We do know that if land supply does not become more responsive to underlying demand, all the problems identified in section 2 of this paper will become cumulatively worse".

(THIS WAS IN 2005....!)

Auckland is one of the most spread out cities in the world? yet its still un-affordable......

More libertarianz/right wing ranting on its the "regulation" when in fact its lack of financial regualtion that has caused a housing bubble...

What you propose is to do away with limits and allow more building.....just look at the USA where there are huge estates with layed out roads but empty plots with a few houses....did that stop the US's bubble? no....and whats happening now? massive over-building results in houses that will probably never be occupied, let market forces in? well the price of gas/petrol in the US will make these "suburbs" wastelands...where houses are worth less than the cost to build them....thats plain silly.....

Further you can look at the UK where they have allowed more and more infilling and relaxing of building limits to try and "contain prices" it didnt work, becasue cheap credit and lax lending standards were the dominant factors...now we see house prices are over-valued and dropping....

regards

Philbest - can you provide a reference for those interesting Bertaud quotes please?

Cheers

MIA

PhilBest

Can you explain (using the above) in a NZ context using Wellington and Auckland as examples. 

 

"jacinda ardern", uh who?

regards