Archive | Forward thinking

The budget (for what it’s worth)

Government budgets used to be about micro-managing things like tax hikes increasing the prices of cigarettes & beer & petrol. They’re still about micro-managing, with some subtle touches.

One of those subtleties is that the spends are announced as totals but the sums coming from the Government coffers are trickled out. The new trick is the 4-year spread, through 2 election campaigns.

Yesterday’s election-year budget was very much about reducing the opportunities for the Opposition to campaign, and the Government’s done this with social welfare handouts & investments.

It’s a slow awakening for a government which has been reactive through its 3 terms, and it’s a questionable one.

Many of the measures announced yesterday & through preceding months increase dependency on the state, and not just for poorer citizens. Business, innovators, exporters – everybody has a potential handout to stretch their fingers out for. Ironically, socialism creep from a supposedly capitalism-supporting government.

If you think about why dependency is increased, you’ll find 2 reasons. One is that management of basics like housing construction and the control of economic inputs like migration has been abysmal, hurting those at the bottom of the pile but also causing widespread damage for everyone trying to go about their business.

The answer is to pay handouts, when for a government of this one’s ideology it should be about creating the basis for a thriving private sector, which would reduce the need for handouts.

The other reason is that support for private enterprises has been structured as handouts, instead of being in the form of facilitation. There’s a small but essential difference, partly due to the control factor but, more importantly, due to the inability to understand how to lift an economy.

One potential beneficiary has fared less well, and that’s Auckland. The Government didn’t trumpet too loudly that it’s finally paid the entry fee to Auckland’s city rail link project, but it did state once more that roads are the way ahead.

Every Aucklander knows that alternatives are imperative before the region is consumed by total gridlock, but roads are where the big infrastructure money has been directed.

In summary:

It’s a budget which displays largesse, which will be lapped up by a nation of beneficiaries.

It’s a budget aimed at winning an election through the offer of small individual gains, not at demonstrating what it could have been used for: demonstrating prowess at advancing the nation economically.

Treasury, Budget 2017
Labour on budget
Greens on budget
NZ First: Budget a ploy to hide crises

Attribution: Budget documents, my comment.

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New bill deals with meth, damage liability & unsuitable rental tenancies

The Government introduced a bill to Parliament yesterday aimed at better managing methamphetamine contamination, liability for careless damage and the tenancy of unsuitable properties.

Building & Construction Minister Nick Smith said the Residential Tenancies Amendment Bill (No 2) would provide better protections & clarity for tenants & landlords: “It builds on the changes we made last year requiring smoke alarms & insulation, and establishing a tenancy compliance & investigations team.

“This bill recognises that meth contamination of properties has become a significant issue that needs clearer direction. We want homes to be safe but we also don’t want properties being vacated when the risks are low.

“Landlords will have easier access to test for meth and tenants will be able to terminate their tenancy if it presents at unsafe levels. Standards NZ is working on appropriate contamination thresholds and the bill will enable these to be legally recognised & enforceable before the Tenancy Tribunal.

“The bill also implements changes in respect of liability for careless damage arising from the Osaki decision last year. This court ruling means landlords cannot recover the costs of damage, including the excess charge on any insurance policy. The changes are needed to ensure tenants have an incentive to take good care of a property, and for the landlord to have appropriate insurance.

“Under the bill, tenants will be liable for the cost of their landlord’s insurance excess up to a maximum of 4 weeks’ rent for each incident of damage caused by carelessness. A tenant remains fully liable where the damage is deliberate or a criminal act, and the landlord liable for fair wear & tear and damage beyond the control of the tenant, like a natural disaster.

“It also strengthens the law for prosecuting landlords who tenant unsuitable properties. The current jurisdiction of the Tenancy Tribunal is limited to residential buildings, meaning those who rent out unlawfully converted garages, warehouses or industrial buildings as living spaces can avoid accountability.”

Attribution: Ministerial release.

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National promise of 34,000 houses/decade for Auckland may add 2000/year

The headline is what matters in an election campaign, and the headline is that National is promising that, as the government, it will build 34,000 new houses on Crown land in Auckland over the next 10 years.

New Zealand has a record of not electing governments beyond 3 terms and National is ending its third term as the majority in a coalition, which jeopardises the chances of it being in a position to carry out the promise.

Social Housing Minister Amy Adams.

Amy Adams, Social Housing Minister and Minister Responsible for Housing NZ, revealed the figure in a speech at the Property Institute in Auckland yesterday. And then she proceeded to whittle it down.

The 34,000 is made up of 13,500 new social houses & 20,600 affordable & market homes.

Under the Crown Building Project, the Government will take down 8300 old, rundown houses.

Ms Adams said Housing NZ alone had over 50 housing developments under way in Auckland. The forward programme includes other housing projects already announced & underway:

  • Northcote, where 300 state houses will be replaced by 1200 new homes
  • Hobsonville Point, where the Government-owned Hobsonville Land Co Ltd (now HLC (2017) Ltd) is about to deliver the 1000th house in a programme to deliver 4500 homes
  • Tamaki, where the government-council regeneration project has a programme to develop 7500 new homes over the next 15 years, replacing the houses on 2800 Housing NZ properties
  • Other existing projects include 2700 new homes already announced under the Crown land programme, 580 houses under the Ministry of Social Development’s social housing reform programmes, and new homes for emergency & transitional housing.

By Ms Adams’ calculation, the Government would add 24,000 new – not previously announced – houses over a decade, though on the figures above the actual total might be less, perhaps down at 20,000, or an average 2000/year.

Comparing promises

Andrew Little.

That compares with Labour leader Andrew Little’s proposal last year for 100,000 new affordable houses nationally over 10 years, half of them in Auckland, which would include partnerships with private developers.

So, on top of existing projects, Labour has promised 5000 and National 2400 extra houses/year for Auckland.

Labour also promoted a dole for apprenticeships policy which would subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction.

Phase one of National’s Auckland housing programme, which covers the next 4 years, would cost $2.23 billion and be funded through Housing NZ’s balance sheet and $1.1 billion of new borrowing that the Government has approved as part of the business case.

Phase 2 in the latter years would be funded through the market housing development part of the programme & rental returns.

Ms Adams said ministers had also agreed that Housing NZ would retain dividends & proceeds from state house transfers, to help fund the building programme.

A glance at reality

The promises come after a period of extremely high immigration – a net inflow of 228,000 nationally over the last 4 years, 108,000 of those in Auckland, requiring 40,000 homes at an average 2.7 persons/household.

Building consents in Auckland over those 4 years started low, 6500 for the March 2014 year as the country was still gradually easing out of the global financial crisis, and totalled 34,200 for the 4 years.

Assuming 100% construction of consented homes (which is not normal, but I don’t have the exact figure), Auckland fell short of housing the net migrant inflow by almost 6000 homes over those 4 years. That housing requirement ignores, completely, the net flow of people within the country.

The National proposal might fill the gap if immigration eases, but on the slim information from the minister it would encourage pricing to stay high. On my calculation in February, consents for new homes nationally (excluding land) have risen 34% in value over the last 5 years – after a slow shift from the bottom of the market, between 6-7.7%/year for the last 4 years.

The land price equation in Auckland can be partly met by intensification throughout suburbia, land prices falling because of the freer availability of sites under the new unitary plan, and section sizes being reduced.

That doesn’t require tampering with rural:urban boundaries, which Labour has said it will eliminate. Those boundaries have a role in protecting non-urban land and in directing development into more efficient parcels.

Auckland also needs more infrastructure for housing development, but it needs to be in well devised communities with a supply of jobs nearby, not on the basis of rural carpetlaying. The local job requirement is fundamental but has been ignored as Auckland has spilled out along motorway corridors.

To catch up, New Zealand needs more builders with a longer future in the trade than the typical construction cycle allows. To do that, either the Government or some other industry supporter needs to ensure trade skills are being taught to enough people before a boom gets underway, and it makes sense to reduce booms, and therefore busts, with some smoothing of economic cycles (but not the total smoothing the US tragically & farcically tried in its attempt to avoid what became the global financial crisis).

As a cyclical high recedes, the building force needs attractive alternatives other than leaving for Australia. Some of that can come through infrastructure projects, which ideally should be separated in time from highs in house & commercial construction, thus reducing cost pressures as well.

Full Adams speech, 16 May 2017: Launch of Crown Building Project

Earlier stories:
16 May 2017: Little calls for end to negative gearing, and Property Institute calls it “cynical ploy”
6 March 2017: Auckland above 10,000 home consents/year again
10 February 2017: Smith exultant about figures that are plainly inflated
19 January 2017: Building consent highs still don’t match migrant demand
11 July 2016: Little sets out 8 planks to remedy housing issues
19 November 2012: Shearer proposes Government scheme to build 100,000 “entry-level” houses over 10 years

Attribution: Ministerial speechnotes & release, Statistics NZ tables, Labour releases, own articles.

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Little calls for end to negative gearing, and Property Institute calls it “cynical ploy”

Labour Party leader Andrew Little renewed the party’s call to eliminate negative gearing on residential property investments yesterday, and was promptly accused by Property Institute chief executive Ashley Church of making “a cynical electoral ploy [that] risks making the country’s housing crisis significantly worse”.

The party campaigned to end negative gearing in 2011. This time, Mr Little proposed reducing negative gearing by 20%/year over 5 years and spending the estimated $150 million saved on $2000 grants to 600,000 homeowners to insulate their homes.

Mr Little’s call was to “crack down on speculators”, which included banning foreign speculators from buying existing homes: “This will remove from the market foreign speculators who are pushing prices out of reach of first-homebuyers.”

He said Labour would tax property speculators who flick houses within 5 years, and end their ability to use tax losses on their rental properties to offset their tax on other income, “which gives them an unfair advantage over people looking to buy their first home”.

Expanding his point, Mr Little said: “Homebuyers are being locked out of the market by speculators. Losses from rental property investments will be ring-fenced. Speculators will no longer be able to use tax losses on their rental properties to offset their tax on other income, a practice called negative gearing. This move has been recommended by the IMF & the Reserve Bank.

“The biggest users of this loophole are largescale speculators who own multiple rentals and use losses on new acquisitions to continually reduce their tax. The speculators’ tax loophole helps them outbid homebuyers for properties because the taxpayer effectively subsidises part of their cost of servicing mortgages.

“Ending this loophole will not affect most people who have bought a single rental as a long-term investment because most of them are not using it. Those [small investors] that do use this loophole generally only do so for a few years after purchase.”

Church calls it envy politics

Mr Church said the suite of housing proposals Labour announced last year was smart, but on this one he accused the party of “resorting to a form of envy politics designed to set one section of New Zealand society off against another. The policy is a direct attack on mums & dads who are trying to provide for themselves in retirement and be less of a burden on the state.

“Mr Little’s use of the word ‘speculators’ to describe property investors is mischievous. Speculators are people who buy & sell property very quickly in the hope of making a quick buck – whereas investors are people who buy for the long haul – providing housing to thousands of New Zealanders in the process.”

Mr Church said the policy, if implemented, would have a dramatic & rapid effect on the supply of private rental accommodation, creating a problem which would ultimately fall back on the Government: “Your typical property investors are average mums & dads – not wealthy cigar-smoking fat cats – and their ability to purchase an investment property is usually leveraged against the equity in their home & their ability to claim losses in the early years, like any other business does. This move would certainly stop them investing – but in the process it would quickly lead to a shortage in rental housing which would fall back on the Government – so it would end up costing the taxpayer a lot more in the long run”.

Mr Church noted that negative gearing is only a factor in the early years of a property investment: “Over time, rents rise and properties become ‘positively geared’ – at which point the additional income becomes taxable. Is Labour suggesting that they will forgo this tax income – or that they’ll make property investors pay tax on profits while removing the ability to claim losses?”

Need is “to harness family investment”, not to discourage it

He said his biggest concern was that Labour was proposing a policy to reduce private investment in property at a time when private investment in new houses “is probably more important than at any other time in the nation’s history – the Government, and parties who want to be in government, should be proposing policies that increase private investment in the construction of new dwellings as quickly as possible – exactly the opposite of what Labour is proposing.

Instead, Mr Church said there was “a need for smart & innovative solutions that harness the power of mum & dad investment to get those houses built quickly. That might include giving preferential tax treatment to investors who build, or buy, new homes – not punishing them for doing so”.

And he questioned Mr Little’s level playing field: “That’s absolute nonsense. Homebuyers & families aren’t being closed out of the market by investors – they’re being closed out by loan:value restrictions that require them to have a 20% deposit at a time when house prices are at historically high levels. The best way to fix that is to remove those restrictions on first-homebuyers – not blame those who are providing rental accommodation to those who choose not to own.”

Labour plan includes big build, training programme & elimination of Auckland urban boundaries

Labour does have a development plan, announced last year, to get 100,000 houses built quickly under its KiwiBuild programme, which would include partnerships with private developers.

Mr Little said Labour would establish an affordable housing authority to work with the private sector to cut through red tape and get new homes built fast. “It will partner with private developers, councils & iwi to undertake major greenfields & revitalisation projects, building affordable homes with KiwiBuild & the private market [but the company names Kiwibuild Ltd & Ltd have already been registered by private company owners]. These homes will be part of great communities built around parks, shopping centres & transport links.

“Labour’s KiwiBuild programme will build 100,000 high quality, affordable homes over 10 years, with 50% of them in Auckland. Standalone houses in Auckland will cost $5-600,000, with apartments & townhouses under $500,000. Outside Auckland, houses will range from $3-500,000.

“Increased house-building will require a larger workforce. Labour’s dole for apprenticeships policy will subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction. Labour’s policy of 3 years’ free post-school education will see tens of thousands more people study in all fields, including building & construction. KiwiBuild is projected to create 5000 new jobs at its peak.

“Labour will remove the Auckland urban growth boundary and free up density controls. This will give Auckland more options to grow, as well as stopping landbankers profiteering & holding up development. New developments, both in Auckland & the rest of New Zealand, will be funded through innovative infrastructure bonds.”

Link: Labour policy, Levelling the playing field for first-homebuyers

Attribution: Party & institute releases.

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On joining the 1%

I suppose I ought to have become excessively rich too. “Ought to”, rather than “could have” or “should have”.

“Ought to” because, although this country has always had its share of people born with a silver spoon in their mouth, it’s also been possible to attain great heights from a lowly start. And, to a great degree, it’s been up to you – but the rules have been changing.

I began writing this as I heard Labour Party leader Andrew Little talk of slashing immigration by the thousands, perhaps 10s of thousands, and of building houses for the out-crowd, and after reading a few items online about the Deep State, the 1% and more rewriting of economics.

Slashing the migrant inflow is easily done, and we won’t have to lift a hand, I’ve been telling people. All we need is for the Australian economy to perk up, and 10s of thousands will be gone again. Including the “pass-throughs”, the people who found it easier to get a New Zealand passport than an Australian one, but really wanted to go to the bigger economy.

Soon the pass-throughs won’t be able to get into Australia so easily though, and we’ll lose their short-term input as well.

Having more people here doesn’t hurt us. Failing to provide for their arrival – or for our “collateral damage”, the people left without home or job or hope – does.

And speculation? It moves on when the opportunities dry up. One way is to increase supply and another, as Mr Little is proposing, is to remove tax inequality.

On building homes, prices & markets

This morning I read various pieces on economics & politics to see where Donald Trump might take us next or what alternatives might gather support, and I made my periodic sortie on to Twitter, visiting long enough to leave a comment on a councillor’s (and National Party conference attender’s) page saying we hadn’t reached record house-building yet, but that consents were high and construction was increasing.

One of the misleading statements on housing statistics recently has been that record dollars spent equates to record construction numbers – ignoring the influences of land & construction inflation (Statistics NZ doesn’t count land in the estimated costs of housing, but it matters to everyone who wants to work to a land:building ratio).

Another misleading theory is that foreigners represent only a tiny percentage of home buyers, so their influence can be dismissed. It can take just one successful bid at auction for the right house on the right street to influence a market, up or down, and a bidder not seeming to care about the price can wield undue influence. There’s been plenty of that in Auckland, but it’s mostly stopped.

You’ll have seen that construction hasn’t started on many of Auckland’s special housing areas with the alacrity the ex-minister kept presuming – there were still catches – and that most of that housing was targeted too high for low-earners to buy in. The US’s tactic to take ownership down to that basement market evolved into an extraordinary rash of worthless subprime mortgages and an international collapse called the global financial crisis, but there are more sensible ways of achieving a wider spread of ownership.

An era of inequality as policy

Since that crisis began, it’s been evident that many of the excessively rich have become filthily excessively rich, and you don’t get invited to go out fishing with them in their tinny because it happens to be longer than a very long wharf, with exclusive entry.

You’ll have read plenty about the 1% grabbing all the money, that it’s not trickling down to the rest of us. And in the US, how the Deep State controls all the levers, but you’re never quite sure who this Deep State is or how to belong to it.

From most articles about this mystical beast, ordinary mortals aren’t invited. Right family, right school, right university, right employer, all of those and you’re in.

You can break in, though sometimes you might have to pick the lock.

It would come as no surprise, given my job, that I’ve conversed with a high proportion of New Zealand’s 1% over the years – some there by inheritance, many on their way up – and they come in a range of political hues, partly, I think, because so many have climbed from a low rung and haven’t followed orthodox courses to the upper echelons.

Those upper echelons exist in both the corporate & public sectors, and paths within the 2 have become closely related, starting when the corporate sector crashed & burned in 1987. In the preceding 3 years, as the neoliberal mindset began to dominate, corporate salaries began to be topped up with various extras such as options, warrants & bonus shares.

Come October 1987, many of the leading companies ceased to exist and bonus shares & options were of no value, but the notion that executives deserved far more pay clung on. It had far less to do with performance than with who held the voting power at company meetings. It was an international affair, enabled by majority shareholdings being under the control of institutions which didn’t disagree with the notion.

The public sector, meanwhile, chased higher executive earnings to maintain staff quality.

The inequality which continues to grow can be rearranged through taxes & earnings ratios (for example, relating the cleaner’s pay to the chief executive’s, much as minimum pay could be worked out on a ratio instead of a fixed figure).

Here, the Deep State constitutes political insiders who include senior public sector executives and corporate, bank & finance sector leaders.

Many of our 1% made their money in the 1980s and kept it, some by the skin of their teeth, and through judicious investment since then have become multi-millionaires.

I reflected today, instead of swearing the oath of poverty by choosing a career as a journalist, I might have turned off at one of the many corners that crop up on your way forward in New Zealand. Into one or another aspect of the sharemarket, or an inside instead of outside position in property, for example. But I didn’t, and so ensured I wouldn’t become a 1%er.

Nor did I aspire to become a member of the Deep State (or anyone inside it to even think of hiring me).

So, having failed right from the first paragraph of this article, I bring you some other writers’ insights on how insiders succeed in growing their position at the outsider’s expense, how the art of propaganda has advanced well beyond the understanding of many of us, and – this one is a dark delight – how people in an inconsequential town in Macedonia played a fake-news role in the US election, and what most unlikely reason drove them to it.

Counterpunch, 15 March 2017: How bankers became the top exploiters of the economy
Quartz, 13 May 2017: 21st-century propaganda: A guide to interpreting and confronting the dark arts of persuasion
Wired, 15 February 2017: Inside the Macedonian fake-news complex

Attribution: Comment.

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Reserve Bank releases capital adequacy issues paper

The Reserve Bank published an issues paper today on regulation of banks’ capital adequacy.

It’s seeking feedback by Friday 9 June and will follow up with detailed consultation documents on policy proposals & options for each of 3 components later this year, with a view to concluding the review by the first quarter of 2018.

Deputy governor Grant Spencer foreshadowed the broad-ranging capital review in March, in a speech in which he compared the average housing risk weights of large banks in 6 countries.

New Zealand was clearly the most heavily weighted towards housing at 28.3%, followed by Australia at 23.5% (and its bank overseers also tightening the reins), then a long way back to Denmark 13.9%, the UK 11.7%, Canada 7.2%, Sweden 6.8%.

The Reserve Bank aims to identify the most appropriate capital adequacy framework, taking into account experience with the current framework & international developments.

The review will focus on the 3 key components of the current framework:

  • The definition of eligible capital instruments
  • The measurement of risk, and
  • The minimum capital ratios & buffers.

Paper sets out 2 sides

In its issues paper summary, the bank said it recognised the need to balance the benefits of higher capital against the costs, but set out 2 sides to the argument: “It is expected that a higher level of capital would reduce the probability & severity of bank failures and would smooth out credit cycles.

“But banks typically argue that capital is a costly source of funding and that if they had to seek more of it they would need to pass on costs to customers, leading to reduced investment & growth.

“There has been debate about the extent to which these costs reduce national welfare. In one view the capital levels of banks are inefficiently low because of implicit government guarantees of creditors or other incentives. Raising the minimum capital requirement restores efficiency by reversing the implicit subsidy to bank shareholders, and in this way improves overall welfare.

“A growing number of academics, most notably Anat Admati from Stanford University & Martin Hellwig from the Max Planck Institute for Research on Collective Goods (as well as some regulators) have argued that the costs to society as a whole of higher capital are very low and that capital requirements should be much higher than they are now.

“These authors are associated with the ‘big equity’ view and are distinguished by the extent to which they see significant increases in capital as being possible without net negative economic impacts.

“Empirical studies have attempted to quantify the costs & benefits of increasing capital requirements, and to determine the optimal capital ratio which has the greatest net benefit. In the more mainstream studies the Reserve Bank has considered so far, a typical optimal ratio is about 14%, but estimates do vary widely (the range is roughly 5-17%). The Reserve Bank will continue to review & assess these studies, but also welcomes the views of submitters on this issue.”

The bank said that, at this early stage of the review, it hadn’t formed a view on the final calibration of capital requirements, but said it was likely to take into account the studies it had seen, as well as empirical evidence.

Review of the capital adequacy framework for registered banks
Grant Spencer’s March speech

Attribution: Bank release.

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Joyce lifts infrastructure intentions and talks new operating mechanisms

New finance minister Steven Joyce (pictured early in his career as a sod-turner) looks to have increased the annual allocation to capital infrastructure spending from $900 million to $4 billion for the 2016-17 financial year, with the promise of upping the budget for the following 3 years by $4.3 billion.

Mr Joyce took over finance from Bill English in December, in the reshuffle following Mr English’s appointment as prime minister. The country goes to a general election on 23 September

Under the more conservative English programme, the allocation to capital infrastructure over the next 4 years was $900 million/year. Mr Joyce said yesterday the focus would be on the infrastructure that supports growth, and those annual allocations would rise to $2 million in the 2017-18 financial year and $2.5 billion in each of the following 2 years.

Both the Property Council & Infrastructure NZ focused on the $11 billion figure Mr Joyce waved in front of them, which included the $3.6 billion already budgeted.

Property Council chief executive Connal Townsend said a lot of the country’s infrastructure was at the end of its useful life and he expected asset replacement would feature prominently in the Budget: “Government’s announcement is a recognition that houses & commercial properties do not exist in isolation but need to be supported by infrastructure such as roads, schools & hospitals….

“Under-investment in infrastructure creates significant deadweight losses for the wider economy. Property Council is pleased that Government recognises this. Infrastructure spending must be seen for what it really is. It is an investment in our cities and a productive input into the wider production process, rather than a mere cost.”

Infrastructure NZ chief executive Stephen Selwood said: “This is a massive increase and the largest capital investment commitment by any government since the 1970s. But it must be said that New Zealand’s growth challenge is the highest it has ever been, and meeting population demands requires the services for a city larger than Nelson to be added every year.

“Added to the growth challenge is New Zealand’s historic under-investment in infrastructure. The reality is that it would not be difficult to spend $11 billion in 2017 alone.”

Mr Joyce said: “We are growing faster than we have for a long time and adding more jobs all over the country. That’s a great thing but, to keep growing, it’s important we keep investing in the infrastructure that enables that growth.”

“We are investing hugely in new schools, hospitals, housing, roads & railways. This investment will extend that run-rate significantly, and include new investment in the justice & defence sectors as well.”

Mr Joyce said the budgeted new capital investment would be added to the investment made through baselines & the National Land Transport Fund, so the total budgeted for infrastructure over the next 4 years would be about $23 billion.

He said the Government wanted to extend that further, with greater use of public-private partnerships and joint ventures between central & local government & private investors.

“As a country we are now growing a bit like South-east Queensland or Sydney, when in the past we were used to growing in fits & starts. That’s great because we used to send our kids to South-east Queensland & Sydney to work, and now they come back here. We just need to invest in the infrastructure required to maintain that growth. Budget 2017 will show we are committed to doing just that.”

Mr Joyce will give details of the initial increase in the May Budget.

Attribution: Ministerial release.

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RMA reform approved – but central issue of competence still needs work

The Resource Legislation Amendment Bill – Environment Minister Nick Smith’s revision of the Resource Management Act – passed its third reading on Thursday, without the support of Act’s David Seymour or United Future’s Peter Dunne but courtesy of the Maori Party’s 2 votes.

Dr Smith, as usual, mentioned 2 factors at the heart of the changes – the exorbitant rise in Auckland house prices and the many voices demanding a freeing up of land supply.

Also as usual, he refrained from mentioning 2 other factors. The first has come in 2 parts – the immigration spike under Labour in 2003-04, which got supply & demand seriously out of kilter, followed by the longer run of high net immigration under National that started in late 2012 and was well underway in 2014.

The most important factor

The second, and I think most important factor in the whole resource management hubbub, is that the Resource Management Act has been widely condemned but the failure to balance supply & demand falls entirely to incompetence.

The first factor in that incompetence concerns the supply of potential residents. Natural growth is predictable and the supply of migrants can be controlled, at least to some extent. The return of Kiwis from a depressed Australian economy is outside the norm, but ought to have been taken into consideration in the allowance of other migration.

Both Labour in 2003 and National now have used immigration to boost the economy. Their consideration of the impacts has been negligible, until too late.

Through the Regional Growth Forum devised in 1996, expansion of Auckland’s urban footprint was anticipated to allow some of the growth to a population of 2 million over the next 50 years, but the notion of a compact city had arrived and the bulk of growth (70% of it) was expected to occur within the existing metropolitan urban limits.

Quite how another 200,000 homes were to be dropped into place was never quite worked out, but the fact that they’d be needed was evident over 20 years ago.

All very well, but Auckland had 7 territorial councils & one regional council, Auckland City followed by Manukau collected the bulk of the region’s business rates, and the fringe councils (including Waitakere) struggled to supply adequate infrastructure on a diet of residential rates.

The fringe councils looked for ways to increase their rating bases, such as encouraging business, and developers looked to the fringes for cheaper land for housing, only to find themselves entering an intense battle, certainly between regional & local politicians, sometimes also between the competing urges of different localities.

Attempts to expand those urban limits were contested by the Auckland Regional Council, which focused more on environmental protection, although expansion of the limits was envisaged.

The 2003-04 immigration spike necessitated more housing, but the supply was inadequate, and political thinking on what was required was abysmal.

None of the above involves hindsight. Certain measures were plainly required 21 years ago and after 5 years of strong growth – and some of the how-to is still awaiting a decision.

The ability to intensify development has been made easier by Auckland’s new unitary plan, but funding of infrastructure was an issue then and remains largely unresolved today. Sewage overflowed into the harbour then, the issue was recognised, and it still overflows.

Intensification will include more housing redevelopment, not necessarily medium-rise apartment buildings, in suburban streets. The supply of new suburban subdivisions has started via housing accords & special housing areas, but also through standard subdivision.

Smith sees many positive impacts

Enter Dr Smith & the Resource Legislation Amendment Bill. “The reforms in this bill will help increase the supply & affordability of housing, grow the economy with more jobs & higher incomes, support infrastructure investment and improve environmental management,” he said after the third reading was passed on Thursday.

The 700-clause bill makes 40 significant changes to the Resource Management Act, Public Works Act, Conservation Act, Reserves Act and the Exclusive Economic Zone (Environmental Effects) Act. They include:

  • National planning standards to reduce complexity & cost
  • Streamlined planning process to improve responsiveness
  • Discretion for councils to exempt an activity from consents
  • Strengthening of requirements to manage natural hazard risks
  • New 10-day consent category for minor activities
  • New requirements for councils to free up land for housing
  • More generous compensation for land required for public works
  • Better alignment with other acts like Reserves, Conservation & Exclusive Economic Zone
  • Collaborative planning process to encourage community-led solutions, and
  • Improved Maori participation arrangements.

“These reforms will reduce the number of consents required by thousands. Councils will have a new power to waive the need for consents for minor issues, and a new 10-day fast-track consent will be available. This boils down to things like homeowners wanting to build a deck having to consult only with an affected neighbour, and no consent being required for issues that involve minor or temporary rule breaches.

“This Bill is pivotal to resolving New Zealand’s long-term housing supply & affordability problems. The cost of a section in Auckland has increased 10-fold over the past 25 years, from $53,000 to $530,000, as compared to the 3-fold increase in the cost of building, from $120,000 to $360,000. The key solution is making sections easier to create and more affordable. This bill introduces a specific requirement on councils to free up land, removes appeals on residential developments, reverses the presumption in favour of subdivisions and removes the double charging system of financial & development contributions.”

Resource Legislation Amendment Bill

Text of bill & related supplementary order papers
Nick Smith booklet, 26 November 2015: The second phase of Resource Management Act reform

Earlier stories:
15 March 2017: Bill opponents talk “shambles”, not ideology
15 March 2017: RMA reform bill scrapes through second reading
6 March 2017: RMA amendment back for second reading
10 November 2016: 
National gets Maori agreement to advance RMA reforms
14 March 2016: 
Council says Government approach wrong on resource management reform
27 November 2015: 
RMA reform introduced

Attribution: Ministerial release, growth forum strategy.

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Newman fires up opposition to RMA fix-it law

In January, Building, Construction & Environment Minister Nick Smith wrote to National Party supporters trying to counter an attack on the Resource Legislation Amendment Bill – the Resource Management Act (RMA) fix-it law – by former Act MP & founder of the NZ Centre for Political Research, Muriel Newman.

Dr Newman learned of Dr Smith’s memo in March and wrote scathingly about it on the Centre for Political Research’s website on 12 March.

She was joined by another former Act MP, Wellington public & commercial law specialist Stephen Franks, who described Dr Smith’s attempt at smoothing turbulent waters as “deceptive advice”.

Last week, Dr Newman took the campaign to a wider audience through Sunday newspapers, saying the centre she heads had asked Prime Minister Bill English to stop the bill in its tracks (it’s in the committee stage of the parliamentary process).

Is no consultation “ample”?

On her website she wrote: “Even before our ads have been published, they appear to have brought about a ‘charm offensive’ from the minister for the environment, who has sent out emails to everyone who has contacted him about the bill.

“What’s particularly bizarre in his new email is the claim that not only has there been ample public consultation on the iwi arrangements in the bill over the last 4 years, but that National even campaigned on them at the last election. What he is talking about, of course, are the old measures (iwi participation arrangements) that were originally in the bill.

“The new mana whakahono a rohe cogovernance provisions, that are the cause of so much concern, only made an appearance in public documents in 2016 – in a freshwater discussion paper. They weren’t included in the Resource Legislation Amendment Bill until November last year, 8 months after public submissions had closed. As a result, there has been absolutely no opportunity for public input into the new statutory powers for iwi & hapu in the bill.

“However, this is politics, and it is important to note that the minister decided that the new mana whakahono a rohe agreements in the bill should be given a dual name, so they are now also called iwi participation arrangements – the same name as the old provisions that they replaced!”

Dr Newman, an Act list MP for the party’s first 3 terms, continued to campaign when she left Parliament, especially on Maori- & property-related issues, forming the Centre for Political Research (originally Debate) in 2005.

Stephen Franks – 2-term Act Party list MP, former chair of law firm Chapman Tripp, now running his own specialist public & commercial law firm in Wellington – wrote in an opinion piece for the centre on 12 March: “I’ve been sent an astonishing memo to caucus from the unfortunate minister now carrying this bill (Nick Smith). In my opinion it treats caucus with contempt. My corrections to it are set out below. It seems bizarre that National members are being obliged to support this bill so near to the election. Why stick up voters’ noses now some of the least defensible law-making National could design?”

And he concluded: “The provisions are a major constitutional change. They subordinate powers entrusted to elected local governments, in deliberately obscure words, to racially inherited power, beyond the reach of electoral recall.

“They breach a longstanding convention that treaty obligations ran between the Crown & iwi, so that private citizens & their property were not to be the victims of treaty claims & interventions based on race privilege. They draw iwi into complicity in trashing the classical property rights promised by article 2 of the treaty to all the ordinary people of New Zealand, in favour of exercise of chiefly powers by iwi authorities, and they negate the equal citizenship promised by article 3.”

And then there’s climate change

If you run down the recent entries on the Centre for Political Research website, you may land on another of Dr Newman’s favourite topics, climate change, where she wrote on 5 March: “Leading the charge is the United Nations, which raised the alarm in the early nineties by establishing the Framework convention on climate change that defined climate change as being caused by human interference with atmospheric composition.”

It’s worth correcting Dr Newman on this one, because her use of half a sentence is not just misleading, but plain wrong because it implies the UN saw no change not attributable to humans.

Here’s the full UN definition, with my emphasis on the half that she dropped: “’Climate change’ means a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods.”

Muriel Newman, 26 March 2017: National’s RMA changes – a major constitutional victory for iwi leaders
Muriel Newman, 12 March 2017: An abomination of a bill
Stephen Franks, 12 March 2017: Deceptive advice to National caucus
UN framework convention on climate change, 1992

Earlier stories:
15 March 2017: Bill opponents talk “shambles”, not ideology
15 March 2017: RMA reform bill scrapes through second reading
6 March 2017: RMA amendment back for second reading
10 November 2016: National gets Maori agreement to advance RMA reforms
14 March 2016: Council says Government approach wrong on resource management reform
27 November 2015: RMA reform introduced

Attribution: Centre for Political Research.

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Council value for money review gets tick tomorrow

Auckland Council goes to the basics of the super-city tomorrow when its finance & performance committee will formally institute a “value for money” programme review aimed at lifting efficiency savings from $183 million in 2014-15 to $300 million/year by 2025.

The cost-effectiveness review programme also lifts the supervision of council-controlled organisations – particularly the big ones, Auckland Transport, Watercare Services Ltd & Ateed (Auckland Tourism, Events & Economic Development Ltd) – from sniping when one of those organisations steps out of line, to a closer performance audit.

When the super-city council was formed at the 2010 council elections, the new council had a number of key tasks to do, all at once: rationalise services & expenses, equalise costs to ratepayers across all the old 7 territorial council areas, and establish what the new council should & shouldn’t do. On top of that broad equalising, the council had major plans to create for specific areas and, for the whole region, the unitary plan that would combine regional policy statements & district plans in one document.

Given tight timeframes for everything it was doing, the new council didn’t try to go back to ground level in 2010 and decide then exactly what it should be doing across the whole region but, naturally, chose to work with the previous councils’ programmes and whittle them down to a consistent presentation.

Now, the work starts in earnest.

Section 17A of the Local Government Act requires councils to review “the cost-effectiveness of current arrangements for meeting the needs of communities within its district or region for good quality local infrastructure, local public services and performance of regulatory functions”. A review must consider options for the governance, funding & delivery of infrastructure, services & regulatory functions.

The review laid out for the finance & performance committee by value for money programme manager Sally Garrett introduces “a framework to evaluate expenditure and to provide greater accountability to the governing body & the ratepayer on what is being achieved with public expenditure. The objective of the programme is to analyse cost-effectiveness in a systematic manner across the Auckland Council group and to provide a basis on which more informed decisions can be made on long-term planning priorities.”

The first 3-year review programme starts with 2 phases, initially focusing on activities & services considered high priority to assist in the development of the 2018 long-term plan. Ms Garrett says in her report to the committee it’s assumed each review will take 2-4 months and that up to 4 reviews can be run at the same time.

The first 4 reviews will be:

  • 3 waters – water, wastewater & stormwater budget categories
  • Domestic waste – domestic waste services including refuse, recycling, inorganics & organic services
  • Organisational support – communications & engagement services across the council group, followed by a rolling series of reviews including transactional services, payroll, finance, information systems, procurement, human resources, customer services & legal functions, and
  • Investment attractions & global partnerships – how investment attraction & global partnership services are delivered across the group.

Under the programme, expert panels will be appointed in April-May, data for the first 4 reviews will be collected & analysed from May-August, and conclusions & recommendations will flow from July-September.

The woman managing the programme, Sally Garrett, has a long history in this type of work, first in her 5 years as a principal in Ernst & Young’s management strategy group, then for 6 years as Watercare’s business services general manager. During 3 years as an independent consultant, Ms Garrett assisted the royal commission on Auckland governance and put together the programme for Auckland City Council to manage the transition to the super-city council, including overseeing the due diligence phase and the migration of staff & assets.

She joined Auckland Council in 2012 to manage the finance transformation programme and was appointed to run the value for money programme in 2015.

Attribution: Committee agenda.

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