Tuesday, August 30, 2011

Owen McShane: Let’s Unleash Auckland and aim for 10% Growth

Sometimes it takes severe external shocks to free us of the constraints that limit our ability to take advantage of our opportunities. Could the financial shocks now being played out in Europe and the US actually help unshackle our thinking so we can truly “seize the time”?

Some of us are optimistic about our prospects because of the World Cup and the Rebuilding of Christchurch. My instinct is to remove both these eggs from the basket. The track record of major sporting events is not good – the hosts often wake up with a hangover. The rebuilding of Christchurch is a cost – repairing all those broken buildings diverts capital from newly productive enterprise.

On the other hand, our economy is in better shape than many others. Our rural exporters are paying most of our bills. Naturally, we are determined to punish them for their success. So it may well be that we achieve a 4% growth in spite of my pessimistic arguments that we will struggle to make 1% because of the failures of local government. Indeed, the optimist in me wonders why we are setting our sights so low.

Sadly, New Zealand spends more time debating the price of milk than the cost of land and construction. The high price of milk reflects a benefit to the economy. The high price of land and construction is nothing but disastrous, and is entirely of our own making.

We must undo the damage done by the planning theories of the last four decades. Smart Growth, and MULs in particular, have stuck our construction sectors in the deep DURT of Delays, Uncertainties, Regulation and Taxes.

Urgent reforms are required. Otherwise our economy will be like a racing car trying to compete with two flat tyres.

My underlying optimism reflects the fact that, for the first time in our history, New Zealand is in the right place at the right time. For most of our history we have been on the wrong side of the world. During the first half of the last century the Empire Preferences compensated for our remote location, and our tiny economy and population could thrive on sales into the UK markets.

We suffered from the world-wide depression of the thirties but the Korean War demand for wool helped boost us into post-war prosperity.

But then the war zone moved from frigid North Korea to tropical Viet Nam where wool was no longer in demand. This early change in climate certainly cooled our economy.

Then the UK joined the Common Market, which morphed into the Economic Union, which is dedicated to freezing us out of their markets. Most recently the EU bureaucrats invented the IPCC to punish our rural sector with “food miles”, and “bovine methane”. Being such nice people we have agreed not to offend them, while indulging their own protectionist offenses.

Soon the Economic Union will no longer be a “major trading partner” and we won’t need to heed their opinions any more than they have ever really cared about ours.

India, China, and South East Asia are now becoming our major trading partners, and our nearest neighbours. Their billions of eager consumers are too busy getting rich to have any interest in bovine eructation. They will buy our food, enjoy it with guilt-free gusto, and keep building coal-fired power stations to power up their kitchens.

Singapore and Hong Kong had to make a similar re-orientation (using the classical term for looking to the East) after the English retreat. They were immediately in the right place, and enthusiastically seized the time.

When I first went to Singapore in the late seventies, promoting and licensing New Zealand technology, their dollar was worth about 27 cents. Now we are on parity. The IMF calculates that NZ’s per capita income of US$26,966 (PPP) ranks us 32nd in the world. Singapore’s per capita income of US$56,522 (PPP) now ranks them 3rd in the world. A strong dollar need not be bad news. Singapore’s growth rate was 14.5% last year.

So it may well be that favourable commodity prices, our growing exports to Australia, and our new close encounter with the emerging centre of world trade will enable us to achieve growth rates of 3 – 4%.

But what if we could unshackle our construction and development sector? Why shouldn’t we aim to grow twice as fast? Free trade agreements with India and China, and even the US, surely make this achievable. But not while Auckland, and our other major cities, remain strangled by the anti-growth costs of Smart Growth.

For example, Auckland Councillor Dick Quax has reported to his Council that according to the Department of Statistics, 12,182 new housing consents were issued for Auckland in 2002. That’s a healthy build rate of about 8 dwellings per 1000 per year. By 2010, only eight years later, consents for new dwellings had fallen to just 3,603.

In the first 6 months of 2011 there has been a further 17% decline. If this continues, only 3,000 consents will be issued for dwellings in the region during the whole 2011 year. That’s a build rate of only 2 dwellings per thousand per year – which is simply catastrophic for the residents, business and for about 150,000 of the unemployed. (Assuming a standard multiplier of 17 “jobs” per completed title and dwelling.)

A city is hardly liveable if there are not enough dwellings to live in.

Many claim that rising house prices and rentals are signs of economic recovery. They are not. They are signs of a devastating collapse of the building industry.

So let’s unleash Auckland immediately.

Sadly, the prognosis is not good.

The Auckland Council is considering introducing a congestion charge for entering the Auckland central area. Such congestion charges inevitably discourage further concentration in the central city and encourage dispersal and decentralisation.

And yet the proposed CBD loop is dependent on further concentration and densification of the central city area to make its service viable – or at least less unviable.

When our policy dogs are pulling two leashes in opposite directions don’t be surprised if we end up going nowhere.


mark said...
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I said to people that "Auckland unleashed" was correct, because the poor mutt is stuck in a 4x6 run!

I'm not sure I share your optimism. I think we need to consider the underlying problem, and that is a bias now to the "govt" solving all problems. That type of thinking has allowed smart growth to survive. The basic idea that we can't trust people to decide their own lives.
National has been too timid to explain the real world to people. But in my view this is the ideal time. They at least didn't fall for the huge stimulus faulty thinking, but they have done the normal stupid govt stuff - eg giving continuing guarantees for depositors after the crisis, that has cost us billions more....

This paternalistic / steady as she goes conservatism, has cost this country dearly - first Muldoon, now Key, and locally in Auckland, the C&R old boys who failed to grasp planning issues, and trundled on with smart growth concepts.

We need to initiate proper debate.

Anonymous said...
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building is a most unpleasant experience and the Auckland city council has made it that way it takes forever to get anything done .And the cost
$37,000 to subdivide $27,000 for development contributions to build and water care tried to charge us $8000 for a water meter many of these charges are doubled up on separate bills .
this is the last time I build in Auckland

Anonymous said...
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Why ahould I as a taxpayer pay for upgrading Auckland CBD which is failing. The only people who go to Queen Street are those who work there (and why not diversify those to the suburban business parks) and tourists as evidenced by the shop front languages. If it is profitable to upgrade then why not let those who will gain invest?

Anonymous said...
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Bigger isn't always better. Many people would have been happier with a smaller Auckland (not that it's their decision to make).

Anonymous said...
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But what if we could unshackle our construction and development sector? Why shouldn’t we aim to grow twice as fast? Free trade agreements with India and China, and even the US, surely make this achievable. But not while Auckland, and our other major cities, remain strangled by the anti-growth costs of Smart Growth.
Are you advocating a free trade in property?

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