Professor David Levy taught History of Economic Thought when I was a grad student at George Mason University. For much of that history, economics was political economy. A combination of the study of markets, policy, politics, and institutions. Professor Levy had a particular interest in what he called robust political economy: policies and political institutions that might not be best when the world works like a whiteboard model, but that do not fail too badly when the whiteboard is wrong.
Dictatorship is the opposite of robust: it is fragile. Most dictators are terrible. It is not a bet worth taking.
Strong centralism also isn’t particularly robust. If central government gets policy right, then it gets it right for the whole country and everyone can be happy. But what the right policy is can be hard to tell. Having fifty states, or many local councils, each running variants on policy means experimentation, with failures and successes happening at smaller scale. Success can be emulated by others; failures can be avoided. Localism can be robust.
Non-robustness was always my worry about the National coalition’s housing and resource management policies, now legislated. They embed a fragility at the core of the new system.
The old Resource Management Act was a curse. But it maintained at least some room for local experimentation.
Unfortunately, that experimentation doesn’t work well when councils face similar incentives to block growth. Over decades, local councils set policies that were far too restrictive when it came to urban development. In the 2000s, people who hated suburbs blocked urban expansion, and people who liked the suburbs blocked density. So little could be built.
Central government budgets bore at least some of the cost. When housing is scarce and regulation makes it too hard to build new housing, even houses best described as rotting wooden tents can attract tenants. The health consequences fall on tenants, and on central government health budgets. And so does the bill for the accommodation supplement.
Beyond housing, not zoning enough land for business and industry reduces central government’s company tax take, income tax revenue, and GST.
Litigation could stall new housing interminably while developers and those opposed to new housing argued about whether the consents or the district plans sufficiently embodied the goals of various bits of legislation.
Reforms under the first term of Luxon’s government aimed to end that particular source of the problem. The Minister would set National Direction. National Standards would fully incorporate National Direction. Regional and District Plans would incorporate National Standards. Fewer things would need consents, but activities requiring consents would not need to re-litigate all the way up the chain. Consenting would focus on the applicable rules, with fewer opportunities to reopen questions already settled further up the chain.
Councils would still have important jobs in setting corridors for infrastructure, separating public spaces like parks, pavements and roads from private spaces, and applying the coming new national-template zoning.
People working on the system called it the ‘funnel’. Decisions made at the top of the funnel flowed down, ultimately to the district plans at the bottom of the funnel. Plans would have to conform to the Minister’s decisions set in National Direction.
If the Minister at the top of the funnel wants to enable more housing, the Minister can set National Direction appropriately. And if the Minister at the top of the funnel wants councils to frustrate new development, the process is not much harder. Councils must set plans consistent with the direction poured into the top of the funnel.
It is a fundamentally fragile structure dependent on the character of the Minister at the top of the funnel, and consequently on the coalition politics that decides who will be Minister.
But one safeguard is especially relevant.
Very late amendments made during the Committee of the Whole stage set an Urban Land Market Officer whose job is to assess whether plans are consistent with the competitive urban land markets goal set in legislation. That goal, put simply, requires that zoning not create undue scarcity.
The Officer will watch a suite of price indicators. If a council has not zoned sufficient land for, for example, apartment towers, rents in existing apartments will be higher than they otherwise would have been. The value of those rents turns into higher prices for land where there is permission to have apartment towers. There will be differences in the value of otherwise-similar land on either side of a zoning boundary.
The Officer can determine that an urban land market is uncompetitive and identify council actions contributing to the problem. The council must then decide how to address that contribution and implement its response. The intended national direction would go further, favouring private plan changes that bring the plan closer to compliance, with developers covering their infrastructure costs. The instruments making that work have yet to be written.
That exception brings a small bit of robustness to the overall system. But it is still weak. The Officer must apply national instruments, and the Minister sets those instruments. And a Minister who prefers rising house prices could encourage a weak appointment to that position. The bit of the system aimed at reducing fragility has not yet developed enough to be robust.
Because of this fragility in the system, and because of the importance of housing, I joked around the office that my preferred election outcome was either Hon Chris Bishop or Hon Phil Twyford as Housing Minister, with every other outcome worse than either of those.
Polymarket currently reckons about a 10% chance Hipkins becomes Prime Minister, and 90% for Luxon.
Unless a miracle happens in the special votes in Hutt South, Hon Bishop will not have returned to Parliament. And it is a damned shame.
Everyone else is going to be watching who picks up the Finance portfolio. I’m watching Housing. I still think the Housing Theory of Everything is basically right. If the regulatory systems around housing are broken, nothing else will work well.
If an incoming government sets a NIMBY at the top of Hon Bishop’s new planning structure, it will be a national tragedy. And a reminder to think harder about robust political economy.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
Strong centralism also isn’t particularly robust. If central government gets policy right, then it gets it right for the whole country and everyone can be happy. But what the right policy is can be hard to tell. Having fifty states, or many local councils, each running variants on policy means experimentation, with failures and successes happening at smaller scale. Success can be emulated by others; failures can be avoided. Localism can be robust.
Non-robustness was always my worry about the National coalition’s housing and resource management policies, now legislated. They embed a fragility at the core of the new system.
The old Resource Management Act was a curse. But it maintained at least some room for local experimentation.
Unfortunately, that experimentation doesn’t work well when councils face similar incentives to block growth. Over decades, local councils set policies that were far too restrictive when it came to urban development. In the 2000s, people who hated suburbs blocked urban expansion, and people who liked the suburbs blocked density. So little could be built.
Central government budgets bore at least some of the cost. When housing is scarce and regulation makes it too hard to build new housing, even houses best described as rotting wooden tents can attract tenants. The health consequences fall on tenants, and on central government health budgets. And so does the bill for the accommodation supplement.
Beyond housing, not zoning enough land for business and industry reduces central government’s company tax take, income tax revenue, and GST.
Litigation could stall new housing interminably while developers and those opposed to new housing argued about whether the consents or the district plans sufficiently embodied the goals of various bits of legislation.
Reforms under the first term of Luxon’s government aimed to end that particular source of the problem. The Minister would set National Direction. National Standards would fully incorporate National Direction. Regional and District Plans would incorporate National Standards. Fewer things would need consents, but activities requiring consents would not need to re-litigate all the way up the chain. Consenting would focus on the applicable rules, with fewer opportunities to reopen questions already settled further up the chain.
Councils would still have important jobs in setting corridors for infrastructure, separating public spaces like parks, pavements and roads from private spaces, and applying the coming new national-template zoning.
People working on the system called it the ‘funnel’. Decisions made at the top of the funnel flowed down, ultimately to the district plans at the bottom of the funnel. Plans would have to conform to the Minister’s decisions set in National Direction.
If the Minister at the top of the funnel wants to enable more housing, the Minister can set National Direction appropriately. And if the Minister at the top of the funnel wants councils to frustrate new development, the process is not much harder. Councils must set plans consistent with the direction poured into the top of the funnel.
It is a fundamentally fragile structure dependent on the character of the Minister at the top of the funnel, and consequently on the coalition politics that decides who will be Minister.
But one safeguard is especially relevant.
Very late amendments made during the Committee of the Whole stage set an Urban Land Market Officer whose job is to assess whether plans are consistent with the competitive urban land markets goal set in legislation. That goal, put simply, requires that zoning not create undue scarcity.
The Officer will watch a suite of price indicators. If a council has not zoned sufficient land for, for example, apartment towers, rents in existing apartments will be higher than they otherwise would have been. The value of those rents turns into higher prices for land where there is permission to have apartment towers. There will be differences in the value of otherwise-similar land on either side of a zoning boundary.
The Officer can determine that an urban land market is uncompetitive and identify council actions contributing to the problem. The council must then decide how to address that contribution and implement its response. The intended national direction would go further, favouring private plan changes that bring the plan closer to compliance, with developers covering their infrastructure costs. The instruments making that work have yet to be written.
That exception brings a small bit of robustness to the overall system. But it is still weak. The Officer must apply national instruments, and the Minister sets those instruments. And a Minister who prefers rising house prices could encourage a weak appointment to that position. The bit of the system aimed at reducing fragility has not yet developed enough to be robust.
Because of this fragility in the system, and because of the importance of housing, I joked around the office that my preferred election outcome was either Hon Chris Bishop or Hon Phil Twyford as Housing Minister, with every other outcome worse than either of those.
Polymarket currently reckons about a 10% chance Hipkins becomes Prime Minister, and 90% for Luxon.
Unless a miracle happens in the special votes in Hutt South, Hon Bishop will not have returned to Parliament. And it is a damned shame.
Everyone else is going to be watching who picks up the Finance portfolio. I’m watching Housing. I still think the Housing Theory of Everything is basically right. If the regulatory systems around housing are broken, nothing else will work well.
If an incoming government sets a NIMBY at the top of Hon Bishop’s new planning structure, it will be a national tragedy. And a reminder to think harder about robust political economy.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
No comments:
Post a Comment
Thank you for joining the discussion. Breaking Views welcomes respectful contributions that enrich the debate. Please ensure your comments are not defamatory, derogatory or disruptive. We appreciate your cooperation.