Productivity Commission on land for housing

October 22nd, 2015 at 1:00 pm by David Farrar

The Productivity Commission has done a final report on using land for housing. The report is over 350 pages long with lots of data.

Their recommendations:

  • When councils review their rating policies in the future, they should review the evidence in this report with a view to adopting land value as the basis for setting general rates.
  • In future local government amalgamations, central and local government should take the opportunity to consider the merits of adopting land value rating to encourage the efficient use of land.
  • The Government should investigate removing the rating exemption on land owned by the Crown (including on land used for health and education purposes), land used by local government for recreation and community facilities, and the Crown’s exemption from other local government fees and charges.
  • Councils should remove minimum apartment size rules in District Plans
  • Councils should remove minimum parking requirements in District Plans and make more use of traffic demand management techniques (eg, variable pricing for on-street parking).
  • Councils should lift current height limits where it cannot be demonstrated that the benefits outweigh the costs; and undertake robust cost–benefit analyses before considering the introduction of building height limits.
  • Councils should review District Plan controls on the internal design and construction of buildings or dwellings that exceed standards set under the Building Act 2004, with a view to removing them.
  • The Government should amend the Land Transport Management Act 2003 to allow pricing on existing roads where a case has been made that it would enable more effective use of the roading network.
  • The Government should legislate to create a regime similar to Special Housing Areas whereby certain developments undertaken by local urban development authorities are designated by Order in Council as having the potential to deliver significant numbers of dwellings, and within which the urban development authority will operate with different powers and land use rules.
  • The Government should provide for ‘designated developments’ undertaken by local urban development authorities to allow higher height and storey limits than in the Special Housing Areas regime, and to allow non-residential uses that may be necessary for the development to be economically viable.
  • The Government should legislate to grant compulsory acquisition powers to local urban development authorities for ‘designated developments’, subject to the normal processes, compensation and protections of the Public Works Act 1981.
  • The Government should establish a threshold for the price difference between developable and non-developable land, beyond which it will ensure additional developable land is made available.
  • The Government should establish a process involving the relevant council to bring forward the release of additional greenfield land where relative land prices exceed the threshold set.

There is no one silver bullet there, but the combined impact of the recommendations would be considerable.

How much difference could this make:

A report considering global housing affordability issues concludes that “unlocking land supply at the right location is the most critical step in providing affordable housing” (McKinsey Institute, 2014, p. 7). The report estimates that unlocking land supply could reduce the annualised cost of a standard unit of housing by between 8% and 23%. Remarkably, in the world’s least affordable cities (including Auckland), unlocking land supply could help to reduce the cost of housing by between 31% and 47%. Productivity improvements in construction, by taking advantages of scale or taking an industrial approach to construction, could help to reduce the cost of housing by a further 12%–16%.

So in total, you could halve house prices in Auckland and reduce them by a third elsewhere.

Local regulatory constraints to releasing land and development capacity for housing have national and economy-wide impacts. Overseas research suggests that constraints on the supply of housing in high-wage cities can price out workers who would be more productive if they could move to take up the opportunities available. Lifting barriers to urban growth by releasing land and development capacity in these cities would increase a country’s Gross Domestic Product (GDP). Quantifying the size of the prize is difficult, but it could be significant. One US study (Hsieh & Moretti, 2015) estimates that lowering regulatory constraints on land supply in three high-productivity US cities – New York, San Francisco and San Jose – to that of the median level of restrictiveness in the United States would increase GDP by 9.5%. A productivity bonus anywhere near this level would be of major significance to the New Zealand economy. Indeed, it is difficult to think of many other policies that would yield such an improvement in the nation’s economy.

I hope the Government adopts these recommendations, and also that opposition parties support them.

Productivity Commission on land for housing

June 18th, 2015 at 6:37 am by David Farrar

A good report by the Productivity Commission on freeing up land for housing.

It’s 331 pages long, so here’s a summary of some of the recommendations:

  • Large land price differentials between different types of zones, such as those observed in Auckland, should be a trigger for local authorities to review the adequacy of their land supplies and zoning decisions.
  • High-growth local authorities should express their land supply targets in terms of zoned and serviced land and report publicly on their performance.
  • The Ministry of Business, Innovation and Employment, in conjunction with relevant local authorities, should inventory public land holdings in all high-growth cities to identify sites that could be used for housing.
  • The Government should introduce amendments to the RMA to clarify the role and importance of housing and urban environments.
  • In reviewing their District Plans, local authorities should move more residential land-use activities into “permitted” or “restricted discretionary” status.
  • Councils should identify areas where there is existing infrastructure capacity and ensure that planning rules do not prevent intensification from occurring in these areas.
  • Councils should pursue opportunities to make more efficient use of existing infrastructure assets including through greater use of user charges where this can reduce demands on infrastructure.
  • Government should adopt the Local Government Infrastructure Advisory Group’s recommendation to amend the Land Transport Management Act to allow pricing on existing roads where there is a business case that enables effective network optimisation.
  • The Treasury, in consultation with the Department of Internal Affairs, should investigate removing the rating exemption on land owned by the core Crown, including on land used for health and education purposes.
  • There is a place for a UDA to lead and coordinate residential development at scale in both greenfield and brownfield settings, working in partnership with private sector developers. Legislation would be required to establish and give powers (such as compulsory acquisition) to one or more UDCs in New Zealand.

The Productivity Commission are neutral experts whose task is to come up with solutions to issues that reduce our productivity. I hope the Government takes up most of their recommendations. The compulsory acquisition power for UDCs I don’t support, but the other stuff I do

UPDATE: Labour is supportive, which is good:

The Government should adopt the Productivity Commission’s recommendation to create an urban development authority to drive large-scale renewal projects in our biggest cities, Labour’s Housing spokesperson Phil Twyford says.


Productivity Commission on social services

April 30th, 2015 at 10:00 am by David Farrar

The Productivity Commission has published a draft finding and recommendations on how to improve outcomes for NZers from social services. The Commission’s job is to constantly look at how to improve productivity (better outcomes for the money spent) in various sectors, and is modeled on the Australian Productivity Commission which has strong bi-partisan support,

It is a weighty tome at over 300 pages plus many appendices.

Some of their findings are:

  • As a percentage of GDP, public expenditure on social services is currently higher in New Zealand than the OECD average. Expenditure is also higher than common comparator countries such as Australia and Canada, but lower than the United Kingdom.
  • From a client’s perspective, government processes for delivering social services can seem confusing, fragmented, overly directive and unhelpful.
  • Existing social services are not well placed to deal with multiple and inter-dependent problems encountered by many of New Zealand’s most vulnerable individuals and families.
  • The social services system fails to create and share information about which services and interventions work well and those that do not.

So we spend more than most countries, but the services are fragmented and we don’t do well in evaluating which interventions work well, and which do not.

  • Strong evidence exists that early intervention in social problems can significantly improve outcomes for individuals and the return on government expenditure. Yet, the social services system’s investments in early intervention are piecemeal and patchy.
  • Ministers and government agencies tend to focus on the flow of new social services initiatives. Relatively little attention is given to actively managing the large stock of social service programmes that account for the majority of public expenditure.

So the solution is not necessarily new programmes, but reviewing the current ones.

  • Contracting models that give a service provider a geographic monopoly for the duration of a contract deny clients a choice of services and providers, and create a poor incentive for providers to deliver good services to clients.
  • The organisational cultures of providers and government agencies tend to be resistant to change and can be paternalistic towards clients.

And the recommendations:

  • The Government should take account of the role and value of volunteers as an important part of social services in drafting new legislation to ensure that volunteers are not crowded out by new regulation. The Government should pay particular attention to this issue when finalising the Health and Safety Reform Bill.

  • Formal contracts between an agency and its in-house service delivery arm make costs and expectations explicit. They should be mandatory when that delivery arm competes with non-government providers, and are desirable in other cases.

  • Commissioning organisations should ensure that in-house provision is treated on a neutral basis when compared to contracting out and other service models. This requires independence in decision-making processes. In-house provision should be subject to the same transparency, performance monitoring and reporting requirements as would apply to an external provider.

So only go with in house provision if it is independently verified to be the best choice.

  • The Investment Approach could usefully be applied more widely. Future welfare liability – its underlying proxy for social return – should be further refined to better reflect the wider costs and benefits of interventions.

  • The Investment Approach should be extended to operate at a cross-programme, crossagency level.

The Investment Approach has to date been very successful in with MSD.

The Commission considered a couple of hundred submissions and met with over 100 organisations in formulating the paper. It’s only a draft, but the recommendations to date look worthy and hopefully people will engage with the draft, and not just defend the status quo.

The trans-Tasman productivity report

December 13th, 2012 at 10:00 am by David Farrar

The recommendations from the joint report by the Australian and NZ productivity commissions are here. Some of the more significant ones are:

  • Mutual recognition of imputation credits (MRIC) would be expected to result in a more integrated capital market and improve trans-Tasman economic efficiency.
  • The prerequisite conditions for a trans-Tasman monetary union do not exist.
  • The Australian and New Zealand Governments should proceed with the implementation of a single application and examination process for patents.
  • The Australian and New Zealand Governments should waive CER Rules of Origin for all items for which Australia’s and New Zealand’s Most Favoured Nation tariffs are at 5 percent or less and  consider reducing any tariffs that exceed 5 percent to that level.
  • The Australian and New Zealand Governments should remove the remaining restrictions on the single trans-Tasman aviation market.
  • The Australian and New Zealand Governments should consider removing remaining restrictions on trans-Tasman foreign direct investment.
  • The Australian and New Zealand Governments should consider a ‘trans-Tasman tourist visa’ for citizens from other relevant countries who wish to travel to both countries.
  • The Australian Government should address the issues faced by a small but growing number of non-Protected Special Category Visa holders living long term in Australia, including their access to certain welfare supports and voting rights.

Many good proposals there.

Productivity Commission on housing affordability

April 11th, 2012 at 2:00 pm by David Farrar

The Productivity Commission has released its final report into housing affordability.

Their findings and include:

  • Real house prices doubled between 2001 and 2007
  • The house price to disposable income ration increased from 3 to 5.5 from 2001 to 2007
  • 58% of renters can not afford to buy a house at the lower quartile price, assuming standard bank lending criteria
  • Section prices in Auckland are on average 60% of the cost of a dwelling, compared to 40% elsewhere
  • Land 2 kms inside Auckland’s urban limit costs 8.65 times as much as land 2kms outside

And recommendations include:

  • Increasing land supply for new housing should include moderate-density development of brownfield sites and development of greenfield sites close to existing centres, local employment, and services.
  • Auckland Council should show in its final Auckland Plan how it has considered and reconciled affordable housing alongside its other priorities.
  • Bring significant tracts of greenfield and brownfield land to the market in Auckland – identify and assemble land that could be quickly released and made ready for development, signal land with future potential for urban development, and make a commitment to major offsite infrastructure capacity.
  • Territorial Authorities to:
    -Take a less constrained approach to the identification, consenting, release, and development of land for housing in the inner city, suburbs, and city edge.
    – Adopt a strategy that allows for both intensification within existing urban boundaries and orderly expansion beyond them.
    -Develop strategies that promote adequate competition between developers for the right to develop land.
  • The Department of Building and Housing publish, for each BCA, the total time taken between receiving applications and finally granting consents, and the number of occasions where each BCA has used the ‘stop the clock’ provision.
  • The Department of Building and Housing audit the ‘stop the clock’ information from a sample of BCAs.

Now some of the usual suspects will say “No we can’t do it” because they think larger cities means more roads and more roads are of course evil. Now sure you can have that view, but be aware that the price of keeping to that view is that more and more low to middle income families will never get to own their own home, and will probably also end up paying more to rent than in the past.

For those who can afford to buy one, or even more than one house, then refusing to makes changes to reduce the cost of land and housing, will be great for the well off.

Housing Affordability

December 17th, 2011 at 12:42 pm by David Farrar

The Productivity Commission has released a draft report into housing affordability.

If you do not wish to read the full 259 pages, there is a 40 page summary and even a four page brochure.

The Productivity Commission is based on the Australian model which has strong support from Governments of both sides of politics. It has been the ongoing commitment to reforms such as those proposed by the Australian Productivity Commission, which has seen Australia move more and more ahead of New Zealand. If we do not act on recommendations for improved productivity, then there is a cost.

They observe:

… the distribution of house prices in Auckland is now markedly different to that in the rest of New Zealand, particularly at the lower end of the Auckland housing market. For example, between 1995 and 2011, the gap between lower quartile house prices in Auckland vis-à-vis the rest of the country increased by over 260% in real terms.

This means that for people in Auckland, even the less expensive homes are becoming unaffordable for many.

Section prices have grown more quickly than house prices over the last 20 years, indicating that appreciating land prices have been a key driver of house price inflation in New Zealand. This suggests a shortage of residential land in places where people want to live. Land price pressures have been particularly acute in Auckland, where section prices now account for around 60% of the cost of a new dwelling, compared with 40% in the rest of New Zealand.

They note:

The prevailing approach to urban planning in New Zealand has a negative influence on housing affordability in our faster growing cities. The widespread planning preference for increasing residential density, and limiting greenfield development to achieve this, places upward pressure on house prices across the board. Constraints on the release of new residential land create scarcity, limit housing choice, and are increasing prices across the market.

It’s simple demand and supply. If politicians restrict the supply of land, of course demand will push the price up. Measures around the tax system can make an impact around the margins, but one has to also get the fundamentals right.

They recommend local authorities:

  • take a more active approach to the identification, consenting, release, and development of land for housing in the inner city, suburbs, and city edge, both with respect to volumes of consented land and the time taken to achieve consents;
  • adopt a strategy that allows for both intensification within existing urban boundaries and orderly expansion beyond them;

The Auckland Council especially has to release more land for development, otherwise a generation of middle to lower income Aucklanders will never have an opportunity of home ownership. Those poorer Aucklanders will be locked into being tenants for life, funding the retirements of the well off.

They also note the large sums of money now being spent on subsidising rental housing, and how this will increase significantly in future if fewer people can own their own home:

  • $564m on income related rents for 69,000 state houses
  • Accommodation Supplement of $1,200m paid to 320,000 people (around 50% of all renters)
  • $36m on community housing providers

Feedback is open on the draft report for a couple of months.


Labour on Productivity Commission

March 23rd, 2010 at 1:19 pm by David Farrar

Grant Robertson blogs:

Its nice to be able to say that I support  a government policy, albeit with some caveats.  I think there is considerable value in a Productivity Commission.  One of the main reasons is that it will ensure there is some critical long-term thinking about government policy.

Lianne Dalziel has also said supportive things. I’m pleased to see Labour supportive of this initiative, for two reasons.

The first is simply because it is a good idea.

The second is because the sucess of the Australian Productivity Commission is partly because it does have bipartisan support. and I have long stressed that any NZ counterpart needs to also have such support, to be truly effective.

As David Cunliffe has noted the principal concern about the commission announced here is the breadth of their mandate.  From the early indications it looks as though the mandate will be somewhat narrower than the Australian one.  I think that is a mistake.  Using a broader measure of productivity is essential for the commission to have a positive influence. For example, the Australian commission has recently done a report on the role of the not for profit sector in terms of productivity.  I am not sure that would fit in the terms of reference for NZ.  It should, if it is to give us some clear long term benefits to our wealth and well-being.

The terms of reference may change over time. I’m not sure it is a bad thing to start more focused, and then maybe expand the brief once it has some solid work done.

We need a commission with an independent and broad focus.  This can not be just about regulation and short term issues. I believe if we get the mandate right (and it has support across the political spectrum) it could play a vial role in our development as a country.

Independence is key. While it is not a constitutionally important role that needs the formal agreement of Parliament, I hope both National and Labour would agree on serious consultation with each other (depending on who is in Government) on appointments to the Commission.

Again, it is good to see support from Labour for a NZ Productivity Commission.

A productivity commission

March 10th, 2010 at 12:00 pm by David Farrar

The Dom Post reports:

A productivity commission that will run the ruler over government departments has been given a cautious welcome by the public servants’ union.

Details of how the commission will work have yet to be thrashed out, but Finance Minister Bill English’s office said it would be based on the Australian commission that has operated since 1998.

That body covers the whole economy, but has a specific role in preparing regular reports on efficiency, effectiveness and service delivery in government agencies.

Public Service Association national secretary Brenda Pilott said a similar body in New Zealand would help monitor performance, but would need a clear definition of how state sector productivity should be measured.

Very pleased to see the PSA supportive. The Australian Productivity Commission has played a useful and significant role in growing the Australian economy and has bipartisan support.

The Government is poised to announce the creation of the commission – part of a confidence and supply agreement with ACT – this month.

Mr English’s office said it would support “the goals of higher productivity growth across the economy and improvements in the quality of regulation”.

It would “work closely with and be closely modelled on” the Australian commission, which is a research, advisory and performance monitoring agency that covers economic, social and environmental issues.

Prime Minister John Key said on Monday the commission in New Zealand would be mostly focused on the public sector, suggesting it will play a role in looming reforms. …

Ms Pilott said the commission could fill a gap in how public sector productivity was measured, something the PSA had been lobbying for.

Labour finance spokesman David Cunliffe said there was merit in having a commission, but Labour would want to carefully scrutinise what it was measuring and how.

The commission will not be hugely effective if it is seen as partisan. This does not mean both major parties have to agree with everything the commission does, but it means respect for its work.

A productivity commission

July 20th, 2009 at 10:00 am by David Farrar

Fran O’Sullivan writes:

The Government will soon launch a Productivity Commission designed to run its ruler over key sectors in the NZ economy and advise on initiatives that might ultimately help bridge the income gap with Australia.

The proposal for a Productivity Commission has grown out of the post-election agreement National and Act made for a “high quality advisory group” which would be tasked with the challenge of investigating how NZ would close the income gap with Australia by 2025.

I think a productivity is one of the most important things we can do, for increasing long-term growth. The Australian equivalent is one of the reasons they have done better economically – for them reform is not just something that happened in the 1980s, but has been an ongoing work programme under Hawke, Keating, Howard and now Rudd.

One of the first initiatives for the new Productivity Commission should be to examine why New Zealand has so many ports.

Ports productivity is a major issue – for both exporters and importers – given NZ’s distance from markets. Just two NZ ports have agreed to transparently provide benchmarking data to overlay on the Australian Productivity Commission’s benchmarking studies in this area – other ports declined to participate.

Given the fact that Australia is New Zealand’s biggest export market, it is important to get ports’ efficiency increased.

That does sound like a good first project.

It is still unclear who will chair the commission.

Minister for Regulatory Reform Rodney Hide favours former Reserve Bank Governor and now company director Don Brash.

Economically my views are very close to Don Brash. From an economic point of view, I think he would do a great job.

But, and this is a big but, the sucess of the Australian Productivity Commission is that it has been supported by both the Coalition and the ALP. Sure they don’t agree with every recommendation, but they recognise its importance and don’t try and demonise and undermine the Commission.

Getting NZ Labour to support a NZ Productivity Commission will be difficult enough. However Goff and Cunliffe are more moderate than Clark and Cullen, and I hope they will be constructive towards it. Just because it will sometimes recommend unpalatable reforms is not a reason to silence or marginalise it.

And this is where politically having Don as inaugural Chairman may be inadvisable. It would almost guarantee Labour’s opposition to it. And in most cases I wouldn’t care about that. But I have heard multiple times that the success of the APC comes down a lot to the bipartisan support for it.

The Australian Productivity Commission’s work programme gives some insights into the type of issues that the New Zealand commission could be invited to examine.

The Australians are examining the relative performance of the public and private hospital systems looking into comparative hospital and medical costs for clinically similar procedures.

It is examining Australia’s anti-dumping system, executive remuneration, the contribution of the not-for-profit sector and gambling.

They all look interesting topics. I would be most interested in a study of gambling from an economic point of view.

Fran on the economy

November 19th, 2008 at 10:40 am by David Farrar

Fran O’Sullivan looks at the recent National-ACT agreement. She covers some of the tensions around spending reviews, but notes that is not the big issue. The big issue is:

Where Act has scored is in getting an agreement out of National to make a concrete goal of closing the income gap with Australia by 2025. This will require a sustained lift in New Zealand’s productivity growth to 3 per cent a year – something that has so far eluded this country.

It is an ambitious target.

To get some focus on this ambition a “high-quality” advisory group will be formed to probe into the real reasons behind New Zealand’s decline in productivity performance, investigate the kind of institutions that Australia sports to drive its superior performance and report annually on progress made towards the 2025 goal.

Frankly, this is the real winner in the National-Act agreement.

The advisory group should move quickly to examine the runs on the board that the Australian Productivity Commission has notched up. The commission undertakes exhaustive investigations into various sectors, interviewing the key players before coming up with in-depth recommendations. It has been a powerful force in driving efficiency into Australia’s economy over the past 15 years.

If such a commission is set up here, it would be great to do it in such a way, the Goff led Labour Party would support it. That doesn’t mean that you agree to implement whatever they come up with, but that you don’t undermine and ridicule them if they ever propose something unpopular.

We saw this with the NZ Institute. They were a darling of Labour, and then they dared to suggest we should be a “fast follower” in terms of climate change responses and the wrath of Helengrad descended on them, and they were marginalised.

Both National and Labour need to realise that if they set up a NZ Productivity Commission, it will sometimes recommend stuff they don’t like. And the challenge for them will be to disagree with the message, but not shoot the messenger.