Kiwiblog

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.

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.

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.

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 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.