Thursday, November 29, 2012

Economic madness in housing policy

The economic damage caused by these crazy policies is what needs to be hammered home: HughP has been very focussed on the 'broken-record' approach and it is gradually seeping through. Perhaps. Let's tabulate the said damage: - Median multiples in perma-unaffordable zone - Acquiescence in a materials supply cartel - Lack of nation-wide type approvals (for e.g. factory-built dwellings) - consents are Still a local-authority issue. Welcome to the ineptocracy! - Complete absence of time-money rules in the entire consents etc processes including the RMA. Quick fix would be to adopt current IRD rules - just try missing a tax payment and see what happens! - Disenfranchisement and disengagement of young citizens shut out of the housing market - Consultants, lawyers, engineers, insurers all feasting on the corpse of what passes for the development industry - 100% pure deadweight - Regulation of everything that is an input to the industry - if only the synthetic-cannabis rules could apply (use it until sufficient numbers of addled users clog up the A&E's of the nation, then stroke chin and say ' why, something's Gotter be Done) - Granting untaxed capital windfalls to landowners by continuing to squiggle on maps - Acquiescing on land-banking - Transmission of this economic malaise (as it applies to new-house pricing) throughout the housing market, as existing-home sellers who wish to buy new at roughly the same level of amenity, need to sell at near the same price (and trouser the CG, mais naturellement, if they play it right) Play this record at Every Opportunity, and don't forget that it Cannot be fixed by voting in a new lot of faces at either national or local government levels. It's a classic cluster-f**k. This stuff is systemic......


A village/tribe (direct descendants of the monkey clans - see 'Before the Dawn' - Nicolas Wade) may well be the default setting if we have to hit the factory reset button. But consider the losses in this highly sustainable way of living: •kiss goodbye to most present rights, including personal freedoms and gender equality. Tribes are ruled by The Big Man (note that gender) and if'n yer not in with The Man's crew, (like, wearing the wrong colour cap down Main Street) you'll shortly find yerself on a Ship of Fools (on a Good Day) or pegged out on the local beach at low tide (on a Bad Day). •kiss goodbye to most scale enterprise: mining, metals, the shaping thereof etc. Enterprises and capitalism depend on the utmost trust between total strangers, and tribes/clans do not take kindly to strangers (that's part of their core definition..,.) •kiss goodbye to cities and hence to the clustering and innovation thereby made possible: the various Renaissances that have taken place over the centuries have arisen from the cross-fertilisations of (quelle horreur!) Different Types Mingling: tribes don't take well to such uncontrolled goings-on. The genius of the Anglosphere is that we invented portable, discretionary (choose your own) tribes via countless associations, enterprises, and ventures, after millenia of imposed tribes via blood, locality, religion etc. The Enlightenment did for all that. Mind you, the re-tribalisation of the world has been long predicted, and Blut und Boden still has a visceral appeal to the revanchists amongst us....

Thursday, November 22, 2012

A common tater complains about Housing Material Costs

Oh, it gets better, Boatman. •Duopoly in materials (see the Productivity Commish on this) •Massive front-loading of fees on the land by Rapacious Local Governments who have Four Wellbeings to house and feed •Cheap credit, which fuels the fire •Licensing of every tradie, tool, and anyone silly enough to consider a new build •Planning which generates an unearned and untaxed capital gain (typically 10x rural land price) as soon as yer draw that MUL squiggle on a map •Land banking (in the reasonable expectation of said CG) by Them with Knowledge and Insight (and a tame Planner or three on the Inside) •Elfin Safety, which typically adds 30-50% to the raw cost of e.g. a roofing or other at-height job (scaffolding, railing, harnessing, it's a Long List) •Inspections and Engineering Certification, which can easily exceed the raw materials cost by a wide margin •And never, ever forget the time value of money, throughout this ponderous process. Recall that the 'Mericans built the Empire State in 18 months. Yer'd be very lucky to get a Notified Resource Consent through in that time, and all the while the interest costs tick up, your Banker smiles at the interest revenue stream (or Frowns when yer miss the payment), and the Gumnuts of the world reject yer Permit Application for the 13th time because you haven't Detailed that there Joint in the Gubbinses by the Roof Thatch, which is another three-week go-around with your Engineer not ter mention his Fees. And did I mention that the Banker's grin is getting wider? •Plus (the icing on the cake, economical dead-weight-wise, ht PhilBest) is that all this cost-loading then transmits osmotically throughout the entire housing market, enrichening (and without being taxed on the CG generated) every existing houseowner. Because if'n she sells, and buys new, she'll haveta pay all of the above plus the agent's commission on the sale, to get an equivalent place. Universal pricing signal! Perfection, ain't it? Tip all these ingredients into a supply-starved Housing Context, mix 'em together, and Watch Them Prices Explode! And, like getting Milk from a Latte, or populating an Aquarium from Chowder, un-Mixing this sorry mess is a trifle, shall we say - challenging!

Tuesday, May 15, 2012

Councils and Cluelessness

The issue with Councils (I used to be a Treasurer of one back in the day - the title says it all) is quite simple to state, and very hard to fix. They now have power over so much of the regulatory aspects of housing and building (a partial list: - land prices (via zoning) - land developmnent (via consents and taxes) - housing design (via consents, design rules) - housing build (via inspections, requirements) - continuing use of house plus land (via Plans, consents and permitted uses) that their ordinary operations, in puddling through all of the above, have a major economic impact on the lives, businesses and prospects of anyone enmeshed in their gears. And yet, at the very same time, Councils are economically clueless. - they have no idea of, let alone penalty for causing monetary loss because of, the time value of money - they have no idea of the principles of monopoly (who else runs the sewers, roads, stormwater?) and take no precautions against the ancient abuses arising from this - they employ staff on salaries, who are completely disconnected from quantum or quality of output, and who thus experience precisely zip/zilch/nada of the consequences which would follow in the business world (termination, bankruptcy, or at the least, serious loss) - they are able to compulsorily demand fees for services (or no consent, buddy), rates (or we'll sell the place from under you), and levies (or no subdivision, you 'orrible greedy developer). Thus they wander serenely about the landscape, causing economic havoc in their wake, and congratulating themselves on a job well done, because they Do carefully count the awards made by juries of their peers... But how to change this horrific combination of power and incompetence - aye, well there's the rub....

Monday, March 19, 2012

LTP season is upon us again!

I occasionally take an interest in the Long Term Plan of of the local Council. It's my money they're spending, and they are obliged to Consult aboot it all.

I generally ask some pointed question: like:

•I see you have budgetted for X million pesos revenue, from Development Contributions. Please set out the average revenue per section expected, segmented into residential, commercial, industrial and Gummint.
•Please provide some economic commentary about these figures, given that they are significant inputs into section prices, and coming as they do early in the development cycle, attract significant developer financing cost additions prior to section sale, and are ultimately paid for by the incurrence of household, public and business debt.
•Please provide commentary about the revenue risk implicit in these averages, focussing on the most likely such risks: development flight to cheaper jurisdictions, housing inflation, buyer resistance, disadvantagement of low-income new-house purchasers.
•Please provide a table showing comparative Development Contributions for adjacent jurisdictions, for equivalently sized Councils across New Zealand, and against a New Zealnd average.

Y'see? A statement (on public record, no less), an education for Councillors who are often shocked! Shocked! to understand just what their faceless bureaucrats are inflicting on anyone enmeshed in their processes, and (best of all) a chance to stand up in front of the Council and tell these hapless fools just exactly what a dire effect they are having upon their local economy, residents and businesses.

Now, the Open Season for the LTP's is again upon us. Happy Hunting!

Tuesday, February 28, 2012

Licensed Building Practitioners

This will quite simply cause a polarisation in the market. Most repair/maintenance can be made to look as though it's always been there. So goodbye LBP's, consents, the swinging fees and official scrutiny for this type of work. Who could ever tell that it had happened at all? I recall saying something to this effect years ago....

There simply won't be any point in the middle-level type of extensions, alterations etc. By the time you've stumped up for the engineer, the LBP'ed foundation guy, the LBP'ed structural builder, the LBP'ed interior carpenter, the LBP'ed roofie, the LBP'ed exterior plasterer, the LBP'ed brickie or blockie, the LBP'ed Site Manager, the building consent fee, the inspections fees (one per trade needed!), not to mention the materials (remember them?), the supervisions, the architect if'n yer really stupid, and the resource consent if yer neighbours get a fit of the Nimby's, why, it will be much simpler to give the old dump the flick and buy something closer to what you actually want.

I think this is called 'Unintended Consequences'.

Monday, February 27, 2012

Councils and Time Value of Money

The issue with Councils and bureaucrats in general can be traced to three interlocking aspects, which together have over the years created the leisurely, process-and-rule bound, risk-averse culture we are now seeing.

1 - no revenue reponsibility. Council rates, fees and levies are non-contestable. They can be pencilled in at budget time and arrive on schedule. Guaranteed revenues mean that all Council staff have quite literally no connection with their financing. It is simply taken for granted, like the sunrise.

2 - no concept of time=money. Councils can inject time into processes without paying any monetary penalty. Their hapless customers still have to pay their mortgages, working capital overdrafts, consultants fees and staff. So every day that a Council injects into a process - has a direct and proportionate cost to the affected customer. Heck, Councils even 'stop the clock' when counting days elapsed for a consent. But the customers' Bankers don't.

3 - Council staff are answerable only to the CEO, and the CEO is a Council's (in the elected sense of members around the table) only employee. So there is no direct connection between anything which Councillors might think, want, or do, and the effect on staff. For all practical purposes staff are completely immune to Councillor influence.

So if the staff continue to with-hold, delay, defer, ignore or otherwise foobar the rebuild, just exactly what can be done about it, given all of the above?

Tuesday, February 07, 2012

Housing yet again

Housing affordability has five components:

1 - cost of land.

2 - cost of building - and as NZ is well under scale, and hence has hopelessly overpriced materials: it's still worth going to the States and filling a 40' container and paying GST plus duty on the contents: most materials are around 20% of the NZ converted cost.

3 - time taken - as time=money - the 'carry' can be significant even for a single build.

4 - credit availability and terms.

5 - Household income levels

The stoopid Councils contribute directly to #1 and #3, the craft nature of building in NZ and the lack of scale accounts for #2, and Gummint policy affects #4 and #5.

In 2001, in Christchurch, it was possible to buy a doer-upper for well south of $50K, in the non-leafy suburbs. By 2003, the same house was x3. What changed?

In 2002 the Labour Gummint, trying to be nice to the hopeless, introduced a guaranteed $100K credit line. Qualification for this was simple: 'can you fog a mirror?'.

Instant result in Chch - every single price in shall we say the structurally challenged house class went up overnight by, spookily enough, that same amount.

So there's the Gummint's little push to unaffordability. #4 shows that easing credit adds to prices. Whodathunk?

And finally #5: the rise of credentialism, soft degrees like media, art and music, and the constant repetition of the mantra 'education gets you up in the world', have all lead to a situation of inflated expectations, but same old employment choices. And now the GFC has commenced a winnowing of the crop: only the truly useful souls can look forward to even a moderate income: the hopeless are condemned to menial jobs or the dole, and as has been the case throughout human history, the well-off are quite capable of looking after themselves. Average incomes are static in nominal terms, and falling in real. As Glenn Reynolds notes:

"The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay in, the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them. One might as well try to promote basketball skills by distributing expensive sneakers."

Oh, and there is no political way out of this, because there are more Tax Consumers than Tax Producers, and the Consumers can, have and will outvote the Producers when push comes to shove. The middle class vote has been purchased by WFF, and despite their occasional unease, they'll stay bought.

So there in a nutshell is the bind we're in. And as any solution involves a choice between the hard way out, and the really hard way out, I don't see much will move until it has to. As the saying goes: what cannot go on forever, won't.

Sunday, February 05, 2012

Urban Land prices in GodZone

A word about Development Contributions.

I'm an old grizzled ex-County Treasurer who actually used to administer these babies in the good old days before the dopey Sandra Lee LG Act 2002 injected 'Social and Cultural Wellbeings' into Councils spending arena.

DC's were really about public open space: land, reserves and the like. A simple cash amount, which was held in trust and applied only to reserves, was the norm, and/or a parcel or three of land set aside.

Nowadays, DC's have an incredibly complex calculation: Household Unit Equivalents (bit like the the Twenty' Equivalent Unit (TEU) measure for shipping container space) for almost everything a Council could conceivably dream up cost requirements for.

Recall that every legal human activity can fit within 'Social and Cultural Wellbeing', so naturally, there are Community Development Organisers, Events Planners, Reserves Consultators and dont even get me started on spatial planners, zonerators and other failed architects - all to be fed, housed, and their reports to each other and to the Council to be read and discussed with a straight face. All to be 'contributed' to....and then there are 'hard' spends like roading/water/sewer/drainage incremental impacts to be funded

The net impact of DC's (e.g. for an upcoming major Chch subdivision) is huge - $70K/section. And this impact is upfront - pay now, and this adds at the earliest stage, almost, to the hapless developer's carrying costs ('the carry').

At a commercial credit line rate (making the maths easy) of 10%pa, and a conception-to-first-sale time of 7 years, the rule-of-72 says that that $70K is now $140K. Yup, it has doubled.

See now why land prices in urban subdivisions are sky-high? Add everything together, recalling that those costs earliest on the list generate the highest carrying costs:

- land purchase
- 'carry' on land purchase cost
- survey and consents
- 'carry' on survey/consenting costs
- DC
- 'carry' on DC
- physical land development - civil works
- 'carry' on civil works
- sales and marketing costs
- developer margin
- and I've probably left a few cost items out....

and then ask:

1 - why anyone would be in this game?
2 - And for those brave enough to be there, why section prices are where they are?

The answer to 2 is - because of zoning (original purchase price inflated), the Social and Cultural well-beings (DC's inflated) , and the fact that Council staff have no concept of time=money ('carry' inflated)

After all, the Council staff don't have to carry the 'carry' why not let that consent dawdle in the in-box for another month or six?

Now if the Wellbeings were deep-sixed, yer jest might have yerself a whole new ball game....keep watching!

Tuesday, January 24, 2012

Christchurch - Strangled by CCC staff

The old, traditional delivery areas of Local Government - roads, bridges, hard services such as drainage, sewers, water - are doing just fine.

But the regulatory areas such as planning and consents are simply getting in the way of everything. Spatial Planning is a failed concept - the RMA was meant to gauge proposals by reference to their effects, not their zoning. But it was captured early on by the zonerators and old-school town planners, and has never recovered.

Arguably, this crew have, by strangling land supply and imposing lengthy, adversarial processes on developers, designers and builders, added multiple layers of cost to homes, businesses and the local economy.

And the tightening of residential construction certification (DBH's Licensed Building Practitioner scheme) is another well intentioned but costly exercise: consider that of the 90% of Chch houses which are fine to carry on living in, fully 2/3 were put up by (shock, horror) completely uncertified people! Gadzooks! How can they now live with themselves?

Against this background of staff who blindly pursue failed techniques, causing cost wherever they cast their gaze, impervious to the time value of money, secure in their little fiefdoms, and protected by layers of certification, professional guilds and stroppy unions, how is a call to 'unity' amongst Councillors going to make the slightest scrap of difference?

We're living 'Yes, Minister' - and compulsorily paying through the nose to fund this incredible debacle.

And folk wonder why the pedestrian option - vote with yer feet and escape the CCC and its parasitic staff - is increasingly attractive?