Thursday, December 14, 2017

Budget Exclusions = Holes....

Unfunded or uncertain or pure Exclusions - listed without comment.....Page numbers are from the HYEFU.

  • New TV station P71 
  • Conservation funding not included P71 
  • Customs upgrades P72 
  • America's Cup P72 
  • Tertiary Ed P73 
"The behavioural assumptions, and therefore the impact on future costs are unquantifiable at this early stage but there is an expected general increase in demand for tertiary education beyond the forecast period" 
  • ECE Funding Review P73 
  • School of Rural Medicine P73 
  • Hosting APEC 2021 P73 
  • Development Assistance P73/4 
  • Public Housing P75 
  • Refugees Quota P75 
  • Justice Commitments (Access) P76 
  • LINZ LandOnLine P76 
  • Welfare P77 
"The behaviour change associated with such changes, including the removal of section 70A of the Social Security Act 1964 (which reduces the amount of benefit payments owed to sole parents who do not disclose the identity of the other parents of their children) is unknown." 
  • National Land Transport Fund P78 
"Crown funding may need to be provided for projects if they do not receive NLTF funding and the scope, timing and costs of some of these projects are still being finalised." 
  • Auckland Transport Alignment Plan P78 
"...[Gap] is between $5 billion and $6.5 billion. The Government and Auckland Council are currently considering how to refresh ATAP in order to align the priorities of the new Government with the existing priorities of Auckland Council. This work will also include consideration of options to address the funding gap." 
  • Investing in Children Transformation P79 
" To the extent that the costs associated with the new Ministry cannot be funded from a tagged contingency or from reprioritisation, additional funding is likely to be required." 
  • Clothing Allowances P79 
"[Act] comes into force on 1 July 2018. The fiscal implications of this Act have yet to be fully assessed and incorporated in the fiscal forecasts" 
  • Learning Support P80 
"..[If building cost] pressures cannot be managed within agency baselines, additional funding is likely to be required." 
  • Southern Response Earthquake Services Support P81 
"The ultimate cost to the Crown of settling earthquake claims remains subject to significant uncertainty" 
  • Primary Care Services P81 
"The implementation details and funding arrangements for these commitments are yet to be finalised." 
  • Transitional Housing P82 
"The average cost of providing transitional housing support services is significantly higher than funding appropriated in Budget 2017...Additional capital is required to meet the existing supply target of 2,155 places, which might require adjusting upwards." 
  • Addressing the Gender Pay Gap in the State Sector P84 
" Fulfilling this commitment may involve costs to the Crown." 
  • Changes to Institutional Form of Government Agencies P84 
" commitments are likely to involve a number of changes to the composition and structure of existing government departments. Where the additional resourcing (and other costs of these changes) cannot be met through baseline expenditure, further Crown funding may be required." 
  • Increasing the Minimum Wage P85 
".. increased costs to State sector employers. Funding may be sought where costs cannot be absorbed within baselines without resulting in unacceptable impacts on service delivery. " 
  • Pay Equity Claims following the Care and Support Worker Settlement P85 
"The resolution of such claims within State-employed and State-funded sectors may involve significant costs to the Crown." 
  • Variance in Costs of 100-Day Plan Commitments P86 
" forecasts include funding for the Government’s 100-Day Plan commitments, including First Year Fees-free Tertiary Education and the Families’ Package. Where costs are different to what has been reflected in the forecasts, the resulting fiscal impacts will need to be managed."

This is Treasury CYA - gently pointing out that this is not a full Budget and that there are considerable...Lacunae,  no, Gaps,  no, Omissions - oh, let's just settle for HOLES!

Tuesday, December 05, 2017

Free Tertiary Education

As a former CFO (although we had no such lofty titles in them days) of a major Polytech, I saw the effects of dragging entire cohorts of unprepared entrants into the system, and the effects of undirected (bums-on-seats) funding at first hand, because I had to corral Budgets for the hot mess:

  • Foundation courses to get the worst cases literate, adequately numerate, and able to comprehend English. Pure overhead as little to no funding was directly available until well along in the piece.
  • The start of a proliferation of 'soft' courses designed expressly to mop up EFTS-based funding by getting Mo' Bums.
  • The realisation, very late in the piece, and I was out of it by then, that by seriously limiting Class Materials expenses and Teaching Hours, certain courses generated massive internal subsidies for Other Stuff. Because the EFTS funding took no account of Costs, only Bums, and was generous to a fault.
  • Students from privileged backgrounds who constantly applied for Hardship Grants despite rocking up in cars, expensive mountain bikes, or motorbikes. I did make some of them cry (sat on the Approving or in these cases Disapproving Committee). But a nice little rort.
  • It took a decade or two before the EFTS funding model (it came in in 1989/90 IIRC) started to distinguish Costly versus Costless courses. It was brought into sharp relief when one Polytech which shall remain nameless, dished out a CD to the students. That was the entire course cost....but the EFTS fundling even on the lower scales was only a little south of $10K per Bum.
  • Then Degree courses started to come in (why? because the EFTS funding per Degreed Bum was much higher), so we saw Degrees in Naturopathy and Diplomas in AromaTherapy start to proliferate to take advantage. That did not last long because they were so Luminously Bonkers. But the issue was that they could Start in the first place.
  • The race for funding also pitted institutions against each other, as they vied for the same student base, and duplicated, often badly, courses run better elsewhere.
  • The Good Times effectively came to an end with EFTS limits per study category, directed funding for certain institutions, and incentives about Cooperation to cut out the hideous duplication and waste that was apparent. The result was TEC, which now (I understand, far away from the game now) exerts an Iron Fist over who offers What, to Whom, and at what Cost.

But I bet TEC won't have much of a Xmas Break. Because our idealistic crew, shopping for the Youf Vote as always, has perhaps taken us right back to the Old Schemozzle. I'd put a bob each way on the fact that many of the New Starry-eyed Entrants to Tertiary as a result of the massive incentives now offered, will need just as much Pastoral Care to get them Fit to Teach, as PT's Housing tenants are gonna get to sort their appalling lifestyle choices.


Monday, November 27, 2017

Chasing down the BOM's

This post was prompted by a plaintive cry of vehicles which are
"manufactured almost entirely without human input, sold online with no human input, and ultimately driven without human input. They would seldom crash, and need virtually zero maintenance."  The implication is that Workers disappear and with them their Incomes and with that, their Taxes....

Lets chase the BOM down on each of these.
  1. Manufacturing is the end product - metal-bashing and assembly of a plethora of components, every one of which has been: Designed, Prototyped, Materials Mined, Transported, Refined, Shipped, Cast, Moulded, Machined, Painted, Warehoused, Sold, Financed, Transported again, all before getting to the TSLA factories. Every single one of those activities has their own BOM, into which humans are an essential input. Who else Brands, creates a compelling website, decides on Finance, writes up the Contracts, Programs the CNC tools, Builds the manufactories, and passes the bills for payment. I've been involved in automating finance-related jobs out of existence for forty years, and quelle surprise, there is still wetware at the root of most of finance activities.
  2. 'Online' is the visible result of literally person-centuries of clever coding, marketing ideas and entrepreneurial individuals (Jack Ma...). It's wetware all the way down for the Ideas. As to the 'automation' possible, well, Compilers, which take away the burden of writing in binary, have been around since the 1950's, yet, quelle surprise, IT in general is part of the STEM explosion in careers.
  3. 'Driven with no human input' is an aspiration, not a fact. Caterpillar has had self-driving mine trucks for three decades, yet wetware is still employed to spot them for loading, and to dump them at the top of the haul road. And self-driving in winter ice, snow, fog and other very common North American road conditions is certainly gonna create work for panel-beaters: because ABS, vehicle dynamics adjustments and environment detection are useless in such conditions, as many tourists discover up our NZ ski access tracks....
  4. Last I checked, TSLA vehicles have Tyres, Suspension, and other moving parts which wear. So zero maintenance is another myth. There may well be less mechanics. But then where are the buggy-whip makers and wagon wheelwrights of yesteryear? 80% of employment in developed countries 150 years ago was agricultural. Now 2% is. What happened? Yes, too many barista and aromatherapista.....

In short, we need not worry about Workers and their Income just yet. Heck, even Bicycles need Mines, Refineries, Ships, and Tyres to supply their very simple BOM's. Mines need Miners and before that Stone-gazers who can look at an outcrop and say ' yup, there's Cu, Fe, Sn or Pb in that there Rock'. I'll stop now but y'all get the drift....(mining pun right there)

Sunday, November 26, 2017

Awkland housing - the Ongoing Stooory

Awkland Architects will have a perfect insider's view as all of this unfolds.

I think (despite my VRWC tendencies) that the whole Awkland Affordable Hoosing schemozzle probably cannot be even partially fixed any other way than by Gubmint intervention. But to take up a couple of points from elsewhere in the thread:

  • The 'expert group' are 
  • Shamubeel Eaqub - respected independent economist and commentator, and author of Generation Rent, 
  • Philippa Howden-Chapman, Professor of Public Health at Otago University. She has led groundbreaking research on the health impacts of cold, damp housing, and 
  • Alan Johnson, Senior Policy Analyst for the Salvation Army and author of The Salvation Army's State of the Nation report, which highlights effects of the housing crisis
  • This group is anything but Expert. An economist, a Sallie SJW, and an academic are hardly a Brains Trust, particularly as the conundrums of fast, abundant, affordable housing will include the two most thorny issues of all: land costs and automated building methods. One would have expected some Builders, Engineers, Manufacturers and Overseas folks in the group. But hey, the old Labour/Greens mantra reasserts itself: 'We Know Best'.
  • The other salient point is about the inherent risk involved in socialising all the moving parts of the solution. In Christchurch, f'rinstance, no construction company with any economic sense will put its hand up for the now-foobarred Metro Sports Facility, because the Gubmint has just tossed the head contractor (Leighs-Cockram) under the bus. I foresee something quite similar to this caution in the Hoosing Debacle: with such a swirling mess of Regulation, Land issues, Construction Methods and attendant risks, what CEO is gonna say to the troops - 'hey, this looks juicy, lets spend a coupla mill and get in on the action' ??

I think we all are gonna need a Contract with Popcorn suppliers, to sit comfortably on the sidelines and watch the Great Game unfold. And as Popcorn may well be GST-Free soon (being an Essential Food), perhaps a Popcorn Futures Contract of some sort to minimise tax......

Friday, November 24, 2017

Ah, GST, I hardly Knew ye....

While the Rate of GST is excluded from the ToR, Exemptions from it are evidently not. And from the loose lips of several pollies over recent days, you, dear reader, should be aware of the following candidates for Exemptions:

  1.     Female sanitary products
  2.     Fruit
  3.     Vegetables
  4.     'Essentials' (definition?)
  5.     New houses

And any exemptions (from which GST is mercifully comparatively free at present) will have the following effects:

  •     Decrease revenue streams from GST
  •     With corresponding effects on Gubmint finances overall
  •     Cause immediate compliance costs on businesses dealing with mixtures of exempt and non-exempt goods (FMCG retailers, especially)
  •     With corresponding claw-back through (say it quietly) cartelised price adjustments to end consumers
  •     With greatly increased scope for mis-description of goods ('Liquor', in the bad old days, was frequently sold as 'Drench' out in the back-blocks). So what's to stop yer local Baked Potato outlet selling you a $4 Raw Tater, which you promptly hand back to them for a 10c Filling and Heating fee?
  •     Greatly increased non-tradeable activity in lawyers, tax accountants, and other advisory consultants
  •     Increased software demands as the 'exempt product list' needs to be kept up to date and applied across all affaected businesses, to say nothing of the back-end Gubmint GST Return handling
  •     Increased need for tax audits, Inspectorates and ancillary regulation to ensure that noses are being kept clean
  •     Greatly increased non-tradeable activity for Gubmint to create, maintain and adjudicate over exempted categories of goods - vide the ATO's extensive guides for food-related businesses here 
  •     The economic effects such as the squeeze-outs of smaller businesses in favour of franchises, big-box and corporate retailers: imagine trying to decide which of These food retailers you are.

Once a first step onto this slippery slide is taken, the basis of our current GST - free of exemptions for the most part, single or zero rate for the most part - is foobarred.

The exemptions list, being essentially political in the first place, is of course then open to pressure from identity groups for their favoured set of products. And all of them will have a justification, and some apparently sound reasons for arguing their cases. And all of them can Vote......

Which will, in short order, turn the Exemptions List into an essentially pork-barrel politics exercise. The result will be a fatal and probably irrevocable infection of a hitherto internationally recognised best-practise ad valorem tax system.

We probably have a Gubmint whose idealism, fearlessness and energy could induce them to take that first step.

I'd suggest bringing Popcorn, but am unsure as to the amount of GST it will attract in future......

Wednesday, November 15, 2017

How TLA Rates are arrived at

TLA's are greedy, but cunning with it. The steps to TLA budgets (I've coded the rules and relationships into a very few of the cubes that most TLA's rely on for quickly estimating the consequences of various settings) run like this:

  1.     Gather all the blue-sky budgets from every nook and cranny of the whole show and bung 'em into the hopper
  2.     The 'Rates Required' parent object gives the first, horrendous result. As does 'Capex Required' which feeds back into 'Rates Required' via depreciation, and also (of course) feeds 'Cashflow', and 'Financing Required'. Everyone promptly utters a few well-chosen but un-minuted Anglo-Saxon words, and the real work begins
  3.     Firstly, a general paring of obviously stupidly inflated budgets and admonishments to their managers (but Promotions for the most egregious....)
  4.     Secondly, a concerted effort to move the less obvious budgets into areas that can have 'Revenue from Modest Fees' (and thus, entirely coincidentally, subtract from 'Rates Required')
  5.     Trim 'Capex' (which trims 'Depreciation' and hence 'Rates Required') OR (and more subtly) move it sideways into - ya guessed it - Activities with Fees Income
  6.     Take another look at 'Rates Required' and see if it passes the obvious Smell Test - will Councillors pass this?
  7.     Take a cursory look at the Fee-generating activities (where most of the sideways dumping has occurred) and see if They look acceptable (or are levied on such odious categories of subject that no-one cares - landlords, large businesses, car salespersons, hoteliers).
  8.     It's highly likely at this point that 'Rates Required' is still way beyond the pale, so Phase 2 commences - alter the incidence of Rates via uniform charges, separate rates, more Modest Fees and so on.
  9.     So 'Rates Required' is now fed by a plethora of Rates, Charges, Special Rates, Fees Income, and Differential rates. Note that the total has not altered - that is too obvious to mention at this point - the main effort is to disguise it as competently as possible
  10.     The final check - are all the now-diffused sources of 'Rates Required', 'Fees and Charges' etc - sufficiently opaque as to survive public scrutiny? If Yes, carry on and levy 'em, else go back two clicks and obfuscate some more

One should never watch Laws, Sausages and Rates being made, to extend a very ancient could shake one's faith in Human Nature....

Wednesday, October 25, 2017

Lab-rat once more...

Well, Godzone is yet again the Social Lab-Rat:
  1. Vastly increased minimum wage will test the wage costs/employment offerings/inflation balance
  2. Extension of ETS in some form or another to agriculture will test the production quantity versus production mix equation
  3. Industry-wide wage bargaining will test the definition of 'industry' and will provide a field day for re-describers of various stripes
  4. SME's will boom but as sole traders/franchisees/mom-and-pop outfits, because the disincentives for employing staff are far too great - a good test of #1
  5. Big increase in regional construction and fit-out as regionalisation takes off - but the real test will be of productivity (the local example is the Christchurch re-build, now petering out)
  6. Minimum wage rises are a classic universal pricing signal for sectors highly exposed to labour costs, without attracting anti-trust/cartel accusations, so expect a raft of 'em
  7. A billion trees sounds marvellous, but to get 'em planted in deserving areas (e.g. north and west of Gisborne) means long days in hot sun, on 45 degree slopes, living in work camps and plonking in 100 trees/day. There would have to be 4550 such plonkers, working 220 days each year, to achieve the 100m trees per annum. Compulsory (because how else ya gonna get them trees planted? Nicely configured ads on Seek?) tree-plonking, attractive, much? Oh, and the cost? 4550*8*220*20 = $160m and change per annum...just for the warm bodies.  Add supervisors, transport, packed lunches, Elfin Safety and whatnot, and it well be well north of $200m.
Bring popcorn....

Thursday, September 21, 2017

Prefab impediments

The hurdles for prefab builds include:

  • The need for a 10-year build guarantee (IIRC) by the prefabber, with associated insurance and backstopping costs
  • BRANZ attitude to any new materials certification - many tests, several years, mucho pesos
  • The existing Materials Cartel protection of 'their' patch - they can reasonably be assumed to throw various rocks on That path
  • The limited number of actual Jobs (especially unionised), as factories tend to be highly automated and work around the clock - won't appeal to the blue-collars seeking work in 'em - or their puppet-masters
  • And the land prices underneath are still foobarred by the brown-cardy set via Plans which limit supply, inject Time and thus Cost to development, and which change at glacial speed.

Just imagine the reaction of the current playaz to an announcement like This (thought experiment alert!)

"We are prefabricating a Hoosing Factory offshore. It will be highly automated, needing only a few top-flight technicians to keep it running. It will arrive onshore in October and will commence operations in December. The houses produced from this factory:

  •  will use materials proven overseas but new to NZ, 
  • will be manufactured to sub-millimetre tolerances, 
  • will be built under cover,  
  • will be assembled in 2-3 days on site by an experienced crew using battery-operated tools. 
The factory is expected to have a throughput of 20 houses per day, and will operate 20 hours per day for 360 days of the year.

  • Maintenance crews will be flown in for a 5-day upgrade and maintenance window. 
  • Unit costs for the houses thus produced are expected to be in the region of $800/square. 
  • All houses will be serial-numbered and will come with a 20-year guarantee of weathertightness."

Ah, we can dream.....

Wednesday, September 20, 2017

That 'Free market' in housing

I think it's more likely though that the market will be left to its own devices

Wishful thinking - it's never been a free market: Let us count some of the ways it Ain't a market:

  • Dopey zoneration policies by economically clueless TLA's which serve to foobar the price of the land under them Hooses
  • A cosy Building Materials Duopoly, untrammelled by ComCom, hostile to new entrants and highly protective of their own cartelised patches
  • Consents, and other regulation, subject to local brown-cardy-staffed monopolies which have yet to recognise that Time = Money so have complete freedom to inject Time and Modest Fees into every activity under their baleful purview
  • A building industry composed of thousands of two-bit builders, clonking up houses in a manner which would not be unfamiliar to a 19th century carpenter, all vying for the same few high-end-of-market jobs, because that's where the munny is, leading to highly inelastic supply at t'other end
  • A regional price floor slipped in under all house prices by economically clueless Gubmint schemes like Welcome Home Loans (criterion - can you Fog a Mirror?) which ensures house prices - new or old - are sticky on the downside

No doubt, common taters can think of more ways it ain't a real 'market' 'it's own devices' has, shall we say, a very particular meaning.

It means, being left in the gentle claws of the Opolists, rent-seekers and ticket-clippers.

Monday, September 18, 2017

New Zealand - a chain of systempunkts

The sad fact is that NZ, as a long, thin, and increasingly poor country, is just chocka with what John Robb terms 'systempunkts' - points where a directed attack or natural causes can generate an effect wildly out of proportion to the original investment.

  •     Kaikoura earthquake severed the single rail line North-South in the Mainland,
  •     Xtra's Interwebs in the NI went west a few years back via a rat on a fiber optic on one loop, and a digger (them diggers should, perhaps, be Watched?) on the other
  •     I've always reckoned that a handful of clapped-out Datsun 180's, 'stalled' on a few strategic Awkland on or off-ramps or the Newmarket overbridge, would gridlock the sorry show for a day or more
  •     And let's not forget the weeks without power to Central Awkland a coupla decades back.

A leetle story about older infrastructure in a major Wellywood Gubmint building just before Y2K (remember that?):

The crew decided to test the resilience of the backup power systems in the building. Good call, because over three attempts, this is what they found each time they disconnected the external power via the Big Red Switch:

  1.     The UPS behind the mainframe floor had never been deep-cycled. It failed after a few tens of seconds. New UPS ordered.
  2.     Weeks later, feeling a bit smug, next disconnection. UPS works, genny fires up. Genny lasts about half an hour before one phase burns out completely. Turns out the building, as it was occupied, had all power wired to predominantly one of three possible phases. Mild panic sets in. Building wiring hastily re-jigged, New genny ordered
  3.     Genny arrives. Whoops, won't fit in the basement space. Needs a hastily erected external shed. Panic turns from mild to extreme (mid-December 1999). But third time lucky, it all holds together when the Big Red Switch is thrown.

One building, in one city.

Thursday, August 10, 2017

Living Wage madness and the BOM explosion

The LW proposal, applied to indirect staff, runs headlong into the bill-of-materials-explosion issue.  An illustration:

The policy:  every contractor to a LW-signed-up organisation must pay LW to staff.  Sounds simple, right?

- LW organisation hires a contractor (the head contractor, HC) to extend a car-park.
- HC sub-contracts (SC) five contractors to do digouts, gravel cartage, kerbing, sealing, landscaping.
- the SC for dig-outs blows an excavator hose and contracts a hydraulic hose repairer to come on site and replace it.
- four of the five SC's have diesel delivered to machines on site, by 4 different small-volume diesel retailers
- the sealing contractor sub-contracts a bitumen supplier to supply the hot-mix
- the kerbing contractor sub-contracts a concrete pre-mix supplier to deliver concrete into the kerbing machine

So does the LW apply to:  
- the HC (they employ only 2 people to supervise this job, yet have a staff of 100) - LW 2, 100 or something in between?
- each of the five SC's (same distribution - 2-4 people on site for this job, 20-50 off site, employed by those SC's, on other work)?
- the hydraulic hose repairer (a contractor to one of the SC's)?
- the four diesel suppliers (contractors to each of the SC's)?
- the bitumen supplier's staff?
- the concrete pre-mix supplier's staff?

The example could be expanded almost infinitely (the lunch contractor to the SC's?  the food suppliers to the lunch contractor? The processor. packer, transporter, grower of those foods? The truck maintenance firm for the concrete premix supplier?)

It's the most impractical suggestion one could possibly conceive.....
The LW proposal, applied to indirect staff, runs headlong into the bill-of-materials-explosion issue.  An illustration:

The policy:  every contractor to a LW-signed-up organisation must pay LW to staff.  Sounds simple, right?

- LW organisation hires a contractor (the head contractor, HC) to extend a car-park.
- HC sub-contracts (SC) five contractors to do digouts, gravel cartage, kerbing, sealing, landscaping.
- the SC for dig-outs blows an excavator hose and contracts a hydraulic hose repairer to come on site and replace it.
- four of the five SC's have diesel delivered to machines on site, by 4 different small-volume diesel retailers

So does the LW apply to:  
- the HC (they employ only 2 people to supervise this job, yet have a staff of 100) - LW 2, 100 or something in between?
- each of the five SC's (same distribution - 2-4 people on site for this job, 20-50 off site, employed by those SC's, on other work)?
- the hydraulic hose repairer (a contractor to one of the SC's)?
- the four diesel suppliers (contractors to each of the SC's)?

The example could be expanded almost infinitely (the lunch contractor to the SC's?  the food suppliers to the lunch contractor? The processor. packer, transporter, grower of those foods?)

It's the most impractical thing - CCHL is perfectly right to advise against it.The LW proposal, applied to indirect staff, runs headlong into the bill-of-materials-explosion issue.  An illustration:

The policy:  every contractor to a LW-signed-up organisation must pay LW to staff.  Sounds simple, right?

- LW organisation hires a contractor (the head contractor, HC) to extend a car-park.
- HC sub-contracts (SC) five contractors to do digouts, gravel cartage, kerbing, sealing, landscaping.
- the SC for dig-outs blows an excavator hose and contracts a hydraulic hose repairer to come on site and replace it.
- four of the five SC's have diesel delivered to machines on site, by 4 different small-volume diesel retailers

So does the LW apply to:  
- the HC (they employ only 2 people to supervise this job, yet have a staff of 100) - LW 2, 100 or something in between?
- each of the five SC's (same distribution - 2-4 people on site for this job, 20-50 off site, employed by those SC's, on other work)?
- the hydraulic hose repairer (a contractor to one of the SC's)?
- the four diesel suppliers (contractors to each of the SC's)?

The example could be expanded almost infinitely (the lunch contractor to the SC's?  the food suppliers to the lunch contractor? The processor. packer, transporter, grower of those foods?)

It's the most impractical thing - CCHL is perfectly right to advise against it.

Monday, August 07, 2017

Getting stuff Built

David Hargreaves writes: If you can't make builders put a spade in the ground, and the bankers give them the money, it ain't going to work

Darn tootin' right.

It looks to me like some sorta Compulsion is gonna be needed to get anything moving, because the current modus operandi won't, and for perfectly clear reasons:

  1. The Planning is local, and incompetent at that, but the economic drivers - immigration, banking, building standards, materials costs are all central, not to say Cartelised
  2. The building industry would be quite familiar to someone from the 19th century, plonked onto a building site. A couple of days to come up to speed with nailguns, glues, portable power tools and materials, and they'd be clonking frames together in the rain along with the best of 'em
  3. The price of land screws up everything on top, so that';s why it's only worth building large footprints, and for the upper quartile of the market
  4. TLA's, desperate for non-Rates revenue streams, charge for everything they possibly can and, like the financiers, are adept at inventing ever longer chains of tickets to clip. And as a local monopoly, fat chance of getting any competitive behaviours to sort That out.

So the way forward will have to involve some combination of the following:

  • Remove TLA's incompetent hands from the Planning Tiller by simply nullifying all local Plans, and letting the effects-based RMA handle the lot
  • Remove BRANZ etc control and simply adopt whatever international standards seem appropriate for materials. We don't use BRANZ to certify materials for boats, caravans or planes, Why do they need to be in the loop for Houses?
  • Hosuing factories - lotsa them. Everything CNC, fitted out in QC conditions, under cover. Litmus test: that 19th-century builder should be totally, utterly lost on the factory floor.
  • Land, of course. So compulsorily acquire everu scrap of greenish land wherever thought appropriate, use Kiwisaver investors to finance it as there will be a return as it's developed and sold, and develop/sell it using the usual PPP approach. But, and importantly, the CG thus invented has to stay largely in the public side (KS returns, Gubmint's General Account) and applied largely to the replacement aspects noted above - getting factories, standards, etc up and humming, and a bit of trust-busting amongst the Cartels.

A thought experiment, of course - the safest kind....but at least it is Relentlessly Positive (unless yer a Planner).

Thursday, July 27, 2017

GST - the itch to impose differential rates of tax

The common taters who itch to Fiddle with GST need a reality check. Changing the overall rate is something of a mission, but do-able: the change from 12.5 to 15% shows that.

But the core feature of GST is that it has, effectively, only two rates: zero (for financial services and the like) or 15% for everything else.

[Yes, before y'all point to them, there are tiny exceptions, like the reduced rate for long-stay residential care in managed village facilities, but these are well able to be coped with where encountered because those organisations are typically single-purpose anyway].

The moment GST becomes differential for any reason, in any widespread sense (e.g. for food versus petrol) the complications start rolling, as do the domino effects:

  1.     Every business exposed to mixed sales which cross the new GST application boundaries, have instant compliance costs. Sales have to be differentiated, GST returns become much more complex (because the possibility of getting it wrong multiplies, and IRD takes a dim view of errors). These costs translate into smaller profits, which lead to price increase pressures, business withdrawal or downsizing, and other direct costs.
  2.     Differential GST requires exquisite, certain Description of every possible good or service to which a given rate applies. Supermarkets typically run 20-40K SKU's, and each and every one must be Described accurately and the correct tax rate applied. Maintenance alone is a big overhead, and the effect on typical sales techniques such as 'discount bundles' - buy three 2-litre milks, get 1 free and get a half-price pair of gardening gloves - can be easily imagined. How should this be taxed, because the weighting of the sales is uncertain.
  3.     The BOM-explosion issue arises very quickly. I buy Flour, Salt, Yeast and Butter. Are they 'Food'? Not individually but together, they make Bread. How to tax them? Go one step further back. Pepper, bay leaves, cinnamon. Food? Less certain. But a hot-pot meal would be bereft without them. Go a further step back in the BOM. Pepper grinder, pestle and mortar. Food? No, but try making that hot-pot without them. And they cannot be used for much else. Such boundary issues destroy the Certainty which is the hallmark of a good tax system.
  4.     The central administration needed to maintain the endless lists of goods, disseminate it and keep up with the constant flow of new product (whoever heard of quinoa a few years back?) is non-trivial. This is pure economic deadweight: it is substantial extra activity in a non-tradeable.
  5.     Once differentiation has commenced, the political arguments about stuffing up a nice simple tax, go out the window. The technical term is Defenestration. So every new Bright Idea has a much better chance of being incorporated (because 'It's Good for the Children/Environment/Winnie/our little business segment/our Region/our political cronies/the unions/beneficiaries/the Grey's an infinite list). Do y'all really wanna open That up for grabs? It's a direct path to cronyism and to a tax guide the size of several phone books, updated quarterly, available for purchase for a Modest Fee.

There are two aphorisms worth recording about Tax in general.
- it's like plucking a goose. You want the most Feathers with the least Hissing.
- a high degree of Inequity is preferable to a small degree of Uncertainty.

The short version: don't foobar GST by opening the Pandora's Box of differential rates.....

Sunday, June 25, 2017

More of the same old building techniques for small dwellings ain't gonna deliver volume or quality...

So, so many common taters are expecting More of the Same when it comes to building techniques. Armies of self-employed tradies required, hopefully with apprentices tethered to their belts, same old clonking frames together out in the always-tropical Awkland weather. Four sub-classes of LBP needed for a simple build (unless you're a Carpenter - see here, and then there's Design and Site. Plus Elfin Safety. Plus Fencing, Scaff, Electrical tags on everything except battery tools (ever wonder why battery stuff is now up in the 54 volt range - no tagging needed if you charge the batteries off of an inverter in the double-cab ute...).

Plus you lose time to Weather, Working Habits of employees (or lack of them), Sick and Annual Leave, and you lose money to Kiwisaver employer contribs, ACC, GST and provisional tax. See the attraction of the sole trader?

Whereas a Factory build has to be the way forward for all of this. Site requirements come down to a foundation and landscaping, erection consists of a crane hire and a few bolt-togetherers, each for 2-3 days if it's a halfway decent design. Check 'Grand Designs' for some clues if unsure. Or (gasp) the Irish

There is just no way the current paradigms can continue, and deliver the volumes and build quality needed.

Yes, expectations need to come down to achieve 'affordability':

  • Smaller spaces - nothing over say 140 squares
  • Hip or gable roofs with actual eaves to ensure weathertightness
  • Modular designs with maximal involvement from yacht and caravan designers to ensure space is used intelligently
  • Zero involvement with architects to ensure weathertightness and intelligent use of space
  • Multi-proof consented ex factory to ensure the stupid TLA's cannot introduce mucho time and therefore $ into the construction sequence

About the only two things Gubmint can do to speed this along is to grease the skids for the aforesaid factories and perhaps backstop the multi-proofing; and snooker the land-banker by doing a FIF-like tax on land value (deemed value is the key) plus maybe a coupla massive compulsory acquisitions at rural land cost, sold on at purchase price.

Kill the chicken, but make the monkey watch....

Thursday, June 22, 2017

Welcome Home loans as a Universal Price Floor signal mechanism

The Interest article, as a sidebar, exposes an Interesting aspect of the housing market - the Welcome Home loans scheme.

This was implemented back in the glorious Helenista days - 2002-03 - as a 'solution' to the relative (even back then) inability of the battlers to get housing finance.

The unintended consequences (which, as most textbook cases do...) only emerged later.

Picking a figure at which to pitch the loan to the aforesaid battlers, took a regional price point. Of some derivation, obviously, but most likely a median/average/PDOOMA of recent sales.

This figure ($100K for Christchurch, around $350K for Awkland IIRC) ignored the fact that property could be had at very substantially less than that figure, particularly for battler purchase - small, run-down, 'needs TLC' etc.

So it served as an instant, universal oopards pricing signal for all sellers simultaneously, at that end of the market. After all, why sell that collapsing shack, for which one had privately estimated that a canny buyer would pay no more than $183K, at less than the Glorious WH loan figure plus a Modest Profit.

Which is exactly what happened. I've related my own case here - nice work if you can get it.

If we estimate the extent to which this new pricing floor conferred instant CG to tens of thousands of low-end houses, we could say an average increment of $100K, times say 30K homes in Awkland - that's $3 billion CG.

Now divide that CG thus conferred, by the number of WH loans ever advanced: say 10K.

It works out to $300K advanced via CG per WH loan.

It also explains the precipitate jump in the rate of increase in house prices thereafter, at least to some degree. Because the reaction to the re-pricing across the board was, oddly enough - 'hey, we cannot find a house for the current WH loan limit - better raise it'. E.g. here:

First home buyers can now borrow up to $350,000, up from the previous cap of $280,000.

Which, unsurprisingly - set off another round of universal price increases....which set off another WH loan limit increase which.....

The Welcome Home Loan was introduced in 2003. Between its inception and May 2009 a total of 4,482 Welcome Home Loans have been settled, translating into access to home finance of over $719 million.

The above works out to $160,420 advanced per loan. Compare this with my (quite possibly chimerical) figure of $300K given away in unearned CG via Universal Higher Price Floor, to all and sundry....

And even today, who, in their right Economic mind, would sell a house for less than the current WH loan limit? Because the essential qualification - 'can you fog a mirror' - is fairly straightforward.......

My contention is that this was easily the dopiest, most economically damaging policy, invented in recent times. Markets for houses are slick on the upside, sticky on the downside. They certainly don't need stoopid Gubmints incentivising mass upwards re-pricing....but that's exactly what happened.

Thursday, June 01, 2017

Why house prices took off 2002-3

The graph of house affordability wonderfully clearly illustrates the way in which Ms Market end-runs stupid politicians.
The immediate cause of the 2002-3 jump in unaffordability was a choice by the newly elected Labour Gubmint to 'help' poor people into their homes. The Welcome Home scheme was a typical politician's gesture to cement its electability.
Unfortunately, this was achieved (to the extent possible - the number of WHL's eventually taken up is in the low thousands) at the much wider price - gently hinted at in this 2007 article - of cementing in price floors all over the country.
As the article suggests but does not pursue, if a guaranteed loan (criterion for issue - can ya Fog a Mirror?) of say $100K is plugged into a market where low-end prices are well below that, then what's a vendor gonna do?
That's right, folks, tack a '1' in front of what they were asking for the shack in question.
And once ya starts this boondoggle a'rollin', it gathers speed (higher prices), it affects most of all the exact constituency it purported to assist (the poor Labour voter) and the only way out of the mess is to raise the value of the loans on offer. Which promptly sets off another round of asking-price inflation.
After all, what vendor is not going to sell for the available guaranteed-loan value plus a Modest Margin?
The secondary cause of the price inflation was the familiar one thrashed about on these here august pages for a decade: the dreadful co-incidence of spatial planning (supply limits) and more regulation (Building Act, revised in 2004, Elfin Safety mania). The planning debacle conferred a Planning Gain to developable land (paid for by the buyer, who else) and the Regulation mania increased construction costs substantially. But that only affects new builds - the price explosion I am focussing on here is for existing older stock.
A personal example will suffice - I would invite an Auckland example (where the whole thing has exploded most spectacularly) to sit alongside my experience.
We bought a shack in 2001 for my son, just around the corner, in an eastern suburb of Christchurch, for $47K. Yes, Virginia, prices like that for 'needing TLC' properties were not uncommon. We straightened it up (it had a pronounced lean to the Left as viewed from the front - ironic, innit) tarted it up with paint, ply, grass and improved the stormwater drainage plus added a foundation to replace the rotted stumps that greeted us. All Like-for-Like, all done by my son and yours truly, a nice if small unit (around 70-80 squares, we never did measure it up) basically in our spare time.
We spend around the same amount - $40-odd K - to achieve of all this, so it owed us perhaps $85-90K.
Then, mirabile dictu, the Welcome Home scheme came along.
Overnight, it was impossible in the whole of Christchurch to buy anything that did not start with a '1'. Vendors treated the WH scheme as a universal pricing signal.
We cashed the little house in for $123K and split the proceeds 50/50. This proves the point about screwing up the low-end market by a naive and economically dopey funding scheme.
Only 18 months prior, a deserving young FHB could have gotten it at auction for $47K - it was quite livable as is provided one trod lightly over the missing-stumps bit.
That difference - $47 to $123K or 161% in original cost - is exactly what the stoopid politicians wrought by introducing a massive re-pricing incentive. And, of course, offset by the improved condition that we provided.
And the real pity is that as noted, the pricing structure this triggered off was universal, whereas the WH Loan applied only to a comparative few.
If one had the figures and divided the overall price adjustment NZ-wide by the number of WH beneficiaries all time to date, the figure would shock and horrify - it is most probably in the hundreds of millions or even low billions per such WHL recipient.
Ms Market is a stern mistress.....

Awkland Social Housing - bring in the Robots....

What would help buildings affordability (land prices aside, because they are a direct result of planning zoneration and strangulation over decades, following failed Brit-style planning fads) is a concerted effort to:
  1. Establish factories for mass production of entire houses. Panelised, SIP etc. Little labour, mainly robots, CNC and lotsa clever software, all of which exists right now.
  2. Isolate products of these factories from the incompetent hands of Councils by multi-proof consenting them at source. This leaves only founds and services to the inept ones.
  3. Contract with these factories to produce social and affordable housing, so as to guarantee volumes - factories need certain volumes above the break-even point to have any future.
  4. Crank it all up - the point of factories is fast, cheap, reliable quality, all done under cover. Great contrast with the current way of 'building' which has components clonked together by (wait for it) drug-addled hammer hands, out in the Awkland weather for weeks, and subject to the beady eyes of Inspectors who (rightly or wrongly) suspect that every single house is a Disaster in Waiting.
There's some real Social Investment, Next problem?