Wellington Mayor continues tradition of blaming markets for government failure

Wellington's mayor, Justin Lester, has blamed 'land bankers' for not building new houses on the undeveloped land they own. The two developers whom Lester has blamed must feel like Dreyfus because there are few clearer cases of blaming the victim. 

New Zealand has some of the most unaffordable housing in the world and Lester is right to identify this as a supply problem. However, the reason for it is primarily our regulatory environment and local government practices. Our Resource Management Act gives local government draconian powers to delay, stop and impose excessive costs on housing development and, in my experience, councils exercise these powers with great zeal, even to the point of deliberately ignoring the law where it favours developers.

No sane businessman would sit on assets that do not generate income when those assets could be put to productive use. Developers do not buy undeveloped land to admire it and every day they do not develop it costs them money in interest charges, rates, etc. They make money only when they sell the developed sections.

Blaming the market for government failure has become a tradition for politicians. The most grievous example was the Global Financial Crisis where bankers were blamed for creating the subprime mortgage market, which was actually mandated by US Government policy. The response from politicians is invariably more regulation, which then creates even worse market distortion and greater failure in a continuing vicious circle. Witness the fact that the US financial sector is even more exposed to high-risk financial instruments today (post Dodd-Frank) than it was at the time of the crash in 2007.

Lester's desire to penalise developers with 'targeted rates and levies' will undoubtedly have the exact opposite effect to that which he desires. It makes one wonder whether he has any knowledge of economics at all because a basic understanding of high school-level economics would tell him that increasing taxes on the supply side just pushes the price curve upwards, thereby increasing prices but decreasing supply. 

I suspect Lester is smart enough to understand this but like most politicians of his ilk, he is wilfully ignorant because he needs a scapegoat to divert attention from the failings of his council in causing the supply-side issues in new housing development.

Leave us alone, Gauleiter Brownlee

So Gerry Brownlee is not happy that the new mayor of Wellington, Justin Lester, did not declare a 'red zone' in the Wellington CBD after this week's earthquakes. In case anyone has any misconceptions about what Brownlee's red zone would mean, this article describes what life is still like in Christchurch's red zone five years after the 2011 earthquake. Brownlee's dictatorial management of the aftemath of the Christchurch earthquake has more effectively destroyed that city than any damage done by the earthquake.

Wellington property owners have been acting quickly and responsibly to assess the damage to their buildings in the days since the magnitude 7.8 earthquake that hit the top of the South Island. In my own offices on Lambton Quay, the owner asked that we stay out of the building until he had had engineers assess the damage. This work was completed on Tuesday afternoon and (as there was happily no damage) we were then given the all-clear to reoccupy the building. This has been the process throughout the city with no direction or help from central government and where necessary buildings have been kept closed for further inspection and remedial work. Justin Lester may not have satisfied Brownlee's authoritarian bent but four days after the earthquake there have been no reports of any injuries from earthquake damage in central Wellington so the risk appears to have been well managed and the mayor seems to have made exactly the right call in not closing down the entire central city.

The best thing that a government can do to facilitate the recovery from a natural disaster, as was proved in Joplin, Missouri*, is to get the hell out of the way and let individuals and businesses get on with the job of recovery. A few of Wellington's buildings are seriously damaged but the vast majority have superficial or no damage at all. We don't need red zones, and we certainly don't need the Brownlee's jackbooted approach to dealing with residents and property owners in Christchurch, to get on with the recovery work. Please, just leave us alone, Gauleiter Brownlee.

* H/T to Not PC for the link to the WSJ article on Joplin (which is subscription only - if you can't get past the paywall read about what it says in this blog post).