New Government already seeing unintended consequences

The unfortunate thing about believing that government is the solution to every problem is the Law of Unintended Consequences. This law says that almost any government action will produce unintended, and generally negative, consequences. The new New Zealand Government certainly believes that it has the solution to every problem, real or imagined, that prevails in this country with literally hundreds of new policies in their manifesto and coalition agreement. But they are already seeing unintended consequences of their policies, even before they have had time to enact any of them.

The most obvious example of this was today's headline in Wellington's DominionPost newspaper reporting that the city is heading for its worst rental crisis ever, with a sudden contraction in the number of properties being offered for rent. Property Investor's Association president Richard Bacon blames the new government's policies including the Healthy Homes Guarantee Bill, which is intended to raise the standards of properties offered for rent, saying that many landlords are pulling their properties out of the rental market in anticipation of higher compliance costs. So rather than getting healthier homes, many tenants will be getting no home at all.

Another example is the increase of the minimum wage to $20/hour. Muriel Newman points out in this article (based on figures from the Ministry of Business, Innovation and Employment), that this increase to one of the highest minimum wage levels in the world could destroy over 60,000 jobs. So rather than getting higher wages, many workers will be getting no wages at all.

A third example is the new government's policy of building 100,000 new homes. The details of how they are to go about this are still sketchy but if the government funds and constructs these houses, it will have an enormous effect on our already highly constrained building industry, diverting resources from private house construction. The real cause of the lack of new houses is the Resource Management Act, which enables local government to severely constrain the supply of land for house construction and to impose huge compliance costs on builders and developers, but the government has said it will not touch this draconian law. At the same time, the government intends to pursue a looser monetary policy, which will further inflate the real estate bubble. I am prepared to bet that the unintended consequences of these policies will be to further reduce the supply, and increase the price, of new housing.

I could go on. One doesn't need to be a genius to figure out the unintended consequences of almost every one of the new government's policies - they are obvious to anyone with a basic understanding of economics and human nature. But those with faith in the religion of big government don't want to hear facts and reason.

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.

Ridiculous and dishonest excuses for housing bubble

Today we have the extraordinary spectacle of the Reserve Bank of New Zealand blaming immigrants for this country's housing price bubble and calling on the government to review immigration policy. This comes after the Prime Minister criticised the Reserve Bank for not acting to restrict the access of property investors to bank loans.

I am not sure which of these two calls is the more ridiculous but both are equally dishonest. The inflation in the property market in is due in large part to the massive expansion in the money supply, which the Reserve Bank manages, fueling demand in the property market, but it is also due to supply-side restrictions driven by an onerous regulatory environment. The latter is mostly due to the byzantine Resource Management Act, which allows territorial authorities to tightly restrict the supply of new land and which imposes huge compliance costs on builders and developers, but also to the increasing burden of a myriad of other laws such as new Health and Safety at Work Act.

It seems that John Key and his officials will do anything but admit the true causes of the housing bubble. Whether you look at demand-side or supply-side issues they are all of the government's making and the fact that two arms of government are blaming each other for the problem makes it clear where the blame lies - and it isn't with immigrants. Instead of looking to scapegoats, the government should be looking at themselves and their policies.

Political Opinion Masquerading as News

Over the Easter break I made the mistake of listening to a news bulletin on Radio New Zealand. I always find listening to the news or current affairs on RNZ to be a mistake because what RNZ thinks is news, and what I think is news, are two very different things. The first three or four articles in the bulletin followed the same formula - the presentation of what is in fact a political viewpoint as a news story, interviews with sympathetic so-called experts without resort to any facts or objective assessment and, inevitably, a call for the government to spend more money to address the issue.

An example was an article on the number of homeless people on the streets of Auckland. The article presented this issue as if it was something new and pressing, but it contained no facts about whether the number of homeless people in Auckland is actually increasing, who these people typically are, and what might be the reasons for their homelessness and therefore the most appropriate solutions to the problem. Instead, the purpose of the report was revealed as a call for the government to build more state houses.

Auckland does, in fact, have a housing shortage but the reason people are sleeping rough on the streets may have little to do with the availability of housing or even much to do with the amount of financial or accommodation assistance that is available to them. Often, in my experience, such people choose to sleep rough for various reasons unrelated to pure financial issues and their numbers tend to peak in the summer months and go down in winter due to the obvious climatic factors.

Much of what passes for news in New Zealand, particularly from our state-owned media, is of this nature. It is not news at all but rather a thinly-disguised presentation of the station's editorial position, which is invariably left wing, under the guise of a news story. 

There is something unhealthy and inevitable about a state-funded media organisation calling for more government spending, but it becomes a particularly pernicious practice when it replaces that organisation’s proper function, which has become the case in regards to RNZ. It is a gross abuse of taxpayers funds.

I reiterate the call I have made previously that there is no point in the New Zealand taxpayer owning an organization like RNZ, particularly when it seems to regard its role as being the promotion of a particular political point of view. Radio New Zealand should be sold, preferably to Rupert Murdoch.