Day: April 4, 2019

Three totally unrelated items

Michael Reddell Housing, NZ politics, Reserve Bank

Rather than clutter in-boxes with three separate shortish emails.

First, a follow-on from yesterday’s post about house prices. I noted that the absence of any real sign of falling land prices in and around our cities suggests that the (admirable) words around possible reform from the Minister of Housing are not being treated as credible. Asset markets typically incorporate expectations about future changes in factors that might affect prices in the relevant market.

I had a brief exchange in the comments to that post with Eric Crampton of the New Zealand Initiative, and I see that Eric has now set out comments along those lines in a post on his own blog.

Eric’s key point is that it is hard to short houses. That is quite true, but not (I reckon) determinative. There is no traded derivatives market (eg a futures contract on the QV index, whether nationally or regionally), and although someone who would naturally own one house can sell that house and rent for a few years, it isn’t easy or cheap to do so (actual transactions costs are non-trivial, it is often hard to get a secure long-term rentals, many people have ties to specific neighbourhoods etc). Of course, many holders in other markets are pretty passive too – you can short US equities (say) but a huge proportion of holders are either in passive index-following funds, or in funds that allow only small deviations from benchmark.

But, to get back to the land (and housing) market in New Zealand. If hardly any suburban owner-occupiers (like Eric or me) are going to sell and rent, even if we believed – as Eric seems to – that substantial reform really is coming, there are plenty of other market participants, and it is the marginal choice that will drive the price. Young people starting out can make a choice to hold off buying for a few more years (they are already renting, so have no new transactions costs). Older people looking at trading down can bring forward that move by a year or two. And probably more importantly still, marginal players often aren’t owner-occupiers (actual or potential at all).

If, as someone owning rental properties, you believe the government is really serious, and change is really coming (in fact, even if you only believe it with a 50 per cent probability), you face a high chance of a large fall in the price of your asset over the next few years. A rational response to that expectation would be to sell now – to get out while the going is still good. If you had a bought a few sections in the outer suburbs thinking you might develop them a few years from now, if you believe the government is serious and change is coming, you would want to offload your land exposure now. And – for the really serious players – if you hold pockets of land, large or small, on the periphery of major cities, and have seen the value of that land sky-rocket as population growth and regulatory scarcity rewarded you, any serious prospect of a change in regime, in which peripheral land might once again go for something like its best alternative (farming) use, would surely see you reassessing now.

None of these effects are as instantaneous as (say) the fx market’s response to a Reserve Bank OCR announcement, or even the stock market’s response to possible corporate tax cuts, but they are real and efficacious mechanisms which we should expect to see already at work if the Minister’s plans are likely to be the real deal. Sure, if his speech to the New Zealand Initiative two weeks ago changed expectations – and it certainly impressed some people, including me – we won’t yet see the results in the data (house price data is at best available monthly, and decent land price data is even harder to come by). But that won’t be a credible story as the months roll by.

Of course, in any such experiments with non-instantaneous effects, it is hard to untangle precisely what part of any price movement is due to the specific factor one is trying to isolate. But if these reforms are really the big event the Minister suggests (recall that the aim was to “flood” the urban land market), the effects should be pretty apparent pretty soon (especially with a slowing economy, easing migration, extended brightline tests, ringfencing, talk of CGTs, tighter credit conditions and so on). I remain pretty sceptical, less (as I noted yesterday) because I doubt Phil Twyford’s intentions, than because I doubt the commitment of the government as a whole (the PM in particular), or its interest in actually seeing land and house prices fall materially.

My second item related to the Reserve Bank.  Yesterday, there were two emails from the Bank.

The first was this press release

pac c banksThis from an organisation that claims it is underfunded.  “Fostering investment in green technology” simply is no part of the Reserve Bank of New Zealand’s mandate.  Nor, to be blunt, does the Reserve Bank have any obvious expertise.

Perhaps I should be encouraged to learn that the Governor is going to focus on lowering the cost of capital in New Zealand (bearing in mind that our real risk-free interest rates have long averaged the highest in the advanced world), but I don’t suppose that is what he meant.

And the second email from the Reserve Bank was this

capital

I guess it is better than not publishing the material at all, but this new 65 page document is finally released more than 3.5 months since the consultation document, setting out the Governor’s plans, was published, and with only a month until submissions close.  I haven’t yet read it, but someone who has tells me that it still doesn’t deliver a proper cost-benefit analysis, and only promises that they will do one one day –  probably after the final decision has been taken, to provide support for whatever the Governor settles on.

This is no way to make policy on serious matters.  Meanwhile the Governor cavorts with his tree gods and dabbles in things –  green technology just the most recent example –  that are no responsibility of his.

Thirdly, and finally, why is the case of Shane Jones (Associate Minister of Transport), the Northland trucking company (owner by a donor and distant relative), the NZTA, and the prosecution, not leading all media outlets?  Why is the Prime Minister not fronting up and facing hard questions about acceptable conduct in her Cabinet?   Appearances of impropriety should not be tolerated, let alone substance.

Matthew Hooton’s tweet seemed apt

Reminding ourselves that Transparency International is itself largely government-funded.

Raymond Huo’s creative reimagining

Michael Reddell China, NZ politics

In my post yesterday afternoon I mentioned that Labour MP Raymond Huo (he of various United Front affiliations and apparently regarded as close to the PRC Embassy) had an op-ed in yesterday’s Herald (strangely not apparently available on-line, although there is a photo of the article here). [UPDATE: Herald link working again.] As I noted, the article is welcome for Huo’s overdue indication that he will recuse himself from involvement in bits of the Justice Committee’s deliberations on the foreign interference aspects of the election inquiry “to avoid any perceived conflict of interest”.   Huo chairs that committee.

But the centrepiece of Huo’s article is a creative reimagining of history in which he tries to pretend that he (and his colleagues) had never opposed hearing from Professor Anne-Marie Brady.    There had never been any intention of blocking Brady, and they had just been waiting to consult the GCSB and the SIS before deciding whether to re-open submissions.  The whole thing was, he claims, a beat-up by National’s Nick Smith.

I doubt anyone really believes him, probably not even the other Labour MPs he persuaded to vote for blocking Brady (not then recusing himself), but in case there is any doubt, here is his own tweet from 6 March

The clear implication is that it was simply Professor Brady’s fault that she had not got on and submitted earlier (even though the deadline was before Andrew Little extended the scope of the inquiry).

Here is his quote from the article he himself links to:

Justice committee chairman Labour MP Raymond Huo said the decision to decline Brady’s late request was purely procedural.

The closing date for submissions was over five months ago on 23 September 2018 and the date was widely publicised by committee staff in the usual way, he said in a statement.

The Committee had asked the Security Intelligence Service, the Government Communications and Security Bureau and the National Assessments Bureau to appear.

“As committee chair, I am satisfied that the correct procedure has been followed and that the agencies will keep the committee well informed about any issues of foreign interference that may arise,” Huo said in a statement.

No hint there of someone who really wanted to hear all the evidence, all perspectives.

And, at the time, Huo was backed by the Prime Minister’s office

A spokesman for Ardern echoed Huo’s comments, saying: “Our position would be that this is a procedural matter for the committee and that the various agencies presenting are well placed to provide information on foreign interference and the threat of it.”

At the time, even some cheerleaders for the see–no-evil hear-no-evil approach to the PRC came out and stated that they thought Huo had overreached.  And, of course, a few hours later he was in full backdown mode, and is now trying to rewrite history to put himself in a less unfavourable light.  He doesn’t seem to have considered that actually fessing up and saying “yes, I made a mistake, I regret it” would be more likely to generate a favourable response.

Huo concluded his op-ed noting that “robust debate, not stereotyping or sweeping generalisations, will help examine the real issues”.  That is exactly what Professor Brady has been promoting, and what Raymond Huo (supported by his bosses and colleagues) seems, until now, to have been trying to avoid.   (To his credit, he actually wrote an op-ed.  National’s Jian Yang – he of the Communist Party membership, misrepresentations on official documents, and long service in the PLA military intelligence system –  just refuses to face English language media, protected in doing so by Simon Bridges.)

UPDATE: A reader writes to share the text of a letter of protest sent to Labour members of the committee after the initial blocking, and to the Prime Minister, and news of one Labour MP’s decent response.