Labour on financing new housing infrastructure

The parliamentary Labour Party has been showing signs of being serious about proposing steps that would, as they see it, unwind the structural impediments that keep urban land prices high and slow down the construction of new housing. Their housing spokesman (and campaign chairman) Phil Twyford has indicated that Labour wants to get rid of the artificial urban limits around cities, especially Auckland, and even managed a joint op-ed with the New Zealand Initiative on that.

Welcome –  and no doubt genuine –  as it all is, I’m still somewhat sceptical about what it will mean in practice.  Any Labour government is near-certain to require the support of the Greens, not known for their support for such flexibility.   And Labour or Labour-associated mayors lead our three largest cities, but there has been little sign of those Councils or mayors leading the way in freeing up urban land supply.  There is a great deal councils could do if they wanted to.  And even if they ran into legal challenges under current legislation, they could still be laying down markers as to the likely direction of reform when Labour returns to national office.

Last week Phil Twyford was out with another interesting idea in the same broad area –  very long-term infrastructure bonds paid back by targeted rates – which again garnered public support from the New Zealand Initiative.  Twyford sketched out his idea in an op-ed in the Herald, and also gave a substantive interview on it to, who covered it in an article here.  A reader with ties to the Labour Party suggested that I might like to write about it.  My interest in the details of local authority finance is, sadly, quite limited, but I’ve been mulling over what to make of the proposal for the last few days.  Is it really a proposal that, if adopted, might make a useful difference?

One difficulty in reaching a strong view is that the idea is no more than sketched out at the moment, and many of the details could matter quite a lot.

Some have argued that New Zealand should introduce, or allow, the sort of model used in many parts of Texas –  Municipal Utility Districts –  where developers of new residential areas outside existing city limits can form an incorporation, with its own governance structure, which in turn borrows to finance infrastructure developments and the provision of utilities such as water, sewerage and even parks.  The bonds are then serviced by user charges and property taxes on the properties within the specific district.    The New Zealand Initiative has written favourably about them (reported here), and I found an interesting recent Texan newspaper article that captured some of the colour/flavour of these sorts of vehicles.    Whatever the merits of these schemes –  and there seem to be some downsides too –  they aren’t what Twyford and the Labour Party are proposing.

There are some real issues they are trying to address.  As Twyford notes

The council is up against its debt ceiling and last week put the brakes on large-scale housing projects in Kumeu, Huapai and Riverhead until more progress is made on roads, stormwater and the like.

When the population of a city is growing as rapidly as Auckland’s, the existing debt ceilings are almost certainly flawed.  There is a huge difference in the amount of debt, relative to (say) current revenue, that should prudently be taken on in a local authority region  with no population growth than in a region that is seeing 2 or 3 per cent population growth per annum.  We saw this at a national level when New Zealand and Australia were rapidly developing prior to World War One.  Overall government spending as a share of GDP was much lower than it is today, but debt levels (again as a share of GDP) were much higher –  in excess of 100 per cent.  It wasn’t a problem, and markets didn’t see it as a problem.

Some of the current problem then seems to arise from a reluctance to use targeted rates, to ensure that purchasers of the new properties bear the cost of the infrastructure involved in developing those properties.  Development contribution levies presumably go only part of the way.  If owners – present or future –  of the newly-developed sections bore the full cost of the infrastructure it isn’t clear what (economic) reason the Council could have for standing in the way of future residential developments. Planners’, bureaucrats’, and politicians’ visions as to what the city “should” look like are quite another problem –  and not one that Twyford’s proposal seems to address at all.

Twyford describes the problem this way

Developers under current rules have to finance infrastructure within a subdivision and are levied by the council for a share of the cost of connecting to the wider roading and water systems as well as parks.

Many developers struggle with the sums of money involved and it adds cost and delay to projects.

But it isn’t clear that the issue here is really infrastructure finance.  Developers need to finance all the costs of bringing properties to market, including covering both the delays that are perhaps inevitable in complex projects, and those brought on by the regulatory approvals processes.  The largest chunk of those costs typically wouldn’t be the infrastructure (I’d have thought) but the unimproved value of the land  (recall that urban and peripheral urban land prices are really what are sky-high).  And property development is risky –  even though the Reserve Bank’s LVR restrictions weirdly exclude new construction, new developments are where far and away the greatest risks lie.  Lend on an existing house in Mt Eden and the risks are far lower than lending on a new development in Huapai.  Sections might sit unsold, or undeveloped for years.  New houses might do so too –  there was plenty of that in Dublin after the boom ended.

There has been talk recently of banks becoming more cautious about lending for new construction –  perhaps partly from their own reassessments of risks, and partly at the prompting of parents, in response to APRA’s nudges.  Broadly speaking, that seems to me quite welcome.  Banks make their own credit judgements and sometimes they will be less willing to lend than the authorities might like.  It is, of course, the money of their shareholders they are putting at risk.

But Labour talks of central government becoming a fairly large scale provider of finance.

Labour’s plan is for infrastructure within a development, as well as the connections to the wider networks, to be financed by 50-year bonds.

Instead of the developer picking up these costs and loading them on to the price tag of a new home, the bonds could be issued by a government agency – perhaps a specialist infrastructure unit within the Treasury.

Bonds issued in this way would be the cheapest finance available, taking advantage of the Government’s ability to borrow more cheaply than anyone else.

The plan seems to be for the government to issue long-term bonds, with the government standing behind the bonds, and then to on-lend the proceeds to developers, tied to specific projects.  The bonds, in turn, would be serviced by targeted rates levied by local councils on properties within that development.

It all sounds fine when everything goes well (most things do), but here are a few of my problems/concerns:

  • should we be comfortable with Treasury officials making loans to individual developers, with all the risks of political cronyism in the allocation of credit over time?  At very least, lending would need to be done at much more of an arms-length from elected politicians (as, say, when the government provided loans through the Housing Corporation or the Rural Bank),
  • on what basis would we think that Treasury officials –  or even those of a more independent agency –  are better placed to evaluate and monitor residential property development projects than banks and other private providers of development finance?  Who has the stronger incentive to get it right?
  • isn’t there a high risk that the weakest projects will tend to gravitate towards the government provider of finance (strong projects, strong developers, will typically be able to get on-market finance?).  Isn’t that incentive greatest towards the peak of housing booms, when more conservative private lenders might start to pull back from the funding market?
  • how is cost-control ensured?  If developers can simply shift any cost blow-outs into mandatory targeted rates over the next 50 years, doesn’t that materially weaken incentives to bring projects in on time on budget?
  • what is the proposed legal structure?  Only Councils can levy and collect rates, targeted or otherwise.   Are they, or the developer, legally liable for the borrowing from the government?  Developers can and do go out of business quite quickly.  Councils don’t –  but then don’t the debt ceiling concerns cut in again? And can councils credibly (or legally) commit to maintaining a whole series of specific targeted rate for the next 50 years?    (And what are the protections for the property owners against arbitrary changes in these localised targeted rates?)
  • and what happens if the project fails?  If, for example, population growth slows up and a half-completed development lies idle for the next couple of decades.  Will the owners of the land have to pay the targeted rate anyway and, if so, how resilient is this likely to prove politically?

It seems to me that the proposal is meant to have two main attractions:

  • part of the development cost –  infrastructure costs –  are financed at a lower (government) interest rate, and
  • the headline cost of a new house would probably be reduced.

But in substantive terms, neither is really that much of a gain.   The cheaper government financing cost is only available –  in Twyford’s own words –  because the government’s credit risk is protected by the use of targeted rates.  But money that the government has first claim on isn’t available to service other obligations. The infrastructure bonds might well be rock solid, but the rest of any borrowing people had taken out to finance a new property would be just that much riskier.  Incomes don’t rise, and servicing the infrastructure bonds would have first call on what income there was.  Banks would presumably take that into account (including in deciding how much, and at what margin, they will be willing to lend).

And if the headline cost of a new house is reduced, so what?  If I have a choice between paying $700000 for a new house, or paying $600000 for the house and then having to service $100000 of infrastructure bonds issued by the government to cover the development costs of the house, it doesn’t make much difference to me.  If the infrastructure bonds really were 50 year ones, the annual servicing burden might be a little lower than otherwise.  Then again, New Zealand already has the highest real interest rates in the advanced world, so the notion of paying those high rates for that long might not be overly attractive.

And thus I suspect Twyford is wrong about a possible third benefit.  He argues

Reduce the infrastructure component of the price of a new home, and you’ll reduce not only new house prices but eventually prices across the whole market.

That’s unlikely.  If I’m looking at a $700000 house (with no targeted rates), and comparing it to that new house in the previous  paragraph, changing the financing pattern for the new house isn’t likely to change much about what I’d be willing to pay for the existing house.   Of course, if the policy really did increase the flow of new supply of houses and developed land, there would be benefit in lowering the prices of existing properties.  But simply lowering the headline cost of a new house (while loading an equivalent amount into infrastructure bonds) won’t change that.

In many respects, I’m sorry to reach a negative conclusion.  It is great that the Labour Party is looking for ways to make a difference to the housing market, not just for a few months but permanently  (and it is a disgrace that we’ve had 15 years of increasingly unaffordable house prices under both Labour and National-led governments).  And, of course, this isn’t the only (or probably even the main) component of their housing plan

Fixing the housing crisis and managing Auckland’s growth needs sustained reform on many fronts. Labour will build 100,000 affordable homes, tax speculators, and set minimum standards to make rentals warm and dry. We will free up the planning rules by relaxing height and density rules around town centres and on transport routes, as well as replacing the urban growth boundary with more intensive spatial planning.

But I’m sceptical that the infrastructure bond proposal is a suitable response to a serious constraint or that, even if the governance and monitoring concerns could be overcome, that it would make much difference to house and urban land prices.

If they wanted to consider a bold initiative, how about promising that any private land within 100 kms of Queen St could be built on to, say, two storeys without further resource consents?  With a similar policy –  perhaps 50 kms circles  –  for Hamilton and Tauranga, it would seem much more likely to make a real difference in lowering land prices –  the biggest financing issues not just for developers, but for ultimate purchasers.    There are other pieces of the jigsaw, but changing the rules that underpin expectations of future potential land values is probably the biggest component of the problem.

Throw in a sharp cut in the immigration residence approvals target –  not mostly to solve the housing problem, but because there is no evidence New Zealanders are gaining from the large scale non-citizen immigration  – and properties in or near Auckland would be much more affordable really rather quickly.










Thinking about senior central bank appointments

The Bank of England lost a Deputy Governor the other day.  The Hon. Charlotte Hogg had been chief operating officer of the Bank of England for the last few years, and was recently appointed by the Chancellor of the Exchequer as Deputy Governor (with responsibility for banking and markets).    She was apparently quite highly-regarded, as well as being a scion of the British establishment (both her father and mother are peers in their own right, her mother was head of John Major’s Downing St policy unit, and her father, grandfather, and great-grandfather were all viscounts and Cabinet ministers).

Senior appointees to Bank of England roles (both top executive positions and the non-executive appointees to the decisionmaking committees on monetary policy and regulatory matters) are subject to confirmation hearings before a parliamentary select committee.     The select committee doesn’t get to decide whether the appointees get the job –  so it isn’t like the US system –  but they can ask hard questions, and can write and publish reports on the suitability of a candidate.  The House of Commons is large enough that there are plenty of MPs who either never will be ministers, or have already had a term as a minister,  That seems to make them  –  even those from the governing party – more willing to ask hard questions than one might expect.

In the course of her confirmation hearings, it became apparent that Hogg had not declared and disclosed to the Bank of England that her brother was head of group strategy for Barclays –  holding a senior position (including involvement in regulatory matters) in one of the largest UK banks, and one for which the Bank of England has supervisory responsibility.    Worse still, earlier in the hearings she suggested to MPs that she had in fact done so.

It is a strange story.  At one point in this episode, Hogg had declared that she was totally confident she had complied with all the Bank’s codes of conduct because “I wrote them”.   Even if so, how it never occurred to her to ensure she disclosed her brother’s position –  erring on the safe side if nothing else –  is a bit of a puzzle.  I’m also quite surprised that it wasn’t known and recognised within the Bank anyway –  they are hands-on supervisors, Barclays is a big and important bank, and the brother’s name would be familiar to anyone with a modicum of knowledge of modern British political history.

The Treasury select committee published a fairly forthrightly critical report, and shortly before it was published Hogg announced that she will resign.  The Guardian has is a nice summary of the story.

There is no suggestion of any substantive inappropriate conduct (whether information being passed, or behaviour influenced) beyond the non-disclosure itself.  But the resignation is the sort of standard we should expect from holders of high, and powerful, public offices.  As Hogg herself put it

“We as public servants should not merely meet but exceed the standards we expect of others.”

Regulatory agencies require punctilious adherence to the rules by those they regulate.  They weaken their own moral position if their own people aren’t held to at least those sorts of standards.

But as I read and thought about the Hogg story, it got me thinking again about our own Reserve Bank, and holders of senior positions there.

The Governor of the Reserve Bank exercises an enormous amount of power –  far more, personally, albeit in a smaller economy and financial system –  than the Governor of the Bank of England.  In that institution, most of the policymaking powers are spread across committees in which the Governor has only a single vote, and where most of the members are either executives not appointed by him or are non-executives.  And yet there is nothing like the confirmation hearings process here.  Most of the appointment power doesn’t even rest with the Minister of Finance –  who can be grilled in Parliament – but with the barely-visible Board members, who themselves face no parliamentary scrutiny.  Like the Bank of England, our Reserve Bank has a couple of deputy governors –  statutory positions.   Holders of those roles don’t have formal voting power –  unlike at the Bank of England –  but there is also no parliamentary scrutiny.  (There were suggestions that a former Deputy Governor was allowed to keep share options in an institution whose New Zealand subsidiary he was responsible for regulating.  If so,  external scrutiny at the time of appointment might have challenged that.)

Compared to the British system, in particular, our system is riddled with democratic deficits:  too much power in one person’s hands, the appointment of that person largely in the hands of non-elected appointees, and no parliamentary scrutiny on appointment of any of these statutory positions (Governor, Board, deputy governors).

In the aftermath of the Charlotte Hogg affair there were curious suggestions of unequal treatment.  Former Chancellor of the Exchequer, George Osborne, is quoted as saying

“Would she have gone if she had been an older man whose sister worked at a bank? I wonder,”

One can only respond “well, I certainly hope so”.

But again, contrast the position at the Bank of England with that at the Reserve Bank of New Zealand.  Hogg was the third female Deputy Governor of the Bank of England.    On the Bank’s statutory decision-making committees, two of the nine members of the Monetary Policy Committee are women, as are two of the members of the Prudential Regulatory Committe, and one member of the Financial Stability Committee. (Hogg serves on all three.)

The Reserve Bank of New Zealand has never had a female Governor or Deputy Governor.  Looking at the current organisation chart, two senior management roles are held by women, but they are both third tier internal corporate positions.    There has never been a more senior woman in the Bank, and thus none of the core statutory policy areas (monetary policy, financial regulation and stability, financial markets) has ever been headed by a woman.  There is no woman on the Governing Committee, and unless things have changed markedly in the last two years, there aren’t (m)any women managers in those core areas either. In fact, it is only about five or six years since the most senior woman in the core policy areas was made redundant.  There are plenty of able women further down the organisation, and I still recall –  35 years on –  the fearsome grilling I got from one smart woman in an interview when I applied to join the Bank, but none in the core senior positions.    (There are women on the Bank’s Board, but it of course has no role in policymaking.)

Quite why this is so is a bit of a mystery.  I doubt it is a result of direct or conscious discrimination –  although decades ago, women had to retire from the career staff if they got married.   And while macroeconomics and markets tend to be areas more men gravitate to than women, Janet Yellen chairs the Fed, and the Bank of England has managed three female deputy governors in the last 15 years.   And even across the Tasman, two of three Assistant Governors in the core policy areas  of the Reserve Bank of Australia are female.

But, whatever explains the patterns up till now, it must surely become a bit of an issue sometimes soon; perhaps one for the Minister and the Board in considering future appointments, and perhaps too for MPs and lobby groups wondering quite how the Reserve Bank appears to have remained so male-dominated for so long.

If one runs through the standard sorts of list of people who might be possibilities to become Governor next March, there are no female names  (Bascand, Orr, Carr, Sherwin, Archer and so on).  And if one restricts the field to that sort of background, I don’t think it is just because people have inadvertently overlooked the female names.   There are no women I’m aware of in New Zealand who hold, or have held, senior-level macro or banking regulatory roles –  eg one could look around the Reserve Bank or the Treasury, or the more prominent of the market economists and commentators and find none.

But perhaps it is time to cast the net wider?  That might be sensible anyway.  It seems likely that the next Governor will lead and preside over some potentially quite significant governance changes, and in many ways the organisation needs revitalising and opening up.  One could make a pretty compelling case for the appointment of a person with strong change management capabilities, rather than a more traditional economist.  Character and judgement would still always be vitally important, but they might be less important than the specific technical expertise.  In this case, after all, we know that there will be not just a new Governor but also at least one, and possibly two, new deputy governors –  and in any top team, there is a need for a complementary set of skills, not just clones of each other.    I’m not that familiar with many senior business figures but, for example, one of our major commercial banks is already, apparently very ably, led by a woman.

I could add that, to the extent that this surprising under-representation of women does concern those in power, my proposal to reform Reserve Bank governance to establish a couple of statutory decisionmaking committees (a Monetary Policy Committee and a Prudential Policy Committee) would also more quickly up more roles to which the Minister of Finance could appoint able women.  There shouldn’t be any real shortage of suitable candidates to be considered.

On the topic of gubernatorial appointments, readers might recall that when the Minister of Finance last month deferred the appointment of a new Governor until well after the election, giving deputy governor, Grant Spencer, a six month term as acting Governor, I raised questions as to whether this appointment was strictly lawfully permissible.  As I stressed then, I had no particular concerns about Grant himself, and had actually been suggesting for some time a variant of the same solution –  giving Graeme Wheeler a short extension, if he had been willing to accept it.  But the Act doesn’t seem to be written in a way that allows a new person to be appointed, with no Policy Targets Agreement, for such a short period.

Because there were no clear answers from the government, and no pro-active release of the relevant papers, I asked for copies of the relevant papers from (a) the Minister, (b) the Treasury, and (c) the Reserve Bank Board.  I didn’t really envisage it as a burdensome request, and although I was sure they would withhold any formal legal advice they had, I was interested in the advice the various agencies had provided to the Minister and Cabinet on the point.

So far, it looks a lot like typical bureaucratic delay and obstruction.  The Minister of Finance didn’t respond until well after the 20 working days (and was thus in breach of the Act).  When he finally did respond it was to say that he was giving himself another month to respond

“the extension is required because your request necessitates a search through a large quantity of information and consultations are needed before a decision can be made on your request”

Frankly, it would be surprising if the Minister of Finance held very many documents at all on this issue, but time will tell.   A week earlier I had had the same postponement, and same justification, from the Treasury – and again it would be a little surprising (especially as when they asked, I made clear that I wasn’t after working level email exchanges on the issue).  Curiously, the Reserve Bank Board itself –  the people primarily responsible for appointing a Governor –  didn’t claim to have lots of documents they needed to search, only that delay was needed

because consultations necessary to make a decision on the request are such that a proper response to the request cannot reasonably be made within the original time limit.

It isn’t an urgent issue, and in substance I don’t really have much of a problem with the Spencer appointment, but it is hardly the sort of open government, or commitment to the spirit of the Official Information  Act one might wistfully, foolishly, hope for.

Still no better than middling

The Minister of Finance greeted yesterday’s GDP numbers with the claim that

“While growth has softened in this latest quarter, the continuing trend is [with] consistent ongoing growth ahead of most other developed countries.

In the case of total GDP, that is no doubt true.  It is what happens when your country has had population growth of 2.1  per cent in the previous year.

But where do we sit in terms of growth in real GDP per capita?

The OECD doesn’t have data yet for all member countries, but here is how our GDP per capita growth compares, focusing on the December 2016 quarter over the December 2015 quarter, for the countries there are data for.

real GDP pc 12 mths to dec 16

And here is the same data for the full year to December 2016 over the full year to December 2015.

real gdp pc ann ave to Dec 16

Neither comparison is intrinsically better than the other.  Between them, really the best one can say is that New Zealand has been no better than the median country over the last year or so.  That’s nothing to write home about…….especially as our data suggest we’ve had negative productivity growth over the last year (whether one uses the point to point or annual average measure).   That means all our pretty modest per capita GDP growth over the last year has resulted from throwing more labour and more capital at the economy, and (less than) none at all by using resources smarter and better.

But according to the Minister

“This week’s statistics on economic growth and our external accounts show the benefit of the Government’s sensible, consistent economic management,” Mr Joyce says.

New Zealand Initiative on immigration: Part 6 The economists

Chapter 4 of the New Zealand Initiative’s immigration advocacy report is headed “It’s the Economy, Stupid”.   In opening it, they note

While the effects of immigration are broad, the economic impacts often receive the most focus.

That is certainly true of economists, although I’m less sure it is generally true.  But my background is in economics, and I came to thinking about immigration, and immigration policy, in the context of thinking about New Zealand’s disappointing long-term economic performance.

In my previous couple of posts I’ve touched on the Initiative’s treatment of the impact of immigration on government finances and house prices.  But chapter 4 gets to what many economists will think of as the most important economic dimensions of immigration: what it does for productivity and for material living standards.  Economists often get queasy about distributional questions, but since we are talking about policies made by national policymakers I have no problem in narrowing down these questions mostly to the impact on the people already in the country (“natives”), rather than to the latest/next wave of migrants.    As an economic matter,in any particular country policy-controlled immigration of non-citizens should benefit “natives” as a group.  If it doesn’t, the policy should be reconsidered. But answering that question, in any specific country or even more generally, isn’t easy.  There aren’t that many countries that have had significant inward non-citizen immigration, and of course some of the most successful emergent economies of the last century have had very little immigration at all – Taiwan, Japan, and South Korea.   Sample sizes get very small very quickly.  Time and place probably matter quite a bit too.  Most economic research suggests that emigration from Ireland in the 19th century materially benefited those left behind.  But the dominant economists’ argument today would assert that the Irish are now benefiting from substantial inward migration.

As the Initiative notes

By and large, economists favour immigration….

The Initiative’s interpretation on this is that

…as migrants benefit the countries they move to through knowledge spill-overs and global connectedness. Growing the population through immigration also produces ‘economies of agglomeration’ (i.e. the abilities of larger, denser populations to support more commerce and knowledge exchange).

Their prior seems to be not only that non-citizen immigration will benefit natives, but that a growing population –  whether from immigration or natural increase – will also raise productivity.  And the impression I’ve taken is that they seem to believe this is necessarily (or at least almost certainly) true wherever the immigration occurs.

As a descriptive statement, I think there is little doubt that economists generally do favour a fairly open approach to immigration.  But not all the evidence the Initiative adduces even on this point is quite as persuasive as it might first appear.  For example,

An open letter emphasising the benefits of immigration to the US president and Congress in 2006 had no difficulty amassing more than 500 signatures, the majority from practising economists.

Which sounds quite a lot, but the US is a country of around 320 million people.  In New Zealand –  with 4.7 million people –  the equivalent of that 500 signature open letter would be one signed by seven people.    In the New Zealand Initiative’s own offices they just about muster that number, “the majority from practising economists”.   I could probably find seven people, mostly practising economists, in New Zealand to sign letters for or  against free trade, for or against capital gains taxes, for or against almost anything.

But there is better data than that.

The IGM Economics Experts Panel regularly surveys economists on policy questions. Almost all experts agree that high-skilled immigration benefits existing residents, and the majority agree unskilled immigration would benefit existing residents.

It is worth remembering that these surveys are of economists at US universities, answering in a US context.  Looking through the list, many of the respondents are themselves immigrants, likely predisposed to believe their own migration was mutually-beneficial.    And, in the US, of course the overall rate of legal non-citizen immigration is much smaller than that in New Zealand, and the selection criteria are strongly skewed towards family reunification, rather than emphasising skills.

I’ve seen three IGM questions about immigration.

The average US citizen would be better off if a larger number of highly educated foreign workers were legally allowed to immigrate to the US each year.

Of the respondents, 89 per cent agreed, and none disagreed.  Of course, even sceptics of immigration might be inclined to favour more highly educated immigrants, if it were at the expense of the current family focus.

In asking about low-skilled immigrants, there were two questions.  The first was

Question A: The average US citizen would be better off if a larger number of low-skilled foreign workers were legally allowed to enter the US each year.

52 per cent of respondents agreed (and most of the other responses were “uncertain”)

Question B: Unless they were compensated by others, many low-skilled American workers would be substantially worse off if a larger number of low-skilled foreign workers were legally allowed to enter the US each year.

Note that the phrasing is “substantially worse”, not just “slightly” worse.   50 per cent respondents agreed with this proposition, and against most of the other responses were “uncertain”.

There was a more recent poll specifically about the immigration of people with advanced degrees in science and engineering, again a two-parter.

Question A: Allowing US-based employers to hire many more immigrants with advanced degrees in science or engineering would lower (at least temporarily) the premium earned by current American workers with similar degrees.

71 per cent agreed with that proposition.

Question B: Allowing US-based employers to hire many more immigrants with advanced degrees in science or engineering would raise per capita income in the US over time.

86 per cent agreed with that proposition.

So that even among this panel of economists, who believe that US natives generally benefit from immigration to the US, there is quite clear recognition that low-skilled immigration would be likely to disadvantage substantially many low-skilled American workers.   Consistent with this, they also appear to believe that importing lots of any particular type of worker will lower the relative returns of Americans working in that field (if it is true of people with advanced degrees in engineering and science, it is no doubt true to a greater or lesser extent in other specialities –  including perhaps chefs and aged care workers?)

My point here is not to dispute that most economists are quite sympathetic to immigration.  And even most sceptics of immigration won’t have much problem with genuinely highly-skilled migrants.  But when the reality is that the average migrants (and perhaps more importantly the marginal migrant) isn’t that skilled at all, then even in the US context, the views of economists suggest that distributional considerations matter.  As Professor George Borgas, a leading researcher on the economics of immigration, at Harvard University’s Kennedy School, put it in a recent New York Times op-ed, in thinking about immigration policy a key  question for policymakers is “who are you rooting for?”  Borgas reckons there are small overall gains to natives as a whole from immigration to the US, but that the distribution of those gains is such that people at the bottom of the skill distribution are clearly worse off.

In typically flamboyant style, the Initiative talk of economists “loving” immigration, and pose the question “Why do they love it so much?”.      New Zealand doesn’t get much specific attention in the Initiative’s report, but it is as well to remember that in this country there was a long tradition of leading economists being really quite sceptical of the economic gains from immigration to New Zealand –  I wrote about one prominent example here.

But lets stick with the current overseas perspective for now.  The Initiative seek to explain:

To understand why economists generally favour immigration, think of the opposite. If immigration was not generally beneficial, why stop at the national level? Migration flows occur far more significantly within than across nations. Would stemming these domestic flows improve outcomes? Would Wellington’s economy improve if we prevent Christchurchians and Aucklanders flooding in?

And, of course, there is an important element of truth in this argument.  The ability of people to leave Taihape or Invercargill as the economic opportunities declined in those places, relative to other places in New Zealand, has been an important part of internal adjustment.    There is no actual evidence that natives of Wellington or Christchurch benefited from people migrating from Taihape or Invercargill, but we can be pretty sure the migrants themselves benefited (or they wouldn’t have moved), and there are reasonable grounds to suppose that the people who stayed behind in those declining towns also benefited.  One of the other basic insights of economics –  not, I think, mentioned in the Initiative report at all, but strongly backed by empirical research on, say, pre World War One migration –  is that mobility of resources encourages what economists call “factor price equalisation”.   In other words, wages in Wellington or Christchurch might actually be a bit lower than otherwise as a result of the internal migration.

Of course, we don’t stop internal migration, because that is what being a country (or at least a free country) means.  We share some sense of common identity across Auckland, Dunedin, Kawerau and Westport, that we mostly don’t share with people in other countries.  It is the similarities that matter –  we are ‘New Zealanders’, whatever that means when one digs down –  and in particular it is the right to dwell in this land that is common to us all.    It is an arbitrary line to some extent, but little different in concept to the notion, practised by us all, surely, in which we treat family differently than we do outsiders.

As the Initiative notes, economists (rightly) emphasise the potential gains from trade.   Winding up the rhetoric they argue

Larger and more diverse markets of potential traders have more opportunity for specialisation and greater advantages from trade.  These insights lead economists to broadly favour free movement of goods, capital and money – so why not labour, too?

Indeed, the arguments are similar – immigration improves economic performance for much the same reason international trade improves economic performance. Individuals vary in their capabilities, and freedom of movement allows people to move to where their skills are needed most. The fewer the constraints on labour mobility, the more countries prosper. So large is the potential prosperity gain that open borders are estimated to double world GDP.  The implications of economic theory are clear: New Zealand can benefit from those who are like us and those who are not. Those  who have skills similar to those of New Zealanders can help sectors that hold comparative advantage to reach efficient scale. Those with different skills can improve the market at the micro level by creating new industries or rejuvenating old ones with new ideas.

New Zealand benefits by embracing those who can offer new and challenging ideas and perspectives.  Simply by being from another country, migrants help bridge the gap between New Zealand and the rest of the world. Global connectedness is vital for
prosperity, and welcoming migrants can help New Zealand improve those connections.

There is a lot one could unpick here.  Even if they won’t actually call for it as policy, the New Zealand Initiative want us to think of “open borders” as the natural default, which only fear, racism, selfishness or whatever holds us back from.

But note that the exercise in which open borders –  no immigration restrictions anywhere –  could double world GDP assumes that massive numbers of people (hundreds and hundreds of million) migrate, and yet in doing so they do not change what it was  –  the culture/institutions etc –  that made the country they migrate to rich and successful.  No one takes that very seriously.  People bring their cultures with them –  which isn’t just tastes in food, but views about how things are and should be done.  That the ancestors of today’s European citizens of New Zealand did so is a big part of why New Zealand is a fairly wealthy country today.  But that migration involved people moving from the then-richest, and most economically successful, culture/country to lightly-populated temperate New Zealand.   In small numbers, there is little doubt that migrants from poor countries to rich countries benefit, often very considerably, and in doing so they don’t change the recipient country/culture much.  In large numbers, one simply can’t make the assumptions the authors of that exercise did.

Note too that there is no sense in any of this that fixed factors of production might matter.  Land and natural resources are the most obvious example.    They may not be overly important in some places –  one might think of Singapore or Hong Kong as examples, or at a city level somewhere like London.  On the other hand, no one doubts that natural resources are hugely important to the prosperity of Norway or Australia –  not the only factor of course (the human capital to exploit the resources matters a lot), but hugely important nonetheless.  From memory, Norway had about twice as much North Sea oil and gas reserves as the United Kingdom, but with less than a tenth of the population of the UK, that natural resource might much more difference to the living standards of the average Norwegian, than it did to the average Briton.   The economics of adding lots more people to a particular place depend a lot on what that place has going for it.    And yet the New Zealand Initiative pay no attention to this consideration at all –  barely mentioning that New Zealand is the most remote significant economy in the world, and demonstrably still heavily dependent on fixed natural resources.  There is simply no obvious reason why the economics of immigration should look quite the same for the United Kingdom or the Netherlands as for Kuwait or New Zealand.

Perhaps large-scale immigration to New Zealand –  of the sort the Initiative champions – has been, and will be, beneficial to New Zealanders, but you can’t just get away with asserting it, while largely ignoring key facets of the New Zealand economy.

Should alternative perspectives be welcome?   Well, mostly yes.  And so to that extent I’ll agree with the Initiative when they claim that

New Zealand benefits by embracing those who can offer new and challenging ideas and perspectives

But the proportion of migrants who will actually offer “new and challenging ideas and perspectives” is inevitably pretty small –  as no doubt it is for natives –  and most ideas and knowledge simply aren’t transmitted primarily by immigration.  I’d be happy to see us welcome leading researchers as migrants, but mostly you’d have to ask yourself –  what no doubt they’ve already asked themselves –  why would they come (to a small, remote, not-overly-prosperous corner of the world), rather than staying nearer global centres of knowledge-generation and dissemination.  Typically they won’t.

The Initiative goes on

Simply by being from another country, migrants help bridge the gap between New Zealand and the rest of the world. Global connectedness is vital for prosperity, and welcoming migrants can help New Zealand improve those connections.

Silly extreme examples illustrate how empty this rhetoric is.  Half a million Syrian immigrants or Turkmen, Bolivian or Zambian immigrants would be exceptionally unlikely to strengthen our “global connections” in ways that enhance our national prosperity (they’d happily come, to a much richer country).   In considering national policy, you simply can’t –  or shouldn’t –  operate at this sort of high level of generality.  Evidence abour New Zealand, and analysis of New Zealand, illuminated by perspectives from other similar countries is surely critical to reaching robust policy perspectives on what immigration policy we should adopt.

I should stress, as I have noted for many years, that my main interest is New Zealand (as I hope the New Zealand Initiative’s is).  So my main interest is not whether immigration is sometimes good for natives, or even generally good for natives, in some or most other countries. My interests is in whether modern (say, post-war) immigration to New Zealand has been, and is likely to be, good for New Zealanders.  Since places differ, and location oftenr matters in economics, one cannot simply assume that what is good in some places (even most places) is good in all places.  As I noted, the number of countries with large scale immigration programmes (and hence the effective sample size in any study) is small.   In an age when personal connections seem to matter more than ever, particular on the production of things other than natural resources,  and when more and more production is done through global supply chains, there is at least a reasonable prima facie case for why conclusions one might reach about immigration to the Netherlands or Singapore might be different from those for New Zealand.

And all that is even before considering New Zealand’s actual economic experiences over the decades of high non-citizen immigration, including the (barely mentioned in the Initiative report) huge exodus of our own citizens over recent decades.  In my next post, I’ll look at some of the papers the Initiative cites in their report, and look at their response to my own arguments,  but it is worth remembering that in no other country I’m aware of has there been both a huge exodus of natives, and a huge policy-controlled influx of non-citizens.  A diagnostician would usually pay some attention to the voluntary market-driven outflow of natives in considering the prospect that government-led large inflows would benefit the natives who remained.

Bias and a possible gender pay gap?

The media this morning is awash with breathless reports of a new study (and slides on the main results here), conducted for the Ministry for Women, on the differences between hourly earnings for men and women.  Not a hint of scepticism has been reported in what I’ve seen and heard, even from the Deputy Prime Minister in our ostensibly centre-right market-oriented government.  On principle, one should probably always be more sceptical of research results that confirm the preferences and priors of the agencies commissioning such research.

It isn’t my area of speciality at all, so this is just a brief note.  To the extent I have a dog in the fight, on the one hand I tend to believe that markets work pretty well most of the time, which makes me instinctively suspicious of the notion of “free lunches” or that somehow huge systematic effects result from conscious or unconscious bias or discrimination.  And on the other hand, I’m not in paid employment myself, while my wife is, and I have more daughters than sons.    If there was a material real gap, it wouldn’t be against our family interest to recognise it.

The authors use a fairly large sample of people, and look at quite a range of variables.  But, having read some summary articles on this issue from the US literature, I was quite struck by what appeared to be missing.  I couldn’t, for example, see any sign of a “time out of the workforce” variable.  I think there is huge value in one parent being at home, especially when children are young, but it isn’t necessarily experience that has a huge value back in the paid workforce (different skills, different roles).   Someone –  male or female, but most are women –  who takes five years out of the workforce to look after their young children is likely to set back their income-earning prospects back in the paid workforce, for any given set of qualifications, or even any particular type of job.   And, as far as I could see, the only proxy for input/effort (and thus, accumulated skill/expertise)  was a distinction between part-time work and full-time work, at a 30 hours a week cut-off.     For some jobs, that might be a perfectly reasonable marker,  but there is a big difference between, say, a lawyer working 32 hours a week and one working 60 hours a week.  More women are more likely to select for working relatively fewer hours, to prioritise family, and this study –  data-rich as it is –  doesn’t seem likely to be able to distinguish that point.

Are there pointers in the paper to these sorts of factors being part of the explanation?  Well, yes, there is, here in this chart.

gender pay gap

Note that there is no statistically significant difference in gender pay for the first three deciles, (and if anything the unexplained component goes the other way –  the purple line is above the “gap” line).  That appears to run contrary to, for example, one of the Ministry for Women’s other “causes” –  eg pay differences between rest home workers and other ostensibly similar occupations.    The big difference show up in the upper part of the income range, where the personal characteristics of the individual employee are likely to be both much more important (than for relatively homogeneous positions at the bottom of the income scale) and much harder for researchers in studies like this to observe.

If such large differences, for people with exactly the same characteristics, existed, it points in the direction of large “free lunches”.  Relatively “enlightened”, or unbiased employers, could profit hugely by replacing expensive male employees with cheap females ones, in relatively senior positions.  Perhaps it was to some extent true 100 years ago, when cultural expectations –  among men and women –  were quite different.  It defies belief now.

UPDATE: In some exchanges in the comments, not only did it became apparent that the AUT researchers had not even cited the leading work in this field, by Claudia Goldin at Harvard, but that the Ministry for Women policy staff, while aware of that work, do not refer to it.   Here is a link to an accessible discussion with Goldin  and an extract from that interview

DUBNER: Talk for a moment about potential categorical differences between men and women that have shown up in some research.  The different appetite for competition, as some have labeled it. Or, in another instance, the willingness to bargain on salary or flexibility.  How much might those contribute to the pay gap?

GOLDIN: I think there’s no doubt that they contribute to some degree. But let me tell you why I don’t think that they go the real distance. Some of the best studies that we have of the gender pay gap, following individuals longitudinally, show that when they show up right out of college, or out of law school, or after they get their M.B.A. — all the studies that we have indicate that wages are pretty similar then. So if men were better bargainers, they would have been better right then. And it doesn’t look as if they’re better bargainers to a degree that shows up as a very large number.  But further down the pike in their lives, by 10-15 years out, we see very large differences in their pay. But we also see large differences in where they are, in their job titles, and a lot of that occurs a year or two after a kid is born, and it occurs for women and not for men. If anything, men tend to work somewhat harder. And I know that there are many who have done many experiments on the fact that women don’t necessarily like competition as much as men do — they value temporal flexibility, men value income growth — that there are various differences. But in terms of bargaining and competition it doesn’t look like it’s showing up that much at the very beginning.

DUBNER: Let me ask you about one more contributory factor. The parent penalty, what’s often called the mommy tax. How significant is that as a contributory factor?

GOLDIN: Well, it seems as if it’s a very large factor.  That anything that leads you to want to have more time is going to be a large factor.


Half a hand clap?

For the leader of the National Party, Bill English, that is, for announcing yesterday that if his party is in government after September’s election it will seek to

(a) lift the residency requirement from 10 years to 20 years, starting some way down the track, and

(b) lift the age of eligibility for New Zealand Superannuation from 65 to 67, but not starting until 2037.

It is a topsy-turvy political world in which at the last election the National Party was campaigning on, in essence, no changes to NZS ever (talk of everything being “affordable” for the next 50 years), while the Labour Party was campaigning on a rather faster move to age 67 than the National Party is proposing now.  But now the Labour Party appears staunchly opposed to any increase in the eligibility age.   Perhaps if Bill English and David Cunliffe had held the reins at the same time, a cross-party accord might have been in prospect?

It is also a bit odd when media start talking as if political promises made today, even if enacted next year, actually make very much difference to what will happens in 2037 and beyond.  For all the talk of “giving people certainty”, it is most unlikely National will be in office for the next 20 years and all-but-certain that Bill English won’t be.  Office-holders change, and so do circumstances.

In 1859, no one really envisaged the Land Wars, gold rushes, or the massive transfomative effects of the Vogel public works and immigration programmes.

In 1879, no one was probably planning on having a state age pension at all  (let alone the economic opportunities of refrigerated shipping etc).  That came in 1898.

In 1899, no one was expecting World War One, and the huge toll of lives and money that took.

In 1919, no one was expecting the Great Depression, or an overhang of debt so severe the New Zealand government defaulted on its domestic debt, and almost had to do so on its foreign debt.

In 1939, even if people anticipated war, they probably neither conceived of one as long and devastating as it was (globally), or that over the following couple of decades New Zealand would enjoy high commodity prices, and end up with very little public debt.

In 1959, few people probably planned on the basis on the “end of the golden weather” –  the severe and sustained fall in our terms of trade over the late 60s and especially in the mid-late 70s, that undermined fiscal prospects and opportunities for improved living standards.

In 1979, probably not many envisaged Think Big as the massive fiscal disaster it was, or the disruption (and loss of revenue) that the (overdue) economic reform and liberalisation process would entail.

In 1999, well…..perhaps there have been fewer disruptions in the last couple of decades (even allowing for earthquakes and a serious recession).  But it seems unlikely that history is ending.

No one knows what the next 20 years hold, for good or ill, and it would be crazy for anyone to plan today based on a political party’s promise of what welfare payments might be available 20 years hence.    My (considerably younger) wife was stunned to learn yesterday that if the new proposed policy carries through she will be eligible for NZS at 65.  Since anything can happen in 20 years, I discouraged the idea of starting planning for an extra overseas holiday

And government plans and policies do change, often considerably.  In the late 80s, the then Labour government announced a very slow increase in the NZS age, only to have that overturned (and rapidly accelerated) by an incoming government only two years later.  And in the 25 years from the early 1970s to the late 1990s, we went through numerous, quite substantial, changes in NZS policy, each no doubt intended by the governments that proposed them as “providing certainty”.

If the National Party really thinks change is needed, they should have promised something that might have involved gradual increases in the eligibility age starting in the next term of Parliament –  age-indexed beyond that.  If not, they should have bequeathed the issue to their successors.

My own view, outlined in a couple of posts late last year, is that the case for changing the NZS eligibility age (and residence requirement) isn’t primarily one about future fiscal balances.  As I noted when the Treasury released their long-term fiscal statement,

Treasury included this chart in the report.


As I noted then, one could reasonably run this under a headline “no urgent need for any big fiscal changes for 20 years”.  On these projections, in 2035 the spending share of GDP would be around where it was five years ago.  Actual fiscal policy changes happen all the time, and the base on which revenue is raised changes too.  It wouldn’t take much for spending as a share of GDP in 2035 to be not much different from where it has been on average over the last decade.  One can’t reasonably generate “fiscal crisis” headlines –  or urgent official advice to ministers – out of that sort of scenario.

And perhaps that is the sort of thinking the National Party had in mind.  There just isn’t a pressing near-term fiscal issue  (although, of course, taxes could be lower, or the money spent on other priorities).

My take was different.

To my mind, issues around New Zealand Superannuation are substantially moral in nature, and the debate would be better if centred on those dimensions, rather than on fiscal policy.  Our level of government debt isn’t that low, but by international standards it isn’t high either, and if anything looks likely to drop as a share of GDP over the next few years.  So the issue shouldn’t be “can we afford to pay a universal welfare benefit to an ever-increasing share of the population?” –  ever-increasing, on the assumption that adult life expectancy continues to increase.  We probably could.  But rather “should we?”, or “is it right to do so?”.   Economists quickly get uncomfortable with “is it right” type questions, sidelining them as “political choices”, but almost all the important political choices are about conceptions of what sort of society or government we want –  competing visions of what is “right”.   Of course, there are practical dimensions, and areas where experts can offer technical perspectives  –  eg the implications of particular choices for other things we care about (eg labour force participation, incentives to save etc) –  but the key choices shouldn’t really be seen as technocratic in nature.

For me, there is simply something wrong about offering a universal income to an ever-increasing share of the population.   Governments don’t exist to support us all,

From the SNZ life tables, we can trace changes in life expectancy since 1950.  Here I’ve shown life expectancy for those reaching age 20 (ie old enough to have reached the workforce).

life expectancy

The observations aren’t always evenly spaced (especially towards the end), but over the full period, of 64 years, average (across male and female, Maori and non-Maori) life expectancy for people who get to age 20 has increased by 9.8 years –  about 1.5 years per decade.

At the first observation, centred on 1951, life expectancy at birth for males was only around 67.2 years.  Too many died very young –  in 1948 (the first year with data on Infoshare), just over 10 per cent of all male deaths were of children under 5.     But around 1950 a large chunk of the men who reached adulthood, and the taxpaying years, still died before they were 65 (around a third of all male deaths of those over 20 occurred before age 65.   The female numbers weren’t that much lower.  None of those people lived to collect a state pension payable from age 65.

By contrast, in 2015 only 18 per cent of adult deaths occurred before age 65.

It is quite true that, on SNZ estimates, life expectancy at 65 has not increased as rapidly as overall life expectancy (up 6.6 years over 64 years), or even that at age 20.

life expectancy 3 ages

But the fiscal burden doesn’t just arise from how long people live once they get to 65, but what proportion of adults get to age 65 at all.

Here is a chart showing life expectancy at 20, and the NZS eligibility age.  The final two dots are what might have happened by 2040 if the life expectancy gains continue at the same rate as since 1950, and the NZS eligibility age if yesterday’s National Party policy proposal comes to pass.

life and NZS age

Over that full period, 90 years, the NZS eligibility age would have risen by two years, and adult life expectancy (those getting to 20) would have increased by about 13.5 years.  By 2040 it will be amost 40 years since the NZS age got back to 65.  In that time, adult life expectancy is likely to have risen by 5 to 6 years, and yet the NZS age will have risen only by two years, if the new National Party policy is implemented.

Something seems bad out of whack there, and that is before allowing for the fact that the typical person now enters the fulltime workforce considerably later than they did in earlier decades: many fewer leave school at 15, and now most do tertiary education as well.  The period the typical adult will be receiving NZS for, as a share of their time in the workforce (paid, or raising children) just keeps on rising.  And that seems wrong.   For some, no doubt, working until 67 or beyond would be physically difficult, or impossible.  In the past, for very many, even living to 65 was aspirational.

Overall, National’s proposal yesterday was a pretty feeble one.  Better than Labour’s stance –  which seemed to involve potentially reducing future pensions, but not increasing the age –  but so far in the future it should probably be discounted back to very little.    Perhaps it would have deserved a little more credit, if they had been willing to embrace –  and campaign on- the notion of formally indexing future increases in the eligibility age to future changes in life expectancy.  But they couldn’t even manage that, not even for the hypothetical adjustments that might occur in the decades after 2040.






House prices and population

I wrote the other day about the role that population growth, including that accounted for by immigration policy, plays in influencing house prices, at least in places where regulatory restrictions on land use or construction impair the responsiveness of housing supply.  More demand, in the face of lagging supply, seems fairly ineluctably to put upward pressure on prices.

The latest QV house price data, for January 2017, also came out the other day. They produce data at an individual TLA level, which in conjunction with SNZ TLA population estimates, enables us to have a look at whether there has been a relationship (albeit crude and bivariate) between population growth and house price inflation.

In the chart below, I’ve focused on the period since 2007.  2007 was the peak of the last house price boom, and a period for which QV has supplied house price data for each TLA.  The population growth data is the percentage increase in population from June 2007 to June 2016 –  the most recent SNZ estimates.      It is worth remembering that in periods since the last census, population estimates are approximate at best, but these estimates are the best SNZ can do and they presumably use a consistent methodology across the country.


Given that we have pretty pervasive land-use restrictions, it isn’t very surprising to find that areas with the greatest (lowest) population growth also tend to be the areas with the largest (smallest) real house price increases over this period.    It isn’t a mechanical, or one-for-one, relationship of course.  One factor is likely to be differences from TLA to TLA in how practically constraining the land-use rules are.  All else equal, a TLA where land use restrictions are less constraining will see less real house price inflation for any given population increase than a TLA with more-binding restrictions.  (I’m not aware of any good land-use restrictions indexes for individual New Zealand TLAs).

The observation on the far right of the chart might be an illustration of this point.  That dot represents Selwyn district, on the outskirts of Christchurch.  It has experienced a huge population increase –  in excess of 50 per cent in nine years –  especially since the earthquakes.    Some observers argue that the local authority has been relatively liberal in facilitating new housing and business development.  Perhaps (I was a little sceptical here), but one other factor is that, at the margin, people considering buying in Selwyn are likely to be considering developments in the rest of greater Christchurch too –  and over this period real prices in Christchurch city and Waimakariri only rose 10 and 14 per cent respectively.

The other obvious outlier is the observation at the top of the chart –  that for Auckland.  Real house prices in Auckland have risen 61 per cent since the 2007 peak.  Auckland has had considerable population growth over that period (16.1 per cent)

But the population growth in these TLAs wasn’t that different from Auckland’s experience


and they all experienced much less real house price inflation (these are the dots more or less directly below Auckland’s on the chart)

There could have been a variety of factors at work explaining how much Auckland prices have risen (even given population growth):

  • perhaps Auckland’s land use restrictions are just that much tighter than those in other places,
  • perhaps Auckland prices are being influenced by expectations of continuing strong population growth (which isn’t likely in all of those other TLAs),
  • perhaps Auckland prices were being influenced by the non-resident purchasers (of whom we have heard so much, but don’t really have good data on).

On the other hand, factors that aren’t likely to explain the difference include:

  • interest rates, which are the same across the whole country,
  • tax policy, which is the same across the entire country.
  • (and, for that matter, immigration policy which is much the same for the entire country)

Sometimes people will try to ascribe strongly rising house prices in particular localities to the state of the specific region’s economy.   But since 2007, Auckland’s average GDP per capita has grown no faster than that in the country as a whole.

akld rel to nz gdp pc

and the unemployment rate in Auckland has mostly been a touch higher than that in the country as a whole.


The other thing that struck me from the scatter plot above was just how many parts of New Zealand still have real house prices lower than those at the peak of the previous boom.   Some have had falling populations, but one or two have actually had faster population growth than Auckland  (eg Carterton, for some reason unknown to me).   These are the places where real house prices are still more than 10 per cent lower in real terms than in 2007.

South Taranaki
Central Hawkes Bay
Grey   (-27.2 per cent)

It is easy for people in Auckland and Wellington to be dismissive of some of these places, but as I’ve already illustrated, it isn’t as if Auckland’s economic performance over the last decade has stood out as noticeably better for the average person than that of the country as a whole.

On which note, real house prices across the whole country are now around 6.4 per cent higher than they were in 2007.  With Auckland accounting for a third of the country, and with real prices up 61 per cent there, average real house prices in the rest of the country are still, fortunately, lower than they were at the peak of that previous boom.