Not happening (at least under this government)

I’ve had a couple of posts (here and here) this week prompted by Phil Twyford’s generally encouraging recent speech about fixing the market in urban land, in ways that might –  in his own words –  flood the market with development opportunities, and thus materially lower land prices in and around our cities.

My bottom line: I see no reason to believe that far-reaching reform –  in ways that might make a real difference, as distinct perhaps from just some rewritten laws – is actually likely to be implemented under this government.   We have a weak government, united on relatively little, and there is no sign that serious reform in this area is a prime ministerial priority.  A mere fifteeen months from now the election campaign will be in full swing.

More importantly, market prices suggest that people transacting in the urban land market don’t believe it either.

There was another excellent illustration in this morning Dominion-Post as to why one would be foolish to put a high probability on such reform happening.   It appeared in the form of two articles, one with the (hard copy) headline of “Where will Wellington grow?”  and the other with the hard copy headline “Tough Choices”.  I’ll set to on side for now the point that with a sensible immigration policy, the abolition of corporate welfare and longstanding New Zealand birth rates the city probably wouldn’t be growing at all –  as I pointed out recently, it is not as if stellar productivity growth is some irresistible lure.     Wellington City Council can’t be held responsible for New Zealand population growth, so lets grant for the sake of argument that the population probably will keep on rising.

There are Labour mayors in all three of our largest cities. But it is worth recalling that the Wellington City Council is one the most woke-lefty outfits in the country –  if any council is well-aligned with the government it must be them.  It has a Labour mayor who surely has national political ambitions, several Green councillors, and deputy mayor who if she had her way would strip out all reminders of the Anglo heritage and culture of the bulk of the population, and even the councillors who are not from Labour or the Greens are mostly only a softer shade of pinky-green.  The same issue of the newspaper reports council officers questioning the “appropriateness and relevance” of street names in my own suburb, mostly named for various British and European rivers.  As I’ve noted previously, it must stick in the craw of councillors and their staff to have their offices on (Edward Gibbon) Wakefield St and (Queen) Victoria St and their (well, our) city named for the Duke of Wellington.

This is the opening of the article

City councillors are bracing themselves for a “nimby” backlash as a major plan to find space for 80,000 more Wellingtonians to live goes out for public consultation.

Councillors voted unanimously this week for their spatial plan to go out for feedback.

and goes on to note

The council’s spatial plan posits four scenarios that people will be able to provide feedback on: one centred on high-rises in the CBD, another focused on building upward in suburban townships, a third creating a new suburb in Ohariu Valley and a fourth scenario extending developments at some existing greenfield sites.

No sense anywhere of letting the market work, in response to the revealed preferences of prospective purchasers. No sense of getting the pricing right (for infrastructure connections etc) and then letting things develop in an evolutionary way. No, it is all a matter for councillors to choose, for councillors to “make space”.   And, of course, all led by the Council’s (Australian) Chief Planner.

One councillor notes that

councils were required by law to have a plan for expected growth and Wellington had “no choice” but to come up with a plan to accommodate the extra 80,000 people expected in the city over the next 30 years.

Perhaps, but why couldn’t that plan be, we will get the pricing right, we will allow for appropriate differential rating, we will build (or allow to be built) connections pretty much as required, we will facilitate intensification where local property owners are agreeable, and then let people and the market take it from there?  An abundance of competitive development opportunities – a superfluity –  is what keeps prices down.

That sort of approach might look something like the fine words from Phil Twyford. But not a single comment, from councillors or council staff, in the article suggests anything like that sort of mindset.

If the government were really serious about thoroughgoing reform, wouldn’t it have been an ideal opportunity to have sought to work with their ideological allies on the Wellington City Council to make it happen here – to actually lead the way and bring land prices back to something more like the value in the best alternative use?

Instead, we have the right-on Labour mayor, emphasising not choice, not facilitation, but his own ideological preferences, all supported by the bizarre rhetoric of having to “squeeze people in”, when Wellington City (let alone the greater Wellington region has abundant land).

When mayor Justin Lester is asked for the scenario he wants he just points up

As I understand it, he himself lives in a low-rise family home in a quiet suburb.  But apparently he thinks it is up to him to determine that many fewer of the next generation would have that opportunity.  His Chief Planner is clearly right behind him –  his distaste for a physical expansion of the city seeps through in almost every comment in the article.

It is a democracy, and too much power in such matters rests with councillors and their staff.  My point here isn’t so much to champion an alternative model –  much as I would support one –  as to make the point that anyone who doubts the government is serious about thoroughgoing reforms and significantly reducing land prices in and around our cities, need only look to the lead being provided by the government’s close ideological allies at the Wellington City Council.

As the Dominion-Post articles suggest, there is likely to be lots of blowback against the options preferred by the council (intensification and more intensification) and so in the end whatever gets approved will be some sort of lowest common denominator.  There will be more houses built over time –  as there have been in fast-growing cities around the country in the last 30 years –  but never enough land-liberalisation to ever create a sustainable rational expectation that future land prices in and around our cities will be materially lower than they are today.

Perhaps one day reform will really happen, and prices really will sustainably adjust.  But, as yet, there is nothing in the wind –  whether from the Prime Minister, or Labour mayors or Labour/Greens councils – to suggest it will occur on this government’s watch.  And the young and the poor  (especially the young poor) will be the ones who pay the price, in lost opportunities.

Xinjiang: an opportunity for Ardern and Bridges

On my way home this afternoon I listened to an interview, in the Sinica podcast series (on all sorts of matters Chinese), with Nury Turkel, chairman and founder of the Uyghur Human Rights Project.  For anyone at all interested in the subject it is well worth listening to.

As the interviewer himself put it, he is someone who is not generally seen as anti-PRC, and indeed regards himself as still being listened to to some extent by some of the more strongly nationalistic/pro-PRC people.  But he is clearly appalled at what is going on in Xinjiang, initiated and executed by the regime in Beijing.

In the programme notes there is this summary

6:44: Nury calls for a larger international coalition to decry the horrors in Xinjiang, and highlight the shadow that Uyghur internment will cast on the longer history of China, stating, “In the end, we want two things. One, we want the camps to be shut down. It’s an embarrassment to the Chinese people, even in their history. It needs to be shut down. And, two, we want to be able to restore the Uyghur people’s basic dignity. Give them their dignity and respect back.”

In the course of the discussion it was noted that while Beijing is not generally that receptive to international criticism and pressure at all,  some people are more likely to be listened to –  or be awkward for the regime – than others. Hardline permanent anti-Beijing hawks are easily brushed off.

But people, institutions, and countries that have toadied to Beijing at every turn are a different matter.  Much as I am critical of Jacinda Ardern and Simon Bridges I don’t believe either of them is likely to be comfortable with the atrocity that is Xinjiang.    Fairly or rationally or not, the Prime Minister now seems to carry with her  –  perhaps internationally even more than at home – some sort of halo of kindness, decency etc.  That image etc surely carries some responsibility.

New Zealand doesn’t matter much in the scheme of things, but precisely because our main political parties and successive governments have been such toadies, it would not be nothing –  in Beijing or in the rest of the world – if Jacinda Ardern and Simon Bridges rediscovered some moral core, some courage, some decency, and were willing (together perhaps) to openly and publicly deplore what is going on in Xinjiang.   (They might add in the plight of Falun Gong, Christian believers, and so on too).  To call it as it is: a moral stain, and one that blights the reputation of any leaders who just walk past quietly, or make excuses  (Todd McClay) for the atrocity.

Fairly or not, it often isn’t the people who strongly opposed evil from the start whom history remembers most favourably, but those who once walked with the perpetrators of evil and then stepped away and spoke up early enough.   The evil in Xinjiang has gone on quite long enough, that no decent person should any longer be able to turn a blind eye.  That includes New Zealand’s sycophantic officeholders.

For anyone interested in learning more, Sinica has a monthly article on the situation in Xinjiang.

 

Fruit-pickers, wages, and immigration

I’m not one of those who thinks wage and salary earners as a whole have had some sort of raw deal.  From time to time I’ve run this chart

lci wages vs gdp

suggesting that over the last 15+ years, wage increases in New Zealand (it is different in some other countries)  have outstripped that rate of growth in what I (loosely) term the earnings capacity of the economy: nominal GDP per hour worked, a variable that incorporates productivity growth and gains in the terns of trade.

To the extent there is some sort of “raw deal”, it is one the public has put up with: voting for politicians who, in office, do nothing about removing th roadblocks in the way of fixing our poor rate of productivity growth.  Fix that and we’d be considerably better off.  But across the economy we can’t consistently pay ourselves what hasn’t been earned.

But if wages growth across the economy has been, if anything, surprisingly high given the lack of productivity growth (I say “surprisingly”, but there are decent explanations as to why it has happened), there are still some wages puzzles.

One of them perhaps only puzzles public sector economist types who’ve never themselves had to make a payroll or face a market test for their services.

The Reserve Bank has long run a regular programme of business visits.  I always enjoyed participating (especially in visits well away from Auckland and Wellington) and often came away from the visits with a heightened admiration for the people who have built and maintained businesses, through good and bad economic times.    But there was one question that I never really got a satisfactory answer to.  In periods when the economy was doing well (for example the early 2000s) we would regularly hear from firms we talked to that it was really hard to get decent staff.   We’d nod understandingly, jot that down in our notebooks, and then ask “so what is happening to wage inflation?’ and “so are you increasing the wages you are willing to offer to get people”.  And often there was a look of almost incomprehension (perhaps it was really disdain for Wellington economists), and only rarely would anyone suggest that, indeed, it was really hard to get the right staff, and that they were paying over the odds to get people.  For some reason, a conversation on this issue at a firm in Timaru, probably in 2002, sticks in my memory.

There are strands to a possible good story.  Increase wages materially for new arrivals and before long you’ll have to increase them for everyone.  It is easy to raise wages and hard to cut them (if labour market or business conditions reverse).    Simply bidding more might attract a class of worker more likely to move on quickly if someone else offered a little bit more.  And so on.  So I get that there are reasons why wages move somewhat sluggishly (relative to, say, prices for oil or other commodities).  But I was always surprised at how weak a link managers/owners of private businesses appeared to draw between difficulty hiring and (what an economist would think of as) putative changes in the market-clearing price for such labour.

Which is all by way of introduction to a Stuff story I noticed yesterday about an industry having difficulty getting staff.   I’ve written previously about bus companies and bus drivers, and the bizarre situation in Wellington where the contracted companies get away with endless cancellations (with apparently minimal penalties) because they choose not to pay what it would take to employ the necessary number of drivers.  One might grant that that is a difficult situation –  a government-controlled “market”, in which both fares, operators, and service frequency are all supposed to be simultaneously controlled.

But yesterday’s article was about jobs in a fully private sector industry, with lots of individual employers, and with a significant export orientation: fruit-picking, including “grapes, apples, and kiwifruit”.  The article is quite a substantial piece, including a couple of quotes talking of a “dire” situation finding staff, and repeatedly talk of severe labour shortages.  And, remarkably, not one mention of wage rates.   It must not have occurred to the journalist to ask, let alone to the various employers (and employers’ representatives) to mention it.    Even though, when there is a “shortage” of tomatoes, tomato prices rise –  so that actual quantitity demanded at the going price is roughly equal to the actual quantity supplied.  At present, there is a “shortage” of avocadoes –  it gets a line perhaps somewhere in a newspaper, but prices adjust and so do (potential) consumers.

But not, it seems, in the fruit-picking industry.

The industry seems to think this is a problem for the government (admittedly, this is an approach fostered by successive governments, who also seem to think it is a “problem”, rather than (say) an opportunity for individuals who could capture the premium prices growers might otherwise pay to ensure their fruit was picked).  The article includes a quote from the head of something called the “Central Otago Labour Market Governance Group”, a title that sounds as if it could have been derived from some centrally-planned eastern European economy in the 1950s.

Perhaps there really is some movement in market rates for fruitpicking and the journalist just forgot to tell us. But if so, you’d have thought the industry representatives would have been keen to get the message across –  apart from anything else, it would be free advertising to people in those districts with a bit of time on their hands that there was (unexpectedly good) money to be had.

But again I’m left with a bit of a puzzle –  and perhaps it is only one to city-based macroeconomists – as to why a competitive bidding process isn’t at play.  One can understand the Wellington bus companies not raising wages (temporarily or permanently): they don’t have to, the passengers (mostly) bear the consequences, and entry to the business (Wellington bus routes) is restricted.  But for an individual grower (apples, grapes, kiwifruit or whatever), the situation is surely a lot different.  If there is a incipient shortage of pickers for the whole industry, that doesn’t mean your orchard has to miss out.  Offer better wage rates and presumably people will choose your orchard over another one down the street (on the other hand, choose not to compete and you risk fruit rotting on the tree/vine).  Of course, that invites the other orchards to increase their rates too, but that is how markets work.  And yet, if this Stuff story is to be believed, it doesn’t seem to be happening.  And that is even though much of the picking workforce seems to be itinerant or with no established and committed long-term relationships.  It isn’t obvious why offering more to pickers this year –  if the harvest is particularly early, or particularly good, or labour “shortages” are particularly severe –  need entrench higher rates for all time.

In fact, of course, much of the article channels an ongoing industry push to avoid paying higher wages to New Zealanders to do the job (not just this year, but permanently) by using the immigration system.  You might think that the case for using immigrant labour at times might be stronger than otherwise if there was evidence that wage rates in this industry had been rising particularly stronly (employers putting their money where their mouth is).  But apparently the industry doesn’t see it that way –  and neither (one deduces from their silence) does our current left-wing government, despite its key support base including workers and trade unions.

We are told

Key visa reforms sought by the industry include removing the need for annual reviews once a three-year visa is granted, giving those on three-year visas a pathway to permanent residency if no New Zealand residents are available for the job, and reworking the labour market test to make it more aligned with the employment conditions faced by employers.

It is fruit-picking we are talking about here, not the most skilled of jobs.  And an immigration system that, we’ve been told for decades, is supposed to be skills-focused, contributing to a lift in overall productivity growth, in ways that would raise wage levels for everyone.

As a reminder, there will be few/no/inadequate numbers of New Zealanders offering to work in a particular sector when wages (and overall conditions) in that sector are no longer particular attractive.  In the 1970s presumably our fruit was picked, our old people’s homes were staffed, our supermarket checkouts were staffed, by New Zealanders (whether those of longstanding or more recent immigrants –  but you couldn’t hire people from abroad specifically to fill these modestly-skilled jobs, and in the process keep down wages in that specific sector).

I presume much of what is going on here is that many of these fruit-based industries just aren’t that internationally competitive at current exchange rates. It probably isn’t the case with, say, gold kiwifruit, but for some of the other industries it seems quite conceivable that the economics is pretty tight and it might not be worth being in business if they had to pay materially higher wage rates to pickers.   There are hints of that in the article

“The growers are starting to think whether they are going to invest money because they need to have assurances about labour. It is a bigger issue than probably it is given credit for.”

To which I guess I have two strands of response:

  • first, there are lots of industries that are no longer viable here based on old production technologies (try making a living milking 50 cows by hand) or running a suburban petrol station (in my suburb there were four forty years ago and there are none now).  There might be issues of scale to consider, and/or investment in technology-based solutions, and
  • second, the real exchange rate (averaging more than 20 per cent higher since about 2003 than it did in the previous two decades, despite feeble economywide productivity growth) is a real symptom of the severely unbalanced New Zealand economy.  As a result, our export/import shares of GDP have been shrinking, not rising.    But however attractive the immigration option genuinely looks (and locally is) to an individual employer, on a large scale it exacerbates the economywide problems, not eases them.   For outward-focused industries in particular, a much lower exchange rate –  which would follow directly from substantial permanent cuts in immigration –  would improve NZD returns, and would also make producers in those industries better placed to bid competitively for New Zealand workers to fill their vacancies (or to invest in technological solutions, or the sort that help lift average labour productivity).

Firms simply shouldn’t be able to use immigration to fill positions requiring only modest skills or training without at least being able to demonstrate that the wage rates they are paying for such skills have run well ahead of other wage rates for several years.  But to get bureaucrats and ministers out of the business of picking favoured sectors/firms –  at present, the rewards to lobbying seem quite high – I continue to commend to anyone interested my model for temporary work visa policy.   It is pretty simple

Institute work visa provisions that are:

a. Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa).

b. Subject to a fee, of perhaps $20000 per annum or 20 per cent of the employee’s annual income (whichever is greater).

If apple-growers really can’t get workers locally, and are happy to pay a substantial fee to the Crown, on top of a decent wage, I guess I’d be okay with temporary overseas recruitment.  As it is, they seem to simply want to undercut potential returns to New Zealand labour.

Three totally unrelated items

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

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.

Pandering to the PRC

The capital’s daily newspaper the Dominion-Post had an editorial that must have warmed hearts in the Beehive and MFAT.   “Fawning” would not be too strong a word for it.

The handshakes appeared warm, the smiles generous. Prime Minister Jacinda Ardern described the talks as constructive.  China’s President Xi Jinping said New Zealand was a “sincere friend and co-operative partner”, one of his country’s closest relationships with the developed West.

Job done. Trust restored. Many billions of dollars in trade secured

Trust?  In a regime responsible for so much evil at home and intimidation abroad (wasn’t it only this week PRC fighters were intimidating free and democratic Taiwan)?  Surely not even the PM and MFAT take that line seriously?  But I guess “trust” was more about what the CCP rulers were supposed to feel towards the New Zealand government, the Prime Minister having abased herself, and joined the principle-less ranks of New Zealand politicians dealing with the PRC and eager for some deals and donations.

Then there was a little lesson to dear readers not to expect governments to speak up on the abuses of the PRC.  There is “a great deal of money at stake” don’t you know, and it isn’t the done thing to speak up.  Know your place peasants, we act for the business community.

The newspaper channels the convenient, but false, line about how much power the PRC wields over New Zealand, oblivious to the fact that countries make their own prosperity. Individual firms who over-expose themselves to thugs shouldn’t expect backing from the rest of the community, let alone from our government.  Unless, of course, our government –  once known for rhetoric about “kindness” – thinks the thugs are just fine.

And then the fawning editorial departs completely from reality, trotting out the weird line touted by David Parker a few months back that somehow we could be a conduit between “two competing superpowers” as if (a) either side would be interested, and (b) the United States and the PRC were really much the same, moral equivalents.

But it was the NZME stable of media that was really all in with Beijing today.  In no particular order I noted these pieces:

First, John Key was back, talking about how “critical” the PRC relationship was and that nothing should be allowed to get in the way.    The government is told to mind its words, and there was the bizarre assertion that

“China is the only country effectively where have unfettered access to all parts…If we treat that relationship properly we will continue to prosper off the back of that.”

Setting aside the more general claimed that New Zealand “prospers” –  when it actually languishes and has closed no productivity gaps in the last decade, or two, or three –  ask services exporters about “unfettered access to the PRC” or potential foreign investors about “technology transfers”.

He goes on

The Former Prime Minister said people don’t need to be concerned by China’s involvement in New Zealand.

I guess he would say that wouldn’t he? He works for companies trying to do business in China, he worked closely with former PLA intelligence official, Jian Yang, in his caucus, and seemed totally content with the fawning adulation his party president Peter Goodfellow has given to  Xi Jinping and the regime.   And all those party donations must have come very much in handy.

The article ends

He said our relationship with China needs to be treated really carefully.

Even John Key seems to know this is a subservient relationship he champions, about deals and donations, not about any natural friendship or commonality of values.  Values are simply of no account, it seems, in a Key view of the PRC.

And then there was the Wednesday column from NZME’s columnist Fran O’Sullivan, who travelled to Beijing, courtesy of Air New Zealand –  a big corporate very keen to keep on good terms with Beijing.  That travel support was disclosed, but not the fact that O’Sullivan –  along with Jian Yang and Raymond Huo and others –  sits on the Advisory Board of the (largely government-funded) propaganda outfit the New Zealand China Council, or that she is head of something called the China Business Summit.   It wasn’t particularly fawning, but it was framed around conveying PRC messages, and a sense that New Zealand governments owed something to Beijing.  Certainly no sense of Beijing as something of a rogue actor, at home and abroad.  More gushy was O’Sullivan’s piece in the big “China Business” supplement to today’s paper.   It isn’t so much that O’Sullivan’s views are necessarily wrong –  appeasement will always have its defenders, in 1938 and now – as the total absence of any alternative perspective in the nation’s largest paper.

The Herald was back to its fawning, if patronising to the PM, self in its editorial on the Prime Minister’s visit to Beijing.  The online title “PM makes a good start on China repair” casts her as some naughty schoolgirl who has now come to herself and made amends, as if there was ever anything to make amends for.   The Herald also did not like, one bit, the idea that the government might have dared to think that the PRC was not always a force for good, whether in the Pacific or the wider world.  As if it was channelling the People’s Daily –  then again, Beijing is reported to substantially influence the Herald’s Chinese language offshoot –  we read

In Beijing on Monday President Xi Jinping told the Prime Minister, “Our two sides must trust each other”. That is a message we must take to heart. Trust does not mean closing our eyes to possible risks but it means we should look for evidence of a threat rather than assume one is there.

No evidence of the PRC being an untrustworthy partner?  No, of course not.  Forget, shall we, small things like the GCSB joining other countries in calling out PRC state-sponsored intellectual property theft?  Or Beijing’s actions in pressuring Chinese language media here and in other western countries?  Or the intimidation of ethnic Chinese who speak up about the regime?  Let alone, the way Beijing operates around Taiwan, the South China Sea, or as regards it own people –  despite being party to all manner of international human rights covenants.  A trustworthy lot, the Herald reckons.  Yeah right.

They do get briefly descriptive

China is a monolithic state where ruling Communist Party controls every level of government and every sector of the economy. It is a nuclear-armed superpower and makes many of the world’s consumer goods.

I presume it was accidental that that first sentence was so all-encompassing that it must have included Huawei?

And then we get back to the cravenly creative.

Xi is more autocratic than any leader of China since Mao Tse Tung and is asserting China’s external interests more strongly. But he is doing so in proper ways, through diplomacy and development aid, notably the “belt and road” infrastructure schemes.

“Proper ways”!   None so blind as those who choose to look the other way.  If Taiwan or the South China Sea, or ethnic Chinese in New Zealand and other countries, don’t bother you, if state-sponsored intellectual property theft bothers you not at all, if widely-recognised attempts at economic coercion don’t bother you, then perhaps the Herald is quite right.  Most people will wonder if the text was just lifted from the People’s Daily.   And wasn’t “economic coercion” precisely what the China-panderers would have us worry about?

The first half of the very final paragraph might also have been lifted from a CCP propaganda sheet

China has been a superpower for a long time and it has not flexed its muscle much further than the South China Sea to which it has an historic claim.

“Historic claim” indeed –  a proposition for which there is very little evidence.  And might it be too much to have pointed readers to aggressive PRC activity in the East China Sea, its invasion of Vietnam in 1979, its confrontations with India –  as well as all that other interference and pressure touched on earlier.  Not the stuff friendly powers do.

But, channelling Beijing to the end, the Herald tells us that the PRC had “earned” trust (precisely how, they don’t attempt to explain) and that

Our Government now needs to show the Prime Minister’s one-day visit was not a one-day wonder.

Just stay flat on your face Prime Minister and the Herald and its business advertisers will be happy.

As I noted a bit earlier, there is a full 28 page China Business supplement to today’s paper.  It is pretty fawning from start (the front page leads with “Jacinda Ardern: Mission Accomplished”) to the end (the full page advert from Huawei).  There is the odd interesting piece in the supplement but not a word that might upset Beijing (or probably even MFAT and their front, the China Council).    The only bits I really wanted to highlights were two columns suggesting that it was simply illegitimate for New Zealand to express any serious unease about one of the most awful regimes on the planet.

There was a column by Todd McClay, National’s foreign affairs spokesman, who nailed his colours firmly to the mast last year talking of the Xinjiang “vocational training camps” (a million or more people in concentration and indoctrination camps) being no business of anyone’s but the PRC.   This time

Where we have differences, like the death penalty or South China Sea, we have learnt to raise them respectfully and diplomatically, directly between officials, leaders and ministers, and not via the media.   This is a respect that must be maintained.

Mr McClay and his party can choose to respect the butchers of Beijing if they choose, but don’t come asking for my vote while they do.  To him/them, it is all about deals and donations, and nothing else.  If he’d been the trade spokesman in December 1938 perhaps he’d have stressed how important it was to be respectful of Adolf Hitler and his henchmen and not let some local disturbance like Kristallnacht colour any sort of relationship.  It is sickening, and there is no evidence that the current Prime Minister is any different.   I thought this New Zealander studying matters Chinese at ANU put it well

(As it happens, I don’t think the PM should have been speaking out in Beijing,  She simply shouldn’t have been there, like some supplicant indifferent to the evil prepetrated daily by her hosts.)

And then there was the egregious but revealing column by a senior lawyer who is also involved in the China Council, repeating the myth that somehow the PRC is “critically important to our economic security” and offering a lecture concerned that New Zealand is “driving away” PRC investment in New Zealand –  and all that advisory work I suppose.

In business, we typically seek to avoid getting offside with a major customer.  If we have differences we tend to try to deal with those with great care with a view to preserving the business relationship beyond the immediate issue. Politicians may well disagree with me but I’d argue that fundamentally the approach should not be much different when we have a divergence of views or concerns with a major trading partner.

I guess if Ms Quinn wants to deal with thugs we probably shouldn’t prevent her from doing so.  But if you sup with the devil, or provide advisory services for the Mafia or its affiliates, don’t expect to be looked on favourably.  It is private firms that deal with Chinese companies, the New Zealand government – supposedly representing all New Zealanders, not just a few business interests – does not having a “trading partner”.  It is a government, not a business.  Private firms –  and the individuals involved –  must make their own calls about morality, but from reading article after article like this, it is almost as if they’ve chosen not to care.  Care or not, they make themselves complicit in what the regime does.   Private businesses, pursuing personal economic interests, shouldn’t be allowed to skew our foreign policy to their private ends.

It is all relentless.  Earlier today someone emailed me wondering how long it would be before the Herald was emulating papers like the Washington Post in publishing paid PRC propaganda inserts.   In the Herald’s case, why would the PRC waste money when they can get the one-sided propaganda for free?

[UPDATE: A reader points to People’s Daily material that the Herald is already running.]

But I guess it was a good day for the China Council, MFAT, and the Beehive –  unless, that is, readers actually stopped to think about the pap they are expected to swallow.

The Herald also made room today for a column from Labour MP, and chair of the Justice committee, in which he presents what can only be called a “creative reimagining” of the way in which he had led his Labour colleagues to block Anne-Marie Brady from appearing to discuss foreign interference, was backed in that stance by the Prime Minister’s office, until the blowback was just too great and he had to backdown and agree to open the inquiry to public submissions.  Amid the creativity, it was encouraging to read –  very belatedly – that Huo will recuse himself from involvement in the foreign interference bit of the inquiry (or does he just mean the Brady bits?) “to avoid any perceived conflict of interest”.

 

 

House prices

House prices keep going up.    In the decade to December 2007 (roughly peak to peak), real house prices in New Zealand rose by about 71 per cent.  In the (just over a) decade since December 2007, they’ve risen by another 34 per cent, bringing the total increase in real house prices in little over two decades to 130 per cent.   Not that it really should be a relevant comparison, but productivity growth (real GDP per hour worked) totalled about 22 per cent over the same period.

In parts of the country, notably Auckland, the housing market has levelled off over the last couple of years.  But on the most recent QV numbers, real house prices across the nation as a whole have risen again in the last year.

There is no good or necessary reason why, on a well-constructed like-for-like index, real house prices should show any particular trend over time.  Of course, as people get wealthier and technology improves people might reasonable demand bigger and/or better-specified houses, and they might be more expensive –  in real terms –  than a typical house from decades earlier.  But what we’ve seen is substantial increases in the real prices of constant-quality houses.   That is mostly down to the active and passive choices of successive people at the top of central and local government.  In a country with abundant land, create artificial scarcity around residential land and (real) prices will rise, a lot (especially if the regulatory scarcity is exacerbated by rapid policy-driven population growth).

In opposition prior to 2008, National sometimes talked a good talk about fixing the situation. In opposition prior to 2017, Labour sometimes talked a good talk about fixing the situation.  A Green Party leader, now long departed, even got herself in trouble by talking about the desirability of big drops in house prices, and the possibility of aligning policy to produce house price to income ratios of perhaps 3 to 4 (in many fast-growing US cities those ratios are under 3.5).   She only said it once.  I’ve been sceptical that her Green colleagues would ever allow the sort of freedom and flexibility that sort of outcome might take,  even if (which seems unclear) they might be sympathetic to the end.

It has been hard to know what to make of the current government as a whole.  Neither Andrew Little nor Jacinda Ardern as Labour leaders has ever openly embraced land use reform.  Instead, we had all sort of policies to distract, or paper over cracks –  foreign buyer bans, ringfencing, bright line tests, KiwiBuild, talk of capital gains taxes etc.    But never getting to the heart of the issue, and never willing to openly embrace a goal of materially lower house prices.

But there was always Phil Twyford.  Sure, he was responsible for KiwiBuild, which was never going to solve any real problem, but he showed signs of understanding the real regulatory issues. In Opposition, and on this specific issue, he’d stood shoulder to shoulder, sharing an op-ed, with the libertarians at the New Zealand Initiative.   And now that he was Minister, he even had access to one or two very good officials.

But the government’s term is now more than half over, and not much action had been seen.  Not even many words really, although there had been this in the Speech from the Throne

This government will remove the Auckland urban growth boundary and free up density controls.

But a couple of weeks ago Twyford was invited to address the New Zealand Initiative members’ retreat, where he gave a meaty speech on fixing the housing market.

The Initiative responded enthusiastically (here is Oliver Hartwich’s brief summary), and I have seen the speech described as “the most coherent and comprehensive political statement on housing we have seen in our lifetimes”.  And, mostly, it does read well –  better than anything we heard from National ministers in government, or from National’s current housing spokesperson.

The bit I liked the most was this

Our aim is to bring down urban land prices by flooding the market with development opportunities.

That doesn’t sound like a minister with a vision of (say) flat nominal house prices, taking 30 or 50 years to get price to income ratios back to where they used to be, and where they should be.  It sounds like someone who is serious.

And yet, I remain sceptical.  Perhaps Phil Twyford’s heart is really in this.

But is the Prime Minister’s?  Even though housing was a significant campaign issue, even though she has been in office for 18 months now, we’ve never heard her putting her authority behind fixing the housing disaster at source, let alone substantially lowering house prices.

And is the Green Party on board?  Quintessentially the party of well-paid inner-city urban liberals, are they really on board with bigger (physical footprint) cities, or with encouraging intense competition among landowners for their land to be developed next.  Some of them seem to believe that it would somehow be morally virtuous –  and “solve” the affordability issues –  if people lived instead in today’s equivalent of shoeboxes.

Of course, this could be one of those issues in which National and Labour got together and pushed through major legislative change.  It could have been so under the previous government, but wasn’t.  Why is a solution like that more likely now?

And sometimes talk of lowering land prices is really just cosmetic.  If you establish a vehicle whereby property owners will have to pay development costs in an annual rate over, say, 30 years, that will –  all else equal –  lower new section prices, but won’t change one iota the cost of housing.  To do that, you have to be committed to removing, or substantially reducing, the artificial scarcity that policymakers themselves created.

And then there is local government, the most immediate source of the problem.  Local governments actually impose the zoning rules.  Local governments set their own (arbitrary) debt ceilings –  and some NZIER work a few years ago highlighted how relatively low those ceilings typically are –  and make their own choices about using (not using, mostly) differential rating schedules, which could help ensure costs of new development are appropriately allocated.  Local governments –  while often talking of ‘debt constraints’ – choose to spend money on vanity projects, or ideological agendas, like (in the Wellington case) cycleways, runway extensions, convention centres, or old Town Halls.   And councils, and councillors, are all too-often champions of the know-it-all shoebox approach (we know what cities should look like, and we want people in high rise apartment blocks on this particular street, and the like).  Also, for all the talk about accommodating growth, actually all any region of New Zealand has managed in recent decades is lots of population growth: large scale new private industries and associated productivity growth (the sort of thing that might really capture the imagination, including of voters) has been scarce to non-existent.

There is quite a bit to like in the speech (as well as some questionable stuff –  including the laughable notion of looking to Australia for a lead on housing, or the wrongheaded notion that somehow too much resource has gone into residential property and not into the “productive economy”).  But for all the fine words, how optimistic should we be?

I’d say not very.  There are those domestic political factors I outlined above; for example, in a multi-party government with little that unites the parties, the only major reforms that get done will be those the Prime Minister fully embraces and champions, and our Prime Minister has shown no sign of embracing this sort of reform (or the implied fall in house prices).

There is the lack of international precedent.  For several years, I’ve been posing the quite genuine question as to whether anyone can point to an example of a country or region that had once messed up its housing and land use law this badly and then fixed the problem at source.  There are places that never got into the mess (including many parts of the US) and Japan is also a tantalising story, but they aren’t answers to my question about fixing a mess once created (and once an increasing share of the population becomes fearful of the personal economic risks of house prices falling –  more and more of them every year).   Perhaps New Zealand really could be first –  single chamber Parliament and all that means far-reaching reform (for good and ill) can be done here.  But aren’t you then back to the point in the previous paragraph: is there really the drive from the top (not just Ardern, but Robertson, Davis, Peters, Shaw) that is going to push through legislation and face down councils (and, in many cases, residents/voters)?

My scepticism doesn’t count for anything much on its own.  But market prices should.  When, for example, there was beginning to be a serious prospect of US company tax cuts a year to two back, you saw the effects straightaway in share prices. That is how markets typically work, looking forward and pricing the prospect (and probability) of change.   The Minister of Housing might be entirely serious, but in this specific sense there is no sign that his words are treated as a credible indication that significant change is actually coming. Were it otherwise, we’d already see urban (and peripheral) land prices falling, a lot.   Sure, some inner-city sites offering better intensification options might hold up, or even rise, in value, but across regions as a whole the thrust of the mooted reform is about markedly easing artificial scarcity.  If it were to happen, as Twyford talks of, median land prices in and around our cities would already be falling quite considerably.    I’m not aware of any such trends (though I’d welcome comments that pointed us in the direction of evidence that it is happening).

Perhaps the market is just wrong and the government will in the end surprise us all.  But there is a certain wisdom of crowds and – even as we might welcome the rhetoric of one minister – it is wise to respect it.  Courageous leaders can up-end conventional wisdom and change reality.  I really hope it happens this time, for the good of the country and (more personally) for the good of my own kids.   But it will take more than a pretty good speech to persuade me it is the most likely outcome.