Group One Carcinogens, revisted

Cancer is scary, so the usual lot are again pumping the alcohol-cancer link.

The Cancer Society of New Zealand says Kiwis are only now sobering up to the link between alcohol and cancer, just as we did more than 30 years ago with smoking and lung cancer.

Strong links between drinking more than two or three units a day have been established to deadly digestive tract cancers including mouth, throat, larynx and oesophageal cancers.

There are also strong links between alcohol and bowel, breast and prostate cancers.

The warning comes on as some Kiwis sign up for Dry July, a month without drinking alcohol. Those taking part are encouraged to sign up sponsors in support of cancer services.

 ...

Dr Jan Pearson, of the Cancer Society, said it was time Kiwis started talking about the risks of excessive drinking.

"We are probably at the stage now that we were at 30 years ago with tobacco," she said.

...

Otago University public health professor Tony Blakely said alcohol "absolutely" contributed to cancer rates.

"Alcohol has more obvious impacts on injuries, deaths, social bedlam, unwanted pregnancies and suicides," he said.

...

Christchurch Professor Doug Sellman, of the National Addiction Centre, said that 25 per cent of alcohol-related deaths "are actually cancer deaths.

"The ethanol in alcohol is a group one carcinogen, like asbestos," he said.

First, they're right: alcohol is a known Group 1 carcinogen, along with diesel exhaust, ciclosporin, estrogen-based oral contraceptives and menopausal therapy, risky sex (Hep B & C, HPV, HIV), the sun, mineral oils, salted fish, wood dust, painting, boot & shoe manufacture and repair, plutonium, and rather a few other things.

Alcohol has a bundle of positive and negative health effects. At low doses, for most people, the positive dominates. That's why we get a J-curve with about a 16% reduction in the risk of all-source mortality around one standard drink per day. After about 3-4 standard drinks per day, you start  exceeding non-drinkers' mortality risk. Unless you have a strong family history of particular diseases that are positively or negatively affected by alcohol, it makes far more sense to watch the aggregate J curve than to follow the disease-by-disease effects.

Update: Here's Thomas Lumley over at StatChat:

The phrase “group one carcinogen” is only relevant in an argument over whether the risk is zero or non-zero. Its use in other contexts suggests that someone doesn’t know what it means, or perhaps hopes that you don’t.

Dave Guerin at Ed.co.nz summarises:

1. Dodgy Advocacy Otago Uni’s Profs Doug Sellman and Tony Blakely commented on alcohol and cancer, with Sellman saying that the “alcohol in ethanol is a group one carcinogen”. This is a great example of Sellman’s dodgy advocacy work. Canterbury’s Eric Crampton points out a few other group 1 carcinogens (the sun, salted fish, wood dust), while Auckland’s Prof Thomas Lumley points out that being in group 1 simply means that a cancer risk has been established, high or low. Lumley went on to say that using the group 1 term in most contexts “suggests that someone doesn’t know what it means, or perhaps hopes that you don’t”. Quite.

Previously:

• A few things Alcohol Action NZ won't tell you about alcohol
• Group One Carcinogens
• The J-Curve
• The J-Curve: Science vs Politics
• Moderate drinking and health
• Moderate drinking and health - more evidence
• NZ's Ministry of Health and the J-Curve
• Differential standards of evidence
• Nanny's drinking problem

Industry welcomes regulation

A first hint that your regulation regime helps create a cartel is a strong endorsement from the regulated industry. It's not always so - sometimes industries welcome things that are less bad than they'd otherwise expected. But still.

Auckland's requiring licences to run suntan beds.

Auckland will be the first city in the country to license sun beds and slap an age restriction on their use.

Auckland Council will require commercial sun-bed businesses to be licensed and comply with a new code of practice including restricting use to those 18 years and over.

The requirements are part of a new Health and Hygiene Bylaw passed by the super-city council's Governing Body today that will replace those of the seven former councils from July 1 next year.

But wait, there's more!

Also caught in tightened health laws will be any businesses that "risk breaking the skin" - such as hair removal, manicure/pedicure and exfoliation.

Licences will be required for commercial services that pierce the skin such as body piercing, tattooing and traditional tattooing.

Traditional and non-commercial ta moko undertaken by artists on, or under the authority of, a marae in the Auckland region would be exempt.

"Licensing gives us a method to monitor areas where we believe there is the highest risk to peoples' health through poor practices, while the code of practice gives the industry a good guideline of what is acceptable," Quax said.

I hope that all of this sticks to very general sanitary code kinds of rules rather than processes that add substantially to small businesses' fixed costs.

These kinds of occupational licensing rules have completely run amok in the US. Let's not import this particular kind of stupidity. We don't really need big barriers to entry for immigrants setting up pedicure shops.

Housing Tradeoffs

The RBNZ is looking more seriously at loan-to-value ratio regulations to curb house price appreciation.

I've been skeptical about LVR regulations. If adopted as a "thou shalt not loan more than x% of the house's value" commandment applying to all new loans, they would have substantial effects on first home buyers unable to lean on family for support. If Matt Nolan is right that the banks really still have some implicit guarantee despite the OBR mechanism, there could be public interest in such regulations; a serious recession coupled with housing bubble collapse would then have banks taking a large hit while auctioning defaulted properties. But, any "making houses more affordable" justification for the regulations seemed exceptionally weak as the policy seemed likely to induce a level shift followed by a return to the prior price path. In other words, we'd be back on the same path of housing price appreciation after a one-off drop in prices concentrated among those homes favoured by first home buyers.

Fortunately, the RBNZ is not as silly as all that. They write:

we favour speed limits over outright restrictions. We do not want to ban high LVR lending; we would prefer to restrict it as a share of banks’ total new lending. With a speed limit approach, we expect banks would need to build in their own internal buffers to give themselves a margin of error. Such buffers could reduce as banks become better at controlling their proportion of high LVR lending. Within the speed limit, each bank would make their own assessment of which customers received high LVR loans, based on their own criteria including other risk measures, such as debt servicing capacity, and the potential long-term value of those customers to the bank.

Implemented this way, much of the beautifully written snark I had prepared now has to be deleted.* The equity effects still hold, but in attenuated form. When property prices start ramping up along with LVRs, first home buyers without family backing will get hit even more strongly than they are currently, but so long as the LVR proportion is set sensibly, it won't bind most of the time.

Further, RBNZ recognises all the workarounds that are likely to emerge. Parents will take out a mortgage on their paid-off homes to lend to the kids as starter capital; there's nothing the bank can or should do about it. A secondary loan market will emerge, but borrowers there will incur higher interest rates than they would in the mortgage market, so the system still works to discourage high LVR loans at the margin.

I'm still having a hard time seeing how the policy has anything but transitional effects on home affordability though. I would expect the regulation to result in a one-off drop in the price of starter homes, followed by a move back to the prior expected path of price increases. Effects on homes farther up the food chain will be rather substantially attenuated as the LVR is still less likely to bind for those with reasonable existing home equity to apply to a new home purchase with the sale of the old one; ability to service the mortgage out of existing income ought to bind before the LVR does for anybody with enough equity. NBR notes that John Key wants first-home buyers exempted from the rule; I have a hard time seeing that it would be binding on anybody under that scenario unless lots of folks are buying investment properties with no equity. If lots of investment properties are being bought on very high LVR loans, then I move from mildly meh to somewhat in favour of the regulation change.

Now here's the RBNZ:

While the Reserve Bank’s mandate is to promote financial stability, not social equity, there are clear implications here for housing affordability. As house prices and debt levels trend increasingly upwards, so too housing becomes less affordable, particularly for first home buyers. While macro-prudential policy measures might make credit less accessible for a period, they should help to make house prices more affordable in the longer term. Such measures should also reduce the risk of a sharp housing downturn and the loss of equity that would result, particularly for highly indebted home owners.

I agree with Nolan that the RBNZ doesn't have a housing affordability mandate. The best reason I can see for RBNZ's running this is as part of its prudential supervisory role looking over the banks so that they're less likely to take on too much housing risk in the expectation of being able to lay it off on taxpayers in case of a substantial downturn.** I have a much harder time seeing this as part of inflation policy: CPI is based on rent, not property prices, rents seem to lag prices, and I doubt that the policy has much effect on housing prices except among the homes purchased by first-home buyers, and even there only tapering off peaks as LVR spikes.

And it seems odd to highlight affordability for first-home buyers when the policy is most likely to make it rather harder for them to finance their first homes.

* The Game of Thrones analogy might have been overwrought anyway; you'll now never get to judge.

** Again, though, I think that the OBR mechanism does a lot to prevent that state of the world from obtaining.

Tobacco factoids

The Ministry of Health has an RFP out looking for an evaluation of their overall tobacco control policies; they want to know whether they could be more effective in getting to a zero-tobacco New Zealand by 2025.

Whether NZ should be Smokefree in 2025 is out of scope, but as it's policy set by the Minister, it's not really MoH's job to commission somebody to suggest that the government's priority is wrong here. Or, at least that's how it should be. When the Government isn't sufficiently anti-alcohol or anti-tobacco, there seems to be plenty of money to fund NGOs to urge the government to change its policy.

Anyway, one tidbit in their RFP, HT: @CarrickGraham:

The financial cost to society of smoking has been estimated to be $1.685 billion per annum (approximately 1.1% of GDP).  Major components of this cost include loss of productivity associated with premature, smoking-related morbidity and mortality, and preventable healthcare costs. Interventions that reduce the prevalence of smoking are cost effective actions that can reduce poor health outcomes and the associated costs to the health system.

A few points:

First, the $1.685b figure comes from the O'Dea report. In descending order, here are the costs they reported:

1. $570m in reduced production from premature mortality, although smokers on average come from cohort with reduced average life expectancy and lower earnings even if they don't smoke AND smokers bear the cost of this through reduced earnings;
2. $470m in resources diverted for tobacco consumption: smokers' spending on cigarettes net of taxes and net of the $180m in benefits that O'Dea reckons smokers get from their $650m in non-excise spending on tobacco;
3. $350m in costs to the public health system (note that tobacco taxes are roughly three times this amount);
4. $280m in reduced production from morbidity (although smokers bear the cost of this through lower wages);
5. $15m from smoking-induced fires (some of which will fall on the fire department).

More than a quarter of total reported costs are smokers' expenditures on tobacco. It's the second largest component overall. It's be kinda hard to tell that from the MoH summary though. Why do they keep pulling stuff like this?

So the only and substantial real cost to the public purse here is health care expenditures, which are more than compensated by excise paid and by savings to the superannuation system. The O'Dea Report agrees, noting that smokers are a boon to the public purse:

Without trying to calculate a precise estimate of 'external costs' it does seem reasonably apparent that the tax contribution of approximately $1 billion annually by smokers exceeds substantially the external costs of smoking which fall on non-smokers. If savings on pension costs from premature mortality of smokers were added as well the net fiscal contribution of smokers, to the fiscal gain of non-smokers, would be further increased.

I do hope that whoever winds up running the evaluation gives some thought to the cost-effectiveness of e-cigarettes in promotion of SmokeFree 2025. I wonder how John Key will pay for all the roads and stadiums without the net $650m/year or so that smokers contribute.

Unintended but predictable

Two years ago, the government proposed banning the import of used cars failing to meet the Japan 05 standard. This effectively banned the import of a large chunk of Japanese cars that, while old, were newer than the New Zealand fleet median age.

I expected that this would wind up encouraging those with older cars to hold onto them for rather longer, as relatively newer substitutes would become more expensive. Whether this wound up increasing or decreasing the average fleet age depended on how many held onto those older cars relative to the number who moved to buying rather more expensive newer cars instead of the 1998-2005 Japanese imports that had been pretty popular; that in turn would depend on the price effects. The regulation looked like it would wind up being pretty binding, at least for the first few years.

The New Zealand Herald now reports:

New Zealand car owners' reluctance to dump their old bangers is contributing to a growing national car fleet and making the roads less safe, the Motor Trade Association says.
...
Association spokesman Ian Stronach said it was the result of the large number of 1995 - 1997 registered used import cars which flooded into the country during the early 2000s. "Most of these cars are still being used and skew the age profile of our car fleet. Today, the average age of New Zealand's car fleet is 13.8 years; that is old by world standards and probably beyond the original design parameters of some models."

The average fleet age in 2010 was 12.88 years. So, since the regulation change, the average fleet age has worsened by a year. It would take more work to show that the change is due to the regulation, but we can say that the change is consistent with my prior "unintended consequences" hypothesis.

More Glaeser

Eric posted yesterday on Ed Glaeser's upcoming Condliffe Lecture at the University of Canterbury. Some of you have if the talk will be videoed, given that you are not based on Christchurch. Absent any technical hitches, the talk will be posted on YouTube as part of the University's What If series of public lectures, a week or so after the talk.

But if you are based on Wellington, you can go one better. Why not register now for the annual conference of the New Zealand Assocation of Economists, which is taking place at the Amora Hotel in Wellington next week--Wednesday July 3 - Friday July 5. Ed is giving a keynote address at 4:00 on Wednesday. Other keynote speakers are Maurice Obstfeld of Berkeley, John Riley of UCLA, Mardi Dungey of U. Tasmania, and John Quiggin of U. Queensland (best known in the blogsphere as one of the authors at Crooked Timber).

Quite apart from the keynote addresses, the conference will also feature TVHE's Matt Nolan, who is presenting a paper and also participating in a panel discussion on the Open Banking Resolution, along with  Ian Woolford from the Reserve Bank and Bank critic, David Tripe; and I will be presenting my work on Do Catches win Matches. Groping to Bethlehem's and Association Vice President, Bill Kaye-Blake, is not giving a paper this year, but he will be at the conference.

The full conference web site including the link to registration and the programme is here. I hope to see as many of you there as possible.

GCSB Redux

I really wish that the Law Society's submission on the GCSB bill had been available prior to the submissions deadline. I suspect that I'm not the only one who failed to submit on the Bill because the precise changes from the status quo ex ante, and whether the changes were from the de facto or the de jure status quo, were, to a non-lawyer, sufficiently impenetrable to require several days' effort to decipher.

The Law Society instead makes it all nicely explicit for us. We are transforming a foreign intelligence agency into a domestic intelligence agency with minimal effective supervision. That's what it had looked like, but I sure wasn't qualified to say so. And so I didn't submit.

The Law Society notes that the Telecommunications Interception Capability and Security Bill violates basic rights to natural justice at common law because too low a threshold is established for the Courts to be able to prevent defendants from hearing evidence against them.

Their statement on the GCSB Bill is blunter than I'd expected. A few excerpts:

The Bill is intrusive. It would empower the GCSB to spy on New Zealand citizens and residents, and to provide intelligence to other government agencies in respect of those persons. It is inconsistent with the rights to freedom of expression and freedom from unreasonable search or seizure under NZBORA and with privacy interests recognised by New Zealand law.
...

Given the intrusive nature of the reforms and the fact that they prima facie conflict with established rights, they should be demonstrably justifiable, and be accompanied by appropriate safeguards. The Law Society has sought to undertake a proportionality analysis of the legislation to ascertain whether the intrusion on rights protected by NZBORA as a result of these measures is justified, and whether there are sufficient checks and balances on the powers the Bill proposes.

It is difficult to identify the pressing and substantial concerns that the Bill purports to remedy or address. It is not possible to identify any tangible or meaningful concerns from the Explanatory Note to the Bill and the accompanying ministerial press release, beyond an allusion to helping the GCSB “get on with the job of helping New Zealand public and private sector entities deal with the growing threat of cyber-attack”

David Farrar suggests that, if the GCSB legislation fails, we'll just have the Police enhancing their wiretapping capabilities when it has a warrant to engage in such things. But the Law Society notes:

Furthermore, it would appear that if the GCSB is called upon to assist another specified agency (such as the Police) by performing activities instead of that other agency, the activities performed by the GCSB in that capacity will receive the imprimatur and secrecy and immunity protections of the GCSB Act, when the same activities engaged in by the specified other agency itself would not do so in terms of the other agency’s empowering legislation. In that way, enlistment of GCSB “co-operation” may confer on the activities undertaken a protected legal status which they would not otherwise receive. Indeed, the very fact of GCSB involvement may mean that the activity in question is never disclosed to those affected. This outcome is unacceptable and inconsistent with the rule of law.

I far prefer the Police doing this kind of job under warrant. I like warrants. Again, here's the Law Society:

Indeed, the section 16 power to intercept without warrant or authorisation can no longer be
justified, given the greatly expanded scope of this warrantless power (having regard to the expansive definition of “information infrastructure” and the expanded scope of operations beyond “foreign intelligence”, canvassed above so that domestic as well as foreign intelligence is to be targeted by the GCSB). This power must now be considered as overly invasive of NZBORA rights, and/or as a disproportionate conferral of power, given the available alternatives (including the range of powers of interception already possessed by the New Zealand Security Intelligence Service and others).

Had this analysis been publicly available earlier on, and it likely would have been but for the Government's incomprehensible desire to push this through under urgency and thereby prevent public debate, I would have submitted in opposition to the Bill. I wouldn't have done it with my economist hat on, because I can't quantify any of this. It would be my Mont Pelerin Civil Rights Libertarian hat instead, though informed by the economist side.

I would have taken the Law Society's analysis as baseline, then noted that New Zealand's main apparent economic comparative advantage is in having a robust policy environment that weighs heavily the civil rights of its citizens and residents. That we're a bastion of sanity where policy doesn't over-react to perceived security threats. That we're the place that very sensibly adopted the only realistically effective airport security precaution subsequent to an attempted hijacking by a deranged woman: harden the cockpit doors against entry. We haven't gone for American airport security theatre. We haven't started having roadside checkpoints where people are commanded to present their papers and prove that they're not in the country illegally. And that this comparative advantage matters all the more as America and the UK get worse: the Outside of the Asylum is more attractive when the Inside of the Asylum gets that much nuttier.

Imagine an alternative world where, as America started seeing just what the NSA has been doing to them, we were instead implementing the kind of digital rights amendment suggested by Fab Rojas for the States:

The right of the people to be secure in their transactions made through electronic media and other forms of communication,  and in the data generated by such transactions, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. The people will retain the right to review such warrants and challenge them in the courts.

The US and OECD have been cracking down on so-called tax-havens; would that New Zealand could be excoriated by the Surveillance States as a rights-haven: a little dark blot on their surveillance maps where you have to get a real warrant from a real judge to be able to wiretap people, and to prove that there's a damned good reason for it. And be a place of refuge for those few who care enough about those kinds of freedoms to vote with their feet.

I wonder what the tech scene here could look like, in a decade's time, if some of the folks in Silicon Valley who do care about these things saw New Zealand as safe haven.

Peter Cresswell points to what we need to do to start protecting ourselves, if we're to be inside the asylum.

Will The Intelligent Women Of The World, Please Stand Up

This past weekend, I met a couple of girlfriends in the city. New York City was being overly generous with its weather; it was indeed a beautiful day that weekend - perfect day to catch up with friends. We were all in our twenties; that period of time when everyone is uncertain about their future. Inevitably, that was the topic of the conversation. When it was my turn to share, I told them that I'm going to grad school next year (fingers crossed). Before I even finished talking, one girlfriend immediately cut me and said "Don't get too much education. It'll be harder for you to find a guy."

Excuse me?

I wasn't sure if she was joking or not, so I pretended I didn't hear what she said and asked her to repeat her 'advice'. She gladly repeated, "Don't study too much. Guys don't like girls who are too smart. They have pride, you know."

 

I'm not trying to be funny here, but if there's a technology that can project my thoughts at that time, you'd see explosions, huge explosions (and a penguin shaking her head - assuming it's a female penguin).

Jokes aside, she was not kidding. I was so shocked by her answer, I had to ask myself: this is 2013, isn't it? I'm not somehow transported back to the 60's, right? I mean, what. the. hell.

I've never considered myself as a hardcore feminist. I was just brought up in a family who taught me that men and women are equal; but most importantly, every man has their own flaws. Thus, when it's time for relationship, they will be partners in life. It's a partnership because no one is perfect. A partnership complements each other's strengths and weaknesses. Thinking about it now, I am extremely grateful to be brought up that way.

Honestly, that was not my first time hearing about smart girls being unattractive. Take this meme for example:

What did you see? I saw two beautiful women in really gorgeous dresses, laughing and acting silly together maybe because they were best friend. But then there's that infamous statement. Why are we pressuring ourselves to be less intelligent than what we are just to find the 'right' man? Why do we have to suppress our potential to become an amazing person who might as well change the world just because we fear that no man will want us? But most importantly, why do many women out there agree with this statement? (This meme had been shared thousands times on Facebook)

I found this very, very depressing; knowing that many women still had this kind of mindset despite the progress that we had made as a society to support women's rights and equality in the past decades. Are we going backward? Let's hope not.

Earlier last week, I started reading Sheryl Sandberg's Lean In (I'm not done reading yet, so no spoiler!). In her book she repetitively mentioned about women's fear. Fear of being too smart, too bossy, too emotional, and many others. I'm not at all an expert in this, but I think, out of all the fears that a woman has, her biggest fear is not being loved. (This is purely my opinion based on a lifetime observation - so don't shoot me if you disagree!)

Finally, I just wanted to say that writing this post had been an emotional roller-coaster ride. I felt offended, angry, depressed, sad, hopeless, sympathetic among many other feelings that I couldn't describe. I was also reminded of a question that my dad always asked me, every single time when we Skype (without fail):

Do you love yourself?

It's a simple question, really, but it's a powerful one. I finally get it now why my dad always ask me this question - I used to get annoyed when he asked me this question, I mean, how many times do you want me to say yes!! But perhaps he was trying to tell me that one should love oneself first; thus, she will appreciate her gifts and potentials and eventually find another who appreciate them as much as she does.

Is this right, dad? I'll ask him the next time we Skype!

Cheers!

Scientist exchange rates

Tyler Cowen pointed to a site highlighting all the currency notes featuring the pictures of scientists and mathematicians.

I was interested in the implied scientist exchange rates. If an Euler is worth 10 Swiss Francs and a Rutherford is worth 100 New Zealand Dollars, and a Swiss Franc is $1.38 NZ, is a Rutherford really worth 7.23 Eulers? I hardly think so. Rutherford was great, but if we're having some fantasy league of most-important-scientists-and-mathematicians, I'd trade a half-dozen Rutherfords to get a single Euler. Euler is then here underpriced.

Fun Twitter comments on same, though note that I had the exchange rate wrong on Twitter first time round.

@EricCrampton I'm more sad that the Schrodinger note isn't both legal and illegal tender.
— Daniel McAuliffe (@DanielTJMcA) June 24, 2013

I also liked this one:

@DanielTJMcA @EricCrampton Einstein's appropriate, though-if my (limited) knowledge of econ is right, its value is relative to velocity
— Nate Gunby (@NRGunby) June 24, 2013

Definition of high-powered money: it's what happens as the velocity of the Einstein note approaches c!

Data?

I'm curious where Jennie Connor's gotten her numbers for this one:

University of Otago Preventive and Social Medicine head Prof Jennie Connor, who is the chairwoman of a university group set up to tackle problem drinking, said students were drinking more heavily than they did 10 years ago.

''In the last 10 years, there has been an increase in how much they drink and the frequency of heavy episodes of drinking.''

''A larger proportion of all students drink and drink heavily. Not just at Otago but at all universities, and probably in the general population of young people,'' she said.

The main driver of the change in drinking culture was the introduction of wine and beer sales in supermarkets and the lowering of the purchase age from 20 to 18.

''A whole new drinking culture has grown up around heavy drinking outside of a pub environment,'' he said.

She was not quite so enthusiastic about getting more students to drink in pubs, but accepted there were more ''social aspects'' that came with that.

''There is no evidence that drinking in pubs is safer, and most assaults that happen outside the home happen near pubs - the violence is usually outside rather than inside, when intoxicated people who don't know each other mix together. 'Supervision' by pub staff is usually minimal at best,'' she said. [emphasis added above]

I have no data on drinking by students at Otago, and it's very likely that Jennie would have that kind of data if it existed. But she's asserting that a larger proportion of students, and likely of young people in general, are drinking and are drinking heavily. And I do know the data on that one.

The MoH survey released a couple of months ago showed strong decreases in youth drinking. The survey said:

"The largest drop in past-year drinking was among youth aged 15-17, whose rate fell from 75% in 2006/07 to 59% in 2011/12."

Hazardous drinking dropped among youths who do drink. As fewer kids drink at all, the proportion of kids in total reporting hazardous drinking is well down. The trend from 1996/1997 through 2006/2007 was pretty flat, then dropped substantially through 2011/2012.

And Jennie knows about that survey. She was quoted on it when it came out. She said:

"I was quite alarmed by the results. In particular, in the age 18 to 24, one in four women are drinking in a hazardous fashion. And for the men, it's even higher - it's over 40 percent. So I think we should be very concerned about that."

She there didn't talk about the time trend, but the time trend was the big story in that survey. Here are the Selected Key Findings; I've bolded the relevant time-series youth-related ones.

Selected key findings

• In 2011/12, most adults had consumed alcohol in the past 12 months (80%). This is fewer than in 2006/07 (84%). Decreases in past-year drinking were generally seen across all age groups, but particularly among 15–17 year olds.
• Among people who had consumed alcohol in the past 12 months (‘past-year drinkers’), one in five (19%) had hazardous drinking patterns. This is about 532,000 people.
• Since 2006/07, the level of hazardous drinking among past-year drinkers has significantly decreased for men (from 30% to 26%), but not among women (13% to 12%).
• People aged 18–24 years (particularly men) are at higher risk of hazardous drinking. Among past-year drinkers, about 44% of men and 26% of women aged 18–24 years have hazardous drinking patterns. However, the rate of hazardous drinking has decreased significantly in past-year drinkers aged 18–24 years from 2006/07 (49%) to 2011/12 (36%).
• Māori have similar rates of past-year drinking as the total population, but have higher rates of hazardous drinking. Rates of hazardous drinking among Māori adults have decreased since 2006/07, (from 33% in 2006/07 to 29% in 2011/12).
• While Pacific adults are less likely to drink alcohol, those who do are more likely to have hazardous drinking patterns (35%) than adults overall (19%).
• People living in more deprived areas are less likely to have consumed alcohol in the past 12 months, but are more likely to have hazardous drinking patterns (18%), than people living in less deprived areas (11%).  

Perhaps Connor has a new survey that I've not heard about.

As for any links to the alcohol purchase age...

Glaeser Glaeser Glaeser Glaeser Glaeser GLAESER Glaeser!

Mark your calendars: Ed Glaeser delivers the Economics Department's Condliffe Memorial Lecture on Wednesday, 10 July.

Ed Glaeser is the world's best urban economist (says me). His book, The Triumph of the City, is the culmination of decades of serious work on urban issues. Do register for his talk and attend.

Event Details

Presenter: Professor Edward Glaeser, Harvard University

• What if humanity stopped urbanising?
• What is the role of cities in promoting economic growth?
• What are the lessons for the Christchurch rebuild from cities around the world?

Cities are often seen as the source of social problems such as poverty and crime, while we retain romantic notions of idyllic rural life. The truth is very different. In this lecture, Professor Edward Glaeser, the world’s leading expert in the economics of cities, will discuss why cities are crucial to economic development, why proximity has become ever more valuable as the cost of connecting across long distances has fallen and why, contrary to popular myths, dense urban areas are the true friends of the environment, not suburbia.

I'm really rather looking forward to this. Glaeser is one of the Elder Gods in the Pantheon of the EconGods.

Previously:

• A review of The Triumph of the City
• Agglomeration: Saviour of New York, Bane of New Zealand
• Agglomeration revisited
• Skyscrapers, building codes, density, and making cities work
• Glaeser on the advantages of going to University
• Our department's fine Condliffe lectures: Hausman, Grossman, Blaug, Slemrod, Varian, Plott, Weitzman, Cochrane, Glaeser.

The Christchurch Problem

Want a single picture illustrating the problem with Christchurch's rental market? Thanks to a hard-working boffin at MBIE, here's a nice one. 

I'd wondered whether the reported drop in the number of affordable rentals reported by MBIE was simply due to reduced availability across the board or whether it reflected a rightwards-shift in all rents. And so I asked for the graph below.*
Those renting a property in New Zealand lodge a bond with the Tenancy Tribunal. The graph comes from their data, via MBIE. We see a massive drop in the number of new tenancies at lower weekly rentals and about as many higher-rent tenancies as there were pre-quake.

The graph above shows the absolute drop in lower-rent tenancies. We can also graph things cumulatively to show the change in the proportion of total rents at each rental band.* The rightward shift in bonds paid is rather pronounced. But without data linking addresses to bonds paid, it's pretty hard to distinguish between a few potential stories. The graph cannot tell us whether we simply had destruction of low-end properties and no change in the rest of the market or across-the-board destruction and then shifts in the price of lower-end properties such that the number of tenancies in the $400-500 per week range remained roughly constant. It seems almost certain that both were going on, but we can't really say much without address-bond-linked data.

Also, the bond data only captures new bonds lodged. Some of the decline in new bonds posted could be due to tenants being reluctant to shift where rental availability is thin. Some of the drop in bonds could also reflect a shift of rental properties into the short-term holiday home market. On the other hand, many long-term tenants may have been displaced where either the house needs to be repaired or where the owner wishes to live in the house while the owner's home undergoes repair work. Either way, the new-bonds-posted data gives a reasonable reflection of the going price of current rentals in Christchurch. Or, rentals as of 2012.

In 2010, there were 18,094 bonds posted. In 2012, 14,695. That's a 19% drop despite rather a few homeowners needing to rent a property.

Thanks to MBIE for providing useful data and discussion!


* Some browsers have problems with the embedded Google Docs graphs. SciBlog's WordPress implementation also usually gets cranky about it. So here are static image versions for those needing them.

More scientists?

I like science. But I'm not convinced that pouring money into producing more scientists is the most effective way of generating the great things that come from science.

Economists typically recommend "keyhole" interventions. If there's some market failure, intervene at the most direct level to fix it. It's plausible that basic scientific discoveries - the kind that aren't really patentable but that can yield all kinds of later commercial applications - are underprovided relative to some ideal. There are then a few policy options:

• Award prizes for those making worthy discoveries.
• But, if the basic research is expensive and if research teams have a hard time getting investor funding for prize-seeking, then this may still underprovide discoveries. Prizes are great when you know what achievement you'd like to fund but you don't know who's best-placed to provide it.
• Award grants to research teams likely to provide discoveries.
• This requires the granting agency to be able to pick winning teams and, in small countries, can yield nasty procedural tradeoffs between nepotism (the awards committee gives money just to their friends or to people doing politically favourable work) and administratively expensive application methods. 
• Be really generous with baseline University funding, then revise slowly over time to focus funding towards institutions that produce a lot of discoveries so that Universities sharpen incentives.
• We've moved toward this in New Zealand with PBRF, but the whole process is ridiculously administratively burdensome, the amount of money at stake is pretty small relative to overall University budgets, and because new and important discoveries are pretty rare, the whole thing seems to reward number of journal articles. If one University produced two field medalists, that would get it a couple of PBRF As, but plenty of other places will get plenty of As without field medals. There's basically a big upperbound truncation problem where truly stellar work - the kind that should wind up getting the really big prizes - is under-rewarded. 
• Encourage lots of kids to take science degrees. Encourage the Universities to expand their science offerings by paying them extra for kids taking science courses and for degree completion in the sciences as compared to arts or commerce. 
• Increasing the supply of scientists could reduce the cost of scientists and thereby increase the supply of discoveries from those places that hire scientists. In a small country, you cannot really have much of an effect on equilibrium wages in science as you'll just induce post-degree out-migration. And to the extent that science grads get hired in applied shops that, while great, largely internalise the benefits of what they're doing, you've not done as much to get the new discoveries.

I expect that optimal policy would involve some combination of the first three mechanisms. Prizes in combination with baseline university research funding would solve some of the problems we'd otherwise have in providing extra rewards for truly top-notch stuff. And grants can help if there are particular things you want done and you think you know who can do it. If those together work to build demand for scientists, then that can automatically start pulling more kids into science when they see rising salaries and better job prospects.

What do we get when we push a lot of kids through general science degrees instead? Andrew Norton at The Gratten Institute has a few numbers for Australia.

The annual Graduate Destination Survey (GDS) of people with recently completed bachelor degrees consistently finds that people with science qualifications have above-average difficulty finding work. The only exception is for people with degrees in the geological sciences.

Three years on from the GDS, the Beyond Graduation Survey shows that the job outlook of science graduates improves with time. After a slow start their employment rate is only slightly below average.

But this is not evidence of strong demand for specific scientific knowledge. Only 57% of science graduates say their qualification is important or a formal requirement for their job. It is the second lowest match between qualification and discipline.

Norton concludes:

Nobody doubts that science and maths skills are important to Australia’s future. In some specialised areas, employers might struggle to find suitable graduates. But no enrolment or employment data suggests that we are headed for general shortages of science and maths graduates.

The science applications boom may turn out to be a higher education bubble waiting to burst. If it does, thousands of intelligent and capable young people may be left with qualifications that hamper their ability to find meaningful and rewarding work.

Note here that the point isn't that "being employed in a directly relevant profession" is an important measure of a degree's fitness - in that case, dentistry would be the best degree ever. Rather, it speaks to whether there's any great shortage. Were there a generalised shortage of scientists, we would expect most graduating scientists to be snapped up by employers desperate for scientists. Instead, if we look at the underlying data, we see that only 63% of those graduating with life sciences degree and 65% of those graduating with a degree in the physical sciences say that their qualification is either a formal requirement or "important" for their job. 24% of those with a life sciences degree and 19% of those graduating in the physical sciences say their degree is not important for their job; the rest say "somewhat important."

I wonder what the NZ numbers would look like.

The running joke on Big Bang Theory is that scientists make little unless they manage to luck into a good job with Pharma. Bernadette waited tables while doing her PhD. Two young physics faculty members share an apartment; their neighbour, a waitress, hasn't got a roommate and consequently has more substantial money problems. Another physicist only has any money because his father sends him remittances from India. A university engineering technician doing NASA-level work lives with his Mom. Closer to real life, Noah Smith explained grad school in the bench sciences.

Want more of the good stuff that comes from basic science? Find better ways of funding basic science.

Adding up the costs

I've wondered what would happen if somebody added up all the various social cost figures, so I'm glad to see Bernard Keane on the case over at Crikey. Here's the grim tally.

By Crikey’s count, various health and social issues are claimed to cost us over $260 billion, in a $1.5 trillion economy. And this is only a selection. A recent Guardian article suggested there was a massive economic cost caused by masculinity – imagine the cost to society of all the problems men cause? Not that women get away scot-free -- being young and female is also a problem as far as the public health lobby goes, given girls just want to have fun.

Still, in a contested policy and funding market place, you have to sell your issue, no matter how objectively important it really is, as effectively as possible.

Note that somebody reckoned the dodgy $15b figure wasn't big enough and so turned it into $36b.

I will quibble with Keane on one point though. He writes:

It’s more difficult if you’re an NGO charged with lobbying for non-economic outcomes, or a public health outfit that wants more money or regulation for a particular problem. You can’t point to lost jobs as a direct consequence of policy. Many health problems, for example, cost governments a lot of money to treat. But that money actuallyemploys people -- doctors and nurses and other health professionals.

That’s where “social costs” come in: the costs borne by everyone else of individual decisions. And, in particular, lost productivity. That’s the new black for, particularly, the health lobby: show that your particular issue causes massive lost productivity that is a substantial cost to the economy. That’s the way to the hearts of hard-nosed decision-makers: show them the economic benefits of dealing with a particular issue.

If you can throw in other social costs, like the cost of the criminal justice system, even better. And with health problens there also the cost of "lost wellbeing", which is measurable but not an economic cost unless it affects productivity or consumption.

The bulk of the costs measured in the cost of alcohol studies fall on the drinker himself; it's only by assuming that drinkers get no enjoyment from consumption that these outfits are able to count private costs as social.

Update: Detmackey, in comments, points to one that we'd all missed. The 'economic impact' of incontinence is apparently $42.9 billion.

Green Money

There is a time and place for non-traditional monetary policy mechanisms.

In a world in which deflationary pressures are strong and the Reserve Bank has hit the zero-bound on interest rates, then standard monetarist macroeconomics and the new monetarists would recommend doing other things increase inflationary expectations. Standard theory tends to expect problems in worlds combining nominal wage rigidity and deflation. And if the Reserve Bank can't accommodate with nominal interest rate cuts, then things like quantitative easing - or money-printing - start being recommended. If you're keen on the debates around this kind of macroeconomics, start reading Scott Sumner, Stephen Williamson, Nick Rowe, and the macroblogs. Nolan at TVHE more frequently covers this too; I generally try to stay out of macro.

So "printing money", per se, isn't utterly insane. It can be a pretty mainstream response to a very particular and fairly rare set of circumstances. Not all macroeconomists agree about it, but it's within the mainstream for the set of circumstances that held in some parts of the world over the last few years. But not today's New Zealand.

While we're currently below the bottom end of the RBNZ's target range, that is not going to last. If the RBNZ thought it would, they could and would lower interest rates further. But they're not doing it. Why? Construction pressures are pushing up in the non-tradeable sector. Further, the depreciation that would come consequent to any serious monetary push, whether from printing money or from big interest rate cuts, would push up import prices and then put more pressure on inflation rates. They're targeting 1-3% over the medium term and seem on track to be there. iPredict has medium term inflation looking to be under 2%, but over 1%.

And so the debates over the Greens' "let's print money to pay for the earthquake" policy have been a bit disappointing.

First off, the Greens have been spectacularly wrong when they've argued that their policy can't be all bad because so many other places are running quantitative easing. Imagine a doctor prescribing a pretty aggressive chemotherapy treatment for a patient who only has a cold. When everybody says he's nuts, the doc replies "Well, Jim over there's on chemo, and it seems to be helping him!" There's a time and a place for aggressive chemotherapy and for quantitative easing; NZ right now isn't it.

On the other side, there's been a bit of overstatement claiming that it can never be consistent with standard macro to print money. But I did enjoy The Civilian's caricature.

Finally, rather than admit that they were really wrong, the Greens instead pulled back from their policy by saying they couldn't see getting sufficient support for getting QE through - like it's everybody else's fault for thinking that doctors shouldn't jump for chemothearapy for colds.

I hate how economic models prescribing particular corrective interventions for particular sets of conditions get used to justify those policies in every other state of the world. Keynes said to run deficits during recessions; politics turned that into running deficits all the time. Market failure theory says we might want Pigovean taxes for costs people impose on others; politics turns that into excise taxes for costs people impose upon themselves. And then there's Russel Norman.

UPDATE: I totally do not want to be slamming Russel Norman if he's changed his mind about the merits of QE under the current circumstances rather than the political feasibility of QE under the current circumstances. Any politician who changes his views on the basis of the evidence should be lauded for the change rather than condemned for U-Turns.

@Davidxvx points me to Wednesday's ODT:

Dr Norman supported money printing as devaluing the currency, as the United States and Britain had done, saying at the time that "New Zealand can no longer afford to be a pacifist in a currency war".

Asked if he still supported the policy, he said the consensus position was that while the official cash rate remained close to zero (it is 2.5) there was not a clear role for quantitative easing.

"But were the OCR to drop close to zero then QE would come back into the agenda."

In that circumstance he believed the Reserve Bank Governor would look at quantitative easing - as he actually can now.

If the cited consensus is that among economists that you don't run QE when at NZ's current position, and that he's reversed because that's what professionals who work in the area think, then I offer enthusiastic applause.

But I think that Norman is misreading international monetary policy. QE may have had the effect of devaluing the US dollar, but its purpose was to raise inflation expectations and to avoid a liquidity trap. And even places like Switzerland, which has run some active exchange rate targeting, have done it not to boost exports or make manufacturers happy but rather because devaluation can be a way of escaping from a liquidity trap. Devaluing is something you can do to loosen monetary policy at the zero bound. And, again, New Zealand is nowhere near the zero bound.

I wish that the NZ Greens would take a more interesting monetary policy position, if a Green party is determined to have a position on monetary policy. Imagine Russel Norman commissioning a few reputable academic macroeconomists to look at whether NGDP targeting would make sense in a small open economy, then just adopting whatever came of it. I'm not convinced that NGDP targeting would be much better than our current regime, but it's defensible. It's something potentially backed by a growing group of respectable macroeconomists. It can't be dismissed as simple money-printing. And it would give nice talking points about using monetary policy more actively to support the economy during downturns than we might expect in an inflation-targeting regime.

Optimal airports

A million dollars a meter to extend Wellington's runway.

The airport announced in May that it would be seeking resource consent to extend the airport by 300m at a cost of $300 million to attract long-haul flights to the Wellington region.

The costs of the runway extension are reasonably well known. But what about the benefits?

All passengers wanting to get to Wellington will enjoy a slight increase in safety. If they value this, they'll be willing to pay more for flights to Wellington. The airport should then be able to extract slightly higher landing fees.

Passengers from overseas wanting to get to Wellington will enjoy a slight decrease in expected travel time as fewer of them will need to connect in Auckland (or Christchurch) to get to Wellington. Again, if they value this, they'll be willing to pay more for flights to Wellington. The airport should then be able to extract higher landing fees from those international flights.

If the change results in increased passenger arrivals in Wellington, then Wellington may benefit from increased tourist traffic. As always, we would need to be careful in estimating such benefits. First, spending by itself isn't a benefit; increased profits accruing to Wellington businesses are. Measures of "economic impact" that take total expenditures as a benefit are rather misguided. Wellington Council might be justified in putting a bit of money into the airport extension, funded by increased levies on businesses most likely to benefit from increased tourist and conventioneer flows: restaurants near tourist spots, hotels and the like.

There's little case for central government getting involved except where the extension results in a net increase in travel to New Zealand as a whole rather than just travel to Wellington. At least some of the benefit to Wellington will be a cost to Auckland and Christchurch in terms of travelers who would otherwise have enjoyed a layover in one of those cities before continuing on. And so any case for central funding would have to be based on net increases in tourist flows to New Zealand as a whole weighted by the likelihood that those travelers use Wellington as a base for more extensive travel. Central government might watch that any business case for Wellington Council funding not be based on trade diversion from Auckland and Christchurch.

Bottom line: if this were really a good idea, Wellington Airport should be able to fund the bulk of it via a bond issue that would be paid by increased landing fees consequent to the extension. If the main benefit is from increased arrivals from large jets, then set differential landing fees such that those enjoying the benefits are the ones bearing the costs.

Wellington Council could maybe throw in a bit, but should be pretty careful because it's awfully easy for interested parties to put together a business case based on wishful thinking or based on assuming private internalisable benefits are social. Wellington Airport suggests benefits including:

• Reduced travel time and cost for those in Wellington
• Makes travelers willing to bear greater landing fees, so can be fully internalised by the airport.
• Better exposure to international student market
• Possible, and harder for the airport to internalise. Note that much of this would be diversion from other NZ schools rather than a net increase in international student numbers. Wellington might not care about this, but it weakens the case for central government funding. 
• Regional tourism benefits
• Possible, and also harder to internalise. You can imagine mechanisms like local tourism operators paying for inclusion in a brochure handed out to incoming tourists, but that's pretty imperfect. 
• Better international freight options
• Should be fully internalised via landing fees.
• Increased local property values
• Um, no. This is one of the big rules in cost-benefit: you CANNOT count BOTH the increased benefits from an amenity AND the resulting increase in local asset values. That's double-counting.
• Easier for Wellington-based firms to work internationally.
• This would be partially internalised via landing fees paid by those firms, parking fees at the airport, and taxicab slotting fees, but only partially. 
• Reducing fares to Oz by allowing consolidation onto larger planes
• This should be fully internalisable via landing fees.
• Benefits to central NZ from increased tourism
• Again, be careful to assess things based on net likely increases in total tourism. 

It's rather harder for me to see a case for central government assistance, especially where many of the benefits to the Wellington region will be diversion from other parts of the country rather than net increases. Maybe there's a case based on expected national tourism risk from a spectacular Wellington crash, the risk of which could perhaps be lessened by an airport extension - or at least the linked article says so. But were I to be making a list of big lowish (but rising probability) costly risky things that could hit Wellington and for which the government seems inadequately prepared, well...

Morning roundup

A compilation of bits from 'round the traps.

First, NZ:

• Nolan over at TVHE has been on a roll lately. I particularly endorse his critique of the Labour/Green manufacturing inquiry and his critique of Key's trying to push RBNZ beyond its mandate and capacity. Both of these have saved my having to add anything. 
• Brennan McDonald chalks the Labour/Green manufacturing policy up to rent-seeking: the parties wanting Ministerial rents and playing to public biases to get it, and manufacturers running normal rent-seeking. I'd amend slightly: if voters are better at detecting dissembling than at understanding economic policy, then we'd expect MPs to share their base's biases. 

Everywhere else:

• Mark White on the dangers of Nudge policies.
• Jessica Irvine reports on 43 recommendations from the former head of the Oz Productivity Commission for boosting Australian productivity. 
• Note that NZ is well ahead of Oz on numbers 1, 2, 3, 5 (though Labour wants to re-implement it), 7 (although the taxi camera regs and dispatching rules here work to similar effect), 8, 9, 11, 19, 21, 22 (barring RONS), 23, 24, 27 (though Labour/Green would reverse), 30 (if we believe that the RIS is more than a tick-box), 34-35 are underway, 36 (though Labour/Green would reverse), 37, 42, and 43. I'm not sure we're worse than Oz on the others. Stupid tyranny of distance and inefficiency of scale. 
• Chris Bertram on the dangers of the surveillance state.
• The Church of Rationality walks us through the econometrics of bicycle helmet mandates. As is often the case, the standard for statistical evidence in med journals, the BMJ included, is pretty bad. If you're testing for the effects of cycle helmet laws, you probably shouldn't correct for cycling-related injuries. 
• Alex at Marginal Revolution on the Oocyte Cartel. 

Local rent creation: alcohol edition

I'm not sure that Wellington Council, and the other local bodies, are setting out to create rents for property owners in soon-to-be-designated "fun" districts, but that's what they're soon to achieve.

The alcohol reform legislation pushed alcohol regulation back to local bodies; local busybodies have consequently gotten busy lobbying local councils to restrict hours of operation and number of licencees. This was pretty predictable. Industry has an easier time pointing out problems with proposed regulations to central government than fighting all the local low-opportunity-cost types at all the various local Councils. 

Dominic over at The Ladder (HT: @EpicBeer , see also TVHE) absolutely nails the economics of the latest round of local proposals. Wellington Council is considering a local alcohol policy that would designate a nightlife zone with 3 am closing times while setting earlier closing times elsewhere in town. Dominic's substantial points:

• Courtenay Place, the proposed designated nightlife zone, is only the current nightlife hotspot. Cities evolve and so does nightlife; when one district starts stagnating, a new one emerges. The zoning would lock the current pattern in place forever. In fact, Courtenay Place is on the downturn:

  The trouble is that nightlife districts have a life cycle. They don’t spring up and stay interesting and youthful forever. They stagnate and get superseded by other districts. That stagnation happened about ten years ago in Courtenay Place. It's now a big brewery-controlled, noisy, cigarette smoke-filled (that's right) ghetto. The trouble is that no-one has told the Council or the Hospitality Association. Courtenay Place has become a model for everything that can go wrong in a nightlife district. Do I need to make the case here? I hope not.

  We've seen the same movement around Christchurch, even pre-earthquake. The Strip was the place when we'd moved here, but was on the downturn when the quakes hit. And since the quakes, Riccarton, Papanui, Sydenham and Woolston have picked up. They wouldn't have if Christchurch had the kind of regulation that Wellington is proposing. And if you imagine that a Council couldn't be daft enough to continue enforcing a nightlife-zone after an earthquake demolished the nightlife zone, you haven't been following post-Quake Christchurch closely enough.


• The nightlife-zoned areas will, by virtue of regulatory protection, get substantial rents. These will be capitalised into the price of properties in that district.

  But the Council, who seem to think the scenes in Courtenay Place late on Fridays and Saturdays represent “vibrancy”, and the Hospitality Association, led by individuals who, I believe, own businesses in Courtenay Place, are planning a regime that will penalise anyone trying to establish a business anywhere else – businesses that might give discerning consumers an alternative to the chaos on Courtenay Place. It may not be what the Council intended, but it’s what’s called an unintended consequence. It’s what happens when you draw lines on a map and create differences between the two sides.
  
  Of course not all the results will penalise businesses outside the strip. If you’re a Courtenay Place property owner learning that your tenants have privileges with respect to liquor licensing, you’re going to put their rent up. I look forward to hearing the Hospitality Association complaining about sky-rocketing rents in the street in about a year’s time.

  Dominic is absolutely correct here. If we've learned anything from Public Choice, it should be that we really really really shouldn't go about conferring rents in this way. Current owners will get a one-off bump in property values, but then will only be earning normal returns on that capital value. And they will scream if you ever try deregulating it.

Christchurch is considering the same kind of lunacy in its local alcohol policy deliberations: they want to push all the nightlife into the now-deserted downtown. In doing so they will severely punish everyone who got off their arses in the last couple of years and helped make Christchurch less awful by getting new venues going in new areas. 

Admiral Akbar Tullock screams at you, "IT'S A TRANSITIONAL-GAINS TRAP!!" It's happened before: just look at New Jersey and Manitoba. 

Please listen to Admiral Tullock. Before it's too late.

Dey Turk Er Land!

I sometimes point out to my Economics & Current Policy Issues class just how little land in New Zealand is taken up by all the things folks like to worry about.

It's pretty common to hear worries about how we're going to run out of land. Back of the envelope, I'd reckoned that if Christchurch burned through a Kate Valley every year instead of every 30 years, and even if they decided to put it all on prime dairy land instead of out in the scrub, the cost of buying land for landfill for Christchurch would still be about $2 per person per year. And so exhortations to recycle in order to save our land seem a bit overwrought.**

Luke Malpass points out just how much room we here have:

If someone asked you how much of New Zealand was built upon, what would your guess be? 5% or 10%? More? Less? And to what extent would this affect your views on urban development and expansion?

There is a widespread view that too much of New Zealand is being built upon: along with cows, the main thing we are growing are houses, and that not only are there too many houses but they are also eating into valuable farmland and nature.

There are many reasons for this view, but at a popular level the main reason might be that growth and development happen in areas where people tend to move or travel. People also tend to go where other people are and then complain about there being ‘too many people’. Many folk see new development and extrapolate out to development they cannot see, which often does not exist.

A look at the numbers bears that out: less than 1% of New Zealand is built up, including landfill and highways. Clearly New Zealand is not filling up. Compared to other countries in Europe, New Zealand has very few people and very little land built upon. About 9% of the United Kingdom is built up and 15% of the Netherlands. Even the United States, with more than 300 million people, has only 5% built on land.

Of course, not all of New Zealand can be developed, but the notion that there is cause for concern at this point in time (or in the next few hundred years) is untrue.

There is absolutely no absolute shortage of land in New Zealand. There is a shortage of land on which city councils will allow development, but that's a regulatory phenomenon, not a fact of the physical world. As land gets bid away from agriculture into housing, the price of agricultural land rises. That makes it more expensive to turn the next bit of farmland into a subdivision and makes infill densification incrementally more cost-effective.



* Dey Turk Er... (explained)

** I rather like Steve Landsburg's suggestion that we not turn these sorts of things into moral crusades.

Tony's Plan

BNZ Chief Economist Tony Alexander has a few recommendations to fix the housing market. Let's take them in turn. My comments are the secondary bullets.

• Initiate a large builder training programme targeting not just youth but low skilled migrants. "Yes, the migrant gates would need to be opened. Just the signalling of strong intention to boost builder numbers would make investors think twice about their capital gain assumptions," he says.
  • Not a bad idea, but I'd expect expansion in builder training to come with increased demand for new construction; it could be that there are hold-ups in the training schemes with which I'm unfamiliar though. 
  • I would also note that there is a current massive demand pull for Christchurch. It will be difficult to build Auckland out & up at the same time as we rebuild Christchurch. 


• Ban councils from imposing any development fees and allow developers to install their own infrastructure.
  • A bit further than I'd have gone, but I'll take this over the status quo. We do need to learn from America's municipal utility districts.


• Create an SOE whose sole purpose is to undercut existing building materials suppliers through bulk purchases from offshore, nodal warehousing and distribution from just three or four locations in the country, with a separate agency responsible for monitoring the quality of materials sourced.
  
  • I can believe that we have substantial inefficiencies of scale in building supply. But there are so few barriers to anybody who wants to start shipping in container loads of building supplies from abroad, I'm a bit puzzled why we think that inefficiencies would persist once building started ramping up. On the other hand, we have seen substantial materials cost inflation in Christchurch. Count me as skeptical that this one passes cost-benefit. We'd need to pretty clearly state the market failure Tony thinks here is operating and why this is the best way of solving it. I'm reminded of my undergrad macro prof who thought it would be a good idea to have a government-run set of gas stations that used US reference point pricing.


• Initiate a new large state house building programme relying largely on the to be created new carpenters etc. Constrain new state houses to more efficient building systems including containerised modular housing (this doesn’t involve shipping containers), central and screwed in foundations, etc. Ban house sales to non-residents (even new houses given the ease with which special developments could arise targeting solely folk offshore and soaking up construction sector resources).
  
  • State housing is really a second-best kind of solution. Where the private sector is forbidden by Councils from expanding supply, I can see an argument for it. But otherwise, surely it makes better sense to allow more building and give poor people money. I'm reminded of the difficulties involved in Housing New Zealand's divesting itself of some $1m+ state houses in Auckland.


• Impose a tax on all houses owned by Kiwis offshore with the aim of encouraging them to sell them.
  
  • I'm rather sure that recent numbers have shown few houses are being purchased by people who have no intention of coming here. And recall too that there exists a rental market. For this to screw anything up, it has to be the case that supply constraints remain pretty binding AND that none of these overseas owners rent out the houses that they're not occupying.


• Put in place a capital gains tax on second properties and farmland and immediately payable stamp duty for all second house purchases.
  
  • Seamus has carefully provided the many reasons that CGT won't much help. And the Oz productivity commission just recommended the abolition of their stamp duty. Come on.


• Rezone all land within 10-20 kilometres of existing city boundaries as residential.
• I'm cool with this, so long as we're not then taxing owners of agricultural land as though Council had provided subdivision-density infrastructure to paddocks.

Update: Thinking more on the SOE plan, if Alexander thinks the thing would be profitable, surely the Bank of New Zealand could simply announce some business plan competition where BNZ would provide financing for the best business plan aimed at improving materials supply and distribution.