A nice send-off

Philip Matthews at The Press gave me a nice send-off in the weekend Mainlander section.

On the first day of his last week in Christchurch, economist Eric Crampton perches on a stool at Black Betty cafe, orders two espressos and passes one over to his interviewer. Then he starts to explain why he is leaving.

Is it the push of Christchurch or the pull of Wellington? Crampton arrived here in November 2003 to take up a position at the University of Canterbury. Nearly 11 years later, he and his young family are leaving.

It is not the weather. As a Canadian, he thinks Christchurch has "the world's perfect climate".

On Monday he starts as the head of research at the New Zealand Initiative think tank, which evolved out of two earlier free-market groups, the Business Roundtable and the New Zealand Institute. He has put in an offer on a house in Khandallah. His only just repaired home in South Brighton is ready to go on the market.

He will lead a research team of five. His presence will allow executive director Oliver Hartwich to get out of the office, lift the initiative's low profile and raise funds.

Hartwich must also shake off some history. The Business Roundtable was a vehicle for Roger Kerr but it was limited by an adherence to 1980s free-market reforms and close links with the ACT party.

Crampton has not seen any party affiliation at the New Zealand Initiative.

"They're trying damn hard to not have any," he says. "They're trying to go where the data takes them and I will be keeping a hard line on that."

As examples of evenhandedness, he says that both Deputy Prime Minister Bill English and Labour leader David Cunliffe have been invited to speak. And when Crampton was a guest speaker at last year's ACT conference at wealthy backer Alan Gibbs' farm?

"I gave them heck for not focusing enough on civil liberties. I talked about the mess in the Christchurch rebuild. How moving away from the state-directed planning that ACT supported could have been useful."

I think I'd there said "that the ACT-supported government supported"; I don't think that ACT was pushing the command-and-control route. It still would have been nice to have had somebody in there fighting the Brownlee faction a bit more vocally.

Christchurch couldn't have picked better weekend send-off weather. And now to work, and to nail down the house so that the family can move up. Anybody want to buy a gorgeous character 1930s weatherboard 4 bedroom (3 double, 1 single), 2 bath place in South Brighton with a solar-heated pool?

Out with the lingerie, in with the beer

A lingerie retailer on Christchurch's New Regent Street has turned her shoppe into a craft beer bar: The Institution.

This bit from The Press's story puzzles me though. 

She hoped to serve alcohol upstairs while operating Hot Damn! on the main floor. However, consent rules required a 2-metre x 2m wheelchair-capable toilet in a shop 4m wide so it was decided the entire space would be devoted to the bar.

I would be pretty surprised if the store included an elevator. If it did include an elevator, I can understand a Council rule wanting the wheelchair-capable toilet in the upstairs bar. If the bar had only been located upstairs, though, and if access were only by stairs, I'm a bit curious why Council might insist on a wheelchair-capable toilet in an upstairs-only bar accessible only by stairs. Perhaps the licence would have allowed customers to bring their drinks downstairs with them, triggering the toilet requirement?

I'm happy that there'll be another craft beer bar in Christchurch.

But does it really make sense that Christchurch's building regs would have required full wheelchair-capable toilets in tiny tiny venues?

The way I know it's May

I know it's May when the Christchurch Press calls me seeking comment on Council asset sales. Georgina Stylianou quotes me in this morning's Press. Here's the full comment I'd sent her, not all of which could make it into her column.

“We’ve suffered from a lot of wishful thinking over the last three years. After the earthquakes, a lot of people really wanted to believe that we would have a sparkling new city funded by insurance payouts. And as each of us has had to come to grips with the difference between what we might have hoped our house insurance contracts covered and what the fine print actually says, the Council similarly has had to realise that it can’t budget based on wishful thinking about what they’d like to be owed in insurance payouts. Unfortunately, a lot of hopes were built up based on expectations of the larger payouts, and a lot of projects were mooted around those. It’s hard for politicians to step back from those, and doubly so when so many of us have had so many disappointments over the last three years. But where the real tradeoff is deciding between Council spending money on things like big stadiums or things like making sure we have overpasses and sewers that are safe and fit for purpose, well, I really hope we put more priority on the more boring core infrastructure.”

“Compounding the problem has been the regulatory and planning morass that has kept downtown from springing back to life. Vacant downtown lots do not return much to Council in terms of property tax.”

“I note that Minister Brownlee is questioning some of the figures in the report. I’m not an accountant and cannot vouch for the figures’ accuracy. But I do worry that things could yet be rather worse than the report suggests. The report explicitly notes that it makes no accounting for the costs that will be involved in fixing our now very flood-prone neighbourhoods. I doubt that Council will be able to avoid incurring pretty substantial costs in fixing places like the Flockton Basin and parts of Woolston.”

“The KordaMentha Report explains pretty reasonably what the Council’s options are. There’s little room to take on more debt, so we either have to spend less, increase tax revenue, or sell other assets. A mix of the three seems most appropriate. Sorting out the regulatory morass downtown so that we can again start having reasonable property tax revenues from downtown would be rather helpful on the revenue side. I think we should be considering cancelling the new stadium rather than just delaying it: too many property owners have to sit in limbo, under threat of expropriation, not knowing when or whether their businesses will be taken from them to make room for the stadium. And, again, we should be considering selling some of Council’s assets. Every May since the earthquakes we have talked about Council asset sales. And every year we’ve failed to do it. Council should be fully divesting itself of assets that are at least as well managed by the private sector in order that the funds can be put towards those things that are really important, like fixing our roads and drainage system. I worry that, if we do not sell assets like the Lyttelton Port of Christchurch, Council’s substantial financial pressures will instead squeeze excess dividends from those assets and run down their capital stock. And, in a decade’s time, we will have substantial problems arising from deferred maintenance and poor investment. Selling these assets off now may be the best way of ensuring their future. Selling the family silver so you can afford to re-pile your foundations and avoid having the house fall over is sad but sometimes necessary. What use is silverware if your house has fallen down?”

See this post for the general arguments around Council asset sales, and for the May 2011, May 2012, and May 2013 Press discussions around asset sales.

Blueprint for failure

I really really hope that the Christchurch Press's John McCrone is writing a book on the Christchurch rebuild. This weekend's installment in the Mainlander section, not online other than via PressDisplay, is must-read. [Update: Jack, in comments, points me to a now-ungated version.]

McCrone uses the EPIC technology hub as exemplar of how government is blocking the rebuild. Recall that EPIC started, shortly after the quakes, when Wil McLellan and Colin Anderson set up a new hub for Christchurch's software and tech sector. Late in the process, a bunch of bureaucrats wanted in on the game. And the planners decreed that there should be a tech precinct with limited borders. The act of zoning a tech precinct of set boundaries, as part of an overall central city plan designed to prop up land values via artificial supply restrictions, which Treasury bizarrely viewed as a feature rather than a bug, made developing there, well, hard.

Here's McCone:

Epic was a citizens’ initiative and halfway to being built when the Government got excited about the project. Steven Joyce with his new super-ministry MBIE (Ministry of Business, Innovation and Employment) stepped in to insist that Earthquake Recovery Minister Gerry Brownlee include it almost at the last minute in the Christchurch Central Development Unit’s (CCDU’s) 100 day Blueprint masterplan.

And so the Blueprint came out with its dream of the South Frame, a strip of nine blocks of the old central city which would be given over to campus-style office developments spread among greenery and cycleways.

The ugly car yards and warehouses of Tuam St would be booted out to give the central city a defined southern margin of upmarket commercial development – a tidy border that Treasury experts said would have the added bonus of propping up quake-hit central city property values.

The Epic project would now anchor two entire blocks of an official hi-tech innovation precinct down at the High St/CPIT end of town, while up at the hospital/ Avon River end, three blocks would be given over to a matching health technology precinct.

That left a further three city blocks in-between which were just ‘‘South Frame’’ – campus-style commercial space. Maybe lawyers or other high-paying tenants would take those.

On paper, it was a bold idea. But then the heavy micro-managing hand of bureaucracy descended. Government departments trying to engineer a commercial outcome.

Andersen struggles here to remain polite – it does not really pay to be critical of those who have such complete authority over the city at the moment.

But he admits: ‘‘We got preached to by MBIE that they wanted the innovation precinct initiative to be market-led. But then they’ve spent the next two years telling the market what it will be.’’ Here we are 17 months after the Blueprint and progress has slowed to a crawl.

‘‘I’m frustrated by the Government process. It’s in the way. They think they’re putting in place all these wonderful structures and methods to build a long-term plan. But while we [are] waiting for it to happen, [all the prospective tenants] are having to sign up lease agreements outside the central city. Why didn’t we just suck it and see? Why didn’t we just let it evolve?’’

Andersen reveals that earlier this year he and McLellan had got to the point where they were going to pull out of the precinct plan, take Sigma down to Sydenham where the land would have been cheap, the place probably half built by now. But MBIE and the CCDU managed to reel them back in.

Last I'd chatted with Wil, EPIC was ready to head to Sydenham.

I suspect that Steven Joyce's idea of "Market-led" differs from mine. There's a word for an economic system in which private property owners own most of the means of production, but act under the direction and planning of the relevant Minister. It's not a nice word.

As for the rest of the wonderful precinct planning?

But speaking with property owners and developers in the South Frame soon reveals what a gap there is between teh park-like precincts the Government is trying to create and the commercial realities of rebuilding properties at rentals real-life tenants can afford.

If the economics do not stack up, the market is just not going to deliver and the Blueprint will be dead in the water.

The Health Precinct seems to be going well, as it's mostly being set around existing facilities and ones that were set to go prior to the earthquake anyway. McCone notes that Forte Health decided to build a new private hospital outside of the various blueprinted areas out on Kilmore Street; he doesn't say whether they'd looked into positioning themselves in the Health Precinct. And there remains the question of whether the government will steal use compulsory purchase to get the existing car dealerships out of the way. It isn't just the potential theft that's the problem - there's also the stupid unnecessary paralyzing uncertainty.

McCone quotes Angus Cockram, owner of one of the affected dealerships:

"They change their minds all the time. You talk to five different people and you'll get five different answers. But while they've got a [potential compulsory purchase] designation on you, they've got a wheel clamp on your property. You can't even change a toilet block or do anything to your showroom."

Cockram says he has been told the Government might buy only the land needed for laneways and cycle paths, including one cutting across the middle of his car yard.

"There's no way you could run a business like that," he says angrily. Howerver he also gets the feeling the CCDU is backtracking as it realises an urban planner's glossy streetscapes sketches cannot be just magicked into existence.

I still blame SimCity.

Imagine if the quake had hit in 2006 and Cunliffe were running MBIE under Clark, doing exactly what Joyce is doing to us now. What would that world's version of John Key be saying about central planning in Christchurch?

McCone finishes up with Kaila Colbin:

But state agencies have a tendency to want to engineer these creative environments, she says. They automatically think in terms of impressive marble and glass architecture, plenty of advisory committees and formal grant processes. They build the structures first, then try to fill them with people.
And all around the world there are sterile failures as a result.
... If allowed to to grow organically, it [innovation hubs] will naturally begin to colonise the spaces around it. And this is the right way round to do things.

Put away the blueprints: cities are organic.

I've tried to embed the McCone piece below, or at least a link to it. McCone's fortnightly reporting on Christchurch is worth the Press's annual subscription fee.

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The Press
Jan 4 2014

Crowded house

Christchurch districts that experienced bigger increases in house prices from 2008 through 2013, the dates of easily available QV data, also experienced larger increases in the proportion of census households reporting two or more families living in the same household. This isn't particularly surprising. Where housing supply is inflexible due to Council regulatory constraints, increases in the number of families, whether due to kids reaching adulthood, immigration, or divorce have to be accommodated somehow. That somehow is multiple families living in the same household.

On Friday last week, the Christchurch Press called the University looking for a few folks to provide them commentary on the Census, released this Tuesday. Stephen and I put together the following as op-ed. The Press decided to turn it into a news story instead; the story appeared here. But our original piece is below.

Census 2013 focus: The hidden cost of housing regulation

Eric Crampton & Stephen Hickson

More Kiwi families are having to double-up as housing supply has failed to respond to demand pressures. The Census tells us how many families live in each household. In 2006, fewer than 40,000 households, or about 2.8 percent of all households, included two or more families living together. In 2013, that figure rose to just over 51,000 households, or about 3.4 percent of the total. Had the proportion of multifamily households stayed at the 2006 level, 9,100 fewer households would have had two or more families bunking together.

Economists call this an increase in the intensity of housing use. It’s one of the ways that people can respond to increases in housing costs. When housing gets more expensive, people buy less of it. One way of buying less housing is to share a house with one or two other families. The pattern of increased housing intensity suggests that cost pressures are behind it.

We paired district-level housing intensity increases between the two Censuses with Quotable Value data on residential house values from November 2008, the earliest month in their freely available data series March 2009 and March 2013, the month of the census.* The increase in two-or-more families living in the same household is strongly related to house price increases within each district (for the statistically minded, the correlation coefficient is 0.66). This is just a first cut as the Census has only just been released. But it is informative.

Selected Territorial Authority Areas	Number of households with 2 or more families, 2006	Number of households with 2 or more families, 2013	Percentage increase in multifamily households	Percentage increase in QV property value, November 2008 – March 2013
Far North	546	639	17%	-14.5%
Whangarei	648	672	3.7%	-9.9%
Auckland Area	19977	27042	35.4%	22%
Waikato	612	684	11.8%	2.5%
Rotorua	744	735	-1.2%	-2.8%
Napier	426	459	7.7%	0%
Wellington City	1215	1659	36.5%	5.4%
Nelson	216	303	40.3%	9.1%
Grey	51	39	-23.5%	-10.1%
Waimakariri	225	420	86.7%	26.4%
Christchurch	2295	3132	36.5%	19.7%
Selwyn	204	369	80.9%	30.5%
Dunedin	519	621	19.7%	10.2%
Southland	75	81	8%	-5.4%

We see this as one of the hidden costs of New Zealand’s very rigid approach to town planning. City Councils make it hard not only to expand housing supply out into the suburbs but also to increase density within town limits. When it’s hard for housing supply to respond as population increases, prices of existing houses increase. This brings supply and demand back into line, but by forcing families to make some pretty costly decisions by bunking together. Until Councils start taking housing supply seriously, expect the situation to worsen.

I emphasized to the reporter that demand side measures to try to hit housing prices really don't help. If we have fewer houses than families that want to be in houses, then we're going to have multiple families in a household regardless of any measures we might put in affecting house prices. Those measures can affect the price at which the market clears but don't really change which families wind up in which houses. Worse, where some measures targeted at demand can reduce building, they can make things worse.

* Looking back at it, Stephen had pulled QV data running March 09 through March 13. The latter is the month of the census; the former is the first March in the QV data. While November 2008 would be earlier, we then risk getting seasonal / month effects mixed in with things.

Price hikes and binge drinking

The weekend Press included a feature on binge drinking and price mechanisms.

But does making something more expensive deter excessive drinking?

Professor Tim Stockwell, of Canada's University of Victoria, published a paper last year, drawing on 20 years of alcohol sales data. It showed the shock of raised liquor prices dampened sales significantly. The conservative estimate was that, for every 10 per cent rise in prices, there was a 3.4 per cent drop in consumption, Stockwell said.

"Alcohol is like all commodities - prices go up and consumption goes down, all else being equal."

However, opponents of the idea, such as Lion, say it is not enough for minimum pricing merely to decrease consumption. It also had to make a difference to the big problem of binge drinking.

A report by Eric Crampton, an economist at the University of Canterbury, concluded that pricing policies were not effective enough to be worth introducing.

It said there was definite evidence that problem drinkers reduced their consumption when prices rose sharply, but the effect was more marked on moderate drinkers. A 10 per cent price rise saw moderate drinkers cut their consumption by 4.4 per cent, against 2.8 per cent among heavy drinkers.

An Auckland University of Technology study, reported in its magazine Insight, also says that price rises as high as 25 per cent had little effect on buying behaviour among students sampled in both Australia and New Zealand.

I don't think I've written any reports on this topic, but I have written many posts citing the Wagenaar metastudy from which the numbers above come. The Press piece here is rather good. They cite the defensible number from Tim Stockwell rather than the version Jennie Connor cited last year.

I'd further add that, while heavy drinkers do respond as noted above, Byrnes et al show that they reduce their consumption on non-binging days rather than doing much to curb binge consumption. As I noted when it came out:

They use Australian household surveys from 2001, 2004 and 2007 to see how changes in alcohol prices affect the number of reported days of no, low, moderate, and high alcohol consumption; they find that while price increases do reduce consumption, they tend to reduce the number of days of low consumption while not changing the number of days of moderate and high alcohol consumption. This would be consistent with binge drinkers dropping the occasional beer or wine with dinner to save up for the big nights out. If policy is more worried about binge drinking than about light drinking, this might matter.