Polity by Rob Salmond

With the latest revelations about Mossack Fonseca, we’ve learned this morning about New Zealand’s increasingly prominent role in the global tax avoidance racket.

We have accounting firms that charge $3,000 a year to fill in a one page form on behalf of foreign big-wigs keen to hide their assets from their home governments. As a result, elsewhere in the world lower income folk pay more tax to cover the shortfall.

The legality of that action is clear. It is OK. For my 2c, the morality of it is equally clear as well. As Andrea Vance of TVNZ puts it this morning:

Is it OK for NZ to profit by undermining the tax systems of other countries?

The people of Mexico, Venezuela, Brazil, Colombia and Argentina have a right to expect their rich to pay their fair share of taxes.

And they’d be right to point the finger at the New Zealand government for helping the elite swerve those responsibilities.

So, is that industry worth New Zealand’s while to be part of?

According to John Key, the foreign trusts industry is worth protecting because it pulls in $24 million a year. That’s one one-hundredth of one percent of our GDP. 0.01%

And what to we have to give up in order to keep that 0.01% boost? Well, to be fair to Key, up to now we hadn’t really had to give up much at all. But with the public release of the Panama papers, now we as a country face a stark choice. We can either:

1. Keep the $24 million, but have the country wear a tarnished reputation as a good global financial citizen;
2. Have the accountants and lawyers give up the 0.01% of GDP, and keep our reputation intact. 

The choice is straightforward, the ball is in John Key’s court, and he’s made his position clear. He’d rather protect a small income stream for a few high-income Kiwis than protect the country’s international reputation.

I think that’s a terrible shame. If Key reverses course and rids us of the tax haven industry, I’ll be the first to applaud.

New Zealand trades a lot on its international reputation. People invest here because they know we’re an honest broker. Anything that damages that perception damages New Zealand. Here’s Vance again:

…unlike some of the other jurisdictions featured - Panama, the British Virgin Islands, the Bahamas, for example - New Zealand has a clean reputation to lose.

Kiwi businesses trade on being the honest Johns of the world. 100% Pure, corruption-free and transparent.

Ask any exporter whether New Zealand’s international reputation opens doors for them. With a different reputation, those doors could easily stay closed. If that happens just once or twice, New Zealand could lose much, much more than $24 million.

This game isn’t worth the candle.

Following Russell’s and Toby’s recent missives, both of which in-turn build on the Herald’s excellent home-truths series, I thought it would be helpful to lay out what our government has done to address the Auckland housing crisis so far.

In 2012, the government denied there was any housing crisis in Auckland.

Nonetheless it tried to quell public unease by investing a measly $34 million a year for three years into social housing innovation. So far the policy has done nothing of note, as the social housing sector has no bigger slice of the Auckland property mix than before.

Over the subsequent 12 months, Auckland house prices went up 14%, some 19 times the pace of inflation.

In 2013, the government still denied there was any housing crisis in Auckland.

Nonetheless it tried to quell public unease by creating lots of Special Housing Areas with different development rules. So far, only 700 new homes have been built in these areas. It’s pathetic.

Over the subsequent 12 months, Auckland house prices went up 10%, more than six times faster than inflation.

In 2014, the government again denied there was any housing crisis in Auckland.

Nonetheless it tried to quell public unease by lowering the cost of things like gib-board and nails by a few percent. This had no impact at all on house prices – even for new homes - because house prices are set on the basis of what the market will bear, not on cost-plus. 

It also tried to quell unease by giving certain home purchasers government grants to help buy homes. Not surprisingly, this had no helpful impact on house prices, as the extra money served to fuel demand rather than limit it.

Over the subsequent 12 months, Auckland house prices went up over 21%, some 54 times the pace of inflation.

In 2015, the government continued to deny there was any housing crisis in Auckland.

Nonetheless it tried to quell public unease by announcing 500 hectares of Crown Land would be turned into houses. So far none of those houses have been built, the government has only secured 5% of the land while blowing 100% of its budget, and the government has been forced to reveal its original 500 hectares included obviously unsuitable sites like cemeteries, power stations, and Government House.

On the subsequent 6 months (bringing us to the latest data), Auckland house prices have gone up at 9.4% per annum. Over the same period, CPI inflation was zero.

Now, in 2016, after all those price rises, the government continues to deny there’s any housing crisis in Auckland. That’s despite the fact that, over the previous four years, prices in Auckland have gone up 66%, some 24 times the rate of underlying inflation.

Nonetheless, to quell public unease they’ll implement a land tax on foreign buyers. Unfortunately, because the tax is on a certain class of investors only, any impact it has on overall market demand – and therefore prices - will likely be muted.

Meanwhile, house prices show little sign of slowing down.

In addition to agreeing with Russell, Toby, and the Herald, I also agree with Duncan Garner, Fran O’Sullivan, and Bernard Hickey on this. The government’s approach has been awful. It has failed the people of Auckland over a long period of time. Landlords and speculators– who now account for almost 80% of sales in some parts of Auckland - are getting rich while a generation of families gets locked out of home ownership.

 It’s a scandal, tragedy, and farce in equal measure.

 

Notes:

• House price data from QV
• Inflation data from Reserve Bank

The Atlantic has an excellent article about the undervalued role of luck in people’s success. It argues most successful people, in addition to working hard and being talented and righteous and all that, have also got as far as they have due to good helpings of dumb, blind luck. 

The article shows that if we aren’t careful, we subconsciously underestimate luck’s role, think ourselves more important in our own success than we actually are, and as a result are unreasonably stingy about sharing our success around.

It’s an account that resonates with me.

Like many readers, I’ve had the good luck to be born into a loving family living comfortably in a bountiful part of the world at the most healthy, prosperous time in human history (well, up to now anyway). Of course, that’s true for a fair few people around New Zealand, but my luck goes well beyond that.

I was an unremarkable Johnny-come-lately to debating. I made my high school’s top team, but nothing beyond that, and we didn’t win anything.  As a squad, we were a bit of a shambles.

Nonetheless, I rocked up on a shoulder-shrugging whim to Victoria University’s debating society trials for Easter Tournament.

By a stroke of luck, the trial topic was one I knew especially well.

By another stroke of luck, it was a topic my better-qualified opponent didn’t know well at all.

By a third stroke of luck, the selectors were feeling bored and risk-acceptant that day. They selected me as the last person into the team, also on a shoulder-shrugging whim.

After that, my team went on to win an unofficial “luckiest draw in the history of draws” award at Easter Tournament, as we made the semi-finals before being firmly put in our place.

But the defeat was too late. I’d been accepted into the fold of the Vic debating crew, which boasted all manner of smart people who celebrated each other’s academic prowess as well as their drinking prowess.

Without that string of lucky breaks, I would have stayed a middling debater. I’m sure of that. After that initial success, however, my interest, experience, and talent snowballed, and I ended up less than four years later with a world ranking in the teens.

That gave me much improved self-confidence which meant I got elected to things around Vic, and a better academic record, too.

Without that lucky break and its consequences, I’m certain I would never have won either my first job at MFAT, nor a Fulbright Scholarship. I wouldn’t have developed the quantitative skills and social science knowledge I now leverage to make my living.

And it all stemmed from a string of dumb luck.

It’s important for us to remember that. It’s the flip-side of “there but for the grace of God go I.”

It's important across lots of issues. In today’s Herald, for example, Liam Dann has an excellent piece about the housing crisis where he acknowledges the blind luck that smiles on a generation of Aucklanders who bought their homes before the prices started to skyrocket. They’re getting rich just by sitting on their chuffs. It's important to acknolwedge that.

Sadly, however, the science suggests most people would rather believe a story-of-self in which they’re always the downtrodden hero, never the lottery winner:

Wealthy people overwhelmingly attribute their own success to hard work rather than to factors like luck or being in the right place at the right time.

That’s troubling, because a growing body of evidence suggests that seeing ourselves as self-made—rather than as talented, hardworking, and lucky—leads us to be less generous and public-spirited.

…it’s a short hop from overlooking luck’s role in success to feeling entitled to keep the lion’s share of your income—and to being reluctant to sustain the public investments that let you succeed in the first place.

Without effort, we create biased fictions that explain our own success. The psychological experiments described in The Atlantic and elsewhere confirm this. Too often, we think good things happen because we’re awesome. We think bad things happen to us because we’re unlucky. But we think bad things happen to others because they’re not awesome like we are.

And there’s the rub. 

Lazy thinking about their own life can lead people to embrace lemon-mouthed arguments that rich people are rich because they deserve it and for no other reason; sharing the fruits of success is immoral and should be stamped out; people who aren’t successful must therefore be lazy; and so on.

Those arguments persist only because successful people wear rose-tinted glasses when they look in the mirror. Let’s get those glasses off, and see the world as it really is. 

Earlier this week, David Farrar posted a WSJ chart that he says shows the solution to Auckland’s housing crisis. The chart, shown below, shows US cities that have grown outwards have affordable homes, while cities that don’t grow out get more expensive. 

 

That, Farrar says, means the obvious solution to Auckland’s woes is to grow outwards:

If you want cheaper house prices in Auckland, vote for a Council that will make more land available.

Sadly, this is the kind of simplistic nonsense that we’ve come to expect from National and its proxies on this topic. It’s simplistic nonsense because it completely ignores the role geography plays in town planning.

Let’s look at the WSJ chart more closely. Most of the cities that have become really unaffordable haven’t released as much land for very good reason – they’re already jutting up against coastlines and mountain ranges. You simply can’t expand LA to the south or west, because you run into the Pacific ocean. Boston can’t go east, New York can’t go south, San Diego can’t go west, and so on.

By contrast, many of the rapidly expanding, affordable cities David Farrar points to as sit away from the coast, on relatively flat land. Six of the seven fastest expanding cities in the US – Atlanta, Austin, Charlotte, Orlando, Phoenix, and Raleigh – fit this mould. Las Vegas is the only partial outlier.

So, which of those groups of cities do you think is more like Auckland? The ones where you can build outwards in any direction, or the ones hemmed in by geography?

It’s not a hard question, as the illustration shows.

 

Over 60% of the area surrounding Auckland isn’t at all buildable, because it’s in the ocean (~50%) or in the Waitakeres (~10%). That’s what makes it more like New York or LA, and less like Atlanta or Austin.

Meanwhile, while National learns how to read a map, house prices continue to skyrocket, as Duncan Garner has illustrated today.

It's a tragedy topped with a farce.

Don’t get me wrong, expanding Auckland north and south should and will happen, just as there has been some enlargement in the unaffordable US cities. But it will never be a complete solution to the housing crisis, because there’s s so little new land for so many new people. Not even close. It simply has to be paired with new restrictions of demand, and with building and intensification in existing residential areas.

I missed last week’s TVNZ story about Auckland housing, as I was out of the country. It’s quite astounding, and well worth a look if you missed it. Here’s the skinny:

Last May, Nick Smith told the country he had 500 hectares of surplus crown land, and $52 million, to help fix the Auckland housing crisis.

Skepticism reigned, as opposition MPs demanded to know basic details and Smith stalled, and as journalists made fun of Smith’s panicked minibus tour of a couple of new sites.

But Smith was indignant. Of course he had all the land he claimed! Of course his land didn’t have things like power stations or cemeteries on it! Of course he could make a real difference for $54 million! Everyone else was just politicking!

Fast forward to this year, and the truth is out. 

After six months of stalling (otherwise known as breaching the Official Information Act), MBIE officials finally released to Labour the list of crown land holdings it provided to Nick Smith. It’s the list that his claims of “500 hectares of surplus crown land" came from.

Confronted with this by TVNZ, Smith flatly denied he’d ever seen that list. I’ve been shown the list, and I can see why he lied.

There’s a six hectare cemetery on the MBIE list, something Smith has spent a year denying. But now the truth’s out, and Smith's incompetence is revealed for all to see.

There are about six power substations (not the land surrounding substations, but the substations themselves). He’s also spent a year denying that.

There’s a new school, and proposed sites for several more schools.

And, get this, 119 Mountain Road, Epsom is a 2.17 hectare block of land that’s on Nick Smith’s list of potential building sites. What’s currently on that land? Government freakin’ House, that’s what.

It’s a complete shambles, and Aucklanders are the losers for it.

The Minister of Housing, who claimed to be fixing a crisis, is reduced to telling fibs about what his officials showed him, because utterly everyone involved – from the Minister on down – has royally fucked the whole thing up. My bet is that the ringmaster here is Smith personally, who will have demanded information and action and money all in a flurry of last-minute pre-budget prima donna preening.

And that’s not even the worst part. Almost a year after starting his project, TVNZ discovered that Smith has secured only 5% of the land he promised, but has spent 100% of the money he was given.

He’s overspent by a factor of twenty. Twenty!

Anywhere else, he’d be shown the door for this level of incompetence. Sadly foo Auckland families, his incompetence seems to be spreading like a cold instead. Here’s Duncan Garner today, excoriating Smith’s colleague Simon Bridges:

National Party Minister Simon Bridges says Auckland is not facing a 'housing crisis.'

He's woefully out of touch.

Instead, Bridges prefers to call it a 'top tier issue', what ever than means. I prefer to call his position 'bollocks.'

Ahem, “indeed.”

UPDATE: As requested via Twitter, here's the spreadsheet of the land parcels, as relased by the government under the OIA.