Matt Nolan

Housing xenophobia, again

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Update:  Seamus discusses the policy here – appropriately focusing on the mechanism through which speculation (and information) impact upon prices.  Also here is Shamubeel Eaqub in the Dom Post.  The Civilian also posts – oww wait, that’s satire 😛

I see the Labour party has joined the Greens housing xenophobia party, fun fun fun!

Obviously, this doesn’t go far enough.  We should ban all non-Aucklander’s from buying in Auckland as well – let’s be honest here, the REAL problem is the South Island … wait, what?

Now, I’ll start this post where I call lots of people xenophobes by answering a common comment to this.  So, before you say “learn to define xenophobia” lets grab the definition off Wikipedia:

Xenophobia is the irrational or unreasoned fear of that which is perceived to be foreign or strange

As banning property sales to non-Australian or New Zealand residents is an unreasoned policy response, and given that it is popular based on people’s irrational and unreasoned fear that foreigners are the cause of the issue (poor housing affordability?) xenophobia does fit here.  People that support the policy are being xenophobic, people coming up with the policy to get themselves votes are being xenophobic.  You might not like the name, but I honestly don’t write to make you feel good about yourself – if the shoe fits you should just wear it 😉

Anyway, I’ll step back from being antagonistic for a second – after all people mean well, but may not have considered the full consequences of such actions.  I wrote about this recently here (with added rant here) and Eric Crampton also touched on it here when discussing LVRs.  So all that is there – I won’t repeat it.

Now, let’s try to find a policy justification.

“I will restore the Kiwi dream of home ownership that has slipped out of reach for tens of thousands of Kiwis.  I don’t want to see our kids become a generation of renters,” says Labour Leader David Shearer.

“House prices in Auckland have risen by 28 per cent since June 2009. The problem is clear – there are just not enough affordable homes.  And overseas speculators are adding to the problem.

…

“By itself this is not a silver bullet for housing affordability – but it is part of the solution.

Ok ok ok, so from this it looks like they want a relatively long-term ban.  Otherwise “I don’t want to see our kids become a generation of renters” would make little sense.  They are targeting affordability here, not a temporary spike in house prices.  There is a difference.

And as a sidenote, ignore this speculators term – it is being used as ideological rhetoric with no real content.

So they are aiming to reduce the pool of people who may buy property, driving down the price.  So they want a transfer of resources from property owners to the young.  So if I’m reading this correctly they are trying to take on the issue I said people may have some concern about in my Rates Blog article.  Let’s repeat that:

Some may say that a bubble right now makes house prices expensive right now, thereby reducing affordability right now. However, why do we care if someone cannot afford to buy a house at this very second – couldn’t they just wait till the bubble is over?

However the concern here is that, New Zealanders that go out to buy a house during this bubble end up facing all the risk and expected drop in house prices associated with the bubble.

Generally these people are young New Zealanders who intend to start a family, and as a society we feel a bit rough about the fact they are in that position.

Now don’t get me wrong – on a personal level I disagree with this, but if that is where society’s head is at that is that.  But if we actually meant that this was our concern then:

Worst case scenario, one-off tax all property, given money to group who is “hard done by” – if you aren’t willing to do that, you are faking your belief in a distribution issue.

If you aren’t willing to do this, you are actually willing to hurt current property owners by MORE to achieve the same transfer to people who don’t own property.  And you are hurting foreign buyers as well.  This is WHY the policy is only “reasoned” if you actually dislike or irrationally fear foreigners – it is the only way it all adds up.  I am being polite by calling the fans xenophobic instead of straight racist 🙂

(Note:  Think of it this way, the higher price, if this policy does anything, is indicative of the fact that people overseas have a higher willingness to pay – the surplus above what a resident will pay would be split between the current owner and foreign buyer.  A  broad tax and transfer system will transfer surplus, banning sales will just destroy it).

I’d also point out something else here – this policy isn’t going to suddenly make housing affordable.  Labour admits it isn’t a silver bullet – but it doesn’t even fit in as a tiny part of a solution.

 

Matt Nolan

Bleg: What is the paradox?

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Hey I have a question to ask.  I have been in Melbourne drinking all week at this point (I wrote this prior to the trip) and when I get back I’d like to know what NZ’s “productivity paradox” is.  I was not at the conference sadly, but  I saw the text of this speech from Gabs Makhlouf (Treasury Secretary).  Here the paradox was stated as:

But that brings us to the so-called paradox: in view of those settings, what are the explanations for New Zealand’s persistently low productivity growth compared with many other OECD countries?

So although we have pro-growth policy settings and “New Zealand does particularly well on OECD quality of life measures such as health, civic engagement, education, safety, environment and life satisfaction”, measured productivity is lagging the rest of the developed world.  Is that the paradox?

And is our interest in asking whether this difference is due to policy actually being poor (we are wrong about economics) or due to NZ being different to other countries (being a million miles from nowhere and having low population density has not meshed well with improvements in technology).

That is my interpretation – but I find the use of “paradox” fascinating, as it makes the issue sound like it is incredibly complicated at a fundamental level.

However, let us say that it is a paradox if we make a series of assumptions about NZ being just like the rest of the world, in which case our arguments look logically inconsistent.  We solve the paradox by weakening those assumptions – so essentially the symposium is not so much about the paradox, but about whether the “more realistic” assumption satisfy the facts.  In essence, rather than it being a focus on the paradox we are simply asking how NZ is unique – a narrower set of questions.

Or is this a misinterpretation of the true question.  Is it actually impossible to really look at “counterfactual New Zealand’s” and appropriately split what is going on in New Zealand into fundamental causes.  Is the very concept of trying to understand how NZ is unique a hefty, maybe unsolvable, paradox.  In other words is it a situation where, even with “realistic” assumptions we end up with multiple compelling, and contridactory, results that satisfy the data.  In that case, the weight of the term paradox does seem appropriate.

Or, am I just being weirdly pedantic, and should accept that all sets of data offer “paradoxes we are trying to unpack”?

 

 

Matt Nolan

Don’t forget that prices change!

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Over on Kiwiblog David Farrar discusses how redistributive the tax system is, and how including average welfare households that earn $60k “effectively pay no tax”.

There are a few points to keep in mind when looking at this:

  1. The obvious one that you will always hear is that a tax and benefit system is supposed to be redistributive – this is the point.  So the question is how much redistribution we want, especially given that there is a cost in terms of “efficiency” (having private and social value align from market activities).
  2. Let us focus just on wages.  Comparing gross and net wages over the entire tax system doesn’t make sense – it is a appoximation for how “small” changes in tax will work, not large changes:  The key point here is that the gross wage is the “cost to the employer” while the net wage is the “renumeration for the employee” – the tax paid isn’t all “cost to the employee”, it is shared between the employer and employee based on the idea of tax incidence.  If the “tax” wasn’t there, this does not mean that the high wage household gets all that income – so saying it that way “exaggerates” their contribution to redistribution.  In truth, the tax paid by those wage earners is the contribution from that market transaction – which is a very different thing to think about!  Note:  I am saying wages would change if the tax system changed.
  3. On the note of market, redistribution works by changing relative demand for goods and services and endowments of individuals – in this way relative prices change.  If we are talking about contributions in terms of the goods and services we care about, and over the entire tax system in this way, we need to think about how goods and services prices change as well!

Yes our tax system is progressive – but framing it as “the top 5% of households pay 47% of tax” is a bit mischevious.  In fact, it would be closer (but not perfect) to say that market transactions that involve the top 5% of income earners contribute to 47% of the nominal value of tax revenue … a little less us vs them right 😉

I think Bill English is spot on saying:

“But people who call for even greater transfers to low income families, or who call for the top tax rate to be raised, need to be aware of how redistributive the tax and income support system really is,”

Indeed we should consider the starting point – to many people view increasing redistribution as always increasing social justice, when that is not the case.  However, Farrar’s point does not follow:

Income tax rates should be lowered

I’d prefer it if he fleshed out whether this means an increase in other taxes, or a cut in spending, as the normative implications are very different 🙂

Matt Nolan

Article on Rates Blog on inequality

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I didnt’ realise it was “inequality fortnight” when I wrote this – it was just an article I needed to do before carrying on the “tax series” (as the next article there is on progressive taxation).  So I’m sorry if you have suffered from inequality overload.

On that note, here is Geoff Bertram talking about the “pay gap” within organisations – where I think he is being reasonably disingenuous, an issue I might go into more detail on another time if you like!  David Farrar isn’t impressed, and I have sympathy for what David is saying (even though I wouldn’t go as far).  Even though I do like the idea of honours and pay being interchangeable.  Sadly I couldn’t find a clip of the Yes Prime Minister episode that has this … so here is the Yes Minister episode that touches on similar things.  Update:  Here is part of the scene.

Also here is a neat little breakdown of some inequality data across a series of countries by Xavier Marquez.  And here is some US stuff on income mobility – pretty danged useful information.

Matt Nolan

Inequality conference and MSD report on inequality figures

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Hey, I didn’t realise the Institute of Policy Studies was doing their inequality thing today.  The outline suggests they are asking good questions – we need to ask about causes before we can really interpert policy!  This summary from Bryan Perry from MSD on the data was neat as well – clear and too the point.  How we interpret this data is a much bigger and separate question 🙂

I will have a look at the papers, and Max’s book (which I have purchased) when I get a chance (next couple of weeks).

I would note that I’ve stated a few posts around this in the past:  Top 1% in NZ, middle class rant, middle class rant 2, median incomes, Spirit Level review.  But you could read the latest report on trends by MSD for more up-to-date information!

Matt Nolan

Taking sides in the “Auckland economist battle”

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Via NBR and Agnitio (note behind paywall) I see that Don Brash has decided to attack Auckland Council Chief Economist Geoff Cooper.  Usually I ignore economist fights – but when one economist has decided to act like an ideolog and attacks other people to hide it, while the other economist is consistently reporting facts, I have to take sides.  Geoff Cooper is right in every sense of the word, and Don Brash is just being a class-A douche (to use the technical term).

To summarise what is going on in the article, Cooper reports that house prices have risen and that this appears to be driving a lift in consumption and house building activity – lifting measured activity in the region.  This is a factual statement.

Don Brash turns around, says this is a bad thing, attacks Cooper, attacks the university Cooper studied at, and then rants about how a house bubble can have serious social and economic consequences.  Obviously Brash hasn’t been reading our discussion here on how we need to think about the consequences and causes of a bubble carefully and with reference to banking regulation – and I would think a former central bank governor would know better than to make such loose statements.

In response Cooper merely points out that he is describing what is going on in the Auckland economy, not trying to argue about what is “right or wrong”.  In other words, he is being an economist, and trying to inform debate as part of his job.  How doing his job well reflects poorly on him, the council, or his university is a mystery to me.

He also managed to avoid calling Don Brash a confused and angry man who appears to have forgotten how to “think like an economist at all times” following his foray into politics.  As I’m not encumbered by the same social constraints, and given my disgust at Brash’s comments, I feel more comfortable making these statements 😉

It is Brash’s own fault that he has confused something increasing measured GDP right now with something that is “good” – not Coopers.  And if Brash has that much trouble reading economic reports without flushing his value judgments all over them and making unsubstantiated attacks on people, he needs to sit back and let his inner economist take over the running of the Brashmobile from now on (In case your confused – I like to add mobile to the end of surnames to represents someones mind and consciousness).  Brash’s comments were not the comments of Brash the economist – they were opportunistic comments of Brash the ideolog.