Fact Checking @Income_Equality – child poverty in 2014 was at 24% compared to 14% in 1982

Closing The Gap – The Income Equality Project said today that “child poverty in New Zealand in 2014 was 24% as compared 14% in 1982”. What do they mean by this and what, importantly, does this trend imply for problem definition for child poverty policy?

Figure 1 below shows their numbers, which is child poverty in New Zealand after housing costs for poverty thresholds of 60% relative to a contemporary median as calculated by the Ministry of Social Development’s Brian Perry – the New Zealand expert on these matters.

Figure 1: % child poverty in New Zealand (before and after housing costs), 60% relative to contemporary median, 1982 – 2013

image

Source: Bryan Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2013. Ministry of Social Development (July 2014), Tables F.6 and F.7.

The first thing to notice is, which is important, in figure 1 is before housing costs child poverty under the 60% relative to the contemporary median poverty threshold chosen by Closing The Gap – The Income Equality Project has been pretty stable for 30 years the New Zealand. Crisis, what crisis?

The top 1%’s New Zealand branch has not being doing its job – see figure 2. The New Zealand top 1% has failed miserably in further oppressing the proletariat, extracting more and more of their labour surplus, and grinding working class children into deeper and deeper poverty to increase their already excessive incomes – see figure 2. You’re fired as the until recently registered Democrat Donald Trump would say.

Figure 2: top income shares, New Zealand, Australia and USA

image

Source: top incomes-parisschoolofeconomics

Before housing costs child poverty has not risen for 30 years as shown in figure 1, which is the chosen threshold of child poverty of the Closing The Gap – The Income Equality Project.

The story about trends in child poverty is very different for child poverty when after housing costs child poverty rates are estimated  – see figure 1.

Figure 1 shows a large increase in after housing costs child poverty in New Zealand in the late 1980s when there was a deep recession and double-digit unemployment. Since the early 1990s, as figure 1 shows, after housing costs child poverty has slowly tapered down from the high 30% in the mid-1990s to 24% now and that is despite the global financial crisis, which was the top 1%’s fault if the Left over Left is to be believed.

For before housing costs child poverty –  as can be seen from  figure 1 –  there was an increase in child poverty before housing costs when there was a deep recession at the end of the 1980s. After before housing costs child poverty is now the same as it was both 20 and 30 years ago – see figure 1 .

In the longer run after housing costs child poverty rates in 2013 were close to double what they were in the late 1980s mainly because housing costs in 2013 were much higher relative to income than they were in the late 1980s.

– Bryan Perry, 2014 Household Incomes Report – Key Findings. Ministry of Social Development (July 2014).

Now to the rub. If it is after housing costs child poverty that has risen in New Zealand and stayed high, as it has, the focus should be on what factors are driving up housing costs rather than what factors are driving down wages and incomes of ordinary worker. Before housing costs child poverty is no worse than it was 20 and 30 years ago  – see figure 1.

The cause of the large increase in housing costs and housing prices is abundantly clear. Restrictions on the supply of land that result from the Resource Management Act and policies made under that law such as the Auckland urban limit. That is the proper problem definition for public policy. Restrictions on land supply is driving up child poverty because more and more of the incomes of the poor is housing costs.

housing-prices-and-rma_thumb

Source:  Federal Reserve Bank of Dallas.

The most straightforward and fastest way of reducing child poverty and family poverty in New Zealand is lowering housing costs through deregulation of land supply.

Land supply deregulation is well within the realm of public policy choice. Parliament cannot legislate wage increases without accompanying productivity increases, but it can reduce restrictions on the supply of land as a result of the Resource Management Act.

Any discussion of child poverty and family poverty in New Zealand should refer to trends in both before and after housing cost in child poverty.

A comparison of these diverging trends  between before housing cost and after housing costs child poverty rates since 1982 gives a much clearer picture of what is increasing child poverty. The cause is housing costs as a result of ever tightening regulation on the supply of new urban land and in particular in Auckland at the behest of the middle-class voters courted by the Greens and Labour Party. It is the left-wing parties in New Zealand which opposed the most practical steps  to reduce child poverty, which is land supply deregulation.

NIMBY: Where, When, And to Which Developers It Happens in the USA

via NIMBY: Where, When, And to Which Developers It Happens — Rooflines.

Auckland housing is more expensive than many big US cities

What will Labour do about the supply of land in Auckland?

Housing affordability breakthrough! The capital gains tax has been given its chance to fail

This week, the New Zealand government announced a special capital gains tax for investments in housing. Specifically, if a buyer sells the house within two years of buying it, and this house is not their home, the investor will be liable to income tax on any profit.

This solution also has been put forward by the left-wing political parties in New Zealand as their solution to the problem of restricted land supply in Auckland and other cities in New Zealand.

The introduction of a capital gains tax is a breakthrough for housing affordability. This solution of using a capital gains tax to dampen demand has been given its chance and it will fail.

Once a capital gains tax fails to make housing more affordable, political parties on the left and on the right can no longer put off confronting real solutions such as major reforms to the Resource Management Act (RMA) to loosen restrictions on the supply of land in the big cities in New Zealand and in particular in Auckland.

The robots are coming, the robots are coming to property values

A few years ago, Casey Mulligan wrote a fascinating little op-ed about the impact of drones on land prices and urban living.

As drones and driverless cars make it cheaper to move people around cities, the value of inner-city land will fall simply because their proximity to the action has diminished.

With drones and driverless cars, it will be easier to bring something in on the just-in-time basis rather than have it on hand as inventory or within walking distance because traffic congestion makes it too slow to call it up from the suburbs through the conventional commercial transport.

But we live in a world of trade-offs. More people may want to move into the city because it’s so much easier to move around and call things up by drone, driverless car and the share economy, so this may intensify agglomeration effects and increased land prices. Another big day out for the two handed economist.

The principle of competitive land supply – Anthony Downs

image

via Florida Repeals Smart Growth Law | Newgeography.com.

The economic forces underpinning the housing affordability crisis

The key point is that increases (declines) in demand can bring sharply rising (falling) house prices when supply is constrained. However, when land supply is not regulated, it adjusts to demand and house price volatility is reduced.

As long as commentators focus primarily on the demand side of the housing market, whilst ignoring supply-side constraints, they will never fully understand the drivers of housing bubbles and busts. The resulting incorrect diagnosis will inevitably lead to poor policy prescriptions and outcomes.

via The Truth About the U.S. Housing Market | Seeking Alpha

Housing affordability and land regulation around the globe

Auckland is up with London and New York in terms of housing unaffordability relative to median incomes. US cities with responsive land regulation don’t experience housing bubbles.

Glaeser and Gyourko summarised the findings of a number of studies  on land supply and housing prices:

Recent research also indicates that house prices are more volatile, not just higher, in tightly regulated markets …. price bubbles are more likely to form in tightly regulated places, because the inelastic supply conditions that are created in part from strict local land-use regulation are an important factor in supporting ever larger price increases whenever demand is increasing.

…. It is more difficult for house prices to become too disconnected from their fundamental production costs in lightly regulated markets because significant new supply quickly dampens prices, thereby busting any illusions market participants might have about the potential for ever larger price increases.

Via The Truth About the U.S. Housing Market | Seeking Alpha.

Land use regulation knocks 10 points of US GDP!

Bloomberg Business highlighted a great new study by Enrico Moretti on power of the regulatory restrictions on land supply to destroy wealth.

Moretti focused on the impact that restrictions on land supply have on the ability of workers to move to higher productivity cities. Moretti is the second best urban economist working at the moment. The best is Ed Glaeser. Moretti concluded that

A limited number of American workers can have access to these very high-productivity cities

He concluded that a more efficient distribution would be “a general benefit for the entire economy.”

The secret of his analysis was to look at how different US cities, the high productivity cities, contributed to national economic growth. He then explore the implications of fewer and fewer workers been able to move to these cities to take advantage of the great productive potential. The barrier to them moving was high housing prices and high rents.

For example, labour productivity grew quickly in San Francisco, New York and San Jose overt 45-years. All of these cities are famous for their human capital-intensive industries including technology and finance. These cities weren’t America’s growth engine:

The reason is that the main effect of the fast productivity growth in New York, San Francisco, and San Jose was an increase in local housing prices and local wages, not in employment.

Despite the large difference in local GDP growth between New York, San Jose, and San Francisco and the Rust Belt cities, both groups of cities had roughly the same contribution to aggregate output growth.

The drivers of US growth between 1964 and 2009 were southern U.S. cities and 19 other large cities. These cities attracted many residents because of good weather and abundant supply of cheap housing.

The lesson both the US and for New Zealand, and Auckland in particular, is this reallocation of population away from the expensive cities with restricted land supply reduced national output because these population movements bring workers to cities "where the marginal product of labour is low."

In a technology boom town such as San Francisco, it is now what like New Zealand will be as Generation Rent runs its course – 65% of residents are renters:

Over the past year, the City and County of San Francisco boasted the second strongest labour market in the nation, adding 25,000 new jobs. Yet only 2,548 new housing units were permitted and even fewer were built.

Just think: 25,000 new workers and their families have been knocking on San Francisco doors, but there are new units for less than 10 percent of them. It is not surprising that apartment prices get bid up.

Housing unaffordability in New Zealand, 1988–2013

There has been a steady decline in housing affordability in New Zealand. The position is critical of the bottom 20% of the income ladder with now four in 10 of them spending more than 30% of their disposable income on housing costs in relatively good economic times.

image

via Statistics New Zealand, New Zealand Social Indicators, Housing affordability.

The footprint of Big Wind and Big Solar

New Zealand, Australian and US real housing price index, 1975–2014, 2005 base

The housing spikes in Australia and New Zealand preceded the global financial crisis, starting in about 1999, and were largely unaffected by the GFC. Housing prices in the USA were pretty calm except in the lead up to the GFC, and took a dive with the onset of the global financial crisis and great recession.

image

Source: Dallas Fed; Housing prices deflated by personal consumption expenditure (PCE) deflator.

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Renewable energy may run out of land

The causes of housing unaffordability

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