Kiwibuild – a simple fix

The underlying problem Kiwibuild is trying to fix, is that houses simply cost too much because the land is too expensive, and we don’t have enough scale builders to build affordable housing.

The land cost issue is essentially regulatory and requires the Government to confront this reality and amend the relevant statutes including the RMA.   I don’t believe we need a Housing Urban Development Agency (HUDA), if a quality job is done the regulatory environment, and maybe better policies to handle the associated cost of providing the infrastructure.

If the Government wishes to continue with Kiwibuild, a simple fix would be to simply commission the houses in line with current policies, and then sell them at market prices to anyone who wants to live in them.   Many first time buyers don’t want a new house, they want one at a reasonable prices in an area that suits.

This approach would help develop the scale building industry and level off house prices.  However it ought to be phased out after say about seven years, leaving the market to take over.  It took 40 years of poor housing policies to create the current over priced sector.   A few years of quality Government action is required fix it.   But let’s not make it too complicated.

 

 

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Hipkins radical plan for ITPs and ITOs

Education Minister Chris Hipkins proposes all 16 institutes of technology or polytechnic (ITPs) be merged into one NZ Institute of Skills and Technology, and that some key roles for industry training organisations (ITOs), be stripped from them and relocated inside the Tertiary Education Commission.

Unlike the proposed capital gains tax, the complexities of proposed vocational education and training arrangements, will likely escape the attention of most kiwis.

Having done public policy work with six large ITPs from 2008-2013, I can understand why the Minister concluded radical change is necessary.   Too many ITPs are failing because they cannot adapt to changing circumstances, including changes in government policies.  There is also a lack of accountability.

Many will wonder why, despite all the expenditure, do we have such a shortage of building industry tradies?   And while twilight golf may have gone, are we really confident that all courses being funded add real value to the economy and society?

Whether intentional or not, conflict has been built into the current model between ITPs and ITOs.  The whole system is absurdly complex and clunky.  With limited taxpayer resources we should not be paying for this.

The accountability issue could have been dealt with by making the ITPs into companies – the directors risks for trading while insolvent would have sharpened the minds of Councillors.  However that option would have been unacceptable for many.

For many, a monolithic single ITP will be a scary prospect, particularly in those regions with successful ITPs doing their own thing.   While it might achieve some administrative economies, it could also stifle creativity.  The fears of ITPs could be diminished if the new structure embedded a high level of decentralised decision making in existing ITPs.  However if that was done too rigidly then nothing else much might change.

An alternative approach considered by Hipkins, would be to merge existing ITPs into a much smaller number.   That would be my preference.  I favour just three or four with one for the south Island.  But his single over arching ITP deserves serious consideration.

While pondering how to sort out this sector, Hipkins could usefully also rationalise his own agencies by shifting the tertiary role of the NZQA into the Tertiary Education Commission.   I have worked with both agencies and don’t believe at that time they worked seamlessly together.

More generally I think we have created too many state agencies, partially on the basis that operations and policy are two separate worlds.   One informs the other.  Given the small population size and shortage of CEO candidates, its more cost efficient to have fewer state agencies, not more.

A cost efficient vocation and training sector (VET) is essential, and I hope enough involved can put aside their narrow personal interests to achieve that result.  Germany does VET very well – we can learn from its experience.

Town Hall seismic upgrade – fiscal warning

All Wellingtonians should take a close interest in the proposal to upgrade the old Town Hall to 100% NBS, because this is going to be seriously expensive, and will increase rates.  At present the Council does not know what it will cost and most likely won’t until the project nears completion, assuming it goes ahead.

The comprehensive report is on the WCC website.   It makes for scary reading.  There are so many unknowns, which are identified but cannot be quantified.   The experience of Fletcher Building and others in recent times has made contractors very cautious about pricing.

The Wellington Town Hall could well be the riskiest major project in New Zealand.

If all goes well we will end up with a Town Hall that is safe and good for the Mayor and staff and the proposed Music hub.  It will cost the estimated $112 million plus no more than the secret “contingency”.   Having being involved in two rebuilds in recent years I seriously doubt “all will go well” – it would be nothing short of a miracle if it did.

The Council should not take too much comfort from the consultants views  – they will be paid for their advice and have nothing more at risk.

Apart from essentially writing a blank cheque for the seismic upgrade, the Council has two other options.   One is upgrade to a lower standard which means the building would be used by different parties.   The other is demolition, which has been rejected on the grounds it is a heritage building.  A pity that wasn’t thought of when the Michael Fowler centre was built hard up against the Town Hall, and the plan was then to demolish it.

The Town Hall upgrade is not the only civic building needing seismic work and all should be assessed at the same time.  It may well be the best long run solution is demolition of the Town Hall and possibly other adjacent buildings.

I support retaining heritage buildings wherever practicable, but not at any cost.   On the basis of the WCC paper I could easily envisage how the current price might escalate further on a massive scale.  By then many on the Council will have changed and those remaining will say we have no choice but to go on.

Before making an irrevocable decision the Council should consider a new building(s) using modern building techniques.   Far better to consider the new option before the point of no return.

 

 

 

TVNZ news – can do much better!

Great to see TVNZ (of which I am a former director) has achieved revenue increases two years in a row, after a long trend of falling revenues.   Clearly management has done a good job convincing CEOs and marketing people that Facebook and Google don’t provide all the answers for their businesses.

TVNZ CEO Kevin Kenrick, is quoted as telling MPs this enables the company to consider investment options, particularly those that facilitate some media rationalisation.   Stuff was mentioned by one journalist as an option for TVNZ.

I was really pleased to see Kevin’s emphasis on news being central to their thinking about the future.  News is its “jewel in the crown” – but a jewel that needs a lot of work and polishing.

I have worked in Australia, the UK and the USA, some of that time as a journalist myself, and have seen and read a lot of media.  At present I can only give TVNZ’s news a six out of ten.   Its political coverage is quite good as is the pacific, weather with Dan is excellent, but most of the rest is pretty ordinary.   Hard to keep up with reporters because of constant changes.

There are major gaps which need to be resolved urgently if the news is to achieve real credibility.  What I look for with media is named quality journalists.  Specialisation is critical.

It is truly amazing that TVNZ does not have even one journalist dedicated to covering the economy, sharemarket and agriculture.   There should be two for this massive area.  The short Prime News is one step better in that it has a summary of the Stock Exchange and currency changes.  Kiwisavers and employees etc are actually interested in the economy.

Education requires a specialist  journalist and there are several other areas, including public policy which political journalist struggle to get the time to handle properly.

The downside of specialists is that they will often be working on relationships and leads instead of doing stories for the day.  However any media operation that wants to be taken seriously invests in specialists.

What many don’t appreciate is the absence of specialist journalists, means that many people simply don’t want to talk to the media, because the risks are far too high, if all they are offered is a generalist used to “chasing fire engines”.   This is why corporate people often hide behind their PR departments.

The question that arises is how to pay for the cost of say six senior specialist journalists? First, TVNZ should abandon the absurd follow the offshore fashion for two presenters.   We don’t need it and I simply don’t believe that the public wants two.   Peter Williams did an excellent job on the weekends as a sole presenter.  Next TVNZ could just invest a bit more in news and current affairs to bring their programmes up to a level that commands the respect and attention of all.  This will pay dividends in the long run.

Kiwibuild – NZ Initiative report

The New Zealand Initiative has published an excellent report on Kiwibuild.   (Kiwibuild: Twyford’s tar baby)

In essence it says the real problem is the cost of land and also construction.   Having the state inserting itself into the market is unlikely to greatly increase the number of new houses, or help struggling first time buyers who don’t necessarily want a new house.

The main upside of Kiwibuild is showing Housing Minister Phil Twyford how frustratingly difficult it is for home builders to actually get houses consented and built.  I believe the current unfortunate house price and supply situation is the result of 40 years poor public policy – RMA, other legislation and local authority policies.

I commend Phil’s efforts but, like the Initiative, believe he should now have a re-think, and deal with the root causes.  Am doubtful his proposed urban housing development authority is the right answer also.   It just side steps the blockages in favour of a powerful agency, which no doubt will be loathed by many where it chooses to operate.

Kiwibuild: Twyford’s tar baby

Hipkins gets it right on VUW

Education Minister Chris Hipkins made the right decision to reject the Victoria University of Wellington’s Council request to change its name to the University of Wellington.

The VUW Council put out a very sensible statement in response saying it would consider the issue at its first meeting next year.   But the Vice Chancellor Grant Guilford was not reticent when approached by the media, saying they had several options including a judicial review and also just changing the operational name while leaving the statutory name intact.   This maybe technically possible but would likely set off political and or legal action seeking to block that course.

The Council itself should reflect seriously on how it got into this very unfortunate situation.   My take is that:

Firstly it did not develop a quality case first and then present it to staff, students and alumni for genuine feedback.

Instead it made a provisional decision and then attempted to sell it to relevant stakeholders as both worthy and inevitable.  When that produced a largely hostile reaction from far too many for comfort, it released a 50 page paper on July 27 giving people a couple of weeks to comment.   When the voices against further increased it extended the deadline.

Reading the September Council paper it is clear their lawyers got heavily involved and the result was a a very carefully written paper designed to head off a Minister who might not be convinced.  It did not work and congratulations to Chris Hipkins for rejecting it.

Those Council members (all but two) who voted in favour should now back up the truck and make some rational decisions.  They should accept the case for change was weak with modest upsides, and a lot of downside, particularly with students and alumni.   It seems academic staff, who were not properly surveyed by VUW, are divided with possibly a majority being opposed to the name change.

To the extent there is confusion problem with some potential overseas students or staff, this can be dealt with by clever marketing.  Something simple like making the full name – Victoria University of Wellington – in the same sized type instead of Victoria being much larger.

This whole saga is to me part of a larger problem with many boards of directors.   Too many accept management proposals (supported of course by consultants commissioned by management) to undertake investments or changes of direction, which often don’t stack up.   For example Fletcher Building buying Formica in the USA when it didn’t have a comparative advantage.   Now being sold.   Tranzrail moving its head office to Auckland’s North Shore where there are no trains and when its main operational base was well south.  That suited some individuals but not the company.

Directors are there for real independent judgement, not to tick the boxes on management’s proposals.  Its now time for the VUW Council to step up, accept the rejection from Hipkins and thousands of other stakeholders, restrain the VC, and move on.   With good management the University has a great future.

In respect of overseas students it is handicapped by the lack of direct flights from Asia and the cost of living for students.   It can do something about the latter and its attention should be on that and all the normal stuff that makes for a great university.

 

 

 

57% effective tax rates on term deposits

I recently read the Tax Working Group’s interim report.  Led by Sir Michael Cullen, the tax group’s interim report covers a lot of ground which has been trodden before, but unlike the past, has focussed on bringing so called “capital income” into the income tax regime.

I will deal with capital income in another post.  What has struck me about the report is that while it claims to have a focus on fairness, it does not come up with an answer to an obvious distortion in the tax system – the taxation of bank deposits.  There is discussion about the issue but then it is put in the too hard basket.

By way of example a $100,000 term deposit earning 4%, with a nominal tax rate of 30%, is in reality taxed at 57%, when you remember we have inflation of 1.9%.   By modern standards that is punitive.  It affects hundreds of thousands particularly those who are retired and advised to reduce the risk profile of their investments, including this writer.

The paper rightly points out if you adjust for inflation, what do you about full deductibility of interest for businesses and the boundary issues with bonds etc.   I accept all of that but that is why we have experts in IRD etc to find solutions to a real world problem.

If you want people to save for retirement then why penalise them by over taxing term deposits?  By skipping around this issue the Tax Working Group leaves itself open to the allegation it simply wants to provide the Government with another revenue raising option.