Government Asleep at the Wheel for 8 Years so #Budget2016 Misses Auckland Entirely

Government had no idea then

And has no idea now

 

If two things about Budget 2016 from the National Government could be said they would be:

  1. They have no idea what GDP per capita or expenditure per capita is
  2. They have been asleep at the wheel for eight years over housing in Auckland

 

With the migration boom fuelling population growth in New Zealand and Auckland any Government in charge at the time of such a boom need to have their wits about them to invest in the hard and soft (people) infrastructure needed to support this growth. The problem is as Budget 2016 showed was that while GDP is going up as a result of the population boom per capita wise (so per person) we are going backwards rather than forwards. So if the economy grew $100 but there were an extra 120 people living in New Zealand at the same time then our share of that GDP pie despite its growth has decreased in real values. To make the problem even worse is that despite what ever billions the Government has decided to spend on in Budget 2016 is again on a per capita basis is less. So say education (given it now faces a OPEX freeze) it is $1000 to cover 100 children in a public school. Now with the population boom we have 120 children in a public school meaning to keep the same ratio of funding as before (1:1) that funding needs to increase to $1,200. However, in Budget 2016 the Education Budget is now facing a OPEX freeze with more schools being built as well. This means we have 120 children at a public school but the funding stays at $1,000 meaning on a per capita basis funding has gone down in real terms (and stays down if the amount is lifted to anything less than $1,200).

 

So whenever you hear a Government MP going on about Budget spending increases ask that MP if it is an increase in per capita spend. Given the Finance Minister had no idea if it was an increase on per capita let alone what per capita was when interviewed on The Nation, and Q and A over the weekend Bill English should not be holding a warrant to be Finance Minister.

 

Back to Auckland and this from the Herald:

Bernard Hickey: Crisis lurches ever closer as Budget fails struggling Auckland

This week’s Budget came and went without too much drama or debate about the central assumption around which everything else revolved.

 

……….Instead, this Budget limited itself to absolute necessities, which meant spending money reactively on health and education to cope with population growth, and the utterly necessary business of rebuilding Child, Youth and Family.

The Government had virtually nothing to say or do in the Budget about dealing with the core problem at the heart of the economy, the Government’s finances, the financial system’s stability and many of the nation’s social woes: Auckland’s housing infrastructure shortage.

Auckland Council made it perfectly clear last week it could not pay for the $17b of roading, water and other infrastructure needed to build all the extra houses around and inside the region the Government is demanding.

Ratepayers don’t want to take on the extra debt to pay for it and the Government’s own rules about local government debt issuance are blocking the council from borrowing the funds it needs.

Auckland’s housing supply outlook, which remains woefully inadequate, is therefore stuck in an endless loop of claim, counter-claim and then nothing being done.

The Government blames the council for not allowing Auckland to build out and up. The council blames the Government for not funding the infrastructure to build out and up.

Meanwhile, Aucklanders face rents rising seven times faster than inflation, house prices nearing 10 times incomes and endless hours in traffic jams on an overwhelmed transport network.

Auckland and the economy needs a circuit breaker of debt-funded infrastructure investment and the only player big enough and financially strong enough to do it is the Government.

Ultimately, it also has the most to lose if Auckland’s housing crisis spirals further out of control.

Why won’t the Government just borrow the money to break the Auckland log-jam?

The Government’s concentration on debt repayment is having real-world effects at a time when the real measure of investor concerns about debt, interest rates, are near record lows of about 2.7 per cent.

English is worried that somehow international investors will lose faith in us if we have to borrow heavily again to deal with another Global Financial Crisis or another earthquake.

There are no indications of that from our credit ratings agencies and English himself regularly trumpets New Zealand’s falling net foreign debt and how Treasury’s repeated warnings about a worsening current account deficit have been plain wrong.

The Government’s own forecasts show net debt will track down to 15 per cent of GDP by 2023 and that solid economic growth and the effects of fiscal drag will keep GDP growing faster than debt.

Instead, the Government said this week it will go out of its way to repay $9.2b in the three years to 2020.

This seems perverse at a time when fund managers and international investors are screaming out for more government bonds to invest in, not less. The Government should stop jumping at debt shadows and just start using that money to show us the infrastructure.

……..

Source and full article: http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=11646727

 

With Bond rates low and investors screaming out for those Bonds to invest in this is the perfect time to start the biggest infrastructure program seen since the end of World War Two. And by infrastructure I do mean:

  1. Rail
  2. State Houses
  3. Contributing to water and waste water pipes in growing urban areas
  4. Those public loos in high tourist areas
  5. Schools, hospitals, police and fire stations

Note I never said motorways. The above list is in viable economical infrastructure not money black holes such as the $12b Roads of National (Party) Significance.

 

Also with Auckland currently in negative productivity mode as seen below the time to invest in the above five infrastructure areas is at the upmost importance as the Unitary Plan goes live in September.

Productivity for the 2014 year. Source; Auckland Plan Annual Implementation Update  https://www.scribd.com/doc/295077521/TR2015-030-Auckland-Plan-Targets-Monitoring-Report-2015
Productivity for the 2014 year.
Source; Auckland Plan Annual Implementation Update
https://www.scribd.com/doc/295077521/TR2015-030-Auckland-Plan-Targets-Monitoring-Report-2015

 

 

The negative productivity will be coming from transport (getting stuck on the motorways) and high house prices causing the working population to be strung up like a wire (so emotional stress). Thus the best thing this Government can do after being asleep at the wheel for eight years is invest in public transport rather than motorways and start a mass State Housing Building program.

The continued increase in patronage on public transport (37% on the Northern Busway, 35% on the Western Line and 34% on the Southern Line) shows how out of touch the Government and even Auckland Transport are with transport investment. We do not need East-West Truckways along the foreshore of the Manukau Harbour, we do not need another road Harbour Crossing, we do not need the Mill Road expressway, we do not need the Reeves Road flyover and we certainly do not need the Auckland to Whangarei Holiday Motorway. What is needed is the City Rail Link that opens up other rapid transit links in Auckland. Rapid transit links like:

  1. Airport Line (heavy rail)
  2. North Shore Line (light rail)
  3. Botany Line (replaces AMETI Busway concept)
  4. North West LRT (light rail replacing the bus way concept and can connect to Isthmus LRT)
  5. Isthmus LRT (light rail)

For freight the Southern Line will need the Third Main from Westfield Junction to Pukekohe at a cost of about $50m (then include the Pukekohe Electrification and three new stations for $110m) to keep the freight trains mixing with the increasing volume of passenger trains.

 

Concepts of the Milford apartments as part of a mixed use development. Source: Transport Blog
Concepts of the Milford apartments as part of a mixed use development.
Source: Transport Blog

 

Housing is another one that needs desperate attention the Government is not willing to give it. The issue is not about urban boundaries given they technically will no exist in the Unitary Plan. With the Unitary Plan (due to go live in September) you have the existing urban area, the Future Urban Zone where future residential, commercial and industrial development can go, and finally the rural zones. The Future Urban Zone is designed to be flexible in location and amount depending on Auckland’s evolving situation over the next thirty years. Meaning more FUZ could be added or some even taken away if demand is very low for urban development in that area. Where the Rural Urban Boundary comes in (if the Unitary Plan Hearings Panel decides we need one in the first place) is an arbitrary line on the border of a FUZ and rural zone.

So with the FUZ and RUB being the non issue it is we come to a mass State housing building program. 100,000 homes whether they are standalone, duplexes or apartments (like Manukau City Centre) built by Housing New Zealand and developers in a partnership would be the fastest way to nail the housing situation in Auckland. The land is available, the rules relaxing height and density restrictions is nearly here (the Unitary Plan) all that is missing is the Government signing the cheque. With the program 10% of the mass build would be kept as emergency housing stock for those who fall on desperate times while the rest can be offered to tenants on a rent-to-buy scheme. The proceeds would then go back to investing into more State housing.

 

http://acmaps.aucklandcouncil.govt.nz/unitaryplan//FlexViewer/index.html
http://acmaps.aucklandcouncil.govt.nz/unitaryplan//FlexViewer/index.html

 

Developers would not lose in such a mass building scheme either. In fact they would be winners with a guaranteed work-stream through the program unlike the risks being taken on when doing a private development (most fail). With such a guaranteed work stream for developers they are able to forward project their labour and even apprenticeship needs meaning stability and certainty for the workforce.  The only losers would be hard ideologues in National and land banking speculators. And as you can tell I am not really caring for them but rather care for the people instead.

 

In the end the buck and all bucks stop with the Government. They have the coercive powers to move things along when required. So far the Government is not using those powers to invest in infrastructure and housing. It through its blind ideology rather blame everyone else but itself for the problems we face now running away from them. If the Government is unable to start the investments Bernard Hickey has mentioned because it is frozen from its blind ideology then it is time to remove the Government and install one that can begin the investment needed.

 

Housing Nick Smith in front of a roaring fire while interview on The Nation. This is while people freeze in substandard homes (or cars)
Housing Nick Smith in front of a roaring fire while interview on The Nation. This is while people freeze in substandard homes (or cars)

 

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One thought on “Government Asleep at the Wheel for 8 Years so #Budget2016 Misses Auckland Entirely

  1. In the Government’s defence they said tax reform is next year and it is possible that a land value tax will be introduced to at least non residents.

    Also it would be a bit off to have ATAP and then budget for infra before it is finished.

    This years budget was about one thing, have a good surplus (Election Promise), pay down some older debt & build the war chest for next year.

    I predict big infra spending next year (LRT, AMETI & AWHC) would be my top guesses, small tax reform including reduced income or corporation taxes with LVT making up some revenue lost so marginal cuts

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