Growth Ponzi Scheme + We Are Too Inefficient as a Nation

Ponzi Scheme threatens NZ

Also housing crisis shows we are to inefficient as a nation


Live in New Zealand long enough and you come to realise that road works take forever, getting fibre internet installed takes months, getting a resource consent can drag thanks to a single bureaucrat on a box ticking exercise and organisations like Auckland Transport taking forever to get back to you (if they do at all) on a customer service enquiry. Simply put New Zealand is extremely inefficient in conducting business and we wonder why productivity can drag such as it does in Auckland.


With Auckland needing housing and housing in a hurry the five-year pipeline from plan to consents to a house being finished is too long. While I can go into consenting being an issue I am going to look at building the physical houses instead.

New Zealand especially Auckland lacks the scale and shear grunt needed to have homes physically built both with quality (33% of all new builds fail building code inspections) and at speed. As Deputy Mayor Penny Hulse said most of the building industry is smaller players and that the industry itself goes through sharp boom and busts that can ruin a development for a very long time if not permanently. The 100,000 State Housing building program was thought up for a reason. It was not to shaft the private sector at all as the private sector would be in partnership with Housing New Zealand but the mass housing building program was designed to offer stability for all.


From NZ Herald:

Penny Hulse: Industry needs to move over house build delay

Auckland’s rising house prices have been grabbing headlines for several years. There are many theories about the reasons for continued escalating prices. Recent attention has been on whether Auckland Council is constraining land supply by having growth boundaries. Last year it was overseas investors that were being blamed. My own view is that there is no single cause or solution.

In this article, I want to address housing supply. There is no doubt not enough homes are being built to keep up with population growth. Around 20,000 to 30,000 new dwellings are needed to meet the current shortage and another 13,000 a year to keep pace with Auckland’s growth. Last calendar year, the council consented just over 9000 dwellings, which is the most since 2005, but still not enough. We estimate that just over 6000 homes were built over the same time.

So why are the houses that we so desperately need not being built? In my view, the supply of land is not the main problem. Rather, the rate of building new homes is not keeping pace with the rate of consenting.

In 2013, Auckland Council entered into a Housing Accord with the Government which involved legislation to create special housing areas (SHAs). These areas benefit from a fast track consenting process and the more permissive planning rules of our Proposed Unitary Plan – rather than the existing district plans that we inherited from the legacy councils.



So why is land supply not turning into housing supply? I am deeply concerned about whether our construction industry has the capacity to build the houses that we need fast enough.

The 2012 Productivity Commission report into Housing Affordability found that our building industry is dominated by small players who lack economies of scale, are fragmented and grapple with ongoing skills shortages. I recently spoke to a building contractor friend of mine who told me that he simply cannot employ enough tradespeople or labourers. We should also consider whether developers are drip-feeding new supply to the market in an effort to keep values high.

Next month the consortia which successfully bid to build the new Puhoi to Wellsford motorway will be announced. That’ll pave the way for a significant new player to enter the market – a player large enough to not only build motorways, but schools, hospitals and many homes. That may be just the catalyst domestic developers need to up their game and build at the scale Auckland so badly needs.

Our residents’ access to suitable accommodation is too important to leave to the boom-bust nature of the construction industry. Residential building consents peaked in Auckland in 2004 at nearly 13,000 before falling to 3200 four years later.

I can’t see how the industry can sustain itself and plan for growth when faced with that much volatility. We need a stable pipeline of construction that the industry can rely on year in and year out.

I don’t have all the answers, but a government housing building programme may have to form part of the solution. In the 1960s and 1970s when we had a building boom, there was government assistance for first-home buyers to build new houses – this helped ensure that supply responded to increasing demand.

I would also like to see a focus on industry training to help grow the supply of skilled workers. This is critical because we cannot afford to sacrifice quality for quantity; we are currently failing around a third of our residential building inspections – a figure which is very worrying to me.




Cue the mass State Housing building program as a win for all. 100,000 homes built within seven years once the consents (fast tracked through the Unitary Plan) are signed off through:

  • Housing New Zealand partnering up with both the big and small players in the construction industry no one has to miss out
  • The seven-year pipeline for the first 100,000 homes would allow:
    • Industry to plan their pipeline seven years in advance at the minimum
    • Recruit AND TRAIN the labour force needed. Given there is a guaranteed seven-year pipeline recruiting and training the labour needs should be easier than having to go season to season
    •  Seven year pipeline also allows the training institutions to plan and train for those wanting to enter the building industry or the supporting sectors
  • Housing New Zealand (who is overseeing the house construction (as well as owning the homes initially)) has the power of the State apparatus that includes access to the 10 year Bond Market and coercive powers afforded to the State via Parliament (penalties for those who run overtime and budget)
  • Financing is stabilised again through Housing NZ having access to the 10 year Bond Market and other Crown Debt facilities not afforded to the private sector (so cost of borrowing is lower)
  • The stable financing afforded to Housing NZ means through rent-to-buy schemes those who might have not been able to afford a house on market values can access a house to call their home

10% of the 100,000 homes would be kept as Housing New Zealand emergency stock while the other 90% as rent-to-buy if the tenant wishes to do so. Proceeds can then be used to build the next 100,000 homes or as many as demand requires.


The State is effectively doing what it should be doing in a Social Democracy like ours; intervening to level out boom and bust spikes in the market while allowing the citizens access to a fundamental economic right – a warm dry home.


Papakura Unitary Plan Map
Papakura Unitary Plan Map


Growth as Ponzi Schemes


While from the United States both Auckland and Tauranga face the exact same situations with the Population Growth Ponzi fuelling the urban growth ponzi in both cities.

From Strong Towns:


by Charles Marohn

  • Most American cities find themselves caught in the Growth Ponzi Scheme.
  • We experience a modest, short term illusion of wealth in exchange for enormous, long term liabilities.
  • We deprive our communities of prosperity, overload our families with debt and become trapped in a spiral of decline.
  • This cannot continue.

We often forget that the American pattern of suburban development is an experiment, one that has never been tried anywhere before. We assume it is the natural order because it is what we see all around us. But our own history — let alone a tour of other parts of the world — reveals a different reality. Across cultures, over thousands of years, people have traditionally built places scaled to the individual. It is only in the last two generations that we have scaled places to the automobile.

How is our experiment working?

At Strong Towns, the nonprofit, nonpartisan organization I cofounded in 2009, we are most interested in understanding the intersection between local finance and land use. How does the design of our places impact their financial success or failure?

What we have found is that the underlying financing mechanisms of the suburban era — our post-World War II pattern of development — operates like a classic Ponzi scheme, with ever-increasing rates of growth necessary to sustain long-term liabilities.

Since the end of World War II, our cities and towns have experienced growth using three primary mechanisms (note: since 1991 it is extremely rare for Central Government to get involved in #1 in Auckland. Irony would have it that if they did get involved most of Auckland’s infrastructure issues would not a bad as they are now):

  1. Transfer payments between governments: where the federal or state government makes a direct investment in growth at the local level, such as funding a water or sewer system expansion.
  2. Transportation spending: where transportation infrastructure is used to improve access to a site that can then be developed.
  3. Public and private-sector debt: where cities, developers, companies, and individuals take on debt as part of the development process, whether during construction or through the assumption of a mortgage.

In each of these mechanisms, the local unit of government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure. This exchange — a near-term cash advantage for a long-term financial obligation — is one element of a Ponzi scheme.

The other is the realization that the revenue collected does not come near to covering the costs of maintaining the infrastructure. In America, we have a ticking time bomb of unfunded liability for infrastructure maintenance. The American Society of Civil Engineers (ASCE) estimates the cost at $5 trillion — but that’s just for major infrastructure, not the minor streets, curbs, walks, and pipes that serve our homes.

The reason we have this gap is because the public yield from the suburban development pattern — the amount of tax revenue obtained per increment of liability assumed — is ridiculously low. Over a life cycle, a city frequently receives just a dime or two of revenue for each dollar of liability. The engineering profession will argue, as ASCE does, that we’re simply not making the investments necessary to maintain this infrastructure. This is nonsense. We’ve simply built in a way that is not financially productive.

We’ve done this because, as with any Ponzi scheme, new growth provides the illusion of prosperity. In the near term, revenue grows, while the corresponding maintenance obligations — which are not counted on the public balance sheet — are a generation away.

In the late 1970s and early 1980s, we completed one life cycle of the suburban experiment, and at the same time, growth in America slowed. There were many reasons involved, but one significant factor was that our suburban cities were now starting to experience cash outflows for infrastructure maintenance. We’d reached the “long term,” and the end of easy money.


…….That is now our greatest immediate challenge. We’ve actually embedded this experiment of suburbanization into our collective psyche as the “American dream,” a non-negotiable way of life that must be maintained at all costs. What will we throw away trying to sustain the unsustainable? How much of our dwindling wealth will be poured into propping up this experiment gone awry?

We need to end our investments in the suburban pattern of development, along with the multitude of direct and indirect subsidies that make it all possible. Further, we need to intentionally return to our traditional pattern of development, one based on creating neighborhoods of value, scaled to actual people. When we do this, we will inevitably rediscover our traditional values of prudence and thrift as well as the value of community and place.

The way we achieve real, enduring prosperity is by building an America full of what we call Strong Towns.

This article is a summary of a larger series on the Growth Ponzi Scheme. The complete series can be read by following these links: 


For New Zealand especially Auckland our biggest ponzi scheme that is both Council and Government induced is the roads and motorways ponzi scheme. We are building these wide grandiose roads and motorways when both fuel tax revenue is falling per capita of population (more efficient cars and rise of E-cars) and car usage is falling due to more people taking public or active transport. Basically we will have this massive roads liability in 30 years time due to the short sightedness of politicians and bureaucrats today over investing in roads and not enough in public and active transports. Given 30 years times the Baby Boomers will be retired and on Superannuation I wonder what funding will get diverted from where to pay for their liabilities they created today?


Option F
Option F costing $1.85b and rising. Preferred option of NZTA and Government


Option B This Should Be the East West Connections
Option B. Less than $500m and rejected by NZTA and Government. Uses existing infrastructue for most of the route while not touching the Manukau Harbour.
This Should Be the East West Connections


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