Auckland Council’s fact sheet on the rural-urban boundary contains a beautiful illustration of a binding constraint in action:
Auckland Council’s fact sheet on the rural-urban boundary contains a beautiful illustration of a binding constraint in action:
Let’s apply some basic economics to this situation. It’s not immediately obvious from the photo but a shared space can still be used by cars, so the transport function of the road is not lost. What is lost is the ability to park cars on the road.
At current market prices, the value of a parked car in downtown Auckland is about $8 per hour. In the first photo I count 13 parked cars so that’s just over $100 per hour value being created by these parking spaces. At off-peak times when not all the spaces are used, the value will be less.
Now look at the second photo — this also seems to be a peak time, so the right question to ask is whether the incremental value being created is more than $100 per hour. Without being too scientific about it, I’d say the incremental profit of the businesses there would easily exceed this amount, although a more precise calculation needs to be done to be sure.
Yesterday I had lunch in Mount Maunganui and was struck by how the cafes along what is probably one of the most beautiful beaches in the world are severed from the beach by a busy road and lots of car parking. (There is a cycle lane tacked on as an afterthought in a very dangerous position behind the parked cars).
Here’s a photo I took sitting at one of the cafes:
I realise the road was probably there a long time before the cafes, and it would be very expensive to move the road. But what about the car parking? The parking was free but this surely under-estimates the value as many cars were circling looking for free spaces. If say it was $4 per hour per car (half of Auckland CBD) then the question is whether removing these parking spaces generates more value than that. I don’t know the answer but it’d surely be interesting to study.
Between the 2001 and 2013 censuses, Auckland’s population increased by 255,000 people, from 1,160,000 to 1,416,000 (this is the “census usually resident population“, which differs a bit from the actual population). The population is expected to grow over the next few decades, although perhaps not quite as fast as previously expected.
The big question facing Auckland is where to build the new dwellings to accommodate the population increase, ie whether to densify or sprawl. With that in mind, I thought it would be interesting to map the change in population density (people per square km) that occurred between 2001 and 2013.
The following map (click it to see a bigger one) shows the percentage change in population density for each of Auckland’s census area units. There are five shades of red, with darker corresponding to a greater percentage change, and the five shades reflect quantiles of the percentage change distribution. I chose to show the percentage change (rather than absolute) because that will reflect how people who live in the area perceive the change in density, eg if it was very dense to start with, a small absolute change in density would not be noticeable.
This map makes it reasonably clear that, in proportionate terms, density has increased most in the very central city and in the outer areas. So some densification and a fair bit of sprawl.
The next map zooms in on the central isthmus and North Shore (click for a bigger map). Again the big increase in density in the central city is clear. Also clear is the lack of change in density in areas surrounding the central city.
This leads to the million dollar question: Is it necessary to prevent densification to protect the “character” of suburbs? As a partial answer, it’s interesting to look at Ponsonby East — the tenth most densely populated area in Auckland in 2013.
As Transport Blog recently pointed out, density doesn’t necessarily mean ugly, for example Renall Street looks pretty nice to me (your preferences may vary):
An exchange I had on Twitter yesterday with the NZ Productivity Commission and Ed Willis got me thinking. Xero is arguably the hottest company in NZ right now. Its market capitalisation has hit $4.57 billion, and if you had invested a dollar in Xero a year ago, you’d have nearly six dollars now.
Xero has yet to make a profit, and its latest earnings result is a loss of 13.1 cents per share. But the sharemarket is forward looking and it is valuing Xero’s future prospects, which it clearly thinks are very bright. Contrast this to Air New Zealand, for example, which made a profit of 16.6 cents per share and is valued by the market at $1.83 billion.
Now when you think about traditional measures of economic success — GDP growth and productivity — Xero is pretty much a disaster at this point. It doesn’t “add value” to the economy so we’d be better off if Xero were shut down and its resources diverted to Air New Zealand.
Clearly this would be a short-sighted move. Economic statistics can only look backwards, but the sharemarket recognises Xero’s potential to add lots of value in future. Sure it’s a relatively risky bet, but if we had enough Xeros then one of them has a good chance of paying off.
There’s value in looking to the past, to study trends and understand the economy’s current structure, but I wonder if we also need some more forward-looking measures of economic performance. Sharemarket capitalisation is a relatively crude statistic — it excludes a large number of companies that are not publicly listed. I wonder if it would be possible to use Inland Revenue data to calculate an overall valuation for the business population?
The government is starting to tackle the issue of collecting GST on goods purchased online from foreign sellers, with a discussion paper on the issue coming soon.
I’m not a fiscal policy expert but in general consumption taxes are thought to be less distortionary than income tax, so given that the government has some total revenue target, it’s sensible to collect a decent chunk of that through GST. You may not like the size of the revenue target, but that’s a different issue.
As a consumer I’ve found it’s often not the 15% GST differential that makes me buy from overseas online. It’s frequently the simple lack of availability of products in NZ, or ridiculously high local retail prices. On more than one occasion I’ve found it cheaper to pay UK VAT and then NZ GST on top than to buy locally. That kind of situation suggests there’s some serious fixed costs in importing and retailing, and/or excessive profit margins.
Also annoying is the fixed $29.26 import entry transaction fee and $17.63 biosecurity levy applied to all imports that exceed the threshold. This can be reasonably large in percentage terms for some purchases, and presumably this reflects the relatively high cost of collecting GST and duties on imports. This is not surprising since each item needs to be inspected and handled individually. In contrast, the costs for local retailers of implementing the GST system are relatively low due to the system’s simplicity (it applies to everything at the same rate).
I suspect the costs of processing imports somewhat reflects the legacy system of import duties, which are very ad hoc and sometimes bizarre. To give just one example, there’s no duty on battery chargers for nickel cadmium batteries, but a 5% duty on battery chargers for other types of batteries. If a consumer imports a battery charger, presumably someone at Customs has to figure out if this duty applies, and that increases processing costs.
I wonder whether the government’s GST discussion paper will consider the effects of scrapping import duties on the costs of collecting GST on online purchases? It’d be quite a good outcome if the trend towards online shopping forced a rethink of this cumbersome and inefficient system (not to mention the silly anti-dumping duties!)
Lance Wiggs has some other possible solutions for reducing the cost of collecting GST on online purchases including delivering goods immediately but billing consumers for the GST and asking big online sellers overseas to cooperate with IRD. Though I’m not sure whether these will be very effective — people will always try to find loopholes.
So when assessing the benefits and costs of applying GST to smaller online purchases, it’ll be important to weigh up the costs of collecting the revenue. Once collection costs (and expected avoidance) are added in, is this source of GST still more efficient than income or property taxes? There is also demand elasticity to consider — how will people respond to higher prices for the types of purchases that will be affected?
There are a bunch of economic tradeoffs and it’s not immediately clear whether applying GST to smaller online purchases is a good idea. Hopefully someone will get a chance to think about this seriously from an overall cost-benefit perspective.
This photo is doing the rounds online
So you’re a fancy hotel, and maybe you don’t clean the robes every day, or maybe your cleaner just made a mistake one time. Whatever, the point is that something seemingly small can blow up big time online. The consequences of mistakes are much more serious now. This is good news for consumers, as it will force businesses to sharpen their game.
Spot the difference:
Riskier investments require a higher return.
Riskier investments require a higher expected return.
Expectation is the key thing here. Taking more risk means you deserve to expect a higher return but does not mean that higher return is guaranteed, else there is no risk being taken in the first place. This basic point is overlooked too often I think.
I know I’ve been banging on a lot lately about the NZ broadband pricing / Chorus UFB kerfuffle, but I find the game theory of the situation quite interesting.
So far it’s looked like a giant game of chicken between Chorus and the government. Games of chicken are supported by imperfect information — you don’t know what the other player knows and what they are going to do, so you have to guess, and this leads to confusion and the possibility of a bad outcome. There are incentives to try to manipulate the outcome by making threats and promises.
However the government’s powers give it a bit of an advantage and it has used this advantage in its latest move of requiring an independent and transparent review of Chorus’s ability to meet its UFB commitments.
The effect of this depends on how truly independent and transparent the review is, but potentially it can clear up the informational problems and put a stop to the strategic posturing.
In short, this seems to be a very good move by the government.
Update: I think it’s interesting that the sharemarket appears to view this review as negative for Chorus. Maybe there’s more going on, but it seems that if Chorus were in big financial trouble and unable to meet their UFB commitments, this review would help them to get out of that trouble by convincing the government and the public that they do need extra cash, which should be positive for shareholders.
The Commerce Commission’s final determination on the UBA component of Chorus’s wholesale broadband price came out today. This is the price to use the electronic gizmos, as Donal calls them, that provide broadband services over Chorus’s copper network. In spite of what I imagine is huge pressure to do otherwise, the Commission has cut the UBA price by almost 50%, from $21.46 per customer per month to $10.92.
In the big picture scheme of things, the Commission has clearly signalled its independence and objectivity. This is really important for any regulator, but especially so when the government is a co-investor alongside Chorus in the UFB programme.
As I’ve explained before, it’s perfectly legitimate for the government to want to do things like build a new fibre broadband network. But in order to prevent sticky situations and conflicts of interest later, the government should avoid, as much as possible, making up the rules as it goes along. A good way to do that is to hand over as much decision-making ability as possible to an independent body such as the Commission, and refuse requests for special treatment if things don’t work out as well as the government’s private partner expected.
Meanwhile, Chorus has thrown its toys out of the cot and is trying to raise the stakes, claiming that it will have to “discuss with the Crown whether Chorus is still a credible UFB partner”. Is this just another move in a game of chicken between Chorus and the government? How the government responds will affect its reputation and the success of not only the UFB programme but other future public-private partnerships. This book may help (seriously — it’s a great book).
Twitter has been making some fairly big changes lately, introducing fairly large images into the timeline. This partly seems to be to support richer and more obvious ads, in comparison with the existing “sponsored tweets” that tend to get lost in the stream. Presumably, these more in-your-face ads can be sold for a higher price.
Services like Twitter obviously need to make money, but people seem to particularly dislike ads in social media. The question is why — since we accept ads in a lot of other media (TV, radio, magazines, newspapers, etc), why the stronger aversion to ads in social media?
I think the answer lies in the active nature of social media, versus the passive nature of older media. Social media is not simply presented to you like TV or a magazine, but is created to some extent by you. Even if you just read Twitter and never tweet, you still curated the list of people that you follow. And of course for a lot of people the experience is much more active and personal.
This generates a greater sense of ownership over your social media stream, in comparison with TV or radio for example. Having prominent ads in your Twitter feed is a bit like allowing companies to put up billboards in your bedroom — some sort of boundary has been crossed into a more personal space.
It’s also notable that books don’t have ads (although some books themselves are arguably ads). Books are passively consumed, but the experience is somehow more personal than, say, reading a magazine. I think this is because of the time and emotional commitment that you have to invest to read a book. That brings it into the more personal realm and would make ads feel weird.
So while ads are an obvious source of revenue for social media companies, and while they have lots of data that they can use to target these, doing so will always make their customers uncomfortable. Maybe over time this perception of personal space will change, but it seems like an uphill battle to me.