Newsroom Pro's 8 things: PM to start ATAP revamp in Goff talks; Australia's CGT and buyers ban actually worked

Global house prices. Source: The Economist

In today's email we looked at the shake up that is on the way for Auckland's transport infrastructure plans, and we dug into the accuracy of the claim that Australia's foreign buyers ban and capital gains tax did not work to slow house price inflation in its major cities.

1. ATAP renegotiation starts

Now the heavy lifting on revamping Auckland's transport infrastructure plans is about to start in earnest.

Prime Minister Jacinda Ardern, Finance Minister Grant Robertson and Transport Minister Phil Twyford will meet with Auckland Mayor Phil Goff in Ardern's Beehive ninth floor office this morning to essentially begin a renegotiation of the previous Government's Auckland Transport Alignment Plan (ATAP) with Auckland Council.

Twyford told me in an interview on Monday night that the renegotiation of the 30 year plan aimed to refocus investment on upgrading Auckland's rapid transit infrastructure such as light rail and busways to reduce congestion and handle almost a million extra people in the coming decades.

In particular, the negotiation will focus on how to fill a $6 billion funding gap over the next 10 years that was left unfilled by the previous Government. Twyford said the new Government saw the gap partly filled by a 10 cent/litre regional fuel tax and the introduction of targeted rates on developments around new rail lines to capture the value uplift from that infrastructure.

"It's tough to ask the rest of New Zealand to pay all of the marginal costs of Auckland's growth," Twyford said, referring to the extra revenue raising moves in Auckland.

But it is the Government's planned use of the National Land Transport Fund to help fund Auckland's light rail infrastructure that could prove most controversial, given it is paid for through road user charges and fuel levies by everyone around the country.

"There's no logical reason why rapid transit, like rapid transit busway or light rail infrastructure, shouldn't be funded out of the NLTF, just as as state highways are," Twyford said.

"The logic behind that is that what we know is that good rapid transit allows you to get much more value out of the highway network by allowing the traffic to move much more freely at peak hour," he said.

But even after using the NTLF, there's still a gap that Auckland and the Government will need to fund, potentially with targeted rates to capture the value uplift when new rail lines are planned.

"Auckland Council believes that one of the ways that they can plug that gap is, for example, capturing some of the value uplift around the network. So when you put in transport, whether it's a motorway or a rail line, it causes a massive increase in value alongside that," Twyford said.

"When you build a motorway, the land next to the interchanges and onramps goes through the roof. This idea that Auckland Council are working on is to basically establish an Urban Development Authority in the area around the line, around the stations, to coordinate to get the best possible development outcomes, and the light rail line going up Dominion Road will create fantastic development opportunities," he said.

"That's what they're working on with Auckland Transport. The light rail in the Gold Coast and Cross Rail in London have both operated similar approaches where they've been able to capture some of that value uplift with targeted rates."

Here's a Conversation article on how the tool was used in Queensland.

The Government was also looking at using infrastructure bonds, possibly through the Crown Infrastructure Partners vehicle set up by the previous Government.

"We'll work with them to make sure that programme is funded. There may be other financing tools that could be used."

The ATAP agreement and the Government Policy Statement for Transport would need to be revamped to reflect the change in approach to light rail and to changing the funding tools.

The meeting today is expected to focus on the logistics of how to do that, including whether the Government would have to amend or create new legislation to allow Auckland and other Councils to use the new tools such as value uplift capture.

See my article from yesterday that was first published on Newsroom Pro for more detail.

2. Is Australia really a good counter-factual?

Opponents of the foreign buyers ban and a capital gains tax say they haven't worked in Australia. But as the chart above shows, their absence here actually helped our prices outperform Australia's dramatically since 2002.

The planned imposition of a foreign buyers ban and the election debate about a capital gains tax often throws up the straw man of Australian house prices.

It seemed like the perfect counter-factual to argue that a ban on foreign buyers and a capital gains tax would not make any difference here. After all, it was argued, Australia has both rules in place and their prices are even crazier than New Zealand's.

But is that true?

The Economist measure above of house prices globally shows that New Zealand house prices vastly outperformed those of Australia, Canada, Britain and Australia since 1980. Australian house prices may be higher than New Zealand in some places, but the relative performance of our houses when compared with Australia's is much, much better, particularly in recent years.

Australia put in place its ban on foreigners in the 1970s and ramped up enforcement in 2015. Victoria and New South Wales introduced a land tax for foreign buyers in mid 2016 and Victoria increased its stamp duty surcharge for foreign buyers to seven percent from three percent in mid 2016. Australia also removed the exemption from its capital gains tax for the main home for overseas investors in this year's budget.

New Zealand's house prices, and Auckland's in particular, have vastly outperformed Australia's in the last three years in particular as Australia ramped up its attempts to slow down the flow of capital coming in from overseas.

In particular, Australia's house price performance underperformed through early to mid 2016 as its banks stopped lending to overseas investors because of concerns about the validity of income documentation. The New Zealand units of those same Australian banks also reduced lending to overseas investors through late 2016, which also coincided with a slowdown in the New Zealand property market.

The relative performances of the New Zealand and Australian property markets since the early 2000s show that the absence of foreign buyers' bans and a capital gains tax have been significant factors in helping New Zealand perform much better. The effect is most pronounced after the significant rise in net migration in the early 2000s and the arrival of capital from overseas in subsequent waves of migration.

The ability for rental property investors to borrow easily and heavily from banks to win highly-leveraged and tax free capital gains also helped super-power our prices, at least until late 2016 when the Reserve Bank forced such investors to have 40 percent deposits. Australian investors must pay a capital gains tax, which helped limit the extent of their appetite for such leveraged gains, although there was plenty of that investment too in Australia over the period -- again until the Australian Prudential Regulator forced the banks their to limit their lending to rental property investors.

New Zealand's outperformance of Australian prices significantly accelerated from 2002 to 2007 and from 2013 onwards. New Zealand had the same problems as Australia with very fast lending growth from banks and with restrictions on growing housing supply, particularly in Sydney, so the main difference is the lack of a capital gains tax and foreign buyers ban.

If anything, New Zealand's outperformance of Australia is even more remarkable given the relative performances of our economies over that period. Australia's wage advantage over New Zealand grew sharply to around 30 percent between the early 1990s and now, which should have helped Australian house prices do much better than ours. Instead it was the other way around.

3. There was a youth tremor

The Electoral Commission released its first detailed analysis of who voted in the September 23 election, including a breakdown of voting rates by age group.

One of the most keenly watched areas was whether there had been a 'youth quake' of new or previously non-voting young people who voted for Labour and the Greens in the election.

The large number of unenrolled people who turned up at polling booths open before the election suggested something happened. Large numbers enrolled and voted at the booths at the same time, which were counted as special votes.

The strongly pro-Labour and Green results in the counting of the special votes suggested many were young voters enrolling and voting for the same time, but there remained some doubt without extra analysis.

Now the Electoral Commission has reported there was indeed an increase in turnout among younger groups, but not a massive increase. The effect was most pronounced among the 18-24 age group. Turnout in that cohort rose 6.5 percentage points in 2017 from 2014, while the 25-29 group rose 5.5 percentage points.

However, there is still some way to go. Over 190,000 voters in those age groups were enrolled but did not vote, and even more were not even enrolled.

Here's the full breakdown of the changing voting rates, as a percentage of those enrolled.

4. 'Keep a wary eye on China'

During the early 1990s I worked in the Parliamentary Press Gallery in Canberra for Reuters and covered then Labor Foreign Minister Gareth Evans a bit.

Along with then Prime Minister Paul Keating, he was one of the intellectual powerhouses in the Labor Government of the late 1980s and early 1990s and led its stronger engagement with Indonesia and China in particular.

He's now a well respected and active elder statesmen on various international groups and the speaking circuit.

I always found him to be a thoughtful if slightly abrasive minister at the time, although nowhere near as abrasive as Keating, who was on a much higher plane when it came to skewering journalists and opponents.

Newsroom's Sam Sachdeva interviewed Evans this week for his views on what's happening in our immediate region and how we're engaging with our main partners.

He was critical of America's actions in the region, and said we should be wary of China's expansionist tendencies.

China’s instinct is to be “as hegemonic as it possibly can be”, Evans said, and it must be held in check.

That sort of concern has fuelled a number of stories in Australian media about growing Chinese influence in the country.

Evans, the chancellor of Australian National University, has himself spoken about the need to protect international students from foreign espionage in the wake of articles about Chinese students protesting “offensive” course material.

He said the concerns on Australia are based on “an objective and rational foundation”, rather than any over-reliance on the US perspective of China’s rise.

“Obviously China being the authoritarian state it is, does like to keep tabs on its nationals in a way that is unknown for any other country in terms of its nationals abroad, and that does have a certain inhibiting impact on students capacity to fully enjoy a free and robust educational experience.

“They are looking over their shoulder more than we ought to be comfortable with.”

See Sam's full story on the interview here on Newsroom Pro, where it was published first yesterday.

5. Nowhere near full employment

The focus on yesterday's Labour Force figures was on the 54,000 increase in employment during the September quarter and the fall in the unemployment rate from 4.8 percent to 4.6 percent -- a nine year low.

An increase in wage inflation to 1.9 percent was also noted, given the effects of the one-off large increase in wages for aged care workers because of the Government's pay equity decision.

But a closer look at the figures showed the extra jobs were soaked up by an increase in the working age population through migration and an increase in the labour force participation rate, partly through more superannuitants working for longer.

That meant that the number of unemployed only fell 2,000 to 126,000 and the under utilisation was actually flat at 11.8 percent.

6. While you were sleeping

As expected, the US Federal Reserve has left interest rates unchanged, announcing its benchmark interest rate target would remain at between 1 percent and 1.25 percent. A rate hike is anticipated for the Fed's next announcement in mid-December.

Facebook revised up the number of people who had seen posts and ads emanating from a Russian-linked "troll farm" tasked with sowing division into the US electorate to 150 million. Executives from the social network were testifying to a Senate intelligence committee hearing into Russian meddling in the presidential election.

7. Coming up...

Jacinda Ardern, Winston Peters and David Parker will all be attending the APEC meeting in Vietnam next week. Following that, they will attend the East Asia Summit in the Philippines on November 13 and 14.

President Trump will be at APEC where all eyes (New Zealand eyes, at least) will be on the first meeting between him and Ardern.

Ardern's first face-to-face meeting with another head of state will be with Malcolm Turnbull in Sydney on Sunday.

8. One fun thing

Whether or not you are a Bruce Springsteen fan, this twitter thread by Gabrielle Bluestone matching the lyrics of his hit "Atlantic City" to some classic moments from the Trump presidency is solid gold.