Monday, 9 January 2017

A cork in choppy seas

Every now and then I like to resurrect the Monetary Conditions Index (MCI), which was an attempt to combine both interest rates (the 90 day bank bill yield) and the exchange rate (as measured by the TWI) into a summary measure of the overall tightness of looseness of monetary conditions. It's not perfect - you could argue for including more measures or other measures (such as longer term interest rates) and for building the index differently - but it's better than a simple focus on interest rates alone.

Here's what it looked like at the end of 2016.


Yes, the Reserve Bank has set short-term interest rates on "very easy": the official cash rate (OCR), at 1.75%, is some 2.25% to 2.5% below the 4% or so that the RBNZ would regard as a neutral level. But overall monetary conditions aren't "very easy". The absolute level of the MCI doesn't translate in a straightforward way into "loose" or "tight", but given that it's currently well above its long-term average, you probably wouldn't be too wrong if you said overall monetary conditions were somewhere on the tighter side of neutral.

Focusing on the MCI is a good reminder that our overall monetary conditions are only partially under our own control: we're a small open economy in a world where the big guys' interest rate and currency policies are the ones that matter.. The RBNZ can set the OCR, but it doesn't have a lot of say about longer term interest rates (where our bond yields are set to a substantial degree by overseas yields plus a credit premium), and still less over the TWI, which is the resultant of a myriad of global variables.

Last year, for example, the NZ$ dropped a little against the yen (which strangely had become the 'safe haven du jour'), but rose a bit against the A$ (we offered higher yields and a faster growth rate), rose rather more against the euro (where the ECB is still in full negative interest rate / quantitative easing mode) and soared against the post-Brexit pound. Our ability to steer the TWI to where we'd prefer it is close to half of five-eighths of the proverbial.

It's also a reminder, as a corollary, that achieving our targetted 2% inflation rate can't be wholly under our own control, either. That doesn't mean that we shouldn't hold our RBNZ Governors accountable for making the best decisions they can under the circumstances they inherit. But sometimes - and the last year or two is one of those sometimes - I suspect that, given the macroeconomic hand they've been dealt by the overseas croupiers, there may not be any realistic setting for domestic policy that will meet the target,

Sunday, 1 January 2017

A good idea hits a snag

'Dumping'. What a good word for those wicked, wicked manufacturers overseas who 'dump' their goods here at lower-than-fair prices and drive our honest battlers to the wall. And when they've driven our fellows out, they have the market to themselves and can rip us off. Good job we've got anti-dumping laws to protect us, eh?

But hang on a minute. Let's just suppose you're in Malaysia and you make diaries. How likely is it, really, that one day you'll wake up in Kuala Lumpur and say to yourself, "I think I'll flood the New Zealand market with ultra-cheap diaries, and when I've cornered the market, I'll jack up prices and make a killing"?

Because there are two eentsy problems with that plan. One is you'll be making lower than normal profits (or even losses) in New Zealand when you could be making normal ones in New Zealand or somewhere else. And the other is that if you do indeed corner the market with temporarily low prices, the minute you try to jack up prices someone will come in and undercut you. After all, if the New Zealand market is so easy to enter and dominate, anyone can get into that game, including your mates on the other side of town when they spot what you're up to. Low profits now for high profits later doesn't look a realistic runner.

The reality is that 'predatory pricing' strategies like the Great Malaysian Cunning Diary Plan are likely to be rare and unsuccessful. If things turn up in New Zealand at unusually low prices, it's more likely that the low prices come from a genuinely cheap producer, and one who might well be sweetening the pot, if trying to break into a new market, with especially sharp pricing: nothing wrong with that. Or it could be that there's a temporary glut of something - tomatoes, peaches, steel - and producers everywhere are trying to shift what they're lumbered with for whatever it will fetch. Nothing wrong with that, either: you'd do the same. And in both cases New Zealand consumers (including businesses who use the cheap goods as industrial inputs) are the winner, and it's the effect on consumers that ought to be front of mind when we're thinking about policy issues like 'protection' from 'dumping'.

If only. At present, our anti 'dumping' legislation ignores consumers. If a Greek peach canner sells peaches in Athens for say $1 a can, and sells them in New Zealand at say 90 cents a can, a New Zealand peach canner can cry "Dumping!" and get MBIE to slap an import duty on the Greek peaches, even if consumers would have been happy to fill their trolleys with them. And our domestic monopoly peach canner, Heinz Wattie's, has indeed been protesting about those pesky Greek imports since 1998, and very successfully too. MBIE renewed the anti-'dumping' duties in July 2015 and lately there have been no Greek peach exports to New Zealand at all.

And those Malaysian diaries, by the way, are also a real life example. Malaysian diaries from a range of Malaysian makers - and from a range of Chinese ones, which proves my point about the Malaysian guy being unable to corner the market because others both in Malaysia and in China would undercut him - have been hit by anti-'dumping' duties from 2007 to 2015, as you can see on the MBIE web page listing all the completed anti-'dumping' investigations.

The anti-'dumping' law is long overdue for a fix which would allow competition and consumer benefits to be weighed in the balance, and not just the comfy position of the domestic incumbent. And it got one: it took them forever, but MBIE finally got round to it in August 2015. As I posted at the time, 'A good idea finally gets the nod', and you'll find links there to the history of the process. The guts was that there would be a new public interest test:
In future...domestic producers won't be able to have cheap peaches or tomatoes or building materials shut out of the New Zealand market unless they can show that the damage to them is more than the damage to New Zealand consumers. Which it often won't be: there's only a  few of them, and there's lots of us. A process that has been much abused for protectionist reasons, both here and abroad, is finally getting defanged
And then the politics kicked in, when the proposed legislation landed before Parliament's Commerce Select Committee. As the National Business Review reported,  'Politicians split on dumping penalties bill in run-up to Chinese steel inquiry': the National members wanted to go ahead, the Opposition members didn't. They split 5-5, deadlock: "we were unable to agree on whether to recommend that the bill be passed". The Committee's full report on their deliberations is here.

It's kind of strange how things have lined up. National might be thought of by some as in the pockets of big business, yet its members on the Commerce Committee took the pro-consumer side, while Labour, the Greens and NZ First, who some might expect to champion the consumer against the corporation, took the "protect New Zealand businesses" position.

To be fair, the Committee had to give due weight to the submissions in front of it, and the submissions were, as the Opposition members said in the report, "overwhelmingly opposed to this bill, warning that it would be likely to tilt the playing field in favour of dumped or subsidised imports rather than supporting local producers and jobs".

But of course the submissions were overwhelmingly opposed. They were overwhelmingly from the usual suspects (including Heinz Wattie's).That's precisely the problem.

As is often the case in policy matters (and overwhelmingly the case in trade policy ones) the small group of producers adversely affected by change make an unholy racket: the 99.5% of the population who'd quite like cheaper diaries or cheaper peaches don't get heard from.

This time, too, the consumer viewpoint went largely unheard, other than through The Warehouse Group's submission. True, it had its own barrow to push - it had been on the receiving end of various anti-'dumping' measures, including, as it happens, both diaries and tinned peaches - but even so it got to the right answer, that the new public interest test
is necessary to ensure that the legitimate interests of all stakeholders and the wider economy are routinely considered and balanced before punitive duties are imposed.
Yes, there will be genuine instances where domestic producers are getting unfairly shafted (overseas governments' subsidies to their exporters being an example) and we ought to have some backstop protection. Yes, we as a country resort far less to anti-'dumping' protectionism than other places do (notably Australia), so it's not a massive rort that needs a lot of fixing. And yes, you have to feel some sympathy for folks who might lose out from cheaper imports, as you will, for example, if you read the submission from people who grow the peaches for Wattie's. The solution is transitional help for people affected by policy changes, which should be part and parcel of all trade reforms but often isn't (and which has consequently helped provide the political oxygen for the protectionism of the Trumps and the Le Pens).

But for all that, the direction of reform is nonetheless right, and I'd say the same thing (just to be clear) if it were the Labour/Green/NZ First people for it and the Nats against. The process shouldn't cater solely to the "Woe is me" reactions, and it should take account of greater competition, greater choice, and lower prices.

The politics, however, is iffy, as the split on the Commerce Committee showed. Reform could conceivably be presented in a voter-friendly way - as making family budgets go further, for example, or as reducing input costs for New Zealand businesses. But the vocal views of the protected producers make it an uphill sell. Whether the government will have the bottle to keep on the right path in election year remains to be seen.

Wednesday, 21 December 2016

How strong is strong?

The economy's ticking along nicely. Tomorrow's GDP numbers for the September quarter are expected to show an 0.8% increase for the quarter, which would make it 3.6% for the year. And virtually all the recent data have been solid to robust. On the solid side, for example, there's the December quarter Westpac McDermott Miller consumer confidence index ("New Zealand households are in the mood to celebrate. However, it looks like the party will be more of a relaxing family barbeque, rather than a fullblown rager") while down the robust end we've had the latest (November) BusinessNZ/BNZ Performance of Services Index ("a picture of strength"). In per capita terms, it's not the boomer it might look like at first sight, and I'll come to that, but it's still a pretty picture.

Unsurprisingly, forecasters have been upping their estimates of what's down the track. The latest (December) quarterly consensus forecasts collated by the NZ Institute of Economic Research showed that likely GDP growth in the year to next March is now reckoned to be 3.5% (the September quarter consensus had picked 3.2%) and there has been a marked revision upwards for likely employment growth, which is now expected to be a stonking 4.8% compared with the 3.2% that seemed the best guess back in September. Forecasts for growth and employment over the three years to March '20 have been nudged a bit higher, and there isn't a single forecaster (out of the 9 polled) prepared to call a recession over that period.

But you knew that. What's my point? It's this: I reckon the short-term outlook may be even stronger than people currently expect.

Recently I've been playing around with my little Excel forecasting model, and I can't easily get the GDP growth numbers for the next year much below 4%. I've assumed there will be some kind of wealth effect on consumer spending, and I've assumed that there is enough capacity in the building trades to allow for another reasonably substantial rise in housebuilding. If that's your view of the world, numbers north of 4% start shimmering into view. Interestingly, according to the ANZ confidence surveys (for example, here), "Our confidence composite gauge (which combines business and consumer sentiment) is pointing to GDP growth accelerating to north of 4%. Capacity constraints (getting skilled labour) will put a dampener on that but we like the spirit".

I could easily be wrong. Perhaps New Zealand households have suddenly had an outbreak of financial prudence, or as RBNZ governor Graeme Wheeler put it in a recent speech, "Growth in real consumption per capita has averaged 1.6 percent pa in the current economic cycle – about ½ percentage point below the post-1993 average growth rate of 2.1 percent, despite the rapid increase in housing wealth...This more cautious consumer behaviour may reflect a reassessment of the ‘permanency’ of capital gains from household assets, and greater caution about the level and durability of future income growth".

Maybe. But I'd still be rather surprised if families, sitting on the biggest financial bonus of their lifetimes (especially in Auckland), continued to spend more slowly than usual. They may well (sensibly) discount the scale and the ultimate bankability of their winnings. But I don't see some wealth-related spendup being delayed for ever. Sure, some of it won't flow through to the GDP numbers: the new car and the trip to Melbourne go into the 'imports' box. But some of it will.

And on the capacity side, things are certainly tighter than they were: you could certainly read Stats' numbers on the recent slowdown in the growth of housebuilding (and of construction on general) as evidence that it's getting harder to assemble the crew for the next project. But on the other hand residential construction as a percentage of GDP isn't even up to past levels yet, as the chart below shows, and given the intense profit incentives to get houses onto the market, you'd expect us to go past previous peaks. My guess is that there's a dance in the old dame yet. And I also suspect (based on the technical economic methodology of Walking With Your Eyes Open Around The North Shore) that houses are going up quicker, which will help.


An economy that could well grow by 4.0% to 4.5% rather than the 3.5% that most analysts see in the cards would also part-explain a bit of an oddity - our low per capita GDP growth. In the June quarter our GDP (expenditure basis) was 3.8% up on a year earlier - but up by only 1.7% on a per capita basis. That was because the population grew by 2.1% (a natural increase of 28,200 plus net immigration of 69,100).

You look at that 1.7% per capita growth, and you could think two things. One is that it carries on our run of relatively slow productivity growth, and that's got to be right to some extent. But you could also think: hang on a sec. This isn't an economy with the look and feel of distinctly modest per capita growth. I appreciate that's an impressionistic judgement call, but I suspect the other leg to the apparently low per capita growth numbers is that they're a bit behind the actual pace of where the economy is (and is heading next).

It doesn't mean we've suddenly solved our slow-growth productivity problems. If anything, our reliance on construction in this cycle points them up: what we gonna do when the houses are up and the earthquake damage is fixed? And it doesn't mean that tomorrow's GDP number is going to be a little purler (any single quarter tends to have lumps in it). And 2016 was the year that gave us Brexit and Trump, so who knows what the next madness will be or what it might do to us.  But net net net, it wouldn't be too surprising if the next six to twelve months turned out rather better than currently expected.

Sunday, 18 December 2016

Good books - December '16

Surrounded by "isn't it awful", "the world is going to the dogs" types? Here are two antidotes: Nobel laureate Angus Deaton's The Great Escape: Health, Wealth and the Origins of Inequality and Johan Norberg's Progress: Ten Reasons to Look Forward to the Future. Both document the immense progress made in the past three hundred years by large parts of the world on multiple fronts - not just in living standards, but also in health, longevity, literacy, freedom, peace and global equality. Deaton's book in particular will remind you that a prime reason many poor countries have missed out is political: they are kleptocrat tyrannies (another reminder, if you haven't yet, to read Acemoglu and Robinson's Why Nations Fail), which is one of the reasons why Deaton is critical of foreign aid (it keeps the Mugabes going). He's got better ideas on how to help them, including making trade with the developed world easier. And Norberg is full of interesting facts, including that "285,000 more people have gained access to safe water every day for the past 25 years", and that 2,000 more people will have escaped from poverty in the time it takes you to read his first chapter.

I didn't profit from George Lakey's recent Viking Economics: How the Scandinavians Got It Right - and How We Can, Too. It's as if he went on a Seventies demo, fell asleep mid-chant - "The workers! United! Will never be.." - and woke up yesterday. And while good ideas on economic policy can and should come from anywhere and anyone, sociology isn't where I'd go looking first. It doesn't help that the "we" in the title is "the US", not "everyone", which means that when he compares Nordic health systems with America's, they're better, but then, whose isn't? So it's hard to draw conclusions about Nordic implications for everyone else. I'm pretty sure there are some good Scandinavian ideas we could pirate (particularly the Danish 'flexicurity' of jobs, and possibly the Finns' education ideas), but I wouldn't use this book as the instruction manual.

If you did want a good guide, try Helen Russell's The Year of Living Danishly: Uncovering the secrets of the world's happiest country. Great armchair travel from a very good freelance writer. One interesting fact is that by international standards Denmark is a high trust society - you can, and they do, leave your baby in the pram outside the restaurant - which is one reason they tolerate the government taking 54.6% of GDP: they trust their representatives to do the right thing with it. More than I could say about any recent New Zealand (or Aussie, British or Irish, let alone American) governments.

Speaking of Aussies, we don't get enough mainstream media coverage of their politics other than at moments of high drama (though there have been a fair few of those recently). I liked Annabel Crabb's Stop at Nothing: The Life and Adventures of Malcolm Turnbull: concise, punchy, well-informed. The back jacket summarises Turnbull as "colourful, aggressive, humorous and ruthless" in his pre-politics days, and looks at whether he's changed much since: not a lot, I'd say. He's also a good deal more interesting as a person than I'd imagined: it may not help his liberal-trapped-in-a-conservative-party day job much, but he'd make a good addition to most pub quiz teams.

Timothy Garton Ash's The File: A personal history is the story of what he finds when he reads the file the East German Stasi security service kept on him. He comes to a relatively generous conclusion about the 2% of the East German population who were informers for the Stasi - "What you find, here in the files, is how deeply our conduct is influenced by our circumstances...What you find is less malice than human weakness...when you talk to those involved, what you find is less deliberate dishonesty than our almost infinite capacity for self-deception" - without losing sight of the big point: "Yet the sum of all their actions was a great evil".

Boston must be the setting for more good thrillers per square mile than anywhere on the planet, the latest being Michael Harvey's Brighton (a Boston locality) where a Pulitzer prize winning journalist who'd escaped the poor Catholic Irish 'burb comes back to help his teenage friend, who is suspected of several murders. The blurb on the cover says "riveting and elegiac", and it is: fine writing. Harvey's also got a series about a Chicago based private eye, Michael Kelly: I've read the fifth of them, The Governor's Wife, which was also very good.

University of Wolverhampton professor Gary Sheffield has come out with Douglas Haig: From the Somme to Victory, an updated and revised version of his earlier (2011) The Chief: Douglas Haig and the British Army. It's a balanced account that gives Haig more credit than he usually gets, and particularly on the logistical side of running an enormous enterprise. As Sheffield notes (pp154-5), at its peak the British army in France had to feed 2,700,000 men: "To keep one division in the field for one day required 'nearly 200 tons dead weight of supplies', and Haig's army consisted of more than 60 divisions". Haig as chief executive comes out well; Haig as general, somewhat well, though I haven't been entirely shifted from the "lions led by donkeys" camp. You could argue that Haig's "one last push and we'll break though into open country" was indeed finally vindicated, but too many people died to get there. Then again, it's also hard to shake the thought that, with the technologies of the day, there was little alternative to an attritional strategy, however appalling the casualties became.

Military historian Allan Mallinson doesn't like the "lions led by donkeys" line (it's "facile"), but in his Too Important for the Generals: Losing and Winning the First World War he's not impressed by the generals' strategic grip: "nothing can acquit the high command of its failure to see beyond no-man's-land [on the Western Front] and its embrace of the 'strategy of attrition" (p330). He also believes that the politicians should have taken a stronger hold of the overall direction of the war, and in particular gone for more flanking initiatives (like a better run Dardanelles operation) as well as boosting support for Russia and Serbia, rather than letting Russia slide into revolution and Serbia lose to Austria. All of which reflects the still unsettled scholarship on the Great War: you no sooner read one book suggesting the generals were doing as well as they could than the next suggests the opposite.

In brief: anything Robert Harris turns his hand to (the life of Cicero; a dystopian world where Hitler won) is highly readable. You'll like Conclave, which (natch) is about a papal election. Carl Hiaasen's written a series of high-paced comic novels about Florida bizarrenesses: his latest, Razor Girl, is right up with the rest of them. And if you like private eye novels set back in the Roman Empire - and let's face it, who wouldn't - you've probably worked your way through Lindsey Davis' Falco and Flavia Albia series and John Maddox Roberts' SPQR series, but don't miss the equally good Russo ones by Ruth Downie. I've just finished the latest, the fifth in the series, Vita Brevis.

Tuesday, 29 November 2016

Quick - before the chance disappears

Yesterday the OECD updated its Global Economic Outlook: here's what it thinks will happen to the world at large...


...and here's its pick for what will happen to New Zealand.


A forecast is a forecast is a forecast, and who knows what will actually come to hand. But if anything like this reasonably educated guess fronts up, we're in for a couple of good years. Growth will be faster than the OECD average, inflation lower, unemployment well below the OECD's, and our fiscal books in much better shape. There are aspects of it that could be better - we don't have a great long-term future if unemployment is low mainly because we're all busy clearing up after the latest earthquake - but it would still be a pretty good outcome to bag.

What slightly disappoints me is that we may be missing an opportunity to make things even better. One of the OECD's recommendations in their country forecast for New Zealand is that, given that there is "considerable scope to improve infrastructure" - don't we know it - "Government planning should begin now to establish a pipeline of good quality projects, including to promote productivity-enhancing urban densification and to service the rapidly expanding housing stock".

I'd assumed that we already had the pipeline they're talking about - in fact, we are issuing progress reports (like this latest one) on a Thirty Year plan first published last year - so I'm not entirely sure what the OECD is on about. I hope there isn't a gap between what we've currently got in mind and what the OECD thinks we should be doing.

In any event, whatever we, or the OECD, have got in mind, we should have been getting on with it while the going was exceptionally good. There was the opportunity to finance infrastructure at all-time historically cheap interest rates: our 10 year government stock yield hit an all-time low of 2.12% in mid August, and there was a very good chance that we could also have got 20, 25 or 30 year bonds away at very sharp rates indeed while world markets were obsessed with the proverbial "hunt for yield".

We've missed the very best opportunity to fill our boots with exceptionally cheap financing and build useful productivity-enhancing stuff with it: our 10 year government bond yield has already risen to over 3% (3.07% currently), following the post-Trump rise in US Treasury yields. Even so, the rates are still attractive by historical standards. We should pull finger and get the hell on with it while the going is still pretty good.

Good ideas - but now what?

Yesterday's report from the Productivity Commission, 'Achieving New Zealand's Productivity Potential' (press release here, overview here, whole thing here), is full of good ideas.

In the housing market, for example, their proposals would have the happy outcome of pressing both the equity and efficiency buttons at once. In addition to dealing to people sleeping in cars, a better functioning market would lift productivity: "A housing market that responds to demand pressures facilitates labour mobility and improves productivity by allowing firms access to a deeper labour market, as well as more opportunities for specialisation, innovation and technology spillovers. For workers, being able to live in places where their skills are most valued improves their incomes" (p65).

The Commission is big enough and bad enough to push its own barrow, so I'm not going to recycle its full list of proposals, but I would like to add a little bit of support for its competition ideas.

As the report says, "Lifting competitive intensity is key to improving services sector performance...Increasing competition would energise market selection effects, making it less likely that productive resources – including skills and intellectual property – get trapped in lagging slow-growing incumbents and, instead, flow to innovative new entrants" (p69). And trapped they are: as the report overview notes (p7),  "a relatively long and persistent tail of productivity underperformance exists in New Zealand", with not enough competitive pressure on it to either lift its game or get off the pitch.

The Commission has two suggestions, and I'm fully behind both of them (though I should disclose that I may be a teeny bit involved in helping to get the second one on the agenda).

The first one is reform of s36 of our Commerce Act. Life has moved on, particularly in Australia, since the Commission started running with this, so here's the Commission's latest take (p69):
In its inquiry into boosting services sector productivity, the Productivity Commission found that Section 36 of the Commerce Act – taking advantage of market power – is impractical and needs to be reviewed. Under this Act, abuse of dominance cases are assessed using a “purpose test” that the conduct had an anti-competitive purpose and a “counterfactual test” that the conduct could not have occurred in the absence of market power.
This approach is increasingly out of step internationally, with competition law in almost all other OECD countries focussing on whether a dominant firm’s behaviour creates demonstrable harm to consumers (OECD, 2005). Following the Harper Review on competition policy in Australia – which recommended shifting to an effects-based test of abuse of dominance – the New Zealand approach is looking increasingly unusual and unworkable.
The second is proactive kicking the tyres ("market studies") where there might be competition problems (p70):
Much of the debate on competition in New Zealand has been from a legal perspective and very little is known about the economic impact of competition in New Zealand markets. Given signs of weak competition in conjunction with high rates of return in some parts of the economy, policy-relevant research aimed at better understanding the role of competition in the economy would be highly beneficial.
For example, the advocacy role of the Commerce Commission in promoting competition as means to enhanced economic efficiency and wellbeing could be improved. Specifically, the Commerce Commission should be able to conduct market studies without reference to a merger application or other investigation, as is the case in Australia. These changes would help strengthen the competition culture among policymakers and the public. For example, the ability to conduct market studies would allow the Commerce Commission to investigate potential barriers to competition in poorly performing but highly profitable industries.
A policy combo aimed at effectively policing any Big Beasts impeding the competitive process, and at looking to see whether poor outcomes but high profits are down to a lack of effective competition, sounds like an excellent double header to me. And I'd stress that this is not from any anti-business perspective: as the Commission points out (pp67-8), it is other businesses that wear the input costs of whatever old Spanish practices may be operating in the cosier corners of the economy.

Which is where MBIE could usefully do its bit to improve the labour productivity of the economy by letting us know what it's going to recommend on s36 and market studies. It's just over a year now since MBIE started down this path, and the final round of submissions and cross-submissions closed four months ago.

It's time to hear from you, guys.

Thursday, 10 November 2016

Finally...

At last.

Last month, workers arrived and started to put advertising hoarding up...


...announcing that this former New World supermarket in Browns Bay...


...is going to be transformed into this (artist's image) very snazzy apartment block...


...of 56 apartments and 8 penthouses, with "impressive sea views" (and they will be) from level 2 up. A much needed boost to the housing supply and a much better use of prime land.

Finally.

And I say 'finally' because this is one of those Special Housing Areas where development was meant to be expedited, but where there has actually been a lag of over a year between designation as a Special Housing Area, in August 2015, and anything at all happening on the ground. The pretty pictures have been put up, and there's a sales office opened around the corner, but not a sod has yet been turned by way of actual construction.

And as I mentioned in previous posts (here, here and here) the delay in the supposedly fast-track site is all the odder, because non-Special-Housing-Area apartment blocks have been going up like billy-o in Browns Bay, including down the same street.

Now, I don't have any beef with the developers. It's their precious, and they can take their own good time to do whatever they want with it, and it looks like they're going to deliver something very nice indeed. And as we learned today (from pages 24-5 of the latest Monetary Policy Statement), there are severe capacity constraints in the Auckland building trade:
The construction industry is reportedly facing several constraints that may impede future activity, such as access to labour, materials, and funding. Most contacts are struggling to find labour to fill a wide range of positions. The labour shortage is reportedly most acute in Auckland,where high living costs are deterring construction workers from relocating from Canterbury or immigrating from overseas.
Contacts note that it is also becoming increasingly difficult to access construction materials, with shortages becoming acute for some materials. This is leading to some construction firms facing long wait-times and cost increases.
There has recently been a tightening in credit availability in the construction industry, constraining some firms’ ability to increase activity.Contacts note that new and small firms, as well as apartment developers,have been impacted most severely 
So maybe the developers couldn't have got it going any faster, even if they were dead keen to. And as I've said before, this is a sample of one, and maybe other Special Housing Areas have been bounding along faster than their non-SHA counterparts.

But it still leaves me with a nagging feeling that the interesting Special Housing Area initiative (faster planning approval in exchange for including some 'affordable' housing) didn't work out as everyone had imagined. We need to know whether this policy experiment worked, and if it did, repeat it or widen it, and if not, why.

Otherwise we'll continue to blunder around with well-intentioned housing ideas that never get properly evaluated - not a good enough approach to one of our most pressing national issues.

"My work here is done"...

All as expected from the Reserve Bank today, the OCR cut to 1.75% and expected to stay there "for a very long time", as its head of economics John McDermott put it. All going well, Governor Graeme Wheeler can put his feet up for the final year of his current contract: his work here is done. And the economic outlook, while still beset by significant uncertainties, is looking good by developed economy standards: GDP growth in the pipeline of around 3.5% a year or a tad more, and the unemployment rate dropping to 4.5%.

Some interesting graphs from the Monetary Policy Statement. First up, what's been happening to the domestic 'non-tradables' inflation we generate here in New Zealand (I'd had a look too when then the latest data came out).


It looks like it's bottomed out and is now rising. More importantly, here's where the RBNZ thinks it is headed.


So we'll have to start recalibrating our thinking about what to expect when those brown envelopes hit the letterbox.

And then there's this, which shows how the RBNZ thinks the OCR might need to move if different combos of possible scenarios were to play out. Not everyone likes these 'fan' charts, but they have their uses, and in this one you can see the indefinitely-low OCR as the Bank's best call right now, but you can also see the range of uncertainty around it, running from an OCR of 0.5% through to 2.75%.


And I put it up just to remind people that, even with models up the wazoo, forecasting is an inexact art (as a certain election yesterday vividly reminded us), and that we ought to be a bit more charitable about those faced with making tough calls in uncertain circumstances (as I've also argued here and, especially, here).

The post-Statement press conference had its interesting moments. We now know, for example, that the "neutral" level of the OCR is now estimated to be around 4% rather than the 4.5% that might have been appropriate in a world where inflation was higher (an estimate adroitly winkled out by the NBR's Rob Hosking, whose write-up of today's decision is here).

Only the anointed get invited to the press conference these days, but if I'd been admitted to the elect, I'd have liked to have asked about what the Bank meant when it found, in its latest soundings with businesses around the country (reported on p25 of the MPS), that
High levels of competition are compressing margins and firms are thinking strategically about how to ease this pressure.
I'm pleased to hear about vigorous levels of competition, and not surprised businesses are looking for clever ways to cope. The smartest way would be to innovate yourself into a position where you can charge better prices for a better product.

But there can be less benign strategic responses to easing competitive pressure. These strategists are, I trust, planning to stay on the right side of s27 of our Commerce Act ("contracts, arrangement or understandings substantially lessening competition"), s30 (price fixing), and s47 ("A person must not acquire assets of a business or shares if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market").