Of Demographia, Bottlenecks & Capital Gains Taxes

This blog is a bit late, but I just wanted to make a few comments before I forget them.

You may remember about 10 days ago - I think it was after the new Alpurt motorway opened and there was a big queue and eveyone was a bit surprised by the fact there was only 1 lane North Bound through the tunnel. The new Minister of Transport The Hon Joyce spoke of the need to get rid of bottlenecks in Auckland's State Highway network.

At the same time that rather disreputable outfit based in Christchurch which calls itself Demographia came out with its oft repeated claim that the main cause of houses in Auckland being so expensive was the fact that land supply is constrained. They want the MUL (Metropolitan Urban Limit) released. Demographia stated that people should be able to buy a house for $130,000 - made of $30,000 for the land, and $100,000 for the improvements. Crazy I thought at first - then I remembered that CBD apartments in Auckland have been going for around that figure at auction (and sometimes much less).

And then there was in the media a little discussion about the need for a capital gains tax to remove some of the economic incentives that presently exist around property investment.

These three sets of ideas are all linked. But the dots are not being joined up.

Before I write anymore, I need to note here the fantastic piece of journalism that was in the last Saturday Herald about the Demographia claims. It was written by Chris Barton. You can see it here: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10554387

Going back to the bottleneck thing. Everybody wants to get rid of bottlenecks. But the thing is, if you have a bottle, you always have a bottleneck. A road contains cars. It's a container of cars. They get tipped in, and tipped out. You can't have a road without a bottleneck. The only decision that's rational is to decide where the bottleneck will be, rather than where it won't be.

And the other thing about bottles, is that you can always think of a situation where what was once a nicely flowing bit of road suddenly grinds to a halt. In other words every road has limits in its ability to maintain free flow. Increase the demand - more cars, faster cars - and that limit will be reached. While traffic demand is on the increase we can expect more bottlenecks.

Please don't talk about eliminating bottlenecks. Unhelpful.

The interesting thing about the Herald cost of housing article, is the comparison between similar home costs in Auckland and Houston. While the capital value of each home is similar, the real difference is in the service rates payable. In Auckland the figure was around $1,500/annum, but in Houston it was more like $8,000/annum. Also in Auckland the cost of getting to work in public transport was about $1, while in Auckland it was $4. These costs need to be weighed in with capital or purchase cost when looking at the true costs of housing.

A major problem we have in Auckland is our ability to pay for infrastructure, and who pays. Will stop this now. But will come back to it.