Voodoo economics

Written By: - Date published: 8:28 am, March 29th, 2010 - 42 comments
Categories: Economy, Environment - Tags: , ,

Leaky homes are a slowly unfolding disaster for the country. Someone is going to have to come up with $11bn (at least) in costs for repairs, and the government hasn’t a clue as to how to handle it. Still, every cloud has a silver lining they say:

Leaky homes a disaster and a $2b tax windfall

The leaky-building crisis is New Zealand’s most expensive catastrophe, but it will enrich the Government by at least $2 billion, says a study commissioned by the North Shore City Council. The study puts the cost of rotting homes as three times that of the annual road toll and more than any natural event. But it also claims that the Government reaps at least 25c for every $1 paid on leaky-house repairs.

The Government has previously rejected council claims that it would gain financially from GST on leaky-home work. North Shore Mayor Andrew Williams said he would present the findings of the study, by consultants Covec, to today’s Auckland Mayoral Forum meeting. … GST and company tax paid on spending for materials and experts’ fees generated the $2 billion. …

Mr Williams backed Justice Terence Arnold’s Court of Appeal decision identifying government deregulation of the building industry in the 1990s as the root cause of the leaky-homes disaster.

Yes, a National government stuffed up totally in the 1990s, creating the leaky homes crisis, and 20 years later another National government stands to profit $2bn from the mess. No doubt they will cite the extra income as proof of their “excellent” management of the economy. Voodoo economics indeed.

But there’s another point to make here. We’ve made it before, but leaky homes provides a compelling example. Because the extra economic activity caused by the leaky homes fiasco will also show up as an increase in GDP. It will (by the usual measure) count as a Good Thing for the Economy. Gosh – think how great the economy would look if we knocked over all the houses and started again! As Marty summed it up:

All GDP does is measure economic activity. It doesn’t count anything that isn’t bought and sold – volunteers, clean air, cost of crime, etc etc. It doesn’t measure how much of the wealth produced is retained and continues to increase our welfare into the future. It doesn’t measure how much wealth is destroyed in making new stuff. It doesn’t measure whether the economic activity is for good stuff spending on military equipment or building a new coal power plant counts as well as spending on teaching a child.

There are alternatives, such as the Genuine Progress Indicator (GPI) described in Marty’s post. We need to pick a better measure and adopt it. Because until we get beyond GDP as our measure of success we are going to continue to get a uselessly narrow view of our economy. And until we get beyond growth as our only goal we are going to remain on a collision course with the inescapable limits of our finite, fragile planet.

[Update: Brian Rudman makes many of the same points today]

42 comments on “Voodoo economics”

  1. Peter Johns 1

    Why an I to pay for this? You buy a leaker you should carry the can. It is bad luck but we cannot keep paying people out when they have a poblem.
    Also, Labour did nothing as well so it is dis engenous to blame National.
    Where will the money come from ROB? More borrowing, higher taxes, astronomical rates. People are under financial pressure as it is. I think we should also slash benefits to pay for this as a start.
    The GST may be a bonus but this is not productivity that will benefit the overall economy, fixing up old problems. This is dumb arse Greens logic.

    • Clarke 1.1

      Where will the money come from ROB? More borrowing, higher taxes, astronomical rates.

      I see you’re still mistaking fiscal policy for monetary policy and wallowing in the idea that all government spending results in debt. It does nothing of the kind, of course. The government’s finances bear absolutely no similarity to your domestic finances, and – as I keep pointing out – there are no useful parallels to be drawn between the two.

      The government could decide to fund the total cost of the leaky homes debacle from deficit spending tomorrow, and it wouldn’t make a blind bit of difference to either tax rates or interest rates. It would, however, have a positive effect on GDP, the construction industry and the lives of the people who have been blighted by these shoddy buildings. In short, deficit spending of this kind would have plenty of upsides and absolutely no downsides for the country.

      I think we should also slash benefits to pay for this as a start.

      I see that hard-Right money-before-people viciousness is alive and well.

    • prism 1.2

      How gross PeeJ. Carry your own can and pee into it as well instead of over everybody who upsets your pocket.

  2. tc 2

    Intruiging issue this……the nat’s weakening the code in the 90’s so all those grubby developers could cut corners and make greater returns (can anyone else think of a reason why you’d dumb down contsruction compliance in such an increasingly wet/windy climate as ours…..climate deniers aside) and now it’s back at their doorstep…..time for some front foot proactive leadership from the PM and team to rectify the last nat gov’ts oversight…….not holding my breath on this.

    • vto 2.1

      tc “can anyone else think of a reason why you’d dumb down contsruction compliance in such an increasingly wet/windy climate as ours”

      Try.. people wanting to pay as little as possible (the kiwi way).. try… builders making a pittance at the time thanks to a slower economy than now and hence saving and shaving … try … architectural fashion at the time being all mediterranean … try… every part of the buidling process tc.

      It is disappointing that generally people still have little understanding of how this issue arose.

      • TightyRighty 2.1.1

        disappointing too how architects persist with fashion over function. even after all the lessons to be learned from how a home is shaped by it’s environment, we get persistent drawings of dwellings with ceiling to floor windows. so great for all the furnishings inside, and marvellous on the heating bills.

        • felix 2.1.1.1

          Poppycock. Ceiling to floor windows are extremely heat-efficient if they face the right way and have plenty of thermal mass behind them. The idea is to let in as much solar energy as you can during the day and retain it within the thermal mass to be released slowly through the night.

          • TightyRighty 2.1.1.1.1

            o rly? and i suppose by thermal mass, you mean curtains, properly thermal lined and bumpfed?

            • felix 2.1.1.1.1.1

              No I mean large amounts of dense materials – like concrete, stone, or you.

              • TightyRighty

                so you don’t know what you are talking about then?

              • felix

                Your density is hardly a controversial topic, TR.
                Here’s some basics.

              • TightyRighty

                funny how you start something and then can’t finish it except to attack the character of someone. if it wasn’t for the fact i realise you only participate positively when you spot a circle-jerk with an open space, i might actually care.

                edit – after reading your link, i see you think that we should place walls behind windows, not a revolutionary theory. however, does concrete not have an exponential cooling function? would it not be better to have curtains over said windows to trap the heat in? the problem with ceiling to floor windows, is that there is rarely any hanging space. though if you knew what you were talking about, you would know that.

              • felix

                There’s really nothing for me to finish. You’ve simply waded out of your depth into very well charted waters.

                Loser.

                No surprise that you read the link after replying btw. And no, it’s not a revolutionary theory. Which makes it all the more hilarious that you think I don’t know what I’m talking about.

                I’m done with you. The last word shall be yours and I’m sure it will be as awesome as usual.

              • lprent

                TR: I’m afraid that the felix density quip was actually very funny (although probably not for the recipient).

                BTW: If you really want to get into thermal mass, one of the more extreme routes is to feed heat via a dark sunlit surface into salts with a low melting point. For instance epsom salts and the like. The transition between liquid and solid is usually pretty useful.

              • TightyRighty

                funny again, you call something poppycock, then proceed to display why you are a cock. thermal mass only works to warm large spaces if it can retain the heat within the space it is trying to heat. large windows, even double glazed ones, don’t retain heat that well. i read the link out of charity, it still isn’t that relevant to what you are talking about. but now that lprent has joined your circle jerk, there is nothing left but to leave you two wankers to your intellectual superiority complexes.

            • SHG 2.1.1.1.1.2

              Good for your power bill, bad for the planet. The creation of concrete is one of the biggest carbon-producing activities in the world.

              • Luxated

                True enough SHG, although fly ash concrete is significantly better (75-80% reduction in carbon emissions during manufacture OTOH) than ordinary concrete so regulations permitting you could use that instead. Of course fly ash comes from coal fired power plants so it isn’t exactly perfect, but provided people keep on burning coal we might as well use it for something good.

              • felix

                Rammed earth, mud bricks, and other clay-based systems work well in this regard. Stone is good too.

      • prism 2.1.2

        Yeah vto It was a multi-fuckional tragedy of errors.

  3. I always thought the Crown should front up with the money. It is directly related to the change in standards put in place in the 1990s. The nats always said that the work was started in the 1980s and therefore Labour is to blame but there is a world of difference between kicking off a review and deciding on the details.

    It would be a good one to turn into an apolitical issue and to deal with in a Kensyan manner beneficial for the economy. The issue causes far too much stress and ill health to be allowed to continue.

    The central/local bickering about who pays for some of it is frustrating. Whether as a tax payer or a ratepayer I and others will be paying for it.

    I also wish that the MSM would analyse the cause of the crisis in more detail.

    EDIT: Bet me to it TC

  4. Clarke 4

    Given that the responsible Minister is that lazy non-achiever Maurice Williamson, the chances that the Nats are going to do anything that assists the homeowners is exactly zero.

  5. tc 5

    That’d be the same bloke who oversaw Telecom privatisation and akl not getting it’s fair share of road funding through the 90’s (many stat’s produced on this in the lead up to election 08)……that should go well then…..after he’s sorted out who get’s an ‘H’ is in his other busy ministerial duties.

  6. rainman 6

    Reporting reform is one of the most important things that needs to be done to fix capitalism. Won’t happen, though, because it requires global co-operation (and is a nice-to-have), and also, as Marty pointed out, GPI tells a more negative (more accurate?) story than GDP.

  7. Lanthanide 7

    The government’s, quite correct I believe, argument that they don’t gain additional benefits from GST, is that if the money wasn’t spent on building repairs, but instead on any other product that accrued GST, they would still be receiving GST, just from a different source. So instead of paying GST on A, it gets paid on B, either way the government is not getting more money than it otherwise would have.

    You can arguably say that GST expense is being brought forward, as people who would otherwise have saved money and deferred GST expense till later are now spending that same money now, earlier, than they otherwise would have. This is ignoring the imminent rise in GST to 15%, so actually the government can argue that they’re losing money, because people will be spending 12.5% on GST now, vs 15% later…

    However I don’t believe that the GST argument is accounting for the full 25c mentioned in the report, but it is obviously a large proportion of it.

  8. Jum 8

    So that’s why JKeyll and Hide are after Andrew Williams

    “The Government has previously rejected council claims that it would gain financially from GST on leaky-home work. North Shore Mayor Andrew Williams said he would present the findings of the study, by consultants Covec, to today’s Auckland Mayoral Forum meeting. GST and company tax paid on spending for materials and experts’ fees generated the $2 billion.

    Mr Williams backed Justice Terence Arnold’s Court of Appeal decision identifying government deregulation of the building industry in the 1990s as the root cause of the leaky-homes disaster.”

  9. Jum 9

    if we ignore history we are doomed to repeat it. Oh NAct did.

    “there is a world of difference between kicking off a review and deciding on the details.” Micky Savage once said.

    Only diff is the leaky buildings took away our right to safe harbour
    The other one took away the rest of our rights.

  10. grumpy 10

    All those reasons listed by VTO earlier are valid but the killer was the stupid decision to allow untreated Pinus Radiata as a building timer. For that, only the Government can take responsibility.

    • prism 10.1

      Don’t understand grumpy. Untreated pinus r was used as interior framing wasn’t it. Interior framing has never needed to have ground-treated rating against water and soil rot has it? The treatment of framing has been against borer hasn’t it.
      Then that wouldn’t be a major feature of leaky buildings, it’s the type of construction built on the premise of eternal sunshine (unsuitable), allowed to be used despite failures in other countries with similar climate. Also the buildings had no allowance for air circulation and ‘rogue’ water channelling which could only be expected in rainy NZ.

      • Armchair Critic 10.1.1

        I understood that the process used previously for treating P.Radiata against borer attack also worked to severely inhibit the growth of mould and rot. And this was the class of timber used for internal framing before National deregulated. Could be wrong, though.

  11. Kent Duston 11

    The whole leaky building problem is only going to get solved when we start seeing it as a societal issue rather than a private one.

    Let’s assume that 33,000 homes need complete rebuilding and/or demolition if the circumstances were different and those same 33,000 homes were damaged due to war or other natural (or even man-made) disaster, we would rally around as a society and simply stump up the cost of doing the work. We would recognise in short order that having people effectively dispossessed and with nowhere to live is going to cause social disruption on a huge scale, and it will cause completely unnecessary suffering across the country.

    If 33,000 homes were destroyed in a foreign invasion, we would have every architect and every tradesperson in the country working day and night to repair the damage in order to mitigate the effects on our fellow New Zealanders. And this heroic effort to make things right would be front page news for however many months and years it would take to complete the work.

    Faced with the same disaster on the same scale due to poor design, we seem incapable of doing anything yet the impact on the people who own these homes is the same as if they had been damaged by an act of war. So it seems to me that the problem has much to do with the ideological biases of government (both the previous one and the current lot) than any rational assessment of what is the best thing to do for New Zealand. And the fact that the current Minister (Maurice Williamson) has a long-standing reputation for hands-off laziness merely aggravates the problem.

    We need to spend a whole bunch less time trying to apportion blame, and a whole lot more time mitigating the damage on our society. And the best way to do that is to adopt a no-fault approach and fund the replacement work through the taxation system. After all, if government won’t get involved when people have lost their homes, what’s the point of having a government at all?

    • Bored 11.1

      Kent, you hit the nail on the head…”We need to spend a whole bunch less time trying to apportion blame”……it a systemic failure, and all parties are running for cover on this.

      From a blame viewpoint given the nature of NZ i.e everything shakes, cracks, gets heavily rained on and blown around….you need an eave on a building. For the sake of a few less square metres of roof and thus less cost, the water is able to run down the walls, get blown under the roof etc. I have not seen many villas or state houses with leaky home syndrome. And I resent paying the bill for cost cutting and bad practice.

  12. Armchair Critic 12

    Oh look, Johnny has the answer.
    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10635109
    No details, but it is a fairly simple problem so of course it will be easy to fix. Just like his brilliant solution to stop the japanese whaling.

    • Clarke 12.1

      John Key is starting to look like one of those bimbos on America’s Next Top Model: “And pose …. and pose …. and pose ….” Unless there’s a camera pointed in his direction, he’s nowhere to be seen.

  13. It is unfortunate that the leaky building scandal has been allowed to drag on as long as it has. In this instance, I tend to have a problem with the socialisation (i.e. the government just picking up the tab), of what effectively is a private problem. A problem created by building companies/tradespeople, council/regulation staff, and central government deregulation.

    There needs to be a good or pressing reason for the socialisation of private problems, e.g. minimum standards of health, education, general wellbeing. While I do not believe that homeowners (especially those innocent of the design and construction) should be liable for damages they have suffered as a result, there should be an understanding that those individuals/firms responsible for leaky home construction should be held to account in someway. In some instances, insurance companies should also be obliged to pay.

    Excessive socialisation of problems, does not deter bad behaviour, fosters moral dilemma where decisions are devoid of their natural consequences.

    • prism 13.1

      Good one parrot. You’re quoting high theory about low grassroots problems.
      Nothing like a little sermon about how things should be done in an ideal and rational world etc. etc. when you are suffering with intransigent problems.

      “There needs to be a good or pressing reason for the socialisation of private problems eg minimum standards of health…general wellbeing…”
      Well people have got sick from resultant fungi in their walls – health. General well being – this problem will remain in some form and affect all others who buy or just live in the property, pretty general I would say. Also spores are likely to increase in numbers in the neighbourhood. General health. Also trust and belief in the government’s abilities, value and fairness by the general public will be mightily damaged. There are numbers of scandals from the past, adding to them in the present, can only damage the standing of the political process in people’s eyes and therefore our democracy. That’s a wide, general outcome.

  14. Bored 14

    Come on Clarke, the Top Models may have beauty when they pose, Johns beauty is only skin deep…..

    capcha: please

  15. Draco T Bastard 15

    The government should just identify and pay for the repairs or rebuilding of the affected houses. They then need to do an investigation to discover exactly what happened, culpability and the people who did it and those who profited sent to jail.

  16. DavidW 16

    but guys, I believed her when she told me that it wasn’t a problem, “It is just the Herald banging on” I seem to recall.

    Don’t tell me I was misled

    captcha “disaster” HEH

  17. tc 17

    mmm “people wanting to pay as little as possible (the kiwi way).. try builders making a pittance at the time thanks to a slower economy than now and hence saving and shaving try architectural fashion at the time being all mediterranean try every part of the buidling process tc..”

    Still not seeing why this is a reason to allow untreated timber, no cavities, inadequate waterproofing/flashing which together with poor approval/consent/inspection has given us what we have to deal with today……do surgeons offer a discount for less theatre staff/ no anisthetic/blunter instruments so you save on not having them sharpened……….gov’t are there to make good laws not weaken them for a few short term thrills but long term pain.

  18. Ianmac 18

    I do believe that you have missed a primary reason for the Nats in the 90’s to have relaxed the rules of building. “Market Forces will cure all. Those who build poor houses will fall by the wayside. The good ones will flourish. Lets have fewer interventions from the State.”
    The result?
    And the theme of the Act Party is to get rid of Nanny State Intervention in our lives. What does Act have to say re Leaky homes?

  19. JD 19

    “The government should just identify and pay for the repairs or rebuilding of the affected houses. They then need to do an investigation to discover exactly what happened, culpability and the people who did it and those who profited sent to jail.”

    No they won’t because they would be embarassing for Labour, National and almost every council in NZ.

    You can’t send a company to jail and most of those involved have been liquidated.

    Your statement reveals a certain ignorance regarding the application of the criminal law. To prove someone is culpable for the (imaginary) offence of constructing a leaky building you would have to prove that they had the intention or mens rea to so. Given they most developers were following council building guidelines (or else they wouldn’t get consent in the first place) then you cannot actually attribute the necessary intention to them to hold them culpable.

    The most you would get them on is negligence but if they were following council guidelines then another deadend.

    • prism 19.1

      “You can’t send a company to jail and most of those involved have been liquidated.”

      Maybe we’re too nice and well-bred and principled in nz. In other countries they would have been liquidated all right.

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