One of the fascinating aspects of many policy initiatives in New Zealand is the lack of hard data to justify them.
Much policy seems based on hearsay and prejudice. Benefit reforms are based on the premise that New Zealand has a significant problem of benefit abuse, yet no serious statistical evidence has ever been provided.
The proposed Labour-Greens' electricity price reforms are based on the premise that electricity companies are gouging consumers, yet little recent hard data has been provided. As a shareholder in Contact Energy and Trustpower, I certainly haven't benefited from any super profits in recent years.
The most interesting example of policy based on scant data is proposals to address housing inflation in Auckland. Despite widespread debate there has been little hard data provided about who is actually buying houses in Auckland. This information is crucial to determining appropriate policies for addressing the issue.
Some blame overseas investors for inflating prices but there is a problem with this scapegoating. If overseas buyers are snapping up properties then are these properties sitting vacant? This seems very unlikely.
If the bulk of buyers are split between first-home buyers, people trading up, those seeking rentals or speculators, then it is important to identify the relative numbers. If a significant portion of buyers are those seeking rentals then this may justify a capital gains tax if we are serious about home ownership being a core value of our society.
If this is not a core value then we need to strengthen tenancy rights to ensure that life-long renters have ample protection provided they are good tenants.
The ability of tenants to pay their rent depends on their employment and incomes. Their incomes are determined by the quality and quantity of jobs available. These jobs are created by people starting businesses or existing businesses expanding their operations. Housing inflation creates few new jobs or businesses.
If first-home buyers are a key driver of housing inflation this suggests we have a major housing shortage. But there is a caution in this argument. If Auckland has a major housing shortage then why haven't rents kept pace with house price inflation? The housing shortage argument has tended to predominate.
But there is a lack of hard data as to whether it is more a case of first-home buyers competing with recent migrants or baby boomers eager to fund their retirement through rental property.
The data would be relatively easy to collect, with one key proviso. Relying on banks and the real estate sector to provide accurate information could be likened to asking a used car salesman the best time to buy a car. Both parties have a vested interest in keeping the market buoyant. It is odd that despite the arguing and rhetoric there is little independent data available about what is actually happening in the housing market. Such data is crucial to ensuring sound policy responses.
It is worth reiterating why bidding up the prices of our existing housing stock is so damaging to our economy and society.
A county's economic prosperity depends on its ability to produce saleable goods and services as measured by GDP. House price inflation creates no new output and few jobs. It consigns young first-home buyers to a life of debt servitude.
The profits largely accrue to overseas bank shareholders. Many young Kiwis head overseas in frustration so their productive talents are lost to our economy. It will eventually require the Reserve Bank to increase interest rates, causing our currency to appreciate and damaging our export sector. Individuals may get rich by buying and selling houses but a nation cannot.
Peter Lyons teaches economics at St Peter's College in Epsom and has written several economics texts.