Stephen Scrivens: Regulation straitjacket holds back innovation

The Government's housing policy is a classic example of the law of unintended consequences. It is the main reason for the housing crisis and yet no one is willing to point the finger. Photo / NZME.

Opinion

I came to New Zealand a year ago because I have new ideas which will allow people to cut their energy bills.

The councils in Auckland and Christchurch were interested but wanted to see a prototype. After a few false starts I found a suitable plot of land and then discovered the Building Act 2004 and its attendant Building Code, and the even more onerous Building Regulations.

I operated two companies in the UK. One was a design company and the other a contracting business. I have worked on more than 100 major projects including 10 shopping malls and 14 corporate headquarter buildings, but here in New Zealand I am allowed to design a house only if it is for myself.

The Building Act 2004 notes the importance of "sustainable development" and "innovation". Quite how it is possible to innovate while trapped in a regulatory straitjacket is unclear.

Innovation is best likened to slinging mud at a wall. It is slow, painful and expensive. As Einstein famously said, "if we knew what it was we were doing, it would not be called research, would it?"

In the modern world the outcome must be certain. What is certain is that without innovation, there will be few jobs.

We are told that "the Building Code does not prescribe how work should be done but states, in general terms, how the completed building must perform in its intended use". This is perfectly reasonable, but now there are thousands of pages of building regulations, some of which are technically suspect.

Once, parliaments considered regulations one at a time. The politicians then found they could establish agencies and give them unfettered power to write regulations on their behalf. Civil servants were then given the power to interpret and enforce their own regulations. Now the western world has become ever more heavily regulated.

Mission creep has given civil servants absolute power over the construction industry and in the process they have established cartels and a plethora of restrictive practices. The cost of building a house has more than doubled in a decade. At the same time, the profits of contractors, professionals and material suppliers has increased even though output has been restricted.

The Building Act 2004 serves many vested interests. Civil servants enjoy producing regulations as it elevates their standing. More professionals are required to ensure compliance, so they are happy. Contractors are happy as they get more control of the market even though they have to increase their prices. After all, a big margin on a few expensive houses is better than a small margin on a lot of affordable houses. More importantly, new entrants are kept out of the market.

Material suppliers are happy as the regulations keep out cheap imports and force people to buy from them. The older members of society are happy as house prices keep on rising. The banks are happy as people need bigger loans.

The downside is that the economy stagnates, but that is a long-term problem of little concern to the political establishment.

In countries where the housing market is highly regulated, the young and disadvantaged suffer the most but politicians care little as it rarely affects their core vote. This is why attempts to stimulate the delivery of affordable homes in Auckland have failed.

The Government's housing policy is a classic example of the law of unintended consequences. It is the main reason for the housing crisis and yet no one is willing to point the finger.

It is not just the Building Act pulling the economy down. The dairy industry is beset with a mountain of regulations. Forestry is also heavily regulated and so it goes on across the economy.

The IMF is increasingly frightened of secular stagnation, and so it should be. Secular stagnation is "a condition of negligible or no economic growth in a market-based economy". The "recovery" that followed the problems of 2008 has been the slowest in history and already many countries are sliding backwards.

A combination of over-regulation and over-taxation is a sure way to destroy a stressed business. It is inconceivable that any politician will willingly reduce taxes but the Government could cut red tape to give the country's wealth creators a better chance of surviving in an increasingly competitive world.

Stephen Scrivens is a designer of homes that harvest and store renewable energy to function without a connection to the grid.