A debate over discount rates

Transport evaluation, and urban policy in general, invariably requires us to make trade-offs between the present and the future. When we invest in the built environment – roads, rails, buildings, etc – we are expending today’s resources on projects that will primarily benefit people in the future. Conversely, decisions we make about resource use today – e.g. how much greenhouse gas to emit – will impose increasing costs on future generations.

Individuals also make decisions that involve trade-offs between the present and the future. For example, most home-buyers take out a mortgage, which allows them to spread the payments over a long period of time in exchange for paying a bit more in interest charges. For the borrower and for the bank, the interest rate paid on the debt reflects the trade-off between repaying the debt today or repaying next year.

Of course, there are also other ways that individuals make trade-offs between the present and the future. They may, for example, spend money on their children’s education, even though the “returns” from doing so are long-term and indirect. Or they may vote for policies that cost them money now but return long-term benefits, such as environmental protection or pre-funding of superannuation.

The trade-offs that governments make between present and future are codified as discount rates, which describe how much of a “discount” we place on future outcomes relative to present outcomes. For example, a discount rate of 10% means that the government would value a benefit of $100 in a year’s time as being equal to a benefit of $90 today.

Transportblog’s previously taken a look at the discount rate issue here, here, and here. But others are also engaged with the issue. Back in August, University of Michigan economics professor Miles Kimball, who had been visiting the Treasury, strongly criticised its approach to discount rates. The key point in his critique is that the Treasury’s discount rates don’t accurately reflect the financial market returns currently available to the government:

There is an extremely strong argument against using an 8% real discount rate in evaluating government projects. I think the argument below can be sharpened to become institutionally relevant.

Basically, an 8% real discount rate makes no sense to use unless the New Zealand government is actually getting an 8% real return on funds that it saves. It is not enough for someone to claim that the New Zealand government theoretically could get an 8% real return on funds it saves when that is not true or is only theoretical because the New Zealand government would never actually do that with funds saved by not doing a project.


Just to be clear, my view is that (a) all projects that are better than putting the money in the Superfund should be done, and (b) if someone claims that a project is worse than putting money in the Superfund, then money should be put in the Superfund instead, and (c) if a project looks better than paying off some of the debt by buying bonds–or, almost equivalently, good enough that borrowing at the bond rate to do it looks like a positive present value–it should also be undertaken UNLESS the government is willing to issue additional bonds to put more money in the Superfund invested in risky assets.

I’ve skimmed over a lot of the substance of Kimball’s argument, which I encourage you to read. (Warning: it’s wonky.) After Kimball’s blog post, former RBNZ economist Michael Reddell wrote a blog post defending the Treasury’s policy. Reddell’s counter-argument is that financial returns to government is the wrong measure of the time value of money:

I was struck reading Kimball’s material that the cost of the government’s equity did not get a mention. There was a strong tendency to treat the government as an autonomous agent (like a household) managing its own wealth, whose low borrowing costs depends only on the innate qualities of the government and its decision-makers. But that is simply wrong. A government’s financial strength – and ability to borrow at or near a conceptual “risk-free” interest rate – rests on the ability and willingness of the government to raise taxes (or cut spending) as required to meet the debt commitments. That ability to tax is implicit equity, and it has a cost (an opportunity cost) that is considerably higher, in most cases, than 2.5 per cent real.  So long as the government will raise taxes as required, the bondholder bears none of the downside if a project goes wrong. But shareholders – citizens – do.  Bearing that risk has a cost, and that cost needs to be taken into account by government decision-makers.

There is a related argument sometimes heard that governments should do infrastructure projects rather than private firms simply because the government’s borrowing costs are typically lower than those of a private firm. But, again, that rests on the power to tax, and the ability to force citizens/residents to pay additional taxes has a cost from their perspective (even if the government never chooses to exercise the option).   As citizens, the possibility that the government will raise taxes (or cut other spending programmes – eg NZS) impinges on our own ability and willingness to take risks, and hence to consume or invest in other areas.   That often won’t be a small cost. The opportunity cost of the government not undertaking a project is not what, say. the NZSF might be able to earn on the funds, but what citizens themselves might prefer to do if that risk-bearing capacity was freed up.

Again, I’ve skimmed over Reddell’s argument, so I’d encourage you to read it in full if you’re interested. He throws in a brief jab at road projects with low BCRs:

We have too little disciplined analysis of the costs and benefits of most government projects, and too little willingness to allow decisions to be guided by the results of the analysis when it is undertaken (did I hear the words “Transmission Gully”?).

I can see some truth in both sides of the debate. Kimball’s got a good point, which is that current government borrowing costs (and financial market returns in general) are at historic lows, which should lead to lower government discount rates. But Reddell’s also correct that it’s appropriate to set discount rates based on wider social decisions about consumption and investment.

One issue that neither of the two grappled with in detail was the question of how risky government investments actually are. Kimball touched on that briefly, arguing – essentially – that the benefits of projects will inevitably rise in the future due to people’s greater willingness to pay for public goods in the future:

A good method of risk adjustment for projects is to think seriously of the real dollar value they will have dependent on the level of real consumption in the economy. One virtue of thinking about the adjustment this way is also that it provides a reminder that the dollar value of the flow of benefits from many projects will tend to increase in the future simply because trend increases in per capita income will raise the willingness to pay for those benefits.

Frankly, I don’t think this is correct. Changes in technology, changes in prices, and changes in preferences mean that infrastructure that’s useful today can easily become a stranded asset tomorrow. Look at Los Angeles: in the 1950s it was rushing to rip up its rail lines, and now it’s rushing to build a new rapid transit network. Or look at San Francisco: several of the elevated expressways it built in the 1960s have been torn down.

In short, things change. Sometimes they change quite radically. When the Ministry of Transport looked at future transport demand last year, they found that they couldn’t settle on a single forecast for future transport demand. Instead, they arrived at four scenarios, three of which entailed a decline in vehicle travel:


In other words, there can be considerable uncertainty in returns from transport investments. While it might not necessarily be appropriate to try to account for this in discount rates, it’s surely an important consideration for project evaluation more generally.

What do you think about discount rates?

The case against publicly owned golf courses, part 3

Over the last couple weeks, I’ve been taking a look at the economics of publicly owned golf courses. Unfortunately, I still haven’t managed to work in a reference to one of my favourite Big Lebowski quotes, so I’ll just have to drop it in here without preamble. In the words of the Dude: “Obviously, you’re not a golfer.”

Last week, I took a quick look at the costs and benefits of publicly owned golf courses, arguing that we would be considerably better off if we freed up the land for public parks and new neighbourhoods. After looking at the potential value of the land for housing or business use, which far exceeds the value for golfers, I asked: “Why isn’t the opportunity cost of using lots of land for golf being recognised the prices charged by golf courses?

To start answering this question, we have to look at how golf course land is valued for rates and other purposes. As I argued when looking at the economics of applying rates to all government-owned land, rates can serve as a “market signal” that encourages productive use of land. Owners of valuable land can expect to pay higher rates, and hence know that they need to get enough revenue from the land to cover them. Conversely, distortions in the rating system can encourage wasteful and unproductive uses of a scarce resource.

So with this in mind, I used Auckland Council’s GIS Viewer to compare the rates being charged on Chamberlain Park and surrounding properties. As the following screencapture shows, there are two overlapping rating units on Chamberlain Park, one for the course and one for the clubrooms:

Chamberlain Park rates assessment

The following table summarises data on the two rates assessments. In total, the golf course pays about $97,000 in rates. At first glance, this seems like a lot, but it’s actually pretty paltry considering the spatial expanse (expense?) of the golf course.

Rates assessment Golf Course Clubrooms Total
Land area 32.3 ha
2014 Land Value $12,000,000 $9,100,000 $21,100,000
2014 Improvement Value $1,500,000 $1,900,000 $3,400,000
2014 Capital Value (LV+IV) $13,500,000 $11,000,000 $24,500,000
2015/16 total rates $26,876 $69,956 $96,833
Average land value ($/m2) $65

The land under the golf course is valued at $21.1 million – or around $65 per square metre. This is a comically low valuation. It’s probably been decades since land in Mount Albert was actually that cheap. (I wish it was possible to find buy land that cheaply on the isthmus. I’d buy acres!)

For a comparison, I’ve also looked at the land valuations for five randomly selected residential properties in the immediate vicinity of the golf course. That data, summarised in the table below, indicates that residential land in the area is valued at around $1,100 per square metre – or 16 times higher than Chamberlain Park’s valuation. (As property prices have risen since valuations were conducted, this is likely to understate current prices.)

Rates assessment A B C D E Total
Land area (m2) 658 687 708 637 854 3544
2014 Land Value $770,000 $630,000 $700,000 $720,000 $1,000,000 $3,820,000
Average land value ($/m2) $1,170 $917 $989 $1,130 $1,171 $1,078

Here’s a chart showing the comparison:

Chamberlain Park land valuation chart

The practical consequence of this is that Chamberlain Park only pays a fraction of the rates that it should pay. If the land were valued fairly, the golf course would have to pay around 16 times as much in rates – around $1.6 million. As the golf course only pays $97,000 in rates at present, this amounts to a massive public subsidy.

In fact, the rates subsidy granted to Chamberlain Park is roughly equivalent to the annual value of greens fees, which I estimated at around $1.65 million. (Most greens fees go towards the cost of running the golf course.) People golfing at Chamberlain Park are only paying a fraction of the cost of providing the course, leaving other rate-payers to cover the foregone rates income from the land.

As the average residential rates bill was around $2636 in 2014, and around $214 higher in 2015, this means that roughly 530 Auckland households must pay rates to cover the subsidy for Chamberlain Park (i.e. $1.5m foregone rates from Chamberlain Park / $2850 rates per household = ~530 households).

In short, quite a lot of people are being taxed to pay for this golf course-shaped hole in our ratings system. And because the ratings system under-values the land under Chamberlain Park, the golf course is operating without any clear market signals that it needs to use that land differently.

Now, as I discussed in part 1 of this series, there are legitimate reasons for Council to provide public parks, even if it means foregoing some dwellings or some rates income, as they are open to all visitors and thus provide broader social benefits. So I don’t think that this argument applies to (say) Albert Park or Maungakiekie.

But golf courses are very different, as they can only be used by a small number of people at a time. Golf courses are businesses serving paying customers, just like supermarkets and hairdressers and hotels, and they should be expected to pay their own way. We wouldn’t arbitrarily slash rates sixteenfold for the Mount Albert Pak-N-Save, so why do we do that for the golf course just up the road?

Public transport and congestion in Wellington

Last week, I took a look at some new research from the Netherlands that estimated the benefits of public transport for car travel times based on data from 13 “natural experiments” – public transport strikes. The Dutch researchers found that PT provided significant congestion reduction benefits – around €95 million per annum, equal to 47% of PT fare subsidies.

While the data was specific to Rotterdam, I’d expect to find similar results in most other cities with half-decent public transport networks. The whole thing got me wondering: Is there any similar evidence from New Zealand?

Fortunately for PT users and drivers, but unfortunately for researchers, potential PT strikes have mostly been averted over the last few years. However, Wellington did experience a “natural experiment” of sorts back in June 2013, when a major storm washed out the Hutt Valley railway line:

Source: NZTA

Source: NZTA

The Hutt Valley rail line was out for six days, including four working days. During that period, things got pretty ugly on the roads, as the motorway into downtown Wellington didn’t have enough capacity to accommodate people who ordinarily commuted in by train.

The Ministry of Transport (among others) very cleverly observed that this was a great opportunity to learn something about the impact of PT networks on road congestion. During the rail outage, they surveyed around 1,000 Wellington commuters about their travel experiences. According to their report, they found that:

  • The closure of the Hutt Valley rail line put significant pressure on the road network. Delays for commuters were most severe on the Monday following the storm. Traffic on State Highway 2 was severely congested, with morning peak hour conditions lasting two hours longer than usual
    • 80 percent of Wellington commuters from the Hutt Valley and Wairarapa experienced a longer than usual trip
    • 32 percent of them experienced delays of over an hour
  • the severity of commuter delays lessened over the week, with the number of commuters from the Hutt Valley and Wairarapa experiencing delays of over an hour halving by Wednesday 26 June

Essentially, what happened was that a bunch of people who ordinarily caught the train from the Hutt Valley couldn’t do that due to the storm damage. A quick eyeballing of MoT’s graph of daily rail patronage suggests that around 4,000 people had to make other travel arrangements:

Wellington storm daily train patronage

Almost half of the rail commuters from the Hutt Valley opted to drive instead, while the remainder chose to take replacement buses or to stay at home instead. This had a serious impact on motorway traffic, as shown on this graph of hourly southbound traffic volumes. On a normal day (the green or blue lines), traffic volumes peak at around 7-8am, and fall off sharply after that.

By contrast, on Monday 24 June, when the rail line was out, people were still travelling in (slowly) until almost 11am. That’s some serious congestion:

Wellington storm hourly vehicle flows

Based on survey data, MoT estimated that the storm damage increased average travel times during the morning peak by 0.329 hours (20 minutes) on Friday 21 June, 0.309 hours (18.5 minutes) on Monday 24 June, and 0.230 hours (14 minutes) on Wednesday 26 June. It then used those estimates of average delay for people travelling at peak time to estimate the added cost of congestion that arose as a result of the Hutt Valley rail line outage:

Wellington storm cost of increased travel time

In short, a four-day breakdown in part of Wellington’s public transport network cost morning peak travellers around $2.66 million in lost time. If we assume that there was a similar level of delay during the afternoon peak, when people are commuting out of downtown Wellington, the total cost would be roughly double that – $5.32 million.

This can give us a rough estimate of the value of public transport for congestion relief in Wellington. Extrapolated out over a full year (i.e. 250 working days), these results suggest that the Hutt Valley rail line saves drivers the equivalent of around $330 million in travel time (i.e. $5.32m / 4 days * 250 working days).

That is a very large number. According to an Auckland Transport report comparing Auckland and Wellington rail performance, Wellington’s overall rail network only cost $81.2 million to operate in 2013. 56% of operating costs were covered by fares, meaning that the total public subsidy for the network is around $36 million per annum.

On the back of these figures, it looks like Wellington’s drivers are getting a fantastic return from using some fuel taxes to pay for PT rather than more roads. The travel time savings associated with the Hutt Valley line alone are nine times as large as the operating subsidy for the entire Wellington rail network.

There are two caveats worth applying to these figures, one practical and one methodological.

First, it’s likely that the value of rail for congestion relief is unusually high in Wellington due to the shape of the city. Here’s a map of Wellington’s population density and infrastructure in 2001 and 2013 (from my analysis of urban population density). Dormitory suburbs extend linearly up the Hutt Valley and towards Porirua and the Kapiti Coast. Everyone travelling from those places to downtown Wellington are funnelled through a single transport corridor running along the shoreline of the harbour:

Wellington density 01-13 v2

In Wellington, losing the rail line means pushing everyone onto a single road. (Unlike Rotterdam, cycling isn’t especially viable due to the lack of safe infrastructure on this route.) In other cities, there tend to be a greater range of alternative routes, which spreads around the traffic impacts.

Second, these results aren’t as robust as the Rotterdam study, due to their use of survey data rather than quantitative measures of traffic flow and speed. They’re not likely to be totally wrong, but it’s likely that people over- or under-estimated commute times, or that the survey wasn’t representative of all travellers (which could invalidate MoT’s extrapolation to all morning peak travellers).

However, the increasing availability of real-time data on traffic speeds from GPS devices means that the next time this happens, it will be possible to measure the impacts in much greater detail and with greater precision. The Rotterdam study offers some good methodological insight into how best to do that – it looks at transport outcomes at specific locations over a long period of time, and controls for seasonal and weekday effects that may influence transport outcomes.

Lastly, it would be really interesting to see some similar analysis done for Auckland. I’m sure that there have been a number of full or partial rail network outages, either due to bad weather or scheduled track upgrades. Perhaps it would be worth taking a look at congestion on those days.

The case against publicly owned golf courses, part 2

Last week I started taking a look at publicly-owned golf courses. I argued that they are different from public parks in several important respects. While public parks are freely available to all Aucklanders, golf courses are only open to paying golfers. As a result, we need to treat golf courses differently – not as a tax-funded public good, but as a business that must pay its way.

This week, I will take a look at some of the “opportunity costs” associated with using land for golf courses rather than alternative uses, such as public parks or housing. My central question is this: Do the benefits of using land for golf outweigh the benefits of developing the land for housing? Or is it the other way around?

Let’s start with a look at some broad trends. First, here’s what’s happened to the price of housing over the last two decades: it’s gone up significantly. This is a strong indication that demand for housing (and more intensive urban land uses) is increasing. While predicting the future is difficult, most people expect housing demand (and prices) to continue rising in the future.

Auckland house prices, rents, and CPI

Second, here’s a short-term forecast of revenues for Auckland’s 39 golf clubs from a 2013 report on future prospects for golf facilities. According to the report, golf club membership has been declining by around 1.6% a year. Unless something major changes, this trend will continue and put many golf courses under financial pressure:

Auckland golf club revenue projections chart

Effectively, rising demand for housing and falling demand for golf mean that using large amounts of publicly-owned land for golf courses will become increasingly inefficient. Here’s one way of thinking about the benefits of the status quo (to golfers) versus the benefits of redevelopment (to people who otherwise wouldn’t be able to buy or rent homes in the area).

I’m going use Chamberlain Park as a case study, but the same approach could be generalised to other publicly-owned golf courses. Here’s a picture of the course, which occupies 32 hectares in Mount Albert:

Chamberlain Park Golf Course

According to the local board, Chamberlain Park currently hosts over 50,000 rounds of golf a year. Let’s be generous and call it 55,000 rounds. According to the club’s website, green fees are $30 on weekends. This means that the total annual value of golf rounds played at Chamberlain Park is $1.65 million. In present value terms (i.e. extending this forward 40 years into the future and applying a 6% discount rate), this equates to $26.2 million.

Now, let’s consider alternative uses for the land. Let’s assume that we would develop it for housing and commercial uses, with a substantial amount of land reserved for public parks. We don’t have to look too far to find a good example of this kind of development. It’s exactly what’s happening at Wynyard Quarter, which will have a mix of medium-density residential and commercial buildings, a substantial waterfront park, and a linear park running the length of Daldy St:

Wynyard Quarter 2012 master plan

The important thing is that if development is master-planned appropriately, it can lead to more housing and better public spaces. That’s certainly happening at Wynyard, but it could also happen in Chamberlain Park if redevelopment enabled better connections between new public parks, the Northwestern cycleway, Western Springs, and Mount Albert in general.

So let’s start by assuming that we would reserve one third of Chamberlain Park – 10 hectares – for new parks and playing fields. That’s the same size as Grey Lynn Park, which attracts 100,000 people to the Grey Lynn Festival on a single Sunday – i.e. twice as many people as Chamberlain Park sees in a year.

The remainder – around 22 hectares – could be developed as new neighbourhoods, possibly along the mid-rise, mixed-use lines of Wynyard Quarter. I’m going to assume, further, that around 25% of that space would be devoted to streets, which is pretty typical of new developments. That means that after providing some sizeable public parks and laying out all the streets, we’d have around 16 hectares that could be built on.

Now, current land values in the Mount Albert area are in the range of $1500 per square metre, or possibly higher. That’s a reasonable estimate of the value that people place on the opportunity to live in the area. That means that the total benefit of redeveloping Chamberlain Park for housing is around $240 million (i.e. $1500/m2*16 ha*10,000m2/ha). These benefits would accrue primarily to the people who end up living in the area, but it could also keep housing prices from rising as rapidly and thus have wider benefits.

In short, the benefits of redeveloping Chamberlain Park – even after leaving aside a substantial area for public parks – are nine times larger than the benefits of the status quo for golfers (i.e. $240m/$26.2m = 9.2). Because demand for housing is rising at the same time that demand for golfing is falling, this figure is likely to increase, not fall.

This doesn’t necessarily mean that we have to redevelop Auckland’s publicly-owned golf courses, but it does raise some questions. First, given the fact that redevelopment is likely to be vastly more beneficial than the status quo, why isn’t it being put forward as an option in the Chamberlain Park consultation?

Second, why isn’t the opportunity cost of using lots of land for golf being recognised the prices charged by golf courses? As we’ve seen, people would place a quite high value on being able to live or work on the land occupied by some golf courses. In principle, that should be factored in to green fees, but in practice it isn’t. In the next instalment, I’ll explore this question further – it turns out that publicly-owned golf courses enjoy a large subsidy from ratepayers.

What do you think about the benefits of alternative options for using golf course land?

Briefing Papers 3: “Bubble trouble”

AUT’s Briefing Papers initiative has kindly allowed us to syndicate their recent series on housing. The third paper is by University of Auckland economist Ryan Greenaway-McGrevy:

As of May 2015, the average house price in the greater Auckland region was $828,502. In May 2012, it was only $562,454. That is nearly a 50% increase over only three years. Can anything justify this incredible growth in prices, or is it all a bubble?

Peter C.B. Phillips and I address this question in a recent article to appear in New Zealand Economic Papers: Hot Property in New Zealand: Empirical Evidence of Housing Bubbles in the Metropolitan Centres. One of our key conclusions is that there is an ongoing bubble in the Auckland real estate market.


In Hot Property, we try to restore some objectivity to the difficult task of determining whether or not there is a bubble in New Zealand’s real estate markets. But what exactly is an asset bubble, and how can we spot one? A bubble describes a situation in which an asset price is substantially inflated relative to the asset’s fundamental value, which is the present value of expected income from the asset. But while we can easily observe asset prices, it is harder to observe expected fundamentals. Many arguments over the existence of asset bubbles boil down to whether or not high asset prices can be justified by expected incomes. These arguments sometimes persist long after the prices have come crashing down. For example, see this exchange between Eugene Fama and Ivo Welch from 2002 on the famous NASDAQ bubble: http://www.ivo-welch.info/teaching/famaconversation.html. Fama is one of the most frequently-cited financial economists, and is known for the efficient markets hypothesis. Arguments over the existence of bubbles lead to a large experimental literature that has established the existence of asset bubbles in the laboratory setting (see, for example, Smith, Suchanek and Williams, 1988). Outside of the lab, however, it is remains difficult to spot a bubble by focusing only on asset prices, because we never really know what market participants’ expectations are.

It may be more productive to focus on the growth rate in prices, rather than the price level, when trying to spot a bubble. Bubbles occur because sufficient numbers of market participants purchase an asset in anticipation of future price increases. This can generate a self-fulfilling prophecy, in which asset prices spiral upwards simply because market participants think that prices will increase. As more and more buyers enter the market in anticipation of future returns, prices increase, and they increase at an accelerating rate. As I will discuss below in more detail, it is harder to justify this accelerating price growth in terms of changes in expected future income from the asset. We therefore look for accelerating price growth when trying to spot an asset bubble. This general approach to bubble detection was first proposed in the 1980s (See, e.g., Diba and Grossman, 1988).

The statistical bubble detection tests we employ are designed to establish whether prices are growing and at increasing rate. Peter and his other co-authors provide the theory for these statistical methods in a series of papers (Phillips, Shi and Yu, 2015a; 2015b). A key feature of the methods is that acceleration in price growth must occur over a sustained period in order for us to identify it with any acceptable degree of statistical precision: We are not talking about accelerating price growth over a few months, but a few years. The methods provide not only an indicator of whether an asset is currently experiencing a bubble, they also provide date stamping mechanisms for identifying when the bubble begins and ends. In other empirical applications the methods have proved to be very adept at capturing the onset of bubbles in other asset markets, such as stocks and commodities. And importantly, the end of the bubbles always coincides with a fall in the nominal price of the asset in these empirical applications.

Using this method we identify an earlier, broad-based bubble in most of the regional real estate markets of New Zealand. The bubble appears first in Auckland and Wellington in mid- 2003, before spreading to the other main centres. The onset of the bubble suggest that it was part of a broader global bubble in real estate. The bubble burst with the onset of the worldwide recession in 2007, and coincided with about a 10% fall in nominal house prices.

More recently however, the tests show that Auckland once again entered bubble territory in mid 2013. As yet, the bubble in Auckland has not ended, nor has it spread to other parts of the country.

Many readers will disagree with our conclusion and argue that the accelerating price growth in Auckland is entirely justified by the fundamentals. We mitigate these concerns to an extent by normalizing house prices by an indicator of asset income – in the paper we use either rents or incomes – before running our battery of statistical tests. By doing so, we rule out the possibility that asset prices have been growing exponentially because rents and incomes have been growing exponentially. This leaves open the possibility that price growth reflects exponential growth in expected future fundamentals. But while it is easy to generate a fundamentals-based narrative that results in price growth, it is difficult to construct a narrative that can generate accelerating price growth over a prolonged period of time. This is because asset prices incorporate news relatively quickly, and certainly not over a period of several years. Consider, for example, that the Reserve Bank recently cut interest rates and signalled the beginning of monetary easing in the economy. If this cut was a surprise, and all else being equal, this should lead to an increase in house prices, but not an acceleration in house price growth over the next few years. Many of the common rationalizations for high prices in Auckland – such as lower interest rates or high migration rates – fall into this category. An unexpected increase in migration, or an unexpected decrease in mortgage rates, is good news for property owners, and should lead to a relatively quick increase in real estate prices. But in order to generate accelerating price growth over a sustained period, we would need a sequence of good news that persists over several years. No one is that lucky.

Do bubbles always collapse? Nobel Laureate Jean Tirole provided the conditions for a bubble to survive in an economy (Tirole, 1985). These conditions include durability, scarcity, and common beliefs, and housing sure does appear to be scarce right now. Up until this point in time, urban zoning restrictions have tied real estate to land in Auckland: We do not have the same high density planning as many other cities in the world, and so the number of dwellings per unit of land has been more-or-less fixed. Right now, housing is scarce because land is scarce. If this link between land and real estate persists, then we may just be sitting on a rational bubble. Happily however, the current version of the Auckland Unitary Plan allows for a potentially large increase in the number of dwellings within the city limits. If approved, the land restrictions on dwellings will be significantly relaxed, allowing supply to better respond to the price signal.

Where to from here for Auckland? Unfortunately, the empirical bubble detection literature currently offers little in terms of predicting the future. It is apparent, however, that it can be a long time between when the bubble is first diagnosed and when it finally collapses: Periods of five years or longer are not uncommon. It would be foolish for me to make any claims regarding when the best time to buy or sell a house is, or whether prices will increase or decrease next month. But can real estate price growth continue to accelerate indefinitely? I wouldn’t bet the house on it.


Diba, B. and H. Grossman (1988). “Explosive Rational Bubbles in Stock Prices?” American Economic Review 78, pp. 520-30

Greenaway-McGrevy, R., and P.C.B Phillips (2015). Hot Property in New Zealand: Empirical Evidence of Housing Bubbles in the Metropolitan Centres. New Zealand Economic Papers, forthcoming.

Phillips, P. C. B., Shi, S. and J. Yu (2015a). Testing for Multiple Bubbles: Limit Theory of Real Time Detectors, International Economic Review, forthcoming.

Phillips, P. C. B., Shi, S. and J. Yu (2015b). Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500, International Economic Review, forthcoming.

Smith, V. L., Suchanek, G. L., and A.W. Williams. (1988) Bubbles, Crashes and Endogenous Expectations in Experimental Spot Asset Markets. Econometrica 56, 1119-1151.

Tirole, J. (1985). Asset Bubbles and Overlapping Generations Econometrica 53, pp. 1499-1528

How important is public transport for reducing congestion?

In July, I started taking a look at the economics of public transport fare policies. In the first part of the series, I took a look at how traffic congestion can be a rationale for public transport fare subsidies. (Parts 2 and 3 dealt with different issues.) I observed that:

In the absence of congestion pricing (and in the presence of other subsidies for driving, such as minimum parking requirements), higher public transport fares can result in a perverse outcome – additional congestion and delays for existing road drivers. This is shown in the following diagram:

PT fares and congestion diagram

Effectively, a failure to price roads efficiently means that we have to provide subsidies for public transport to prevent car commutes from being even more painful than they currently are.

But how much congestion reduction can we attribute to public transport? How much slower would car commutes be if some people weren’t travelling by PT instead of clogging up the roads? And how much is that worth to us?

It’s not possible to test this experimentally – we can’t exactly build a bunch of cities that are identical except for their PT systems and see what happens. (Transport research budgets are not nearly large enough.) However, we can observe the outcomes from various “natural experiments” that disrupt public transport systems while leaving everything else unchanged, such as natural disasters and public transport strikes.

Stu Donovan pointed me towards a recent research paper that analysed traffic speeds during public transport strikes in the Dutch city of Rotterdam. The authors, Martin Adler and Jos van Ommeren, use detailed traffic flow and speed data to model how 13 PT strikes that occurred from 2001 to 2011 affected traffic speeds. Because strikes prevent people from using PT without impeding road traffic, the outcomes observed during strikes give us some indication of what would happen to congestion in the absence of PT.

If you’re interested in knowing a bit more about the topic or the methodology, I highly recommend you read the paper. (It’s an excellent paper!) Here, I’d like to focus on a few key findings from the analysis.

First, the authors found that PT helps to speed up car journeys by reducing the number of people driving:

We demonstrate that during a citywide strike, car speed within the city decreases by about 10%. For highways, strikes exhibit a much smaller speed reduction of about 3%. During rush hours, the reduction in speed is more pronounced. These results imply that during rush hours, public transit provision reduces car travel time on inner city roads by about 0.2 minutes per kilometer travelled, whereas it reduces car travel time on highways by 0.02 minutes per kilometer. Hence, for cities such as Rotterdam, travelers on inner city roads benefit much more from public transit provision than highway travelers.

Intuitively, these results make sense. The benefits of PT for drivers are much higher in busier areas, such as Rotterdam’s inner city roads. However, Rotterdam’s ring road highways still derive some benefits.

The second interesting finding is that the popularity and ease of cycling in Rotterdam – even though it’s not exactly leading by Dutch standards – cushioned against some of the negative impacts of PT strikes:

a full-day citywide strike increases bicycle flow by 24% implying that a large share of travelers switch to bicycle use (rather than car use), which presumably reduces the car flow increase and therefore the speed reduction of a strike. Bicycle ownership and use is much higher in the Netherlands than in other countries in the world, so this result is likely specific to the Netherlands.

In other words, the availability of multiple congestion-free networks – public transport and cycling – meant that the roads didn’t have to accommodate all of the people who couldn’t get on the bus on strike days. In other words, the availability of multiple transport choices enhanced network resilience.

Third, the authors calculated the value of congestion reduction benefits attributable to public transport in Rotterdam. Based on some plausible assumptions about journey lengths and the value of time, they estimate that:

The annual public transit congestion relief benefit is then about €95 million (assuming 252 working days), so about €79 per inhabitant. This excludes any benefits of public transit provision on weekends that we assume to be negligible, so this is likely an underestimate. Given 721 million public transit passenger kilometers (OVPRO, 2014), the congestion reduction benefit per public transit kilometer is €0.13. This benefit is substantial given that the cost per public transit kilometer is €0.46.

In addition to congestion welfare losses there are rescheduling costs to car travelers. [Note: only 55% of the reduction in PT trips on strike days was balanced out by the increase in car and bicycle trips, meaning that a large share of people chose not to travel.] We do not include these costs, nor do we include the loss to public transit ticket holders or any other external cost of car driving that are likely an order of magnitude smaller than the effect through congestion.

The costs of providing public transit in Rotterdam are partially covered by subsidies, about €0.28 per public transit kilometer. So, the congestion relief benefit is about 47% of subsidies.

This is a really interesting finding! It puts a monetary figure on the congestion relief delivered by PT. (For Rotterdam, at least.) And, interestingly, it’s a large enough figure to justify a good proportion of PT fare subsidies. There are also other rationales for fare subsidies that I haven’t discussed here, such as social equity for people without cars and various types of network effects in PT provision.

But even if we leave those aside, this finding suggests that drivers should be happy to spend some fuel tax revenues to subsidise public transport.

What do you think about congestion and public transport?

The case against publicly-owned golf courses, part 1

Auckland’s 14 publicly owned golf courses have been in the public eye lately. Economist Shamubeel Eaqub argued that Auckland Council should develop housing on the golf courses:

In June, Eaqub said he wanted the golf courses sold and this was published in a book he had written.

Asked for a more detailed explanation, he said he thought it was wrong to have so many hectares of land tied up in public ownership across the city when that very same city was suffering a desperate shortage of land for residential development…

“It looks like a subsidy for the rich when the council has well-placed land that could be at least partly used to supply significant intensive housing,” Eaqub said.

In early August, the Albert-Eden Local Board released plans to rethink the Chamberlain Park golf course, which occupies 32 hectares of land in Mount Albert:

Albert-Eden Local Board has decided to develop a plan which could reduce the size of the golf course at Chamberlain Park in order to create sports fields, restore a stream and put in public walkways.

Tonight board chairman Peter Haynes denied its chosen basis for developing a masterplan was a “carve up” of the 32ha council-owned public golf course.

“You could say, local board future-proofs open space and recreational opportunities in the local area,” said Mr Haynes.

“What we also did tonight was to approve the starting of a process to work on the western part of the park – naturalising the stream, putting in walkways and cycleways, barbecue areas and playgrounds for the local people.

In other words, Auckland Council’s showing signs of rethinking its publicly-owned golf courses. (Other cities, like Sydney, are also having similar debates.) While the plans under consultation don’t include an option for developing housing on Chamberlain Park, several of them envisage reducing the amount of space devoted to golfing and opening up more space for the general public. This is likely to be a controversial move. But is it a good idea?

I’m going to take a look at the issue in several parts. I’ll lay my cards on the table at the outset: I do not think there is a strong case for Councils to own golf courses. We would be better off to convert public golf courses to a mix of public parks and housing. Privately owned golf courses will still cater for golfers. But don’t just take my word (or Shamubeel’s) for that – let’s take a closer look at the issue.

I want to start by drawing a distinction between public parks and private open spaces, like golf courses. This isn’t an argument that we should find every green space in the city and put an apartment block on it. Public parks, like Maungawhau/Mount Eden, Albert Park, the Waitakere Ranges, and Maungakiekie/One Tree Hill, serve a valuable public role. They provide recreation opportunities that all Aucklanders can freely enjoy. Many people can enjoy public parks at the same time, without preventing others from also enjoying them – witness the crowds that fill out Albert Park, Western Springs Park, or Maungawhau/Mount Eden when events are happening there.

You couldn't hold the Lantern Festival in a Golf Course. (Source: HOTC)

You couldn’t hold Auckland’s Lantern Festival on a golf course. (Source: HOTC)

But golf courses are different: they’re not open to the general public. Entry is limited to paying customers, even at a publicly owned golf course. As a result, the social value of publicly owned golf courses is much more limited – golfers get most of the benefits, and others don’t benefit much at all.

This was highlighted in an excellent Cycle Action Auckland post on Chamberlain Park:

Not only is the park effectively closed to the public, but thanks to lack of foresight by planners many decades back, its fences also present a major barrier to the local community. Numerous streets at the edge of the park finish in dead ends, with no links between them…

At the same time, we have the Northwestern Cycleway (and Walkway) along the northern edge of the path. One of the criticisms we often hear about paths like this is the lack of fine-grained local connectivity. And for this section, it is certainly true. From the Pt Chevalier side, the motorway blocks all access onto the cycleway for 1.5km. The lack of a proper street / path grid at Sutherland Rd and at Chamberlain Park ALSO means that for 1.5km there’s no getting onto the path from the southern side either.

As a consequence, this is the closest that most people can come to experiencing Chamberlain Park: a bike ride along a chain link fence:

CAA NW Cycleway Chamberlain Park

Source: CAA

In a previous Transportblog post on Chamberlain Park golf course, reader B White made a similar observation:

I’ve lived just down the road in Mt Albert on and off for over 30 years and have never set foot in this park. I would quite like to without having to play golf. I submitted to get rid of golf completely but would be happy to compromise to a nine hole course just to get some access to the place before I die.

In short, golf courses are different than public parks in three important ways:

  1. Public parks are free and open to all comers, while golf courses are open to paying customers only.
  2. Public parks can be enjoyed by many people at the same time, whereas only a limited number of people can play on a golf course at any given time.
  3. Well-designed public parks connect communities and give them more enjoyable options for getting around, while golf courses tend to sever neighbourhoods by creating inaccessible voids between them.

Consequently, I would argue that councils should not treat golf courses in the same way that they treat public parks. Councils should provide parks (and potentially other types of sports grounds that offer more open access) as “public goods” that provide social benefits for the city as a whole. But golf courses, which are reserved for the exclusive use of paying golfers rather than being a public good, should be run as businesses on a purely commercial footing.

This would mean, for example, that publicly owned golf courses would have to properly account for all their costs, including the cost of the rather valuable land that they occupy. (I’ll explore this idea further in parts 2 and 3 of the series.) However, it would hardly eliminate golf from Auckland. The city has a total of 39 golf clubs, 14 of which are owned by Council. Even if some publicly-owned golf courses were repurposed, there would still be an abundance of tee times available for golfers. In fact, it’s likely that the remaining golf courses would be more financially sustainable, and thus better able to invest in their facilities, in this case.

What do you think about the value of golf courses as opposed to public parks?

Wise words from the (Australian) Productivity Commission

One of the best things done recently by governments on both sides of the Tasman has been the establishment of Productivity Commissions tasked with investigating the economic efficiency (or lack thereof) of various policy areas. The NZ Productivity Commission, which only started up in 2011, has been diligently building an evidence base on issues as diverse as international freight, service sector productivity, and land use policies.

Transportblog reviewed their recent inquiry on using land for housing, which had some excellent insights and recommendations. Not all of the recommendations made by the Commission have been picked up (yet), but they form a useful basis for future policymaking.

We’ve been paying attention to the NZ Productivity Commission, but it’s also worth keeping an eye on the Australian version, which is grappling with many of the same issues. They recently published a nice summary of their 2014 inquiry into public infrastructure, which highlighted some key steps for improving the efficiency of public investment.

The Commission highlighted the scale of capital investment. Australia’s expecting to spend megabucks on new capital investment, most of which will go into the built environment – i.e. houses, roads, railways, water infrastructure, etc:

In 2013-14, there was an estimated $5.1 trillion or more of installed capital that was available for use in the Australian economy — over three times the value of production in that year (figure 3.1, top panel). Over the next 50 year period, the Commission has estimated that new capital investment will be more than five times the cumulative investment made over the last half century to around $38 trillion in today’s prices (PC 2013).

The largest component of today’s installed capital is in the form of non-dwelling constructions — which consists of non-residential buildings (i.e. buildings other than dwellings, including fixtures, facilities and equipment integral to the structure) and other structures (including streets, sewers, railways and runways) — which amount to over $2 trillion (or 43 per cent of the total). The next single most important component relates to dwellings, amounting to around 35 per cent of the total installed capital (figure 3.1, bottom panel).

Given this, it’s important to get new public investments right:

Additions to the stock of capital will usually increase output and add to labour productivity. However, for productivity to improve, the growth in output must exceed the growth in inputs. Poorly selected projects can detract from productivity as the resources they use would have delivered a higher output elsewhere in the economy.

The Commission had some stern words about the quality of decision-making about public investments. Their analysis suggests that “there is considerable scope to improve the quality and efficiency of government investment in public infrastructure investment in Australia”.

This could probably be translated as: “You guys are doing a bunch of stupid stuff. For the love of god, please stop it!”

traffic avoids clem 7 tunnel

Brisbane’s Clem 7 tunnel cost heaps and has lost money for all of its investors.

So how could infrastructure investment improve? The Commission discusses public-private partnerships (PPPs) as a potentially useful option, but observes that they are not a magic panacea for bad project selection. In some cases, the PPP process can drive governments towards costly, oversized solutions:

Most relevant to enhancing the efficiency of the provision of public infrastructure is improving project selection processes. Australia’s cities and towns generally function adequately and assets undergo usual maintenance, although problems have emerged in some major cities. Nevertheless, the Commission found numerous examples of poor value for money arising from inadequate project selection and prioritisation. In particular, there was a bias toward large investments despite the returns to public investment often being higher for smaller, more incremental investments. In part, this was because the private sector is more interested in financing large investments (due to the costs involved), and governments have increasingly seen public private partnerships (PPPs) as a way of harnessing not just finance, but expertise in project delivery and operation.

Furthermore, the fact that PPPs typically involve complex negotiations and ongoing relationships between governments and private investors can make it difficult to properly assess costs, benefits, and risks. In essence, this creates a situation in which private sector involvement does not result in a better outcome, due to muddled incentives.

The Commission concluded by encouraging Australian public infrastructure providers to conduct rigorous, consistent cost-benefit analysis for all major projects and – equally important – to publish the results prior to committing to a project:

A key recommendation of the report was that governments should undertake a comprehensive and rigorous social cost—benefit analysis to all public infrastructure investment projects above $50 million. Such analyses should be publicly released during the commitment phase and be made available for due diligence. In general, cost-benefit analyses should be done prior to any in-principle commitment to a project or as soon as practicable thereafter.

Doing this would have avoided the farcical situation facing Melbourne’s East-West Link, an A$8.6 billion project to build a massive tunnel to link up several motorways:

Melbourne East-West Link tunnel portal

As far as I can tell, the project was announced and confirmed before a business case was completed or published. As a result, nobody really knew whether it was a good idea. The project was subsequently cancelled, albeit at a significant cost for cancelling the contract.

Do the figures stack up?

The truth is that we don’t know. Those against all new major road projects may not care about the figures one way or the other, but those who follow these things closely say the project is unprecedented for its lack of transparency. It’s been a nagging political problem for the government, and a key reason the East West Link is so contentious.

“Normally we would see more detail, and historically it’s been much clearer on what basis we are proceeding with projects like this,” [infrastructure consultant William] McDougall says.

“This is new for Australia,” says [transport policy lecturer John] Stone. “The fact that through all these court cases and all this political focus the government has never released its business plan – it released a back of envelope estimate – means probably there’s nothing to back it up. If they had a better number they would have put it out there.“

Fortunately, New Zealand seems to do a better job when it comes to consistent cost-benefit analysis of transport projects (although we don’t always take the findings seriously). However, there is always room for improvement. The Commission highlights three key factors that can undermine the effectiveness of cost-benefit analysis:

  • Optimism bias. There is a systematic tendency for project appraisers conducting cost-benefit analysis to be overly optimistic — the bias is toward overstating benefits, and understating timings and costs, both with respect to initial capital commitment and operation costs. Over estimates of traffic forecasts on toll roads and tunnels are a particular problem…
  • Treatment of risk and uncertainty. Costs and benefits are expected values based on the probability of different outcomes. Cost-benefit ratios may be sensitive to certain assumptions which have to be made without sufficient evidential support. For example, inappropriate assumptions about allowance for project risk in the discount rate (that is, the risk premium) may alter the ranking of projects and lead to suboptimal project selection…
  • Treatment of ‘wider economic benefits’. Infrastructure projects create direct benefits for users of the resulting service provided by public infrastructure. Where cost-benefit analysis is done, such benefits are routinely estimated and included. However, projects can also create wider economic benefits and costs. For example, investment in transportation infrastructure brings consumers closer to more businesses, potentially facilitating greater competition and leading to a more innovative and a dynamic economy. However, such wider economic benefits are hard to quantify and their inclusion in a cost-benefit analysis has the potential to show one project to be superior to another purely because of differences in the way such benefits are defined and estimated. Cautious and consistent treatment across options of wider economic benefits is warranted.

Transportblog’s highlighted a few of these issues in the past. I’ve discussed optimism bias on the benefits/usage side here and optimism bias on costs here and here. Stu’s covered off treatment of wider economic benefits here. And it’s probably high time we took another look at discount rates / risk premia…

Chart of the day: Government bond yields

I’m not a financial economist, but I occasionally take a look at the Reserve Bank’s fantastic collection of credit statistics. Their short-term and long-term data series often say a lot about where the New Zealand economy’s currently going and where it’s been.

One interesting indicator is the 10-year New Zealand government bond yield, which measures the interest rate that the government must pay on its debt. Here’s a chart of the last 20 years of government bond yields (unadjusted for inflation):

NZ government bond yields 1995-2015

As you can see, bond yields were pretty consistent throughout the mid-2000s – sitting at around 6%. However, they started a major downward slide in 2011, rose in 2013, and then fell back again in 2014. At the time of writing (12 August 2015; these posts are written and scheduled in advance), bond yields were sitting at 3.29%.

Essentially, the government’s borrowing costs are sitting at historic lows. This is important for two reasons.

First, it is a symptom of persistent economic weakness in New Zealand and the rest of the world. Pessimism about growth prospects has led people to prefer to lend money to governments, where they can get a lower but more certain return, rather than invest in businesses. The more people try to lend to governments, the more bond rates are driven down.

Second, low government bond yields enable governments to borrow more to make long-term investments in infrastructure and state housing. This doesn’t mean that we should simply borrow money and spend it at random. We still need to exercise some rigour in project selection and economic evaluation, and ensure that we’re not overheating the construction industry by trying to do too much at once.

However, it does mean that we can afford to go a bit further down the list of worthy projects. Many of the issues currently bedevilling New Zealand – Auckland’s growth pressures and Christchurch’s halting rebuild – could be addressed if central government simply borrowed a bit more money to build new streets, public transport facilities, cycleways, and housing developments. It’s literally never been cheaper.

Housing, wealth, and inequality

House prices in Auckland are high and rising, which is causing concern in many quarters. But do we know what sort of effects high house prices may have on New Zealand society, now and in the future?

Politicians and commentators from all quarters have argued that they are undermining the equity of New Zealand society by making it harder for young people to buy houses and squeezing household budgets. Here, for example, are some recent comments from Finance Minister Bill English:

The Finance Minister agrees rising house prices in Auckland are making inequality worse by shutting low and middle-income earners out of the property market.

Opposition parties say rising inequality is not only hurting those who cannot afford to buy a home, but is also bad for the economy.

Bill English said house prices were making life tougher for low and middle income earners in Auckland and said inequality was a problem.

“We’ve been concerned about that for some time, that there’s parts of Auckland where there’s been really no new supply of lower value houses that low and middle-income families can afford.”

I’ve seen Minister English making similar comments elsewhere – saying that limited housing supply is worsening poverty and inequality. How true is this?

First, here’s a graph showing indexed house prices, rents, and consumer price levels over the last two decades. While housing prices have been rising faster than the CPI throughout this period, house prices have really only taken off dramatically since 2002. Meanwhile, rents have risen at a more consistent pace:

Keep that timing in mind. Most of the increase in Auckland’s house prices has occurred between 2002 and 2008, and again since 2012.

So now, let’s take a look at what’s been happening to inequality over the same time period. Here’s a useful chart from a Stuff article on the topic. It looks at the 80-20 ratio – i.e. the ratio of incomes for a household near the top of the earning distribution (80th percentile) to one near the bottom (20th percentile). While it’s not a perfect measure, as it misses outcomes at the upper and lower tails, it does seem to track with the Gini coefficient, another common measure.

Essentially, what this measure is telling us is that income inequality rose during the late 1980s and early 1990s, during NZ’s painful economic restructuring, flattened, and then trended down slightly since the mid-2000s. Importantly, the same basic trends hold true even after taking housing costs into account, which suggests that rising Auckland house prices haven’t altered the underlying dynamics of income inequality:

NZ income inequality chart

In other words, recent increases in Auckland house prices have not coincided with rising income inequality. Minister English is well aware of this. For example, in May 2014 he answered a few questions on inequality in Parliament:

Hon BILL ENGLISH: Well, the facts as laid out in the annual report issued by the Government agency initiated by the previous Labour Government, and now backed up by the OECD, show that income inequality in New Zealand has been flat to falling in recent years, and, on average, it has remained unchanged for the last 15 years.

This does not necessarily mean that we can be sanguine about the impact of housing costs on New Zealand society. For one thing, statistics published in the Ministry of Social Development’s most recent (2014) Household Incomes in New Zealand report suggest that the share of households paying more than 30% of their income for housing has risen since the early 2000s. These changes seem to have affected households across all five quintiles of income, albeit to varying degrees. However, from an equity perspective they’re dwarfed by the impact of early-1990s changes to social welfare and housing policy:

MSD high housing costs by income quintile chart

Another issue is that rising house prices may be causing inequality of wealth to increase. The distribution of household wealth has received more attention in recent years, e.g. in Thomas Piketty’s Capital in the 21st Century, which analysed trends in wealth and income distributions over the past two centuries.

There are reasons to believe that higher house prices may increase wealth inequality. For example, 2013 Census data shows that upper-income households are much more likely to own, partly own, or hold in a family trust their primary residence. 80% of households earning over $100,000 per annum own their houses, compared with only 52% of households earning less than $30,000.

However, we simply don’t have enough recent data to form robust conclusions about the impact of rising house prices on wealth inequality. During the 2000s, the Survey of Family, Income, and Employment (SoFIE) did collect some data on household wealth. An analysis of the 2003/2004 data showed that wealth was much more unevenly distributed than income – 51.8% of all net wealth was held by the richest 10% of New Zealanders.

As SoFIE was discontinued in 2010, we have no way of knowing whether or not wealth inequality has increased during the most recent run-up in Auckland house prices. Consequently, I’d say that a hypothesised link between house prices and wealth inequality is potentially concerning, but unproven. If the Finance Minister is concerned about that issue, I’d recommend that he re-start SoFIE so we can get a better idea of whether rising house prices have coincided with rising wealth inequality.

Finally, commentators should note that this post isn’t arguing for or against any particular policy directed at inequality or the housing market. It’s just taking a look at the data (or lack of data) on the topic. With that in mind, what’s your perspective on the link between housing and inequality?