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GUEST OPINION: How the RMA subverts community welfare

GUEST OPINION

Many economists are puzzled that New Zealanders are not more prosperous given the country’s high rankings on international measures, such as ease of doing business, economic freedom and human development.

Sometimes I respond that perhaps anyone who is puzzled might usefully have a closer look at the Resource Management Act 1991 (RMA). International agencies cannot accurately assess the degree to which this, and much other, legislation wastes resources, impairs investment and undermines the resilience of the economy.  (Resilience encompasses the ability to change resource use quickly and flexibly in good times and bad, with minimal inflation on the one hand or unemployment on the other.)

I am using recent actions by the Kapiti Coast District Council (KCDC) to illustrate this, not because it has been worse than anywhere else but because of family reasons for following developments closely.  

In the past 2-3 years the KCDC has variously:

  • Declared 1800 beachfront property owners’ homes to be at risk of coastal hazard due to assumed, rather than predicted, sea-level rise, egregiously amended Land Information Memorandums (LIMs) and proposed serious restrictions on owners’ ability to use their own money to improve the amenity value of their properties;
  • Proposed restrictions on what rural property owners can do to develop their properties on the absurd grounds that in future the world might need more arable land for food production;
  • Prosecuted (unsuccessfully) two elderly tree lovers for having a professional arborist cut down three native trees on their own property; and           
  • Remove some native plants from alongside the Waikanae River that had been planted by a local community group on the grounds that they were not natives of the region.

Such actions demonstrably impair investment decisions and land-use flexibility.

Note in particular that the first three of these examples were disputes about the best use of private property. A civil solution for resolving such disputes is to offer to buy the property. This procedure confronts both parties with the value the other sees in the disputed use. Both parties can benefit.  

To reject this option on the grounds of cost implicitly concedes the benefits of achieving one’s preferred use are less than the costs. To use regulation to force all the costs to be borne by an existing owner fails to achieve a mutual benefit.

At least three of the four actions were distressful and costly for those most directly affected. No alleged beneficiary was being confronted with the costs being imposed on the affected owners. 

Yet the failure to confront contending parties with the costs can be expected to reduce overall community welfare, as is widely accepted in environmental pollution and exploitation situations.

In a less legalistic world, local authorities would not impose costs on ratepayers unless a sound case was made that ratepayers would be more than compensated by way of offsetting benefits. Cost-benefit analysis is the formal technique economists use to make this assessment. 

Yet, as far as I have been able to ascertain, no such assessments, recognisable to an economist, were made. Why not? Perhaps I have overlooked them but a deeper reason is that the law directs attention elsewhere.

S32 of the RMA requires local authorities to make an assessment of benefits and costs of proposed rules. But it does not distinguish between benefits and costs to members of the community and costs to the environment. Moreover, it focuses on determining whether a proposed rule is efficient and effective in achieving a plan objective. S32 is clear the chosen objectives must be “the most appropriate way to achieve the purpose of the [RMA].”

If the purpose statement was unequivocally to improve the overall well-being of members of the community, plan objectives would have to be aligned with that purpose. Instead, the prime stated purpose is “to promote the sustainable management of natural and physical resources.” This potentially dictates everything we can do with our property.  

More happily, the second part of the RMA’s purpose statement acknowledges the well-being of New Zealanders is a relevant consideration. But this concession is vitiated by specified constraints on its pursuit. 

These include sustaining the “reasonably foreseeable needs of future generations,” “safeguarding” ecosystems and “avoiding, remedying or mitigating any adverse effects of activities on the environment.”

The RMA thereby allows, or even requires, the well-being of New Zealanders to be sacrificed to the pursuit of inherently arbitrary, fuzzy and open-ended goals. The required judgment calls are inherently arbitrary because neither future generations nor abstract constructs such as “ecosystems” and “the environment” are capable of speaking for themselves. 

Back in 1900, the reasonably foreseeable needs of future generations would not have included microwaves, TV, the telephone, electricity, cheap air travel and all manner of other modern household appliances and conveniences. Yet, today we are told that such things are necessities; the poor are those who do not have them in some abundance.  

Are well-landscaped and well cared-for private trees and gardens an adverse effect that should trump the pleasure they give to New Zealanders? As far as the RMA is concerned the answer appears to be “why not?”  

As long as the RMA remains ambiguous as to whether its purpose is to enhance the well-being of New Zealanders, or to sacrifice it on the altar of “sustainable management,” there is no hope decisions under it will need to demonstrate net benefits.  

Housing affordability is a serious problem and the RMA has a strong bias against subdivision. But MMP politics has stymied the government’s ability to achieve real reform. 

None of this should be read as defending the KCDC. It has been increasingly apologising to the local community for its many egregious decisions. 

But the RMA will continue to induce councils to continue to take decisions that do not plausibly increase community welfare. Confronting people with costs of achieving their preferred use of someone else’s property is often the best way to conduct a cost-benefit analysis.

Bryce Wilkinson is senior research fellow at The New Zealand Initiative.

Comments and questions
9

Thanks Bryce.
The RMA is a prime example of legislation which pits the power of selective subjective interpretation by those who can afford the cost of legal challenge, beyond the reach of the vast majority of private individuals.
The antics of Forest and Bird for example, is a prime example of an organisations ability to subvert community good.

There is no cost to the people who make decisions (under RMA and/or Treaty of Waitangi, .....) but these decisions impose high costs on individuals. This "kills" enterprises or makes them more expensive if decisions are challenged. Hence the lower standard of living, as too much effort, time and money wasted on useless overheads.

Having been a party to two proceedings now in the Environment Court, I was impressed. I felt the Court reached balanced, logical decisions. So maybe we need to stop focusing on examples - your four cases and my two - step back and look at the bigger picture. You write "Many economists are puzzled that New Zealanders are not more prosperous given the country’s high rankings on international measures, such as ease of doing business, economic freedom and human development." I bet many economists are not surprised at all. Cherry-picking economists isn't much of an argument really. I expect that many economists think NZ does a lot of really dumb stuff and the're suprised we rank above Brundi. But I could be wrong...

Any economists care to comment on what NZ does right and what it does wrong? I have this wild idea the RMA is not going to make either list.

No one is talking about scrapping the RAPPER. The issue highlighted by Bruce is the desirability of a shift in focus to a greater benefit for the current community, rather than the current clause S32 emphasis on future unspecified goals that may not be relevant when said future arrives. If S32 had a stated planning horizon of x years rather some exponential date in the future then it would bring some sense to the emotional ardour of elected politicians with an agenda to push.

Your argument is itself a logical fallacy which doesn't give me much confidence in your ability to judge whether the EC decisions you observed were themselves logical.

The RMA's faults are not exposed by the cases it gets right but by the ones it gets wrong. Even supposing your judgement of your own cases is correct that does nothing whatever to invalidate the problems Bryce just illustrated.

Reply to JimE
The New Zealand Productivity Commission's website might help you get up to speed with what economists are debating. Look for the words "productivity puzzle".

"To use regulation to force all the costs to be borne by an existing owner fails to achieve a mutual benefit."

How abhorrent that land owners should bare the cost of owning land. Are they prepared to enjoy the benefits of owning the land, and keep those benefits to themselves? Of course they are, yet this hardly achieves the ‘mutual benefit’ the author seeks. Arguments that advocate for internalised benefits and externalised costs simply do not hold.

Response to Paul James

I agree that, in general, arguments for internalised benefits and externalised costs do not hold. Accept this and you condemn the RMA.

Well-defined property rights allow the owner to determine resource use, pocketing the benefits, as you observe. But they confront the owner with the cost of the forgone resource use, because that is the value the owner forgoes, either from not selling the property to someone who would put it do a different use,or from putting it to that different use in the first place. Conversely, property rights confront those who prefer a different use with the cost of meeting the legitimate owner's price for selling the property, or otherwise agreeing to the alternative land use. Property rights are symmetric in the sense of confronting both owners and non-owners with the value the other side puts on the use of the resource. Because it takes mutual agreement to change the resource use, the process tends to promote civility and mutual benefit. At this level of generality, if there is no transaction, that is because it this is the most mutually beneficial outcome.

Contrast this with the RMA. Those who benefit from a resource use that the RMA imposes on an unwilling owner are not confronted with the cost to the community of the forgone opportunity to use the resource differently (eg in the Kapiti Coast example, to subdivide arable land in order to increase the supply of affordable housing). To use your terminology, the RMA ensures that the costs are externalised to the property owner while the benefits are internalised to the self-declared beneficiaries. Uncivil outcomes that are not mutually beneficial are to be expected.

Since most RMA disputes are about resource use, this externality problem is endemic to it. Mutual benefit is not what the RMA is about.

(Of course anyone can complicate the discussion from here by raising issues of common law harms, transaction cost issues of point source pollution and free riders etc. But those added complexities do not alter the central point -- the RMA fails to internalise benefits and costs even in the base case. Fix that problem for a more productive and more civil society.)

There are all sorts of buildings on hilltops - churches, monuments, memorials and infrastructure- that I suspect would not be built today because they would never get through the RMA, due to its preference for 'iconic' and 'unspoilt' landscapes. Yet these structures are often the things that make landscapes more human and iconic, and there is very little in the way of unmodified landscapes in NZ.

It would be an interesting experiment to test one of these buildings against the current rulings of the RMA.

The road round the Basin Reserve is a classic case of where a simple functional project in a built up commercial area has been railroaded into a pointless multi million dollar aesthetic debate.