Monday, June 14, 2021

COVID, Q+A, tough questions and sense-checking

Q+A is not real life. Nor is Twitter for that matter.

In the days since my appearance I have received more than one hundred emails and messages from people from all walks of life across the country. These are not cranks. There are academics, scientists, and doctors, who are unable to speak up in their own organisations.
“l feel silenced by my occupation.”
“I am a … working on vaccines…”
“Please keep this confidential. I am a ... professor…”
I’ve had letters from young people pleading for some sense about the human cost of lockdowns, especially from Victoria.

The theatre of television is not where truth can be found. What people will say in public and what they privately believe are rarely the same. This is true even for Q+A panellists and hosts. Very few people have the luxury I do of following the data and evidence no matter where it leads. Most have reputations to protect, for themselves and their organisations.

Such people need someone else to speak up first. That is fine. Over the past decade or so I have become the guy that says the obvious before it is popular.

In doing so I’ve been called left-wing nutter, a right-wing nutter (make up your mind trolls), and many variations of “he’s an idiot”. Very witty. Often my views are later accepted more widely as being correct. But no one cares.

We don’t live in a world where truth matters. Making good predictions provides little credibility.

We live in a society of humans who are “group-ish” and loyal. One where people form their views socially, facilitated by story-telling. Being wrong with the group is better than being right but going against the crowd.

Here are a few things that have been on my mind regarding the state of COVID policy and analysis in the past few days. Before you dive in, you can read my earlier thoughts on COVID policy here.

People are self-censoring

Self-censoring at present makes sense for many people.

If you don’t, the power of big tech will do it for you. Bret Weinstein is no science slouch, nor are his guests, which include doctors and scientists (including the inventor of mRNA vaccines). Yet he has repeatedly been demonetised and censored on YouTube. 

Totally normal words and arguments by world-leading experts have become taboo. Herd immunity? Taboo. Great Barrington Declaration? Taboo. Our public health response has devolved into a social media political team sport, with no regard for facts and evidence.

In this social climate, who would stick their neck out in public?

Our new “health experts” are anything but

Eliminating COVID is a preposterous policy objective. Not only is it unlikely it is impossible to do nationally. The only public health objective that matters is maximising overall health and wellbeing.

Yet zero COVID is trumping all other considerations. The experts are not even trying to consider the cost. Lockdowns are free of health and wellbeing costs in their fantasy world. This is astonishing.

Here’s a clip with a variety of experts, including Sunetra Gupta explaining that although they are not as attention-grabbing as COVID deaths, the human toll of lockdown is very real. 

No one cares about solving the problem. There is no plan.

Take a look at Ivermectin and the censoring of anyone who suggests that existing safe drugs should be used as COVID treatments. One might even suggest that there are financial incentives at play for pharmaceutical companies to make sure only their expensive new drugs are approved for COVID treatment.

Take a look at the logic being used to promote vaccines. The “experts” on Q+A simultaneously had the view that vaccines should not be compulsory and we should not open the borders until we are nearly totally vaccinated.

What if only 50% of people want to be vaccinated? What then?

Also, why should we vaccinate children when we know their COVID risks are minimal? Nearly 25% of the population are children, and COVID vaccines are not recommended for them. 

We are told we must learn to live with COVID and future variants, but we are unable to accept that this means people will die from the disease. You cannot have it both ways. Have a logical plan, please.

No one cares about acquired immunity from disease

Experts worry that a perverse idea has spread widely—that people don’t get immunity from their body’s own response to contracting a virus. Yet saying the sensible reality that recovering from infection provides immunity gets you censored, no matter what your scientific credentials.

I said vaccinating children for COVID was crazy on national television. This provoked a response from the President of the AMA who wanted to imply something very different, but who ended up saying that the medical advice is that vaccines are not recommended for children. My views are totally in line with much of the medical profession. So why the need to put on a show to make it seem otherwise and give a distorted picture of the evidence to the public?

Even Harvard professors are not safe from censorship around sensible medical advice.

No one cares about killing poor children elsewhere

We know that the rollout of childhood vaccination programs has been delayed and disrupted, especially in the poorest countries. There is a huge cost to this in the form of avoidable child deaths. One estimate suggests that the disruptions due to border closures, logistics, and prioritising other vaccines and health supplies will cost the lives of over a million children aged under five. The longer lockdowns go on, and the more we devote health and science resources to COVID above other health issues, the higher this toll.

Are the figures in this study correct? I do not know. Their value is in providing a sense of balance. COVID is just one disease amongst many. Attempting to estimate the potential scale of other health issues that have been neglected is something that should have been front and centre of the policy response in Australia and globally. 

Economic development makes people live longer

The investments that make people live longer are not usually direct healthcare investments. They are instead things like clean water, dealing with city waste, functional sewerage systems, reducing urban and local pollution, and clean food supplies. These have been proven time and time again to be what makes people living longer.

Now consider the cost of locking down India. Each year investments in these types of basic services create enormous health improvements of around 0.25yrs of additional life expectancy across the population (i.e. every four years life expectancy increases one year). Delaying this process with lockdowns is hugely costly there. A one year delay costs 0.25 life-years x 1.37 billion population = 342 million years of life—an astronomically high figure compared to even the worst-case COVID death toll. 

The commentary on Australia’s economic performance is also amiss. The fact that economic activity recovered to its previous level does not mean lockdowns and border closures were economically costless. The counterfactual is where we would be today with no lockdown but with the stimulus actions we have seen, as the policy option to stimulate economic activity has always been available.

The stylised chart below shows what I mean. Comparing point A and B to show there is no economic cost is silly. Comparing point C and B is the only sensible approach. 

The coming debate about COVID deaths vs lockdown deaths

Soon we will have a heated debate about how many lives were saved because of lockdowns. We will only have the debate about how many lives lockdowns actually cost in private, as those discussions will continue to be censored for a while yet.

Here is a quick overview of some of the mistakes of logic we can expect to see.

If recorded deaths by COVID are below excess deaths over the 2020-21 period, then that gap will be typically attributed to “missed COVID deaths”. This attribution is a wrong assumption. There will certainly be missed COVID deaths, and over-counted COVID deaths, but the gap can arise for multiple reasons, including lockdown deaths.

The Economist has already been implying these are all uncounted COVID deaths (see image below). They all seem to come from Asia and Africa (puzzling). I will be very interested to check back on their modelling exercise in 12 months time when we have more accurate records of what happened. Looking at how past predictions turned out is a great way to sense check claims, but something that the media rarely does. 

Tuesday, June 1, 2021

Taxing rezoning windfalls (betterment)

This is an excerpt from a new paper of mine available here

What is the source of rezoning gains?

The answer to this question relies on understanding the nature and extent of property rights. A core right of a property owner is to exclude others. A right holder of this type usually also has a residual claim to income generated in the space over which they have exclusionary rights (“pay to use this space or I’ll exclude you from it”).

But these rights are limited. They evolve as the law evolves, including zoning and planning law. Rights to access and sell minerals within a property’s exclusive space, for example, are not part of the private property rights bundle in Australia. They are instead owned collectively by States.

The value of private property rights is primarily determined by how much revenue can be generated above costs (excluding property rights costs) on a site at a particular location. The value of property rights is a residual, just as other assets like shares in company ownership represent residual claims on income. Whichever use of a site generates the largest residual income is its highest value use. 

The revenue potential of private property rights is affected by market conditions, location-specific features, fixed improvements, and the nature and extent of the property rights bundle itself. Investing in new fixed improvements, like buildings and earthworks, can add to property value because they remove a cost to gaining revenue (remember, property value is revenue minus costs needed to earn that revenue at that location). The value of fixed improvements becomes “attached” to the property as they cannot be separated physically or legally from the property right to a location.

However, the value of private property rights can also increase due to external factors that are not due to investments made by the property rights owner. When this occurs, it is known as betterment. For example, new public works that improve the accessibility of a location will increase the value of those sites because they reduce the transport costs of using those sites to generate revenue. Similarly, when the law changes the nature or extent of property rights in a way that increases the revenue-generating potential of that site, such as with rezoning, the resulting increase in value of the property rights bundle is betterment. 

Planning rules coordinate property uses across locations by defining property rights bundles. For this coordination role to affect property uses it must legally restrict some uses so that the highest value legal use is different to what might occur with a “no zoning” property rights bundle. Hence, there is an inherent conflict between maximising the value of any individual property and coordinating the location of property uses across a region. 

The diagram in Figure 1 shows how betterment arises conceptually and how a tax on betterment transfers value to the public that would otherwise accrue to private property owners. 

Figure 1: Betterment in the residual model of property value

The left column shows the value of the property rights at a site, such as agricultural or industrial land. That value is determined by the revenue that can be made from exclusively using that site, minus the necessary costs. The site’s property rights value is the residual. 

Suppose the market value of the output being produced increases, such as the value of crops on an agricultural property, but all input costs remain the same. In that case, the site value rises to reflect the higher residual value of production on that site. The new site value and its betterment component from these external factors is shown in the second column of Figure 1. Another example is if the rent of a residential dwelling rises, but the costs of operating that dwelling remain constant. This increases the property value. Where a property tax system exists, some of the value gains accruing to property rights from higher market prices of production are shared with the public.

The third column of Figure 1 shows what happens if there is a change in the nature or extent of the property rights through rezoning. For example, if the previous highest value use of a site was industrial only because zoning laws prevented other higher value uses such as residential, then rezoning will change the highest value legal use of the site and hence its value. The difference between the “before” site value (V1) and the new “after” site value (V2) is betterment. 

A flexible planning system presents opportunities to increase revenue from development by exceeding codified density limits and hence offers another way to generate betterment for a landowner. The betterment gained from exceeding codified planning density limits is just as real as the betterment gained from rezoning. It is why, despite cost, risk, and time involved, many property owners seek planning dispensation instead of complying with codes and gaining fast approvals. 

Here is a useful way to conceptualist betterment. Rezoning adds an additional private property right to the previously owned bundle. The value of this new right is betterment, and it reflects what the market would pay if these new property rights were instead auctioned for sale to existing property owners.

The effect of a tax on betterment arising from rezoning is illustrated in the fourth column of Figure 1 using the 50% tax rate proposed in Victoria. A share of the betterment value is transferred from the private property owner to the public, reducing the private payoff from rezoning decisions and increasing the public’s share. 

The size of betterment from rezoning can be extraordinarily large, often many multiples of the previous site value. For example, a well-situated industrial site in Sydney’s inner west was bought for $8.5 million, rezoned high-density residential, then sold again just a few years later for $48.5 million.  

Rezoning at Fishermans Bend in Melbourne led to numerous sites trading at values many multiples of their previous industrial use values. At 320 Plummer Street, Port Melbourne, the 7,468m2 site formerly used as the Rootes (Chrysler) factory transacted in 2009 for $1.7 million with industrial zoning rights. After rezoning to high-density residential, an application was made and approved for the development of three towers containing 443 dwellings and 908m2 of commercial floor area. The property was subsequently purchased for over $11 million. Even after inflating the 2009 sale price to $3 million to reflect sale prices in 2015 for similar industrial properties, the windfall rezoning betterment is roughly $8 million, with the site trading for nearly four times its previous value.  

Notably, betterment is not an additional cost to housing development. The value of property rights is a residual; after all, there are no input costs to these rights. Betterment merely reflects the change in the market value of the residual claim on income of the property rights owner, and taxing betterment merely transfers this value from the property rights owner to the community.