# Bayesian (inverse probability) inference in games : Part two

The second of two sceencast lectures on how intelligent players reason about states and signals in a game ; the first is here
This lecture uses the two practise problems from class (one on breast cancer screening, the other on witness reports in a courtroom case) to develop a “language” of probability in a way  that is (1) easily understandable for ANY type or level of student – whether trained in statistics or not and (2) useful for students of game theory . Simple numerical examples using Gigerenzer style natural frequency/count reasoning are developed to explain a wide range of concepts connecting uncertainties about “states” and “signals” sensitivity, specificity, conditional probabilities, predictive probabilities, inverse probabilities, etc.

# week 2 introducing the idea of a game tree for a 2×2 sequential game (16 min)

Following on from week 2′s short clip on PDIP and the 6 questions we introduce a simple sequential 2 player 2 move game – first in an abstract form using “cards” in class with both money and chocolate bar payoffs, then by telling a story about an attempt to deter entry of a competitor by investment in large capacity . Both stories have similar strategic structure…revealled in their game trees. Ina separate, subsequent clip for week 2 we introduce the idea of rolback reasoning – backward induction – to analyze this game. Note that the reasoning processes given by students in the classroom game is/was a great example of intelligent intuition based on rollback reasoning. The next clip for this week on rollback reasoning uses this intuition in a more structured way using the 2×2  game tree. It’s a fairly straightforward way of reasoning…but absent from so many political and institutional managers/players in all walks of life . Hopefully not you!!

This clip is an edited version of the last half an hour of lecture 3 in econ 223 Thurs Feb 21 2013

# week 2 The elements of a theory of games (PDIP) and the 6 questions that help define (96) different game types (12 min)

Before we get started analyzing simple games – sequential or simultaneous – we (you) need to be aware of some basic ideas about structuring a theory of games. PDIP (Who are the Players, what can they Do, What Information do they have or don’t have – Ignorance , what are their Payoffs) . The 6 questions that help define about 96 types of games (the questions can be thought of a helping structure the kinds of assumptions that we will use, and modify, as we build a theory of games.

This is effectively an edited version of the  first 15 minutes of Lecture 3 Wednesday Feb 20 2013 in econ 223 -

# Week 1: The Battle of Wits…a fine example of intelligent reasoning (and deception)

### Week1:  Introduction to Game Theory

The Battle of Wits: An excerpt from The Princess Bride, by William Goldman.

I have a Kindle edition of this book (I also own a copy of the DVD). Mass market paperback editions can be found everywhere on the web eg Amazon for about \$2 used and \$8 new. Page reference? Well ….on my kindle thats hard to describe. But its about a quarter of the way through!

Check out Wikipedia for more details on The Princess Bride

What about the video clip? There are many excerpts of the Battle of Wits on the web – Google “battle of wits” or search for it in Youtube. For educational purposes it “should be” OK to extract and use the small portion from the film without permission (but with acknowledgement)…that’s just “fair use” even in this age of the intellectual monopolists who have captured our political systems. Very different from the storytellers and theatrical companies of old who freely imitated one another and improvised/changed old stories – putting them in new wineskins and letting the highly competitive “performance marketplace” decide “who is right, and who is “dead” as Wesley would say. But ambiguity about what constitutes “fair use” and an anticipated lack of support from any University in NZ to challenge the intellectual monopoly system, deters me from putting up a segment of the Battle of Wits from the dvd that I actually own! However, I can make available a small portion of the text of this scene w/o permission:

“The Battle of the wits” from The Princess Bride

I have made Vizzin the red player, Wesley, the man in black, the blue player….for future reference when we analyze this game….but also to make the text a little easier to read.

VIZZINI WAS WAITING for him.

Indeed, he had set out a little picnic spread. From the knapsack that he always carried, he had taken a small handkerchief and on it he had placed two wine goblets. In the center was a small leather wine holder and, beside it, some cheese and some apples. The spot could not have been lovelier: a high point of the mountain path with a splendid view all the way back to Florin Channel. Buttercup lay helpless beside the picnic, gagged and tied and blindfolded. Vizzini held his long knife against her white throat.

Welcome,” Vizzini called when the man in black was almost upon them.

The man in black stopped and surveyed the situation.

You’ve beaten my Turk,” Vizzini said. “It would seem so.”
“And now it is down to you. And it is down to me.”

So that would seem too,” the man in black said, edging just a half-step closer to the hunchback’s long knife.

With a smile the hunchback pushed the knife harder against Buttercup’s throat. It was about to bring blood. “If you wish her dead, by all means keep moving,” Vizzini said.

The man in black froze. “Better,” Vizzini nodded.

No sound now beneath the moonlight.

I understand completely what you are trying to do,” the Sicilian said finally, “and I want it quite clear that I resent your behavior. You are trying to kidnap what I have rightfully stolen, and I think it quite ungentlemanly.”

Let me explain—” the man in black began, starting to edge forward.

You’re killing her!” the Sicilian screamed, shoving harder with the

knife. A drop of blood appeared now at Buttercup’s throat, red against white.

The man in black retreated. “Let me explain,” he said again, but from a distance.

Again the hunchback interrupted. “There is nothing you can tell me I do not already know. I have not had the schooling equal to some, but for knowledge outside of books, there is no one in the world close to me. People say I read minds, but that is not, in all honesty, true. I merely predict the truth using logic and wisdom, and I say you are a kidnapper, admit it.”

I will admit that, as a ransom item, she has value; nothing more.”

I have been instructed to do certain things to her. It is very important that I follow my instructions. If I do this properly, I will be in demand for life. And my instructions do not include ransom, they include death. So your explanations are meaningless; we cannot do business together. You wish to keep her alive for ransom, whereas it is terribly important to me that she stop breathing in the very near future.”

Has it occurred to you that I have gone to great effort and expense, as well as personal sacrifice, to reach this point,” the man in black replied.

And that if I fail now, I might get very angry. And if she stops breathing in the very near future, it is entirely possible that you will catch the same fatal illness?

“I have no doubt you could kill me. Any man who can get by Inigo and Fezzik would have no trouble disposing of me. However, has it occurred to you that if you did that, then neither of us would get what we want—you having lost your ransom item, me my life.

We are at an impasse then,” said the man in black.

I fear so,” said the Sicilian. “I cannot compete with you physically, and you are no match for my brains.

You are that smart?

There are no words to contain all my wisdom. I am so cunning, crafty and clever, so filled with deceit, guile and chicanery, such a knave, so shrewd, cagey as well as calculating, as diabolical as I am vulpine, as tricky as I am untrustworthy … well, I told you there were not words invented yet to explain how great my brain is, but let me put it this way: the world is several million years old and several billion people have at one time or another trod upon it, but I, Vizzini the Sicilian, am, speaking with pure candor and modesty, the slickest, sleekest, sliest and wiliest fellow who has yet come down the pike.”

In that case,” said the man in black, “I challenge you to a battle of wits.”

Vizzini had to smile. “For the Princess?”

“It just seems that way, I told you. It’s merely logic and wisdom. To the death?”

“Correct again.”

“I accept,” cried Vizzini. “Begin the battle!”

“Pour the wine,” said the man in black.

Vizzini filled the two goblets with deep-red liquid.

The man in black pulled from his dark clothing a small packet and handed it to the hunchback. “Open it and inhale, but be careful not to touch.”

Vizzini took the packet and followed instructions. “I smell nothing.”

The man in black took the packet again. “What you do not smell is called iocane powder. It is odorless, tasteless and dissolves immediately in any

kind of liquid. It also happens to be the deadliest poison known to man.”

Vizzini was beginning to get excited.

I don’t suppose you’d hand me the goblets,” said the man in black. Vizzini shook his head. “Take them yourself. My long knife does not

leave her throat.”

The man in black reached down for the goblets. He took them and turned away.

Vizzini cackled aloud in anticipation.

The man in black busied himself a long moment. Then he turned again with a goblet in each hand. Very carefully, he put the goblet in his right hand in front of Vizzini and put the goblet in his left hand across the kerchief from the hunchback. He sat down in front of the left-hand goblet, and dropped the empty iocane packet by the cheese.

Your guess,” he said. “Where is the poison?

Guess?” Vizzini cried. “I don’t guess. I think. I ponder. I deduce. Then I decide. But I never guess.”

“The battle of wits has begun,” said the man in black. “It ends when you decide and we drink the wine and find out who is right and who is dead. We both drink, need I add, and swallow, naturally, at precisely the same time.”

“It’s all so simple,” said the hunchback. “All I have to do is deduce, from what I know of you, the way your mind works. Are you the kind of man who would put the poison into his own glass, or into the glass of his enemy?

“You’re stalling,” said the man in black.

“I’m relishing is what I’m doing,” answered the Sicilian. “No one has challenged my mind in years and I love it. … By the way, may I smell both goblets?”

“Be my guest. Just be sure you put them down the same way you found them.”

The Sicilian sniffed his own glass; then he reached across the kerchief for the goblet of the man in black and sniffed that. “As you said, odorless.

“As I also said, you’re stalling.”

The Sicilian smiled and stared at the wine goblets. “Now a great fool,” he began, “would place the poison in his own goblet, because he would know

that only another great fool would reach first for what he was given. I am clearly not a great fool, so I will clearly not reach for your wine.”

“No. Because you knew I was not a great fool, so you would know that I would never fall for such a trick. You would count on it. So I will clearly not reach for mine either.”

“Keep going,” said the man in black.

“I intend to.”

The Sicilian reflected a moment. “We have now decided the poisoned cup is most likely in front of you. But the poison is powder made from iocane and iocane comes only from Australia and Australia, as everyone knows, is peopled with criminals and criminals are used to having people not trust them, as I don’t trust you, which means I can clearly not choose the wine in front of you.”

The man in black was starting to get nervous.

“But, again, you must have suspected I knew the origins of iocane, so you would have known I knew about the criminals and criminal behavior, and therefore I can clearly not choose the wine in front of me.”

“Truly you have a dizzying intellect,” whispered the man in black.

“You have beaten my Turk, which means you are exceptionally strong,

and exceptionally strong men are convinced that they are too powerful ever to die, too powerful even for iocane poison, so you could have put it in your cup, trusting on your strength to save you; thus I can clearly not choose the wine in front of you.”

The man in black was very nervous now.

“But you also bested my Spaniard, which means you must have studied, because he studied many years for his excellence, and if you can study, you are clearly more than simply strong; you are aware of how mortal we all are, and you do not wish to die, so you would have kept the poison as far from yourself as possible; therefore I can clearly not choose the wine in front of me.”

“You’re just trying to make me give something away with all this chatter,” said the man in black angrily. “Well it won’t work. You’ll learn nothing from me, that I promise you.”

“I have already learned everything from you,” said the Sicilian. “I know

where the poison is.”

“Only a genius could have deduced as much.”

“How fortunate for me that I happen to be one,” said the hunchback, growing more and more amused now.

“You cannot frighten me,” said the man in black, but there was fear all through his voice.

“Shall we drink then?”

“Pick, choose, quit dragging it out, you don’t know, you couldn’t know.” The Sicilian only smiled at the outburst. Then a strange look crossed his features and he pointed off behind the man in black. “What in the world can that be?” he asked.

The man in black turned around and looked. “I don’t see anything.” “Oh, well, I could have sworn I saw something, no matter.” The Sicilian

began to laugh.

I don’t understand what’s so funny,” said the man in black.

“Tell you in a minute,” said the hunchback. “But first let’s drink.” And he picked up his own wine goblet.

The man in black picked up the one in front of him. They drank.

“You guessed wrong,” said the man in black.

“You only think I guessed wrong,” said the Sicilian, his laughter ringing louder. “That’s what’s so funny. I switched glasses when your back was turned.”

There was nothing for the man in black to say.

“Fool!” cried the hunchback. “You fell victim to one of the classic blunders. The most famous is ‘Never get involved in a land war in Asia,’ but only slightly less well known is this: ‘Never go in against a Sicilian when death is on the line.’”
He was quite cheery until the iocane powder took effect.
The man in black stepped quickly over the corpse, then roughly ripped the blindfold from the Princess’s eyes.
“I heard everything that happ—” Buttercup began, and then she said “Oh” because she had never been next to a dead man before. “You killed

him,” she whispered finally.

“I let him die laughing,” said the man in black. “Pray I do as much for you.” He lifted her, slashed her bonds away, put her on her feet, started to pull her along.

“Please,” Buttercup said. “Give me a moment to gather myself.” The man in black released his grip.

Buttercup rubbed her wrists, stopped, massaged her ankles. She took a final look at the Sicilian. “To think,” she murmured, “all that time it was your cup that was poisoned.”

“They were both poisoned,” said the man in black. “I’ve spent the past two years building up immunity to iocane powder.”

Buttercup looked up at him. He was terrifying to her, masked and hooded and dangerous; his voice was strained, rough. “Who are you?” she asked.

“I am no one to be trifled with,” replied the man in black. “That is all you ever need to know.” And with that he yanked her upright. “You’ve had your moment.” Again he pulled her after him, and this time she could do nothing but follow.

They moved along the mountain path. The moonlight was very bright, and there were rocks everywhere, and to Buttercup it all looked dead and yellow, like the moon. She had just spent several hours with three men who were openly planning to kill her. So why, she wondered, was she more frightened now than then? Who was the horrid hooded figure to strike fear in her so? What could be worse than dying? “I will pay you a great deal of money to release me,” she managed to say.

The man in black glanced at her. “You are rich, then?”

“I will be,” Buttercup said. “Whatever you want for ransom, I promise I’ll get it for you if you’ll let me go.”

The man in black just laughed. “I was not speaking in jest.”

“You promise? You? I should release you on your promise? What is that worth? The vow of a woman? Oh, that is very funny, Highness. Spoken in jest or not.

They proceeded along the mountain path to an open space. The man in black stopped then. There were a million stars fighting for prominence and for a moment he seemed to be intent on nothing less than……

# week 1: rationality for single-person/multi-person theories (8 min)

This is a short clip about how to interpret the meaning of “rationality”  in decision theory…augmented by  an important new idea that game theory brings to this key concept in the social sciences.

The next clip to watch in this series for week 1  illustrates some interesting examples of reasoning about a simple game called “stop Go”, based on classroom interaction, student reasoning about their choices and perceptions in the game, interspersed with my commentary. It is a good way to gain experience with the reasoning processes used by relatively inexperienced but intelligent players trying to understand…and play…for money and for chocolate bars as prizes.

# PBRF relative input contributions rubbish

I have been asked by management at UC  to make sure that I comply with PBRF requests to check with my co-authors about relative contributions to multi-authored journal articles.
I won’t be writing  to my co-authors to ask them to waste their time replying to an operationally  meaningless  question.

First, this PBRF process  is supposed to deliver an evidenced based portfolio. There is no evidence available to anyone on the PBRF panel – or to the co-authors themselves –  to either accept or refute  quantitative or qualitative claims  such as:
“Author A contributed x% while author B contributed y%” , or “Author A’s contribution is a multiple/fraction k of Author B’s contribution and a multiple/fraction j of Author C’s contribution”  , “Author A’s contribution was marginal but Author B’s was vitally significant ” (written by B, or perhaps by A who is B’s lover, or grad student, or friend, or????)

A request by a bureaucrat that I provide them  unverifiable input claim reports   is  nonsense in the scientific community and has no place in an evidence based portfolio. Full stop.

Even  output claims in the PBRF process have to pass a “quality control test” of some kind – where the “quality” of quality control can range from well reviewed top tier professional journal refereeing processes  (and even with a decent process some  individual reviews  stink) right down to nominal (read non-existent) review of conference acceptances. ie Some elf or gnome…or lord of the conference…. “external” to the output claim being made has to “review” it, and as importantly be able to point to a transparent process whereby such review “might have been done” in a “competent manner”. There is nothing remotely like this for this attempt to request verifiability for  ”input claims”.

At least statements like …”the four of us had a great discussion over a beer about idea X with visitor Y in a local bar, and then we just got to it and wrote the damn paper – 42 revisions it took till we all agreed it was ok to submit”  or “i spent 3 weeks, 50 hours a week, coding recoding testing examining searching exploring…..and came up with a very neat 2-dimensional diagram that occupied 1/2 of one page of our 10 page paper…..” while my co-author spent hundreds of hours in the lab running experiments with mice rats and other feral creatures from which she was able  to derive  a counter example to SMith’s hypothesis that we ended up not even discussing in the paper although at the outset we had planned  to ”  have some evidential basis for them – but of course NOT third party verifiable evidential, and certainly prone to psychological and social self protection mechanisms of selective recall . That’s why we don’t promote, or demote, on the basis of unverifiable input claims, isn’t it?? But we surely rely on this sort of “cheap talk” conversation  in our joint research endeavours (and “sole authored ones”, just no less  acknowledged) and recognise it for the good natured banter that it is….as long  as the damn paper eventually gets submitted!!

Without any evidential basis to test such claims , much less any third part verifiable evidential  basis, reports which purport to answer a contributions question can be and will be strategically manipulated, gamed. Duh?

Oh yeah, author “X was included in the list of co authors becasue we all realise that we’re playing a publications game in the academic rat race and multi authored outputs aren’t yet discounted very highly so we’re gaming the system : perceived marginal cost is less than perceived marginal benefit in a game of asymmetric information with the employers….” or “my supervisor and I had an implicit agreement that he’d be a co author on all the work I did in the first two years before and after my phd and I was afraid I wouldn’t get my phd or that she would not give me a good reference in the future so…well yes, we worked equally on this paper” or  ” joe blog is included even though he is dead now becasue well, he had alzheimer’s in the last few years of his life and we had some great discussions and some of the key ideas were his…he just didn’t knwo it becasue of all the rugs he was taking……” ….you name it. Let your imagination run riot.

At  a conceptual level this sort of question “what is the relative contribution of each author to….” reflects simplistic understanding of any production process, much less poorly understood, messy, teamwork research processes.

Don’t get me wrong. If the contribution question was something like:  ” What was the  financial contribution of each author to the completed project?” I might expect back a set of numbers which are commensurable – unless of course I have to do some exchange rate conversions, or intertemporal payment conversions or?  And I’d be asking for receipt too and not accepting unverifiable claims of financial expense. Or the contributions question might be framed in terms of aggregate labor time inputs : but even verifiable labor time inputs are hard to come by. I have no idea for example how much time any of my co-authors actually spent or din’t spend in some activity that was more or less related to the outputs we have, and I have a hard time recallin in any detail my own time input. Its hard to make sensible comparisons without sensible numbers. And those time input numbers just aren’t recorded (thank goodness!). But we all know that it i not labor time that matters, but amounts of high quality effort, diligent and creative application of intelligence and skilled knowledge. I have some very ambiguous private information about myself on those fronts – but even there would ahve a difficulty apportioning this local public good input between different private good published outputs. ANd I certainly do not have any information on corresponding things for my co-authors, nor do they know anything but me on these matters except the  cheap talk I provide about my private information. Yet we all manage to get along here and actually produce some stuff!!

This is NOT a rocket science question, about what concepts are involved here. You host a dinner party at your house, potluck, followed by a games evening to celebrate ….something . Mary Jane brings chips,  dip and a fine australian wine wine, Billy Bob a couple of six-packs and burger ingredients, Grandma bakes her best-ever chocolate cake, Steph brings an extra table and chairs for the kids and two bottles of bubbly, you supply the house and BBQ and of course your impeccable skill as a host , everyone plays the game except Grandma fell asleep halfway through the night, some stay later and pitch in with the dishes and clean up , Ken takes those who drank too much home in his cab, you clean up in the morning with some help from your kids. A great evening was had by all.

This is a simple description of inputs and outputs. It could be codified in  a spreadsheet with a 2×2 table:  names in the  top row and “activities” in the first column, and a number in each cell that could be simply  a binary indicator “yes/no, 1/0″ someone did something in that activity cell. (we had to put your ex wife in because she owns half the house….even if she wasn’t actually present and “contributing” on the night).

Contributions to the Dinner Party

Now tell me what the relative contributions of Grandma and Steph are?  Does grandma’s “one cake” indicate she contributed “less” than Steph, indeed only  25% of Steph’s 4 items of chips and dip?  It looks safe to say Billy Bob contributed twice as much beer as you – except , you point out, Billy Bob brings el cheap Canadian Lagers while you have fine imported Irish Red beer – not that you’d mention this in polite company, but, now that you are asking….. Everybody played games, but did they all contribute “equally” because the spreadsheet records that, well most people played 5 games, the latter ones while some were a little out of it (no names mentioned). Besides you say, my contribution to the games was small, 2, only 40% of the 5 others have because I was pouring wine, getting drinks, cooking burgers on the barbie…….

Note that most of the cells in the table are empty – that reflects a lot of things, but mainly specialization. Is that a problem in producing something? Of course not. Is it a problem for people who like to take ratios in an input table? Yep! Something divided by zero is , well, a mighty big relative contribution mathematically speaking, indeed infinite. But of course almost everybody in this table has a relatively infinitely large relative contribution in some input dimension, the one he/she controls exclusively.

You get the point now? It looks like* (see below)  it makes a lot of sense to monitor and  record who did what, but once you step out of one simple dimension on commensurable quantities to talk about relative contributions of the different inputs  is just plain silly.  Everybody contributed, everybody did some different things, there was some duplication, but hey….we produced a good night. Oh yes you say, but look at the “value” of  supplying a home, a house, compared to the “value” of Billy Bob’s six pack; or the years of blood sweat and tears the Grandma has gone though raising family to have the skills and energy at age 101 to make that chocolate cake. Surely her “relative contribution” via loving labour input is worth more than the chips and dip?  Once you start asking these questions you take a big step in to the thicket of subjective evaluations.

But who codifies it on the night? And what would the monitoring codifying operation do to the nature of the evening – and the interaction?  Suppose  nobody actually codified anything on the night yet  some external authority – the investigating police – asked each person, a year later, to write a table to recall who did how much of what on the night, with the threat to impose a punishment if there was some sort of “inconsistency”…as if “agreement” meant anything other than a conspiracy of the blind against the blind! You see now best beloved?  This is PBRF input reporting…

Perhaps “contribution” means marginal product , averaged over some range? I seem to recall Euhler’s theorem that for a linear homogenous production  function y=f(K,L,X) total product will be “exhausted”  (ie output y is divisible private good ) , divided up, apportioned out , when  all factors are paid the value of their marginal product. In this case it does make conceptual sense to talk of relative input shares as a proportion of total output….but do the bureaucrats have this kind of model in mind? One might then think they would ask authors to “report your marginal product” please. But they don’t even get this far….but choose a simpler path . My guess is they think in terms of a linear production technology Y= aL1+bL2+cL3 where Y is  published output and  where labour inputs associated with the research process are nice neat tidy homogenous units a=b=c , so then a new quantity “big L” = L1+L2+L3 can be defined.  Then they are asking me to report: what proportion of “big L” did you supply? My reply to this has to be that “big L” doesn’t exist except in their imagination, that I don’t share their hypothesis about the nature of the research production process – ok it could be true but I know for sure that my labour skills are Notperfect substitutes for those of my co-author(s). Hmm, isn’t  that a reason why we are co-authors in the first place?

Might I suggest an alternative simpler rough and ready quantitative model that we all can agree on and has a fine empirically verifiable basis :  y=Min {L1,L2,L3} where labour inputs are binary indicator variables for the presence or absence of the author”i” = 1,2,3 listed on the submitted manuscript and y is a binary indicator variable of a piece of “authorized, notarized, certified….deep fried” research output ? In this case input ratios at unit output levels  are 1:1:1 and,  over the range 0,1 all of our marginal products are 1 (thanks Seamus) .   By the way, if we all accept this production model, we don’t need a question “field”  on the PBRF form  ”what was your verifiable input contribution” in addition to the coarse – and intellectually offensive –   “quality assured” indicator variable that is already embedded in the PBRF process. (Hey, do you think I could publish this  very very intellectually deep mathematical model?  perhaps in the new  journal “PBRF Follies Review”? Don’t laugh..Alan Woodfield has already published something on the incentive non compatibility of this  kind of self report your contribution scheme in his NZEP paper “The Underlining Game”   )

” Hmm”, says the bureaucrat- “all too complicated for me. I’m not trying to pay you on the basis of these inputs, i just want a “general idea” about “contributions”, sort of, like, you know….a number, something I can  put into a spreadsheet, to see, well, that you, and not your coauthors have been “performing”. You know what I mean, don’t you? So….give me the number you think I want to hear – for free –  and just get on with it.”

rubbish

John Fountain

(JF insubordination index 1, JF compliance index 0)

# “we have seen the enemy, and them is us ”

“we  have seen the enemy, and them is us…”. Pogo, (1972)

There is a serious rental accommodation shortage in earthquake ravaged Christchurch. But the real question is : can more be done to speed up the adjustment processes so that the current affordability crises and shortages don’t last unnecessarily long?  Yes.

Here’s the problem in a nutshell. Tens of thousands of  households, owners and renters,  have been directly displaced by earthquake damage to land and property. Many times  more are affected  by smaller scale but still significant repairs on their properties. Members of these households  need and demand  rental accommodation for periods from several weeks up to several years as repair work on their properties is undertaken or while they await the construction of new homes (and until residential household insurance markets come on line again to facilitate financing and construction of new dwellings that could be a long time). There is also a growing influx of workers and their partners/families arriving to help rebuild the City, Lyttleton and other surrounding suburbs , all of whom  are and will be looking for decent accommodation, to buy or to rent. Rents for residential accommodation in “safe” green-zone areas have already risen,  steeply,  in response to this  shortage. These rent rises  mean that the impact, for good (landlords) or for ill (tenants), are  felt across the entire City, Lyttleton, Banks Peninsula  and the Canterbury region, not just by those in earthquake damaged areas. While the  the poor and those on fixed (low) incomes are , as usual, disproportionately  affected, the problem of finding decent affordable accommodation close to familiar schools, family, and work places,  has made the rental accommodation crisis reach deep into the pockets and lives of the middle and upper income classes.

Other  communities around the world,  when with faced serious shortages of affordable rental accommodation,  have looked to the reform of their local zoning by-laws as one possible solution, notably Vancouver, BC. (See my post Accommodation Shortages in Christchurch – Lessons from Vancouver)  A  very simple modification to our existing zoning regulations  along the lines that have been adopted in Vancouver would go a long way to increasing the supply of rental accommodation in the desired residential living areas within Christchurch,  Lyttleton Harbor and the satellite towns of Christchurch. Think thousands of additional bedrooms, living rooms, kitchens, bathrooms, toilets, fenced yards  in prime residential areas near to existing schools, parks, shops, and other  amenities that make Christchurch (still) an attractive place to live and work; all fully insured,  privately financed and built quickly within the next year. How? Simply permit secondary suites in existing and new residential dwellings in Christchurch.

A secondary suite is a self-contained dwelling unit that has been created “within” a larger principal dwelling. A secondary suite typically has its own bedrooms, kitchen, living areas, bathroom, toilet and entrance and often shares the main dwelling’s yard, parking area, storage space, laundry etc . In Vancouver, no ownership nor subdivision is permitted for secondary suites , but there is an active and  growing market for “laneway houses”, smaller self contained houses or cottages carved out of land  on back sections in the prime residential areas of Vancouver, a market only recently created  since the legalising in 2009 of this sort of subdivision of the standard residential lot in Vancouver. Both of these policies could help Christchurch, but I will only address secondary suites in this article.

While tens of thousands thousands of secondary suites have been built in existing larger and older houses in established residential areas of Vancouver  for decades – mostly illegally until 2004 – almost half of all new residential homes being built now contain one or more secondary suites. The economics of this change are overwhelming. On the supply side, both younger and older households need a mortgage helper of some sort in a city where a decent house in a decent area will run between \$800k  to over \$2 million. \$300 rent a week (\$15k a year) for a typical 1 or 2 bedroom secondary suite goes a long way to both getting and being able to pay off a mortgage for  young singles or couples trying to live the dream of owning their own home. The rental income, and the social companionship, from secondary suite tenants also works well for older, retired seniors or widowers on low pension incomes, enabling them to continue to live in  their own homes in areas near the shops, parks  and transport they are familiar with. (I speak from experience here – my mother, recently deceased at 93, and on a paltry pension, had 3 basement borders each paying \$100 a week, enabling her to live for the last 30 years of her life in the prime residential  area  of Vancouver (Dunbar) where she had lived since the 1950s). When it comes time to sell, houses with (legal) secondary suites typically command a 10%+ premium on a sale price.  On the demand side students, young professionals, solo parent families on limited incomes, new immigrants to the City from across Canada or across the world, older seniors on fixed retirement incomes all want to live in desirable residential regions close to universities, schools, parks, shops, public transport, etc., at rents they can afford. City planners and regulators like it: more high rise apartments and tenements in marginal regions that become tomorrow’s ghettos and today’s eyesores are not wanted by planners in Vancouver, but secondary suites in prime residential areas  are. Provincial and federal government politicians actively promote secondary suite policies  as part of “smart growth” strategies for their cash strapped municipalities. Win-win for all concerned it seems.

But these legal secondary suite markets, and the political systems that enable and facilitate them,  are conspicuously absent in Christchurch or Lyttleton Harbour .

The current Christchurch and Banks Peninsula district plans  do have provisions for internal secondary suites in residential areas, but only under extreme restrictions that effectively negate their personal and financial viability. The regulations  label any sort of “secondary” self contained living accommodation unit as a “family flat” whether internal or external.  The typical by-law describes and prescribes a  “family flat” as a maximum 70 sq m or thereabouts self contained accommodation unit that  has to be used by only immediate family and to be removed when that immediate family is no longer using it. The  policy is enforced – to the extent it can be – by a \$5000 lien registered (at your cost) against the property’s title, therefore  requiring your mortgagor’s permission. Draconian search,  enter , and dismantle privileges are given to local council enforcers in case of a suspicions/complaints by any neighbour! No wonder legal family flats are few and far between, even if “illegal” ones abound!

But the nuclear-family based sociology and conservative paternalistic  local body politics  that guided those who developed the original family flat regulations have long since passed their due date.  For example, during the last few decades the market for nominally  “short term” accommodation for student or immigrant home-stays , for holiday and visitor accommodation, or for bed and breakfast style accommodation has flourished throughout the country . These activities are perfectly legal  ”residential activities” in any residential area in almost every NZ city, to the benefit of both landlords and renters . Christchurch and Banks Peninsula planners don’t care as long as there no more than four paying tenants in these sorts of arrangements, policies mirrored by  Inland Revenue, who don’t even require such small scale “residential landlords” to report the income they receive as long as it doesn’t exceed \$230 a week per “homestay” border or visitor. Flatting arrangements in residential areas between non-family members who are friends, acquaintances, co-workers, fellow students, etc have been prevalent in New Zealand for decades. Accommodation  is let, sublet, shared, and rented, all in a variety of ways by non family members, to everyone’s benefit. Nobody really cares about family or non family members …except if you are deemed to have a secondary suite, a so called internal “family flat”, and then city planners do care, a lot.

What makes a complex of bedrooms, living areas, bathrooms, laundries, garages and kitchens “secondary” as distinct from “primary”? Follow Alice down the rabbit hole to find out. The rabbit hole is the sequence of bureaucratic categories in the Christchurch and Banks peninsula district plans  that are used to control and regulate who can do what on residentially zoned land.

In a residential area, City and Banks Peninsula plans dictate that there can be  only one “dwelling”  on a piece  of  land that meets the minimum land area requirement. Otherwise a resource consent is necessary, perhaps as a “controlled activity” but more often as a “discretionary” activity or simply a “prohibited activity” . But what is a “dwelling” and what  makes a “dwelling” primary or secondary? The answer is more bizarre than you can possibly imagine. A residential  dwelling can in fact contain a second (or third or fourth or…)  bedroom, bathroom, toilet, shower, games room, library/study, entertainment room, laundry (sometimes), living room, dining room ,  deck, garage space etc , indeed as many as one can afford or fit on the land, subject to building consent requirements.  But a residential dwelling can have only one “kitchen”. And what exactly is a  kitchen? In the  words of the planning documents a kitchen is an enclosed space with a sink,  a bench top and cooking facilities. In practise, many living and games/entertainment rooms, studies as well as what are conventionally called kitchens, have built in benches,  cupboards, sinks, refrigerators and “bar” or light eating type facilities. So, it  really comes down to “cooking facilities”. And what is deemed to be a cooking facility in these days of portable , plug and play appliances: benchtop ovens, slow cookers, toasters, kettles, microwaves, blenders, sandwich makers, bread makers, electric frypans, etc.? I couldn’t get a definitive credible answer on this question from planners or legal experts. But …if you violate the law and have to “remove” a kitchen  to comply with the city plan, operationally you only need to remove the fixed cooking facilities, the oven and the hobbs top.

The tail is wagging the dog here. The plain fact is that you can have as many or as few “primary” or “secondary” bathrooms, bedrooms, living areas, garages, toilets, showers, decks etc as you want. You can rent, share, or give away your bedroom, bathroom, toilet, games room, back yard, garage, ….  to almost as many friends, family, co -workers , home-stayers, tourists, new immigrants, visitors of any gender, nationality , age or creed ….  as you want (up to four paying visitors – but who is really counting?). But woe if you don’t want to cook for them and provide them with their own oven and hobbs top! In that one case, if you have a second fixed oven and a hobbs that , and only that,  will turn your “house”  from one dwelling in to two dwellings!

Stop and let the inanity of this “put the item in a bureaucratic tick-box” policy sink in. Second hobbs and oven equals a second residential dwelling. Definitely a “categorical leap” as the philosophers would say. When you strip away the pretentious language about having second dwellings on residential lots and get down to the operational meaning of the rules you find that you need to make a full Resource Consent application to do a simple task any decent tradesperson can do – install an oven/hobbs properly in an existing house. Of course, on the advice of City planners and your planning consultant you would never ask for a Resource Consent hearing to install your oven/hobbs. Not just because the time and financial cost is likely to be 10 times as much as the cost of your oven/hobbs, but primarily becasue it will be a waste of time and money. Your application will surely be turned down since residential activities as defined in the planning documents only permit one dwelling per residential lot, by fiat from the planning documents!! Catch-22! But go for it with a bathroom, bedroom, living room, toilet, deck, garage, sleepout, games room, study,….

Unfortunately the one opportunity that has been taken by the central government to deal with the accommodation problem in Christchurch – the Canterbury Earthquake Resource Management Act Permitted Activities  Order of 2011- did absolutely nothing to deal with this anachronistic regulatory zoning problem. It simply passed the buck back to the City Planners and developers by not challenging existing restrictive planning laws and  by shrink wrapping the one good idea they had – let new external residential accommodation units be built in the city on existing residential land – in a web of regulations  that make it both prohibitively costly and undesirable to actually put extra accommodation units in place.

Two restrictions stand out as completely unnecessary: namely that (1)  all such “accommodation units” have to be completely removed from the land and the land returned to its original state  by  2016  and that (2) any such accommodation can only legally be used by and only by residents directly affected by the earthquake. Who in their right mind would invest \$100k to \$200k in a new external residential dwelling unit, even if they could get insurance and financing (which they can’t) , when rental returns would have to be recouped within only 4 year period and also when the potential rentals and tenancies  from new workers or those being indirectly displaced via high rents are excluded by law!  I have been told by local city planners that the 2011 Order simply “does not apply” to internal accommodation units – ie adaptations/conversions of the existing residential housing stock in Christchurch – because   those cannot be “relocated” when 2016 rolls around.

How foolish are these myopic and unnecessary policies about internal or external secondary suites for residential properties? It’s really a matter of demand and supply. Give a solo parent or family with small kids, young single professionals, older retirees, or migrant trades persons and their families, a self contained two bedroom apartment attached to an existing, beautiful home in a pristine residential area close to schools, parks and restaurants/shops  - think Ilam, Merivale, St Martins, Burnside, Sydenham, Riccarton, Beckenham, Cashmere, Lyttleton, Governors Bay, Diamond Harbour, Addington, St Albans , etc – and the demand soars. And from Vancouver’s experience, so does the supply. The economic logic is compelling. An established couple whose children have moved on, with a four – six bedroom home in a prime residential area could spend perhaps \$10,000- \$40,000 adding in separate kitchen, bathroom, laundry, and/or living space to their existing home. Their insurance company is happy to extend their existing policy to the new extension – completely the reverse of any other form of new residential construction in Christchurch.  An unfurnished unit in a desirable area might be rented for between \$200-\$300 a week, more for a furnished unit. That’s between \$10k and \$15k return a year on a \$10-\$40k investment! And of course that rental income stream and insurance on the underlying asset keeps the banks happy lending on such small scale projects.

To the scare mongers who would cry that such a change would lead to the destruction of local family residential neighborhoods in “old” pre-earthquake Christchurch , I can only say, get real. It’s already perfectly permissible in the City and Banks Peninsula plans to have in any and every residential house up to four paying guests for tourists, visitors, home stay, etc no matter whether they have a family connection or not, no matter whether they stay a week, a month or a year. Do you really think that by asking them to cook for themselves you are going to destroy neighborhood values? Just what interests are you paternalistically trying to protect in a City trying to re-invent and rebuild itself? Moreover, visit Vancouver, year after year rated in the top 3 most desirable cities to live in in the world . The beauty and social diversity of the wide range of residential neighborhoods in Vancouver testifies to the power that a properly (less) regulated market in secondary suites has for helping to solve rent crises and accommodation shortages.

# New Temporary Accommodation Policies for Christchurch : old wine, new wineskins

There are a few nice features of the new Christchurch City temporary accommodation scheme that permits the construction of an “accommodation unit”. An accommodation unit is  “a structure of no more than 150m² in gross floor area for the purpose of providing temporary residential accommodation. The unit may include facilities normally associated with residential accommodation such as a kitchen, living area, bathroom, toilet and bedrooms. Accommodation unit may also include a campervan or caravan.” There is a fast tracking system for getting pre construction advice and approval in 3 to 5 days  – for free. Of course all building consents need to be in place…but this isn’t necessarily a big hurdle for a well designed and well constructed unit.

The problem is that  “earthquake related” accommodation units are surrounded by a host of ancillary use constraints and regulations that strangle the (apparent)  intentions behind the scheme …: eg whatever faciltiies are constructed  must be temporary,  one-storey,  relocateable,  used only for accommodation by and for   households directly dislocated by the earthquake, and removed when their temporary need has dissipated or when CERA instructions say so or when CERA is disbanded four years away in April 2016. Consider the financial incentives induced by these regulations:

I estimate the cost of putting a 70 sq metre modern two bedroom “accommodation unit” below my garage out in my home in Governors Bay at around \$110k with a separate access drive.  I wouldn’t  have any trouble at all complying with ALL of the requirements spelled out in the  check sheet P033 . We  have a large site with well established trees, unbelievable view , the street is quiet, the school is nearby, we’re in the green zone, ….I could go on and on but the long and short of it is we live in a beautiful place.

However, I do not have any specific persons in mind who might be displaced from their homes who I would be able to accommodate – a requirement to comply with the new regulatory policy. Instead I am thinking of temporary (long or short term) rental for people/ families who actually are displaced or for workers who would be employed in the rebuild of the city or Lyttleton Harbour. The current regulations and their implementation prevent me from doing this becasue how am I to verify whether any particular long or short term tenant is actually displaced from their home by the earthquake. And why do I care? For example with rising rents and expiring leases many people/families will be “displaced” and need places to rent – after all there IS a housing shortage! But these people wouldn’t qualify. Moreover, workers, their partners, their families wouldn’t qualify under these rules either!!

I reckon demand would be pretty strong though, given the shortage of decent rentals in good places in Christchurch:  say \$300 a week for a furnished modern warm self contained accommodation unit. That’s not  a bad rate of return on a \$100k investment – except for the fact that it wouldn’t last for any longer than 4 years becasue of the “parameters” of the temporary residential housing policy.  Why  would I ever invest \$110k knowing that in 4 years I’d have to remove the “temporary accommodation”?

So…what do we conclude: willing buyers , willing seller but the transactions that would help alleviate accommodation shortages for the next few years are effectively stymied by inadequate regulations . Multiply this 1000 fold and you’ll see why “temporary”  inadequate approaches to zoning regulations – ones that don’t challenge the existing order – are a real bottleneck for dealing with rental accommodation shortages.

The plain fact is that the new  temporary accommodation orders, while well intentioned, simply avoid the underlying regulatory problems that limit the development of small scale private investments that could do plenty to alleviate our city’s accommodation problems. It’s just old wine in a new wineskin  – CERA and the city managers say we’ll facilitate something for you but then enclose it in a shrink wrap agreement that precludes it being used!

The temporary accommodation order itself  would have been  redundant had the zoning and development regulations been tweaked to permit residential activities to have secondary suites, as in Vancouver and many other Canadian municipalities – something that I am arguing in my other posts..

# Auckland’s post-war housing policy: Did we (ever) follow Canada , permitting secondary suites?

Here is an open letter to anyone with knowledge of New Zealand’s regulatory policy on self contained accommodation units in residential “zones”. I’ve asked Lisa Truttman over at her interesting  timespanner site to help me out here….but heck, I’ll accept information from anyone in the know!!

I have both a personal and a professional  interest in this topic: personal because I live in Christchurch (Lyttleton Harbour actually) and there is a critically serious accommodation shortage here that will only escalate over the next decade as the rebuild of Christchurch begins (when it ever does begin!!) , and professional,  because I am an academic economist at the University of Canterbury beginning some research into the effects  of regulations at municipal levels on serious accommodation shortages and the associated unaffordable rents and house prices  (think Auckland ). You’ll see from my recent posts that I have been exploring how regulatory reform in Canada on secondary suite policy  has changed the residential landscape there – for the better, for tenants, owners, and municipal councils.

Here is my question: I  would like to find out what special measures – especially at local levels – have been  taken in New Zealand urban areas (esp Auckland, possibly other main centers) during the post-war period in times of housing shortages . I am particularly interested in local community initiatives to help returning servicemen/women and their families obtain housing, either rental or ownership, in the main urban areas in New Zealand.  I don’t mean in State provided housing or  in purpose built camps/comppunds, but  in options for self contained accommodation  provided by existing residents in the areas where returning servicemen and their families would have wanted to live – ie in proximity to good  transport,  schools, parks, shopping and other services – but found both rents or house prices  in these places unaffordable. An archivist at the  Alexander Turnball  pointed me to a Dept of Housing booklet “Buy, Build or Rent: housing assistance for the ex-serviceman” (1946)  . This booklet mentions the existence of many initiatives at local community levels – but has no further information about them.

I suspect  there may have been some significant and interesting local community changes in regulatory policies that either actively encouraged or turned a blind eye to initiatives taken by existing residents to provide secondary suite type self contained accommodation …but am only guessing at this stage. By “secondary suites” I mean self contained accommodation units (could be as small as a studio size apartment these days, or more substantial 2 or 3 bedroom units with separate living areas, bedrooms, kitchen facilities, toilet/shower, etc) , internal  to or external to an existing dwelling- eg  renovations of an existing house/garage/sleepout  to create a second  self contained accommodation unit  . In NZ and OZ these go by the name “granny flats “, but of course their tenants, or owners, could be anyone but granny herself!

Did we in NZ ever follow Canada in this regard? For example,  in Canada, returning servicemen after WW2 were provided with subsides and loans, as well as special tenement style housing as they were in New Zealand, but also existing homeowners in local communities were permitted and encouraged to develop secondary suite type accommodation for returning war vets .  For example in Vancouver the City managers of the time actively encouraged these sorts of secondary suites for the first ten years after WW2 ended , but then in a succession of by-laws in the late 1950′s rescinded these permissions. In the 1990′s a policy u-turn occurred,   especially in the greater metropolitan regions of Vancouver or Toronto where house  prices and rents became out of reach for even those on middle class or higher  incomes. [ [ I grew up in one such war vet tenement compound in Vancouver where the qualification for entry was to be a returning war vet  with at least three  kids to qualify - I think that may have been the "reason" my brother Michael was born in 1949 actually !] ]. In fact the BC provincial government has even put out a guide for municipalities seeking to implement a secondary suite policy (http://www.housing.gov.bc.ca/pub/secondary_suites.pdf) and CMHC  is a strong advocate of permissive  policies towards secondary suites as part of a portfolio of solutions to housing unaffordability problems in urban areas  http://www.cmhc-schl.gc.ca/en/co/renoho/refash/refash_040.cfm

The problem is I’m not sure where to start to look for such information. I found only a short  reference in Bush’s  Decently and in Order (1972, p 289) in his discussion of end-of-war accommodation crises in Auckland…but that’s all:

“Towards. the end of the War the problem worsened: the Council concentrated more and  more of its resources· on housing, “desperate” being increasingly supplanted by “critical’.’ in official terminology. At Dr McElroy’s ·suggestion, the standing Housing Committee was reconstituted in April 1944: the Mayor, John Allum, emphasized that the provision of more housing accommodation was second only in importance to winning the war. The Council’s major contribution towards ameliorating the situation, was of course, the transit camps converted from American army establishments. But they belong more properly to the post-war era and will be considered in a later chapter. Otherwise, the policy was “a combination of rehabilitation of existing houses and strict enforcement of the zoning scheme and by-laws.” Nevertheless, a number of the latter relating to building were revised or relaxed to facilitate the renovation of existing dwellings. In July 1945 regulations concerning fire-proofing and the sharing of amenities were eased.” (p 289, emphasis added)

My guess is that as a Commonwealth country NZ might have followed Canada in this after WW2….but it’s only a conjecture. And we certainly haven’t followed changing Canadian policy in the last decade!

John

# What’s in a name?: Secondary suites, Granny flats, Family flats, Garden suites

Self contained living units of the sort we are thinking about have many different names: secondary suites, granny flats, family flats, garden suites, coach houses, etc. In truth, the term “secondary suite” doesn’t appear in our City’s district Plan . Instead, the kinds of living unit we are discussing is called a  “family flat” in this definition from the Christchurch City Plan:

“self contained living accommodation, whether contained within a residential unit or located separately to a residential unit on the same site, which is occupied by family member(s) who are dependant (sic)  in some way on the household living in that residential unit; and which is encumbered by an appropriate legal instrument which ensures that the use of the family flat is limited to dependant family members of the household living in the residential unit”.Volume 3 Definitions: Family Flat; emphasis added

The highlighted bold words are fine. We’re talking simple functionality here – “self contained living accommodation”  located on the same site of a residential dwelling which itself is a self contained living accommodation. The  living accommodation can be inside the residential dwelling, attached to it, or separate from it – eg as a  stand-alone  building or perhaps part of or attached to a garage or other stand alone building on the site.

But the remainder of this  “definition” – indeed even the simple adjective “family” in the name “family flat”  is far from innocuous.  Two important regulatory constraints on residential living are embodied: one a social and conventional l constraint ,  the other an intrusive and costly legal restraint aiding in the enforcement of the social constraint.

What kind of a constraint is this? Should we even care?. Well, I think so. Would you accept this kind of restriction on your own residential unit? I doubt it.

For a single residential  unit on a site  there is no restriction whatsoever on who may use the living arrangements for that unit. Who in fact does live in residential units in New Zealand these days? Well almost anyone and everyone one if our census is to be believed: old, young; rich, poor; healthy , sick; religious or atheist; educated or being educated; married ,  in a civil union or single….basically any and every way you might want to slice the demographic cake. Do you have to be “family” to live in a residence? No way! Ditto for tenure arrangements.  Owners might live in the residential unit , but as often as not they don’t, and renters use and occupy a residence. Think of a group of professionals or students  or workers or stay-at-home mums or dads or …. all of the above… We’d simply call most of those arrangements… a flat – and be done with it. Restricting “flats” in a primary residence to be used only by family would be rightly regarded as an unjustifiable intrusion on home owners and home renters rights and privleges.

So why do we even think of tolerating it for secondary suites – ie self contained living accommodation internal to or external to a residence?

This is a good question. Hold it in (only) your mind for a moment, savor it, let it roll around. But don’t think for a moment that the sensible answer lies in some intellectual rationale about preserving neighborhood values or standards in primarily residential areas.  That sort of reply to a question like – why do we have such and such by-law? – is (also) typically a smoke-screen to cover up an intricate thicket of self-interested and often  excessively conservative behaviors that brought the by-law into existence and keep it in existence in spite of pressure for change. It may well be that there are “impacts” on residential neighborhood quality from many kinds of typically residential activities, flats secondary suites or otherwise . But typically with a controversial by-law there are at least several self interested groups in action: those wanting a change, those opposing a change, and those “civil servants” wanting to keep control of the regulatory bureaucracy and political processes that are part of local body governance.
As a famous Roman judge is alleged to have asked: Cui bono? (to whose benefit?) (see Wikipedia) “The famous Lucius Cassius, whom the Roman people used to regard as a very honest and wise judge, was in the habit of asking, time and again, ‘To whose benefit?’

I’ve been reading sections of Graham Bush’s fascinating book Decently and in Order (1971)  on the history of local government in  Auckland . Did you know that up until the mid 1930′s playing tennis and using children’s playgrounds on a Sunday were forbidden? that bathing suits were required to be neck to knee? that a motion came before the City Council to have a bronze statue of a discuss thrower in the domain “fig-leafed” (it failed to pass)? I mention these as a reminder of how recently social conservatism and prudery ruled the local body governance roost. But even removing the obvious conservative influences, zoning laws and regulations create a playing field for other forms of strategic self  interest to emerge.  Consider this slightly cynical viewpoint:  when self contained living accommodation is restricted to to immediate dependent family members, the restriction needs to be seen not just for what it includes (what decent person  wouldn’t want to help out their dependant children or grandparents  – hmmm, i can think of some…) but for what it excludes: all the “undesrieables” to those who are already established inside a specific residential area , whoever they might be – students, immigrants, working classes, …. The family flat restriction becomes a blank template for incumbents  to fill in the demographic they don’t want in their area of town. Of course they couldn’t get a policy like that enforced on existing residences on site, the primary dwelling  – but woe to any “additional” intensification of land use!!

The history of the U-turn in Canadian provincial  and local government policies towards secondary suite type self contained accommodation in established residential areas will provide  deep insights into the forces for and the forces against.   I’ll be synthesizing and commenting on that in an upcoming blog. But a point worth remembering is that the changes in Canada have come in urban areas

• where house prices have made both ownership and rental unaffordable to large numbers of the middle class population (not just the poor) ,
• where green spaces and historical characteristics of residential areas are highly valued and urban sprawl and high rise proliferation  isn’t
• where diverse and thriving communities of people living, shopping, working, playing, all close to and interconnected to decent public transport networks (i e reduce reliance on cars, increase cycling and walking alternatives in pleasant and safe environments)
• permit continuity   of living through time for  all ages – from pre school kids to teens  within walking distance of  local schools to older adults and seniors being able to “age in place” , in familiar, friendly, pleasant environments for living shopping and relaxing

# Current (Draconian) Christchurch Regulations on secondary suites

This is just a quickie post to get down some basic information relevant to introducing secondary suites into Christchurch and Lyttleton Harbour (the latter being covered by the Banks Penninsula  – BP -District Plan – the former by the CCC Plan)

First, what I am calling “secondary suites”,  the CCC Plan and BP plan  calls “family flats”. There is a very helpful pamphlet published by the CCC “So you want to build a family flat” that sets out the ground rules.  There is also a “bond contract/agreement” , creating a legal obligation or “encumbrance” to be signed by anyone planning to create a family flat.  (These documents are also available at the City’s website.) But the long and short of it (the existing regulations) is :

• a family flat/secondary suite can be inside an existing dwelling – perhaps from converting or developing (according to regular building codes) say internal rooms and living spaces into  “separate” living facilities -  or external to an existing residential dwelling – the cottage in the back yard , or a semi detached building.
• the residential unit is only defined as a family flat/secondary suite if it contains a kitchen – bedrooms ,bathrooms,  laundries,  living rooms, games rooms, studies, garages,  and all other aspects of typical residential space for living  all seem to be fine
• What’s a kitchen? A kitchen is not defined in the city plan – however the guidelines in the pamphlet  say that it a kitchen contains all three of a sink, a bench and “facilities that allow cooking equipment to be set up” – legal advice that I have had seems to think that since toasters, kettles, microwaves, refrigerators, and all kinds of portable plug-in appliances  are in widespread use throughout the city’s  residences and B&B’s , that cooking equipment here is most likely operationally defined as fixed cooking equipment such as an hobbs and/or oven with fixed specialized wiring (This makes sense since the draconian powers of remedy for the Council include charging you for “removing” the cooking equipment deemed to be in breach – hardly a problem for a plug-in appliance – but don’t quote me on that – even the legal advisor I discussed couldn’t tell me for sure!)
• What “categories”  of people can live in the residence? Living (which I guess means using the kitchen cooking facilities – since everything else in relation to using residential space is more or less permitted !) is narrowly restricted to a “dependent family member”  . Note that this “user type restriction” differs from regulations for   B&B’s , Holiday home, and Homestay accommodation in Christchurch . These regulations permit , as an accepted  - “by-right”  - residential activity,  as many as 4 “paying” people in any type of standard residential living zone in the City  (how many nonpaying people??) . Such visitors guests … don’t have to be related by family connections in any way whatsoever – just as in the standard student or professional flatting arrangements where no family connection is required, or often desired. Whether or how these types of regulations on “acceptable people” are enforced or not is a complete unknown, since there is no registration requirement for either home stay or holiday home or B&B short stay or flatting type rental  accommodation, and even if there were who could verify/dispute a claim, easily? No one knows how much, or how little, of this private accommodation activity goes on in the City. If the experiences of other cities where accommodation is in short supply is any indication, it will be  a quantitatively significant  activity. For example more than half of all homes and more than 2/3 of all new homes in some well established residential areas of Vancouver engage in secondary suites accommodation service supply. Word “on the street” in Christchurch is that everyone who knows anyone at High School will have heard of the lucrative weekly income that comes form having students on short or long home stays.
• a \$5000 bond “without cash” must be formally posted, registered through a solicitor – at your expense –  for a hefty \$400-500 transaction fee with the City, and the “agreement” between you and the City must have the consent of the institutions holding your mortgage! . In case of breach of the conditions for having a family flat this is a legally binding penalty  that the City can enforce; the “agreement” also includes rights for the City to monitor, inspect, and forcibly shut down any activities inspectors deem to be breaching the family flat agreement; it is an obligation that is attached to the property, not the person – so any prospective buyer will be taking on such a registered obligation. With these kinds of restrictions one can see why people or households  who would otherwise love to have a family flat (read second cooking facilities) , even for for family members, much less a secondary suite, for anyone else, paying or not, simply wouldn’t register it!!
• 65 sq metres is a maximum size (for either an internal or an external unit)

It is worth mentioning  that the  provisions of the new temporary accommodation regulations  approved by Council and Cear define an accommodation unit much more liberally : “a structure of no more than 150m² in gross floor area for the purpose of providing temporary residential accommodation. The unit may include facilities normally associated with residential accommodation such as a kitchen, living area, bathroom, toilet and bedrooms. Accommodation unit may also include a campervan or caravan.” But as you’ll see in an upcoming post – this attempt at non-regulatory reform is just old wine in new wineskins. What kind of policy advice are authorities receiving – and accepting – to make them  think this sort of regulation will encourage investment in accommodation units? Put the another way – as a statement answering the question  - there is no real interest in or commitment to providing incentives for small scale, privately initiated and funded, investment in accommodation units at all!!

JF

# Accommodation shortages in Christchurch – lessons from Vancouver

This is a short article I  submitted to the Christchurch Press. The ideas in it derive from many useful background papers that explore how the City of Vancouver planners are using secondary suite development to help deal with the serious (un)affordability of accommodation in Vancouver. One report from  2009  a gold mine of useful information on both the history of and obstacles to the current permissive policy in Vancouver : click here to download the report , Secondary Suites Study jf ,

Monday’s editorial and recent Press articles and letters have identified the escalating problem of (un)affordable rental accommodation in Christchurch. However, I don’t share the Editor’s or Gerry Brownlee’s pessimism that central government can do nothing to help create a rapid solution.

Can you imagine adding thousands of new bedrooms, bathrooms, toilets, kitchens, living rooms and laundries to the useful rental stock of accommodation in Christchurch – all fully insured and easily financed – within the next year? I can. Simply follow the example of Vancouver, Canada. City planners there have embraced a wide range of initiatives to legalise and encourage secondary suite accommodation in residential areas to help meet the problem of unaffordable accommodation shortages in this beautiful, but expensive, city. City planners (or EQC commissioners) can do the same thing here in Christchurch with the stroke of the regulatory pen. Simply remove the existing stifling regulations on family flats and secondary suites in our City Plan (keeping all the other good building consent processes already in place).

A secondary suite is a self-contained dwelling unit that has been created “within” a larger principal dwelling. A unit typically shares the main dwelling’s yard, parking area, laundry, and storage space, but has its own kitchen, living area, bathroom and entrance. Generally, no ownership nor subdivision is permitted (although ownership solutions in the form of laneway houses, smaller self contained units or cottages in the back of a residential property, work well in Vancouver). Almost half of all new residential homes now contain one or more secondary suites, adding to the stock of tens of thousands of such suites in Vancouver.  High rise tenements in marginal regions that become tomorrow’s ghettos and today’s eyesores, are not wanted in Vancouver. But secondary suites in prime residential areas, like Kitsilano and Commercial Drive, are actively embraced.

Not so here in Christchurch. The current City Plan permits small family flats or secondary suites in residential areas, but only under extreme restrictions that effectively negate the viability of having extra self contained accommodation on a property. B&B’s are of course completely legal anywhere Christchurch, with a nominal restriction to no more than four guests, but no B&B is permitted to have a “kitchen” – the trinity of a stove/hobbs with a sink and benchtop. No one knows how many non-consented secondary suites or B&B’s with functioning kitchens that there are in Christchurch. But in the last two years they will all have been to put to VERY good use, illegally of course. To continue to make secondary suites persona non grata in post quake Christchurch with its’ serious accommodation shortages is bordering on the insane.

It’s really a matter of demand and supply. Give a solo parent or family with small kids, young single professionals, older retirees, or migrant trades persons and their families, a self contained two bedroom apartment attached to an existing, beautiful home in a pristine residential area close to schools, parks and restaurants/shops  - think Ilam, Merivale, Selwyn, Sydenham, Riccarton, Beckenham, Cashmere, Lyttleton, Governors Bay, Addington, St Albans , etc – and the demand soars. And from Vancouver’s experience, so does the supply.

Consider the logic. An established couple whose children have moved on, with a four bedroom home in Ilam, Sydenham or Lyttleton Harbour  could spend perhaps \$20,000- \$40,000 adding in separate kitchen, bathroom, laundry, and/or living space to their existing home. For \$100k a small self-contained cottage could be built out the back on the quarter acre section. Their insurance company is happy to extend their existing policy to the new extension – completely the reverse of any other form of new residential construction in Christchurch. An unfurnished unit in a desirable area might be rented for between \$200-\$300 a week, more for a furnished unit. That’s between \$10k and \$15k return a year on a \$30k investment! And of course that rental income stream and insurance on the underlying asset keeps the banks happy lending on such small scale projects.

To the scare mongers who would cry that such a change would lead to the destruction of local family residential neighborhoods, I can only say- visit Vancouver, year after year rated in the top 3 most desireble cities to live in in the world. Read the history of their debates about legalizing secondary suites. It took them 50 years to overcome established property owners objections. Maybe it will only take us two years and 10,000 earthquakes. The beauty and social diversity of the wide range of residential neighborhoods in Vancouver testifies to the power that a properly (less) regulated market in secondary suites has for helping to solve rent crises and accommodation shortages.

# Ticket Scalping – a competitive fringe takes on the real price scalpers

Why are private ticket resellers (“scalpers”) for the Warrior’s big game on Friday [ editors note - this was written for an NRL final couple of years ago - but the message is timeless] being vilified by disgruntled fans, uncritical media reporters, and Warriors’ management?

Let’s go back to demand and supply basics. Ticket reselling in an open competitive retail market situation like Trade-me is a good thing for fans, not a bad thing. Every resale of an event ticket on Trade me is to the mutual advantage of both the buyer and the seller. There is no coercion. There is no monopolistic price gouging. There are no back door dealings between mates or ostentatious corporate party packages at wildly inflated prices involved.

Lets suppose there were 10,000 additional tickets made publicly available for Friday’s big game, at typical Warriors game prices of \$25 to \$60 (half price for kids). At these relatively low prices there apparently was huge excess demand – thousands more people wanting to buy tickets than the number of seats available at Mt Smart stadium. Tickets got allocated in the first instance to whoever got through to Ticketek on the phone lines or over the internet….and then they get reallocated through a competitive trading process on Trade me.

Imagine that these 10,000 tickets could be resold on Trade-me for prices of say \$300 each. That’s 10,000 happy kiwis. A fan who bought four tickets for himself and his family at \$25 each can , after resale, watch the game with his family on the new flat screen television and Sky Sport subscription he can now afford with the extra \$1100 cash he has in hand. And the fan who paid \$300 for each of the four tickets gets to go to a game that he and his mates really wanted to (where “really” is measured by their willingness to shell out even more than \$300 to watch this live performance rather than walk down to the local sports bar to watch the games). Everybody’s happy.

So who is complaining, and why? Fans who don’t get tickets at the open market price on Trade me? Well, that’s the way a competitive auction market works. If you can’t pay the going market price in a Trade-me auction you don’t get the goods – whether the goods are resold cars, resold houses, resold clothes or…resold event tickets. What about fans who paid \$300 on Trade-me, got their ticket, but are bitter because they weren’t fast enough off the mark (or in the right “mates rates” loop) to get the first lot of tickets at \$25 each direct from Ticketek or the Warriors. Well, any buyer would like to pay a low price rather than a higher price. The problem is that there were lots and lots of would be buyers at a \$25 price, far too many for the 10,000 available seats. In economics speak we call that a shortage, an excess of demand over supply, at a price of \$25. Prices rise to clear the market, making demand equal to supply at the going market price. So if you are willing to pay more than \$300 to take in the excitement of the big game and you got a ticket at that price consider yourself lucky – there are other people who would gladly take your place.

The idea that a “real fan” would never sell a ticket for the live game for a higher price than he/she paid is rubbish. Fan’s differ greatly in their personal situation or willingness to pay to see live performances by the Warriors. Consider the thousands of season ticket holders who suffered through the first half of the Warriors season. Dad and the kids can go to the game live – or resell their 4 tickets for \$1000. Would you begrudge them that choice? Does it make them any less of a fan because they prefer \$1000 in the hand to watching the game live? Ditto for the local league club that has been gifted say 25 tickets to the game. Of course it’s great (for the select few club members) to watch the Warriors live – but 25x\$250 is \$6,250. That buys a lot of uniforms for the kids, ground maintenance and improvement, new locker rooms, transportation, etc. Sure it would be nice to have both (\$6,250 to spend on the club AND some live tickets) but when the choice is there many sensible club managers would, for the good of the game and the glory of the Warriors, opt for the cash in hand.

I’d like to ask the Warriors CEO Wayne Scurrah in particular, and the shareholdrs and management for the Warriors and Mt Smart Stadium – to reconsider their views on ticket reselling. Moralistic stereotypes of resellers as “scalpers” just doesn’t cut it. Competitive re-trading markets do. I’m not questioning the contractual right of the stadium owner and event providers to trade the seats they provide under whatever terms – such as no reselling – they negotiate. But would you consider the idea that permitting and legitimizing ticket reselling could be both profitable for the sellers and preferable to fans?

Major sports team-owners (baseball, basketball, football) in the US have taken a different attitude towards online, direct reselling. The teams and leagues have given up trying (ineffectively) to crush the growing trade in direct reselling of event-tickets online, estimated at \$US3 billion annually. Nowadays they either have their own on-line reselling sites (and take a fee for this service) or deal with brokers like StubHub, an online re-trading institution where fans resell their event-tickets and where sports teams refer their fans to in order to resell their tickets. ALL fans benefit , and the providing clubs benefit by getting a revenue slice they otherwise wouldn’t have from referalls or brokerage fees (see a nice op-ed opinion piece on this by Jeff Jacoby and also a recent NY time article ).

Fraud, not price gouging, is the biggest problem in event-ticket reselling. Large, reputable, online trading institutions, with their coterie of specialist resellers and verification methods, and publicly accessible and transparent open auction methods, actually solve both problems. For example, StubHub provides guarantees of ticket legitimacy, tickets being in adjacent blocks, and refunds for cancelled events as a component of its online services, for a fee. Online sites run by team and venue owners use electronic-swipe ticketing methods to record and register transfers as well as to guarantee legitmacy of resold tickets.

Once you look at the issue of reselling event tickets in this way it opens up some new ways of thinking about allocating event tickets in the first place. Why no auction off a sizeable number of tickets for every game in the first place? Indeed, if I were a shareholder in either the Warriors or Mt Smart, I’d be asking some hard questions about why this wasn’t done for the pricing of public tickets for the playoff games in the first place. If 10,000 tickets are sold between \$25-\$60 each, ie, for between \$250K and \$600K ,and they could have been sold for \$300 each, ie for \$3 million, who is accountable for the last \$2.5 million in revenue?

It’s not good enough to trot out a generalisation that the whole idea is to make the game affordable for fans. Which fans?  At playoff time  there are too many fans for the available number of seats. Some get in for a low price but many more don’t get in at all.  Has the game been made affordable for those who lose out in the ticket rush? Even if the Warriors gave away 10,000 tickets for free to whoever they deemed worthy (past supporters, mates of past supporters, kids clubs, one ticket for every amateur  league player in Auckland), those particular ticket holders will be made better off by having the possibility of being able to resell their tickets in a competitive marketplace.

The key is that team-owners, stadium owners, fans and policy makers recognize and invest in the benefits of competitive secondary markets in event-tickets. Is that too much to ask?