A Redwater diverter for every new home?

Markets and opportunity. Peas and carrots.
Hand in hand go such things, and one would expect that in our new water conscious world, any device that can reduce water use in the home will go hand in hand with the phrase 'in demand'.

Here’s one device that has the benefit of being automatic and energy free.

It diverts the cold water sitting in the pipe between the hot water system and the hot tap to a storage (toilet, rain tank etc), then diverts the water back to the tap as it warms.
For all those whingers who need hot showers in Queensland it is probably a good water saving idea (yes, that's me).

I have, however, seen a nifty alternative. In Budapest I remember staying in an apartment that had a gas water heater bolted to the bathroom wall just one metre from the shower. Not only was the water in the pipe already warm from being inside, but there was hardly any water in the one metre of pipe anyway.

I’m not sure you can actually put gas water heaters indoors in Queensland, but one similar solution would be to have your water heater outside the shower wall.

Of course, if all that is a bit much and you still want to save water, you can just buy a diverter valve.

Psychologists at the RBA?

People have instinctual short sightedness. It is a primal trait. Each passing day adds risks to the realisation of future events. Our probability of dying increases, and the waiting time captures multiple risks of the event not occurring at all. In economese, that’s why we discount the future.

However, it is not all that simple. Behavioural economists have shown that people don’t discount in the expected rational way. Instead of treating each year into the future as capturing the same risk, each consecutive year is treated as less risky than the previous year – a concept known as hyperbolic discounting.

For instance, when offered the choice between $50 now and $100 a year from now, many people will choose the immediate $50. However, given the choice between $50 in five years or $100 in six years almost everyone will choose $100 in six years, even though that is the same choice seen at five years' greater distance

Why does the RBA need to know this?

The strategy of a gradual withdrawal of monetary stimulus by incrementally raising interest rates is meant to allow people time to adjust to higher interest rate levels. However, if people discount the likelihood and impact of each further interest rate rise, they will not adjust until it is too late anyway. The instinct of the masses will be to all but ignore the highly probably increases in interest rates in the near future.

This may be one reason for the long lags between execution and outcome in monetary policy.

A quarter of a percent increase in rates every month (1% over four months) is going to hardly register in our animal minds – each change is too marginal, and probability and impact of each future change is heavily discounted. A 1% immediate increase followed by no change for 4 months would actually change behaviour in the way the incremental approach is intended.

Have you heard people who have just bought a new house talk about the inevitable interest rate hikes – “We’ll deal with that when the time comes”. They are simply acting on instinct.

Fractal Finance

Ever heard of the Elliot Wave Theory? Maybe you have, but I hadn't until last week. Put simply, this theory suggests that markets behave is a predictable way which is not driven by fundamentals (actual production of goods, actual jobs, etc) but simply by human behaviour in the marketplace – the collective investor psychology.

The image below show the fundamental Elliot wave – 3 peaks (1, 3, 5) and two troughs (2, 4) on the way up, and two troughs (A, C) and one peak (B) on the way down.

While quirky (as an economist I like to think in terms of the fundamental patterns of production) this theory has a lot going for it.

Business stripped bare

This book is Richard Branson’s latest eye opener into the world of Virgin. The one man publicity machine takes the reader on a tour of his business philosophy and how the philosophy actually works in the realms of the Virgin empire.

I am a fan of Branson and the Virgin empire, for the most part because the company seems to bring competition to formerly uncompetitive markets. Virgin Blue is a classic case study – it revolutionised air travel in Australia. The budget carriers in Europe had already been vigorously competing for some years, and it was only a matter of time before the same thing happened down under. But without Virgin, would we have waited another 5-10 years for air travel competition?

Population caps: Social catastrophe or sound planning?

My favourite lobby group, the Property Council of Australia (PCA), have attacked South East Queensland Mayors for starting debate about limiting population growth in the region through town planning restrictions.  The PCA's argument is that restricting development in a region has disastrous social and economic impacts. They wield the crossed supply and demand swords to argue that house prices will sky-rocket in areas with restrictive planning regimes.

Not surprisingly, their arguments are flawed.  Here's why:

Don't let bridge designers near our buses!

It has come to my attention that buses in Brisbane are, by international standards, slow.  There’s really no other way to put it.  And I think I have found a way to improve the speed of bus services at the smallest of costs.

Remove bus stops.

My economic philosophy of town planning

At the most broad level, the rationale for regulating land use is to minimise negative externalities to neighbouring owners of immobile property assets. This is why even ancient civilisations had strict rules attached to land.

Modern planning continues this tradition. There are few, if any, countries in the world that fail to regulate land uses (maybe the Vatican?) due to town planning’s success in addressing this fundamental externality problem. By regulating land use you can exclude development that will produce impacts such as noise, pollution, traffic, over-shadowing, and other externalities on other land owners. Protecting land rights, and subsequently land values, is essential to a functioning market economy.

This most basic principle is probably forgotten by many 21st century planners. It is one of my reasons for objecting to the proposed South Brisbane / West End plan. Allowing 30 storey developments creates severe externalities in terms of traffic, overshadowing, and use of public space such as parks. Another reason is based on the following second principle.

Thought of the day

I was intrigued by this question:

What are some examples of successful government bureaucracies?

Defining success in order to answer this question is the same problem that ultimately results in serious inefficiencies within government bureaucracies.  Without clear goals, governments end up stirring the pot but never actually cooking the meal.

To make matters worse, even unclear goals change unexpectedly on a political whim.

Imagine Steve Jobs one day promising in the media that Apple is now going to make running shoes and car tyres.  The whole Apple company would have to learn a new business, and the transition would be costly.  Then 3 years later, he is replaced by a newcomer who declares the shoe and tyre business a failure, and decides instead that Apple should run an airline.  Furthermore, the newcomer decides that the success of the new airline enterprise will not be defined by profits, but instead declares that success will be defined in terms of how much the airline is 'giving back to the community'.  It would be a disaster.

But that's the problem you see.  Tasks that have clear long term goals are no longer implemented by government, but by private contractors.  Governments are left with those tasks that are subject to pot stirring and political whim.  Hence, government bureaucracies never seem to get more efficient relative to private enterprise.

Town planning and organic growth – can we reconcile the two?

After a rather challenging discussion with a close friend last week about the necessity of town planning and the degree to which planning constraints impact property markets, I have decided to embark on what might become a detailed rant on the matter. This may the first of many posts on the topic.

The trigger for this planning discussion was a conversation about the proposed increase in height restrictions on former industrial land in the South Brisbane / West End area of Brisbane (see map below). Currently this area is a mix of light and heavy industrial uses, office and warehouse space, and new apartment developments. The area is earmarked as a new growth precinct, in the same vein as Newstead's transition from industrial to a mix of medium density urban uses.

The reason for the ensuing debate is that I oppose the 30 storey height restrictions being proposed in the neighbourhood plan, even though I support densification as a planning strategy. Instead, what I propose is a plan to allow for flexible organic growth.

Lobbyists: If they are always wrong, why are they so influential?

The Property Council of Australia (PCA) is one of those lobby groups with a blatant disregard of the facts and a history of political influence – the kind we love to hate.

Just yesterday the PCA made a submission to the Queensland government outlining how planning laws that promote densification are likely to increase greenhouse gas emissions compared to planning for more urban sprawl. This is not a joke.

They cite a 2007 Australian Conservation Foundation study to give their position merit, but what the study actually says is that environmental benefits from increased density are wiped away by the wealth and consumption effect. Essentially, the data shows living in smaller dwellings closer to conveniences reduces households’ greenhouse gas emissions, but generally, these households are wealthier, and thus have higher greenhouse gas emissions overall. No surprises really.