Tuesday 19 March 2024

The commercial landlord oligopoly in Raglan claims a high-profile victim

This week, my ECONS101 class has been covering market structures and market power. By definition, market power is the ability of a seller (or sometimes a buyer) to have control over market prices. The degree of market power that a seller (or buyer) has depends on the amount of competition in the market. A big component of competition is the contestability of the market - how easy it is for other sellers (or buyers) to enter the market. When a market is highly contestable, it is difficult for a seller to maintain high prices (and high profits) because other sellers will be able to easily enter the market, increasing competition and lowering prices. But when a market has low contestability, high prices and high profits are likely to persist for sellers.

So, I was interested to read this article in the Waikato Times today [*]:

Raglan business owners say a landlord monopoly in the small beach town is jacking up rents, forcing them out.

Prominent Raglan music venue and bar Yot Club will soon be up for sale because the owner Andrew Meek says he’s “had enough of the landlords”.

Other operators spoken to by the Waikato Times said there was a power imbalance between tenants and owners with some having seen up to 95% rent increases in less than a decade...

Meek wanted to sell his business and said if it didn’t sell, he would shut the Yot Club by May.

“I hope that someone else can find a way through to maybe deal with the landlords, to maybe have a better relationship with police and licensing.

“This place means a lot to the community and there’s nothing like this in Raglan.”...

A business owner in the town centre, who did not want to be named, said they can’t move anywhere else because of what they called a monopoly on commercial rents.

“This is our life and livelihood, so they know that we are not going to leave and run.

“So they keep increasing the rent and compared to the whole country, the rent here is way too high.”

They said the 60m2 shop was renting for over $55000 for a year - nearly double the same-sized property in Hamilton’s Te Rapa.

“Every two years or whatever the document says, they put up the rent and then they take a management fee as well.

Another small business saw more than 90% increase in rent in the last six years.

“My landlord basically says he can do whatever he wants.”

In downtown Raglan, a few commercial landlords own most of the properties. The commercial property market in Raglan is not a monopoly (in contrast to what the business owner quoted above says), but it is an oligopoly - a market with few sellers. That limits competition and grants some market power to the commercial landlords, which they can use to increase rents. To make matters worse, this is a market with low contestability. Even though rents are high, and commercial landlords are making high profits, there is limited land in downtown Raglan zoned for commercial uses. Since the existing commercial landlord oligopoly holds all (or most) of that property, it is difficult (if not impossible) for other commercial landlords to enter this profitable market and compete. Moreover, Raglan is a long way from the next nearest commercial area which, excluding Whatawhata, is probably the Dinsdale shopping centre in Hamilton, over 30 minutes away. So, there is little alternative for businesses in Raglan other than to deal with the existing commercial landlord oligopoly.

However, things are even worse for the Yot Club than for other tenants. An iconic venue like the Yot Club is known for its current location and setup, including the outdoor area. That gives the Yot Club owner even less bargaining power in negotiating with the landlord than other tenants, since other tenants are more likely to be willing and able to move to a new location (even if that new location is outside of Raglan entirely).

So, the commercial landlord oligopoly in Raglan has a lot of market power. The commercial property market in Raglan lacks contestability. The tenants are paying high rents (note the comparison in the quote above with rents in Te Rapa, where there will be much higher competition between commercial landlords, because there are many alternative commercial areas within Hamilton that a tenant may choose to locate in). The landlords are likely making high profits as a result of their market power.

Having said all that, there are meaningful limits to how high the landlords can push the commercial rents. If rents get too high, then the commercial tenants will start to walk away (exiting the market), as it becomes unprofitable to continue their operations. This appears to be exactly what is happening now. And given the extra challenges that the Yot Club faces in dealing with the landlords, it shouldn't be a surprise that they were one of the first tenants to exit.

*****

[*] In the interests of full disclosure, I was a member of District Licensing Committee panels that have twice declined to renew the alcohol on-licence for the Yot Club. On both occasions, the Committee's decision was overturned on appeal to the Alcohol Regulatory and Licensing Authority. If you're interested, you can read the Committee's decisions here and here, and the corresponding ARLA appeal decisions here and here (and for completeness, you can read a further ARLA decision here, in which the final two sentences are particularly telling). Despite any perceptions that may have formed to the contrary, I bear no ill will towards the Yot Club or its owner, as the tenor of this post should demonstrate.

Monday 18 March 2024

What happiness data tells us about whether life is getting better or worse over time

If you believed everything you read online, or in the media, you might get the impression that that state of the world is not only bad, but getting worse over time. It's gotten so bad, that everything seems to be in crisis. If it was the case that life is getting worse over time, we would expect to be able to see this reflected in people's subjective evaluations of their wellbeing - that is, their reported happiness. If life is worse now, surely people are reporting being less happy?

That is the research question at the heart of this new working paper by Ruut Veenhoven (Erasmus University Rotterdam) and Silke Kegel (University of Konstanz). Veenhoven and Kegel look at the happiness data from the World Database of Happiness, Report on Average Happiness in Nations, tracking changes in happiness measures over time for countries where the data:

...cover at least 20 years and involve at least 10 data-points... This left us with 80 timeseries in 50 nations over ranges of 71 to 20 years in the period 1945-2021.

They then apply some fairly simple comparisons (average happiness at the end of the time-series compared with average happiness at the start of the time-series), and simple linear regressions, to identify time trends in average happiness. If life is getting worse over time, the time trend should be negative. Instead, they find that:

...average happiness changed significantly only in 37 nations, of which 26 changed to greater happiness and 11 to less, the average size of the chances being similar. So again, more rise than decline.

In their linear time trends analysis, there was very little evidence of decreasing happiness. As they note, 11 nations (and 19 time trends) were statistically significant and negative, compared with 26 countries (and 62 times trends) that were statistically significant and positive, while 35 countries (and 119 time trends) were not statistically significant at all.

And when you look at which countries and time trends are positive or negative, they results seem to make some intuitive sense. For example, Japan since the 1960s shows a significant positive increase in happiness, but Japan since the 1990s shows no significant change, consistent with improvements in wellbeing that occurred mainly from the 1960s to the 1980s. Venezuela since the 1990s shows a large negative change, consistent with the basket case that country has become over that time. Ireland since the 1980s shows a positive change. And so on.

What we can take away from this (provided we suspend disbelief of all happiness data, which should be a real concern - see here, and here, but for a counterargument see here), is that life may not be getting worse after all.

Saturday 16 March 2024

Causation vs. correlation in the relationship between ultra-processed food and mental health

The New Zealand Herald reported earlier this week:

According to an annual global report, if you’re after mental wellbeing and a flourishing life, you should pay attention to those who live in the Dominican Republic, Sri Lanka, Tanzania and Panama.

The report, by Sapiens Labs, is available here. However, it was this bit of the article that caught my eye:

According to Sapien Labs, adults’ risk of mental health challenges is four times lower if you have close family relationships - but wealthier countries were least likely to say they were close with many adult family members, at just 23 per cent...

Similarly, there is a strong body of research on the impact of processed food and a growing number of studies around technology use.

“We found that over half of those who eat ultra-processed food daily are distressed or struggling with their mental wellbeing, compared to just 18 per cent of those who rarely or never consume ultra-processed food,” the report stated. This is almost a three-fold increase.

I just talked about the difference between causation and correlation with my ECONS101 class a couple of weeks ago. Everything that Sapiens Labs has found is correlation. Sure, you can tell a plausible story about how ultra-processed foods lower mood and lead to worse mental wellbeing. However, there is also a plausible story going in the other direction (reverse causation) - people with worse mental health might comfort eat, thereby consuming more ultra-processed foods. Just because we observe a correlation between higher ultra-processed food consumption and lower mental wellbeing (a negative correlation), it doesn't mean that ultra-processed food consumption causes decreases in mental wellbeing.

Even worse than that, the report itself (but not the New Zealand Herald article) tries to suggest a link between higher consumption of single-use plastics and lower mental wellbeing. I'm not even sure that you can tell a plausible story linking those two variables in that direction - how would plastic straws, forks, and grocery bags make our mental health worse? This could well be spurious correlation. However, I'd be surprised if there is even a correlation there at all. Many countries (including New Zealand) have recently banned single-use plastics. Have we seen an immediate improvement in mental health in those countries? I thought not.

Just because two variables are moving together (either in the same direction, or opposite directions) that doesn't mean that changes in one variable are causing changes in the other one. No matter how much you might want them to, or how much you are looking for a simple explanation. Correlation is not the same as causation.

Friday 15 March 2024

This week in research #14

Here's what caught my eye in research over the past week:

  • Badunenko and Popova (open access) find that in Germany from 1985 to 2015, while income inequality has increased significantly, migration did not contribute to that increase
  • Adabor (open access) finds that the COVID-19 support payment in Australia is positively associated with gambling, with larger effects on male gamblers and online gamblers (I guess gambling is a normal good?)
  • Hadavand, Hamermesh, and Wilson show that economics publishing proceeds much more slowly than in the natural sciences, and more slowly than in the other social sciences and finance, and that much of the lag is the result of authors taking a long time to complete revisions (time for economists to stop complaining, and start revising-and-resubmitting their papers!)
  • Eugster and Uhl (open access) show that sentiment data, based on 730.000 news articles between Q1 2003 and Q4 2021, is able to forecast inflation more accurately than a naive random walk
  • Tomlin (open access) finds in a field experiment that tenant applicants that reveal their pronouns are less likely to receive a response from a landlord, regardless of whether the pronouns signalled that the applicant was cisgender or transgender
  • Brander et al. (open access) estimate from a survey that households would be willing to pay US$79 per year to conserve marine turtles, implying that taking policy action to conserve, manage and protect marine turtles would generate US$55 billion in value

Finally, I am giving a Professorial Lecture at the University of Waikato on Tuesday 26 March. This public lecture is titled Beyond the Buzz: The Sobering Economics of Alcohol, and it builds on my last 15-plus years of research on the social impacts of alcohol. All new professors must give one of these lectures, and I've been dodging it for over a year! The event is free (and they'll even feed you beforehand), but to go you need to register here. I'm not just adding a sales pitch when I say that tickets have been selling fast, so if you want to come along you need to get your ticket sooner rather than later.