Seven steps to a productive economy
- Grant McLachlan
- 11 hours ago
- 7 min read
New Zealand's addiction to property speculation is strangling the productive economy. Seven practical reforms — from taxing land and capital gains to protecting elite soils and standardising public infrastructure — could redirect investment where it is actually needed.
New Zealand has a productivity problem. According to the OECD's 2024 Economic Survey, labour productivity remains weak compared with peer economies, held back by insufficient competition, low capital investment, and a regulatory environment that has long rewarded property speculation over productive enterprise. In a 2024 cross-OECD ranking by The Economist, New Zealand placed 33rd out of 37 member states. Independent economist Cameron Bagrie described the country's productivity performance as "awful". Massey University professor Faruk Balli noted that New Zealand ranked third in the world for GDP per capita in the 1950s and has since fallen to 37th. The NZ Productivity Commission confirmed the country is also ranked 26th of 37 OECD nations in spending on research and development. That is the measure of a country that has spent decades betting on rising land prices rather than building productive wealth.
The property industrial complex — developers, financiers, local government planners, lobbyists, and the political parties they fund — has captured New Zealand's economic and democratic institutions in ways I have documented at length. Correcting this requires structural reform across taxation, measurement, procurement, infrastructure, planning, and governance. Here are seven steps that would begin to do that.
Include land prices in the Consumer Price Index
New Zealand's CPI currently excludes the price of land — rural, urban, commercial, and industrial. This omission means the Reserve Bank systematically underestimates inflation in the real cost of living and of doing business. Property investors benefit from low interest rates set against a distorted inflation measure while wage earners pay the actual price. Including land values in the CPI would give monetary policy a more accurate base, raise the real cost of holding speculative land, and begin to align measured inflation with lived experience.
Tax investment property capital gains as income
New Zealand remains one of the few OECD economies without a general capital gains tax. The result is predictable: capital flows to tax-free property rather than to the productive businesses, technology, and export industries that create real wealth. Under my proposal, each single adult or married couple would be entitled to own one property free of CGT — that is, the family home remains exempt. All additional properties would have their gains on sale taxed as income. Labour has signalled a similar approach ahead of the 2026 election; NZIER chief economist Christina Leung and ANZ chief executive Antonia Watson have both publicly supported a broad-based CGT as fair and administratively practical. Australia, Canada, and the United Kingdom all tax property capital gains, and as Labour's own policy page notes, those economies are more productive than ours.
Standardise and prefabricate public infrastructure
New Zealand once understood the economics of standardisation. The office of Government Architect, established within the Public Works Department in 1909 and abolished when the Ministry of Works was dissolved in 1988, produced consistent, cost-effective public buildings for eight decades. After the Second World War, standard school designs — the Dominion Basic Plan, the S68 block, the Nelson Single-Storey — were developed nationally and built across the country, with prefabricated classrooms accounting for up to 85 percent of floor space constructed in peak years. A 2024 ministerial inquiry into school property found that the bespoke "modern learning environment" designs of recent decades caused delays, budget overruns, and unrealised expectations. The inquiry's central recommendation was a return to simple, functional, cookie-cutter designs built off-site. The same logic applies to health facilities, courthouses, emergency infrastructure, and the country's decaying bridge network. Most of the bridges mass-built a century ago need replacing. Because each replacement is now designed and tendered individually, costs routinely exceed budgets by multiples. NZTA's own records show cost overruns of $1.1 billion across 17 road projects in a single three-year period. Reinstating a central design and procurement function — a modern equivalent of the Government Architect — with authority to develop and mandate standard templates for bridges, classrooms, and health facilities would recover much of that waste.
Require government departments to purchase New Zealand-made products
The Crown is the largest single buyer of goods and services in the economy. A preference policy requiring government departments to purchase New Zealand-made products — wool carpet for government buildings, structural timber from domestic mills, steel fabrications from local manufacturers — wherever practical would direct spending into productive industries, support rural employment, and reduce import dependency. It would not require legislation to begin: a Cabinet directive would suffice. Buying from overseas suppliers might be cheaper in the short term but the impact on New Zealand industries can create greater economic costs in the long term due to unemployment, lost capital, and the multiplier effect of employed people spending locally and paying tax.
Restructure the electricity industry
New Zealand's electricity market, as I have examined in detail, extracts billions of dollars annually from consumers and businesses through a market structure that serves generator shareholders rather than the public interest. High electricity costs suppress manufacturing, agriculture processing, and data industry investment. Power Failure sets out the case for restructuring in full. Lowering the cost of electricity to productive industry is one of the most direct levers available to improve New Zealand's competitiveness.
Protect productive soils from urban sprawl
New Zealand has very little elite agricultural land. Government figures show that only about 15 percent of the country’s land area is flat, well-soiled, and suitable for intensive food production without heavy irrigation and fertiliser inputs. Between 2002 and 2019, the area of that highly productive land lost to housing increased by 54 percent. The market mechanism driving this destruction is straightforward: the same flat, well-drained soils that grow food are ideal for subdivision. Urban fringe sprawl across the Bombay Hills south of Auckland, the Heretaunga Plains in Hawke’s Bay, and the Canterbury Plains around Christchurch has progressively pushed food production further from its markets, increasing food miles and production costs. Planning law must go further than the 2022 National Policy Statement for Highly Productive Land, which provides paper protection but has not halted the rezoning of elite soils. A legislative requirement — enforceable through the courts — to protect Class 1, 2, and 3 soils from urban development would preserve the country’s food security base and, by constraining speculative greenfield land supply, help direct development toward urban intensification. The underlying principle is straightforward: as I have argued elsewhere, land is only worth what it is permitted to be used for. Once zoning law allows lifestyle block subdivision on market gardening land, the land price immediately reflects residential rather than agricultural use — and no market gardener can compete with a developer at those values. Fixing the planning system means fixing the price signal it sends. Zoning that firmly excludes residential and lifestyle development from elite horticultural soils is not a restriction on property rights; it is the correction of a distortion that has been destroying productive capacity for decades.
Strengthen central and local government transparency
Vested interests — property developers, infrastructure lobbyists, and their intermediaries — have systematically captured New Zealand's planning and regulatory systems over decades. The Independent Crime and Corruption Commission Bill 2026 and the Electoral (Integrity of Polling, Media, and Elections) Amendment Bill 2026, which I have published in full, address the structural conditions that allow this capture to continue: inadequate disclosure requirements, weak sanctions for corrupt conduct by public officials, and opacity in the relationships between government decision-makers and those who benefit from their decisions. Without transparency reform, the other six steps in this list face an uphill battle.
The productivity dividend
A lower cost of living — achieved through accurate inflation measurement, reduced housing speculation, cheaper electricity, and protected food supply — creates the conditions for productive investment. Capital that is no longer absorbed by tax-advantaged property appreciation becomes available for the businesses, infrastructure, and innovation that generate real productivity growth. Infrastructure programmes that waste hundreds of millions on bespoke designs could be completed faster and cheaper. Auckland's Eastern Motorway — whose business case I have set out in full, along with the case for motorway extensions north toward Whangārei and south toward Rotorua and Tauranga — would benefit freight and industry, not property speculation.
Reliable roading also matters directly to food costs. A significant proportion of the food consumed in the North Island crosses Cook Strait — one of the most weather-disrupted ferry crossings in the world. Cancellations and delays ripple immediately into supermarket supply chains and distribution costs. Completing the Remutaka Hill replacement corridor — which closes five to fifteen times a year on the same geology that eventually closed the Manawatū Gorge permanently at a cost of $824 million — would give the Wairarapa’s agricultural and horticultural sector reliable access to Wellington and onward freight routes. And reliable, modern roading across the Brynderwyn Hills north of Auckland toward Whangarei would open Northland’s farming and horticultural hinterland to efficient freight movement, reducing the cost at which its produce reaches market. These are not vanity projects. They are the arteries through which a productive economy moves its goods.
New Zealand was third in the world for GDP per capita in the 1950s. It is now 37th. The trajectory is not a mystery. For seventy years the country has rewarded the holding of land over the making of things, and has organised its politics and planning systems to keep it that way. These seven reforms would not reverse that trajectory overnight. But they would begin to point it in the right direction.
