On Wellington Nightlife

The Alcohol Management Strategy of Wellington City Council makes interesting reading. In light of the government reforms last year, councils have some enhanced powers to respond to the demands of the wowsers. The unintended consequences of turning a highly regulated industry into an even more highly regulated industry are going to be enormous.

In fact, based on my experience in hospitality and understanding of the incentives around “host responsibility” and an extremely competitive nightlife market, things like one-way doors and pushing late night licenses into a “naughty zone” at the end of Courtenay Place could be the death knell for “going to town”.

Over the past few years, I have noticed two substantial trends amongst young people like myself – who make up the bulk of “pre-loading” and “topping up” consumers from off licenses and are the bane of old people who move into the city and want some peace and quiet.

The first trend I have noticed is that house and apartment parties are preferred to consumption in bars. This is because bars are too expensive, particularly for students. Why are they too expensive? Because they have to include the costs of their liquor license, host responsibility, constant police interference in profit maximisation and a lot of competition in terms of product offered to nightlife consumers just to break even.

Most bars don’t make big profits. In fact, the plethora of liquidations in the hospitality industry has something to do with the high level of competitiveness and also the high level of regulation. If you get stung for having a drunk teenager and lose a weekend trading because of it your cash flow is stuffed and your business gone.

There is a major conflict of interest in hospitality – host responsibility necessarily implies cutting off your best customers. It also requires providing free stuff that increases the likelihood of side-loading or people sneaking in flasks of spirits to mix with the coke they bought.

The second trend I have noticed is that abuse of pre-loading has increased and it is hard to put a finger on why. Unless you realise that it’s cheaper to split a bottle of vodka amongst a group, which naturally leads to the whole bottle being consumed and then a snap decision to “go to town”, which leads to higher risk of everything going wrong while under the influence.

Relative prices matter. If the goal is to have a good time and alcohol is the chosen vehicle for enabling that good time, then rational consumers of alcohol will choose the best combination of “pre loading” and “drinks bought in bars” to maximise their utility. For many this includes not buying any drinks in town because they are “too expensive”. Hence, the efficient level of pre-loading for these types of consumers is to drink as much as they can up until the point where an additional beverage means they’ll get bounced from their bar of choice.

What does this do? Well, when bars know that many of the girls and guys who walk through their door will just dance, have free water and potentially cause problems, they have to raise their prices to cover their costs. The price differential between pre-loading and bar drinking is therefore increased because of the behaviour of utility maximising alcohol consumers.

But where can we draw a line back to? Where do high alcohol prices come from? Alcohol is a taxed good. There are a whole lot of different levels of tax on different alcohol products. Because demand is inelastic, tax raises revenue that exceeds the costs to the health system.

There is also another benefit to “getting tough on alcohol”. In the war between the old and the young, it is a guaranteed vote winner. Just like superannuation will never get a means test or the retirement age won’t increase because the older voting bloc would baulk – so too must alcohol policy become ever tougher in order to appease that group of older people who pay rates and saw some guy get beaten up on Courtenay Place 3 years ago.

In my opinion it is simply another front in the war between old and young. Most of the costs of binge drinking are internalised in the form of hangovers and other consequences like relationship breakups and impaired job performance. The direct costs on the healthcare system are simply a reflection of the fact that healthcare is free in New Zealand.

Just like we take more risk in sports because ACC will cover us, we take more risk when drinking because as a society the set of incentives we all face when it comes to paying for our mistakes is that it will all be OK. Mummy and daddy taxpayer and ratepayer will pick up the tab. Binge drinking culture + safety net = problems. Pretty basic response to incentives here.

In my opinion, these proposals will mean that the value of a liquor license rises. The bars with “best practices” will be able to earn rents from this. This means that rational profit-maximising liquor licensees will cater to the lowest common denominator – those with inelastic demand for shots, for example.

There will be lower levels of consumer choice in the nightlife market – craft beer bars may need to shift downmarket to justify the additional costs they will face – and there will be higher prices in bars – which in turn will increase the pre-loading problems and Wellington City Council will have accomplished nothing.

But until the Dominion Post runs an article in 2020 about the failed “naughty box” for clubs at the end of Courtenay Place and how nothing has changed in relation to binge drinking problems, “getting tough on alcohol abuse” is worth a decent amount of votes for ratepayers “fed up” with something they hardly even experience.

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