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Stateside: Free should be the price of land in the land of the free

Posted in News

I've just spent the last week driving past houses like this alongside the old Route 66. Now the road is a two or three lane each way Interstate Motorway called I 40. It struck me during the endless hours of driving that there is an enormous amount of land in the United States. I seemed to drive past thousands of miles of empty land, punctuated by the occasional town and city, mostly full of either new houses or very old dilapidated houses and mobile homes. This may be one of the reasons why house prices in America have fallen so fast. The price of land is infinitely flexible and there is so much of it that theoretically, it should be worth nothing. That certainly seemed the case. I saw lots of signs advertising 40 acre blocks for a few thousand dollars. Around the outskirts of Las Vegas and Los Angeles I saw so much unoccupied and yet easily occupied land (flat, dry and accessible from a big honking motorway) that I can see why prices have plunged so far.

Some people say this abundance of land, the relative ease of developing new suburbs (in some places at least) is one reason why house prices will fall further in the United States than in New Zealand, where the land is often not flat, dry or easily developed (thanks to the RMA). After days of driving across vast acreages of empty land I am more sympathetic to that view than I was. But that doesn't mean our land couldn't easily become cheaper. Look around Hamilton and you'll see what happens when eager developers are allowed to build plenty of supply to meet demand. There is plenty of land in the Waikato that doesn't have houses on it. Look around South Auckland and North of Auckland and there are also plenty of open spaces. Canterbury has the potential to be one vast suburb. The only limit to how low prices could fall in New Zealand would be the naturally productive value of the land for dairying (because not much else produces much profit these days) plus the development costs (roads, sewerage, etc). The one limit for both countries is the willingness of home owners to commute huge distances to work, schools and families. America has surmounted the problem by building big motorways and big broadband highways. New Zealand has done neither yet. Perhaps it should.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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40 Comments

Yes Bernard, the infernal "Land

Yes Bernard, the infernal "Land Bank" that sits quetly and grows capital gain, without a wisper of input, has finaly spat the dummy.

Now we are going to understand the real value of "unproductive" land, this is land that cannot produce anything without the addition of capital.

We also realise that property ownership has its rewards, but it has its responibilities as well, rates and insurance are a couple of nasties when your property has no income stream attached to it. Councils love high ratable valuations from propertys that don't acutaly draw any services, or cause any extra infastructural loading. Its rates for shufffling paper, and councils love that paper rustling shuffling sound, they get to charge for it.

Really land prices have a long way to go to get to a point where the ecomonic value is detached from its "scarcity" value. "They aren't making any more of the stuff" realators favorite quote along with "its got potential". Both kind of wrong now.

Missed the property boom eh?

Missed the property boom eh?

Na mate it was a

Na mate it was a couple of years ago, remember?

Bernard I'm especially interested in

Bernard
I'm especially interested in your thoughts on the "commute" to work part.
Obviously in a metropolis like for example, Akld, there's a given allowance for the distance & therefore the time that's required to travel, even if that maybe far from your lifestyle block.
Can I be so bold as to suggest that after we have had the Internet boom, the share market bubble [with obvious side effects- pre 1989, & again early this decade with the Internet boom] and most recently the property bubble, do we see a platform developing where the baby "doomers" see the world for what they can [time to retire, but more importantly time to enjoy too] and we can quite possibly visualise the next bubble?...how about a "wellness/wholesome/green" approach, maybe even so much as to dictate geographically where they want to live, overall how they want to live, for them....ultimately why I want to live [ in other words you better provide this here in this area or I'll threaten you I'll move to another area type of attitude]
An "at our age travel is...." a seriously viable alternative to the "...whatever..." city suburb lifestyle?
You mention so much available land Bernard, and yet back here that still seems [ RMA & OIO aside] a particularly valuable resource?
After spending years in Singapore/Taiwan/Indonesia, and 2 mths in HK, & kinda being cognisant of their individual land constraints [ guess in english - land available per square km/per cpita] I'd really like to know any future thinking thoughts you might have.

<blockquote>The one limit for both

The one limit for both countries is the willingness of home owners to commute huge distances to work, schools and families. America has surmounted the problem by building big motorways and big broadband highways. New Zealand has done neither yet. Perhaps it should.

Bernard, are you insane ?!!!!! :)
Two words for you. Peak Oil :)

I think you'll find a ground swell of opinion is for sustainable living. That means localisation and community currencies.

By the way, Robert Shiller says urban land in 2000 was just 2.6% of the US.

Yes agree Steve. The US

Yes agree Steve. The US has surmounted bo-didddley squat by building big motorways - in years to come the motorway system and the suburban sprawl (strip mall culture) it initiated will be seen as the largest malinvestment in US history. Oil prices are down because demand collapsed, not because supply surged. If and when the global recovery recovers you will see $100 plus oil again pretty pronto (in fact things will be worse as a great deal of new field investment has already been shelved). If there is such a thing as easy money then it will be made investing in oil/oil companies when the economy recovers. If I were to be convinced that the global economy was going to be on the road to recovery 9-12 months down the track I would be betting the house on oil - but I aint convinced.

Andy, And I bet you're

Andy,
And I bet you're not the only one waiting for the recovery. And that's why I think oil will go well above the previous peak pretty soon when it starts.
But, I don't think that will be any time soon, and in the mean time, I'm enjoying cheap NZ petrol :)

When I travell through the

When I travell through the MacKenzie basin I see canals and hydro stations and I thinks: "these were built in the 1970's " (when our population was low) and so I'm skeptical of claims that our increasing population is a "great achievement". People used to follow work, now the lexicon is that people come and work follows (via economies of scale). I think it is the powerful interests of the property lobby who pressure politicians to turn the spigot (otherwise known as risk management) :wink: .

Steve The oil price will

Steve

The oil price will struggle to get up above $60 USD this year as it is an arm wrestle between the producers and the consumers, consumers need cheap energy to fuel recovery, producers need high prices to fund their states, The US is in serious economic decline, consider the $300 billion stimulus package is meant to reverse the decline of the withdrawl of about $2 trillion pa pumped into the US economy from increasing household debt in the past 5 years.

Bernards sprawl dream depends on cheap energy and this we should not rely on. I hope his understanding of horticulture/agriculture improves because statements like "dairying (because not much else produces much profit these days)" undermines his believability.

Bernard: When you see a 40 acre block for a few thousand dollars you should ask, Where does the water come from? How close is the nearest electricity supply? does it have broadband?

Neven

Around 2.6% of the United

Around 2.6% of the United States land area is urbanised and around 0.70% of New Zealands land area is urbanised. I explain this within an article 071111 New Zealand Lifestyle Block Mythology on the Performance Urban Planning website.

So there is no shortage of land whatsoever - and we would only require approximately 0.01% of our total land area each year to allow our urban areas to grow naturally. We couldnt ubanise a further half a percent of our land area over the next 50 years if we tried.

We should be erecting starter house / land packages on the city fringes for about $140,000 - so its about time Central Government got on and dealt effectively with the inadequacies within the Local Government sector.

The most amusing thing about this is that the planners have allowed themselves to become a "Bankers, Speculators and Oil Companies Welfare Society" - as they are forcing people out to rural areas and small towns to seek more affordable housing.

Hugh Pavletich
Performance Urban Planning
www.performanceurbanplanning.org
Christchurch
New Zealand

"Around 2.6% of the United

"Around 2.6% of the United States land area is urbanised and around 0.70% of New Zealands land area is urbanised."

On their own such figures are meaningless.

"the reality is that monetary

"the reality is that monetary policy is an inappropriate tool with respect to housing bubbles "“ which are caused by constrained land supply and inappropriate infrastructure financing at local government level."

What is : "inappropriate infrastructure financing at local government level." Ratepayers not providing enough money for new infrastrucutre (such as Aucklands $180m sewerage tunnel). Of course land bankers see the value of their land rise 5 to 10 times?
Better that the local municipallity does its own developing rather than Bjorn Lomberg inspired developers (I think).

“Speculators are hunting Auckland’s urban

"Speculators are hunting Auckland's urban fringes for landbanking deals. Like bounty-hunters riding the boundaries, groups of millionaires and wealthy migrants are looking to lock away land on the city's rural outskirts for big gains.

Wealthy migrants from China, Taiwan and Korea were particularly active, hunting for those opportunities, he said."

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10447467 &ref=rss

Oh come on you old

Oh come on you old fart! don't get suckered in for that one. Aren't the papers supposed to print "advatorial" or something on these types of articles. I wonder how much advertising Bayleys had to put in to get that article published.

"investors could easily double their money in a couple of years"

I have entered this in the tui "yeah right" ad competition.

"So how do we know

"So how do we know if we actually have enough houses for everyone? Did every country around the world seeing record high real estate prices just not build enough houses?

How come the USA thought they had a shortage, but then when the artificial demand from the housing bubble disappeared, they suddenly had a glut? Is this likely to happen elsewhere? How can we tell?

Below is a comparison of housing and population growth for Australia and the USA using their respective census data:

USA

USA 2001 2006 %change
population 285,226,284 299,398,484 4.97%
dwellings 117,858,349 126,316,181 7.18%

The rate of increase in the number of dwellings in the USA exceeded the rate of growth in the number of people in the USA by 44%

Australia

Aus 2001 2006 %change
population 18,769,249 19,855,288 5.78%
total dwellings 7,790,079 8,426,559 8.17%
Occupied Dwelings 7,072,207 7,596,183 7.41%
Unoccupied Dwellings 717,872 830,376 15.67%"

http://bubblepedia.net.au/tiki-index.php?page=HousingShortage

Steve L and Old Fart.

Steve L and Old Fart. That article re landbanking is from June 2007. Useful for historical reference.

The NZD has tanked significantly since then. Any overseas investors who were landbanking would likely be looking at a loss.

Duh, thanks for that Gibber,

Duh, thanks for that Gibber, didn't realise it was that old.

Old Fart, its called the lag effect, abit like when you need to drop a discrete fart in a crowd. You let it out, (quietly) it doesn't smell, you drop another one, the lag from the first one is gone as you start to smell it, you know there is more stink coming. Everyone else is picking up the scent, you know they have only had half of it. Glare at a person close to you (as if they did it), and move away quickly.

This is what happened in realestate, property developers went around dropping subdivisions and pushing out apartment buildings, when sales started to slow they knew they were in the poo's because of the amount of stuff (sections and apartments) that were in the colon, err planning/pipeline. Luckily for them they flew out before anyone else could smell it (to a party in Fiji). But we know!!!!Stinkers!

Old Fart - keep it

Old Fart - keep it simple and ask yourself - where the $140,000 new starter house / land packages are on the fringes of our New Zealand cities? Why do you think its a good idea that Local Authorities should have the power to ban the construction of them?

Have you heard of the Municipal Utlility District infrastructure financing vehicles employed in the United States? Why arnt we using them here?

Hugh Pavletich
Performance Urban Planning
www.performanceurbanplanning.org
Christchurch
New Zealand

Hugh You seem to be

Hugh

You seem to be pushing the same old same old, massive urban sprawl which you thinly disguise using words like "performance" and "affordable", This the US approach is hardly "planning" and require cheap fuel to keep it going, The last thing we need in NZ are great tracts of shitbox slums miles from nowhere.

The US is fighting 2 wars currently to defend their way of life as they are hugely dependent on cheap imported oil, They are going to run trillion dollar budget deficits in order to defend the indefensible dream and you seriously think we should use them as a prototype for our urban planning?

Neven

Old Fart, Land Value Tax

Old Fart,

Land Value Tax would take care of developers gains from public infrastructure.

In fact taxing land and not income would seem to be worth considering.

If this is true (and

If this is true (and it appears that it is) this is vastly amusing (actually in a very bleak and dark sort of way:

US porn industry asks for bail out now......

http://politicalticker.blogs.cnn.com/2009/01/07/porn-industry-seeks-fede...

Thursday, 15 November 2007, 1:00

Thursday, 15 November 2007, 1:00 pm
Press Release: Hugh Pavletich

"Obviously the developers couldn't buy the local politicians and public officials off fast enough in Dallas Fort Worth to overcome the zoning impediment "“ but they have been trying as this article Fed Up: Texas Monthly November 2007 illustrates. It goes on pretty much everywhere of course "“ but only illustrates how zoning tends to assist in inflating prices and stalling supply responses."

http://www.scoop.co.nz/stories/BU0711/S00303.htm

I suppose it's like sex you don't see people do it (usually), but that doesn't mean it doesn't "go(es) on".
:wink:

you can make a similar

you can make a similar comparison with Melbourne where i am at the moment. it has seemingly limitless flat land going for north, east and west. yet they also seem to think they are immune from a US style housing crash. the answer of course is that they will follow the US and its not because of the land availabilty but because all bubbles burst, just like NZ.

Planning Regulations Out the Window

Planning Regulations Out the Window in U.K.
"Under reforms expected to be unveiled this month, councils will be told to:

-earmark new building sites in every village and hamlet where affordable housing is needed
-use sweeping powers to overrule normal planning curbs in protected areas
-provide incentives for farmers to sell land to developers
-create a generation of new communities on the outskirts of market towns, similar to Poundbury, the Prince of Wales's "model village".
----------

"Prime Minister Gordon Brown is to be applauded
Submitted by Hugh Pavletich on 5 January 2009 - 8:24pm.

It would appear that the 60 years of failed British prescriptive urban planning is fortunately coming to an end."

http://www.planetizen.com/node/36777

NZ UK and JP are all of a similar size and have one thing in common: the need for continual economic growth. In Japan temps have been fired and are having to line up at soup kitchens. Economic growth is needed to provide the temps with work (although there is plenty of soup).
UK is only starting to look at population size.

Hugh you are essentiallly advocating

Hugh you are essentiallly advocating the construction of future ghettos. Take a drive through Flaxmere when you next get the chance.

As for the limitless land argument, if it holds why then is property not a lot cheaper than it currently is?

The answer of course is PROXIMITY.

Mitch, its not cheaper because

Mitch,

its not cheaper because not enough land is released, which is exactly Hugh's point. It has a ripple effect. eg if you can buy 20K from the CBD for 250, why would you pay 400 to live 15k away. If as a result 15k away drops from 400 to 300 why would you pay 500 to live 10k away etc etc. the relative value of the inner areas are affected by the fact that you can live only a few ks away for a lot cheaper. This natural ripple effect is not being allowed to take place becaue of lunatics in the green movement, greedy property owners who were lucky enough to buy housing when it was cheap, as well as banks and real estate agents who want to see high prices.

hugh

keep up the good work!!!

James, you obviously still live

James, you obviously still live with parents, and can't afford to own home

Mitch - James is right.

Mitch - James is right. Always bear in mind that people have got to live some place. In fact what Im advocating is simply normal and natural urban consolidation - not the inflated splatter and sprawl too many Local Authorities are creating - because they are too dim witted to figure out how to finance infrastructure properly.

Many of the "genuises" in Local Government also think that infrastructure issues are beneath them - and that they have superior talents to engage in "social engineering".

Yet for some strange reason Im completely unaware of one genius in New Zealand Local Government with surperior talent!

You might like to goolge my latest article "Housing Bubbles and Market Sense" on Scoop which seems to be high on the Scoop Business Most Read List. There are really many people - including those within the professions - who need to develop "market sense" with urgency. The costs are too high (note the deflating housing bubbles globally) if we as a society persist in living in fantasyland.

Possibly David and Bernard may consider popping this article on to this website at siome stage - so we can discuss and debate the matters raised.

Hugh Pavletich
Performance Urban Planning
www.performanceurbanplanning.org
Christchurch
New Zealand

Bernard: This idea would be

Bernard:
This idea would be the fastest way to building a strange place where the towns are not really towns and the farm areas are not really farm areas. New Zealand is one of the most wasteful places in the world, building its economy only on the huge disbalance of resources and population (lots of land/rain - tiny population). Even the cities do not have the normal city structure (bar central Auckland/Wellington/ChCh) and most of the places feel as triumph of the urban sprawl.

when your neighbours are climbing

when your neighbours are climbing in the back window as you leave your house that is an indicator of low house values,when you live in a town where there are no doctors or chemist,no bank branches but four liquor outlets that is another indicator.so your 2 bedroom flat in central london is worth two million NZD but in smallsville it is 200,000.

James "eg if you can

James

"eg if you can buy 20K from the CBD for 250, why would you pay 400 to live 15k away"

Because that 5k may take you 30 minutes to traverse every day, because at a density of 19 persons per hectare (greater auckland), cars will be your only option, because building superhighways so you can zip into the CBD is impossible, 20k from the Auckland CBD would barely get you to the 'fringe' anyway, when do idiots like you and Hugh get it, when its 30K's, 40K's, 50....

We need a higher urban density to make cities function in a sustainable manner, not great tracts to ticky-tacky boxes and motorways, nor do we need more satellite suburbs ala Flaxmere in Hastings which were all the rage in the 70's, complete with crescents and cul de sacs that no-one can navigate.

There are other ways of addressing housing affordability, namely people accepting that in an urban area, a standalone dwelling on a little plot of land, is not a birthright

Neven

Interesting Neven911 - but yiou

Interesting Neven911 - but yiou need to inform readers where your theories have actually worked (nowhere that Im aware of). What exactly do you think they should be "allowed" to live in? Please be specific.

Readers may also be interested in learning from you, how your theories created these bubble urban markets globally - led by California and the UK - and almost bought the global financial system down in the process. We are in the early stages of experiencing the consequences here in New Zealand.

Hugh Pavletich

Hugh How do you explain

Hugh
How do you explain the relationship between the increase in population and the number of occupied dwellings? Between 1996 and 2006 population increased 11% but occupied dwellings increased 15% (2006 Census)
Remember too that in NZ's case the government wants to encourage population growth through migration so the process goes on and on ad infinitum.

"There are other ways of addressing housing affordability, namely people accepting that in an urban area, a standalone dwelling on a little plot of land, is not a birthright"

There are whole suburbs in Chch which (should) have passed their use by date, unfortunately they have to be taken over by investors and owner occupiers driven out by rough tenants and urban decay untill developers can do something tacky again.

Land Value Tax (Wikipaedia): "....

Land Value Tax (Wikipaedia):

"....
The selling price of land titles is proportional to the expected net rental income stream, so LVT would reduce the capital value of all real estate owners' holdings by an amount equal to the capitalisation of the tax. Critics suggest that a rapid reduction of real estate values could have profoundly negative effects on banks and other financial institutions whose asset portfolios are dominated by real estate mortgage debt, and could thus threaten the soundness of the whole financial system.[13] However, the domination of investment portfolios by land (in the form of real estate) is the principal cause of instabilities in the financial system, and is responsible for boom-bust events such as that which has began to affecting the world economy in 2007.

If the value to landowners were reduced to zero or near zero by recovering effectively all its rent, total privately held asset values could decline as the land value element was stripped out, representing, on paper, a massive reduction of private sector wealth. In the longer term, however, there would be a benefit as investment in land as such adds nothing to productive capacity, since it is merely a transfer of title ownership. Most LVT supporters support a gradual tax shift to avoid disrupting the economy, and argue that the reduction in private rent collection would result in a corresponding increase in net wages received from work and entrepreneurial activity."

I think we need a

I think we need a Capital Gains Tax (GTC)

A Capital Gains Tax (CGT) would not collect much tax for the next coulpe of years (if introduced now). As the perception (and reality) is that property prices will trend down over the next couple years CGT should have a small effect on the market.

The real benefit for a CGT is to help control inflation that may begin to occur in two to six years.
It will also help a hammered government ballance sheet get on the right side of the ledger after the next few years of heifty deficits.

All of this debt and it subsiquent mess has to be cured somehow, a CGT is only part of the medicine.

Oh, and don't do it gradualy, get it done and move on.

Hugh I think you have

Hugh

I think you have it arse about face, The property bubble (and other bubbles as well) were caused by the financial system (cheap credit, CDOs, ARMS) and was not picked up by the automatic correctors (CPI, GDP) because they have been systematically corrupted in order to portray a rosey picture, Alan Greenspans great experiment. I don't think anyone would subscribe to your theory, that the limitations on urban sprawl somehow fueled the whole shebang! It certainly wasn't a limiting of supply as there are new houses in the US that will never be lived in.

What exactly do you think they should be "allowed" to live in? Please be specific.

I didn't use the word 'allowed', I said the expectation is unsustainable. All through Germany and Italy I saw townships built on low rise multi-unit dwellings, not 20th century automobile suburbs, These towns have restrictive boundaries, are compact and walkable (usually with a train service). It would be possible to implement the same here, and as an example the freemans park council houses built in the 50's, the modern equivalent are unfortunately the mega apartment blocks around st lukes. We don't seem to be allowed a balance, ie small multi-unit low rise developments, probably because it would require vision, planning and acceptance the unfettered sprawl is unsustainable

Neven

Alright everyone, Hugh's afore-mentioned article

Alright everyone, Hugh's afore-mentioned article is up on the site as a Guest blog.

http://www.interest.co.nz/ratesblog/index.php/2009/01/12/opinion-housing...

Debate away

Cheers

Alex

Neven911 - Please explain to

Neven911 - Please explain to readers why you think $US140,000 new starter homes (lot / section $US30,000 - house construction $US110,000) of 235 square metres incl double garages, 4 bedrooms, 2 bathrooms, separate dining with well fitted out kitchens and bathrooms on 700 square metre lots on the fringes of middle North American cities - and so "objectionable" to you - to the extent you think New Zealanders should not be allowed them?

No doubt you find the $US73,000 160 square metre manufactured housing in North America on large fringe lots "offensive" as well.

Im baffled why you think it is a good idea for Councils here in New Zealand to inflate fringe housing up to $NZ400,000 and beyond - forcing the poor to flee to less inflated housing out in rural areas and outlying towns or those dreadfully small inflated concrete rat holes Councils force developers to build when replacing old stock on decent size lots.

The only ones benifiting from what you are advocating are speculators, banks (people being forced by Councils to take on excessive mortgages to buy inflated priced housing) and oil companies (for those forced yo live in outlying areas.

Bear in mind it is not what Im sayiong - the numbers speak for themselves. The evidence is staring us in the face.

This is my last comment today - because New Urbanist on the "Housing Bubbles and Market Sence" page is rationing "free speech" - just like he and his pals are doing with housing!

Hugh Pavletich

Hugh I'd suggest that you

Hugh

I'd suggest that you read this article which is full of the houses you so glowingly describe and then explain a) Why unfettered by boundaries it was as subject to the housing bubble as anywhere else? and b) why no-one wants to live there?

As you rightly point out the price difference is in the 'value' of the land, which is set by the 'market', so we need to creatively depower the ability of developers to leverage off this asset, the problem being (as pointed out in this paper) is that property values are geared to incomes, so if you make a functioning productive community, values go up and planners only have the initial bite.

What they need to do is put together plans that can function, NOT things like Flatbush which has an urban denisity of 23 per hectare, mainly due to a massive vainglorious park, which would be better served being distributed. I also note that they are not putting in any electric rail, but expect a significant portion of the residents will commute to the north shore for work, another 5,000 cars parked on the southern motorway (and don't suggest buses please as they are less energy efficient than a small car).

As for "Dreadfully small inflated concrete rat holes", I have railed against these as well but higher urban density does not require this, I would hardly describe the central areas of Paris, Munich or Edinburgh in these terms.

I would suggest you do some reading on the evil "Oil Companies" which are control less than 10% of the worlds oil (and some are liquidating - Shell for example) because you may consider them evil now but it is one thing to pay the price it is another to do without completely, your city fringe developments require excessive fuel.

I could rant about Rudman/Clark/Fitzsimmons et al theories of make the world a happy place by unworkable egalitarian central housing planning policies but that is a separate subject.

Neven B.E.

Really like this post, thanks

Really like this post, thanks for writing.