Building Minister says Cabinet considering granting compulsory acquisition powers for Urban Development Authorities; initially says could be used to combat land-bankers, but then back-tracks; Reaction mixed

By Bernard Hickey

Housing and Building Minister Nick Smith has signalled Cabinet will consider creating Urban Development Authorities (UDAs) with the power to compulsorily acquire land, including from land-bankers.

However, he has cautioned that compulsory acquisition would not be used specifically as a tool to target land-bankers.

Smith was reported as telling reporters on the fringes of the National Party Annual conference in Christchurch after Prime Minister John Key's announcement on Sunday of a NZ$1 billion Housing Infrastructure Fund that Cabinet would consider whether to use the acquisition powers of UDAs to buy back land off land-bankers.

"Obviously the issue of overriding private title for development is a big call, but my view is if we are going to get the quality of urban development, particularly in the redevelopment area where you can often have a real mix of little titles that makes doing a sensible development difficult, in my view it's one of things we'll need to consider," he said.

However, he later told The NZ Herald that a UDA would not be specifically aimed at land-bankers.

"You can have an area of redevelopment where there may be 50 or 100 titles, and the bulk of the landowners want to be part of the redevelopment, but you can have a small number holding out," he said.

Reaction to Fund mixed

Meanwhile, Auckland Council figures argued the fund may not be big enough and may need to be used to beef up existing infrastructure, as opposed to just building new infrastructure.

Labour MP and Auckland Mayoral Candidate Phil Goff welcomed the fund, but indicated it would not be enough.

"The amount itself is not very much when split five ways and will be used quickly," he said.

Outgoing Auckland Mayor Len Brown challenged the Government's assurance that the Fund would only be spent on brand new infrastructure, suggesting the potential for the fund to be used on the new 13 km central 'Interceptor' waste water tunnel from Western Springs to Mangere, which is scheduled to begin construction in 2018 at a cost of NZ$950 million.

"In the brownfields areas we need to in effect re-constitute some of our underground water and waste water supplies, so for example the major 'Interceptor', the work going on there through the isthmus area," Brown told Susie Ferguson on RNZ Morning Report.

"We would be looking to say to the Government, it is within existing infrastructure, but we're completely re-configuring and re-boring it to enable much greater development," he said.

"We know there's a lot of discussion to be had on how it will be interpreted, the definition of various parts of it. In amongst that, we most definitely want to apply some of this billion to really ensure the development of brownfields activity."

'Piecemeal, centralised and not enough'

Labour Leader Andrew Little accused the Government of launching "rushed and piecemeal" policy that would not sustainably address the NZ$19 billion infrastructure bill hanging over Auckland.

"Instead of on-lending a billion dollars to Councils, the Government should reform the way infrastructure is funded by adopting Labour’s plan for bond-financing paid back by targeted rates," he said.

Green Co-Leader James Shaw said the Fund was a subsidy for developers and too focused on building roads between houses, rather than the houses themselves. He also questioned how many affordable houses would be built, given houses built on the fringes tended to be larger and much less affordable stand-alone homes.

"The market typically builds bigger houses that target high-income earners, so the Government needs to put conditions on its loan to ensure affordable housing actually gets built," he said.

ACT MP David Seymour described the policy as a "paper tiger" that aimed to create a bureaucratic new fund that centralised power.

“A more substantial policy would be a rule that gives Councils a share of the GST collected from new construction projects in their district. That would give Councils the funds and incentives to build infrastructure, without adding the bureaucracy of a contestable fund," he said, referring to the NZ Initiative's recent proposals for new funding techniques to encourage Council to enable development.

There was also debate over the number of new houses that the fund could enable.

John Key told reporters it could be tens of thousands, but Brown said it would be more like hundreds or thousands than tens of thousands.

Key did not answer a question in the above interview on RNZ about why the Government did not simply build the houses itself, saying there was no shortage of private capital for developers.

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28 Comments

The concept is actually exactly what a few of us have advocated in these august pages:

  • Borrow centrally at lowest possible rates, using Gubmint's credit ratings rather than those of small and financially clueless Councils
  • Use the money to build out the infrastructure which makes greenfield development possible
  • Also (as Len Brown sensibly points out) expand existing infrastructure like major sewer interceptors, treatment plant, ponds etc) to cope with the additional throughput
  • Use PW Act-style powers to bulldoze the few NIMBY's and BANANA's who up to now have been able to use the RMA consultative processes to stymie development for years, knowing full well that in a capital-cost-inflationary environment, this will blow out build costs and render projects uneconomic once regulatory hurdles are cleared.

Now all that is missing is the Gubmint pump-priming of factory builds for social housing: cheap, fast, adequate quality. Don't need McMansions for this lot, just small, warm abodes. By the hundred.

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Compulsory Acquisition. Let me get this straight. They bring in far too many people. Refuse to acknowledge it's a demand issue. Then they want to have compulsory acquisition to solve the problem they created.

Well what the heck are the other options KH?? Close the door to immigration is that your answer?? And how is closing the door on immigration going to help the NZ economy?

notaneconomist. You missed the point. The real interests of the New Zealand people are being sacrificed to the interest of 'the economy'. And there is very little connection between 'the economy' and the benefit of New Zealanders.

Brexit like spin all over again, this time in NZ with houses.

Closing the door on immigration will help the NZ economy by not requiring the NZ taxpayer to provide infrastructure for all these people. The more people that live in NZ dilutes the wealth of the countries export productivity. Unless the immigrants are of the caliber of Dot Com, or have skills we can't teach our own people why bother? Why erode our wealth and lifestyle? Why pay tolls to drive on Auckland roads that the NZ taxpayer built and has already paid for? We don't owe the world a place to live. Other countries need to take responsibility for their population growth.

Land should be acquire only if it is in the way of development like road, tunnel, etc but to hide their folly and to avoid taking any action against their foreign Non Resident Friends, will go out any extreme.

Will do everything but along with supply will not tackle the root cause of Housing that is Non Resident buyer which is creating Havoc with the price in NZ.

Am not against price going up but in multiple on a daily basis is not healthy and I also feel that NZ investors do not pay 1.4 million for a million dollar house, it is possible with overseas money or atleast it starts with overseas money.

Why is it so hard for government to understand. Is their a hidden agenda that we are not aware of otherwise why will they argue with each and everyone and do not face the reality. Which now has been accepted by Australia and Canada also.

Anything that goes up too fast comes down - anyone in economic will tell you. What is happening in NZ housing market is a bubble - accept it or not and more the delay more the damage it will be when it happens(Not If but when).

There is no real benchmark to claim Auckland is in a bubble. That is the nature of bubbles themselves. Bubbles becomes obvious "after the fact": property in Japan and Ireland for example or even the dot com bubble. Supply and demand is an attempt to appear in control of the situation, but in all likelihood, it's a red herring or an attempt to appear to understand the dynamics of price movements, That is why Key keeps dropping the "whole range of other factors" to cover his ass.

Actually movements in the P/E ratio is handy for tracking whether the share market is in a bubble; and for real estate, it is the ratio between rental income potential and the prices being paid. In both cases, the bubble is based on expectations of capital gains that bear no relationship to actual future income potential. Its relationship to the real economy is somewhat similar to that of the gambling sector, only unfortunately it has macro-economic de-stabilisation consequences.

There is no property bubble that the majority of pundits accepted "after the fact", that could not have been identified beforehand by tracking this metric over time.

I disagree. First of all, starting with your conclusion, if all bubbles can be predicted, you're basing that on your own ability or "model" to estimate future income potential. If it is a bubble in your mind, but is not a bubble in others, you cannot claim your perspective is any more useful. I'm not saying that you're wrong. I'm saying that it all depends on how you define your outcomes. Usually, all bubbles are identified by their popping.

Using your analytical framework, then, I would say that you have a bubble when "future income expectations" from the relevant investment are simply absurd. Because that is what we have every time. You can't honestly believe that investors think income growth or whatever, is going to be sufficient to turn a profit in the long run, from rental income, when they pay $1.5 million for a tram-suburb villa.

It is the same with the P/E ratio in the sharemarket - expecting the "E" factor to rise to match the "P" factor is simply absurd every time when you have a bubble. Hindsight should not be the only "sight". Most people like to claim "no-one saw it coming" so as to try and evade their own stupidity. Hundreds of analysts saw 2007 in the USA; at least one, Fred Foldvary, predicted the 2007 crash in 1996, making him the first. It is not a question of "a stopped clock", either; his rationale was completely sound.

I'd suggest your primer here is Demographia.com The Median Multiple is an internationally accepted measure which, as PhilBest notes, constitutes the housing equivalent of the P/E ratio. Awkland's MM has long since soared into Buzz Lightyear territory......

The task of edumicating common taters is truly Sisyphean....

So you're saying that Demographia has the ability to identify bubbles? It's a pity they weren't around in Japan back in the day when the whole world wasn't able to predict the Japanese bubble (except perhaps Eammon Fingleton).

The clever guys in "The Big Short" used Demographia median multiple data to work out which US cities were in a bubble, and which bundles of securities were best to short.

Surely wealthy land bankers won't mind or even effect their lifestyles; it's for the betterment of working communities they've done so well out of:)

Yep. Section 54 of the public works act. "Revocation of Proclamation or declaration taking land". Its how the southern motorway was built. Section. Was out of favor somewhat, but could be time for it to get back into the sunlight.

its still on the books, so they do not need a new law just need to use the existing frame work correctly

I thought that this things happen in country which are under dictator or communist but now with givernment new friends, will our democracy too will be like communist nation.

May be it is influence of overseas friends who believe in this policy and are also one of the main reason for housing buble in NZ.

For development govt can take but not to hide behind ther shortcommings and lies.

There is a theoretical article on land contiguity here, https://makingchristchurch.com/why-land-contiguity-is-causing-market-fai...

This is the difficulty the property development market and trunk infrastructure providers have in site assembly. This location factor is not a factor in other markets -labour, capital etc and possibly explains some of the problems we see in this market.

Exactly, Brendon. It can be summed up in four words:

Land is not Fungible.

Definition (Merriam-Webster)

being of such a nature that one part or quantity may be replaced by another equal part or quantity in the satisfaction of an obligation

I suppose compulsory acquiring land from Kiwis and building more houses is one way to avoid having to put restrictions on foreign buyers. Got to keep that dodgy money coming into NZ.

If no restriction even this extra will be bought by them, unless some measures are taken and for that be assured is only possible after one sees the back of JK after next election as feel have some understanding with their foreign friends to ignore all warning and the obvious which each n every kiwi knows but national. Not that do not know but do not want to know.

Strange old world when the National government even mentions overriding private ownership of land.

This is the sort of crap you have in places like Russia or China.

May be they are talking about the golf courses ?

NZ poor chip in to buy developers new Range Rovers.

In the absence of any other significant initiatives this policy will transfer $1bn from taxpayers - and, thanks to GST, everyone is a taxpayer - to developers.

We already have a mechanism for funding growth infrastructure: development contributions and financial contributions. Developers pay these levies and pass them on to section buyers.

If the new fund is used to lower in any way the payments developers would have made then you can guarantee that those savings will not be passed on to end buyers. They will just make developments more profitable.

Nice one dear leader, Key John Um.

Is $1 billion the price of the independence of city councils ?

Yes , this is the end of democracy...This fund he mentions can be used to target hold outs in certain areas.
This will probably be resident older N.Zers on smaller titles who wont be able to afford to buy back in the same area. We were transferred out of the Auckland area in the super city reshuffle, and it was the best thing to ever happen. The city councils debt is massive. A billion dollars is pocket change. Its not even the value of 1000 houses....

Some of the problem of developing brown fields relates to the tax issues. If you knock over an existing building to build new you are generally not permitted to write the value of the improvements off. So it becomes a capital loss. Grimes and his merry band of tax experts set the system up and now it is coming home to roost.
We need a face saving way of putting the rabbit back into the box without getting our eyes scratched out in the process.