Robertson pushes ahead with TWG recommendation to investigate a vacant land tax, despite Treasury and the IRD saying there's no evidence to suggest it'll stop land bankers and improve housing affordability

Robertson pushes ahead with TWG recommendation to investigate a vacant land tax, despite Treasury and the IRD saying there's no evidence to suggest it'll stop land bankers and improve housing affordability
Finance Minister Grant Robertson

The only change to the tax system the Government’s considering making to improve housing affordability is one the Inland Revenue (IRD) and Treasury aren’t keen on.

Both agencies in November 2018 advised the Tax Working Group (TWG) against recommending the introduction of a tax on vacant land or property.

However, the 11-member group, in its final report released in February, suggested the Productivity Commission investigates a tax on vacant residential land as a part of its inquiry into local government financing.

Finance Minister Grant Robertson liked the idea. It was one of only 10 TWG recommendations he in April classified as a “high priority” in the Government’s tax work programme. (The TWG made a total of 99 recommendations, including one to extend the taxation of capital gains, which the Government dismissed).

Asked by interest.co.nz on Tuesday afternoon whether he was aware Treasury and the IRD were opposed to a vacant land tax, Robertson didn’t miss the opportunity to make a subtle dig at Treasury:

“I’m well aware of the views of the Treasury. There are a few things the Treasury and I differ on, but this is one we think is worth investigating…

“Differences of opinion between politicians, the Treasury and the IRD are many years in the making, so we’ll have a look at it.”

Complications incentivising the “best” land use

The IRD and Treasury, in their report prepared for the TWG, concluded there wasn’t enough evidence to suggest a vacant property and/or land tax would have the desired effect of increasing housing supply to improve affordability.

“The design and implementation of vacant land taxes are complex,” they said.

They believed it would be difficult to make judgement calls to determine whether one type of land use should be preferred over another.

Setting the tax rate at the right level would also be tricky, as it would have to high enough to encourage a land owner, otherwise incentivised to do nothing with their land, to develop it.

A tax to incentivise behaviour or generate revenue?

However the IRD and Treasury conceded that advice from the Department of Internal Affairs (DIA) suggested identifying vacant land would be easy enough using local councils’ records.

The DIA also believed it could be possible for a local council to tax vacant land owners under existing laws - the Local Government Act 2002 and Local Government (Rating) Act 2002.

The catch is the tax would likely need to be applied with the purpose of enabling the council to recoup costs incurred rezoning the land and servicing it with infrastructure, rather than with the aim of incentivising land development.

Treasury and the IRD concluded: “It seems that a local authority may be able to impose a targeted rate on vacant land, provided the local authority has invested in rezoning the land and providing infrastructure. If there has been no investment, then the ability to impose a targeted rate seems less certain.”

In this vein, the TWG said a vacant land tax would be best levied by local councils rather than central government, and would be most feasible where a local authority had rezoned the land as residential and provided infrastructure, but the land remained vacant.

Data lacking

At the heart of the issue, the IRD and Treasury said there was insufficient data for them to even pinpoint the extent to which land banking was a problem.

They referenced a 2014 Auckland City Council study that identified a “significant pool” of over 5,000 vacant residentially zoned sections within the “built-up” area of Auckland. The study found about 3,250 sections had been vacant since 2006 and earlier.

Interviews with 29 owners of long-term vacant residential land, done as a part of the study, also gave some insight into why owners were discouraged from developing.  

Reasons they gave included: high development costs, high compliance costs because of the urban location, the value of the site being higher than what a developer was prepared to pay, and capital gains earned by flicking the un-developed site off being more attractive than trying to make a return through development.

The IRD and Treasury also acknowledged the media had reported on cases of land bankers eyeing untaxed capital gains when they eventually sold.

But ultimately they believed they didn’t have robust enough local or international data to suggest a policy change.

They suggested the Government keep an eye on what other countries are doing in this space.

Anecdotes plentiful

Robertson wouldn’t explicitly say whether he supported a vacant land tax, but admitted it was an idea “worth investigating”.

Asked why he wasn’t opposed to it, he responded: “We think it’s something New Zealand hasn’t considered before. We do think there are issues with land banking that need to be addressed and this is one potential way of doing it.”

Pressed on how he knew there were issues when Treasury and the IRD said they didn’t have hard data on the matter, Robertson said: “I think most New Zealanders will be aware that over the years we’ve had issues, particularly in Auckland, around the city limit areas with this.

“But that’s all a part of our investigation, to see what value it would have.”

The Productivity Commission is expected to release a draft report on local government financing on July 4, before delivering a final report to the Government on November 30.

Interest.co.nz on April 23 requested, under the Official Information Act, that both Treasury and the IRD release their communications with Robertson, the Prime Minister and the Revenue Minster on a vacant land tax.

However the agencies said these documents couldn’t be released because they were under “active consideration” while the Government finalised its Tax Policy Work Programme for 2019-20.

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Yep its been another week so we need another TAX idea please.
Any evidence this has worked around the world, ah no....but hey that doesn't matter.
Why not LOOK in the Mirror at the cost of govt regulation and why that deters development along with our ever increasing list of TWG tax ideas.
Edit: Could it be the govt resource requirements and infrastructure is the problem, here's one councils views
https://www.sunlive.co.nz/news/211528-tcc-confirms-shortage-of-developab...

I don't think quoting wikipedia is a credible source of how this tax has worked.....all that shows is other countries have it.
Lets look at Canada and Calgary which has property taxes they now have 26.5% vacancy rate as taxes keep killing small business.

Just to be clear.. the Vacancy rate you are quoting above is the Office space vacancy rate (https://www.avisonyoung.ca/documents/95656/54949301/Avison+Young+Calgary...) , not the residential dwelling vacancy rate right? The residential vacancy rate was <4% .
https://calgaryherald.com/business/real-estate/calgarys-housing-glut-dec...

Somewhat disingenuous to quote office space vacancy rates in a discussion about residential properties.

Edit: its also probably prudent to mention Calgary has had a building boom and a large oversupply, with a recession when the oil prices tanked, since it's local economy is high dependant on the oil fields.

The example was to illustrate just one example of the effects of a property tax that I recently had read about, you need facts to back up why the tax will work you don't blindly implement them.
Please show me an example that the residential land tax has ever worked !
Even this article mentions there is no data to prove this type of tax works.

"The example was to illustrate just one example of the effects of a property tax that I recently had read about"

No, it was the result of a local recession caused (mostly) by the oil price tanking

"The recession forced employers to trim the fat, and they found plenty to cut. The industry emerged lean, and maybe a little mean. The human cost amounted to 2,400 layoffs per month, every month, for a year and half."

2400 * 18 months = 43,200 jobs lost in a city with a population of 1.36 million, and being the oil industry they would have been relatively high paying jobs.

Perhaps you should examine your evidence

Pragmatist I think you've got the wrong end of the stick here......if your a proponent of this tax its your job to come up with an example of how it works and is so great ?

No, i'm just refuting your BS. I don't have a view on this tax, i haven't thought much about it, but your idealogical standpoint and completely rubbish, disingenuous arguments need shooting down.

You didn't shoot anything down. You just attacked him personally and linked a Wikipedia article which has nothing to do with whether this tax will be effective. Talk about ideology...

*chuckle* Open mouth, remove foot, and try again?

The simplest thing to do in Auckland, or any other authority if they don't already, is to set rates on the land value only like Waitakere, North Shore,Rodney, Manukau (to July 2006), and Papakura did prior to the SuperCity.

Exactly. Local govt should rate land not the buildings. That increases the holding costs for owners doing nothing with their land whilst decreasing the marginal building cost for those owners who want to improve their property.

Glaeser one of the best academics for removing restrictions on building being the solution to housing crises around the world also advocates for land value taxes because of its effect on lowering marginal build costs.

Good 10 min video here
https://www.abc.net.au/lateline/interview:-professor-edward-glaeser,-aut...

"the value of the site being higher than what a developer was prepared to pay, and capital gains earned by flicking the un-developed site off being more attractive than trying to make a return through development."

How can the value of the land be higher than what someone is willing to pay for it?

Who, other than a developer is going to buy a piece of undeveloped residential land?

The only answer I can see is that it is other landbankers bidding the price up beyond what a developer will pay, which all sounds rather like tulip mania

Easily done, all we needed was a council who cut the land supply below sustainable levels. This made the price of land rapidly increase and attracted speculation that the price of land would continue to rise for a long time.

Quite a lot like tulip mania.

There are certain people making insane profit from the artificial land undersupply cleverly disguised behind local government ineptitude.

Would this incentivise owners of land that could be used for multiple multi story terrace houses to instead put the smallest/cheapest shack possible on the land? Thereafter the presence of the aforementioned shack acts as a deterrent to intensification because the shack already returns an income and there is a cost associated with removing it which increases the threshold for the minimum return necessary to incentivise the owner to develop.

Yes it's all these sort of unintended consequences that has me worried about this proposal.

Better to just set rates on land values instead, it has a similar effect to a 'vacant land tax' in that it increases the rates paid on vacant land.

Really they need to stop faffing about and focus on a "Empty Homes Tax" to try to undo the damage of the past 9 years under National of allowing foreign buyers to assets strip property markets particularly for Auckland. We know that most of those speculative investment properties have been left empty and these would be much easier to target with the more recent census data. Such taxes have been bringing in a lot of revenue for other countries such as Canada, take Vancouver for example, The first year of empty homes tax to generate $38M for Vancouver!
https://www.citynews1130.com/2018/11/29/vancouver-empty-homes-tax-revenue/

"We know that most of those speculative investment properties have been left empty"

Yeah, I'll need to see some evidence to back that up.

Evidence here you go: In Auckland, more than 33,000 dwellings officially classified empty.
Now remember that census data was taken way before the height of the big Foreign Buyer spend that went on nine years until late 2017. I should think that that 33,000 empty houses is likely to have significantly increased probably some where around 50,000 possibly more.
Also keep in mind that Vancouver introduced it's Empty Homes Tax when they had 25,495 units that were unoccupied or occupied by temporary and/or foreign residents in 2016. So I think we are long over due for this very much needed tax since Auckland is not really affordable to wage earners.
NZ Herald article: Rise of the ghost homes - More than 33,000 Auckland dwellings officially classified empty
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116...
CBC News: Number of empty homes in Vancouver hits record high
https://www.cbc.ca/news/canada/british-columbia/number-of-empty-homes-in...

Is an airbnb classified as empty?

In regards to Vancouver's Empty Homes Tax: Technically yes, unless it is rented for at least six months of the year; however, all homeowners are required to submit a declaration.
Though that's quite lenient compared to Paris, France. In January 2017 that the Paris Council voted to triple the surcharge tax on second homes from 20% to 60%. As recent explosive price growth has brought to light just how far supply is lagging behind demand, politicians have seized on the moment to impose heavier duties on those with empty dwellings in the capital.
Better Dwelling article: Vacant Homes Are A Global Epidemic, And Paris Is Fighting It With A 60% Tax.
https://betterdwelling.com/vacant-homes-global-epidemic-paris-fighting-6...

Cool, now exactly what does that number encompass. Auckland as in all of the Auckland region from Pukekohe up to Wellsford?
Which therefore include how many thousand holiday homes on Waiheke, out at Awhitu, Omaha, Snells etc?

https://www.aucklandcouncil.govt.nz/plans-projects-policies-reports-byla...
"This was an increase of 110,589 people in the seven years since the previous census. Auckland
gained the largest number of residents of any local government area in New Zealand and just over
half (51.7%) of New Zealand’s population growth occurred in Auckland. "

"The number of unoccupied dwellings in Auckland increased from 33,330 in 2006 to 33,360 in 2013.
The proportion of dwellings that were unoccupied declined from 7.0 per cent in 2006 to 6.6 per
cent in 2013."
So the proportion of unoccupied dwellings had decreased as the population increased, and the number increased by 30 dwellings in 7 years .
You are barking up the wrong tree.

Hardly, it's easy to place logical boundaries to get to the marrow. Inner Auckland, outer Auckland, see no sweat. So we place a Empty Homes Tax on inner Auckland where were we know that the property market was distorted by overseas investors. I recon that the 2018 census stats are going to be very revealing about this situation.

I'm still waiting to see data that actually proves there is a significant number of empty houses in useful locations (ie, not holiday homes at Omaha, Awhitu, the usual number of houses under construction/renovation etc) that this would actually achieve anything worthwhile. So far the evidence is that the number of unoccupied dwellings increased by 30 in 7 years for the whole of the Auckland region.

That information will be in the latest 2018 census results. Though you can get a strong indication if you look at sites such as www.oneroof.co.nz and look at their Suburb information page, scroll down and see the Ownership pie chart. If the majority of the residential property is held in a Trust, that's a strong indicator they're owned by overseas investors and likely to have a lot of empty property in that area, you see this quite a lot in Central Auckland. Though the best information should be in the latest census results that highlights more accurately where the empty homes are.

You're drawing a long bow there. Held in trust = overseas owner? Nope, it means you don't know the nationality of the owner(s).

Like I said; you need the latest census data for that information.

33000 empty buildings in Auckland? Out of how many households?.
How many building consents for alterations to existing houses and apartments are issued each year? A reasonable number will require the house to be empty, and 1 consent for an apartment reclad could affect 200 units, although not all of them may be empty for the duration of the works.
Then there are holidays, away on business, out for the day having a social life, moving house, landlord between tenants or renovating, etc

Yes, the years preceeding National were just a magical time of no homelessness and sky-rocketing construction rates, and there was plenty of housing, almost no immigration and everything was just fine and dandy.

Orrrrrrrrr could it be years of successive Government neglect has meant NZ now has a structural inability to deliver housing supply to market?

NO! NATIONAL BAD! NINE LONG YEARS!

Try not to forget: Official count reveals 800 homeless people in Auckland
https://www.newshub.co.nz/home/new-zealand/2018/10/official-count-reveal...

The developers can't develop the vacant land because there is no infrastructure.

Surely factoring the cost of providing the infrastructure is one of the essential steps in determining the value of land for development?

I believe there are pockets of sections in old suburbs which cannot get a building consent nor a resource consent as the local infrastructure is at capacity. i.e. The sewer mains are FULL. The development of those areas are nye on impossible now as the area has matured and impossible to upgrade. I think the Councils are going to find that it is they who have created this hiatus by shortchanging their infrastructure builds over the years.

With a bit of Lateral Thinking (not something Gubmints and TLA's are noted for) it should be possible to apply a swingeing Differential Rate on such land, differentiate the differential as to whether the land was serviced, capable of being serviced within the scope of the 10-year LTP, or was effectively unable to be serviced over that time horizon, and claim that it was a response to The Climate 'Emergency'.

After all, denying Land to People might be forcing them to Live on the Seafront, and at risk of being Tidally Evacuated by Tangaroa. Or something equally plausible.

Because, let's not forget that TLA's, as of the 14th May 2019, now have the Glorious Four Well-beings as their Purpose in life. Social, Cultural, Economic, Environmental. Shurely the differential can be justified under one or several of these. Because every other possible human activity can be.....

The new Sec 10 (LG Act 2002):

10 Purpose of local government
(1) The purpose of local government is—
(a) to enable democratic local decision-making and action by, and on behalf of, communities; and
(b) to promote the social, economic, environmental, and cultural well-being of communities in the present and for the future.

(2) [Repealed]
Section 10(1)(b): replaced, on 14 May 2019, by section 6(1) of the Local Government (Community Well-being) Amendment Act 2019 (2019 No 17).
Section 10(2): repealed, on 14 May 2019, by section 6(2) of the Local Government (Community Well-being) Amendment Act 2019 (2019 No 17).

There is a difference between land that has all the services to the boundary and is just waiting on a building consent to be lodged, and land that has been zoned for residential development but the civil works have not started.

Everytime you add in a bureaucratic process, you add time and cost. Generally the savings anticipated by the process never materialise or if they do, they are offset many times over by extra time and costs generated elsewhere.

If they just removed the restrictive zoning regulations, it would kill the land banking rentier opportunity and this would be incentive enough for those that own such property to develop as soon as possible before they lost their monopoly advantage.

It would also allow those that did not want to sell immediately, like true generational farmers in the city fringe, to do so without increased land tax.

'Setting the tax rate at the right level would also be tricky, as it would have to high enough to encourage a land owner, otherwise incentivised to do nothing with their land, to develop it.'

It's a very valid point. Although less valid if land value inflation is less rampant.
While land value inflation is rampant, many or most land owners will 'tolerate' paying a land tax if the annual increases in value far exceed the tax paid.

Hence, logic goes - is there any point to the tax? If land value inflation goes away, good and maybe we don't really need the tax. If land value inflation returns, then unless the tax is punitively high, it won't achieve much.

So it would seem to mean there is only a point to the tax if it is set at a punitively high level.

Ha the idea that tax can be used to incentivise behaviour when its sole purpose is to raise govt revenue. We should be taxing the construction industry more so they will build quicker. Can we tax the slave's free time to incentivise more productivity?

Silly idea though isn't it. Just another means of destroying the kiwi way of life. Capital gains and free money forever. Only a mug works hard.

Ha ha tax whatever you like just don't tax me. I worked hard for my wealth, it's all mine, mine. My precious...

There certainly needs to be both an empty land incentive AND an empty house incentive. Having the capacity to add homes simply sitting idle is inexcusible, as is having empty houses sitting idle. I want to see a use it or lose it approach being taken. If its not being developed, regenerated or inhabited its got to be sold. I want the state to be compulsarily acquiring unused/underused/unoccupied property and then putting it to use. If that means leasing the land so someone only has to build a house then do it. It works in Germany. I also think its high time to end the ability for land to magically rise meteorically in value after it is rezoned for development because thats where everything gets inflated out of reach of buyers. Kill the property inflation at that point you'll kill the housing shortage.

The assumptions behind this idea (PW act-style acquisition) are threefold:

  1. Gubmints and TLA's are actually competent at this stuff - well-targeted acquisitions, done expeditiously, to a high standard, and result in shovel-ready sections for developers.
  2. There are no legal impediments (like the need to invite Treaty settlement iwi who might exercise first dibs as part of their Crown agreement).
  3. The acquisition will drop serviced-section prices to a rural-land-cost-plus-services range (which in Awkland would be around 30% of the typical $5-600K section price), and do so at a small or negligible cost to the acquirer.

I'll leave it to the commenters to soliloquize on why all three may be - shall we say - Heroic.....

Hang on mate, We have 3 homes, one in the country, one in the city ( AKL ) and one in Kapiti, we use them all but not at the same time how will that work with such a rediculous tax ?

We want property to be cheap - so let's tax it until it is cheap!

We want butter [or insert any other scarce resource subject to supply and demand pressures here] to be cheap - so let's tax it until it is cheap!

Interesting that most people will agree with one of these statements but not the other, even though property is just another scarce resource.

Labour are fixated on creating new taxes as a way to increase revenue but why not instead create an economic environment which fosters wealth and prosperity to increase revenue?

There was I thinking they just like telling other people what to do.

Because keeping the underclasses poor and State-dependent ensures Votes Next Time. Empower 'em and the ungrateful sods will vote Gnat or Act.....so the Narrative runs in three simple steps:

  1. Treat 'em Mean and keep 'em Keen
  2. Import more of 'em - generates Needs for Caring Professionals, State Nurture and Shelter, and a vast array of bureaucrats to 'account' for it all
  3. Raise Modest fees (not taxes...) everywhere, to pay for it all, but especially on business, landlords, kulaks and other Cash Cows.

Nailed it!

Outside the CoL brief.