Changing NZ's local govt funding model to replicate Germany or Switzerland's would help solve our housing woes, says NZ Initiative executive director

By Gareth Vaughan

New Zealand could learn a lot from his native Germany and neighbouring Switzerland to help deal with its housing affordability woes, says Oliver Hartwich, the executive director of think tank the New Zealand Initiative.

He suggests a major shake-up in the way local government is funded is a key prerequisite to improving housing affordability.

Speaking at the New Zealand Property Council's Residential Development Summit in Auckland, Hartwich noted that in Germany it's cheaper in real terms to buy a house now than it was in the 1970s.

He said the key advantage Germany and Switzerland have over New Zealand in terms of constraining house price inflation is the way their local councils are funded.

He said German and Swiss local government was forced to be more entrepreneurial than their New Zealand counterparts and advocated taxing "things that have legs" rather than land.

"In Germany councils have a very limited role in actually setting taxes. They can't just easily introduce new taxes or set tax rates. But they can certainly influence their tax base," Hartwich said. "What I mean by that is they can try to attract people and businesses, and the more people and businesses they attract, the more the council will have in its budget."

"In Germany you pay your taxes to the state government. The state government redistributes your taxes and the councils compete for a share of the income taxes collected at the state (level). Councils get it according to how much income tax is generated locally and how many people they have within their council's boundaries."

'They see you as a customer, you can see the euro signs in their eyes'

Because the councils receive money per person in their area, they want to attract people and businesses, and thus tend to work closely with property developers rather than have "antagonistic" relationships with them, he said.

"The councils are all happy to take you because you can see the euro signs in their eyes."

"Germany has built some very attractive cities, some very green cities. They haven't had any house price inflation for 40 years, they've had deflation. There's a lot of competition between councils, they all want you, they see you as a customer. It has made Germany a tenant's paradise," added Hartwich.

He suggested home ownership rates were low in Germany compared with many other developed countries because it simply doesn't pay to "jump into" the property market.

"You cannot realise any capital gains in the housing market (so) why would you jump in? Why would you do it in your early 20s? There's nothing to be gained. You can easily wait until your 30s or 40s until you buy your first home. I think that makes it quite a relaxed housing market."

Meanwhile, in Switzerland there was even more competition for the tax dollar given people pay three income taxes - a federal one, one to cantons and one to councils - yet still have income tax rates among the lowest in the OECD. Switzerland has also had stable house prices. According to Hartwich Switzerland offers a "dream scenario" with planners and politicians facing the full costs and benefits of their decisions.

For NZ 'the worst may be yet to come'

In terms of New Zealand's housing affordability issues Hartwich said he feared the worst is yet to come. 

"Because if you just look at population forecasts for New Zealand, and apply some of the lessons learnt in continental Europe, you can see for demographic reasons you can expect the housing market to get far worse. We will face a double whammy in New Zealand based on the demographic change."

The current population of about 4.5 million is forecast by Statistics New Zealand to rise to about 6 million by 2061, he said. And it'll also get older with the median age forecast to rise to 44 from 37 over that same time period. This means the average household size will shrink, with Hartwich (pictured) suggesting it may be from 2.6 people to about 2.3.

"(So) we will certainly need a lot more houses," he said.

"The number of households in 2061 will be 2.61 million, (which is) 930,000 more than today. To keep up with this demographic change, to build the 930,000 new dwellings, which does not account for replacements, we would need to build about 20,000 new dwellings per year from now until 2061. That's 5,000 more than we're currently building so it's a massive job," said Hartwich.

"If you think we've got a housing affordability crisis (now) it's going to get worse if we don't respond to that."

'Focus almost exclusively on the supply side'

However he said some of the proposed solutions such as a capital gains tax, loan-to-value ratio restrictions on bank lending, Labour's KiwiBuild policy and foreign ownership restrictions, were the wrong solutions because much of the future housing market demand is already "programmed in."

"We know the population will age, we also know that actually migration is a good thing for the New Zealand economy, and we know that we already have a (housing) shortage so why start on the demand side? I think we need to focus much more, and almost exclusively, on the supply side. What we need to do is co-operate with local government, to change their mindsets to make them proponents of growth, to make them positive about growth."

"I want (NZ) local government to be as positive about growth as in Switzerland and Germany," added Hartwich. "(There) they pretty much behave like an entrepreneur in a sense because they can see development as a profit maker. That means we have to change the way we tax things. We also have to change the way we fund local government. I generally believe we have to tax things that have legs and therefore not land."

"I don't think property rates is the best way to fund local government because it makes them very lazy. You can always tax land, it can't run away. I think the Swiss model of taxing people rather than land is better because you actually have to make sure you attract people and keep them there and keep them happy. You can also tax businesses because they also have the choice to leave if they don't like it," Hartwich said.

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64 Comments

Good article with solid reasoning .
You are 100% correct about this being a supply side issue . The demand in there are with our immigration policy its a given that demand will increase .
We need to get rid of the restrictions on Auckland's  growth,  free up land for expansion , stop rorting and raping the subdivision process for fees , and let the market do the rest

Good God, Gareth!  (I know, it;s actually Oliver, but the alliteration got to me.)
 
D'ya honestly expect a total switcheroo, from treating ratepayers as cows to be milked (and milked and milked and milked), to C-c-c-Customers, to be Wooed, gentled through a Sales Process with Blandishments, Inducements, and Offers to the Consumation of a Deal, is evah gonna be possible? 
 
Given the current toxic mix of brown cardigans, easy munny, zero transparency, fake consultation, electoral disinterest, Mayors a'gettin' Whaled on, and stroppy unions? 
 
Like, just how do we get There from Here?
 
Without heavy artillery, explosions and Collateral Damage?
 
 

Tee, hee. Indeed, it wouldn't exactly be a picnic putting in place what Oliver Hartwich is advocating, but it's thought provoking stuff.

You would have to fire everyone and start over. I am deadly serious. The main barrier to implementation is not legal but cultural. The two major components to address would be:
 
1. Councils exist partially to protect the wider group against the individual; in that respect they have a sort of resemblance to insurance companies. They need you as a customer but can't let you have anything that would disadvantage the wider group. A lot of people have had the experience of meeting with a council officer to discuss something a bit different and watching their eyes glaze over straight away. Already the council officer is thinking about everybody and anybody but the person in front of them. The sort of person who loves wielding some power to "protect" others is naturally attracted to working in local government. You will never, ever get that sort of person to think about how to make things more attractive to customers instead of seeing them all as a source of problems.
 
2. Ignore all the mission statements and values statements, councils operate under one unwritten rule: don't make mistakes. The three words you will never hear from a council (except under duress) are "I am sorry". The culture is one where the council is right and, therefore, the customer is wrong. For staff the most important things are to make sure work plans are completed, budgets kept, laws complied with - i.e. a mistake-free run - what goes on in the lives of the people they serve is not even on the radar.
 
Councils can and will subvert any controlling legislation given enough time so changes that don't affect culture are doomed from the start.

and its worked how well for US states?
um not.
regards

Hartwich, like all those on the far right, isn't interested in any solution that might tax the rich - "he said some of the proposed solutions such as a capital gains tax ... were the wrong solutions".  He holds up Germany as a poster child instead. 
 
And yet Germany has a Capital gains tax of 25%, with a few additions which mean an effective tax of 28%.  D'oohh!
 
Perhaps a tiny bit of research might have been a good idea.  Or maybe his memory is of the same level as his Act buddy, John Banks
 
 

To make Oliver’s point even more relevant. Germany’s situation can be compared to the UK; both are approximately same land mass and population. Germany’s housing in real terms has not increased for 40 years, while the UK residential house prices in real terms are up over 100% in 30 years.
The German system makes it very responsive to the rate of demand, much like the less restrictive land zoning policies in some USA states. The result in house prices in both Germany and these USA States is the same effect albeit by different means.
These two methods are in contrast to the unresponsive rate of demand/constant shortage of supply methodology that is used in the likes of the UK, Australia and NZ.
This also causes a speculator feedback loop as it supports house price rises which in turn encourages speculators to enter the market etc. etc. In some London Boroughs over 50% of the property is owned by foreigners.
Further, as most of the tax in NZ goes to the State, this leaves Local Government only two sources for revenue, namely rates and front loading costs into the development of land. It would be good to see, based on a theoretical distribution of our current tax rate, what the split would look like if the German model was used.
This would involve Central Government receiving less, which they would be against. Local Government would receive more but at the same time would have to do away with most of their contrived funding mechanisms to date (like development levies).
They of course would not want to do this is it would expose the rort for what it is, and secondly as the size of their pay-packets depend on this, they would still argue they need rates, levies and the extra money from Central government.
I don’t think it is a coincidence that the two models Oliver outlines are from countries that are neighbours and for that reason I don’t think we as a nation have the historical/cultural mind set to make this work, unfortunately.

It would help the supply side by reducing the demand side as well, particularly in Auckland.
The demand solution is obviously immigration. We cannot alter internal migration except by job creation in low demand areas. What can be done in to stop or at least cut migration from outside of NZ until the balance is restored.
And the above is much quicker to have a useful effect than trying to built a lot of housing affected in its growth by inevitable inflation of land values and material price rorts.
Germany can only do what it does because it has built its policies into the national psyche.
That same change would take generations to work in NZ, if at all.

@Dale,
 
Your arguments suffers massively from a classical case of fallacy of composition.
 
There are vast differences between Germany and Great Britain, which have shaped their attitudes and approach to housing. Population and geographical size are a poor basis for making a judgement as to why their house prices diverge so much.
 
There are vast differences between the two in terms of their political and social structures, attitudes to home ownership, shape of their economies, and types of dwellings, which have shaped their housing markets.
 
http://www.dailymail.co.uk/news/article-1328270/A-Britain-STILL-belongs-aristocracy.html
 
Great Britain's political and social regime continues to be defined by its ossified class system. The aristocracy and the military between them own the vast majority of land in the United Kingdom, and the former collect vast sums of money from the public to allow them to continue to withold their vast lands from development. i bet you bottom dollar that the likes of the Duke of Westminster who owns some of the most valuable real estate in London alongside being the owning the 4th largest holdings in the country would be highly supportive of Britain's urban containment policies.
 
In contrast Germany until recently has had a far more egalitarian social policy, because the Establishment were engaged in a contest with the Soviet Union over the "hearts and minds" of their citizens. Also Germany suffered a severe housing shortage due to the Allied Bombings of World War II and the vast majority of dwellings which were built were apartments and multi family homes, not detached houses like in the majority of Western countries. Added to this is that many dwellings were owned by city governments who provided accomodation at below market rents.  House prices have fluctuated far more wildly than many realise. Back in the 1990s during Germany's Reunification, there was a massive bubble in house bubbles which was inflated by generous tax incentives provided by the government. Many wealthy and middle class pour huge sums of money in real estate, but were burnt when it burst in 1998, when it became evident that there wasn't an adequate demand for the massive flows of investment, especially as many East Germans were fleeing the very regions where the government were encouraging people to invest in.
 
http://www.spiegel.de/international/germany/german-real-estate-market-soars-amid-euro-crisis-a-838437.html
 
All this has changed in recent years. With interest rates at a historic low for Germans concurrent with many middle class baby boomers increasingly wanting to own their own detached homes and bank lending standards being relaxed for the younger generation with low equity, house prices are rising, especially in dynamic and wealthy Munich, leaving many poor priced out of the city.
 
http://www.dw.de/a-rental-nation-germans-looking-to-buy-those-four-walls/a-2155971-1
 
 
http://www.spiegel.de/international/germany/german-real-estate-market-soars-amid-euro-crisis-a-838437.html
 
 
 
 
 

Sorry Anakist, but you have missed the point entirely, but I will accept the blame in that I may not have explained it well enough, as I agree with your points. In the context I was making, size and population have everything and nothing to do with house prices. One of the fallacies given for why house prices are high or unaffordable is because relative to population/land area the supply of land is less than the demand. This is a myth. Everything you say about the differences between the two countries may be true, but my point is that land size and population are not the reason for the difference, which is a point some would have countered back with against Oliver’s reasons why houses are cheaper in Germany and Switzerland. Just as they say Texas land is cheap because it is flat, USA land is more affordable because it interest rates are low etc. This is all a smoke screen. It is more about politics, history, culture, politics, vested interests, money and ultimately the will or won’t or not to make changes. So what in New Zealand’s excuse for not having affordable housing?

Interesting article it would certainly improve the motivation of the councils.  Actually that may be a bit harsh, I sure that they all try to do there best; maybe sharpen and allign there focus might be a better term.  As for being a solution to our housing woes, well it may help with one of the causes, but ours is a problem where just about every aspect of the housing industry and market are severly out of wack, so lots more than this suggestion is required.

yet another growth failure model...
oh joy.
regards

and that's a problem because...?
Seems many of our problems are caused by growth.

So the status quo is ok? Everything will turn out ok if we just keep everything as it is?

"The Status quo is ok" is better than we face, which is contraction...ie no it wont turn out OK. If we had kept everything as is post WW2 then yes we would maybe have beeb able to keep everything that was about then, then.
regards
 

"caused by growth", yes, exactly.  The Q should be asked and indeed was asked by "the limits to growth" in the 1970s.  We cannot grow expotentially on a finite planet....
All the above model does is switch to a system that is even more locked into growth and when that growth falters so does income, hassening belt tightening and worsening downturns...
regards

The  difference is that the average Berliner spends 27.4% of their income on housing and this is considered a problem. In NZ as a whole, it is 56% and in Auckland, it is around 80% according to the latest Roost report

and if you take out the x2 NZ property bubble, 28%....and of course you are cherry picking a bit by stating NZ as a whole..
Now sure compare Berlin to Wellington....apples with apples...and sure our property bubble is set to pop.
Of course then we'll be even worse off.
regards

Great article, agree with it 100%.
 
Giving Councils positive reinforcement for meeting the needs of workers and businesses should help housing affordability. Because some councils will use housing affordability to attract businesses and skilled workers.
 
The bigger ramification of Olivers decentralisation plan is it would help diversify economy because some of those new businesses and skilled workers that are being attracted to empowered and responsive regions will be new specialities to New Zealand.
 
This is the flaw in Steven's criticism of new policies that support 'growth' because apparently growth is unsustainable. But if we followed Steven's prescription New Zealand cannot change from the current economic model of being a narrowly focused exporter of the white stuff. How sustainable is that? 
 
For those who say that attitudes to government, debt and housing etc is the core of the problem so not likely to change. I agree with the first part but I believe change is coming.
 
The reason this housing issue will not die despite all our institutions of power doing there best to ignore it is this issue grates against kiwis cultural values. Kiwis believe everyone who works hard enough should be able to get an 'independency' -there own home, business or farm. This outweighs the British 'my home is a castle and woe betide anyone who devalues it' attitude.

To clarify the problem with our economic model is not just being dependent on a narrow number of agricultural exports but also the debt fueled consumer growth that is also part of our model.  If our cities wealth came from innovative new businesses and workers, not debt to buy existing houses at ever higher prices then our economy would be a lot more stable and sustainable in the long term.
 
It is about doing the hard yards of making our towns and cities attractive -that businesses and workers can go about there business as efficiently as possible on uncongested roads and public transport. That people have good access to world class recreational amentities. That vocational education is available and teaching/researching the latest technology so businesses have a good source of skilled labour and workers are skilled and in demand. That councils set up a planning system that means housing is responsive to demand so prices do not inflate, rather than seeing new development as an opportunity to extract monopoly fees from. And so on.
 
Our current local and central government setup is way too unresponsive to do this. They have a long history of failure to do the hard yards. This is the value of what Oliver Hartwich is proposing.

Brendon - Steven is big-picture correct. We are in overshoot now, the Natural Capital WILL get chewed up, and none of us - including me - can really visualise what the post chew-up world will look like.
 
That said, the Tragedy of the Commons problem is that if we go sustainable, and others don't, we will appear to be losers while we persisit in using $ as our measuring-device.
 
Beyond some point, being resilient will count more than having piles of cash, and energy-efficient housing is more resilient than non. While we are still using existing dwellings, though, the priority should be retro-upgrading of the existing stock. More bang for the buck in the time remaining. New housing is valid only if it is sited, grouped so as to be post-peak resilient. No developer does that.

I do not mind Steven cautioning us that bad times might be around the corner. That the resources we currently rely on are fast deminishing. What annoys me is that he uses this message to council against any change, even change that IMHO would make us more adaptative and able to cope with the bad times he is cautioning against. Certainly decentralising our political system to make it more responsive to our needs as Oliver is suggesting cannot make the situation any worse regarding resouces running out.

Brendon - I think Oliver wants no regulation whatsoever. That's quite different from decentralisation.
 
But the question I ask you is this:  If we leave it to the 'free market' and 'individual freedom', both the planet and the country are doomed. Tragedy of the Commons, 101.
 
So it needs agreed rules, and by definition, they have to start with global. You can choose how many layers you have beneath - National, Local, group, team....  but if glboal doesn't happen, all bets are off anyway.
 
It won't happen - so there will be global resource wars, and soon.
 
What kind on housing, societal form, will wear that best? It's the only valid question, and the only one not being asked. This Mayor is some way down the track:
 
http://greaterdunedin.co.nz/blog/2013/8/19/daves-speech-to-otago-graduands
 
There may be hope for LG yet          :)
 

I didn't read Oliviers article that way.
 
I cannot see a resource war coming to NZ. I think in declining energy world we are more likely to be forgotten about than attacked.

Brendon, it isnt a flaw in my criticism...its a fact. We dont have the energy or resources to grow for ever thats a fact, the only Q is when and when do we realise this and move to something that foregoes growth, this isnt a choice to humans as a species....only to a generation....
Sustainable as we are today isnt....not with 7billion, 2 billion, yes...probably, but 2 wont support the lifestyle we have now, it will be far simpler amd less energy intense.
regards
 

Steven Cantons in Switzerland predate the oil era by many centuries and my bet is they will still be there responding to their citizens needs when the oil era is over. It would do New Zealand no harm to adopt similiar institutions. Of course some arguing for decentralisation will be hoping for greater growth, while others, say PDK if we convince him, will be hoping for a stable liferaft. It may be a fact that we don't have the energy or resources to grow forever but how we adapt to that is a big question mark.

Lazy and fearful. Something has to change in local government and it does have to be at the artillery and explosions level. Central government has tweaked and improved local government over the last 32-odd years to the point where it is seen as irrelevant.
 
This year's local body elections garnered the worst ever participation rate. There are probably many reasons for this not including the voting method. Our councils have become totally disconnected from their own communities. For some reason they imagine that hiring fleets of PR specialists and policy analysts to produce best practice publications and "consultations" is better than actually talking to people, listening to them and delivering what they want.
 
In 2001 Local Government NZ produced a strategy document highlighting that lack of community engagement was the most serious problem facing the sector. In time-honoured local government fashion that ugly truth has been quietly ingored while the situation has got steadily worse.
 
My original solution was a wholesale dismemberment/amalgamation of the sector with functions being rolled into larger units; e.g. building control being rolled into DBH. I couldn't see any hope for the sector. But I came to a similar conclusion as Oliver (for different reasons) that breaking the dependency on rules and monoploy in favour of a more entrepreneurial approach could also work. Just a lot harder to implement.

@Brendon, @Kumbel.  Excellent points well made.  Kudos.

@Snodgrass T.....well spotted, agree with you on that 4sure.

Thoughtful thread, chaps and chapesses.
 
I'm a bit depressed (but not surprised) that other common taters cannot see how we can ever get LG to Change its Spots.  And I agree that it is cultural, not so much legal.
 
Interesting, too, that the Torygraph has summed up the UK's woes in a very similar vein.
 
Well, we'll just haveta watch as the whole shebang runs into the inevitable wall (in ultra-slow-mo, of course, this is Gubmint we are talkin' aboot here). 
 
And hope that there are enough wise heads and re-usable pieces, afterwards, to have another go.  Neither is guaranteed, of course, human nature and our pesky monkey genes bein' what they are....
 
Hey ho.

Waymad.....change..? it's when the media stop serving infomercial comment and return to deductive reasoning on behalf of those supposedly being served by hogwild Administration.
Can it happen....? have a look at this....you too Gareth , I'm proposing this for Friday's Top Ten
http://www.youtube.com/watch?v=A3BHujm3cpY
Plaeeeese anybody who can take a minute  to watch it , best watch this year so far. 

Good stuff Christov. Reminds me of Newsroom, one of my favourite TV shows.

Reason doesn't sell.

Watching the video reminded me of the blame game running up to the first world war.
 
The root causes are all in the human heart; greed, hate, jealousy, corruption, selfish ambition and evil of every kind - against which there is no law.
Systems of governance and commerce do not exist in a vaccum.  They rest squarely on the foundations of morality that form the basis of the particular social contract we find ourselves in.
The dangers in the video are around the blame of "the system", which is always someone else and not me, and the conclusion that "the president" should fix it, which is someone else and not me.
 
There is no shortage of people defining the problem.  The real issue is that, whilst we can all agree we have a cancer there is no agreement on what constitutes a healthy state to which we can return the patient.

Yeah Cheers Ralphie, don't mind me my son, I don't care what kind of reaction it evokes as long as it evokes something that is not apathy.....you may have noticed  N.Z. has an extreme case of it.
And yes I take your point, but think you missed his altogether, with the (greatest respect for your usual levels of observation) , he is refering to the President acting in the interests of the people, being the conduit to reinterest the people, to reconnect the wider population to what they clearly feel disconnected from.
As for the disconnection of the people, that is a global problem , too few govern the lives of far too many at arms length.
 Thank you for at least watching it Ralph.

I take your point, but think you missed his altogether..
Well, I chose the hidden undercurrent that one might miss were one to get carried away with the obvious boat of the matter.

Now come on Ralph...wasn't a go at you, and I don't think you'd need look for his hidden meaning ....your looking at a guy ( business news anchor) that lost the plot  on the telly because he's sick to the eyeballs with the process of gobbledegook.....just said it as he sees it ,minus the bollocks that is detent, diplomacy,spin.
I didn't need him to justify what he had to say, whether I agreed with him or not, I understood  what he said because there was no hidden meaning.....
 I've no doubt his producers will be busy getting him cleaned up to interview any politicians that may have been offended.

My dear Christov, no offence was taken.  I'm simply taking the deeper view, looking past the obvious surface.  On the face of it it's a wonderful and conhesive rant.  It's only when one thinks deeper that questiosn arise.
Deeper questions are what divert senseless revolutions.

christov: he didnt lose the plot. I've seen him a few times. that's his modus operandi. shout TV. carefully cultivated.

...carefully cultivated.
 
Unlike this:
 
Chief reporter for the National Business Review (NBR) website Jock Anderson was fired just hours after posting an opinion piece yesterday calling for Len Brown to stay on as Mayor of Auckland. Read more

.. the tap on the shoulder from the faceless power broker, the phone-call, the whisper in the ear, the threat of loss of advertising .. buckled at the knees in 3 hours .. thats powerful

Yes indeed.
 
One of the country's most successful independent publishers, Barry Colman, has sold his flagship title, the National Business Review, to his current chief executive, Todd Scott, for an undisclosed sum.
 
Colman told BusinessDesk he had been "in negotiation with Westpac and Todd for a number of weeks on the succession plan. I can't give you the details of the transaction, but it's a commercial transaction." Read more

Been a deathly silence from the editors of this site on the matter. Surprising, given the focus on Auckland property and its politics.
 
Mr Slater is even posting images of his traffic logs and page views.
http://www.whaleoil.co.nz/2013/10/win-friends-influence-people-len-brown...

Cheers iconoclast...obviously, they don't allow him interviews with politicians then ....kind of the Jereny Kyle of the economic world then.....yours sincerly ....Deflated 

We won't change/fix local government, we will bypass it. I can't really do justice on the subject in a brief comment but here goes anyway:
 
No-one in the public sector gets the web (officially anyway). Councils think that putting minutes of stifling boring and irrelevant meetings online meets a public need. No it doesn't. No-one cares about councils and no-one is frustrated by not being able to participate in local government. 
 
If it takes about 40 years for a technology to become pervasive and to have had its major impacts on society then we are only halfway through the implementation period for the World-Wide Web. My pick is that one of the major impacts of the next 20 years will be the use of the web to enable groups of people to provide their own public goods and bypass their councils altogether. It has already started and will only snowball over time.
 
Our public sector, no matter how much money they spend on their web presence, is still stuck in a time when they controlled information and communication, when the public had to come to them. I have news for them: those days are long gone. Now they are only one of many players. And they will have to work twice as hard to stay in one place. But since twice zero is still zero I don't hold out much hope for their survival.

Still the same questions:
Why does it take 3-4 months to get a building permit from a local council to build a house?  Even longer to subdivide a section and at unjustifiable cost?
Talk to any builder and they will recommend you to budget for $1400-$1500 per sqm for a new house – while one can do the same in our neighbour land across the ditch at $800-$1000 sqm
Why can we only buy one brand of plaster board..?
Make it cheaper and easier to build and it will address our houisng woes.

Building consents are a good example of he cultural issues I allude to above. Since 2004 it has been mandatory to build only what is shown on the submitted building plan. Prior to that field inspectors could approve variations to the plans as long as they still conformed with code. So slightly less pressure on the approval process. Now you get one chance to get it right. How did councils react to this major process change? They didn't. They process the applications in strictly first-come first-served order and, if they find deficiencies, they bounce them back. And so on and so on. You have to imagine a world where it is acceptable to say "It's the applicants responsibility to get it right first time - not our problem."
 
It has taken a rank outsider to walk into Christchurch City Council and recognise how dumb this is. The first process improvement Mr Martin has introduced is a pre-application screening step so that applicants know almost straight away if they have included all relevant information. 

MBIE also suggested gently to CCC that they use the powers available under the Building Act to exempt low-risk applications from consent altogether.  After all, it's only an extension to the Schedule 1 list which does exactly that but for named circumstances.
 
Sunk without trace.....after all, with revenue targets to meet, no consent means no revenue.  And exemption means foregoing the Power (the Power!) to futz about with the application (and the applicant) on a time-and-materials basis, and earn ever more luvverly munny.
 
'Tis indeed a sad state of affairs - and it is wreaking unimaginable economic damage to the entire housing industry.
 
Ways around it are fairly obvious:

  • centralise all consenting nationally
  • impose and enforce maximum %-of-cost limits to stop the T&M rort.
  • grant wide exemptions to low-risk applications.
  • grant prior mass approvals to entire building methods (prefabs, factory-built foundation systems etc) on a contractual basis:  so much per type approval thus granted, valid across the whole country, so not on a per-unit-built basis.
  • wheel in ComCom to investigate and shut down the various monopolistic behaviours that abound in the sector (but recall the old joke - why is there only one Monopolies Commission?)

 
Of course, this still leaves in place the disastrous Town and Country Planning Act-derived zonings, with their economically devastating effects on raw land prices, their enrichment of land-bankers, their osmotic transmission of inflated raw land prices to land under established houing, and a raft of other economic effects.
 
But, hey. one battle at a time, eh?

I guess I am speaking from my own experience with building works in both Auckland and now in Brisbane
1.       I have done a reasonably size extension in Brisbane and now looking at building a new home.  In QLD, you can lodge a permit with private certifiers provided the building is within the existing planning rules.  Going outside that and the application will need to be lodged with the council – that’s one simplification and cost cutting step.
2.       When lodging a permit, we have to pay small insurance levy amount to insure the work of certifier and builder to the state government.  This will be the insurance for our certifier and builder ( I guess it will prevent similar issues like leaky buildings and dodgy cerifitying)
As comparison:
Our carport building permit in Auckland was $7000+, took nearly 3 months to approve
In Brisbane, permit for our 68sqm extension was $1600 and took 4 days

Just been to a couple of showhomes for a quote or two.
The budget figures of 1400-1500 sqm are accurate today, for my semi- inflated region but added costs for certain sections,  locations, countryside, materials etc.
The Chinese built ones are about 100-200K less at least and that is post-build costs actually for sale now, sitting empty and unsold.
This is not Auckland.
The speculators want even more for sections available now, but yet to be built on plus house..
Apparently builders do not speculate in sections, I was so, told. They leave that to others.
But they do speculate in fancy utes, a strange way to engender a feeling of trust that their houses are an economical buy, as potential customers will be paying their huge overblown expenses, tax deductible, but added to my account.
(Naturally the builders all told me not to buy a house, pre-built, a mere 1000 metres away, there were covenants to protect my investment).
Anecdotaly everyone building, came from a higher inflated area, notably Auckland, where they sold out, a bit like Bernard skipping to the Windy City.
The simple fact is, it is not economies of scale, but many, many factors that limit and or raise the retail prices.
I am investigating why I would have to pay over the odds to change my house, my  location and invest in something that has already been invested in to the nth degree, by the builder, the supplier, the Council expense account , the Government, the GST take, profit, Carbon Tax, shipping costs, oil, road user charges, speculations one and all, rather than remain in my own humble abode.
The fact is I can buy lots of acres for a pittance, locally but that is another story.
Luckily I do not want to live in any over priced house, nor City, windy, shaky or shagged out by the Mayors, etc.
Here you can buy lots of investments for much less than that of a new house.  
And it is not an over blown house, puffed up by the system to make us all feel like spending our way to oblivion as we pass the buck to each other.
A mortgagee farm is much better.
As is buying a failed business, that the owner wants to bail out of and lease back, as a real estate agent kindly told me.
Just a mere million or two.
Has real prospects.
That word is over used today, it may be like Gummies Poseidon Adventure, prospects.
Or a taxpayer funded Solid Energy prospect of capital gains for our beloved leaders and our overseas investors.
A very long time in the making.
Even the White House lost billions, playing russian roulette with peoples lives.
At least the stocks bounced back , whew.
 
 
 

Well here is a comparison from the UK circa 1895:
Agricultural workers earned about 50-55 pounds a year, or around 21s. 8d. a week, on which no tax was paid, and lived in houses on the estate for which they paid a shilling a week.
So cost of accomodation was less than 5% of income.

 
The NZ Initiative wrote an interesting article comparing Texas to Switzerland, Germany and Britain. One of the flaws they found with Texas land policies and Municipal Utility District bond financing model was the following
 
Annexation  P.33
 
When MUDs were conceived, the idea was eventually to fold them into the City of Houston. They were formed because of Houston’s inability to fund the new infrastructure for housing that the city needed....
 
As part of the MUD concept, the residents pay for it and the city takes it over at a time of its choosing. A MUD was a sort of user-pays system applicable until such time as it is deemed desirable to pull the development into the wider supply network.... there have not been any annexations for at least 15 years. The last one, a development called Kingswood, was so unpopular with the residents that the political damage and the fight were too difficult for the city to contemplate another one.
 
The long-term outcome of nonannexation is still uncertain.... One of the reasons MUDs were considered affordable and viable long-term options is that residents would have to pay for the infrastructure only once before it was folded into the wider system, thus rationalising costs, maintenance and replacement.
 

The cities had the option of when they would take over the MUDs.

Since any subdivision is at its most risky in the development stages, it makes sense for the city and the other ratepayers to stay out of the development loop and only become involved once the subdivision has been fully developed ( If this approach was taken in NZ, Kaipara Council would not have had to go into statuary management, and many other councils would not have near the debt they do).

Thus councils would wait until a MUD was fully functional and being run successful before annexing.

But of course two things have been happening,

1) MUDs are smaller democratically run versions of cities (much like our community boards) and thus have their own identity and because they are being run locally they have a community spirit that they did not want to lose when the bigger city took over.

2) Once the city takes over, services tend to be less, costs rise, phone calls go through to automated answer machines and problems take far longer to get fixed.

You bet it has become a political problem, but only for the politicians.

This local community revolt against the bureaucracy is another reason why we should be using MUDs.

Quote: "2) Once the city takes over, services tend to be less, costs rise, phone calls go through to automated answer machines and problems take far longer to get fixed."
 
Honestly Dale, I think we should all print that out and pin it up on our walls - it's not just the public world, but the private corporate world too! It really can be amazing--and depressing--how much time and money we spend pissing around with over-organisation.

So, the question is - why did the proletariat passively vote them back in - if they are so inclined to revolt - why didn't they send them a "big message" and vote them all out ?

Hi iconoclast - not sure if I understand what you are asking in terms of MUDs but let me try.
The ability of the City to annex was written into legislation, but local MUD communities starting fighting this once Cities provided less services etc. and started raiding any sinking funds for general purposes than MUD owners had put aside for local MUD maintenance and repairs.
Some of the MUDs are winning this battle.
These questions are being asked in Auckland now by the older cities local boards that existed prior to the formation of Auckland Super City. They have been able to compare the old independent city budgets with the new amalgamated budgets and are noticing some spending allocation differences.

The subtext of the question goes beyond just MUD's

I tried to address some of your issues here - under corruption - didn't you see it
oecd-questions-levels-detection of corruption in nz
 
Q. Why didn't Auckland voters do a clean sweep and vote the lot out ?
A. Because they love him - they love being treated as mushrooms
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11142590
 
Q. are you able to supply those property development costings yet ?

Very good question. two reasons I think. 1. They don't know there is a better way and the vote is only on the personality. 2. All purchasers are all for lower house prices until they purchase and then they are all for price increases. I would guess that more homeowners than renters voted. Even though most homeowners would understand the logic and agree with MUD's and Oliver's German/Swiss model, it is in their best interest to keep the status quo, until they sell and become purchasers again.
email me at dsmith@buynzland.com and I will send you the subdivision break down. cheers

can kicking....so really you pay a lower amount because the expectation is someone else pays for the replacement(s).
Again whats it achieve as a clear advantage, if its just different, then why change.
regards

Steven think of Councils as big clubs, say a swimming club. Imagine the pool is crowded but more members want to join. There is space to put in an adjoining pool but the existing members do not want to pay for it. So the new members pay for it. The new facility is designed to be compatible with the old facility, infrastructure wise -same type of filtration system etc. In the future the swimming pools could be run as two seperate clubs or they could amalgamate depending on whether they want to do maintainance and upgrades seperately or together and whether they want to be part of a large facility or two smaller ones. Either approach is equally valid and depend on the wishes of members in the club(s).
 
There is some very good research and comments here, for instance Leith's chart showing real German house prices falling for something like thirty years until a few years ago. But you choose to discount all of that with your 'can kicking comment'. As I have said before to you, discussing anything other than your pet topics is like ground hog day. The next day you have always forgotten everything that doesn't fit with your worldview.

Brendon, what you describe is the MUD method, I more or less understand it.  The difference is a) pay a one off cost thats built into the cost of the house for services and hence your mortgage is higher, or b) pay for it with a bond and then pay that off.  [Now b) strikes me as more of a legal worry / liability....]
The points Im trying to make are, a) its a different model to what we have and there is no significant advantage of the MUD model that I can see over what we have.  b) there seem to be added risks and complications to the MUD model that make me wonder if it isnt worse.
Leith's article/opinion is really one of lets lock in significant growth as a must, its rlly I suspect or sounds like a bit of a ponzi scheme....
"ground hog day", well really we go back to it because all I see is an opinion that an alternative is better.  Ive seen no proof of a significant advantage to MUDs, so sure we'll keep returning to it.
regards
 
 
 

The Aussies are interested in this article too. Read the analysis and comments from an Australian perspective here ( You do not have to login, just X (close) the login and then scroll down from the black screen to get the article)

Following on from my post above, but in reply to Steven’s comments highlighting how he still does not understand who should pay for what when….

Developers in this part of the world are only capital developers ie once they have developed and sold they are out of there and do not care about the operational side. This tends to make them want to put in cheaper capital items that by default have high operational costs.

Of course councils who only have to maintain the operational side without having to pay for the capital side try to make developers gold plate everything so they have minimal operating costs. This causes conflict between developers and councils from the start, the result being system massive time and cost increases for no extra value.

Of course this conflict has been formalised as a ritual within the rules and regulations, being the polite people we are.

Because Texas style Municipal Utility Developers (MUDs) are responsible for both capital and operational costs they tend to put in the best balance of the services required. Also the home purchaser who is also responsible for both the capital (when they purchase) and the operational (with the on-going costs) can see where the money they are spending is going, ie locally. They are not paying development levies or rates that are going into a general fund to be spent far and wide by council.

The long term maintenance issue with any asset is exactly why MUDs in Texas are wary of City’s being involved in further annexations, and NZ home owners have exactly the same problem with councils maintenance and use of money.

We all understand that an asset will need repair and maintenance, and replacement over time. Knowing this and using asset depreciation and maintenance schedules you can work out when you will need the money, and knowing this, a maintenance budget and a longer term sinking fund amount can be set aside annually so when maintenance and asset replacement is needed, the money is there, no surprises.

When an asset is new and not expected to need any repair or replacement, or is covered by warrantee if it does, then it is common for the maintenance and the sinking fund set up to be delayed for the first few years. Even with our own household we could set up a separate account for repair and replacement like carpets and house painting, but we don’t. We have either sold prior, or live with an asset that will deteriorate quicker due to the lack of maintenance, or finally you have to dip into savings for the money. Due to this lack of planning, and procrastination, it is estimated that NZ households have over 10 billion dollars’ worth of deferred maintenance.

As mentioned above about delaying the setup of maintenance and sinking funds for the first few years, one of the reasons developers that use Body Corporates delayed the setup is that it makes the BC fee artificially low and makes the purchaser think that their maintenance costs are going to be lower, even over the long term. This can give a developer a competitive marketing advantage. Some developers will also deliberately use part of their capital profit to subsidise this even further giving the impression of lower operating costs.

Councils are no different and they have the advantage of assets that have a longer life span and can delay the time of reckoning when the asset needs replacing. Like developers, councils have not collected the money they should through rates to keep the rates artificially low, to make it look like they are doing a good job.

Even if the money is collected in rates for the supposed purpose of going into a short term or sinking fund, it has been ‘lent’ to other parts of council for other purposes. One day this money will need to be paid back as it will be needed for the repairs and replacement, but of course where is that money going to come from?

One way of getting this money back, is to claw it back from where it should have come from in the first place, namely rates, but this would mean a huge increase in rates and having to come clean with their creative book keeping. One other way to get this operating cost money back is to charge it against capital, just like developers sometimes do by subsidising the BC rates as described above.

Councils get this money by charging development levies and other costs on new subdivisions that are above and beyond any cost that new subdivision causes to the greater tax payer base. And the new ratepayers within that subdivision immediately add to council funds with a new rating base. Again because these new subdivisions are new, and under developer warranties for up to five years, they will not require any money spend on them for the next few years, so the developer levies and new rates are totally available to play catch up on all the other deferred maintenance in other parts of the city, plus some of this money can be used for pet projects that make all ratepayers feel good, and politicians look good, especially in election year.

After all they won’t be around to pick up the pieces when it all turns to ……..custard. But the piper must be paid one day, and that day is starting to arrive for councils as assets that are up to 100 years old start to fail.

It is only recently that BC’s in NZ have had to produce long term maintenance and replacement plans to show the true operating costs, but the owners can still chose to not put any money into it.

Most well run MUD’s (and BC’s in NZ) have been putting money aside from day one into the maintenance and long term sinking funds. You can imagine councils delight in annexing these MUD’s and being able to get access to these funds to put into their general slush fund.

That is why, Oliver’s idea of NZ adopting the Germany/Swiss. model. IE give local council more control/money would be a huge mistake and failure in its purist form. They would have even less reason to reduce waste within the system and would keep the status quo as it is. A complete systems and cultural over haul of council would be needed, before Oliver’s system would have any chance.

The MUD model means council/bureaucracy getting out of people’s lives, a better community run organisation, and better short and long term maintenance and sinking fund, less waste and YES would mean council receiving less revenue. Council first need to face up to that they have a problem and are using the wrong model.

By implementing the MUD model first would make council confront this problem.

Only when the cause of the addiction is removed from the addict are they in a position to sober up and admit they have a problem. They are not in a position to do this for themselves, unfortunately they are too far gone.

Going forward from this position there might be room for council having access to more revenue based on population as Oliver is suggesting.