Auckland Council warns of 8.5% rates hike and $480 mln of debt due to Govt changes on development contributions

Auckland Council warns of 8.5% rates hike and $480 mln of debt due to Govt changes on development contributions

The Auckland Council's warning that the city's homeowners face additional rate hikes of a cumulative 8.5% within the next eight years if proposed Government changes to so-called 'development contributions' proceed as planned.

The council also warns that the same Government measures could push up the city's debt by $480 million within the same period.

Additionally, it says a planned new 'objections' process relating to the development contributions could cost the city up to $4 million a year.

The council is set to push for substantial changes to the Government proposals and the council's even throwing in veiled threats that some planned infrastructural developments in the Auckland region won't go ahead if the Government doesn't change its mind.

Among changes the council wants included deferring the start time of the proposals by a year, broadening of the types of infrastructure included in the charging regime and changes to the new objections process.

Submission

The council's comments are contained in a draft submission on the Local Government Act 2002 Amendment Bill (No3). While the bill ostensibly falls under the jurisdiction of the Local Government Minister - which was Chris Tremain, but he has now been replaced by Paula Bennett - Housing Minister Nick Smith is closely involved with pushing it through.

Smith and the Auckland Council have previously clashed over Auckland's housing policy, though peace broke out at the end of last year with the formalisation and adoption of the Auckland Housing Accord, through which it is aimed to add a further 39,000 houses/sites in the Auckland region within three years.

Face-off

But now the country's biggest council seems set to face off against Smith and the Government again. And given the scope of the council's disagreements against the proposals it is unlikely to be alone - it can be presumed other local governments have similar concerns.

On February 4 the Auckland Council's Regional Strategy and Policy Committee is meeting to discuss and approve the draft submission through which it would then seek changes to the development contributions policy.

The detailed significant changes to the development contributions proposal included in the draft submission include:

  • seek changes to the definition of community infrastructure to include libraries, swimming pools, sports infrastructure and other public amenities
  • seek an additional principle to allow councils to continue to perform an individual development contribution assessment based on category and geographical location
  • suggest that as an alternative to the proposed review (objections) process the Bill offers the option to councils to have their development contributions polices reviewed on an ex-ante basis, with subsequent disputes to be resolved on the basis of whether they are consistent with that policy
  • seek to amend the independent objection process to take into account the amended principles including the additional principle of averaging
  • seek changes to the commencement date for the new community infrastructure definition to align with the 2015-2025 Long-term Plan
  • seek a number of technical amendments to the development contributions provisions, as documented in the appended table to the draft submission. 

Development contributions are charges levied by local authorities on developers to go toward the costs of infrastructure that may be required to service those developments.

But it is fair to say the contributions have become extremely unpopular.

The Government says they’ve trebled nationally over the past decade.

'Huge increase'

Smith says “this huge increase” could be attributed to the local government law change in 2002 that “gave councils carte blanche to charge whatever they liked and removed any check or appeal on these charges”.

The bill containing the amendments to the development contributions passed its first reading before Christmas and submissions are due on February 14, with the bill set to be considered by Parliament again in May.

Before Christmas Smith said constraining development contributions was "an important part of the Government’s work programme to improve housing affordability".

"These charges on housing developments have gone up by more than any other component of housing costs over the past decade from an average of $3,000 to $14,000 and are as high as $64,000 per section in some communities," he said.

Narrowed charges

"The changes will narrow the charges councils can put on new sections. Development contributions need to be set in a way that fairly balances the costs that should rightly rest with a new development and those of community benefit that should be paid by general ratepayers."

But in the executive summary contained in the agenda for the February 4 council committee meeting it is stated that some of the Bill’s proposals on the current development contributions system will have a "significantly adverse effect on council revenue and its ability to cope with expected growth in the decades to come".

"The Bill’s proposal to narrow the definition of community infrastructure will severely compromise the council’s ability to deliver planned infrastructure to meet the needs of a growing population," the summary said.

"[Council] officers have calculated that this change in conjunction with the impact of the external objections process will lead to a cumulative rates increase of 8.5% by 2021/2022.

"This will replace lost development contributions revenue that otherwise would have been used to meet the interest on debt taken on to invest in community infrastructure.

Debt rising

"In addition debt will rise by $480 million in the same time period. In effect this represents a subsidy from existing ratepayers to developers and new residents."

The summary also said the proposal to introduce an external objections process, whereby independent commissioners are able to issue binding rulings on disputed development contributions decisions, "also has the potential to impact adversely on Auckland Council finances and its ability to cater for growth".

"Officers estimate that the loss of revenue associated with the proposed review process (estimated at $3 million to $4 million per annum), and the costs of administering it ($1 million per annum), will also need to be funded from rates."

In more detailed comment, the council officials said the proposed Government changes would require territorial authorities to "adopt a more rigid planning structure". 

"This does not align with other pieces of legislation focused on increasing housing provision for Auckland, which requires flexibility in infrastructure planning."

Rates increases needed

The officials said that without development contributions to fund planned investment in community infrastructure, rates increases would be needed from 2016/17.

"This does not assume the recovery of debt incurred to provide growth infrastructure, only the servicing of this debt," they said.

"Current ratepayers will incur an additional burden to fund facilities for new residents, along with paying for the services they presently receive.

"The alternative is for Auckland Council not to build this type of community infrastructure and remove it from the Long-Term Plan."

The officials went on to stress that there was a "real risk" Auckland Council would be able to provide sufficient community infrastructure in growth areas if the proposals were passed in their present form.

The officials also said that some of the council's investment decisions in the past were "likely to have been different" if they had known at an earlier time that future development contribution funding for these projects could not be relied upon and was to be abolished in the near future.

Objections

In detailed comment about the ojections process, the official said development contributions charges could not be set in a way that allowed for both the individual assessment of the specific infrastructure requirements of each development and the full recovery of costs allocated to development contribution funding.

"This reality is at odds with the proposed objection process which allows for developers to essentially ‘opt in’ to an individual assessment for their development through the objections process without any reference or regard to the broader considerations such as the ‘averaging’ or ‘grouping’ required within development contributions policies, or the consideration of cumulative effects.

"The result of the current proposal will be that developments with below average infrastructure requirements will seek objections and most likely be successful.

"Developments with above average infrastructure requirements cannot be charged more to offset this. Even if this were possible the administrative burden would render it impractical.

"As a result some ‘genuine’ growth-related costs budgeted to be funded by development contributions will have to be transferred to ratepayers. This could well be a significant portion of these growth-related costs, summing to between $3 and $4 million per annum." 

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The muppets threatening us with higher debt and rates should stop wasting money on absolute tripe.
They've recently put up a small artificial beach close to my office in the Viaduct - they're "trying something new" apparently. No doubt it cost 250 rate payers their entire contribution for the year.
Cut the crap, deliver the basics please Auckland council.
 

Yes and deliver it with less head count please, hiring more people who then need to justify their existence but dreaming up ever more elaborate ways to spend our money is not helping the rate payers.

@Julz , thank you , you are 100% correct  they need to cut the fat , its an overweight bureacracy.

Question : If the current very high development contributions are "essential" and will have to be made up via rate hikes, how did previous councils survive when development contributions were a fraction of what they are now?

Does the council not realise that every home built provides another permanent income stream for them via rates. The value of that income stream is huge and should more than cover the changes to the development contributions. Unless the council has spent so irresponsibly that they are already relying on rates from houses not yet built to balance the books?

No because the rates are for maintenance and replacement of existing assets that are sized for the existing population. So more popualtion means more assets and that has to be paid for by the new population.
regards
 

So we're forced to pay exorbitant fees to an effective monopoly on new building. Check out the menu:
http://www.aucklandcouncil.govt.nz/SiteCollectionDocuments/buildingprope...
No wonder we're not building enough houses!
 
 

If that were true rates should only be rising inline with inflation.
 
They have of course been rising much faster than inflation so it's clear rates are being used to fund much more than just maintenance and replacement of exisitng assets...

Julz, a couple of answers to your questions.
 
Before DC's came along councils funded growth in lots of ways like selling stolen stuff (land), capital levies, borrowing, overcharging on rates to build a warchest and the all-time favourite deferring essential maintenance. When you look into the details DC's are the cleanest and fairest way of paying for growth (if done properly).
 
Rates have been "been rising much faster than inflation" for many reasons. Assuming by inflation you mean consumer prices then the first is that council input costs have risen way faster than consumer prices. Over the last decade consumer prices have risen 30% while construction prices have risen 45% and that's not counting energy and insurance. We have also seen government-ordered refits of water systems to improve quality of drinking water supply and disposal of stormwater and sewage. Local government has had to spend billions over the last 10-15 years just to stand in the same place but satisfy the mandarins of Wellington.

".... DC's are the cleanest and fairest way of paying for growth....."
When they capitalise into the prices of all housing?
Meaning that first home buyers pay the added cost wherever they buy a house, only most of these purchases involve a windfall gain to the vendor of an established house?
It would be fairer to charge every first home buyer a tax of about $50,000 when they buy their first home and at least spend this on infrastructure. They are paying this anyway but it is not being spent on infrastructure.
Of course people would say it is unfair to charge first home buyers this kind of tax - but the status quo is MUCH more unfair than that. Because of the alleged lack of funding for infrastructure, growth containment is pushing up the price of first homes by around $300,000, not just the $50,000 or so that is infrastructure levies. If all first home buyers were charged a $50,000 levy wherever they bought a home, and this was spent on infrastructure for growth, and house prices remained at a median multiple of 3, the young first home buyers would actually be a LONG way ahead of what they now are. 

Another Question ? Are they threateing us ?
Is Len Brown resorting to the age old tactic of  The best form of defence is attack ?
If so we will get Len Brown removed from office so smartly he wont know his arse from his elbow

It looks like a good old fashioned supermarket tantrum to me. No longer can they misdirect funds to their pet vote winning and backscratching photo-ops or pad the ranks with more very educated clipboard carriers while introducing levies,charges, fees on those who dare to trade on their turf.
Government sees spoiled brat and says "NO", brat convulses and cries for maximum effect.

Exactly. Local government is a parasite. It will keep growing and charging more for its "services" until the host populance can't tolerate any more.

Tell them to cut their cloth accordingly, and that they need to get rid of the fat .
All tiers of Government need to live within their means like the rest of us ordinary Kiwis.
I was astonished to see how may civil servants in Auckland City employ earn over $100k per annum, that in itself in an inordinate sum for an individual to earn no matter what his or her proffession , let alone a public servant in sheltered employment .
Expecting ratepayers to bail-out or fund  the largesse of the Auckland City council is quite unacceptable .

That's the sorta money you need to buy a house in Auckland though Boatman!

@rjf , no you dont need to earn $100 k each to buy a house in Auckland  , the banks take into account joint income .
My reference was to indviduals employed in Auckland City  earning over $100k each , of which there are far too many who dont do much at all
There are not many individual employees in Auckland  earning that sort of money .
 

It's not unusual for govt sectors to have high average wages.  Just look at Wellington with all their civil servants the average salary is 10K higher than auckland.
 
The councils have long ago contracted out all the low wage jobs to the private sector.  Bus drivers, garbage collectors etc.  Most of what is left are highly skilled positions requiring university qualifications.
 
Would be interesting to compare Councils average salary with one of the banks.

This confirms my long-held suspicion that councils have been misusing development contributions to subsidise spending that should come out of the general rates pool.  
Development contributions are a soft target as the number of people directly affected is smaller than the overall number of ratepayers.  When you add $40,000 of development contributions (which I understand is standard in Auckland) on top of already inflated section prices and the infrastructure costs of development, it is not surprising housing is so expensive.  
Development contributions must rank alongside urban growth boundaries as one of the biggest factors holding back housing development in New Zealand.  They also constitute a massive transfer of wealth from the young to those who owned houses before their introduction. 

I live in a small North Canterbury town that is growing quickly. The Council is in a fiscally sound state and has modest rates. I checked the Long Term Plan for what new amentities are planned for. I noticed most of them will be paid for from DCs. Many of them will benefit the whole town. I don't know how the Council determines that new comers must pay.
 
I also noted that the plan tightly prescibed where new growth was 'expected' to occur. Thus handing those areas a local monopoly on new residential sector sales, through the planning -zoning system.

AND handing the owners of that zoned land a "monopoly rent" power of the kind that K. Marx had so much to say about.......

Go back in my comments ON THIS SITE  for the past three years , and you will have seen me bangiing on endlessly aboput this DC RORT by Auckland City  Council and its fore-runners WCC, MCC AND NSCC

I can't understand why you are so agnostic about the connection between Council malfeasance and housing unaffordability. Your comments are good otherwise.

Dont we ever learn from recent events ? Look at what happened in Mangawhai to see what happens when a Local Authority runs away with itself with grandioise plans and extravagant expenditure  .
It all collapses in a terrible mess .

Now, if only there was some way of not letting the same self serving or inept people from screwing you over in perpetuity, Hmmmmmm.....

I wryly noted this exact sequence, around the time the first proposals to reel in the Coincils (Freudian slip, Councils of course), was being talked about.
 
It's toys being thrown from cots, and this reporting also highlights one of the Eternal Trooths:
 
Hell hath no fury like a bureaucarcy as wot's getting its funding throttled.
 
Bring it on.  Councils have had their wicked way with costs (amongst other things) for the better part of a decade, ever since the Sandra Lee LG Act 2002 amendment, gave them the 'Four Well-beings' - a mandate to spend whatever it takes on whatever ya likes.  There's literally no human activity that couldn't be fitted nicely under one of Infrastructural, Economic, Social or Cultural.
 
Well, That punchbowl has been removed from the party.
 
And the partygoerz have just started to wake up (LG types are not the owners of the fastest neurons on the block, generalising magnificently).
 
And as for the argument that 'extra people cause extra costs', thats anything but a linear relationship.
 
It depends on a number of reasonably hard-to-establish parameters:

  • how much spare capacity the said infrasttructure has
  • how close (in a congested facility) to the 'knee of the curve' current usage is (not the same as 'capacity' - read up on queuing theory before ya take me to task on this one)
  • what ratio of fixed to variable costs
  • what effective useful life said facility has left
  • What current maintenance regimes are in place
  • what absolute values of costs, depreciation etc exist for said facility
  • what LTP plans, capex, changes or other events could affect any of the above already.

 
My take on much infrastructure is that it is generally well-specified when built - engineers conservatism - and has only a distant, step-function relationship to its immediate catchment. So pinging each extra household, $XXX, bears little to no specific relationship to either the actual eventual use of the $, or the capacity of the infrastructure.
 
But the revenue stream certainly does get spent, and the $XXX does certainly transmit into land, house+land, and general suburb values.
 
After all, if ACC tripled the DC charges, on the grounds that 'rich prick developers pay them, not ratepayers', think how long that would take to add to the value of Your leetle castle, just around the corner.  Woo Hoo - instant CG.  So are You gonna vote that down??
 
Thought not.
 
So ignore the fat-cat-Council-stafferista.  And applaud a strong-arm approach by Gubmint.  For once.  And note whose arm is doing the strongering. Yup, the Westie.

Re: After all, if ACC tripled the DC charges, on the grounds that 'rich prick developers pay them, not ratepayers', think how long that would take to add to the value of Your leetle castle, just around the corner.  Woo Hoo - instant CG.  So are You gonna vote that down??
 
This is actually what happen last decade
 
The 2002 LGA allowed it to happen and you can see the brain dead Labour/Greens who implemented this system thought they were sticking it to the 'rich pricks', when in fact DC's and the wider local government planning system is the biggest reversal in workers economic freedoms since feudal times.

Beaut comment, well said, mate.
"......DC's and the wider local government planning system is the biggest reversal in workers economic freedoms since feudal times......"
There are a bunch of lefties in the UK called "AudaCity": Ian Abley, James Heartfield, Peter Woodhoutysen and colleagues, who are absolutely FUMING about Labour politicians IDIOCY over there on this very point. They are some of the most telling writers about the massive gains being reaped by the Tory land owner class for decades now, while the low income person has to pay more and more of their income for less and less space. 
 

I am going to go against the grain. I think the whole development contribution system is a nonsense. It should be abolished. If the government really wanted to deliver affordable housing they would have limited developers obligation to providing the amentities within the new urban area only. They would give another source of ongoing revenue (tax) to Councils in exchange. So local taxpayers can pay for new infrastructure from ongoing tax revenue.
 
Further Councils should be legally obligated and their performance measured by their ability to provide new areas of affordable housing and the means to efficiently travel to/from these areas. See Alain Bertaud for a discussion of this. The core function of cities is to provide a large pool of mobile workers. It is local government's responsibility to create the public infrastructure for workers to affordably mobilise from home to work.
 
If we fail to do this our urban economies will gradually collaspe.

A key part of affordably mobilising from home to work is paying only 3 times your income for a house not 6 times.

"limited developers obligation to providing the amentities within the new urban area only."
 
So every individual subdivision should, for instance, build it's own water reseviour and treatment plant? Sounds expensive....

See my reply below where I expand on this idea.
What is the difference in the long term between new and existing ratepayers, they both pay rates and they both will need new pipes, ashfelt, water storage dams etc every x number of years?

Restricted urban growth boundaries and development contributions are linked, with the common denominator being Council monopoly that enables them to keep raising revenue (which are a cost to us) hidden under the umbrella of rising prices.
 It is in their best interest to keep prices up as most costs are rated as a % of value.
While they are throwing the Supermarket tantrum, they already have a Plan B, and are planning to implement other revenue gathering measures like Shared Value Uplift Zoning. Council have far more experience at how to manipulate things, and we pay them to sit around tables to discuss ways on how to game the system. 
First rule of thumb in any bureaucratic organisation, is do not do anything that would effect your employment, second rule of thumb is to do things that secure your employment, third rule of thumb is to do things that increase your standing and income in said organisation.
Notice that the word customer is never mentioned.
This much quoted Adam Smith quote sums it up beautifully,
 People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.
The ratepayer is only necessary as to the money they are obliged to pay. We are no more than cash cows on the council dairy farm.

The reality is that our local government cannot afford to provide the infrastructure that their residents need.
 
Even succesful places like Ashburto/Tinwaldn that has grown strongly on the back of the Canterbury dairy farm conversion boom cannot afford a new bridge and SH1 bypass that the townships desperately need. Anyone who has travelled the 10+ km stopping at lights and going 50 km/hr through Ashvegas knows it is just wrong.
 
NZTA was therefore willing to pay a projected 56 per cent of the cost of the new bridge, leaving ratepayers to pay between $12 million to $15m.
Rawlinson said the bridge action group was not against a second bridge being built, but wanted the NZTA to fund the entire project and another route with fewer effects on residents to be chosen.
"There is no simple answer, and I know a lot of people that don't know anything about it might look at that and think, ‘Well why do they object to it', but it's just that they could do it a lot better,"  Ashburtons second bridge battle
 
The whole system of our local government needs to be reformed.

See here for information about the state of NZ's transport system. Read Alain Bertaud's foreword to this housing survey to understand that trunk infrastructure is important to affordable housing.

May the select committee present the middle finger to Auckland Council.
 
I am completely in favour of development contributions in principle but they have become too much of a slush fund for staff to enjoy outside the scrutiny of elected members. So I agree with the general direction of the proposed legislation in constraining the purposes for which DC's can be collected and applied.
 
There is nothing wrong with DC's in principle. You already pay for a huge amount of public infrastructure in your section price apart from the DC. It's the developer who forms the street, lays water pipes gives up a section or two for a neighbourhood park. You pay for all that and then the developer hands the lot over to the local council. DC's contribute to infrastructure upgrades outside the development itself. Also as a matter of principle remember that when you build outside a serviced area (i.e. a farm) you have to pay upfront for water, sewer, drainage, driveway etc. You will get no change out of $50K for water and sewer alone.
 
When it's bigger water mains or a wider collector road to cope with the effects of the new dwellings it's really obvious that the spend is growth related so a DC makes some sense. If i read this bill right it seeks to stop the practice of collecting DC's to help fund library, aquatic centre, sports ground extensions. This is the right move for two reasons:
1. the gap between handing over the DC and seeing the new facilities can be quite long -  a decade or more. This is too long so the linkage between you building your new house and the need for a new library, say, becomes too weak; and
2. since December 2012 councils are supposed to be more sure about the need for future assets before they plan to build them. All councils have been a big fail so far in applying the new legislation. Councils would comply with this legislation much better if they did not collect DC's and deferred funding decisions until they reached the time they were thinking about the big spend. The future need for libraries, pools and parks in their current form is no longer as sure as it once was and councils can't just fly along on automatic pilot any more.
 
One final point. AC wants to have its cake and eat it too. It's very unlikely that they would spend anything on the dispute process if DC's were only collected for 3 waters and roads. The DC policies that all councils must put in their Long Term Plans are supposed to make the application of DC charges transparent and consistent. So as long as they comply with their own policies to collect DC's for visible growth-related projects who will dispute it?
 
AC's submission is a bit too whiny child for my liking.

Kumbel did you notice that NZ house prices departed from their long term average of 3 times meduium household income last decade. Rising to around 6 times medium house income shortly after the 2002 LGA. DC's, the zoning system and Long term plans are a complete disaster and the local government system needs to be reformed from the ground up. This may be a difficult fact to face for those involved. But the sooner we reform the system the better off we will all be.

Post hoc ergo propter hoc  fallacy

Yes I know correlation is not necessarily causation. But given the widespread belief that inelastic land supply is the cause of high house prices, with major studies like Demographia confirming this, then I do not think the last major piece of legislation on how residential land supply is provided, the LGA 2002 is coincidentially timed with the start of the house price boom.

The house price boom wasn't just local, it was global

It was global in the sense that all the places that had restrictions on new housing, i.e. inleastic supply of residential housing had a housing price boom. The places that didn't have restrictions on new housing didn't boom. See demographia.
 
New Zealand has gradually become more restrictive on new housing and the last major tightening followed the 2002 LGA.
 
Sure there were other factors -low inflation, declining interest rates, migrations etc that we shared with the wider world. But supply side factors was/is the most important factor.

I dunno, Ireland springs to mind. And Spain.
 

Ireland and Spain are examples of government controlled development processes where government loved the revenue rake-off so much, they allowed as much development as developers would pay up levies for.
This is completely different to having an absence of controls, and infrastructure provision following the market, which is what kept housing affordable in several dozen US cities. 

How about considering the political context?
 
Blair, Clark and others' third ways were primarily about inflating asset values.
 
Part of that in NZ was allowing the formation of Fonterra resulting in the dairy industry's assets being valued twice - by the company and shareholders.
 
A record $5.50 per kg MS first payout in 2002 (boosted from reserves) helped propel the housing bubble.

LGA 2002 has nothing to say about zoning or land supply. All that stuff is in the RMA which was passed in 1991, more than ten years before the price boom.

Eh?
House prices were booming in the 1990s too.

They might not have been in CHC, but nationally the RBNZ think they were booming in the 90s
 
http://www.rbnz.govt.nz/statistics/key_graphs/house_prices_values/

What Charles Manning did in Canterbury with your goading, may well have helped keep the lid on house price inflation in NZ for a little bit longer than otherwise. There is a competitive effect between cities that helps stabilise prices in a wider economy. 
 

> The RBNZ graph you provide clearly illustrates that property infation subsided through the 1990's
 
exploding from about 0% increase in 91, to 10% in 94 and staying about 10% till the end of 96 is your definition of 'subsiding'?  No wonder you got ex-communicated from the property council.
 

Look at total house values, the major explosion was in the noughties not the nineties.
 
The no growth in house prices from 97/98 to 2002 allowed incomes to catch up with house prices. Now we would need a decade or two of no growth in house prices for balance to be restored.
 
I bought a 2 bed townhouse in inner city Christchurch in 2002 for just over 3 times my single income mid level nursing job. I could not do that now.

Leetle house just around the corner from me (then, in New Brighton) - was evidently bought at auction (mortgagee sale) for $47k.  2002.
 
Labour goes and introduces the Credit Lines for Anyone Who Can Fog a Mirror scheme.
 
Overnight result throughout:  all house prices start with a 1 added to the left of the previous value.
 
I believe that same house sold for mid $120K not long thereafter. 2003 ish.
 
There's a universal re-pricing signal for you....another in the long list of Gubmint cluelessness at the time....

The RMA as enacted did not mean "growth containment" per se. Local planning fads are responsible for that. The RMA would work fine with pro-growth Councils operating under it. 

I will actually take issue with that. Now, before I lay this out I want to make clear that I think changing the LGA would bring down prices, and the 2002 act didn't help prices, but the 2002 act was December, and the boom was underway by then. I would point the finger at Australian money. Here is my reasoning:
- the 2002 boom has been different from all previous fluctuations, in as much as NZ house prices went going up without household debt going up or other assets going down to match. this means the money entering the NZ housing sector was coming from somewhere else (previously increases in price were matched by increases in household debt).
- Australia's boom was well underway before our one. But, as I understand it, Australians could not apply negative gearing to foreign property until a change in 2001. Then suddenly we have situation where NZ property is underpriced compared to the already in boom Australian market, and it is as tax advantageous to invest in NZ as Australia.
now, once more stating I sympathies with Phil and Hugh's position, and think we need planning change, but I don't think it caused the boom because the boom preceded it, an only 30% of the increase can be explained by NZ household money.

It was underway in California and more specifically in San Francisco, about 6 months before it hit the main metro centres in Australia. I had this from a builder in Frisco at that time and he said it was nuts, he couldnt understand it, had never seen anything like it before, and didnt care either, he couldnt keep up with the demand, it was unbelievable

problem is Hugh, it was a global phenomenon, and in California they were supplying everything they could, as much as they could, at any price, no impediments. Yet, still it went on, nothing could stop it, and with a domino effect it rolled all around the world, including australia and then nz
 
you are suggesting clark and cullen could and should have done a "global command performance" .. really?
 
Would like to have seen that

Really! Nothing could stop global house boom which started in California "and with a domino effect it rolled all around world, iincluding Australia and NZ."
 
Yet it strangely didn't affect middle America! Have a look at the map at the bottom of this article

Iconoclast: problems with housing affordability and price volatility in SOME countries and States preceded the great 2000 onwards global episode by decades.
The UK, for example. 
The evidence is pretty clear that had cities remained as free-growing as they had been in the decades immediately following WW2, they would have remained immune to easy credit etc. 
Demographia does not cover many countries, but I find it interesting to look at RE sites for cities in France and Italy, and also look at the same cities on Google Earth. It seems to me that a fair amount of low density splatter sprawl is allowed for some reason or other in some urban areas, and this seems to correlate to stable and affordable prices of housing in those urban areas.
For example: Rome
http://www.realtor.com/international/search-listing/Roma-Roma_IT_CIT0003...
Lyon
http://www.realtor.com/international/search-listing/RHONE-ALPES_FR_SFR00...
 
 

THESE issues have not come on the UK just because there was a global credit boom in the 2000's, they have come on the UK because a certain Town and Country Planning system was imposed in 1947.
'Sheds with beds' are London's modern day slums
http://www.bbc.co.uk/news/uk-17185294
 
Welcome to the Slums of Southall
http://www.dailymail.co.uk/news/article-2049676/Welcome-Slums-Southall-H...
 
Container living: a home for under £50,000
http://www.telegraph.co.uk/property/9243318/Container-living-a-home-for-...
 
Generation Rent and the Broken Housing Ladder
http://www.channel4.com/news/broken-ladder-generation-rent-microapartmen...
 
Slough Borough Council's spy plane's thermal image camera
http://www.dailymail.co.uk/news/article-2381451/Slough-spy-plane-detects...

The only change to the LGA that could affect house prices is a change to the Development Contributions regime which, of course, is what this whole post is about.
 
 
I forgot to mention elsewhere that councils didn't start charging DC's until July 1 2004 by which time the property market was well and truly frothy.

Kumbel we have repeatedly stated the $ fee charge of DC is only a small part of the inelastic housing supply problem that is our local government system.
 
Cullen and Clark could have made reforms in 2002 to 2007 along the lines of
 
Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land. Planners, therefore, have a key role to play in ensuring an elastic supply of land by auditing land use regulations and by planning new trunk infrastructure that would allow the development of new areas or faster travel time to already built-up areas.
 
Instead they did nothing.... They thought they were being clever by getting developers to pay but in reality they created a mess we are still trying to clean up.

If an urban area doesn't grow in number as each amentity -water, sewage, roads reaches the end of its life, it needs to be replaced by a new equivalent. The funding for that amentity must come from rates as there is no newcomers to sting for up front charges.
 
Now the question comes is if rates can fund new amenities -the 3 waters and roads for existing ratepayers why not for new rate payers? Up until 2002 it could be done.
 
What is the difference in the long term between new and existing ratepayers, they both pay rates and they both will need new pipes, ashfelt, water storage dams etc every x number of years?
 
What has happened is that new amenities have become more expensive in real terms. You have said this yourself the inflation rate for infrastructure is much higher than general inflation. Meanwhile with an increase in the elderly on fixed incomes means there is a limit on how high rates can rise.  
 
Instead of facing this reality and increasing funding for LG. Central government has taken the cheap way out. It has created a system where LG costs are transfered to new residents indirectly by tightly constraining where development can occur within urban limits with long term plans, zoning, density restrictions etc thus making development cheaper for Councils but more expensive for new residents due to the lack of competition effect and directly through development contributions.
 
National want to reform this with words alone, by bullying LG into doing more with less. I can't see it working. National needs to learn to put money where its mouth is....

It' starting to feel like Groundhog Day around here but here goes again:
 

  • Development Contributions are not compulsory; there are councils in NZ who do not charge them. If I were a low-growth area like Invercargill I wouldn't. Gifting infrastructure to the few new arrivals would be a way better use of rates than frittering it away on an economic development unit.
  • The mechanism for funding replacement when assets get to the end of their useful life is all in place, uses standard accounting techniques same as private businesses.
  • DC's can only be used to acquire new assets (i.e. ones that the council has never owned before) that it needs to cope with an increased population
  • Of course you can use rates to raise capital for the same assets as long as you don't mind your new dwelling owners getting a freebee while rates are rocketing. Lines companies/Transpower do something similar; they deliberately use their monopoly pricing power to generate profit to plow back into growth-related assets. I am not sure councils are allowed to do that.

 
You are right that councils are just not willing to make the hard decisions in the face of steeply rising input costs. They have, every one of them, ignored the statutory responsibilities placed on them by the LGA 2002 Amendment Act 2012. And they will continue to do so until some combination of the Auditor-General, DIA or Minister of Local Government puts the acid on them.

Sorry if it feels like ground hog day. But I don't see it as new residents getting freebies. They pay rates the same as everyone else.
 
The older ratepayers do not own the public amentities, they have just paid a kind of rental for the years they have paid rates.
 
The new ratepayers will do the same.
 
We all gift public amentities to the next generation. Did you pay an up front fee for the classrooms/land you were educated in? What about the hospital you were born in? Where does this DC concept end? A Poll tax on newborns and immigrants? 
 
I think this whole DC concept divides local voters into sub groups and gets them fighting each other rather than coming together and working out how they can collectively fund the public amenities they need.
 

Absolutely right that ratepayers are identical regardless of how long they have been paying rates. As I have often said rates are effectively a daily charge for provision of services but they only fund maintenance and renewal of assets they do not fund the seed capital for new assets and that is what this whole discussion is about. Councils have limited ways of increasing their capital base. In practice there are only:

  • make a profit for future investment (unfair on current ratepayers);
  • borrow (really fair but expensive); or
  • charge a capital contribution (fair but open to abuse).

 
If there was no population growth there would be no problem.

Re:  If there was no population growth there would be no problem.
 
Is this true or do DC's hide Councils funding problems?
 
New ratepaying properties need new services in year 1 and then every x number of years after that replaced, upgraded, modernised etc. Existing ratepayers need replacement, upgraded, modernised services in something less than x number of years time and every x number of years after that. In the longterm the different rateable properties will incur the same expenses for the Councils.
 
What has happened is that the social contract between generations has broken down in NZ. This is stupid, we pay $100sK to keep our kids healthy and to educate them and just before they become useful and ready to continue the cycle we set up a system that makes housing twice as expensive as it should be. So vast numbers of them bugger off and we replace them with new migrants who do not realise the broken social contract society they are entering.

Simple example: you have a street that carries a lot of traffic in and out of a residential area. The road surface gets worn and the council decides to completely resurface the street instead of patching it up all the time. This is a renewal project paid for out of accumulated depreciation charged via rates. This is bog-standard Accounting 101 stuff and delivers all the social contract goodies you refer to.
 
But what happens when you bung on some new subdivisions that also connect to this street? Let's say an intersection gets too busy to be controlled by Give Way signs and the council chooses to put in a new roundabout. This is a brand new asset that the council would never have built unless there had been an increase in the number of road users. This is where DC's come into play as a source of new capital. In practice councils will also dip into the renewal reserves if they can as DC's will never be enough to actually fully fund growth-related projects. Technically this is stealing from future generations. So DC's actually preserve the social contract by limiting the "need" to take from the future.
 
Don't worry about different aged dwellings and assets. Once the assets are operational and rates are being charged all those differences become irrelevant.
 

If the roundabout is where the subdivision attachs to the greater urban area then it would be considered within the subdivision and the developer would be responsible for providing/paying for it.
 
If a roundabout is needed elsewhere in the urban area due to increased traffic then how do you atttribute that to just one subdivision? This is really complex maths that Waymad alluded to.
 
I don't really understand it enough to explain it simply. But the problem is related to lumpy supply. X number of vehicles can use a road/intersection etc without affecting each other. But when traffic increases to x +1,2,3... congestion starts for all and some sort of improvement in infrastructure is needed.
 
Is the cause the last +1 or all the users? Should just +1 pay or everyone?
 
But really this gets back to trunk infrastructure -the bigger question that I asked below that nobody seems to be able answer.
 
 

And that is the nub of it all really, Brendon.
 
The short answer is that DC's don't directly link a subdivision to a growth-related project in the way financial contributions do. So the roundabout is built using funds collected from all new sections whether it is near to them or not. In a massive district like Southland DC's collected from sections in Te Anau can be used to build a growth related asset on Stewart Island.
Ok first the mechanics. To be able to charge  a DC the council first has to do a 10-15 year asset plan across all activities. This is the kind of process waymad describes above. Since 2006's LTCCP this has been standard practice for all councils. Out of that pops a list of projects that are just replacements on the one hand and new/upgrades on the other. They tot up the estimated cost of all the growth projects, do some arithmetic on the timings of the projects, divide by the estimated population growth (available at Stats NZ), divide again by 2.4 (ave. number of occupants in a new dwelling) and out pops the unit cost of growth for each new dwelling. In theory planners should just go "Righto, 20 sections times x that's how much you owe us in DC's". Don't know why there are all these disputes. Contesting financial contributions I understand but formula-based DC's?
 
I get very nervous when a council, quite legally, takes a contribution for a library extension that may not happen for 15 years. There is way too much uncertainty which is why I support the governments move.
 
As for trunk infrastructure any IT geek will tell you cities have to abandon star topologies and move to a bus architecture.

Kumbel, you are far too trusting of the DC calculation process. Where is anyone able to actually access those calculations to see if they actually are fair and transparent? 
Councils are actually just making it up as they go with total impunity; there is a kind of old boys club in the legal profession that means that no developer can challenge Councils as they are entitled to do under the Act. Judges are biased against developers and in favour of Councils, and lawyers are too scared to rock the boat. 
The amount some Councils are charging in DC's is many times as much as what they are actually spending on new infrastructure. The Government knows this and knows it has to be fixed. Councils need to be forced to be transparent and Courts need to be forced to act on laws passed by parliament, not judges personal biases. 

LGA 2002 requires councils who choose to impose development contributions to publish their policy as part of the Long Term Plan and put it up for public consultation. In effect anyone can submit on the calculation method every year.Professional developers do go through these with a fine tooth comb and do submit.
 
If you go to your library or council website and find the current LTP the DC policy is usually included in the appendices in the last volume. Also the LTP and Annual Plans must include a Funding Impact Statement showing how much overall capital funding comes from DC's. Also each activity will show for each year how much of its funding comes from DC's.
 
Sadly all of this stuff is hidden in plain sight. If you still wish to uncover te real truth you might be able to persuade Ian Wishart or Dan Brown to help out.

What this seems to me to mean is that the Long Term Plan is not in fact a plan at all. I cannot tell my son that when you are a teenager you will be able to go to town by a rail underpass that is in the LTP for our town. Because that underpass will be paid for by developer contributions. We don't know when or if a 'development' will occur to fund this.
 
Also in reality the LTP is just the councils opening negotiating position with developers. The developers will appeal it to try to get some more profitable arrangement and there will either be some meeting in the middle or the developer will walk away.
 
The whole system is a nonsense....

Not quite. Once the council passes the final version of the LTP the DC is set in concrete (x sections means x times the standard DC unit charge). Currently there is no appeal which is one of the changes included in the current bill.

Kumbel; let me start getting more specific. I realise that the Council's bulk revenue and funding figures are available. But they still do not satisfy the requirements of the LGA 2002, that DC's must be strictly identifiable as for NEW infrastructure required by way of direct nexus to the new development. There is no breakdowns available anywhere to show what is NEW infrastructure and what is deferred maintenance and renewal. The prima facie evidence is that DC's are being charged in breach of the Act, seeing they are being calculated on the basis of identifiable capital expenditure much of which must be deferred maintenance and renewal; but it is impossible to find a lawyer to take a case on this. I am candidly informed by roundabout means that this would be "betting the firm". 
Ian Wishart would be a good man to look into this if he could get interested in it. There is nothing he has in common with Dan Brown, the writer of fantasy fiction. 

Sorry PhilBest I don't understand a word of this comment. For what it is worth I have just reread LGA 2002 s198 onwards. I just needed to remind myself that the LGA does not require a direct nexus between a specific development and growth-related capital expenditure funded wholly or in part by development contributions from the development. That is why I have said elsewhere that I approve the government's initiative to exclude upgrades to libraries, pools, sport facilities etc from the types of project that DC's can be applied to. I too am uncomfortable with a weak nexus.
 
Take any council's Long Term Plan and check out the Development Contributions Policy it should give you all the detail you want. For exmple, follow this link (you too, Brendon) and read the 16 pages of explanation of growth projections, specific projects required, estimates of cost, who will pay and why etc etc etc.
 
As I say it's all hidden in plain sight.

Dont worry Kumbel
PB is incomprehensible at the best of times. You will be worn down with a million words.

Moment of weakness. Like others my working rule of thumb is to never get sucked into replying to PB but there was a really important point I wanted to bring out there about transparency that might be of interest to others. I promise to to do better in the future. Thanks two other guys.

Kumbel:
This thread is too skinny.
I will post quotes from the LGA 2002 in a new comment at the bottom of this thread. 
It is as clear as day that there was no intention to give Councils the power to raise money from DC's for anything other than infrastructure expenditure related to new development; maintenance and upgrading were excluded. 

Kumbel sorry but not DCs are a con.
 
The Council is charging development contributions to ensure that the growth related capital expenditure identified in this Long Term Plan (LTP) is recovered from those who directly benefit from it, rather than from ratepayers. P. 202 from Kumbels Hurunui Council link
 
I can say as a ratepayer of Amberley I will directly benefit from a railway underpass (Look in the Amberley LTP) that someone else -a future developer will have to pay for. I can tell you ratepayers would have used it 10 years ago. More ratepayers would use it now and even more in 10 years time.
 
But the Council have arbitrary decided at some particular point 'growth' will dictate that one particular set of users are the only beneficiaries so will pay for all of it.
 
This problem relates to funding or the lack of it, if the Council had alternative funding options, this amentity might have been provided by democratic vote.
 
If 'growth' (demand) is slower than the LTP predict this underpass might be dropped or part funded by raterpayers. Like what was discussed in the above link for other amentities. If 'growth' is faster then DC's can be increased, maybe not to Auckland levels but certainly much higher.  
 
In a way I don't blame Councils they have been given the wrong tool. They are trying to use it the best they can but it just ain't working.
 
Of course there is also the even worse wealth transfer argument that Phil talks about and Waymad acknowledges.
 
DC's are an arbitrary tax on new residences, hidden behind a pile of byzantine paperwork. LG funding needs a complete reform not this too little too late tinkering from National.

Brendon I think we are talking at cross-purposes here. I can't find any reference in the LTP, latest Annual Plan or the Amberley Concept plan to this underpass (reference?). But the Roading Funding model in the LTP clearly states that growth related roading upgrades will be paid for by financial contributions not development contributions. Sure enough the LTP shows that HDC does not collect or allocate any development contributions for the purpose of upgrading the district's roading network. Financial contributions are an RMA thing so I guess they can be challenged in the Environment Court. In this case, if there is a wider group of beneiciaries other than the residents of the subdivision, HDC ratepayers will also have to stump up.
 
So it's not an arbitrary point of growth that triggers this work it is a specific development. If the development in that spot does not happen there will never be an underpass unless the rratepayers of Hurunui vote to lift rates to pay for it. You know that there is no limit to the amount of useful stuff councils could build but that is the job of councillors to put a cap on what's affordable and what's not. Obviously the underpass didn't make the cut.

http://www.hurunui.govt.nz/assets/Documents/Strategies/Amberley%20Infrastructure%20Strategy/Amberley%20Walking%20and%20Cycling%20Strategy.pdf P.6
SI Main
Trunk Rail
Underpass
Develop a new rail underpass
between the development of the
Northwest residential area and
Turners Road
Development Contributions
2022/23 $80,000
 
It is a pedestrian thing not a roading thing. So your above argument does not apply. The Council has found a loop hole.
 
I would hope that this sort of thing could be funded from rates in a democratic decision. But as you say it didn't make the cut. Is that because it wasn't wanted or because of lack of money? Anyway by 2022/23 enough new properties will have been taxed on their developments it will happen that way. I should keep quiet because I benefit without paying. But honestly it is just nonsense.
 
I can add that DC's in Amberley are modest at $3,245 per unit. So we are at the opposite end of the scale to Auckland but the problem is the principle and the fact the only way it seems Councils can afford new amenities is through Developer charges. There has to be a better way.

Kumbel: do you not care that upfront levies capitalise into the prices of all housing, not just the new houses they are targeted at?
Meaning that first home buyers pay the added cost wherever they buy a house, only most of these purchases involve a windfall gain to the vendor of an established house?

It would be fairer to charge every first home buyer a tax of about $50,000 when they buy their first home and at least spend this on infrastructure. They are paying this anyway but it is not being spent on infrastructure.

Of course people would say it is unfair to charge first home buyers this kind of tax - but the status quo is MUCH more unfair than that. Because of the alleged lack of funding for infrastructure, growth containment is pushing up the price of first homes by around $300,000, not just the $50,000 or so that is infrastructure levies. If all first home buyers were charged a $50,000 levy wherever they bought a home, and this was spent on infrastructure for growth, and house prices remained at a median multiple of 3, the young first home buyers would actually be a LONG way ahead of what they now are. 
Robert Breugman appropriately describes what is going on as "the greatest intergenerational wealth transfer in history". 

It's not a matter of care or not care, PhilBest. The role I have appointed myself to at interest.co.nz is injecting some facts about local government into the comment threads. Unlike other regular commenters here I have spent weeks shut in a room with other senior council managers and councillors going line by line through 600 pages of budget spreadsheets, I have read the Local Government Act, I have read the asset management manuals, I have defended council practices in court, I have learnt in minute detail how the various departments do their jobs. 
 
I am really happy to give up my time to share my experience in this forum if anyone is interested. I am not here to defend local government; if you read all my comments over the last couple of years you will find I am quite scathing of the sector. But as long as people like Cameron Slater keep making basic errors because they don't know how the sector operates local government will continue to shrug off all criticism and sail serenely on.

Kumbel, you completely evaded my question. Instead you carried on attacking another comment I made somewhere else. 
My argument against DC's is the precise reason they never used to be levied. It was well understood that they were unfair to FHB's.
I don't care how much of an expert you are in Council proceedings if it means you will defend the immoral just because a whole lot of bureaucrats make decisions behind closed doors and you claim to know that they are all saints. They are not. They are doing massive damage to society, lining the pockets of the property fat-cats in the top 1%, and remaining in total denial and cover-up mode about it.
I say Cameron Slater has made a very valid point and I can quite easily believe the council bureaucrats to be capable of the kind of malfeasance he is describing. He generally has sources; he is not staking out a position on the basis of some supposition he dreamed up. 
I mean, the Spatial Plan assumed that every school playing field would have apartment blocks built all over them by 2030 or something. Stuff like that. How incompetent or dishonest do these people have to be before the lot of them get sacked or better still prosecuted? We are talking about real people, families and lives being impacted by a few unaccountable aparatchiks in offices driven basically by ideology, corruption, or a program of covering up their own past failures.
If they are not actually corrupt and dishonest, they are incompetent and blinded by ideology. But I find it very hard to believe that the real-life-evidence-denying outcomes of certain "studies" is a result of incompetence. It is not Garbage In, Garbage Out; it is Carefully selected ingredients In, Pre-determined "findings" Out. For example, how can any "expert" claim that the lowest density, fastest-sprawling urban model run results in the most unaffordable housing and the worst traffic congestion? Even the urban modelling profession per se knows that is untrue. Only careful deliberate rigging can produce "sun rises in the west" "findings" like those. 
 

PhilB I am of the opinion we do not have rule of law in the real sense here in NZ. We have chains of bureacrats who are very senstive to 'which direction the wind is blowing'. So it is not a matter of what the law wants but what the powers that be want.
 
Check this out.
 
A leaked internal ACC document claims successive governments have manipulated the scheme for their own political ends.
Produced for former chief executive Ralph Stewart , the document contains a chart showing a correlation between the government in office and the inflation-adjusted payments made by ACC.
According to the document, Need for Change, ACC is "demonstrably inconsistent" and claimants are treated differently according to "political cycles".
A former ACC director  aid the swings in policy were achieved through governments appointing the ACC board, which instructs chief executives what is required of them.
The message was then sent to case managers through targets, policies and directives
 
NZ would greatly benefit by having someone independent of the executive appointing the judiciary and important public institutions. I have thought for a while that with NZ's political setup the easiest way to do that would be for the Speaker in Parliament to take that role and for him/her be selected by an absolute or near absolute majority.

Were you paid for or elected to that position?
Did you actually have say or influence or agree in some form the basic way the council decides to operate (on behalf of others no matter what their opinions and take whatever money they want)?

Because many of us readers on Interest.co.nz don't get those options.  Pay for a bunch of stuff they don't want and don't get the opportunity to use, and who would rather see their money used more appropriately in their own businesses/lives.

While your contibution and insight is appreciated, remember the big rub is that as the fleeced public, we get no power to stop these thieves, and that will create distrust and dislike.

Staff member (should have made that clear).
 
I see my contribution here as giving insight into the mechanics of local government. What you make of that is up to you.
 
From time to time I probably will say where and how I think it is possible to influence local government spending but again what you make of that is up to you.
 
For example this post has the usual suggestions for reducing head count and cutting the fat. When you do the numbers this is not a great suggestion. If you pay $2K in rates a year a 10% cut in payroll translates to $40 off your rates bill; divide that by the average number of inhabitants of a dwelling your personal share of that is about $16 or four lattes.
 
If you want to seriously reduce rates campaign to close libraries and pools and sell off sports grounds because that's where the money goes.

I don't drink Lattes or other fancy coffees because I'm deleveraging my own debt. Single dweller in this abode.
I pay 15k in rates a year.

Using your numbers that's around $300 for me personally.  That's a weeks wages in the hand for me.

And yes we should close those things, or at least get those people who want those options to put their money where their mouths are.  I do not want to be offered those services, I have neither time nor inclination and they are closed when I'm not working anyway so it's not like I even get an option to use them.    I have far more interesting projects I'd rather put that money toward, my money, my choice.   Other people want the option to go to sports events or libraries etc then that's their business - but if they're unwilling to pay for them, why am I forced to pay.

And the argument of it's "only a little amount" shows the naiveity that we're fighting against.  Take a look at your power bill.  A unit of electricy is "only" about 17 cents. with a very small charge for transport (it's a very big and expensive network, your portion per unit is tiny), and is the small daily meterage fee which covers all the meter costs...yet you have a look at your power bill at the end of the month!  Many people struggle with a huge bill but each little bit they use adds up.  The tallest buildings in the world are made with tiny sand and gravel.

if it's such a tiny amount...then perform without it.

That's what cost me my first business.  The little costs.  apetrol, for trip to pick up parts or see a client, under a dollar. Grab a roll and coke cheap, on the run during the day to keep energy levels up while working or between clients. not budgeting for extra lot of freight when suppliers split an order. 1 in 10 freighting costs for faulty returns. shouting a coffee to a client. 9% interest, for 2 days, because establishing trade credit was very difficult if you don't know people (in cash industries).  All the little bits add up, like sand in gears.

The evidence for this is the constantly increasing rates.  Even as service providers, grandfathering debt and sinking funds should see services get cheaper, not more expensive.

Yup, and lets get rid of council funding for roads too, that is a huge chunk of the rates budget.  If people don't want to pay to drive their cars down the street, why should i pay?

Why impose this tax only on first home buyers?  Why should investors purchasing new properties and renting to new residents be expempted, but if those same new residents purchased the house themselves the levy would be due.  Seems unfair and changes the rent or buy dynamics, and you will end up with investors buying more homes and FHB less, and then getting less income from the levy than you expected.
 
Should be levied on all additional house purchases not matched by a sale.  ie.. people bying their first home, people buying their first rental, people buying their second rental.  But if you are just moving, buying one and selling another, it's not due, as you are not adding to demand for more houses.

dtcarter I don't think PhilB was seriously suggesting this as an option, he was just saying that it would be cheaper for FHBs to gift $50,000 to their Local Council and in exchange get rid of all those development restrictions which have added something like $200,000 to the average house price in the last decade.
 
There are other options instead of direct charges. Councils could get the GST from building costs, that is probably enough alone to fund new infrastructure. Alternatively special rates could be tied to the new rateable properties that pay off development bonds (my preference for infrastructure costs within but not outside the subdivision). Or Councils could get a share of PAYE or petrol taxes.
 
What we are doing now is incredibly expensive with very little to show for it.

could just add it fair too all local property owners (including government and police :) )
make everyone pay their 50,000 over 20 years - that way when people move on they automatically have paid their share pro-rata, and landlords could be responsible for retrieving the amount from tenants (or footing the bill themselves whle properties are empty).

We could call this system "rates".....

So the REAL question is, why are the councils double dipping?

Exactly, the problem is Councils have many older residents on fixed incomes who are more interested in keeping rates low than in providing amenities needed for the next 50 years. They vote, younger people just move on. Because lets face it, oldies will not be around to benefit from new amenities. They happily enjoyed parks, roads, playgrounds, libraries etc paid for by rates in their younger years. No DCs, FCs for them then. But now when costs have risen they are not willing to continue the social contract and help fund the next generation's public amenities.
 
They might think it is bad that their children/ grandchildren cannot afford housing but suggest to them that more rates or some other local tax is needed and suddenly they are all talking about how fair and logical the whole DC and local government planning process is.
 
Really it is so stupid. IF the oldies want to be looked after by cheap migrants while there kids are living overseas it is hard to see a better way of achieving it.

Brendon whilst what you say is probably correct in general, I think we have to be careful about their motives. For your average retiree their income from fixed interest investments has more than halved over the last 5-6 yrs as borrowers and businesses were bailed out by the RBNZ, and frankly many of them are struggling to pay their rates as is. 

Grant I think I went a little over the top in that post. I did not really mean that it was oldies fault and it is there responsibility to fix it. Just saying that a social contract that used to exist doesn't now and it is causing all sorts of problems. I think it could easily be solved without unduly taxing oldies. We just replace DC's and the planning system with a better form of taxation and better regulations.
 
To give you an idea of the scale of the problem, the railway underpass I mentioned above is budgeted to only cost $80K. That is only $40 per person in Amberley. I probably pay more in petrol tax in a week. The bridge and bypass Ashburtians are complaining about is budget for $15 to 20? million, about $1000 each. What does that compare with how much tax Ashburton pays. Ashburton shouldn't be demanding the NZTA pays for the bridge. They should tell Wellington they are going to keep some of their taxes and do the job themselves.

social contract is a big lie used to fool people into accepting a weak position that has not other side to it.

People think they have a social contract (eg your rights in respect to the State) until the party in power decides not to agree.  thus there is no contract at all, just what the lion can talk out of the lamb,

Otherway around actually.
The oldies were there when there were no amenities, the councils took large loans upfront which paid for all those things.  And the oldies rates paid the bills.

But the councils were full of people who saw needs before finding funds, and who just assumed councils supplied such things magically, so instead of paying off all the old things and then pricing up new projects, they brought more stuff "on tick", much of it white elephant or even consumable projects.   They loaded this debt on top of the old debt.

to the point that the councils are swamped in debt and people (local and central government) still trying to outspend their income.

Those old people have already paid for their parks and libraries.
All the fancy stuff that's put on top...that's for this and the next generation to pay for.

But councils have already overspend, thus the need to double dip for funding.  

Yeah - my ex-used to do it with her credit cards and reconcilation loans too (and she worked in banking!)

Better way to achieve it, is not to keep spending on unnecessary frills and consumables.  Same as any overspending problem, best way to achieve solution is to stop overspending.

Brendon says
Older residents on fixed incomes are more interested in keeping rates low than in providing amenities needed for the next 50 years
Stupid oldies want to be looked after by cheap migrants while their kids are living overseas it is hard to see a better way of achieving it
 
Now, there's a couple of jaw-droppers for you
 
Just for veracity, how's about you making some enquiries and advising us the date of construction of your local library and establishment, and acquisition and development of your local sports fields and public golf courses - in fact would be interesting to know what additional large scale "amenities" have been added in your community in the last 20 years, no, make that 50 years
 
David Hargreaves The detailed significant changes to the development contributions proposal included in the draft submission include: • seek changes to the definition of community infrastructure to include libraries, swimming pools, sports infrastructure and other public amenities libraries, swimming pools, sports infrastructure
 
Kumbel: library, aquatic centre, sports ground extensions
Kumbel: libraries, pools, and parks
Kumbel: libraries, pools, sport facilities
Kumbel: again: If you want to seriously reduce rates campaign to close libraries and pools and sell off sports grounds because that's where the money goes
 
Typically used for social infrastructure such as parks, sports facilities, libraries, museums, art galleries, aquatic centres (aint that a mouthful)

I didn't quite get that part of AC's submission either given that the point of the bill appears to be getting those items out of the DC scope. Possibly it's one of those long-winded policy wonk ways of saying "Nooooo.......don't do it!"

Unfortunately wonk ways tend to end up being a crooked path that people walk.  Rather than give the hard word , No it's way too expensive and won't work people are fobbed off with wonk.  Then bits of the wonk occur and nobodies happy.  I notice for example, that the Kayak and photograph portion of the PNCC mega upgrade to the Esplande ocurred.   For the usage it gets you could just offer people a free kayak with each visit and still come out ahead!

They also want to spend millions on an exotic bird display.  For the few people that would appreciate the difference (no common birds allowed), you could bus everyone to the Wellington Zoo for free and have money left over each year.  But people just weren't getting the wonk.  They wanted upgrades, they didn't want to trip to Wellington, they wanted it here....and of course they wanted it free of charge because they had no money.... (I wonder why they had no money)

Iconoclast the library in Amberley is actually only a few years old. The land for it was gifted by the RSA in return for a memorial area within the library. I think this shows the oldies are doing there best and perhaps Grant is right about motive. The oldies only have limit means to help but when they can help they do.

At approx 2 people per household, and $50,000 per household, thats 25K per person.
Just charge new migrants 25Kpp, and have the hospitals charge 25K per birth.  Pass it all on to the council to pay for the ineviateble new infrastructure costs their existence will entail.
 
 

Surely this all comes down to how we provide trunk infrastructure. Read Alain Bertaud below and Hugh or Kumbel or someone tell me how we will sensibly do this.
 
It is time for planners to abandon abstract objectives and to focus their efforts on two measurable outcomes that have always mattered since the growth of large cities during the 19th century’s industrial revolution: workers’ spatial mobility and housing affordability.
 
As a city develops, nothing is more important than maintaining mobility and housing affordability.
 
Mobility takes two forms: first, the ability to travel in less than an hour from one part of a city to another; and second, the ability to trade dwellings easily with low transactions costs.
 
Housing mobility allows households to move to the location that best maximize their welfare. Affordability is the ability for any urban household to be able to rent a dwelling for less than a 25% of its monthly income, or to buy one for less than about three time its yearly income.
 
The mobility and affordability objectives are tightly related. A residential location that only allows access to only a small segment of the job market in less than an hour commuting time has not much value to households, even if it is theoretically affordable.
 
Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land. Planners, therefore, have a key role to play in ensuring an elastic supply of land by auditing land use regulations and by planning new trunk infrastructure that would allow the development of new areas or faster travel time to already built-up areas.

Kumbel Re: As for trunk infrastructure any IT geek will tell you cities have to abandon star topologies and move to a bus architecture.
Tell me how we sensibly move from what we have now to a bus architecture to better improve workers spatial mobility and housing affordability.

easy.  Moore's Law.  Increase packing density.

So nobody wanted to take up Alain Bertaud's challenge of reforming the
 
Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land. Planners, therefore, have a key role to play in ensuring an elastic supply of land by auditing land use regulations and by planning new trunk infrastructure that would allow the development of new areas or faster travel time to already built-up areas.
 
Instead everyone preferred to whinge about rate rises, useless/ greedy ACC, the peaking of oil, those talking about the peaking of oil... What a bunch of whiners Kiwis have become. If we are not prepared to honestly discuss the facts and find a positive way forward then what is point of all this bla bla bla.....

For the record I will say again I am in favour of central government transferring responsibility and funding for transport to local government. The funding could be some of the petrol taxes, some of the PAYE, it could even be some of GST on new construction like the NZ Initiative proposed but not the GST on land. Some sort of bond loan system paid off by a special rates is also possible instead of up front developer costs that gets past on to the buyer but that is more applicable to within the subdivision infrastructure. In exchange Local government would commit to monitoring medium house prices and endevour through the above to returning the ratio of house prices to medium incomes to about 3 over the next decade or so (say by 2030).

Kumbel, Dale, Hugh, Phil, Waymad, Grant, Anybody. Tell us how NZ can achieve Alain Bertaud's challenge.

Hi Brendon – as you know, I lived and worked in property development for some time in Texas, as well as in NZ property development. In my opinion the solution is easy, I can see it easily on the other side of the chasm, but achieve this solution with minimal damage to status quo, it needs to happen in a number of steps. However, it is hard to jump any chasm in more than one leap, without considerable pain. Why it is important to look after the status quo is because all those who own property or who derive income from high property prices have a vested interest in keeping property price high even though many agree this is not in the long term best interest of the economy and future generations, their grandkids included.
Treasury have realised this, and have stated that they are going to ‘limit’ property appreciation to 2% per annum. This of course is an average over all properties and with every average to make sense, you need to know the range.
That means if we are going to continually see property prices rising on average above this treasury 2%, then the bottom end of the range, on a like for like basis needs to be lower, if they are going to have any hope of a 2% average.
If you were allowed to develop a subdivision in NZ on how they do in Texas  then the price of a NZ section would at least ½ the price they are in NZ. I have done the figures and this is easily possible.
However for me to explain how to achieve this in this forum, there is not enough space, and the message would be wasted on two types of audience; 1) those that know and understand what I am talking about, ie the converted, and 2) those that cannot understand, or those that don’t want to understand because their income is dependent on them not understanding ie the unconvertible.
For all those others that read and wonder, rather than talk about it, it is best I show you how it is done, which is going to take some time, as it is going to be fought tooth and nail by those who do not want the status quo to change. Until then the best I can suggest is to research sites like www.demographia.com  to look how places like Texas can have GDP growth of over 8% per annum, high immigration, high employment, high new company growth, low interest rates, and affordable house prices. 

Hi Dale, I am not conviced that if section prices were halved it would have an immediate effect on the rest of the market. Lets say new sections a few kms west of Christchurch for a $100K. I don't think prices would crash in Christchurch overnight. I think it would slow sales down, a lot of people would choose not to sell and basically market prices would stagnate. Not everyone wants to build so there would still be some buyers for existing houses. Obviously over time there would be a rebalancing back to 3 times incomes, but I see it as a decade long process as more and more affordable houses are built on the affordable $100K sections.
 
Those sections can't be delivered all at once so people will have time to adjust. Also remember if housing inflation is tamed then this gives more leeway to the Reserve Bank plus it would put the construction industry on a stable footing, giving stable long term jobs rather than this boom bust cowboy stuff (no insult intended Cowboy) going on in Canterbury.
 
I think up until recently politicians have feared doing something and being blamed for cracking the eggs rather than praised for making an omelette. But given the rising pressure from voters and the financial system, doing nothing is looking all downside no upside.
 
I think the cracked eggs would be the property develepors with unsold $200K+ sections (the Todds and Pegasus comes to mind), but why should the wider public suffer to give a few business men gauranteed profits...
 
The next 12 months will be interesting.

Re: If you were allowed to develop a subdivision in NZ on how they do in Texas  then the price of a NZ section would at least ½ the price they are in NZ. I have done the figures and this is easily possible.
 
I quite agree with you and there are other ways to achieve the same 1/2 price sections. In the following article (We need new towns) I explain how using eminent domain (compulsory purchase) in my local area this could be achieved.
 
I think some sort of decentralised solution like Texas MUD's would be a better solution than Central government doing the heavy with compulsory land purchases for something that will end up in privately ownership, but it does illustrate the point that affordable residential sections and therefor affordable housing is easily achieved.
 
The problem for Central government's is that unless you are Muldoon 2.0 you will not do mass compulsory purchases so you have to go down the decentralisation road if you want to provide affordable housing.
 
But decentralisation means our government, John Key, Bill Eglish etc have to hand over resources, power and responsibilities to other decentralised organisations. I see that as the main problem, they don't want to. Key is a deal maker and he will not do anything to impede that, like before him Clark was a micro manager and before that Muldoon was a think bigger.  
 
Affordable housing as Alain Bertaud explains and I have linked to many times is closely tied to transportation (a key component of trunk infrastructure). Transportation needs to be planned for and resourced sufficiently to open up new areas for affordable housing. NZ is not short of land for housing, what we are short of is accessable land. It should be planners and councils job to provide it. MUD's or some other decentralised housing solution will not work unless it is tied to reforms to transportation.
 
Reforming transport this way means central government handing over ministerial responsibility, it means no more highways of national significane, it means handing over funding or taxation to an independent organisation who spends it based on local not national politics. I see this as the biggest chasm. Not the fear of hurting a few vested interests.
 
This spat over DC's is just a side show to the real problem.

The housing affordability problem is a little like the inflation problem of the 70s and 80s. The government of the day is trying to avoid doing what works elsewhere and hand power over to independent authorities. In this case decentralised political entities.
 
So I see a Helen Clark or a John Key as the same as a Rob Muldoon. Different personalities and different politics of course but the same delusional exagerated belief in their ability to solve all problems.

New Zealand has a massive problem with transport as welll as housing. The issues are tied and will not be solve by a few Highways of National significance or treating the symptoms not the cause with Baby bonuses or Working for Families. In fact central government cannot simultansely develope the transport infrastructure of half a dozen cities and many more towns. Look what a mess they are making of Christchurch when they enter the development game. The solution is decentralisation....
 
HT Hugh for the below
 
Note what Alain Bertaud, former Principal Urban Planner with the World Bank has to say within the Introduction to this year’s Survey … that the focus of Urban Planners must be on affordability and mobility.
 
Remarkably … New Zealand has the worst traffic congestion in the developed world …
 
New Zealand Has Worst Traffic: International Data | Newgeography.com
 
… extract …
 
“1. New Zealand: The trophy goes to, of all places, New Zealand (Figure 1).  The average excess time spent in traffic in the three urban areas of New Zealand rated by Tom Tom was 31.3%. This means that the average trip that would take 30 minutes without congestion would take, on average, approximately 40 minutes in the three urban areas of New Zealand. This is stunning. New Zealand's urban areas are very small. The largest, Auckland, has a population of approximately 1.3 million, which would rank it no higher than 25th in Western Europe, 35th in the United States and 4th in Canada and Australia. Christchurch and Wellington are among the smallest urban areas (less than 500,000 population) covered in the Tom Tom Traffic Index, but manage to rank among the 20 most congested (Figure 2). Christchurch and Wellington have little in freeway lengths. “

Look at how roads are being fixed in Christchurch. Forget smooth perfect roads ...
 
The Christchurch Rebuild is one National's top priorties this government. Yeah right!
 
National's approach to finance is the same as the CEO who makes a profit by slashing new capital investment and halving maintenance costs. Good for a short while but in the long run the company will suffer.
 
Of course the CEO takes the perks of from the short term results, bonuses and a good 'story' to fool people into giving him bigger and better CEO positions.

Yup, can't believe they are slashing the mainteance and saftey budgets to pay for the RoNS, most of which have a negative return on investment.

Oh gods no!

Some local councils would be spectacular.
Others...would do decades of damage.  I think  that there is room for a local submissions process just to stop the eventual bankruptcies.

You know the above is standard in most developed countries. NZ is the odd one where everything government wise is controlled from a small hilly place not particularly close to anywhere. You think your Local Council is useless and wasteful go and have a look at Wellington one day....
 
Please can we stop getting help from the likes of these two Wellington goons convincing us that this is affordable housing....
 
 

To be fair the original post (ah...it seems so long ago and so far away) was the stoush between AC and the government over curtailing development contributions. Although the consensus here is pretty clear that AC should man up and stop whining the rationale varies from my concerns over "nexus" through to "they throw a dart to decide how much to charge then spend it on booze". Whatever. You'll get your chance again just stay the course.

Okay the stoush is between the govt and ACC about DCs and thank Kumbel and Waymad for shining some well informed light on the matter. 
 
But the reason they having the stoush is because the government is being put under pressure to do something about unaffordable housing. However this stoush is resolved it is not going to give us affordable housing.
 
Which gets us back to Alain Bertaud's challenge.....

Kumbel - are you confirming that councils have a fund that this accumulated depreciation, over the years, is going into, eg a sinking fund, and none of this CAPEX is used for OPEX?

 
Short answer: yes.
 
Long answer: I can only talk to the accounts I am familiar with as I don't think there is a law that requires councils to operate this way but this is how I saw it work:
 

  • Every activity (Roading, Sewer, Library etc) is accounted for separately and every set of accounts has capital accounts and operational accounts
  • All private and public businesses charge depreciation on longer-life physical assets as a legitimate operating expense. 
  • In the private sector depreciation lowers tax liability and boosts after-tax profit. This profit may or may not be used to replace existing assets as they wear out or used for some other purpose.
  • Local government plays for the long-term so it is assumed that when a bridge wears out it will be replaced. As councils don't pay income/company tax they simply retain depreciation in reserves for the purpose of funding future replacements. BTW when you hear of a council making a healthy operating surplus it is almost certainly retained depreciation/vested assets.
  • In practice there isn't a jam jar (thanks, Hugh) for every asset just a big one at the network level so councils simply transfer depreciation straight from operational accounts  to capital accounts. This funds today's replacement projects (not routine maintenance). So fixing potholes on a road is funded by the opex maintenance budget but, if the road needs a major makeover (area-wide treatment), it is called capex and funded from the capital account.

 
Basically the Local Government Act requires all councils to run balanced books at all times. Its operating revenues must be set in such a way as to meet its requirements for operating expenditure. Councils can only borrow money for capital works. If I have read those provisions correctly then it would be illegal for a council to deliberately budget to dip into reserves to fund operating expenditure.

Has this been a recent (last 20yrs) change then?

The local Tararua council (about 20-25 yrs ago) built up a war chest, as was operating in the black.  Theory being that it saved reatepayers interest, because the council shouldn't be looking to leverage CAPEX against future profit, thus it made sense to be paid interest on funds rather than have to pass on lender interest.

Central government decided they had been overcharging the rates because they had available funds in accounts (approx 1 mil). and that was giving them a tidy little un-connected bit of funding.  Thus Central government threatened the council members with legal action, and demanded the entire amount be spend otherwise it would be seized.   The councl resisted for a little until they realised no others would side with them, and every since has made sure the banks get their bakesh.

Sadly the interest and opex (and loss of interest income) have increased the rates considerably, and severely reduced the council ability to fund operations.  Previously it was a case of "do we have the cash y/n?"  now everything has to be planned out years ahead and carefully budgetted for repayments and opex income.
 

Whaleoil suggested by PB? Must be the truth then, No agendas there, that's for sure.
 
oink oink we have lift-off.
 
Buy the better debate is the Brendan one above. LG cost will escalate well beyond the rate at which incomes escalate, and the graph is the one David Chaston put up from BP.
 
fhttp://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf
page 16.
 
Every digger, every pipe, every load of bitumen, every delivered everything - will 'cost' (for those stupid enough to be still counting in dollars at the moment, and who don't understand what that graph means) more. The hithertofore ratios (temporary, though Hughey hoped they were not) are gone for all time. That graph tells you so.
 
Don't ever expect Whaleoil to acknowledge such, though. Or the ancient one.

Thanks PDK. I think the rising energy costs last decade are an important factor in rising LG costs and therefor rising rates. Construction is very energy intensive. In 2002 oil was under $20 now it is over 4 times that price.
 
But in NZ at least I don't think energy costs will continue to escalate at this rate. We have not peaked in Wind, hydro, Geothermal or Solar yet.

You have to seperate static power from transport power, you seem to treat them as interchangable, they are not.
The problem is the cost of  transport energy into our economy which is pre-dominantly fossil fuel based and will be into the foreseeable future.   Especially as we seem oblivious to the problem and so are not even attempting fixes.  eg tallow to bio-fuel plants etc...
Hydro has a bit to go but Im not sure I see any major % increases, I think we'll see wind and solar....we do have tide but there is no sense of urgency.....we'll let the free market decide it seems.
I posted earlier on pakistan 5% of its wood left, not much else on the horizon for cooking fuel....its not exactly the stablest of places....and it has nukes.
In terms of escalation, we found that at $147US a barrel the economy couldnt pay it back in 2008 and went into serious recession. Now we are circa $100US and we stagger along in stagnation, while the Fed has the world on life support....so Im not sure there is much headroom in fossil fuels.
Yes I think we'll find that there is some headroom in electricity yet, both price and capacity.  The "interesting thing" will be how we cope with using it as a transport power source.
PS Some corporate raiders/parasites seemed to think that 80cents a kwh is "fair"  in NZ shows the la la land they are in. We'd have a revolution before that price me thinks.
regards

As I have said before the situation is not without challenges....   : )

Demise of Peak Oil Theory
by David Deming
http://www.informationliberation.com/?id=39144
"......The Peak Oil theorists, the malthusians, and the environmentalists were all wrong. They have been proven wrong, over and over again, for decades. A tabulation of every failed prediction of resource exhaustion would fill a library......."

and the trend up doesnt stop, all we would see is a step down, so gain a few years and after it wakes up? are you that slow mentally to see that?
regards

If the small chance of a mini ice age happens (and it moves temperatures by as much as last time) we will see temperatures last seen in the mid 1960s while it lasts. But for now, shipping via the Arctic Ocean is getting so busy that the arctic is getting its own shipping code.

Phil in a sense it doesn't matter much if oil quantity is peaking or not. Or fossil fuels in general. At current prices renewables in NZ are the cheapest option for new energy production. My informal poll of taxis drivers seems to indicate hybrid cars are the most economical too.
 
A renewable revolution is underway in NZ.
 
Windpower has gone from hippie weirdo fantasy stuff to accepted mainstream use in less than 20 years. Solar is in the early stages of doing the same. There is still some growth potential in geothermal and hydro. Who knows if tidal/wave power or biofuel is the next go mainstream? Battery technology is improving year on year in a Moore's law like way.
 
My electrical engineer friend thinks in the medium term solar power and battery technolgy will improve to the point that new 'electricity' companies will offer householders all the PV panels/ batteries etc. for less than what you pay in electricity bills from the grid.

Dont mix static energy sources with transport energy, it takes energy to convert across that destroys the EROEI.
regards
 

I have said before that I think in our urban environments light vehicles and public transport will run off electricity derived from a massive increase in wind and solar with some baseload support from a smaller amount of extra hydro and geothermal. Heavy vehicles and rural vehicles will run off biofuel derived from tallow, waste wood and farm grown. Scarfie thinks 10% of a farm will be allocated to making fuel. This will be a generational project taking 10-40 years.
 
Given existing technologies NZ is quite capable of making this transition and we should be graduallly moving that direction sooner rather than later. Not only does it make transition easier, it is good for global warming and our international creditability.
 
Thinking we can find some wondorous new resource in the bottom of the ocean so we don't need to worry is lala land stuff. As PDK says you cannot ramp into a non-renewable resource and think it will last forever. That is Easter Island chopping down the last tree thinking...
 
What I disagree with is saying that our completely disfunctional local government system will somehow through UGB, density requirements, development contributions and miserly funding for new capital projects help NZ to adapt to a changing energy environment.

Thank you, Brendan. 
"Science and technology" are meant to be positive and optimistic subjects.
No Malthusian is really honestly a scientist at all.
And can you tell me if you think there is any inherent reason why any Malthusian has to be so pig-ignorant about the unintended consequences and sheer unhelpfulness of "UGB, density requirements, development contributions" and a wealth transfer racket in urban land.
The fact that these types steadfastly refuse to engage with economic and financial realities on an economics and finance site makes me wonder why ever the forum's owners tolerate this time-wasting and needless diversion. They are either so thick that they shouldn't be allowed to waste everyone's time here; or they are so dishonest that the same applies.
I presume most forums devoted to specialist subjects would not tolerate hijacking by trolls pushing a vested corrupt agenda under a smokescreen of either feigned or genuine ignorance.  

Phil I know some people think this housing/local government debate is ground hog day but I actually think this was one of most informed debates we have ever had, with fantastic contributions from Hugh, Kumbel, Waymad, Dale Smith, DH and yourself. I think the 'malthusians' Steven and PDK kept to provable facts and actually contributed to the debate.
 
I googled audacity and didn't get anything, do you have any links for the British left wing housing affordability group.
 
 

Phil not to be impolite but it is possible Steven and PDK do not want to back down on the "unintended consequences and sheer unhelpfulness of UGB, density requirements, development contributions and the wealth transfer racket in urban land" not because they are pig-ignorant, thick or dishonest. They might just not like you or Hugh. It may be easier to continue their poorly thought out arguments rather than admit error.
 
It is also important to acknowledge that although they are incredibly arrogant, often acting like they are better than everyone else and would make terrible leaders if in positions of power, they would be eco-fascists as you say. Sometimes they do say some things that are true. It is very difficult because of their nature to engage with them where you agree with them in part but not whole, but I feel some sort of attempt should be made.

They do engage in economic and financial realities Phil.  The just don't agree with you on the validity of some of the critical points - and they have good reason at times.  

Peak Oil is a game changer, or do you think that when supplies get short that the US is just going to share it's reserves cheaply with the world?   Or do you think that the US isn't the kind of places which would use everyone elses oil for beads and blankets, then corner the market with it's own supplies?

I dont think the US and its reserves matter, I think it will go dark at some point, better for us.
regards

No, they are factual and honest....nothing positive or optimistic at all, in the sense you are trying to use it anyway.
You can take the information and data arrived at and use it in a positive way, but in your case you do none of these, instead choose to corrupt.
regards
 

It's not only that steven.  One big bugbear of energy storage is energy density, it's dangerous and it's heavy.

The beauty of consumable fuels is that as the journey goes on the waste products just get dumped into the air for everyone to breathe - but at least the vehicle gets lighter as it goes, and thus more efficient.  And a good high density liquid fuel will just sit sweetly in the bottom of a tank.
 Gases are more complex, as it needs a pressure cyliner of good quality, mounting brackets, regulators and safety values and some refill option.  In transport machines space is at a premium, as more space equates to more materials, longer spans, heavier or more technological advanced (expensive) chassis, and all that has to be pushed by the motor reducing it's apparent performance.
 Electricity is even more tricky as with current systems the batteries are quite fragile and/or bulky & very heavy,and that weight of battery or mounting doesn't reduce as travel occurs.  The beauty of electricity is that there is no "idling" requirement, not that many modern engines should require it anyway.

Algae based biofuel is on the way but I'm thinking it'll be another 20-30 years yet, and then the questions will be raised about oxygen consumption, 
 

Yep, all true points.
Hence, sure we see torries on local runs being converted in the US to Ngas, but 18wheelers trans-continent? uh no not really.
Algae is an eroei of < 2 to 1 so I dont think it will ever make it.
regards

I see Cummins as well as Volvo getting into long haul gas conversion. Why do you trot the short haul myth - did you think the Volvo lin posted couple of times was fictitious?
Here's something from the NY Times. Cleaner air, better fuel efficiency - you think it would make a greenie happy.
http://www.nytimes.com/2013/04/23/business/energy-environment/natural-ga...
Trains, ships... anybody on point is made not to convert given the oil-gas price differential.

Ships would be interesting...
I look at the medium and longer term, lots of short term changes being done based on the shale gas being cheap and plentiful.
Im watching long haul with interest actually, the energy density etc makes it un-economical unless there is a huge price differentiation and that could be as short as 3 years, so no point.
"The company is benefiting from incentives provided by various states and the federal government, which offer tax credits and grants for installing natural gas fuel stations and using vehicles fueled by natural gas."
As per that piece, if shale gas does indeed peak in 2016~7 then the price will climb, then the cheapness offseting its dis-advantages goes.
Oh and I see long haul NEW engines as saying they are gas, but older stock being converted seems to be mostly short haul.
Also of course it isnt the free market but the US govn giving incentives.
regards

Come on shale gas is not expected to peak by 2016-17 it is booming out to 2040 on latest EIA estimates. Wait to the rest of the world takes on US frackign technology. So if you buy a new natural gas fuelled truck/train/ship you have a long time to pay it off. Lets say oil peaks as you suggest, once ot twice, then the price differential will be huge and you would be crazy to not switch. With all of Chinas air pollution problems and vast reserves of frackable gas more and more transport will make the change.
Oil peaking, I can't believe I wrote that.  The raped and pillaged  Permian basin "peaked" in 1960 and now look at it. 

You odnt even know that,
Peak oil is peak conventional crude oil, hence its peak crude oil if you want to be correct.  Conventional sweet crude is also the cheap and easy to get stuff, so put 1 to 5 barrels in and get 100 out. That is a huge net free energy gain.
lets look at shale gas.
http://www.theguardian.com/environment/earth-insight/2013/jun/21/shale-g...
"These shale oil and shale gas resource estimates are highly uncertain and will remain so until they are extensively tested with production wells."
So yes the EIA has said its technically recoverable.
There is crude oil in the ground/deep sea that is technically recoverable, the point is a)EROEI and its b) actual economic cost, so for b) if that oil and gas is above $150USD a barrel its almost certianly not economic to recover and never will be by the free market.
Shale oil US has 58billion barrel of oil. USA consumption is roughly 6.8billion barrel per year....so maybe 8 years consumption...
Shale gas looks like dodgy figures,
"Two years ago, following the publication of the EIA April 2011 report aNew York Times investigation obtained internal EIA communications showing how senior officials, including industry consultants and federal energy experts privately voiced scepticism about shale gas prospects.

One internal EIA document said oil companies had exaggerated "the appearance of shale gas well profitability" by highlighting performance only from the best wells, and using overly optimistic models for productivity projections over decades. The NYT reported that the EIA often "relies on research from outside consultants with ties to the industry."
So really relying on such data seems dubious...
regards

 
 

Right so the EIA is "dubious" and I should get my info from the guardian and the ny times... gas isn't running out any time soon and the has oil price differnential reflects that. Saying gas productoon is going to peak in 2016/17 is ridiculous. Gas production is expected to expand by 160% by 2040.

Funny thing but I'd assume that being a free marketeer you'd be anti-Govn and question their work. Here are some privately owned and operated newspapers exposing the EIA's conclusions as dubious at best.  Yet you blindly accept the EIA's numbers because that suits your outlook, very strange.
I didnt say gas was running out anytime soon, I commented on its peaking. It seems you are unable to grasp the concept of a maximum production rate being reached and then declining to eventually no more output, but that's how it is.  When it peaks and if the demand is still high and wishes to climb, free marketeering kicks in and you will pay a lot more.
Gas in 2040, even if thats the case and looking at the costs and fall off in production, yeah right. No matter really its still a peak and a fall off.
Not just the NYT either, some other sites all point to these numbers being dubious and un-realistic.
Oil, well,
Even if you take the latest 2014 figures for oil  there is a plateu at 2015 and that carries onto 2019 and then it drops away.
"Yet as geologist David Hughes and financial analyst Mark Lewis reported to roughly 40 Trans-Atlantic Energy Security Dialogue attendees two weeks ago, the U.S. industry is battling raging production decline rates, the tailing off of sweet spots in our two largest shale oil plays, the brutal reality of an accelerating drilling treadmill, and relentlessly rising costs."
http://peak-oil.org/2013/12/about-that-eia-hail-mary/
Quite simple really, if you thing its a good bet do like GBH and buy up shares.
regards
 
 
 
 

http://www.eia.gov/forecasts/aeo/images/figure_89-lg.jpg

Sigh, you did say the gas was running out soon...! Remember three posts ago? "As per that piece, if shale gas does indeed peak in 2016~7".

Gas isn't peaking anytime time soon before 2040 especially given the rest of the world has not started fracking yet.

No, I didnt say gas would be running out.  
Two things a) when I talk about peaks it means maximum flow per day is acheived by then if there is demand to match and I would think there will be the price will have climbed something like it was in June/July 2008...
b) Gas and oil will run out, or we as a global economy will get to the point that we wont be able to afford to extract the little left, in effect we wont be using gas and oil in our economy, ergo we'll have a lot smaller economy.  This is in my life time, I'll assume yours as well or at least my childrens, ie 2030~2060.  Before then we have the pek in crude oil and we can see the effects on our economy right now....so we start to shrink about now....within this decade by the looks of it.
Economically/cost wise fracking is also questionable, also whether we could get the water and the voters will to do so.
Finally AGW...we cant afford to burn it or we are gone as a species with a society/economy by 2100~2150, ie 4~6DegC rise and we wouldnt have a agricultural system.
So reallym yeah if you want to think of tomorrow as, well the next few years OK, I dont, I look at the next 100 years the life span of my grandchildren and beyond.
regards
 
 
 

"peak "X" "  isn't when the "X" runs out, it's when the market hardens and alternatives start being more viable.  They become more viable when the factors involved make it too expensive or too intensive/risky to continue using it.

eg peak crude, is when other options make a better engine or alternate fuels more effective - to achieve this, crude based petroleum must be expensive (eg getting more scarce) and/or experiencing shortages, or suddenly become old technology (unlikely for this scenairo).  The result is that systems relying on the peak product will mature and get more costly and harder to support/justify and more importantly development of that line of technology will vanish.   Think "peak WinXP" or "peak DOS", if you have a system that needs those things your life is just going to get harder and harder, and you'll find support and parts impossible.

Thus it is with "peak oil" there will be oil, but you'll be paying through the nose for it, and every product or service that relies on it will also be punitatively priced.  If you happy to become uncompetitive that's your call but you'll be the dinosaur (juice ;)  )
 That's why final reserves aren't really a strongly relevant figure.

The EROEI is lousy, but the scope is very large, it's cleaner, more versitile, much more dense (compared with other biofuels, it can be stacked) so it can be grown in a variety of space efficient configurations (rather than "flat earth planting"), it lends it's self well to sealed/contained scientific improvements (unlike "flat earth" crops). Doesn't need bees.  The storge techniques bode well for reduction in parasitic insects and plants making control compounds a non-issue along with all the side effects of those control compounds.

 I doubt it would become sole fuel like petrol or diesil, but I could see it used as feed stock for fertmentation processing which would result in an energy dense product that handles a niche (eg long haul, where the miles and conditions don't favour non-liquid).  Yes the EROEI sucks, but unlike many other options it's feasible.

Also some algaes are being built that produce other benefits (eg hydrogen and methane release) so there's a possibiliity it might end up as co-product.

That piece is so full of falsehoods and mistakes I dont know where to start.
Its a joke.
I mean,
"Unanswered was the question of whether or not US production had declined simply because it had become cheaper to purchase imported oil."
The answer is no.  Oil is priced globally, at the same price give or take a little depending on quality. The US has drilled like mad, its one of the most explored and drilled countries on the planet.   When the oil climbed to $80+ around 2004, where was the rush in the US to drill? Sure they did, did they release huge quantities? uh no....
Some of the other  numbers dont make sense...for instance "It didn't. World oil production in 2011 was 26.5 billion barrels" 
The problem is it contains no references...so no way to verify his "opinion".
So crude oil, which is what Hubbert talked about is around 70mbpd at present.
http://www.indexmundi.com/energy.aspx?product=oil&graph=production
He makes no account of EROEI....and prays technology will fix it, when he clearly doesnt have any technological capability himself.
its crap frankly
regards

That's always the best you can do. Ad hominem scoffing. Check out David Deming's CV. He has more authority on his subject in his little finger than you will ever have in your whole lifetime in your whole body.

David Deming is associate professor of arts and sciences at the University of Oklahoma
Doesnt matter though as you just have to look at the numbers he's quoting and then of course his politics.
So really its an opinion piece that seems to contain a lot of errors and political blinkers, nothing more.
So for instance the weight of argument at say ASPO...if you want to play the "whos got the best"  CV game...
regards

Hubbert, Ehrlich, Brown et al are  to the Eco-Fascists what Marx was to the Bolsheviks. Plausible sounding quasi-intellectual justification for tyranny. God help us if the Eco-fascists ever get into power. 

"Sure they did, did they release huge quantities? uh no...."????
Uh yes they did did release huge quantities... you're looking at the wrong graph.
http://www.indexmundi.com/united_states/oil_exports.html
The charts is a bit dated but you get the drift.
 
 

Or nonsense. There are only a relative handful of people in the country who genuinely understand local government finances. Cameron Slater is not one of them.
 
For Cameron's article to make sense you would have to say it's acceptable for the owner of a block of 10 flats to depreciate them as though they were a block of 20 because that's what s/he would build next time. Generally Accepted Accounting Practices (the rules of the game) don't allow for that.

Hi Kumbel - Thanks for your earlier reply. Which I am checking against other sources, as while I agree with some of your thoughts, I know through the use of creative accounting (maybe the accounting 101 as you mention) councils are able to loan money internal from capex to opex, and maybe back again, fly under the auditors radar and are perfectly legal, but are still partially responsible for the mess we find ourselves in visa vi the high cost of housing, and land in particular.

However, I think you have inadvertently hit the nail on the head when you said that only a relative handful of people genuinely understand local govt. finances (I am hoping this number is greater than 74 so every local council has at least one person in them that understands local Govt. finances), yet earlier you say this is all accountancy 101.

Something so simple in principle that no one can understand, including those closest to it.

Brilliant.

Dynamo the magician. Take cheap rural land, some creative accounting, it’s all legal, and hey presto, while no one understands how, land price has escalated to 20x rural land price.

Ta.
 
All councils conform to GAAP as do all public sector entities. That's the Accounting 101 bit. But council finances are pulled together in a really complex way using these basic tools, mainly because councils are really conglomerates of 30-40 businesses housed under one roof.
 
I would be really surprised if you could find an example of reserves being loaned to operational accounts. It's illegal - end of story. Even Audit NZ would pick that up eventually. Maybe some overhead accounts but none of the publically published ones.
 
Councils do run internal treasury functions so money is always being loaned between capital accounts - perfectly kosher.
 
I think maybe 1500-2000 are in the know: a good handful at each council, a few councillors who stayed awake and some ex's like myself.

When I was first with the power board we had a Finance man that use to do that, he was an accountant by trade. all though the worst accountant I've met.

When a profject was allocated, he'd pull down a loan based on it, put the funds in a suspense account, memo the action.  Then he'd borrow money for opex bills from the suspense account. memo that.  And every 90 days he'd roll over the floating loans and pull down more to cover the shortfall in the suspense account.  Every year/other year he'd sell off a powerboard asset or take a long term loan to reset the increase in the 90day accounts.  The assetsale, of course, would be through memo, linked to funding the original project, as you were allow to sell old assets to help with cap-ex projects (in fact it was encouraged as it was thought that it meant we would be progressively improving our assets).

I was in draughting office at teh time, and it was my manager who discover this when we decided to graph the power board finances over last 30 yrs (or for as long as we could get records.)  There was a steady 3 month & 3 year cycle for the 15 yrs he'd been employed but no-one had spotted it because of the loop and everyone figured the auditors who spot it (but they used to take a year to audit the accounts because of teh terrible job done of the basic accounts.)

Cameron Slater is an example of "new media" that runs stuff that the hidebound MSM won't. I think he is onto the issue of creative accounting in Councils, with well informed contacts. 
The MSM are basically enablers for most bureaucratic rorts. It is as if journos and bureaucrats are bosom drinking buddies or something. There are journos who have been moved on for daring to get too non-PC with their investigative journalism, eg into Councils malfeasance with rigged "studies" and so on. 
The whole area of urban planning needs a massive clean-out; it is all based on false assumptions and outright lies. The potential for corruption is massive given the size of capital gains that result from UGB's and upzoning.
Of course there is no shortage of dipwads around the place who are so blind to this and are such one-issue nutters that they say that these RE price shifts are because of peak oil. Unaffordable housing is because of peak oil, councils fiscal pressures is because of peak oil, child health problems in the lowest deciles is because of peak oil, slow recovery from natural disasters is because of peak oil, etc etc. Presumably "planners" can do anything; even if they had total powers like they did in the USSR to order people how to live and travel and work, certain nutters would say the economic failure of the whole system was due to "peak oil", not anything the planners were doing. 

For "well informed contacts" read "in permanent contact with spin-doctors".
 
Let's get something straight, PB. As in: fact. Oil - indeed all fossil fuels - are formed so slowly that for our purposes, they are finite.
 
If you ramp into any finite resource, it WILL peak. Sorry, but that's a fact. A truth. Immutable. (And the last half goes in one 'doubling-time'. If your system isn't crashing at the time, compromising demand, of course).
 
Which makes you a 'believer' - that's what you have to be to deny facts. Which is why I thinkl of you as religious cannon-fodder, and probably a creaking geriatric (backed-up by your dated McCarthy rhetoric).
 
The question about folk like you, is always "why"?
 
And the answer is always 'vested interest'. Even when such is denied, it can usually be found one layer down.
 
Nutters?  Perhaps you could explain to us, very simply, what goods/services are supplied ex-energy? And what value money would have in the same paradigm? Don't answer with the horsepoo about free markets and technology and the unlimited brain - I mean real quantities of usable energy, proven technology, and scalable.

God help us then.  He's a blogger with a rather right wing opinion and nothing more. That of course could get him in deep doodoo aka NR v Mann.
http://www.salon.com/2014/01/30/a_defamation_lawsuit_may_kill_national_r...
Fortunately while those of the same mind set will hang out there more moderate ppl will get their news from sites that, though I do pop in there for a laugh from time to time...I dont take him seriously.
regards
 
 

Fully agree.  I mean about the very limited number of people who understand the innards of the entire TLA system.
In a previous life I was the Treasurer of a small rural County through the horror-inflation years of the 1980's.  No such thing as DC's then, just Reserve Contributions which were there mainly for green space (which, in the rural environemt and small towns, was a token aspect).
In a later life, I worked inside some smaller Councils (City and Regional), on the data cubes that underpin the LTCCP's (then - now LTP's).  These cubes had two essential characteristics:
1 - a tree structure, which rolls up expense and revenue lines across the entire organisation (as Kumbel notes - typically 10-200 individual cost centres, each with allegedly unique characteristics) into one of three very broad headings (simplifying things considerably, here): 

  • Rates required (the political third-rail tree)
  • Other fees and charges (the who-cares, not a political hot-potato tree)
  • Financing required (care needed, but so technical - loans, reserves - that ordinary mortals tend to glaze over and look away)

2 - a set of business rules, internal to the cube, which associate two or more data spaces with calculation or lookup tasks.  An example of a very simple rule:  If account is in a Capex range, then for any expense in a given month, look up the appropriate depreciation rate from an Assumptions cube, calculate a depreciation increment, insert a three month lag, write into a Depreciation Expense account for the dimensions associated with the original capex (typically a cost centre/region/type of asset mix), for all future periods (future being the assumed life of the asset).
 
Councils are massively sensitive to the 'Rates Required' tree.  It affects their election chances and the perception of Councillors and staff in the community. 
 
The other two trees are in the who-cares box.  Finagling there is outta sight, outta mind to most plebs.  Both are quite technical, and directly affect perhaps 5% of the population count.  Thus who cares....well, 95% literally don't.
 
What the DC issue is above (which if y'all recall, is what this here Thread is about) is a compulsory shift TO 'Rates Required', FROM 'Other fees and charges' (and perhaps, from 'Financing'.
 
Hence the screams, toy-throwing and general hell-raising.   Because it means Transparency (although 'Less Murkiness and Obscurantism' might be a better label), Accountability and (crucially) a "Holy Crap, that's gonna sink My re-election chances" moment.
 
But not, of course, for the staff, who, thanks to a grievous oversight in the machinery of democracy, cannot be Voted Out.....or their indoctrination in the fad-du-jour of Planning or Funding easily de-programmed.... 
 
 

The only good speech I ever heard around the council table was in the context of a bit of swooning over a projected rates rise. One councillor stood up and declared he was comfortable with the rise because he and his family used the council services all the time and he thought he would still be getting good value from his rates. Only person I have heard say that.
 
As long as the community perceives that it gets little value from rates and council input costs keep rising faster than CPI our councils are going to have to start making some unpalatable choices:
 

  • closing service centres, libraries, pools and parks
  • amalgamating
  • genuine shared services/outsourcing

 
As you say closing off the DC relief valve will get the pressure building. Expect more tantrums.

The pressure is rising, when will she blow?
 
House prices rising.
 
The finance minister writes the problem is inelastic supply a year ago, says he will make reforms.
 
House prices rising, pressure rising, when will she blow?
 
Government tells Councils it is there fault, makes changes that put more pressure on rate payers and councillors, is that enough?
 
House prices rising, pressure rising, when will she blow?
 
Voters saying the government has done too little too late, pressure rising, when will she blow?
 
Private debt levels rising, the market is getting nervous, when will she blow?
 
House prices rising, pressure rising, when will she blow?

My experience in the high-inflation times of the 1980's was instructive here.
 
Asked for justification of the double-digit rate rises needed (Rates Required), all I could do (and did successfully - the Councillors - Jenny Shipley included - were all solid, down-to-earth types who could face facts squarely and non-politically) - was to point to a graph of general inflation, Construction Costs Index projected inflation, etc, and say:
 
' There is no absolute justification for these projected rises.  You are at liberty to strike a lower rate.  But if you do not at least strike rates so as to keep pace with the trend line across all these graphs (holding up the piece of paper), the County will never ever be able to catch up with costs.'
 
They listened.   They raised the rates. 
 
The horror years passed, as everything eventually does.  The County was later amalgamated (I saw it coming and jumped ship), but with a good financial position.
 
The good old days.....  one cannot count on Sense and Sensibility amongst either staff Or councillors, these days...Rates Required has become a political football, and the most expedient way to deal with that is to pile the cost increments into any other bucket.
 
Any.  I don't recall, in my work with the cubes, being asked to re-route accounts out of Rates Required parents.
 
But I have no doubt it's been done, and many times in many places, since those simpler days.

Its not just that it's little value (from the money spent) it's that what is offered is being unaffordable.

I would like a new tractor.  The old one according to the mechanic no longer has parts available and I have to drive holding the gear lever in position, so unless someone knows where there's a custom builder that can machine new synchro's for a tractor gear box it's just going to get worse.    A new tractor would fix this and be excellent value for money, but there just isn't the money available - it doesn't matter how good the new tractor will be.

Of course none of us may be talking about the same thing. Just in case here is a handy guide to funding new infrastructure:
 
1. Conditions attached to a resource consent: engineering conditions require the developer to form roads, lay pipes etc to council standards within the boundaries of the development. When the development is signed off ownership of the infrastructure assets passes to the council. The costs of this work form part of the section price.
 
2. Financial Contributions are defined in the RMA as a way of mitigating the impacts of a development. FC's are specific to a development (i.e. "arbitrary"), negotiated by the parties and can probably be contested in court. There has to be a clear linkage ("nexus") between the development and the need for the remedial work. Typically the developer pays part and the council the rest and the developer can seek return of the contributions if the work is not carried out by the council within five years. Typically used to upgrade roads (roundabouts, traffic lights, sealing etc) just outside the development.
 
3. Development Contributions are defined in the LGA as a general levy on newly created lots to contribute to paying for capacity upgrades. The link between a specific development and the capacity projects is much weaker both in time and location. Typically used for utility networks and social infrastructure such as parks, sports facilities, libraries, museums, art galleries, aquatic centres. The charge is standardised and the workings for the charge must be published in the Long Term Plan. Draft LTP's are audited before they are released so both the formula and the nominated growth projects are independently checked. DC's can only be returned if a proposed development lapses.
 
And when these funds are not enough the rest comes from rates - directly or via debt.
 
All of these mechanisms can be and are appllied simultaneously and all are passed on to end buyers through the section price.

Thanks Kumbel, it is my belief because the "link between development development and the project is weak" that DC's are just an arbitary development tax that is massively inefficient because of the way it affects the housing market.

That is correct. They are a bad "tax", period.
But Councils are abusing the powers they have been granted to levy these, as well.
I am raising a new argument with Kumbel on this, below. But that is not to say I regard DC's as acceptable on principle anyway.
 

It affects the housing market negatively, but is that actually reflecting the realities of the cost of supply?   Is it bad tax, or just painful market levelling?

As a layperson who submits to annual plans on ocassion, I much appreciate your posts Kumbel. Thanks.

Many thanks, CO. It's encouraging to be appreciated.

+1 to Waymad  too. It must be noted that the workings of LG is at the heart of many debates here at interest.co.nz yet we never get any input from planners, councillors etc (wimps). So it is great to have your perspective even if I disagree with some of what you say.     : )

Kumbel: the LGA 2002: what does the following mean to YOU? I know what it means to me.
199 Basis on which development contributions may be required
(1) Development contributions may be required in relation to developments if the effect of the developments is to require new or additional assets or assets of increased capacity and, as a consequence, the territorial authority incurs capital expenditure to provide appropriately for—
(a) reserves:
(b) network infrastructure:
(c) community infrastructure.
(2) This section does not prevent a territorial authority from requiring a development contribution that is to be used to pay, in full or in part, for capital expenditure already incurred by the territorial authority in anticipation of the development.
 
204 Use of development contributions by territorial authority
(1) A development contribution—
(a) must be used for, or towards, the capital expenditure of the reserve, network infrastructure, or community infrastructure for which the contribution was required, which may also include the development of the reserve, network infrastructure, or community infrastructure; but
(b) must not be used for the maintenance of the reserve, network infrastructure, or community infrastructure.
 
209 Refund of money and return of land if development does not proceed
(1) A territorial authority must refund or return to the consent holder or to his or her personal representative a development contribution paid or land set aside under this subpart if—
(d) the territorial authority does not provide the reserve, network infrastructure, or community infrastructure for which the development contribution was required.
(End of LGA excerpts)
 
The term "nexus" is not used in the Act; you are correct about this; but surely you know this this term comes from the judicial guidance in the case in Neil Construction and Anors v North Shore City Council (2008)?  
A High Court Judge interpreted the relevant sections of the LGA2002 to mean what I am saying they mean, and came up with the term "nexus" to describe its intentions. 
 

Yep. It says if you build a new dwelling and put people in it so that the population increases to the point where we need to build an extension to the library you can put some money in to pay for the extension. And s199(2) says if I think you are going to build a new dwelling and the library will break I can build the new wing now and claw back some money off you after you build. Don't over complicate it.
 
You are welcome to believe that all 70+ TLA's have simultaneously decided to break the law and that the entire hierarchy of Audit NZ (who have to sign off on DC policies before they go public) has conspired to let them do that.
 
I'll stand by everything I have said thanks. Just remember I am the one who introduced the term "nexus" to this thread. Just because the councils are playing to the ref's whistle doesn't mean that I approve. I have already said that the weak connection between collecting a DC and its application is just not right even if it is currently legal (not for much longer).

Kumbel – as I have said, I agree with your comments in general, and Phil B’s to. And I agree that all  70 + TLA’s WOULD NOT have simultaneously decided to break the law, but I do know that they all simultaneously and unanimously agreed to opposed this new legislation when at their last conference, and like Auckland CC with Shared Value Uplift Zoning, already have a Plan B to keep the revenue stream intact. A DC by any other name is still a DC. Nothing illegal in this but wrong all the same. As I’ve posted before, but Lest We Forget Adam Smith’s words
 People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.
As for Audit NZ, they are only there to check things on a limited legal brief, not whether something is morally wrong, or is wasteful, or to suggest a better and more cost effective way of doing things.
Also using the building of more libraries was probably not the best example as with the digital age, library attendance is falling and many councils are laying off library staff. It is the use of council (ratepayer) money for many ‘well beings’ like Stadiums on the pretence that they will make a profit, let alone cover costs that is one of the main issues. It would seem no matter where and how fast the money comes from, council can find a quicker way to spend it.

Hey libraries were once fashionable enough for Infinity to plonk one in the centre of their million dollar model of Pegasus.
 
I did choose libraries and sports grounds very carefully in my examples. If I get a chance tomorrow I will elucidate.

Look forward to hearing from you, as I have said I agree with your comments in general. But again, I question your example. The library for Pegasus was only on paper, and has not been built and I would think it is not top of Todd properties agenda if at all. Councils seem very poor in predicting future trends, and planning for them, hence we have the problems we do. 

At last :-) see below

Thanks Dale. Who am I to believe, Kumbel or my lyin' eyes? I can read legislation for myself.
I don't think it a conspiracy theory stretch at all, to think that Councils will "try on" anything and see if they get away with it.
Councils are routinely being bullies with deep pockets full of ratepayer's money to out-litigate anyone with a complaint against them.
I don't think much of "baffle 'em with BS" apologia for what they are up to. There is massive harm being done to society and the economy. The buck stops at Councils and dishonest non-evidence-based policy. The people who could produce population density growth forecasts based on every school playing field in Auckland having apartments all over it by 2030 don't deserve any credibility or integrity. The same people who ignore the commercial realities pointed out by Jasmax Fine Grain Analysis, that sites are far too expensive in Auckland already for most of the wished-for development to proceed.
There is an indefensible (morally and economically) position being wilfully smokescreened by the MSM, and it needs to be blown wide open. Incompetent and heartless bureaucrats need to be about as popular as Goldman Sachs executives. I am cheered by an internet music video where the chorus goes "Bugger the bankers and politicians.......Bugger the bureaucrats too....."  This is an encouraging sign that the grassroots counterculture is waking up.

Late Payment Fees are illegal an Austrlian Judge has ruled:
Telecom....... stop doing it
Big banks could be forced to refund more than $55 million to their customers, after the Federal Court found ANZ Bank had charged "extravagant, exorbitant and unconscionable" late payment fees on
credit cards.
The ruling also raises doubts about fees that telecommunications and utilities companies charge customers who fail to pay their accounts on time.
In a decision that could affect tens of thousands of customers, the Federal Court on Wednesday found late payment fees charged by the bank were illegal, while four other types of fee were legitimate.
Some 43,500 customers have challenged ANZ in a multimillion-dollar class action alleging certain fees were illegal because they exceeded the cost to the banks of customers overdrawing their accounts or missing repayments.

Advertisement 
Justice Michelle Gordon ruled that most of the fees charged by the bank were legitimate, but its late payment fee of up to $35 was ''extravagant, exorbitant and unconscionable.''
The case against ANZ has broader ramifications because is being used as a template for a 185,000-strong class action against major lenders including the Commonwealth Bank, Westpac, NAB and Citi, which proponents say could be worth more than $220 million. It is being billed as the largest class action in Australian history.
The finding paves the way for customers to take action against any company with a late-payment regime, including telecommunications and energy providers.
It also throws out ANZ's six-year statute of limitations, meaning anyone who has ever been charged a late fee by ANZ can potentially now claim those fees back.
''Wherever there are other late payment regimes, they will need to be examined carefully,'' Maurice Blackburn's national head of class actions Andrew Watson said.
Mr Watson told customers to wait for the firm to assess the full implications of the decision before coming forward with new claims.
''There will be a significant amount of interest by those consumers in getting that money, which was unlawfully taken from them, back,'' he said.
''For years and years and years, their banks have been charging them these exorbitant fees.''
''We are now considering the ramifications of the decision.''
Gerard Brody, chief executive of the Consumer Action Law Centre, said companies charging late fees should examine whether they were at risk of breaking the law.
''Telcos especially should examine this judgment and determine whether their fees are similarly excessive, extravagant and unconscionable,'' he said.
Choice chief executive Alan Kirkland said energy companies should also question whether their fees are legal.
''Any business that relies on late payment fees as part of its business model needs to be very worried about this judgment,'' he said.
Both Telstra and Optus charge a flat late-payment fee of $15 on any bill worth $70. AGL and Origin Energy charge a late-payment fee of $14 and $12 respectively.
Telstra said on Wednesday that its late payment fee was ''cost recovery for Telstra as we incur large administration costs when our customers do not pay on time.''
''For example we send reminder notices, text messages and our call centre staff telephone our customers.''

Read more: http://www.smh.com.au/business/banking-and-finance/anz-late-payment-credit-card-fees-illegal-court-20140205-3205g.html#ixzz2sVIgq9eG
 
 

Now is the time to scrap the current development contributions regime; it conflicts, in part, with the LGA and there are better ways to achieve the same outcomes. We still need some form of capital contribution it just needs to work better than the current one.
 
 A thought experiment: I own my own active sewage system. Imagine I had won it in a raffle so it cost me nothing. My neighbor asks to connect to it and share all future costs 50/50. It turns out when she connects that the system can’t handle the load so we have to buy and install a larger model. I am annoyed not because she is getting something for nothing from my existing system but because, if she had not connected, the system would have lasted me for decades without having to spend the thousands for the upgrade. The reasons behind development contributions are no more complicated than that.
 
I was not persuaded that DC’s are in some way immoral or distortionary. In fact because they put all building whether rural or urban on the same footing they partially remove a distortion from the market. DC’s did not cause house price rises. DC’s did not fully kick in until July 1 2006 by which time the housing price bubble was well under way. Development is not a cost plus industry anyway; developers will charge what the market will bear and will exit if the numbers go against them. Houses prices are what they are because buyers are willing to pay those prices and, as has been noted in other posts, the market is currently clearing. When we see lots of developers going to the wall or lots of developments stalling at the RC stage then we will know there is a problem with input costs. So, it is not clear to me how elimination of DC’s will lead to lower section prices as opposed to windfall profits for developers.
 
So it’s OK to just carry on? No, not that either. The DC charge can include funding for projects up to ten years in the future. For some asset groups it’s just too long. The DC legislation does not require a strong connection between a specific development and a DC-funded project but I am uncomfortable when it gets too weak too. The government made an important change to the LGA late 2012 (which has been completely ignored by everyone) that required that infrastructure be “appropriate to present and anticipated future circumstances” (LGA s10(2)(c)). Looks like fluffy language but I believe it raises the decision-making bar higher for councils to do more than just put a proposal up for consultation. Under the DC regime there can be a 12 year gap between a staff member deciding to put a project on the DC list and it actually going into service. For some assets like libraries, pools, sports facilities there is no way you can say you know what is “appropriate” 12 years out.
 
The other major problem with DC’s is that they have acted as a relief valve for the pressure on rates. Over the last decade or so council input costs have risen way faster than consumer prices leading to rates rising faster than CPI – which does tend to get noticed. Waymad has eloquently noted that councillors only care about rates so will source as much revenue from other sources as they can to limit rates rises. While councils have had the relief valves of DC’s and debt they have not had to make the truly hard decisions. While there haven't been that many high-profile acts of lunacy (Dunedin Stadium) Cowboy’s note on how all the little bits of excess add up is absolutely right (guilty as charged). This is one reason why restricting costs is hard when that mentality is replicated across hundreds of accounts. Councils have reached the point where they have to face up to the decision to raise rates further, cut out unnecessary expenditure or start cutting back on services. A slightly generous DC regime helps them avoid the problems.
 
We still need a form of capital contribution it’s just a question of who provides it, how much and when it is paid. There is often a suggestion on this site that communities should subsidise/invest in newcomers because of the income stream they represent. Except that councils make no income off any ratepayers. Hold fire! Income is revenue minus expenses and councils aim to break even only. LGA s100 requires councils to set operating revenues at a level that matches operating expenses but I think they also interpret s100(2)(c) as meaning “but no more” so they don’t get any profit (=income) from ratepayers. This is what makes councils different from all other infrastructure providers (lines companies, ports, airports, telecoms companies) who cheerfully rack up profits off today’s customers to pay for tomorrow’s customers’ needs.
 
I would like to see DC’s broken up into multiple charges with different rules for the different asset groups:
The three waters are a no-brainer. There is a whole lot of statute covering them so there will never be a dispute over the need for them. Go back to connection charges but separate into the operational component and the capital contribution. Calculate and justify and use the capital component exactly the same way we do DC’s now.
Roading isn’t statutory but it’s not very discretionary either. Here I would take Brendon’s suggestion and increase government funding. Slight increase in the proportion of petrol tax that is currently returned to local government but ring-fenced into a DC-type account. Expenditure justified in the same way as DC’s now. Not all councils to be eligible – i.e. they would be the metropolitans and/or high growth areas. Rural councils are already heavily subsidised through NZTA.
Reserves are a bit trickier. I think a ward-based system could work so contributions would vary depending on where you live. Basically if there is massive development in one area you can collect contributions for new reserves but an infill in the centre of the city, say,  wouldn’t attract a charge.
I would also levy these charges at the time of occupation of a house and take them away from developers completely. This would greatly increase the transparency of the contribution.
 
Everything else – libraries, sports facilities, aquatic centres, art galleries, museums, council buildings, dog pounds, town centre upgrades etc. – is out. Councils have to make those decisions on their merits when they think a need has arisen. To conform to the amended LGA they need to do the research on current and future needs for the proposed asset at the time and make the decision in the full view of their community. What we don’t need is the kind of self-fulfilling prophecy that the DC regime encourages where a council collects money because they think they might need it and then “has” to spend the money because it’s there.

Hi Kumbel – agree  that DC’ need scrapped in their present form, and also agree (in part) that some sort of capital contribution is needed.
But I don’t follow the logic of your sewer system analogy at all.
To me it highlights the very failings of the present system and is the very reason why you would not promote DC’s in their present form. But let’s take that example and see it evolve in a slightly different way.
For example, let’s say as a developer I am allowed to choose which land to purchase without any regard to any artificial urban containment boundary. In this case the land I choose sits just outside the containment boundary which I can purchase at $50,000 per ha, instead the 500,000 plus per ha on the other side of the line. The land I have purchased also is off a rural road that has extra capacity and does not need upgraded at present. I apply to develop a 10, 100, or 1,000 section subdivision (the size does not matter), the council try to decline the application first on the grounds that they will not have the waste water infrastructure reach for another 10 years and to bring it to site sooner is too expensive.
However as the developer, this is not an issue, in fact I prefer that council are not involved (for obvious reasons) as I can provide on-site waste water treatment and disposal quicker and more cost effective than council can. I can also take care of all my storm water needs. I can, like Pegasus Town, have underground section storm water retention tanks so no storm water leaves the section, and a combination of road side swales and underground retention tanks for all roadway storm water. For potable water, naturally connecting to nearest water district, which of all services mentioned is the cheapest to source, or again like Pegasus I could put in my own bores.
Therefore on ability to service the subdivision, there is no reason for council not to approval it. The subdivision is built as usual with the services plus roading, reserves and neighbourhood parks as is the norm.
So everything up to this point has been paid for by me the developer, who will pass these costs onto the section purchaser. What would normally happen at this point is these assets would be given free to council, to become part of their assets from which they can borrow against.
However under my system, these assets would remain the property of the people that paid for them ie the section purchasers and the subdivision run and maintained by themselves (contracted out of course). This system is already been run in many guises already in NZ, (Body Corporates being one example), plus many towns and cities around the world.
The end result is twofold. 1) those that pay for the assets, own them and are responsible for running them, and 2) councils are not running them, so they have little involvement, and therefore have no reason and no justification to make charges for services they don’t supply, and cannot take ownership of assets they have not paid for.
Kumbel, you mention that councils do not make a profit, they only cover costs. This is a typical Parkinson’s law reaction, in that the higher the revenue in, will result in equally higher costs to match (which include council size, salaries and council projects like stadium) Change the system, and the costs reduce dramatically.
The most efficient of theses developer developed and owner operated subdivision communities is the Texas Municipal Utility District (MUD). In theory, under present NZ I could apply to do all of the above now.
I have run the figures of a MUD style development being developed in NZ and section prices would be at least ½ the price they are now, and operating costs approx. the same as present rates, which of course would not need to be paid to council. There would be still some small portion paid to council for those things council still provided.
And the only reasons I would not be allowed to do it, is that it would reduce council control and revenue, and as you have already mentioned Kumbel – council attitude, is if they cannot capture this extra money that they can wring out of ratepayers then they don’t want any developer to capture it as a super profit, in a case if they can’t have it, no one can. Just because developers and councils can get this extra money out of people, does not mean they should.
DC’s as they are at present are but one symptom of a dysfunctional bureaucracy (not all of which is councils making), but in light of no alternative source of revenue it is a bureaucracy that they will fight to preserve. The needs of the ratepayers, especially for purchasers of any new home or addition, are secondary to the needs of council to retain control over their revenue streams.

Well argued Dale. I give you a big thumbs up for best comment on this comment stream.
 
The way PV, energy storage and energy efficent housing technology is coming down in price it is also quite possible this new community could be self sufficient in energy too.
 
Power to the people I say.
 
There is a discussion about transport below that is also important to consider.

Seriously? This is a good as you think it gets?
 
I say "yes" to MUD's. Now, instead of recycling the same conceptual stuff that you and Hugh and Dale and others have been recycling weekly for the last couple of years how about some detailed answers. Just reassure me that the developers of MUD's aren't going to be the dead-beat dads of the property world.
 
As a starter here are some responsibilities that I can see MUD developers having:
 

  • to pay for everything - no subsidies explicit or implicit from the rest of the community. If the developer wishes to connect to any council infrastructure they pay full whack not a percentage
  • to build for perpetuity - no council bailouts or takeovers so it has to be built to last
  • to build to all national standards and to hold all relevant consents from the regional council for water take and water discharge
  • to put in place a mechanism for quarterly reporting to the regional council on compliance with those consents and to supply water quality test results to the DHB
  • to vest assets as soon as they are built into a trust run by the body corporate so there is no temptation to run away with accumulated depreciation that is supposed to be for renewal projects in the future
  • to transfer all liabilities and commitments as well as assets to a purchaser if the development is sold 
  • to explain in clear language to potential section/house buyers what their council rates will be, their MUD fees will be, what the risks of buying are (like being on their own if the development goes belly up)

 
Is this what you had in mind?
 
There is nothing special about most of these conditions. Farmers, off-gridders and councils have been living by them forever. Unless, Brendon, you think that MUD developers are somehow deserving of corporate welfare?

Kumbel that is a little OTT.  A MUD can be seen as a big version of body coorporate. But instead of the joint assets being inside an apartment building they are inside a body of land. In Finland where I lived body co-orporates were like mini councils. Each household is a shareholder, you elect people onto a management council. They make decisions on what property management company to use, maintenance schedule, alterations, ongoing maintenance charges and so on. Prospective buyers have full access to these accounts, it is all above board. I am not sure why you think measures could not be put into place to protect new residents?
 
I think it would probably be best if MUDs started of small scale, maybe less than 50 households to keep it simple until the kinks are sorted out. I also see other solutions. Like Germanies 'right to build' which I discuss below.

Well argued indeed except it has nothing to do with what I said.
 
In my analogy my neighbour asked to join my scheme I did not compel her. Everything else flows from that simple fact.
 
I have stated many times on this site that I favour letting developers do what they want, where they want with two provisos:
1. If they want to develop outside a serviced area and they do want to connect to existing council infrastructure they must pay 100% of the cost not a contribution. There may well be another developer in the wings that gets a free ride off the infrastructure you paid for; too bad that's the price of freedom.
2. It would be illegal for a council to take over any infrastructure owned and operated by a body corporate after it is up and running. This avoids the moral hazard of developers deliberately installing poor quality assets and not maintaining them knowing that a council will have to pick up the tab later. And that also is the price of freedom.
 
The advantage of my suggestion is that removes all elements of compulsion except perhaps in the area of reserves and, as you know, that one always has to be hammered out on a case by case basis anyway.
 
Couple of corrections:

  • Councils don't borrow against the value of their assets. If that were the case nobody would be complaining about Kaipara District who, with about a 10% debt-equity ratio, are not exactly in balance sheet trouble. They borrow against the revenue stream i.e. ability of a community to service its debt.
  • Waymad has told you exactly how councils budget: first they estimate the actual costs of running an activity then they adjust their various revenue sources to cover the cost.

I still don’t see what your analogy is about whether someone is asked to join a scheme or not?
Also not sure what your dig at Brendon is about. All those questions you ask, the answer is YES, that is exactly what happens, and more. How a MUD operates is no big secret, so we should not have to be ‘banging on about it’ at all, go look it up yourself.
But your two proviso’s show that you still cannot see the forest for the trees, you need to step back a bit. Owners of MUD type developments always pay 100% for their infrastructure, and as they can source this in an open market it is generally cheaper than if they had purchased it via a council monopoly. Whatever price they pay for it, they own it, unlike what happens now.
And why do you think that one developer should pay 100% and then have no say over another one joining for 0%? In a MUD you own and have paid for the asset 100%, it’s legally theirs no one has any more right to use their property than I would to use your house. However, if a MUD does have spare capacity, then they could sell that to another developer if they wished.
And unlike your example about making it illegal for councils to take over MUD’s, Cities in Texas want the option to annex a MUD after a number of years as they are normally built out by then and most if not all of the development risk has gone, and are operating so effectively and provide a stable revenue that they city would like to manage it (for a fee of course).  Even Pegasus was set up like this, developer pays for it to be built, has to run it, while council collect the rates, then they take it over in x number of years, if they want.
Yes I know what Waymad said, but you are confusing actual costs (value added) with other non-value added costs (waste).  The two should always be separated out to drive efficiency.  It is hard for anyone within an organisation to look at this; just in case the conclusion is reached that it is their job that is one of the non-valued added costs. As the saying goes, ‘it is hard for people to understand something, when their income is dependent on them not understanding.’

Just trying to make easy to understand why development contributions are charged in the first place. Simple version: you ask to use something of mine, you break it, I ask to you to pay. DC's are only a slightly more complicated version of that story.
 
Go back and read what I wrote. Of course MUD developers pay for all the infrastructure within the legal boundaries of the MUD. Isn't that how development currently works anyway? My proviso refers to the Pegasus situation where the developer changes their mind and requests connection to council services. The situations I have seen where that has happened the existing ratepayer always ends up picking up some of the tab for something that is nothing to do with them. I am simply saying no subsidies, the MUD pays 100% of whatever it costs to connect if they want to connect. Whatever you do inside your boundaries is up to you
 
If you still want to connect to a council service and you can find another developer to go halves with you on the connection knock yourself out. Currently councils kind of assume that responsibility through lines on maps. This has the effect of aggregating development intentions so that councils can design services in the most financially efficient way. My proviso throws that responsibility back on the MUD owner where it belongs.
 
And yet another point of correction: councils source their assets on the open market - they use the same contractors developers do.
 
I am happy to lighten up on the no takeover proviso. I just want to avoid the temptation for developers/body corporates to take a few short cuts knowing that the whole lot can be palmed off on the council one day. Again I have seen that happen as well. Councils are way too soft about taking responsibility for other peoples' mistakes.
 
In fact I am going to grant you a bonus. Exemption from planning requirements to do with density, setbacks, road layout etc in return for a no takeover provision. Genuinely do what you like as long as no-one else around ever has to be responsible if it doesn't work out.

The important bottom line fact is that where there are no UGB's and there are MUDs, the house price median multiple is stuck at around 3.
No amount of disadvantage claimed to exist in cross-subsidizations or unpriced externalities or what have you, remotely justifies throwing away this advantage (socially, morally and economically).
All the criticisms of "what abuses might occur by developers of MUDs" are being committed in spades by Councils in our status quo; or at least comparable malfeasances that result in at least as much unfair costs on first home buyers.
But guess what? MUDs are kept honest by competition. Councils are not.
There is one essential difference between "competition" and "oligopoly". An oligopoly is not a monopoly, but often it might as well be. This is because "competition" requires "freedom of entry of new competitors". MUDs are essentially the entry of new competitors into the supply of static municipal services.
Subsidiarity and localism are great - but the MUD system adds a crucial advantage to this. The competitive effect of "new entrants" to the provision of static municipal services. Deregulated markets for transport and waste disposal have a similar effect on these dynamic services.

Yes I understand why DC’s are charged under the present system,. The present system is wrong. And what I meant by more competition, is the type of products like STEP waste water systems developers can more easily use, they are not tied physically to using outdated waste water technology like gravity feed systems, and trying to justify them, like council. If Kaipara District council had used a modular STEP type system, they would not have the white elephant they do now, nor the debt.
Kumbel – the truth is, there is no developer I know of in NZ that has the knowledge or moral fibre to develop a MUD without trying to capture any saving before it is passed onto the customer. Allowing them to do this without the proper customer protection would be like giving a baby a gun.  It’s not part of our cultural DNA not to gouge the last drop of money from the housing chain. After all, if the developer does not capture it, council will, and visa versa. 

Kumbel: That resonates. Loud and clear. Most people do not understand the conssequences of your example of you new neighbour wanting to connect to your sewer system and overloading it, costing everyone in the neighbourhood

Kumbel: The twitterati and chattering classes will never be persuaded
 
Had to go back and dig this comment out from 15 Jul 2013
 
Happy123: happiness is: Increase supply .. build more houses .. so simple
If it was simple it would be happening .. increasing supply is such an ill-considered, sweep it all away statement that defies logic ..
 
Where? How? Who? When?
 
(Salubrious Herne Bay and Jervois Rd is used in the following because Chaston is there)
 
If you have followed Kumbel's explanations you would understand the fallacy of that. If you followed David Chaston's article last week on "strangled supply" you would wonder where you would locate and achieve all this magic supply .. Chaston's tome conjured up images of 70 story apartment buildings (Hong Kong style) occupying the entire length of the eastern side of Jervois Road, Herne Bay .. overlooking St Marys Bay .. and then Kumbel comes along and says, whoa, hold on a bit .. it's going to take us at least 10 years to expand and "gold plate" the water supply and sewerage sytems that we "gold plated" just last decade .. and by the way we are going to increase your property rates from $4,000 pa to $10,000 pa for every property owner in Ponsonby and Herne Bay and Freemans Bay. Oops, forgot. Also water rates go to $10,000 pa for everyone, not just the additional newcomers
 
Brilliant. Genius.
 
Alternatively, if you believe in the user pays principle, the incremental costs should be borne by the occupiers of the incremental supply, then each new resident of each new apartment along Jervois Road will be paying $70,000 pa in rates. Is that your intention, or would you prefer to spread the burden over the existing residents? Which introduces the principle of dis-economies of scale which are reached at a point beyond which the cost of each increment is greater than the standard unit cost - it becomes prohibitive - defined as the increase in long-term average cost as the scale of operations increases beyond a certain level. This anomaly can be caused by factors such as (1) over-crowding where the additional increments get in each other's way, (2) greater wastage due to lack of coordination, or (3) a mismatch between the optimum outputs of different operations. See also economies of scale.
 
And your solution is .. ?
 
Never did get a reply - goes silent when it gets too hard

No they won't be persuaded. I have done my best and now we are just going around in circles and the mad dogs don't understand words of one syllable. It's time to remove interest.co.nz from the old bookmarks list and ride into the sunset. Thanks old pal - I've learnt a lot from you and waymad. Hooroo.

Kumbel, thanks for you imput. Ive been reading your comments with interest and would appeciate it if you kept up the good work. Whale oil hads just run a piece on development costs in AKl.
 

Pete 

• 11 hours ago

Ratepayers have no idea what it is like to deal with council on a commercial basis. The former Rodney
council was atrocious.
I am going to make some very strong comments, but believe me they can all be supported.
As a general statement staff dealing with resource consents were deliberately slow, deceptive,
dishonest and lacking in competence.
After buying fully zoned land for medium density residential and conducting comprehensive due diligence
pre purchase with the ARC and Rodney district council my partner and I submitted a fully compliant subdivisional application, which was subsequently
granted with no conditions.
Along the way we encountered unbelievable problems. Firstly, a straight forward application took 18 months to grant and when we said to council that the unreasonable delay was going to add around $500k to the cost the response was "so"! This goes directly onto the price that purchasers pay for their sections.
Second, 15 months into the application after being told that a consent was imminent council 'went quiet'
and refused to say what the status was. I phoned the director of consents who did not wish to talk to me. When I said I was coming to see him he refused a meeting and said he was taking legal advice. Subsequently council refused
connections for water and sewerage after telling us pre purchase that that such connections would be no problem. We threatened to sue them and their response
was 'take us to the Environment court, we don't have to grant you a consent'.
During a very tense meeting we threatened civil action because clearly the land was not worth what we paid for it if council would not consent fully zoned land. In effect their advice induced us to complete the purchase. It transpired
that council was deliberately covering the fact that their own consent to uplift and discharge into the appropriate water course had lapsed with the ARC some 7 years earlier and they hadn't yet renewed their own consent.
ARC told us we were covered because council had lodged an application and our land was existing
zoned land.
We were stunned that neither the Director of Consents nor the deputy water engineer (who couldn't
string a sentence together in English) knew how many residences there were in the catchment, what the water uptake was, what the effect of our development
would be, and when this situation might change. We told them we would put in water tanks and they tried to turn us down on health grounds. they told us that our development would add too many new dwellings to the catchment (100+ new sections) and that no new subdivisions were being approved. All the while they were in discussions with a developer to rezone rural land to residential, and
that this development was twice the size of ours. Just after our consent was granted they rezoned this land.
What transpired was that council was endeavouring to push our application into a new fiscal period. Development contributions would jump from $15k per lot to $33k per lot.
We finally settled on 2/3 of the development at the old rate and 1/3 at the new. Even so this was nearly $900k more than councils published charges and than we budgeted. All the BS about water consents from the ARC had just been a delaying device. I consider this fraud. 
During construction council asked us to put in oversize sewerage pipes so they could pick up the
new development they had rezoned, and they committed to pay they difference ($40k). When we visited them to pay $1.2m in development contributions we told
them we were going to deduct the $40k. At this point they told us they had changed their mind and in effect if we wanted our 224c we should just suck it up. Five senior managers sat around the table and dishonoured a legitimate
council debt. Later council asked permission to cross our land to reroute a sewerage pipe and we said yes but it will cost you what you did not pay us before. They agreed without a fuss.
During this process council used any flimsy excuse to put the file into suspension, and delay the consent. The sewerage system had to be redesigned twice and then we went back to the original design. There was a protracted argument about whether their was a water course on land that had been grazed for 150 years. Council had no
Environmental officer so we had to get an opinion form a leading firm of consultants who confirmed our view. Council were not happy so they forced a peer review from another firm, who also agreed with us. Finally, they said they
had now appointed their own Environmental Officer so he/she would determine the outcome.
Our application required consent from the ARC, and we produced a fully compliant submission under the
published catchment provisions, only to be told 'we are going of a new set of regulations now'. We asked for a document on these regs and were told it was
'really a collection of ideas in someone's head'. At that point our lawyer asked the ARC officer to please get the head in the room. The point is how can a ratepayer make a compliant application when the local body is not operating
of their own published plans?
The ARC forced us to advertise the development even though the land was fully zoned and we had made a
complying application. We received no objections and they then wanted to go to a hearing.
Other issues were insistence on 6m wide walkways - this is wider than the standard for some roads! (we finally settled on 4m). We were required to put up tacky wooden
fences alongside the walkways and after these were constructed the local mayor had the cheek to tell us that she didn't like them and could we pull them down.
By now of course these fences were on boundaries and covered by the fencing act so we told council they would have to get approval from all the land owners.
The road through the subdivision was to be 13m wide! It looks nice, but it was completely outside regulations and we were told to pay for it. Only after a developer successfully sued Waitakere Council over the same matter were we
compensated.
I have been a director of commercial organisations for over 30 years, including some of national prominence, and I have never before experienced the level of sub standard ,
dishonest, and incompetent performance than I did within council.
Honestly, I think ratepayers would be absolutely shocked to the core if they really new how their council operated. This is part of the real backdrop to the Super City. Unfortunately we have some of the same mid level, mediocre political
representatives now conducting affairs on a larger stage.
As I said at the start of this post I can fully support every statement made here. There is also a lot I have not said!
 
http://www.whaleoil.co.nz/2014/02/property-developers-hate-development-c...

 

Do you really think ratepayers - ie, for the most part, the owners of existing housing in the locality - would be shocked and horrified to know how hard the council has been working to delay or even prevent new development which might reduce the value of their homes?
 
It's clearly been a horrifying and prima facie unjust experience for you, but it seems to me to be completely explicable in terms of local homeowners seeking to protect the value of their main store of wealth, ie their houses, and local governments responding to the demands of active and well resourced voters.

Iconoclast you never got a reply because your example was arbitrary and weird. Hint for you in the future -not everything is about Auckland. Read the stuff again on this comment stream and I think a good account of measures to improve elasticity of supply and thereby make houses affordable is given.
 
By the way stop misrepresenting others arguments by changing what they say, it has always been about increasing the potential supply, which is more about competition and elasticity than simply building more. You know better than that as you have had economics training.

An indirect example of central decision making and social costs and the subsequent effect on previous lifestyle decisions and government generated cost increases, inflation, how you pay for their mistakes
 
Leading up to and culminating with the Black Saturday Fires in 2009, Melbourne had been going through a 15 year drought. Metropolitan Water supply was stressed, at a premium, the entire Metropolitan area was on stage 4 water restrictions, couldn't water your garden, wash your car, dont flush the toilets. Dont use water.
 
The boffins and many others agonised over solutions. Under pressure from green groups the state government vetoed establishing new and further potable water catchment areas. One of the main alternative areas of discussion was harvesting of storm water. The soils in Victoria are anhydrous which do not easily soak up and absorb natural rainwater. The run-off into streams and riverways is enormous. Much of the stormwater in the inner city and suburbs within a radius of 50 kilometers is discharged into Port Phillip Bay
 
Tests were conducted into the quality of the water from the suburbs to the east of Melbourne which discharges into the Yarra River which runs down through the CBD into the Bay. Those tests revealed there was an excessive content of pollution and ecoli from animal waste, from residents taking their pets out for their nightly latrine run.
 
It was estimated there is approximately 100 tonnes of amimal waste excreted every night on the latrine runs. In deference to the greens, it was decided to build a de-salination plant 100 kilometres to the south of Melbourne CBD at a place call Wonthaggi. Note: Wonthaggi is down on the southern coast on the southern ocean. Doesn't use the sea-water from the Bay. Of course.
 
The initial estimated cost to build was $3 billion
The cost of which would be borne by all ratepayers in their water rates
All ratepayers throughout Victoria, not just Melbourne Metro residents and users.
 
The construction of the plant went over time and over budget
 
It has now been completed
 
It has never been used
 
The final cost of the plant is now $30 billion. That's Capital cost only.
Doesn't include operating costs of power, electricity (brown coal), energy, if and when it's used
 
Water rates have just doubled.

PS: I'm hoping someone here, anyone, sees the analagous example of what is now happening in Auckland, subdividing larger sections, into 300 sqm sections, building on them, increasing the hard-areas, 50% reduction of the soil absorption areas, increasing the storm-water run off, resulting in a first-ever closure of Waitemata beaches due to pollution and ecoli swept down by increased storm water into the Waitemata Harbour. The eventual cost? Loss of amenity, and a Mangawhai repeat.

Yep storm water is the elephant in the room. About ten years ago NIWA quietly issued new design parameters related to the frequency of extreme events. Basically the expected interval between extreme events got shortened mainly because of global warming.   Bottom line councils have to build higher capacity systems to handle 1 in 15 year events. If the last decade was about water and sewer the next decade could well be about storm water. And that's not counting treating the discharge.

As you probably know I work in healthcare. Has anybody looked at the government accounts and compared what we spend on the 3 waters, roads, parks and libraries with hospitals and healthcare, schools and education, pensions and social welfare.
These LG costs are just drops in a huge bucket. The problem is people understand small numbers but not big ones. People demand frugalness from there LG because they understand it, they can see it. But they don't understand that Wellington spends 10 times the amount of their tax on other stuff with half the amount of scrutiny.

LG represents about 4% of NZ's GDP; the big five (3 waters, roading, parks and reserves) represent about 75% of that. Government spending is what, 30-40% of GDP so the ratio is about 10-1).
 
I would be more interested in the ratio of fixed asset ownership between the two sectors. I think it would be way closer.

I would say the biggest cause of local fiscal pressure is the massive cost per person km travelled, of public transport subsidies. And this is something the public knows nothing about and consequently expects no restraint on. In fact Stockholm Syndrome is so bad in this case that people like Len Brown get elected on a platform of an effective increase in the swindle of ratepayers and motorists, aided and abetted by the MSM which does not publish truth on the subject. One Fairfax reporter got his story killed and got constructively dismissed for daring to investigate this in Wellington.
The bigger the public transport mode share, the bigger the burden. This is not rocket science if you simply think the figures through. How much is a PT fare? What is the ratio of fare revenue to PT system cost? There's your subsidy. Now compare that to what you know you could run a small car for, for the same trip. But the ratepayer does not pay you 2/3 of that cost. And the cost of roads is less than a cent per person km travelled on them by car, because a lot of the cost is building them for heavy trucks, and repairing the damage done by heavy trucks.
Motorists and ratepayers are both being swindled - and that means most urban residents.

Isn't that why watercare is building the central interceptor?

According to the resource consent the central interceptor is for waste-water sewage to the manukau treatment plant. Not storm water.

" increasing the storm-water run off, resulting in a first-ever closure of Waitemata beaches due to pollution and ecoli swept down by increased storm water into the Waitemata Harbour. "
You shouldn't get ecoli from stormwater.  The central interceptor services the old inner suburbs where combined systems predominate i.e. storm and sewerage go in the same pipe.  When it rains lots the sewerage overflows into waterways.
Waitemata beaches were closed because toilets are effectively flushing out to sea when it rains hard.
 

  1. Wastewater overflow control: The overall network currently overflows to the Waitemata Harbour at more than 200 points and to the north-eastern part of the Manukau Harbour at 14 points. The Central Interceptor is expected to reduce the annual average wastewater overflow volume by 80 percent.

https://www.watercare.co.nz/about-watercare/projects/central-interceptor...

Kumbel do you agree that in exchange for giving extra taxation power to fund roading we do it in such as a way the leglislation says the purpose is as Alain Bertaud says;  
 
It is time for planners to abandon abstract objectives and to focus their efforts on two measurable outcomes that have always mattered since the growth of large cities during the 19th century’s industrial revolution: workers’ spatial mobility and housing affordability....
 
Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land. Planners, therefore, have a key role to play in ensuring an elastic supply of land by auditing land use regulations and by planning new trunk infrastructure that would allow the development of new areas or faster travel time to already built-up areas.
 
My only concern about your suggestions is that by not saying what the purpose is it would be easy to water it down until it ends up like Nationals other housing interventions.
 
Too little too late.
 
 

Re I agree with you about NZ being well endowed with roads in rural but not urban areas. I said that and showed some statistics on this in my transport article for interest.co.nz last year.
 
I see transport/housing reforms as important for several reasons
 
Giving LG the ability to tax income or petrol will expose the rural road subsidy. 
 
Progress can be monitored and LG held to account.
 
Some LG will achieve the most efficient transport/housing solution.
 
This will be achieved by a evolutionary process, much like middle America has evolved the best housing solution and gained by Americans migrating there.
 
I see this as a better process than trying to get agreement on the best transport solution before any reforms are implemented. Because quite frankly I don't think the different 'tribes' in NZ will ever agree. I think for most people they need to see what works in practice to really make up there minds.
 
(from an email with a friend discussing this issue)

My friend's reply email.
 
All good stuff. It might have been your article on interest.co.nz that I was remembering the stats from.
 
“……Giving LG the ability to tax income or petrol will expose the rural road subsidy……” 
 
I never thought of that. That is a really good point.
 
I have been advocating same as you for lifestyle blocks. Seeing there is apparently massive amounts of land in lifestyle blocks, upzoning would bring a good quantity of land into urban supply and even better, there would be no chance of oligopoly like when only a few large farms lie in the path of growth of a city.
 
I also believe that one city (like ChCh?) doing the affordable growth thing would take the pressure off the rest of the country. And that city would outperform the others economically and attract workforces.

My friend commented on lifestyle blocks from an earlier email when I put out this idea.
 
Re life style blocks I have been playing around with the idea of giving them the 'right to build' to urban densities, if they provide the 3 waters etc (perhaps along the MUD lines of what Dale outlines above). Maybe as an interim measure the right to build could be given to all land within 1 km of  a school. In Canterbury at least this would immediately open up a huge amount of land. I can even see whoever campaigns for this showing an image of a parent walking a child from home to school.
 
Who could be against this?

Really there is no difference between a life style block and a land banker....in terms of building a village and removing costs.
My biggest thing is there is no method to reduce or keep the land price at the agricultural rate and in effect you are giving the land owner power to sell at any price he/she cant get.  ie there is not incentive to sell lower cost housing en mass which is really what we want to achieve?  it would certianly be my aim.
So for me if the block was to be built on I'd look at the cost be 1/4 acre as agricultural land and release it with no restrictions or covenants at the agricultural price plus a margin as a condition to allow the zone change, so say $10k per 1/4 acre instead of $200k+.
This way independant builders and ppl can buy the land cheaply and build anything they want on it.
Otherwise frankly I think its a waste of time.
ALso you have to put in roads, power, comms etc.
regards
 
 
 
 
 
 

The 'right to build' concept is what has kept Germany's house price inflation stable since the WW2. This right is embedded in Germanies constitution, another liberal decentralised institution that NZ lacks. Giving lifestyle blocks the right to build would not necessarily involve developers and convenants. They might just do it small scale for themselves, maybe for family.
 
Your point about rural land prices is quite correct that is the goal. I think because there are tens of thousands of them that competition would quickly reduce the price down to the rural equivalent for the raw land plus a lot of competition for the most effective development costs.
 
What harm could there be in trying this, especially at the interim test of walking distances to schools?

Im rural and I don't see any new roads, not in my lifetime. We just have the same roads we had when our communities were vibrant and alive. Now less than half the  population get to maintain them.
  Many of the farmers in the community are paying over 20k a year in rates. Some I know, are paying over 70k.   Its getting unafordable for many.

Andrewj it may seem like I am trying to set country against town but really I think roading has been underfunded for decades for both groups. Government 'subsidies' in the form of NZTA funding for roads to LG has been falling for years. NZ has a lot of road per person but most of that dates back 50-100 years. Given our booming economy it is not clear to me as I say above that this is being reinvested back into essential capital expendicture.

So if there was 100 times as many residents, the roads would be utilised closer to capacity and maintaining them would be affordable. So just rezone for smaller minimum blocks - instead of 20 acres or 5 acres, zone for 1/4 acre sections. Problem solved. Allow a few commercial developments too to provide employment and amenities.

Now, now trying to bias the argument.
:P
Local maybe cheaper it may not be but there is more to it than simple cost.
To start with larger centralised power "units" and national grids should give resiliance to an essential service.  Local maybe cheaper for some households, but would it be cheaper economically for a region?  and NZ?  
Hydro is pretty low C02 and pretty low tech in comparison to PVs for instance, so I wonder.
Im all for looking at it though, its a very interesting area to look at and Pvs etc in Germany are a game changer in the short term at least.
regards
 

Steven I know it is early, but you do realise that power has two meanings, electrical and political...
 
I am trying to step back and see the big picture conceptually, maybe my post wasn't that clear given I was talking about both issues.   : )

Only a few decades ago in NZ it was illegal to construct microhydro like PDK's to protect big power investments...

Any body,  Corporate, or National or  Local Government   that spends your money faster than you can aquire it, is to be deplored.
That it is criminal not to do so, should be changed by law. There is no need for inflated prices, to justify inflated egos. No need for Council largesse at my expense.
Getting this world back on the straight and narrow, would be so easy, if the laws were not so lax.
And what is it about Chapelle, who is gonna be a multi-millionairess for having the temerity to import drugs.
Even Indonesia is bewildered by the stupidity of man, who rewards such endeavours, though they have given her parole early.
Is this world nuts, or just me.
We reward the wrong people.
The honest mugs pay for the sins of the sinners.