By Matthew Gilligan*
House prices have been increasing in Auckland, and this is a hot topic in the media.
It’s little wonder prices keep going up when we have prime time TV and the front pages of newspapers pounding us with a message that Auckland has a supply problem and long-term bulletproof demand.
Investors come out of the woodwork and compete with first home buyers, leading to yet another boom cycle for the Auckland property market.
Households pay more and investors accept ever lower returns.
When does it all stop?
Historical net supply problem
There is no question that the city is facing a significant shortage in housing supply in the short to medium term, as shown in the graph below (which I have extrapolated from NZS data and information from Auckland City).
Supply (Building Consents) vs Household Formation
Source: Matthew Gilligan, 30 yr Analysis of NZS
As the graph shows, demand (new households forming) has exceeded supply (new building consents) since 2006 in Auckland.
Various economic commentators have estimated the shortfall by anywhere between 5,000 and 30,000 homes.
This shortfall has been widely reported in the media and has created a furore.
In response, supply is now coming on-stream with the advent of the Auckland Housing Accord and the early adoption of Auckland Unitary Plan rules in Special Housing Areas. Read more about the success of this here.
What is more contentious is why house price inflation is rampant in Auckland, and what are the solutions?
I’ve heard it all across the years, but the most annoying arguments I hear are:
1. The tax exalter: It’s the lack of capital gains tax or it’s tax incentives for property investors. Tax property harder!
2. The green eyed monster: It’s greedy property developers and speculators (and this flows to arguments to make them pay more tax and development levies).
3. The xenophobe: It’s the migrants causing the demand, stop immigration.
It’s not these things – it’s Council and Central Government historically not sorting out land supply and all of the factors involved in the supply chain of housing being frustrated and mismanaged. But first, items 1–3 above.
Tax is the problem?
Assertion: A tax incentive exists in not taxing capital gains in property, which causes house price inflation. Further, property gets cushy tax incentives in NZ.
Reply: Disagree.
1. Building depreciation has been removed from property in NZ, greatly reducing the incentive to negatively gear property. Add to that changes to the LAQC regime, and targeting of property investors by the IRD for enforcement of existing rules, there are no cushy tax incentives for property in NZ. Property is taxed just like any other business here.
2. While property gains for long-term investors are non-taxable, the gains in shares or other capital account asset sale proceeds in NZ are also not taxable. It’s an even playing field in this regard. There is simply no advantage in NZ for property over other asset classes, which distorts investment, and traces back to a lack of a capital gains tax.
3. Anyone in the business of building or developing or speculating in property pays tax on the gains. It is only long-term investors that get tax-free capital gains.
4. CGT in other OECD countries (to my knowledge all of whom have capital gains taxes) does not contain house price inflation. For example, Australia introduced CGT in the 1980s, but house prices have risen at about the same rate as New Zealand.
5. As I said in my article Home Ownership & Leveraged Property, people invest in property for the benefit of leverage in the gains over time. And the cherry on top is tight supply coupled with strong demand in some markets like Auckland, leading to higher growth. The crowd is smart – they work this out and the money chases the higher returns.
I therefore don’t buy into the argument that it’s all a tax dodge causing Auckland’s house price inflation and New Zealand’s preoccupation with property.
Gareth Morgan (and others) seems to be arguing this, but in the same breath I have read articles from him in years gone by, saying that leveraged returns in property are what attracts the investors to property, and that’s a fact of life globally, not just in New Zealand.
By the way, this is not to say that I think CGT would be bad for NZ, it is simply to say that I do not think that house price inflation is caused by the lack of it. It’s tight supply conditions, and the ability to leverage property that swings investors into the market, not a lack of CGT.
Property developers and speculators to blame for high house prices?
In some circles, investors, speculators and developers are being blamed for the increasing house prices in Auckland.
There is dinner table talk to this extent, but I think this view is also prevalent in the eyes of some council workers across New Zealand, along with certain political offices.
In the vein of dinner table talk, recently I had a real estate agent telling me he laid the blame with speculators – saying ‘it’s people running seminars on property investing, mum and dads speculating, and developers extorting huge profits’. These factors, in his view, were cumulatively the source of Auckland’s house price inflation. My reply was ‘I totally disagree’.
Over exuberant speculation in housing is a symptom of tight supply leading to super normal profits in housing, not the cause of the problem.
Flood the market with housing supply and saturate the market with houses, and speculators will disappear. Returns will drop. Money will be less attracted to housing in New Zealand. It’s as simple as that. Hold supply tight, and speculators thrive.
Also the developers, speculators and investors dealing in property, renovate the housing stock. They make shiny new houses out of dirty old run-down housing stock.
Society needs this.
Who else will do this commercially and en masse, if speculators and property traders do not renovate and develop the housing stock?
Go for a drive through Auckland open homes in older suburbs and have a look at some of the shabbier houses on the market (many are filthy and run down). Then go through houses that have been renovated by speculators, and having compared the two, try to say speculators are not adding value to the housing stock.
We need these people in the housing economy, or our housing stock gets run down. The buyers certainly appreciate it.
Xenophobes
And don’t talk of throttling immigration, it’s not the problem either. Out of interest, it is roughly 1/3 of Auckland’s population growth over the longer term (two thirds of Auckland’s growth is organic, from net births and deaths.)
We should embrace the growth in our environment that immigration brings to our nation. The building and expansion of the economy creates economic prosperity, a buzz in the economy and vibrancy from the diversity. Think of how many TVs, cars and coffees those migrants are buying each day. Remove the migrants and consumption will drop. We shed jobs and a lot more from the economy.
Supply vs demand
If a housing market is saturated with supply of housing stock, and remains so, house prices will inevitably fall.
This has happened all over the United States where development rules aggressively release land and construction costs are low, due to the scale of the house builders there. I believe the bulk of cities in the US have mixed median multiples of ‘Affordable’ or ‘Very Affordable’, with median house prices less than three times median household incomes.
Auckland’s median multiple is closer to 10. If you flood the market with land supply, house prices go down. Just think Florida, Atlanta, Detroit ... over supply causes house prices to plummet.
Supply is coming on tap to Auckland. This solution is in the wind. Auckland’s land supply is being focused on, and the council together with central government are making remarkable inroads under the Auckland Accord, targeting 13,000 houses a year.
But the roll-out of the new rules and services takes a long time. The rules are draft until 2016, the services still need to be stuck in the ground and infrastructure built to support the expanding population.
It’s a slow, physical process that only time and money can roll out.
Meantime the legacy of short supply causes a bubble. Get over it and stop blaming tax, immigrants and the developers.
Solutions from the coalface
Instead, let’s take a look at how we can make development easier and cheaper.
While I am a chartered accountant specialising in property, I am also a property investor. In years gone past I have done a bit of development in both New Zealand and Australia. I can tell you from experience, the Australian system is better for getting resource consents than New Zealand.
Support our developers, builders and speculators
In my experience, Australian cities treat their developers and property industry better because they realise that a difficult consenting process, and anti-development attitude in council, completely undermines building a constructive environment for getting on with the job of increasing land supply
Of course as a whole, councils don’t set out to be bad, but they are large organisations, and as such often the left hand doesn’t know what the right hand is doing. Anyone dealing with them will tell you of their ‘frustrations’.
The RMA requires a convoluted and complex process to obtain consents, and consequently there is a huge amount of red tape involved. All of this exacerbates delays and slows service, which is costly for developers, leading to higher house prices.
What happens when you make it hard for developers?
Make it hard for developers, and one thing they do is land bank (sit on the land undeveloped and take the capital gains, rather than develop the potential use).
Why would a developer develop land or airspace rights, and deal with unconstructive, expensive and risky planning and development processes? Or put up with atrocious, slow, expensive service from councils, or deal with an expensive New Zealand judiciary (in the Environment Court), when a developer can sit on land and watch it skyrocket in value by doing nothing?
In fact by land banking, the developer tightens supply (causing house price inflation) and avoids the hassle and risk of the RMA, council, and the judiciary.
A developer faced with some of the monstrous requirements and delays of council and the RMA process, while sitting on millions of dollars of debt, can be bankrupted while they wait for council to stamp planning consents. So, many developer’s land bank and avoid the cost and risk of the process.
We need to reverse this trend by making it easier for developers.
Make the development process easier
A small example: I was developing land in Central Otago, and wanted to change a proposed roof colour of a commercial property that I was building, from brown to olive green. The Alexandra Council made our company apply for a notified consent, the community board were made to meet to discuss the issue, and we were presented with bills for over $5,000 – just to change the colour to one that matched houses we had already built in the same subdivision. The community board asked ‘what the hell is this notified for?’ at the hearing.
In another example, we had a member of the community make demands on us as developers saying ‘if you don’t give us a bridge from X to Y on your development, we will lodge an objection in the Environment Court and you will be another 1-2 years away from getting your consent’. (With the presumption being it was cheaper and safer to give them their bridge, than fight them in court and pay interest while we waited for a decision). We were cornered.
We built them the bridge, because it was indeed cheaper to appease them than wait for our day in court.
All developers have war stories with councils and the RMA process, right across New Zealand. Notifying a resource consent for changing a roof colour is the type of lunacy we need to combat.
It was arguably unlawful behaviour on the council’s part – but what does a developer do when faced with petty requirements and delays in councils in New Zealand?
The Environment Court is not an option – it’s for large issues and disputes. It’s slow and expensive. Developers need fast decisions and certainty, or they put the price of property up to cover their costs.
In my experience, these petty issues during the development consenting process are running unchecked for the smaller developers. The soft costs of the professionals fighting council run into the thousands for every development or consent. This is primarily due to the lack of a cost-effective, external body to appeal to. Plainly speaking, a council watchdog is required, like Australia has. It stops bullying, unreasonable, and tardy behaviour, and smoothes the supply of land process out.
Land and Housing Development Administration Court
In this regard, the Australian Land and Housing Development Administration Court is something New Zealand needs to copy.
It’s the stepped down version of the Environment Court that is accessible to all - cheap, fast and powerful. As a result of its existence, small and medium sized development in Australia is faster, lower risk and cuts through red tape.
By example, I did a number of small subdivisions in South East Melbourne in 2007, and it was, simply put, an awesome process. The local council (regrettably just like many New Zealand councils I have dealt with) was inefficient, disjointed and tardy in response times. When challenged about failure to respond on time and issue consents for works that obviously complied, they became obstructive. Of course they had their reasons – under resourced, etc. But the reality was the council service experience I received was non-responsive and poor.
Then I learned you could take them to the Victorian Civil and Administrative Tribunal (VCAT).
$50 was what it cost in 2007, and a simple form put me in front of a judicial land court judge within three weeks. The judge would say things like, ‘Well Mr Gilligan, here you are again. Nice to see you. What seems to be the issue this time’? Then the judge would box tick with the council member: ‘Traffic report – tick. Density rules and height to boundary – tick. Services – tick. Arborists and indigenous affairs impact report – tick. Well Council, I can’t see why this should not proceed. Do you have a valid concern or reason why you have not granted this consent within the three-week statutory time frame?’
Council member: ‘Arrrh, ummmm, no ma’am.’
Judge: ‘Well then, the decision is that council will issue a development authority to Mr Gilligan within in three working days. Mr Gilligan, if you have any further issues with council over this matter, please let me know.’
Three days later – I have a consent and I get on with it.
As a developer when I discovered this process, I just about fell off my seat.
Like a breath of fresh air, it takes all of a developer’s worries away. You get a fast answer over contentious issues, you get your consent on time, and this reduces risk, legal cost and interest cost.
Big picture, this rapidly increases the land and housing supply because the red tape is cut in three weeks, and someone is empowered to make a decision at very low cost.
Bring this to New Zealand. It’s a developer’s dream. It’s one of the answers to increasing supply quickly and reducing houses prices in Auckland.
Reduce building costs
Land is one component of high prices. The other is the cost of materials.
Building costs in New Zealand are out of control.
Building materials sourced from offshore could be used, which would greatly reduce the cost of construction, but it is not easy to get them through BRANZ. Why do Chinese builders in China build houses with such incredibly cheap components, and we can’t use them here in NZ? Why do US companies build with such incredibly low costs and NZ house builders not get access to cheap supplies?
Take, for example, a two-plug power point fitting. $6.50+GST in Bunnings on special. USD 32 cents in China. Cheaper on Ali Baba.
You will say it might burn houses down, we need standards, BRANZ are there to set standards to protect us, and I agree.
But make it easy for someone wanting to bring that 32 cent plug into New Zealand to get it to comply, and make this compliance process well resourced and inexpensive.
And we will have a lot of the costs of housing tumble just by doing that. Some other examples:
• 100mm x 50mm timber: $1 in the US, $4 in NZ
• Cost of building a house: $600/m in the US, $1,600/m+ in NZ
• Plasterboard: better quality and 1/3 the price in US
• 100mm sewer pipe costs twice the price in NZ compared to Australia
Source (April 2014): http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11244355
Summary
1. Land supply in Auckland is coming online – supply will improve. The AUP and Auckland Housing Accord are together making this supply happen – well done Auckland Council and central government for this huge task that has been taken on.
2. It’s time to cut the red tape in the consenting process, safely. Make it easier for developers.
a. Give developers a land administration court, like the Australian model.
b. Change council’s attitude to support and embrace developers, builders and the like. Or they will be prone to land banking and constrict further supply.
3. See what can be done to get some of the cheaper building materials in China and around the globe into New Zealand. BRANZ would need resourcing to do this. This will have a big impact on material costs in my view.
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Matthew Gilligan is a chartered accountant, and has been practicing since 1992. He is the managing director of Gilligan Rowe and Associates where he works assisting the firm’s clients in taxation and property related matters. You can contact him here. The author notes past performance is not a guarantee of future performance. This article is a generic discussion only, and should not be construed as financial advice.
60 Comments
BRANZ, frankly we dont need them. What we can do is simply say does it meet the AS or UK standards? yes? OK you can sell it. From memory 2.5mm2 power cable from OZ <$150NZ a reel, NZ cable $500+ both perfectly and adequately safe.
We really lose however when we have the brands protecting themselves. my Dewalt planer, $1200NZ on special $1500NZ more like, currently on Amazon, $600US, or $650 with a spare set of blades and fee ramps.
http://www.amazon.com/DEWALT-DW735-13-Inch-Thickness-Planer/dp/B0000CCX…
Blades, $180NZ+ for 3 here, or $80US for 2 pairs.
http://www.amazon.com/DEWALT-DW7352-2-13-Inch-Treated-Replacment/dp/B00…
Chisels, here a cheap 4 unit no name set in Bunnings, $120NZ, in the Uk 6 a better quality chisel set off a pro-carpenter/woodwoker site, 60sterling
http://www.workshopheaven.com/tools/Narex-Chisels---8116-Cabinetmakers-…
Developers, now when developers seek to make 100% clear NET profit then sorry but there is an un-acceptable margin there as well.
I agree with the local court idea, however the Q is where is the cost being transferred to? I certianly think the councils are slow, too expensive and risk averse. Last time I got a consent it cost me $1500 but the council insisted I got a professional engineer to sign off my plans at an extra cost of $600. So the Q is why do I need the council to check at the then $85 an hour with teh council insisting on a professional engineer and signoff when I already have a professional engineer at $100? What we should have is a one stop shop, the council, or a professioanl, not both, not for a 15k job.
End result I dont do work needing a consent now, not worth it.
And that's the point I brought up before. We did our extension in Brisbane - roughly 64sqm of new building - the permit free was around $1200 + $600 building insurance (that's including insurance for workmanship), it took a week to obtain the permit. Compare to few years back, we applied for a permit in Auckland to rebuild our car port and it was about $8000 for a project cost of less than $10,000
Yes, high cost structures in NZ have much to do with it. Not any mention of the banking industry and the transformation of NZ attitudes towards housing. When credit is available and emotion takes over, the sky is the limit for housing.....until it's not.....even on Gilligan's island.
As an aside, expat Kiwi entrepreneur Terrie Lloyd in Tokyo had this comment in his weekly mailing list about the investor interest in Tokyo apartments, particularly from China and SEA.
"Back in Tokyo, already the flow of foreign investment into private
real estate (versus commercial) is ramping up remarkably. CBRE reckons
that foreign investment in Japanese real estate overall in 2013 was up
an incredible 79% over 2012. We're guessing that this year will see
similar expansion. Jones Lang LaSalle says that Chinese investors
alone have bought JPY10bn of private apartments since 2011. It's easy
to see why, when for for JPY15m (NZD170,000), a low-end investor can get a
refurbished 70 sq. m. apartment downtown and a rental return of
JPY60,000 (NZD674) /month. In comparison, that same money doesn't even buy a
parking lot in Hong Kong."
Great article. I agree with every syllable.
Small addition:
- make the TLA cough up for penalty interest on a developer's debt, incurred whilst stuck in the Byzantine Maze. Do it at IRD UoM rates. Watch them howl.....
Another regulatory aspect: given the demonstrable low risk associated with timber-frame, light roof, single-storey residential builds - move 'em all into Schedule 1 and cut out the whole TLA permitting nonsense at a stroke, And as the Building Act 2004 has thoughtfully included a standard Gubmint-by-fiat clause (400 et al, reproduced below), this could be done by lunchtime tomorrow....
400 Regulations: building code (1) The Governor-General may, by Order in Council made on the recommendation of the Minister, make regulations, to be called the building code, that prescribe— (a)functional requirements for buildings; and (b)the performance criteria that buildings must comply with in their intended use. (2) Any regulations made under subsection (1) may prescribe that the functional requirements for buildings and the performance criteria with which buildings must comply in their intended use apply— (a)generally throughout New Zealand or in particular regions of New Zealand only; and (b)generally over a range of circumstances or in particular circumstances only. TLA's, as has been frequently noted, are creatures of Statute. Statutes can be changed by OIC. So just change 'em already.....
I think you should clarify the subdivision tax rules specifically ssCB contained in the income tax act 2007. I think you'll find that subdivision for sale is taxed if completed within 10 years of ownership and it's major works. Who can escape paying tax on a major division?
...........I think you will find many do simply by operating as non-associated tax entites. Buying from, selling to and so on..Kicking the tax obligation indefinately down the road. Ths fella got caught...he be the unlucky one.
http://www.ird.govt.nz/technical-tax/case-notes/2010/cn-2010-1709-arrangement-tax-avoidance.html
He had the right idea but abused the system.
Taken the loan is commercially good vs salary when the financial position of the company is low. The loan is a debt which is an asset, rather than an expense which reduces the equity growth.
How much interest was he paying, and from where?
What salary was he paying - generally a warning sign is a structure of Trusts. Trusts aren't actually design for Trading Purposes, they are for holding and distribution of asset arrangements (overseen by the Trustee). So if he had placed the Trusts in place for his self, spouse or children individually, then that would make sense - as does borrowing to repay from the Trust. this would even make more sense in a lump sum situation (eg selling a farm, or winning a lottery, or a large inheritance.)
the questionable parts are; Are the Trusts basically the same purpose and could be managed as one entity? What repayment arrangement was available?
Courts and IRD are massively overstepping themselves with the misapplication of Penny & Hooper, in assigning to themselves what "should be" salary rates. What a business or proprietor decides to pay themselves or anyone else is a _fundamental_ freedom of choice for the owner.
However. A Trust isn't a business or commercial structure, although there is some provision for payment to the trustees that is not the proper arrangement.
Each Trust should have had a trading company because the companies structure has proper rules for related party borrowing, reasonable expectation of interest, contract for repayment, and salary/PAYE from the entity. Also in the company when distributable profits are available and cash position is good then it is much clearer with what is happening with the funds.
In that guys arrangement he had no reason to keep taking the loans (as described in the article, although hard to tell with IRD, they like to leave off/ignore important stuff). The Trust had obviously done well enough to reinvest (although again the article doesn't say how... did he double down? that would leave the Trust short. Or was pooled assets used as security? Courts like to wipe stuff like that under the carpet and just call it "commercial reasons" ... nice when you get a massively phat pay check from the government and don't have to worry about funding for your own operation.
One has to ask, just what was he supposed to being paid a salary for?
(after all - loans come from paid equity so while he didn't pay PAYE, the Trust is liable for INC (Income tax on Trust income, which is at full rate) so it's not like tax was avoided at all.....
Jram026 - to clarify the subdivision rules, section CB 12 applies to more than minor subdivisions / developments commenced within 10 years of acquisition. Section CB 13 applies to “major” subdivisions / developments irrespective of the duration of ownership. In both cases there are multiple exemptions including investment (ie where the subdivision / development is for the purposes of generating rental income) and residential (ie where the land in question has been occupied as a private residence – subject to conditions) exemptions. So why you say " how does one avoid these rules", quite simply live in it or build to hold it and rent it out. (Adjust your intention to hold the property, the subdivision becomes part of the intention to rent out long term or reside in the property, whatever the situation that applies to the facts.) These activities escape the taxing provisions in CB12 and 13. In fact all of the CB taxing provisions have specified exemptions. Smart developers can hire property accountants who know their way through these rules, and simply adjust their business model to be more tax efficient and gain the exemptions.
And with the ever increasing supply of house finance,
http://www.rbnz.govt.nz/statistics/tables/c6/
sponsoring keen bidders to reach up and over for buying opportunities, edging comparative valuations ever higher, all those "servicing" the sector will be rattling the tin - seeing that their claims are successfully funded by the prospective home loan....
At this stage there is vocal complaint however, only when activity reduces will the "service providers" revisit their schedule of fees to miraculously find (otherwise unknown) ways to reduce the $ cost.
As an aside, the two things what makes it really hard for developers is no credit and no buyers (in no particular order).
Q: how come the factory builder in Auckland went through last week - were they building on spec?
Henry, you in on this deal?
http://www.weeklytimesnow.com.au/business/dairy/market-delay-for-china-…
Funny you should ask, our connections in Vctoria have gone a little quiet since Xmas, but weren't in boots and all.
We much prefer this as a policy response, rather than change regs/policy toward WMP imports ...
Could show the poor trading margins in China over the last six months have moved into the capex now too. Aside from what ANZ were saying last week. - see second comment.
China has no competitive advantage in pure dairy farming
In this report, we illustrate the competitive disadvantage that Chinese dairy farmers face compared to the rest of the world.....
Lot of good thoughts in the article and in the comments, but the obvious follow up question is,
'if Australia has a better system for enabling developers to process consents quicker, and their building costs are lower, why are their medium multiples the same or even higher than in NZ?
Their wages are not lower, so who is pocketing the saving?
there is no saving, it is an effect of velocity of money. The Australians have higher velocity of money so can afford better wages, and thus better margin. In NZ price competition has forced the veins to clamp shut, and little margin is available. so those relying on margin are out of the market.
If you take it that strangulation of supply as Matthew puts it, is one of the reasons for high house prices, and one of the causes for the strangulation is the time/money and extra cost of getting a consent, you would expect that a method for processing consents quicker would save cost. And therefore this saving could be used to offset other factors within the building cycle. It could be used for example to offer a lower priced product, or it could just go on the developers’ margin etc.
If what you are meaning by velocity of money is recycling of it through the system, then that maybe the case and you would expect it is if they can get consent faster but this would not affect the wage % per job, eg they can afford to be paid twice as much because their productivity is twice as much.
If anything this would enable further price reductions. Since this is not happening, where is the saving going to? Could it be, as happens in NZ, that any potential saving is first captured by the land bankers, then council, then developers, with the poor old home owner normally missing out entirely?
It’s not about supply at status quote prices we need, but more supply that enables lower prices by way of savings created by how it is supplied and by the supply being equal to demand.
While I look forward to your reply Cowboy, maybe Matthew could also reply as to what the point would be to introduce a system that on the face of it should make housing more affordable, but does not?
I was in Fresno Ca last week, house market is in decline.
http://www.zillow.com/homes/for_sale/Fresno-CA/pmf,pf_pt/68963402_zpid/…
The States has some good buying, this is in a good part of DC.
http://www.zillow.com/homes/for_sale/Washington-DC/pmf,pf_pt/442452_zpi…
So you are agreeing then that the faster Aussie consenting process is not enough to address the supply problem. In fact does it help at all? The evidence would say NO it doesn't.
As since we are comparing Aussie with NZ, we also need to make the distinction between Yanks and Southerners. The Yanks have nothing to teach with regard to how to increase supply, but these Southerner Texans do.
Also in our dysfunction system, yes the only way to reduce prices is to 'flood' the market and cause a correction/crash/burst the bubble, when in a balanced market, supply has to only equal demand to keep prices low and stable.
The problem is that supply does not equal demand, irrespective of what that demand is.
You are right in NZ that there is a lot of speculator behaviour and you could reduce that by Govt. decree which might cause an over supply and a crash, which could mean a lose for those that were the suppliers. Boom Bust, profit lose. And of course if there was a correction now then those highly leveraged FHB are toast.
How about a system where supply can be quickly increased to meet demand and just as importantly supply can be turned off just as quickly if the demand is not there. Less over supply, less under supply, the supply curve almost lying exactly on top of the demand curve. No boom, therefore nothing to bust. But of course no non-value added speculative capital gain. Investors still can make a good turn on yield alone or by adding value.
If we had our supply methodology sorted then it wouldn't matter as much where the demand came from, although that is not to say that as a soveriegn country you may want chose who and how many you let in. But the main point is that you would not need the demand to boster house inflation as the homeowners main saving source.
No, there is a difference between a supply problem and a speculative demand problem in terms of investing, consuming materials and land needlessly, providing infrastructure, generating un-sustainable jobs and the potential for losses and economic impacts. The last USA boom and bust can be pointed at the housing over-build they had at least partially.
Some things we could do straight off to test which is which is do like Singapore, 18% tax (or whatever) on foreign ownership and a similar tax if sold within 2 years. FHB's are not going to care about either tax and in fact like it, speculators wont.
I wasn’t saying there wasn't a difference.
And saying there was a USA boom bust is casting the net too wide. There was a Californian and some other states boom and bust. Others States, like Texas, did not boom (in house prices) and and therefore did not bust.
What I’m saying is if you have the right supply mechanisms in place, the price will remain stable (adjusted for inflation) irrespective of demand.
Bring in a Singapore style tax, or a Canadian style ban as a short term reaction and solution to our situation but that is shuffling deck chairs on the Titanic stuff as to what the end result will be longer term.
We need to change from a bust and boom system, to one where the supply curve can lie on top of the demand curve irrespective of demand and then you wouldn’t need these Govt. band aid type interventions that only prop up the Ponzi scheme.
Steven - the question is - who do you believe
This saga is descending into the same farce as "climate change"
There are believers and there are deniers
This topic has being going around the dance floor for as long as I have been visiting here. In that time I have consistently maintained it is a problem that is exacerbated by demand and should be treated as such
Demand is today - Supply is tomorrow - somewhere
And yet, here we are today, still with the same problem and it hasn't changed - the majority still insisting it is a supply issue - and yet we never come close to reaching an answer - how - where - who
You will remember my comment from a couple of weeks ago pointing out that Bernard Hickey a "supply-sider" and Gareth Morgan a "demand-sider" can't even agree two days apart
Not the same as climate change, for climate change we have decades of science on one side and nothing but politcal belief on the other.
For housing I see nothing that is cast iron science/math/economics of a standard I'd wish to trust to act on. What I am seeing though is a probability that much of it could be speculative demand driven and like Singapore we can cool that very effectively, slap a 10~18% tax on. The kicker for me is that rents are not rising, add in Singapores success and that is looking enough 'evidence" is point at a demand side solution an anti-speculation tax.
Dale
There are many things in the pot that affect supply, making it easier to develop teh potemtial in land is just one of them. I never said it was the silver bullet, but it would be obviusly beneficial to increasing supply.
If you havn't done it, I suggest you try building something and dealing with council in NZ that is remotely complex. Then get on a plane and try it in Aussie. You can get a 500 unit apartment block consented in six weeks in Queensland. And sue the council for $50 if they do not hit their statutory timeframes for response.
The existence of a land administration court must be a positive thing. But its not the only solution.
Yes I agree on the face of it a quicker consent time should be better, but for whom. If there is any saving being made, and there should be, it’s not being reflected in Aussie medium multiples ie the homeowner is not receiving any benefit.
In some systems any savings are incremental and can be seen immediately in the price of the product. In other systems unless its 100% fixed any small saving is captured by others so the end benefit to the consumer is zero.
One of the keys to increasing land supply is to actually remove the reason for why you need a tribunal in the first place ie get rid of that council mentality that allows them to do what they do.
And yes I have done a lot of development in NZ, and still am, but not Aussie. I have been involved in developments in Texas. They have no issue with council so there is no need for a tribunal.
If I was looking to change the system I wouldn’t be looking to jurisdictions that are in just as bad a shape as we are for solutions. We need to look at jurisdictions that are successful in producing affordable housing.
..a bit contradictory.
And don’t talk of throttling immigration, it’s not the problem either. Out of interest, it is roughly 1/3 of Auckland’s population growth over the longer term
Seems to me if we lack supply, then immigartion is a problem - it's reducing available supply for those already here.
4. CGT in other OECD countries (to my knowledge all of whom have capital gains taxes) does not contain house price inflation. For example, Australia introduced CGT in the 1980s, but house prices have risen at about the same rate as New Zealand.
followed later by
In this regard, the Australian Land and Housing Development Administration Court is something New Zealand needs to copy.
So things are really no different in Australia re prices growth etc? So why should copying them make a difference?
What does Australia have in commom with us? It is what they call hot foreign money/immigrants arriving in countries and competing. Sure they line the pockets of the likes of Mr gilligan, but long term, a negative drain on our ability to food,cloth feed and water them.
Nice try, but self interest reigns.
Cowboy - that seems to me to be a pessimistic and unsubstantiated remark. I found this article incredibly helpful myself. I don't see any self-interest from the author. What I do see is someone who has put in a lot of effort into presenting a well rounded explanation and solution to the problems with the Auckland Housing market. What's more is that he hasn't done as so many other writers do and regurgitated popular ideas that will get immediate support without actually providing a solution. He's instead addressed it as a problem, applied high school economics to and presented some solutions accordingly.
Also to the poing that you and Rastus make about immigration reducing supply, that seems to be oversimplifying the issue. My understanding is that immigration falls very short of being the main driver of demand in Auckland, the main one being natural propulation growth (from births). Aside from hurting the rest of the economy to reduce the demand for houses marginally, it seems to bad business to interven to reduce immigration (demand).
In a business (the same principles apply) you wouldn't turn away a particular type of customer in a business because you couldn't produce enough widgets to meet total demand. Rather you would address the issue of supply by removing the restrictions and obstacles that are inhibiting it. So unless we are going to make the decision that demand genuine is the issue (in which case we will need to restrict births and/or accelerate deaths to tackle it) then we should be focusing more on supply.
Wow, such a succinct rebuttal there with your first few lines. I say seems because I am not so arrogant as to think I am always right or that I know everything.
I assume in your analogy that immigrants are the thieving employees? I don't know how this applies to the housing market. Immigrants aren't thieves trying to steal our profits so your analogy doesn't make sense unless you are claiming that they are a burden on our welfare system. Rather they are buyers who represent a small % of the market that are competing with everyone else for the limited supply of housing that there is. Intervening to remove those buyers is like imposing tariffs on imports to protect local suppliers. It's inefficient. It makes far more sense to remove the existing restrictions on supply to alleviate demand pressures for all buyers without targeting the ones that aren't kiwi enough for you.
Matthew I enjoyed reading your article. It presented potential solutions that I had not had put clearly in front of me before and I can definitely see how they would work.
You have taken this back to a supply and demand problem and your focus is on increasing supply to reduce prices. But the other half of the equation which you seem to disagree with is an effort to to decrease demand which by the same basic economic laws should create downwards pressure on price.
In my own mind I have been mulling the problem over with no knowledgeable person to discuss it with. I had two potential ideas that could be quite hard to implement and enforce but they are more concepts that could be worked on if they had value.
The first is to create a law that says that any one person or trust/legal entity may only own one residential property/section and that you must be 18 or over to own a property. This would create an initial surge in supply as property investors offloaded their excess portfolio, prevent landbanking as you call it because they simply could not own the land and also encourage investors to invest in the other asset classes you refer to in your CGT arguments. The secondary effect would be to decrease demand long term by reducing the impact of property investors.
The second is to create a law that says that residential properties/sections may only be purchased with money earned in NZ. This does not discriminate against immigrants directly but does prevent foreign money from purchasing NZ property. People have the potential to earn higher salaries overseas and get taxed at different rates, rates that are often less than in NZ. This law would prevent foreigners or expatriates exploiting this advantage and create more of an even playing field. This would decrease demand as well. It would encourage productivity in NZ and even increase tax revenue in NZ as people were forced to work in NZ and be taxed in NZ before they could own property here. The burden of proof would be with the purchaser that they had earned the money used to buy the house in NZ. Mortgages would be funded by local money earned as well.
Both policies are to disencourage/forbid people to use houses as a wealth generation asset. Houses could be treated as what they were always intended to be, a private abode where a person could rest, be sheltered and, if they choose, raise a family.
Administration and enforcement are not small problems in this approach but could be worked out if there was a will to do so. There would be an outcry from property investors for sure, but they could use their proceeds to buy other assets if they wanted to continue investing. Each policy could only apply to Auckland and Christchurch if necessary as the rest of the countries property markets are more of less stagnant.
What do you all think? Are these concepts valid? Could they be modified slightly to be feasible? Because I have not discussed these thoughts with anyone before (such things do not interest my family and friends) I realise they could be completely bonkers. But if you decide that is the case I would like to understand why they would not have a negative impact on demand and why that would not have a downwards impact on house prices, thus going some way to addressing the problem at hand.
David
there is no legal standing for what you propose for arbritrary ownership limitations. It would
you can't prove money earned in NZ. NZ dollars and NZ dollars, fungible. No matter where withdrawl or where earnt. Whats more it lends itself solidly to money launderering.
Implimenting such a law as you've proposed is immediately and deliberately detrimental to NZ citizens currently habitating outside NZ. This is strictly illegal.
Your law about ownership of one residential property is also fundamentally unlawful as it unreasonably restricts a perfectly valid purchase of multiple properties. Especially in the case of non-natural born NZ citizens.
However, what could be done is that a NZ citizen can only nominate a single property as their primary residence (aka serving address) and rebates and interest discounts be only permitted to that address (with proof of long term change being required for registering a replacement address.) The law disallows deliberately targeting sections of the community for penalties, especially arbritray ones, but it does allow for everyone to be entitled to a benefit, even if that benefit is a singular one.
Interesting comment David_akl. Let me think about it.
But instinctively, why create a giant administration burden and big govenrment, causing people to game the system etc. Instead just release land and put services in the ground. This will allow everyone to prosper, builders will employed, - the whole supply chain continues, fueled by immigrants and organic gorwth of the population. What's wrong with that ?
Auckland city just needs to release the land faster for development..
I'll give you the courtesey of a more reasoned response later tonight.
Thanks Matthew
I think your solution of increasing supply is a good one! And if it can be done or is being done then great. All I'm suggesting is that the 'demand' side of the equation could be addressed as well. To do so would require a big mindset shift. And yes there would be a big administration exercise as we cannot rely on all people to do the right thing by the wider community all the time. That's just human nature.
In Reply
I think I am getting the scent that you are assuming that multiple properties being owned by a landlord is an issue that causes social and economic problems. Does it ? The house price inflation is not a symptom of people owning multiple properties, it is a symptom of poor management of the land supply.
In terms of house price inflation, the problem is not who owns the properties - that is irrelevant. It is the lack of supply vs demand. In the same breath, the social inequity that comes from people amassing many houses is a problem, - but this is also a problem prevalent in business. The rich get richer. I have some empathy towards a CGT in this regard. Makes sense to tax the rich on capital gains - why should they get profit not taxed just because NZ defines the profit as "capital". But the CGT argument is irrelevant to house price inflation. CGT won't slow house prices, - Gareth Morgan is dreaming on that front.
As said above, we need investors to own the housing stock, keep it renovated and provide it to the population to live in. (Not everyone wants to own a home.) If you restrict them, tax them, and make it hard for them, - you are not reducing demand (people are still breeding providing organic growth, and immigrants are still coming here). You are in fact putting in hurdles to supply (tax and complex compliance rules). This will make accountants rich (thank you), but wont address the core problem in my view.
I do get the immigration restriction argument, but I like immigration. I like the culture, the food, the diversity, the growth that comes from migrants coming to NZ. It creates jobs and vibrancy in the economy and NZ culture. I would therefore prefer to grow the size of our country, and build the immigrants their houses. It makes for a more interesting place to live, and the larger economy of more people is more economically sustainable.
I therefore respectfully reject the need for your clever layer of taxes and asset ownership bans and prefer to simply roll out the Auckland Unitary Plan. The answer is already found in that plan, - just implement it.
Thanks for taking the time to provide a considered response. It has been enlightening getting these thoughts out of my head and in front of an educated and informed audience.
There might be nothing to work with in my ideas. Maybe there is a fragment that could spark new and better idea. It is not my field of expertise so I will leave it here for now.
I'm glad the council will make more houses available. I quite liked the sound of the Singapore foreign buyers sales tax referred to below. Other than that, bring on more supply.
Something has to change because the current situation is rather hard to deal with.
Kind regards
David
If you put servives in the ground, who pays? apart from the environment? what about roads and then maintaining them? a burden on rates. I look at the USA with large tracts of land with services plots on them going back decades and think what a huge waste on so many levels.
Simple math,
"fueled by immigrants and organic gorwth of the population. What's wrong with that ?"
You cannot have expotential growth on a finite planet.
On top of that our economy is fossil fuel based and we are at peak fosil fuel output (give or take 10 years) that means we will have less energy and the double wammy will be its cost.
So the last things we need is more people, especially waiters and bar managers.
Thanks Cowboy...law was never my strong suit at uni.
I think you could go some way to proving money was earned in NZ by showing the tax paid on that income to the IRD. Pay slips could also be produced.
Deliberately detrimental to NZ citizens living outside NZ...maybe this policy could not apply to them. But is it so wrong to say that if you want to own property here then be prepared to actually be here and contribute to this country? They could live here if they chose to - they already have a house to live in after all.
Restricting the perfectly valid purchase of multiple properties...should it be seen as perfectly valid? A mindset shift is required here so that owning more than one property is not seen as perfectly valid. Invest in other assets sure, do not classify houses as investment assets. A major change yes, but one worth making?
I appreciate you taking the time to comment.
On the right track david_akl - almost - Measure tax-paid - not income earned
Establishing the source and provenance of funds is problematic while the NZ government does not require wealthy newcomers to establish that the foreign funds are legitimately obtained and properly taxed in the country of origin
It is possible for wealthy newcomers plus family to lob in to new zealand bringing with them enough funds to buy a $2 million house plus say $200k walking-around money while leaving the remainder of their assets overseas. Under current NZ tax laws the newcomer will enjoy a 4 year tax holiday on the income from those overseas assets. Doesnt need to work to earn a NZ income or pay NZ taxation
Meanwhile they will enjoy all the privileges of existing infrastructure (roads, sewage, water, power etc) existing education for children (schools), health and welfare for children and family, without ever paying $1 in New Zealand tax
Your proposition would be better tailored to establishing the amount of New Zealand income tax they have paid in New Zealand. ie IRD tax returns, which is easily established. Once they have contributed and joined the tax-payers club and paid at least $100,000 in local income tax, then they can buy a property, and not before. Not including GST. Just terminal tax.
Your "mindset shift" is a violation of natural rights.
You start ruling peoples' lives like that where are you going to stop?
Just to be clear though, I'm not formally trained in law, and definately not qualified to give "legal advice". However bacuse of that very fact I am willing to give my personal opinion for what little it is worth. This is intended to give insight into possible areas you might have overlooked or taken for granted - not as personalised instruction or advice. It is actually my ex-wife that trained in Commercial Law, whereas I have only represented myself a few times in courtrooms and tribunals.
With that said. Please take into account that the very foundation of _First_World_ economics is the right/privilege/encouragement for private citizens to have independent ownership rights. That the law protects them and their assets against the Law as much as that Law protects Contract and Safety and Rule of Law. What you proposed to violate is the very thing which separates the first world nations from the third world nations (The third world nations have the "ownership" in they say who can buy what, how much can be owned, for how long and who it may be sold to.
In the case of property, there is clear Citizen and Government good in keeping national lands belonging to nationalist people (of whatever descent) and there is a clear public good and crown/sovereign advantage to maintain assets for future generations - something our governments are failing miserably in - however they are a small fish in a large shark infested ocean.
So when you look at policy ask yourself this: Can the general public and the individual public and crown benefit from this change. That is the basic test. Sadly our socialist and poorly educated public don't understand this.... and that is for a very long time the power of the decision making and the information has lay in the hands of a few.
And very few of those on far off shores had reason or means to secure property and rights here. With the rise of globalisation and easy credit and post-WW2 it has become much easier and cheap to relocate - jobs are much more specialised, and the inequality between countries has increased 10 fold.
Things like the local money concept, creates a limitation, but be aware of the scale of the people we're dealing with. Those kids with beemers in Auckland, they are the Talleys of their country. The ones buying up multiple properties are the Harts of their land. And their population is 5 to 250 TIMES our population base, does that give you an idea of how deep those pockets are?
With that kind of money, simply buying a NZ company, opening a branch elsewhere and pouring money into the hole, gets the funds into NZ. You've got to remember NZ Government is -desperate- for influence and anyone elses cheap money they can get their hands on. Offend the power, suddenly all NZ business (Fonterra included) in that area or country is frozen for inspection, back taxes, fined for improper paper work, or even the foreign country will just officially change its paperwork and not tell the NZ office - and millions of dollars of NZ trade will rot in warehouses or docks, attracting storage and disposal fees. Remember that the huge drop in dairy prices was caused by Italy seizing an important Russian citizens private property in relation to a crime. A huge global damage and Sovereign response to what was a legal and private matter.
should we really be in the business of letting the State say who can buy what? What the State can (and should do) is protect our future generations, that at least, is their responsility.
Thanks for taking the time to consider my thoughts and respond to them.
Violated human rights, cast NZ back into 3rd world country status and encouraged political assassination of global NZ companies...not bad for an afternoon's work :-)
I've appreciated the chance to get some thoughts out of my head an in front of an educated and informed audience. It has been enlightening.
Regards
David
Hey Averageman
#3 " Anyone in the business of building or developing or speculating in property pays tax on the gains. It is only long-term investors that get tax-free capital gains. "
I assure you that IRD are auditing the tax base and enforcing the rules on this. They are slow, but they are statistically profiling the population vs the number of properties in their names, or entities associated to them, back tracking and looking for patterns of trading activities. They are catching up with people who do as you say and nailing them.Having said that, you can't stop people cheating on the rules. But they pay when they get caught, I assure you. I am a tax advisor for a living specializing in property. I get lots of people through my office coming to me with IRD breathing fire on them asking for help.
The other issue that is hot out there tax wise, is Expiates and foreigners working off shore and not paying tax in NZ. Their deemed dual tax residency can cause nasty back-taxes when audited, as they should be paying tax in many cases in NZ as well as off shore, on the difference between tax paid offshore and tax payable in NZ as if they earnt th eoffshore income in NZ. So IRD are actively looking at people working and living offshore, because they generally find tax compliance is poor in this area and make a lot of money thrashing taxpayers who dont understand the rules. I have some shocking case studies with people being bankrupted as a result. My next blog is about exactly this.
Hello Two otherguys.
'Long term investment' is a subjective intention test. What was in the taxpayer's mind when they purchased a property ? Did they intend to rent out a property in the long term and derive rental return, or did they buy the property with the dominant intention of resale in the short term ?
Objective tests of observations over what a taxpayer has said and done test the subjective intention stated. For example, what did the taxpayer say to his banker, real estate agent, or ex wife ? IRD call these parties and interview them. They get copies of file notes and documents pertinent to the facts to see if the taxpayer is telling lies or stretching the truth. They also look at the cumulative pattern of activities of the taxpayer and related parties, to see if there is a pattern of trading activities.
Obviously this system is open to abuse as Averageman above says. The system has been extensively abused, and in my observation is especially abused by immigrants who put properties in sisters, and relatives names, and hide behind them. This is a real area of slippage for IRD in my view.
Many taxpayers take the view that ' they can get away with a couple' and they do. They say they intend to hold, they change their mind, and sell calling the gain a capital gain, It is hard for IRD to argue with one or two 'changes in intention' where there is a legitimate reason. ( Eg Divorce, insolvency, problems with the asset, financial problems, etc). But where a clear pattern of trading activity emerges, they will seek to tax the taxpayer in arrears retrospectively, and claim tax, interest an penalties from when they say the activity started. They usually go back 7 years.
One defense a taxpayer will have, if they have used competent accountants, is time barring. How this works is provided the proper disclosure of the capital gain is made to IRD showing the gain in the financial year it was derived. Then IRD are time barred from attacking it. A lot of accountants don't realize the significance of the disclosure at time of filing the tax returns, and unwittingly expose their clients to risk of audit past the time barring period of four years. The exception to the rule on time barring is tax evasion, which is a criminal suppression of income and lifts the time bar.
Hope that makes sense.
Why all the humbug and gnashing of gums - coming up with complicated solutions
Especially when it can be so simple - so Occams Razor
This is how they did it in Singapore without complicated gymnastics - Simple really
High End Property Collapse in Singapore without flooding the market with supply
1: Stephen Hulme
2: New York Times - courtesy Stephen Hulme
3: addendum
And here is what is being planned in South Africa
Jacob Zuma announced these measures last Sunday
Not one NZ news media outlet that I have seen has reported it
Musn't have happened - although the BBC reported it - that's where I first heard about it
http://www.theage.com.au/it-pro/south-africas-zuma-proposes-ban-on-foreigners-buying-real-estate-20150215-13f34w.html
If the NZ news-media don't report it then it hasn't happened
good post
And our new friends here from /or otherwise would be from Hong Kong
http://www.globalpropertyguide.com/Asia/hong-kong/Buying-Guide
Special Stamp Duty (SSD) on Residential Property SalesThere is a special stamp duty that applies for residential property as of 20 November 2010, if it is resold within 24 months or 36 months. The applicable rate varies, depending on when the property was acquired and the holding period of the property before it was sold.
and increased for purchases from Oct 2012
holding period:
up to 6 months - 20%
6 months to 12 months - 15%
12 months to 36 months - 10%
Ironclast
Its just not as simple as introducing a stamp duty to crash house prices. This causes other problems and sets up another housing boom, as I explain below..
There is no question that stamp duty dampens speculation in a housing market. But it does not extinguish a supply problem like Auckland has. It has not slowed Australian house price inflation either, as all Australian states have stamp duty, as do most OECD countries who have capital gains tax (stamp duty and CGT seem to go hand in hand.)
I think Singapore is very different to Auckland. The housing market there was/is driven by offshore Asian money, a lot of it from the megarich, and a fair bit of the money is dirty capital being hidden or laundered. ( OK this is highly subjective opinion and hard to prove, but that's my perception of it). Further there must be oversupply in some sectors like the high end apartment market, if whole towers are practically empty, as one of your links above suggests. Regardless of whether you agree with this paragraph or not, Auckland is starved for supply - just look at my graph above in my article on demand vs supply. We are short of land and building consents are not keeping up with household inflation. Recent immigration is exacerbating this.
Bringing in a stamp duty therefore does not solve the Auckland supply problem. If you brought in a stamp duty, people would not move out of buildings revealing supply. You would crash the market short term however, if that's what you wanted to do, because buyers would stop buying, shocking the market.
But developers would also cease building immediately. Why ? Because no one would pay the extra 18% (using Singapore's rate). It would not be until the market was willing to pay the extra cost of the stamp duty, that construction would recommence and supply come on tap. That would not be long, because the supply shortage would cause house price inflation. So short term you reduce house prices, but medium term you get rapid house price inflation.
A big stamp duty in a supply starved market, is therefore entirely contrary to the goal of increasing supply, and for this reason stamp duty is a bad idea in my view.
Maybe consider it after supply is awash with housing stock, but not before, or you will have a short term crash (driven by the tax) followed by another boom as the supply imbalance gets out of whack,. We have already seen this pattern (for other reasons) in Auckland during the GFC.
You could achieve the same goal of crashing house prices by the way, by making credit harder to get, or more expensive. But that does not solve the supply problem, which has been caused by inept planning in fragmented Auckland councils, prior to the super city being formed.
In summary, I don't think it is as simple as ' bring in a stamp duty'. You will cause a crash followed by another boom. Not solve the underlying problem of short supply.
You actually do not know that Auckland really has a supply problem. From my perspective there seems to be considerable speculation going on throughout the world Auckland is just one more example.
Actually the test of this is quite simple, do like Singapore slap on a hefty tax on foreign purchases and selling inside 2 years.
Here's a thought. Why doesn't Council relax some of the costly and stupid land regulations in order to free up newly subidivided land? In fact, why don't they reduce all their fees by half and start earning significant rates income instead? For anyone who has sought (and paid for) a resource consent, you'll know how long as costly this process is, even with professioanal planning / engineering help (@ $160 p/hour).
If Auckland Council were run like any other normal business, they would become accountable and would actually have to answer to the residents (as they're the customers). John Key, please boot the whole Council out (starting with Len Brown) and replace them with actual professionals.
To start with we dont know for sure if the problem really is a lack of supply for a genuine demand as opposed to some or mostly speculation.
With that in mind,
a) Councils could simply removing zoning requirements, however that then means that the limitation on land being available is moved to the land bankers who can limit what is released holding up prices. So to bypass that you either have to release really huge amounts of land or compulsory purchase land and have the council sub-divide and release it cheaply.
b) It costs money to supply services and roads to a green field site, yes? That upfront cost has to be met by someone, in this case it is the new someone, up front not via rates which only cover existing infrastructure.
c) In terms of answering to the rate payers, yes and that is the "problem". The rateapyer does not want the cost of new works added to their bill, I certainly do not anyway and I'll bet that most ratepayers wont want that added cost either, so boot the council out? no thanks.
As an example of what might happen. Lets look at the shale oil fiasco for the moment as an example, of what not to do with housing. So much drilling went on due to high price and easy money that the market was flooded with oil and the price collapsed. Do that to the housing market and NZ's economy will implode into a blackhole.
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