How NZ could fix property taxation, face down the NIMBY problem, overhaul the RMA and drive sustainable urban development - OECD

The OECD has run the ruler over New Zealand’s urban planning framework, providing a range of suggestions for overcoming problems regarding NIMBYs, property tax settings, spatial planning, the RMA, infrastructure financing and local road pricing.

The comments were made in the organisation’s 2017 Environmental Performance Review of New Zealand in a section on sustainable urban development. An OECD delegation led by former National Party Environment Minister Simon Upton was in Wellington this week to launch the review.

In general, New Zealand’s urban planning system had responded poorly to the challenges and opportunities arising from urban development, the OECD said. This meant substantial barriers to increasing housing supply and providing network infrastructure in Auckland and other fast-growing cities.

“As such, it has contributed to rising house prices, missed benefits from agglomeration and increased environmental pressures from infrastructure bottlenecks,” the OECD said.

The OECD’s recommendations on sustainable urban development are below. But first is an overview of some of the comments the organisation made in its report:

On property taxation and rates:

• High reliance on general rates for infrastructure finance may discourage cities to accommodate or promote growth, as it implies that dwellers cross-subsidise infrastructure they do not necessarily benefit from. Councils are therefore reluctant to provide network infrastructure (such as sewerage and public transport) if they think this would push up the rates bill of the local population.
• Local authorities can address this issue by shifting the burden of financing growth to those who benefit from it (applying the user-pays principle).
• Targeted rates can also be used to capture windfall gains accruing to landowners from property price increases resulting from the rezoning of land for urban use (land-value capture taxes) or the improvement of local infrastructure (betterment taxes); an example would be increasing them for a defined period.
• The potential for the tax system to capture such windfall gains is large in New Zealand, particularly in Auckland.
• Revenue raised through this mechanism could then be used to help fund infrastructure upgrades and expansions needed to service new land (OECD, 2015a), especially where development and financial contributions are not applicable.
• Property taxes affect land use and urban sustainability by changing the relative cost of the location and types of development. For example, a tax design that is based on buildings and other land improvements (rather than on land value) can incentivise greenfield development to the detriment of infill development, encouraging urban expansion and, at worst, urban sprawl.
• In New Zealand, most local councils have shifted from setting rates on the basis of land value in favour of capital values, which they perceived would better reflect the ability to pay (NZPC, 2015). However, much of the recent increases in property values reflect rising land values rather than improvements; this suggests that land values may be the more appropriate basis for the tax. There are also indications that land taxes are more progressive in New Zealand.
• The country may therefore review whether property taxation is aligned with objectives of the urban planning system and, if not, consider shifting towards stronger land taxation.

On encouraging NIMBYs to become QIMBYs:

• The process of changing land-use rules and regulations tends to be lengthy, with district or regional plans taking more than eight years on average to become operational (since their first notification).
• These long time periods are in part related to extensive participation and appeal rights under the RMA, which stakeholder groups have used to thwart development of wider public interest (even though these rights have narrowed over time; see Chapter 2).
• While high levels of public participation are an asset of New Zealand’s public governance, vested interest groups sometimes have disproportionate influence in local council processes, including consultations on budgeting and land-use plans.
• Resident associations often appeal changes to city land-use plans, fearing that urban development could affect the value of their properties and the character of their neighbourhoods. Indeed, many changes to land-use plans effectively protect the interests of property owners, creating biases towards maintaining the status quo.
• well-defined national urban design principles or outcomes (see Section 4.2) can provide an objective baseline against which urban plans (and the reasonableness of objections) can be assessed, thereby limiting the risks of appeals to publicly beneficial development.
• OECD (2012) identified a number of other strategies that city government can use when public opposition against a more compact urban form is high; these include provision of affordable housing, investment in green open space, greening of built-up areas, information and education, and demonstration projects that showcase attractive medium- and higher density development.
• The city of Vancouver, Canada, for example, turned the acronym NIMBY (not-in-my-backyard) into QIMBY (quality-in-my-backyard) to demonstrate that residential intensification can be based on high-quality urban design and amenities.

On the Resource Management, Local Government and Land Transport Acts:

• The RMA focuses on managing adverse effects of development of the natural environment, but is virtually silent on the urban environment (where natural landscapes are already highly modified). As such, the RMA has limited capacity to recognise and promote the positive economic, social and environmental contributions of high-quality, sustainable urban design and planning (e.g. compared to what is already built or “business-as-usual” development).
• The RMA, LGA and LTMA create a complex web of separated planning and decision making processes. With land use, transport and infrastructure being subject to separate legal frameworks, plans and decision-making procedures required under the acts are all subject to different legal purposes, processes and criteria, and operate over different timeframes.
• This has created parallel planning systems with a proliferation of planning documents, overlaps and duplication of efforts, creating significant resource demands on local authorities.
• Overall, the urban planning system has responded poorly to the challenges and opportunities arising from urban development. The system has been a substantial barrier to increasing housing supply and providing network infrastructure in Auckland and other fast growing cities.
• As such, it has contributed to rising house prices, missed benefits from agglomeration and increased environmental pressures from infrastructure bottlenecks.

A summary of the OECD's recommendations is below:

The policy and planning framework

• Examine how to improve procedures, criteria and timeframes for planning and decision making to allow for more integrated and timely management of natural resources and urban environment while preserving the ability for effective local participation.
• Consider making spatial planning mandatory for all urban areas with population over 100 000, while simplifying infrastructure and transport planning requirements; provide greater recognition and legal weight to spatial planning initiatives in smaller urban areas, and guidance on how spatial planning should be conducted; at the very least, clarify the hierarchical relationships and linkages across planning instruments for land use, infrastructure and transport and, where possible, align planning horizons and review periods.
• Broaden the scope of the National Policy Statement on Urban Development Capacity, or develop other legally binding measures to ensure that local planning processes and instruments i) recognise and encourage good urban design outcomes and principles for sustainable urban development; ii) identify and appropriately manage important or sensitive environmental systems; and iii) incorporate climate change mitigation goals and resilience against climate change and natural hazards.
• Facilitate the decision-making process to change existing land-use plans and reduce the scope for vested interests to thwart development of wider public interests (e.g. by front loading public consultations and ensuring an independent expert review of proposed plans and suggestions from the public).
• Create a common set of urban environmental and economic indicators to increase transparency on cities’ environmental performance, facilitate benchmarking and identification of best practices, inform decision making and allow for better policy evaluation.

Institutional framework and multi-level governance

• Establish a national co-operative structure comprising national institutions with responsibilities for urban-related matters (e.g. on the model of the Natural Resources Sector), with a view to improving horizontal and vertical policy co-ordination.
• Consider replicating the Auckland institutional reform in other major urban areas, with the necessary adjustments, and encourage partnerships among smaller municipalities with a view to overcoming institutional and land-use planning fragmentation.

Regulations and economic instruments for sustainable urban development

• Ensure that regulations in land-use plans pass robust cost-benefit analyses that consider environmental outcomes (including effects on transport, green spaces, etc.), as well as economic and social outcomes (including distributional consequences and intergenerational equity).
• Make more systematic use of development contributions and rates to guide efficient and sustainable urban land use by: i) differentiating development contributions along the location and type of development to reflect the true cost of development on infrastructure and service provision; ii) considering adjusting development contributions and rates where development yields positive effects on the environment; and considering maintaining financial contributions or develop other instruments to reflect the environmental costs of developments.
• Remove barriers to road pricing (e.g. road tolls and congestion charging) and encourage councils to introduce volumetric charging for drinking water supply, with a view to foster efficient use of infrastructure and resources, while reducing the burden on local government budgets.
• Consider the use of betterment levies (e.g. through targeted rates) as an additional cost recovery mechanism for infrastructure and services provision, especially where development and financial contributions do not apply; and explore alternative instruments to finance urban infrastructure, including taxing windfall gains occurring to landowners following rezoning of urban land (value capture).
• Review whether the current design of property taxation is aligned with land-use objectives and assess the potential benefits of shifting the property tax structure towards a land tax or to split rates.
• Assess the environmental, social and economic implications of the funding model for roads and public transport; promote innovation encouraging alternative options for public transport (e.g. car-sharing, demand-responsive transport in small or low-density cities), while continuing to expand and improve conventional public transport services.

Sustainable housing

• Improve the environmental performance of the building stock to reduce health impacts from poor insulation and the emission of air pollutants from inefficient heating by: i) modernising and strengthening national building standards; ii) establishing supplementary incentives to promote investment in insulation and modern heating in rental buildings; and iii) encouraging new housing to meet best practice urban design and sustainable housing principles.
• Ensure that areas of fast-track residential development (notably those created under the Special Housing Act) are screened against environmental impacts, especially against cumulative and irreversible impacts.

*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.