Infrastructure New Zealand says a Royal Commission into planning laws, local government structure and funding would be an appropriate move toward designing a fully integrated planning, funding and delivery system

Infrastructure New Zealand says a Royal Commission into planning laws, local government structure and funding would be an appropriate move toward designing a fully integrated planning, funding and delivery system

By Stephen Selwood*

"The Productivity Commission report on improving urban planning in New Zealand identifies many of the key issues confronting urban development in New Zealand, but its recommendations fail to align planning, local government decision making powers and funding.

The Commission recommends regions develop spatial strategies while districts make funding and investment decisions. This is little changed from the current process where regions develop policy statements and districts fund growth. It also replicates failed planning practices under the old Auckland governance regime.

As long as the responsibilities for planning are separated from responsibilities to fund and deliver plans, implementation will be subject to the vagaries of local, fragmented politics, not the needs of the region.

Much more fundamental change is required to enable effective urban development and regional growth. We need a system where national, regional and local plans are aligned. Regions must be able to plan for growth, have the necessary funding to enable timely investments and be able to work effectively with central government, business, iwi and local communities.

A key part of the problem today is that districts are under resourced and don’t have the funding, capacity or incentives to go for growth. Fragmented decision making, and the sheer number of councils involved makes it even more difficult.

Although the Commission identifies these as issues, it does not propose a fully developed set of recommendations to address them. Councils, for example, already have the ability to use different rating systems to better capture value improvement. The fact that they by and large do not suggests other factors are at play. Little in the report gives confidence that these factors will be addressed. 

Traditionally, discussions of local government structure and funding have failed, which may explain why the Commission has not addressed these controversial issues.

Fundamental reforms of this significance require a national discourse along with community and organisational input, in depth evidential-based research and objective evaluation.

While the Commission has made a useful contribution, a Royal Commission into planning laws, local government structure and funding would be an appropriate next step to designing a fully integrated planning, funding and delivery system.


*Stephen Selwood is chief executive of Infrastructure New Zealand, which originally ran this article on its website. It is reproduced here with permission

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35 Comments

Let me save you the time and cost of a royal commission... Increase rates in Auckland to a very reasonable 1% of the value of land only, and you'd solve 90% of the problems.

Incentives shifted by land tax would change Nimby's into those pushing for more ability to develop. It would also raise the revenues so the necessary infrastructure projects could be undertaken. And it would decrease land values so that people could buy their own houses again without insane mortgages and developers would need far less capital to get projects off the ground. It would also mean you could abandon those retarded infrastructure growth charges currently disincentivising new developments. Increased development would increase the amount of tenancy space available and you'd solve the homeless, homeownership and rent epidemics.

Economically that might work but politically it would open a massive can of worms. The blue rinse brigade in the leafy suburbs with the highest land values would scream murder. Rates if converted to a 1% land value tax would triple -if not more. Sections with land values of $600,000 plus are common in Auckland -especially in the inner city Isthmus suburbs -that is $6,000 in LVT taxes every year!

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Many places in NZ are paying rates at over 2% of the entire capital value. This is why we have a housing crisis in Auckland. Landholders are not shouldering their share of the burden. They're happy to be the beneficiaries of their exclusive land rights though.

Landholders have been getting 10% cap gains for many years now on top of any rents they extract, this is not an unfair burden.

Two very good comments.

Thanks, it was all laid out pretty clearly in Henry George's "Progress and Poverty" well over a hundred years ago, and was a big part of why New Zealand was originally so economically successful and egalitarian.

If you have the time I recommend reading the full text, but here's a good break down.
https://en.wikipedia.org/wiki/Progress_and_Poverty

Yep, very familiar with it.
A very good modern equivalent is Glaeser's "Triumph of the City", if you get a chance.

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No excuse really - as folks in the leafy suburbs elsewhere in New Zealand already pay rates at levels way higher than their Auckland counterparts:

Auckland, Remuera = Rates $5,936, CV $2,050,000
http://www.aucklandcouncil.govt.nz/EN/ratesbuildingproperty/ratesvaluati...

Kapiti = Rates $10,583, CV $1,950,000
http://eservices.kapiticoast.govt.nz/properties/14429

Palmerston North = Rates $7,205, CV $1,850,000
http://www.pncc.govt.nz/services/onlineservices/property-search/property

Wellington = Rate $11,891, CV $2,325,000
http://wellington.govt.nz/services/rates-and-property/property/property-

As I've said before - it is no wonder Auckland cannot afford the infrastructure needed to fund decent services and a reasonable modicum of growth.

What really annoys me now having looked at it is the fact that the rest-of-New Zealand is being asked to subsidise the Auckland region via general taxation.

It's going to bleed us dry too!

That's an eye opener - I wonder how many Aucklanders are even aware of that fact

And it gets worse too. Because they use Capital Value as the basis for the General Rate (something locked into the SuperCity legislation), their under-developed and undeveloped landholdings get an even better deal on their rates, than the developed properties in the same neighbourhood. In other words, beggar they neighbour!

Here are two examples where the value of the improvements is 10% or less than the overall capital value of the property:

21 Momona Road Greenlane

Latest capital value
$2,150,000
Latest land value:
$1,930,000
Latest improvement value:
$220,000

Rates: $6,189.50

32 Matai Road Greenlane

Latest capital value
$1,340,000
Latest land value:
$1,260,000
Latest improvement value:
$80,000

Rates: $4,136.65

Both recently advertised as ideal for land banking.

And herein lie the problem Ocelot refers to in terms of the incentives to develop not being there. Not while land values continue to rise as the holding costs are so low.

If you placed a rating differential on all properties where the value of the improvements is equal to or less than say, 10 or 15% - you'd capture only these speculative type buys. And folks would only buy them when they were ready to also further develop them. In other words, develop the dump or pay through the nose.

But, of course, such a differential would also capture greenfields landholdings in residential-zoned areas. For example, the recently approved SHAs that Nick Smith earlier suggested he would put use-it-or-lose-it clauses on. Point is, much better for Auckland to collect really, really hefty differential rates on them while vacant. The differential has the same effect as a use-it-or-lose-it - because if unable to develop within a reasonable timeframe, the cost to hold is high.

I suspect this is what Infrastructure NZ are talking about when they say:

Councils, for example, already have the ability to use different rating systems to better capture value improvement. The fact that they by and large do not suggests other factors are at play. Little in the report gives confidence that these factors will be addressed.

Different = ability to use differentials where vacant (or under-developed) landholdings are concerned.

In other words, have successive governments in Auckland set their rating systems in a manner that actually supports land banking? The question should be asked..

Kate I love that Momona house it stunning! I can understand why the rates are higher though...the interior presentation is immaculate compared to the other one! Also Momona is DGZ it's too perfect :-)

That was the ugly duckling we spoke of the other day.

Ooops sorry I thought you're referring to the new listing that came out today... both Momona LOL~
http://www.trademe.co.nz/property/residential-property-for-sale/auction-...

Now that's a good example of a place that would not be caught by the differential, as the value of the improvements exceed both 10% or 15% of the capital value of the property;

Latest capital value
$1,560,000
Latest land value:
$1,150,000
Latest improvement value:
$410,000

But the rates are still cheap (rates $4,694.21) in comparison to, for example, this roughly equivalent value in Palmy (rates $6,187.25)

http://www.trademe.co.nz/property/residential-property-for-sale/auction-...

Perhaps it's time for the rest of the country to stop subsidising Auckland. Time for Aucklanders to harden up and pay for their infrastructure themselves.

It's only right and proper that you support your QUEEN city.

https://en.wikipedia.org/wiki/Queen_City

Because it must be financially unsustainable?

Keep paying your rates and taxes and serve the Queen City thank you. It's only fair because we have the highest population in the country and we are the most liveable city in the world.

Maybe that was tongue and cheek, not sure but I like Auckland and I never did before to big for me, but comments like this its a wonder why the rest of the country hassles Auckland. Lot of good kiwis are from Auckland, and they should be represented a little better then this.

Humble, caring and circumspect is the kiwi way. Anyway I always thought it was. The old saying of successful people as long as they are down to earth.

You forgot highest house prices in the world.

Increase core funding and decrease growth based fundings. Sounds like a reasonable plan.

Why would it bring down land values?

Pretty simple, really - the opportunity cost of holding land increases through effective taxation.
It also needs to be coupled with a robust and systematic approach to density intensification. No city will ever be successful so long as it limits the majority of its developable land to low density housing.
The unitary plan may outline areas for redevelopment, but so long as land owners are incentivised to hold onto developable land, its pointless.
They will be so long as:
- They can rent seek
- Limits on growth are binding

I see, but that might back fire if the market demand is high enough that those increases costs of holding were able to passed on to the next purchaser.

Yep, exactly why intensification needs to be stimulated at the same time.

A purchaser only pays what something is worth to them, not for previously sunk costs.

Sure, but in Australia they have stamp duty on the sale price and the effect in the long run has been to drive real estate prices up because the demand is strong enough to absorb that cost.

Stamp duty has completely different incentives. It's a disincentive to buying and selling, that is all. It's not a disincentive to unproductive landholding. It does not affect the long run returns of holding that land, only the initial purchase price and I guess the return for the original owner is reduced. Sticky land ownership is a hurdle to economically productive use of land. It's a bad tax with bad incentives in my opinion.

If demand is strong, the price is set high, with or without stamp duty. It doesn't affect what someone is willing to pay for the land much at all, especially if they intend to hold it for a long time.

LVT on the other hand affects demand, in terms of type of demand as well as demand pressure. It also affects supply pressure. There's less speculative demand and more demand for the purposes of development with intent of being productive with that land. There's also increased supply pressure on those who are no longer using the land for it's most economically productive purposes.

Stamp Duty is paid by the buyer on the purchase price. Not the seller. It is a strong disincentive to changing homes in a hurry. In the short term it is an outright cost as a buyer could put it straight back on the market and would be lucky to get the contract purchase price back (excluding Stamp Duty). RE agents and State Lands and Deeds Office only record the sale price and do not record the Stamp Duty paid by the buyer, so sales in the local area are not seen to have increased. In the long run, the buyer is most unlikely to be a seller until they can recover all their costs including the Stamp Duty

I largely agree with you, Just on one point, a buyer only spends in total what something is worth to him/her, this affects what the seller can expect to receive, and a buyer that will also expect to have stamp duty taken out of what future buyers can afford to pay for their property will also factor that in their decision to buy, reducing the price. It negatively affects the seller the most, but a buyer often eventually becomes a seller, so it affects them too.

Net effect is reduced property prices and disincentive to buying and selling. It doesn't matter who pays it, it just matters what the market thinks the property is worth factoring in stamp duty. A seller can't ask for any more than a buyer is willing to shoulder, stamp duty or not.

The burden falls relative to the supply elasticity.
Stupid people argue for it to quell demand (as a mechanism to suppress prices) when supply is restricted, instead of just advocating an increase in supply.
Low supply elasticity = majority of burden falls on buyers. Seller does cop some of the cost, though.

The stamp duty hasn't caused long run real prices to increase at a rate different to that of the absence of a stamp duty.
Perhaps short run prices were depressed, but in the LR, there is no effect.

Cheers.

I'll let Wikipedia explain.
https://en.wikipedia.org/wiki/Land_value_tax#Real_estate_values

Land taxes also reduce the long run returns on land, meaning that simply holding land is no longer as valuable as it was.

I like the removal or reduction of land returns. What a pointless non productive asset most land is.

Why waste time and money commissioning further research? We've successfully ignored all recommendations and approaches successful used in other countries to date.

Don't let us rush past all the benefits of overseas junkets, oops I mean research. I personally volunteer to undertake an extensive tour of European capitals and other historically significant housing markets .. at the tax payers expense of course.

Well according to this article 7 YEARS AGO Aucklanders would have got Hammered!
Just as well we stuck with the status quo....

http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10623183

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