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Nick Smith says tackling land bankers best done by creating competitive land markets; Welcomes Productivity Commission proposals

Nick Smith says tackling land bankers best done by creating competitive land markets; Welcomes Productivity Commission proposals

Tackling land bankers is best done by encouraging development by way of more competitive land markets, the Minister for Environment and Building and Construction has told a nationwide group of urban planners.

Nick Smith was touting the government’s Resource Management Act Amendment Bill to the NZ Planning Institute annual conference in Wellington when he mentioned the government and planners required a better understanding of the ways in which economics and planning interacted – particularly in the case of land banking.

It was perhaps apt that the comment was made in the Capital. The issue jumped to the top of Wellington’s housing debate in recent weeks, as Mayor Justin Lester called out property owners in the city’s northern suburbs for sitting on land that could be used for nearly 3,000 residential homes.

Referring to the new legislation, Smith said the Bill included a requirement for regional, district and city councils to be proactive in their planning to ensure there was sufficient residential and business land to meet projected long-term demand.

“The best way that we can constrain the land banker is actually to ensure that there is sufficient competition in those land markets in our towns and growing cities to ensure that there are the incentives to move on and to move those to development,” he said.

Smith bemoaned that, “when I look at a market like Auckland over my period in Parliament,” the average section price had risen from $100,000 in 1990 to $530,000 today.

“The Resource Management Act is the primary piece of legislation that governs the creation of new sections and new lots, and that is why it is so important that we open up land supply, that we reduce the time that it takes to get consents, that we reduce the costs of land subdivision and we better enable the construction of the infrastructure to support that growth,” he said.

Auckland had a stark difference to the Christchurch housing market, where rents over the last two years had dropped 8%, and house prices were flat, Smith said. “An average Kiwi family can secure a good quality new home [in Christchurch] for $390,000 – less than half than that of Auckland.”

There was a connection between the way in which planning powers had been administered in Christchurch and the way that had impacted on house prices, he claimed.

Productivity Commission report helpful

The Productivity Commission’s recent report on improving New Zealand’s urban planning framework was welcomed. This, alongside the OECD’s report on how New Zealand was hitting its environmental buffers for growth, had raised key questions that needed to be tackled, Smith said.

The Productivity Commission report outlined ways to tackle land banking, suggested the government should scrap the Resource Management Act and highlighted the divergent processes New Zealand local authorities had for urban and environmental planning.

Smith appeared to indicate National would not go as far as to completely scrap the contents of the RMA and start from scratch. Any changes needed to build on existing work and not just be an ideological reaction, he said.

In response to suggestions that the RMA should be replaced with two Acts regarding the urban and natural environments, Smith indicated this would likely be a stretch too far.

But an integrated framework with different sets of principals for city and environmental development could be a “constructive way through,” he said. “You can expect our thoughts prior to the election on the format for being able to move that important discussion forward.”

Smith noted the RMA’s 25-year lifespan was now the same as the Town and Country Planning Act that it had replaced. He warned that any programme to reform New Zealand’s urban planning framework would be difficult and could take at least three-to-five years to complete.

Meanwhile, in support of one of the Productivity Commission’s proposals, Smith paid tribute to work done by the Christchurch and Auckland independent hearing panels on the cities’ spatial plans, saying they had been able to “knock off” complete re-writes of those plans in not much more than two years.

The RMA Amendment Bill would allow the government to use those processes again in other communities without having to resort to special legislation, he noted. Local authority planning processes had become too slow and cumbersome, he said.

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Easy answer Tax them so it is expensive to hold.....

How does that work? Land costs too much, so we make it cost more by adding a huge tax?

Creates a disincentive to hold and do nothing with it ...

Auckland's capital gains have been running at 10 - 20% pa, how much of a properties value will need to be taken in tax to be a disincentive to holding and doing nothing? Developing a property costs a lot of investment, how high a tax will there need to be to make development the more affordable option?

I think you just answered your own question. Between 10-20%. But even at 20% that is still lower than the corporate tax rate.

As land is not produced, a and tax is not a cost of production, it's a cost of ownership. It therefore discourages idle ownership/makes it less attractive to own land and as such decreases the selling price of land.

Buildings on the land are produced by people who own the land, therefore a land tax creates a cost of production. Why would producers of buildings choose to invest in land that is taxed more? Would they not prefer to invest in land that is taxed less highly?

The point is that people are buying land just to watch the value go up, which in turn makes it more valuable and so the value goes up more. This attracts cash flow into non-productive assets.
The idea behind taxing capital gains is to remove this incentive for people to sit on land, this decreases the demand and will cause the value to drop and the cash held up in useless assets to be released into more productive places. This in turn benefits the economy as a whole by increasing overall production.

Nope. It does not work this way. Look at Singapore or Hong Kong where nearly all the land is owned by the state and leased out to the highest bidder. Does it result in no investments and no construction? Quite the opposite. The very fact that property developers cannot earn money from merely holding land means they have to focus their efforts and resources at actual construction/development.

Again, land is simply there. Nobody produces it. The reason why normal taxes increase prices is because they make it more costly to produce things and reduce the supply of a given product. But land is already here, so taxing it does not reduce the supply .It simply changes the beneficiary of the value of this asset

Land is not simply there, take Albany and its busway terminal for example. From 400 m north of the busway terminal all the way through to Dairy Flat the land is classed as large lot or rural-countryside living and we are not allowed to build (because Auckland Council hates the environment and wants us to commute all the way from north of Dairy Flat producing tonnes of carbon dioxide). Now this has made all the land from Albany south very high in value (as the people of Auckland love the environment and don't wish to commute from miles away). However when love of the environment of Aucklanders (and the hate of the environment by Auckland Council) act together it causes the price of Auckland land to be very high and a high price is a barrier to investment.

Applying a taxation, changing the beneficiary of the value, does not lower the barrier to investment. A land tax merely changes the form of the barrier. From entirely being a high price paid on the land, to a lower price plus a tax.

There is a lot to unpack with your comment...
1) The location of the land or it being zoned unusable does not negate the fact that land is not "produced" so does not help the economy directly which is what is meant they told you “Land is simply there”.
2) The purpose of apply a tax is to reduce demand for the asset. The assumption is that investors are over represented in the market for land and in reducing their demand you reduce the price by MORE than the taxes impact. Yes, Tax will be on top but the OVERALL price will be less.
3) Because proportionally more developers will be able to get access to land more houses/living spaces will get build because now there is an incentive to use the land and not just sit on it.
4) The funds held up in land currently being land banked will more to more productive areas.
That's basically the idea.

Okay that makes sense.

I would like to say I just wanted to explain the points for taxing land. I'm not trying to convince anyone its the right idea as it would depend how we implement a tax that would determine how well it would work.

It's a big part of why many Kiwis own their own homes today.

Once upon a time, land in NZ was primarily in the hands of the few landlords domestic and foreign. Land Tax was introduced to break up these land banks and get land into the hands of every day New Zealanders, including to encourage the rise of owner-farmers.

It's got a successful track record in NZ of making land a more viable option for average New Zealanders and getting it out of the hands of land bankers.

... thought the now defunct Death Duties regime was used to break up wealthy land estates

That too, quite likely.

I imagine the thinking is generally that creating multi-generational haves and have-nots to too great an extent undermines any reality of 'equality of opportunity' via concentrating wealth and power too greatly.

Yeah, since the wealthy were developing the land to its maximum potential land taxes were ineffective.

Rick is probably referring to imposing land taxes on owners with less access to capital. Large areas of NZ in the 1800s were owned by Maori, they were encouraged to sell and the land was developed.

Let's focus on land bankers. Let's see the biggest land banker is Auckland City Council. Tackle them head on first. Next up where are the changes to the Building Code to bring down costs. They aren't there. Just go for the populist headline while ignoring other major parts of the problem.

typical what about the drop in demand in Christchurch a lot of people left and it has taken until now to recover
meanwhile Auckland population is growing due to high immigration by a smaller city year on year
talk about comparing apples and pears
note to nick its not a one sided argument demand plays a big part

So typical, blame everyone and do nothing. Good on the mayor of Wellington to start shinning the light on the land banking issue. We had hopes with Phil becoming mayor something would change after the years of disaster under Len Brown. Well no point getting hopes up, Phil spends more time talking like Nick Smith and shifting the blame, they are all the same. Once a politician, always a politician loads of speeches no action.

There are competing motivations at play here.

If we had a competitive land market Auckland Council would not build as much sprawl, infrastructure costs would be 50% lower, our commutes would be easier, we would pollute less, building rates would triple, costs would decrease, less people would be homeless, our rent lower and we would be on a trajectory to be a successful city.

However a competitive land market would mean a considerable reduction in budget for Auckland Transport and Auckland Transport have taken bribes.


Smith noted the RMA’s 25-year lifespan was now the same as the Town and Country Planning Act that it had replaced.

To put that into perspective - two years shorter than Nick Smith has been warming a seat in Wellington.

The solution is incredible simple and yet politically difficult.
Tax land at 100% of the annual rental value. We can even have exemptions for owner-occupied land, but any "investment" property should be taxed at 100% land value and 0% improvement value. This way those who want to produce apartments and make money from renting buildings can still make money, but those who rely primarily on land/location value disappear from the market. This solution would make land banking and speculation utterly pointless and hte money could be used to finance all of the necessary infrastructure.

But how to stop that tax simply being added straight onto the exit price then demanded - aye, there's the RUB (Awkland unitary plan pun included for y'all).

Something can only be sold for what it is worth for someone to buy it. A land tax makes the value of owning the land less, and thus the entire market is lowered.

Just think about it. You own some land and pay close to no tax on it. The land is worth to the potential buyer $100k. It's not worth 110k or else you could actually sell it for this much. In other words, it's clear the land is worth $100k and not $110k because when you ask for $110k you get no buyers.
Now, the government comes and says that you have to pay a tax on your land which amounts to, let's say, $10k per year. Now, you have to pay this tax regardless of whether someone buys/leases your land or not. If you don't find a buyer or someone to lease it you still have to pay $10k. But does this mean that your land is suddenly worth $110k and that those who were unable to pay $110k will suddenly pay this much? Nope. They still can only afford $100. But you are now under pressure to lease or sell as you are literally losing money by holding the land idle. The same pressure applies to your neigbours. Now everyone is more keen to sell/lease and there are more sellers on the market. So not only are you unable to pass the new tax onto the buyer, but you now face a lower selling price because: a) there are more sellers; b) the land has the tax

this is not ideology.

Now suppose you had a money to spend and wanted to buy some land on which to have yourself a productive business unit - a cinema complex or a hotel or a factory or an office or whatever. Will you build in Auckland where you have to pay a whole lot of tax or somewhere you don't? Suppose you have a productive business unit will you retain your business in Auckland or relocate to somewhere with a lower tax?

Due to the land tax, the land will be cheaper to buy in the first place. Second, yes, you may have to pay a tax on land, but there should ne zero tax on improvement, so the better you use the land (i.e. the more you build) the less you pay (in relative terms). Furthermore, the more efficiently the land is used in your area, the more business opportunities there are.

Anyway, you don't have to accept these theoretical arguments. Just look at real life examples. How many investments we see in places with zero land tax where most land is owned by land bankers with no incentive to develop it? None. How many investments and businesses do we see in Singapore and Hong Kong where land taxes/lease fees are sky high, but taxes on labour are small? I think a quick visit to either place will give you a pretty good answer.

Singapore and Hong Kong are places with much higher demand than Auckland. We don't seem to be at the confluence of two oceans or abut a world leading economy.

Australian land taxes are progressive up to 2 - 3%, if we exceed that then our businesses will prefer to be there. But if we only match Aussie the price of land won't come down much.

Much of the reason why it is HK and Singapore and not Kota Kinabalu or Medan than are so successful is their approach to land taxes.

Note that the land tax is always proposed as an alternative to the existing taxes, not as an additional tax. So if we do re-introduce the land tax, we can get rid off much of the income tax or the GST. Land will be cheaper and business activity/work will be cheaper. Yes, companies that want to own land will need to pay a tax to use it but it won't be more than what it costs to lease land, which is something that many businesses do not mind doing. If our taxes on labour and businesses are lower than the Aussie ones and our land is cheaper then surely many businesses will stay or move here

Land tax is the solution, but it doesn't need to be that high to achieve a competitive land market. Between 1-2% would be sufficient.

"Use it or lose it" on any planning permission granted so they don't just dig a hole in the ground and sit on the land...

Whatever National Ministers says have to be taken with a pinch of salt.

Wait for election.

Many many years ago a young couple could buy a section,continue to pay rent on a house and build on the section when they could afford it.Bloody near impossible to do that today.

Hopefully Kiwis are beginning to realise there were reasons of policy for why that once was the case, and reasons of policy for why it no longer is for many. National have betrayed young Kiwis, given their statements in their 2007 campaigning.

A land tax as opposed to rates is probably the answer.

The simplest solution is to build infrastructure and open up land close to the City of Auckland - as this will lower land prices and taxation and rates and help the environment.

Days to the General Election: 23
See Party Policies here. Party Lists here.