Urban sprawl on steroids –National’s disastrous housing plan

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If the National Party gets into power we will have urban sprawl on steroids. First, Luxon says he will not make median density intensification rules compulsory; councils could choose. Then they will demand council rezone land for 30 years of housing. Think about that! A terrible recipe for sprawl.

With Nationals housing policy this precious land is in danger of being zoned for residential
Pukekohe’s elite soils grow veges. The last thing we want is houses all over this land.

In the landmark Q and A interview of Luxon by Jack Tame on 10 September, Luxon said he would build more houses. His focus would be on opening up “green field” spaces.

They plan to sell $20 billion worth of houses to foreigners over four years, but don’t plan to release their modelling to explain how this can be done or their legal opinions to show it legal. Jack Tame says it is the equivalent of selling three and half Ponsonbys.

  • They will unwind the bright line test for landlords from 10 to two years. This means a landlord has to keep the property for just two years instead of ten without paying a capital gains tax. Nice for landlords and speculators.
  • They will re-establish landlords’ tax deductibility for interest payments. Goodie! I can borrow more.
  • They will change some tenancy laws. No doubt to favour landlords.
  • Worst of all, they will force councils to rezone land for 30 years worth of housing. Green fields for growing food gone!
  • They will pay councils for every house they build.
  • They will make intensification rules optional. This is a sensible policy as councils themselves should be deciding on planning rules. A coalition of 28 residents’ associations and community groups called Let Auckland Decide opposes the new intensification rules.

How to get more houses without urban sprawl

We are obviously well behind on our house building, despite the fact there are so many unoccupied houses. With record immigration of skilled workers, things are going to get worse.

It’s a long time since New Zealanders debated rating systems. Because our tax and rating systems were greatly influenced by the Liberal Government in the 1890s, from 1893 ratepayers used to be allowed to vote for the rating system we wanted. If 15% of them demanded a poll, then a poll must be held.

There are two major ways a council can impose rates – on land value or on capital value. (And a lot in between. Councils also impose Uniform Annual Charge for each specific purposes – administration, water, sewerage, refuse etc which in total must not exceed 30 percent of the total rates.)

In New Zealand, unlike many other countries, we do have the luxury of knowing the unimproved value of the land on which are houses are built.

Now look at the principle. If you impose rates on the land value alone this incentives the owner to use the land to advantage. In other words, it makes it easy for the owner to build without penalty. And in contrast, it penalises those who leave valuable city land vacant.

Valuable city sections and inner-city land will attract higher rates because the occupiers have easy access to all the facilities a city provides – shops, cinemas, town halls, hospitals, universities, public transport, clubs etc.

David Norman, chief economist at Auckland Council and his deputy Shane Martin wrote a comprehensive article in 2020 outlining the reasons for Auckland to move to a land-value rating system. These are summarised below.

 

Advantages of Land-Value Rating

Those in outer suburbs who have to travel further will pay lower rates
It usually means lower rates for the majority of ratepayers. (Auckland Council economists in 2020 said 59% will have lower rates)
It reduces the price of land
It deters the speculator
It is easy to administer
It is difficult to evade
It generates steady urban renewal
It protects elite horticultural land outside cities
It penalises those who leave homes empty
It encourages owners of valuable land to build upwards if zoning allows it
It prevents urban sprawl
It is simple

It appears I once wrote a letter to the Minister of Environment suggesting the way to protect valuable green fields was to have a land-based rating system.

Results of ratepayers’ polls

So what happened in the days when ratepayers could force a poll on land value rating vs capital value rating? Robert Keall, then secretary of the Resource Rentals for Revenue and Justice Association of New Zealand, wrote a long article in the American Journal of Economics in 2000.

In it he said, “By 1982, 86 years after it was first allowed, 90 percent of all municipalities had by poll adopted land-value rating, which accounted for 80 percent of local government revenue”.

He said the main dissident ones were remote thinly populated rural areas, the old boroughs on the Auckland Isthmus, Lower Hutt with state rental housing, and Queenstown, a speculator’s paradise.

Moves towards capital rating causing sprawl

It is predictable that those owning valuable central city sites will rebel. Multinationals like Burger King and McDonalds. They are powerful people and have influence on councils.

There is no better example of this than what happened in Wellington. From 1849 rates were levied on an estimate of land values. The city grew with little sprawl.

When Roger Douglas came in in 1987 as finance minister he let it be known that he favoured capital value rating. But, concerned that their land values were falling with land-value rating, inner-city property owners took advantage of this to put pressure on the Wellington Mayor.

The Wellington City Council set up a Rates Review Committee. After a year the committee came down firmly in favour of retaining land value, with an adjustment to the differentials between the city centre and suburbs. Many other official reviews have done the same.

Nonetheless, according the Bob Keall, “The Mayor contrived to have capital value narrowly adopted but needed a government Order in Council to validate his procedures, which an eminent lawyer and the local press regarded as illegal.(Dominion, April 19, 1988)

And then guess what? The government then passed the Rating Powers Act 1988-89. This withdrew the right to demand a poll. Actually, the right to demand a poll still applies, but not to change the rating system.

And in 1990 the government tried to go further. Roger Douglas, the Finance Minister, introduced a measure that would make capital value rating irreversible wherever it was in place. Surprisingly for him, the move failed and the government changed at the end of that year.

There is an anomaly when it comes to rural properties. Our rural land produces exports. So the land value of rural land is determined far more by overseas prices and exchange rates than by proximity to a city centre.

Robert Keall opined that “The solution appears to be to apply land value rating with differentials to distinguish between residential and rural zones, supplemented by uniform annual charges.”

So where are we now? Most local authorities use capital value rating, having been along much the same path as Wellington.

Right from the start, the legislation setting up Auckland City in 2009 mandated capital value rating. And 11 years later two Auckland Council economists in 2020, aware of its consequences after Covid argue persuasively for land-value rating.

Political parties’ policies for 2023

The Compass website does not list policies on local authorities.

  • The Opportunities Party (TOP) favours both a centrally imposed land value tax on residential land and a land-value rating system.
  • National lists its policies as at the beginning of this post.
  • The Labour Party doesn’t say much on its website other than the fact they want to build more houses and make them more affordable. It also favours a bright-line test. This means the profit from selling a second home or rental property is taxed at a higher rate than a family home, if it is sold within 10 years of purchase.
  • The Green Party favours a wealth tax.
  • Te Pati Maori will put a tax on vacant houses.
  • ACT would share 50% of the GST revenue from new residential building with councils and scrap the Resource Management Act.