The Government's taking aim at section charges levied by local councils.
“We are going to narrow the charges councils can put on new sections, provide an independent objections process and encourage direct provision of necessary infrastructure to get costs down,” Housing Minister Dr Nick Smith and Local Government Minister Chris Tremain said.
Development contributions had trebled nationally over the past decade and had gone up more than any other component cost of a new house, the two said.
"This huge increase can be attributed to the local government law change in 2002 that gave councils carte blanche to charge whatever they liked and removed any check or appeal on these charges. These charges now average $14,000 per section but can be as high as $64,000 per section,” Smith said.
Changes to development contributions were recommended by the Productivity Commission’s 2012 report into housing affordability and are included in the Government’s Better Local Government reform programme. A discussion paper was released in February and final decision on the policy changes made by Cabinet on Monday. The law change will be included in a Local Government Reform Bill to be introduced to Parliament later this year.
There was "no magic bullet" to improving housing affordability and action was needed on "many fronts" to get costs down, Smith said.
"This initiative restricting development contributions is part of a package of measures the Government is taking including substantive reforms to the Resource Management Act, the Housing Accords legislation, the inquiry into building materials costs, changes to the Building Act to reduce compliance costs, and the expansion of the Welcome Home Loans and KiwiSaver First Home Deposit Subsidy,” he said.
Tremain said development contributions needed to be set in a way that fairly balanced the costs that should rightly rest with a new development and those of community benefit that should be paid by general ratepayers.
"There will always be pressure on councils over rates and we need a check on development contributions to ensure the new home owner is not over-charged," Tremain said.
"These changes will also restrict what councils can charge in respect of commercial and industrial developments. These charges, if applied beyond the costs of providing the necessary infrastructure, end up as a tax and discouragement on new investment and jobs. The changes mean that councils will only be able to charge for new infrastructure and not recreational facilities or reserves for developments that do not involve residential housing."
Tremain said councils would still be able to charge for infrastructure and resources directly associated with a new subdivision.
"These changes are about improving transparency, encouraging councils and developers to work innovatively on minimising costs through development agreements and ensuring funds collected for infrastructure in an area are spent as intended."
44 Comments
National repackages existing legislation and claims it is an improvement (hopes no-one else has bothered to read the existing legislation either).
Local Government Act 2002 already requires:
- s106: transparency
- ss 201 & 202 an explicit methodology contained in a policy that must be consulted on at LTP time
- s203: a maximum contribution that can be charged
- Schedule 13: a methodology for calculating and attributing units of demand to developers
The proposed objections process gets the personal thumbs up.
Long overdue. There will be wailing and gnashing of teeth from the TLA types around, but they will for once be forced to make do, justify their charges, make their policies readable without an entourage of accountants, surveyors, legal eagles and other Birds of Prey, and will be welcomed by the end customer for the finished goods - the house+plot buyer.
The latter, of course pays for the plot cost components as follows:
- land purchase, heavily inflated by TLA-imposed MUL's etc and the time cost of munny
- 'carry' on land purchase cost
- survey and consents
- 'carry' on survey/consenting costs
- DC and other TLA cost imposts
- 'carry' on DC etc
- physical land development - civil works
- 'carry' on civil works
- sales and marketing costs
- developer margin
- and I've probably left a few plot cost items out....
Oh, and then they get to build a Hoose on top:
- Materials thoughfully supplied by an unrestricted duopoly
- Consents and inspections by yer cash-strapped local TLA
- Elfin Safety up the wazoo: fencing, scaffolding, electrical tool certification, signs, hard hats, and yes, more Inspections.
- Meticulously put together by drug-addled hammer hands and endless subbies working out the back of an old white van (except in Christchurch, where it will be a brand-new white double-cab ute).
- and the end customer is of course then expected to be Grateful!!!!
TLA's inject Time (which whodathunk, causes cost), and Cost.
Well past high time they were halted in their tracks.
Nup - this is straight theft from the masses. Just like the Rio Tinto bailout, SCF, and just about every move they've made.
Costs have to be going up, vis-a-vis incomes, and all this does if fudge them onto existingly-served ratepayers. It's somewhere between a rort and fraud.
There is, of course, only so much left in the middle-new-zealand sponge, I suspect there will be a wringing-out too far........
I expect any savings coming from reduced DC's will line the pockets of either the developers or the original land-owner. DC's already don't cover the real costs of growth so everybody's rates will absolutely rocket in high growth areas.
Let me spell it for you: f-r-e-e---r-i-d-e
Geez I really dislike this "half" speak ...
":.. encourage direct provision of necessary infrastructure to get costs down"
Direct provision by whom??? I assume that means ratepayers.
BTW, folks - here's a good one:
Kapiti's council is set for a $300 million asset boost by revaluing the land under its roads.
Kapiti Coast District councillors vote Thursday whether to revalue the land for the first time since 2002.
Without the change the council faces the risk of breaching its debt limit - calculated including assets.
An increase in its asset value will give the council more breathing space for its debt, which in its pre-election report is $149m for the current financial year.
And apparently the move is legitimated by the fact that "all the other council's do it".
Kate you early bird re: ":.. encourage direct provision of necessary infrastructure to get costs down"
The way I read this in the context of the whole article was that there would be transparency regarding what 'developer contribitions' actually is. Plus the developer will be given the option of instead of paying the Council developer contribution charge be allowed to provide the work themselves. Thus stopping Councils overcharging.
Admitly it is all very vague and indicates the Government is making it up on the fly. National have left this whole issue fester for too long and now they are in a desperate catchup situation.
I read that as the developer puts in the services via competitive tender overseen by a Professional enginner and a surveyor and hands it over where it complies for the concil to look after. Its what is known as a turnkey solution.
Re-valuing the land under the roads is bunkum, that land has no real value to anyone else, its worthless except to the owner.
Interesting thing is following Nicole Cole's (Automatic Earth) logic of say a 75% drop in house/land values means the council(s) will all breech their debt limits when there is a huge downturn....which is coming, this means rate payers are for the high jump...nasty I reckon.
regards
100% correct. All suburban infrastructure is put in by the developer who then 'vests' it in the Council when complete. Development Contributions help pay for the 'upstream' works outside the development such as new mains, sports grounds etc.
So I don't understand why Tremaine thinks allowing developers to put in their own infrastructure is such an improvement - they already do and have done for years.
MUDs solve more than one problem. It is not just the transparancy of the DC. Although what Kumbel says of upstream services seems pretty woolly to me. IT seems like a tax, how else do you seperate existing versus new benefiaries for some distant from the subdivision public service.
Kumbel your comment "Development Contributions help pay for the 'upstream' works outside the development such as new mains, sports grounds..." illustrate that DC is just a one off tax.
All of those public amentities are paid for by rates and it is fundamentally unfair that some get to use those public services by just paying rates while those who want to build a new house have to pay rates and a large one off charge to use the same public service.
By the same logic hospitals and schools should be able to charge developer contributions too. Where does it end?
Why don't we add a $100,000 onto all 18 years old student loan accounts to pay for infrastructure that previous generations built up?
I will disagree here PDK. In terms of only charging what it actually costs rather than anything they think the market will stand, thats a big change and a huge improvement. So I dont think its fair that a new home owner subsidises my rates just as I dont think I should subsidise them. What its removing is the smoke and mirrors or robbing Peter to pay Paul by the look of it, its forcing transparancy....at least I hope it is.
I dont disagree costs are going up, however the increases seem wya excessive. They may not be and may actually be true and justified, but I think its reasonable thats proven.
regards
Well said, and I was surprised by PDK’s reply, maybe that's not what he meant. Transparency is paramount, no hidden costs. Then if we want to subsidise things like libraries, new stadium etc. then we know. If we should be paying more over there and less over here, it may amount in total to what we are paying now, but let us see. You can imagine why council does not want this to happen.
Except really its a dodge on fessing up to the rate payers / voters, its plain dis-honesty. Personally I think they put up rates as much as they think the rate payers will stand, and hide the rest of their spending in debt or smoke and mirrors or pillaging others. That simply has to stop.
regards
I remember of a wastewater development contribution in a part of Torbay being quoted as a bit over $30k per each new unit.
That's for brownwater only. The all up costs were well over $100k per each new unit. The land was near flat, elevated, away from the flood zones etc.
Basically, the cheap rate bastard, tax free capital gain, "house prices always go up" Auckland landbanking ratepayers have sponged off new developments for way too long. Another Helen Clark's strategy to keep her lumpenburgeois voters happy.
Disclaimer: I am not saying that the current bankster in charge of this little joke of a country is one bit better. He's just pretending to be, and the local voters somehow keep buying it.
Changes to development contributions were recommended by the Productivity Commission’s 2012 report into housing affordability
When you read the section on land dlevelopment carefully you find that the Commission was a bit light in their analysis. Although they tackled the respective components of building cost they didn't do the same for land development. It really reads like they knew what the answer was before they started and only had to flossy it up a bit to make it look like they had done some research.
I still have no idea how the original land-owners, developers, councils, surveyors, lawyers and civil contractors divvy up the proceeds of land sales. And it doesn't look like we will bother to find out before we start throwing solutions blindly at the problem (whatever the problem is).
Maybe we are looking at this the wrong way. What if a community of 'do it yourselfers' wanted to set up a community in the countryside that imposed no costs on others and minimal costs to themselves how would they go about it?
How do we set a system so they are not rorted by land-owners, developers, councils, surveyors, lawyers and civil contractors?
Hugh's MUD seems like a good way to me.
No objections from me - possibly legal today (see previous discusions on Pegasus). Couple of minor points to sort out:
Kids can't join sports clubs as parents haven't contributed to neighbouring parks/ sports grounds etc.
Can't use museums, art galleries, libraries or pools for the same reason
Won't get any roading upgrades outside development for the same reason
Otherwise its a go today.
Yes that's probably correct, I was thinking more along the lines of public transport which is regional? council subsidised. MUD roads wouldnt get the subsidised buses unless the regional council rates still had to be paid, and I bet they do. The development would have to be big enough for a bus route anyway.
Really though I dont think the argument is on rates as such? The argument is really on who pays for the initial infrastructure? So I still dont see why on a decent sized housing project the developer/builder cant put in everything themselves to the boundary aka turnkey style and just pay a part fee....way simpler. ie My second biggest head scratch on MUDs is they seem suited best to quite large developments like 1000+ as opposed to NZ scale of say <20. (The first one is still I dont see a clear financial benefit)
regards
Hi Kumbel. Yes the points to sort out are minor. As far as MUD users wanting to use libraries etc., of course there would still be some contribution from them to council for this. Just as Body Corporate residents pay their charges and also pay council rates. You would expect that if the MUD users provided and paid for the capital items and their operational costs, then council would discount this charge from their rates.
However this whole debate is really about the true costs of providing these services. Council have come up with some amazing mathematical formula for these cost allocations, more and more of which are thrown under ‘General’ charges or some other generic name to hide the fact that revenue needed cannot be allocated as a true cost of service.
This general funding is used to hide all the waste in the system, everything from excessive top management pay to pet ‘stadium’ type projects. What has not been addressed in these proposed changes is how council are expected to make up for this loss of revenue.
They will of course cut back on services; defer long term maintenance etc., followed by rate increases, all front end uses that directly affect us the user. Of course the last thing they will consider cutting is their own pay and departmental empires.
The council are already gaming the system and have started to put in place other methods to circumvent Central Govt. legislative changes.
By hook or by crook they will have their money. And that is why Central Govt. want to hold an Ace card with the ability to take control if, and when, councils refuse to reduce waste in the areas that are needed.
Seriously, everything you complain about is hidden in plain sight. By law Councils have to separate the accounting for their different activities, they can't tuck it away under "general".
Some 80% of council infrastructure expenditure is contracted out by tender. By definition it is the market price. If a developer undercuts that price it is by creating a future liability for future owners.
I have commented extensively in the past on the mechanics of coyuncil expenditure and am happy to do so again just not today - work beckons again.
There is the possibility of working from home, my wife does, just need good internet access. Then there is the possibilty of using ones skills for your neighbours needs in exchange for stuff you need.
In a post oil world I think that will be more important consideration. Some will need less growing area because they can swap medical, mechanical even brewing skills for basic commodities.
Kumbel thanks for your comments, as always you raise practical issues that the rest of us overlook.
Yep, sure some ppl do. I think its going to become more common simply because of the expense of commuting transport (which makes me wonder on viability of public transport). Lots of jobs however are not so computer based/possible plus employers reluctance right now. I suspect we'll also see more performance orientated pay than hourly and part time. The ppl this is going to be hard on though are the poor who do manual or contact type work I cant see how they avoid transport costs.
regards
that imposed no costs on others
Here-in lies the issue. Ask why they want to set up where they do? No doubt due to the close proximity to a major city, so they can conveniently take advantage of all the infrastructure that a city provides. Such as the schools, hospitals, work places, roads so on and so on..many of which are funded by the ratepayers within those boundaries. Thus, the community of "yourselfers", unless they intend never comng to town, obtain the use of rate paid for facialities for nil.
Absolutely dead right rastus
That gets to the heart of the matter .. it doesn't matter how you slice it or dice it or package it .. somebody has to pay for it .. community services .. plus the services that inter-connect communities
It might be absurd .. and counter to bernard hickey's inter-generational theft hypothesis but it eventually boils down to local rates and charges being applied on a sliding-scale basis with a discount for every year you live or stay in a community, with a flat minimum, so new arrivals get to pay the maximum on year 1
Rastus there is so many holes in your argument. Firstly rate payers do not provide hospitals, schools, police stations and major roads. In New Zealand 95% of our taxes and consequently 95% of public services are provided by central government. So if that city belongs to anyone it is central not local government.
Certainly I do not think those workplaces see the ratepayers as having some say on whether their workers come from the city or elsewhere.
Obviously my hypothetical village would be located so it was connected to roads that have the capacity to cope with the extra demand. If the transport problems are not localised but throughout the city then is it fair for only a minority of residents to pay for it.
Many people have argued planning needs to take into account peak oil and I have seen planning documents related to the Greater Christchurch development plan specifically stating so. Given this if some people want the insurance of living in a rural location with more land for growing their own food who can argue this is unsustainable.
First things first – Central Govt. are at least facing the right way in trying to get non-value added cost (waste) out of the system and make housing more affordable.
But that alone does not mean that housing will become more affordable as standing in the way is a revenue battle between council and developers as what is waste to us is revenue to them. It is true that any saving that council are made to reluctantly pass on will be captured by developers.
Yes some savings will be passed on by the developer, but only just enough to make their offer better than the next worst, and this saving will only be a fraction of what they could pass on. The extra savings will be a super profit wind fall for them.
It has to be remembered that these savings always existed in the system but where captured by land bankers and council first. But it is no consolation that now these savings will have been captured by others closer to the intended recipient.
There is still a long way to go before we see any affordable housing, other than by subsidy.
To keep developers 'honest' and force them to pass on lower costs there must be the possibility that another landowner, developer or DIY community/earthship will provide a similiar residential possibility for a lower price. The second developer will still make a profit but not the super profit of the first. If there is many residential development possibilities then the competition between developers will drop the profits to a modest return -say 5-10%.
This is the key to affordable land.
The only real alternative is the government becomes the developer and compulsory buys new residential land at rural prices, developes it and sells it to the end householder.
Hi Brendon- Because of the way the Govt. are introducing this, we are not going to see a real reduction in affordability, only a relative one. That is, prices won’t go down, but ‘hopefully’ won’t go up as much so relative income can catch up to allow the correct house to income multiple.
This could take 10 to 15 years if we stayed on course with the programme. And what are the changes of that happening? There are too many vested interests (read votes) for any Govt. to let prices fall in real terms. The best they might be able to do to achieve a fall in real terms, is orchestrating a real estate collapse they can be blamed on others, or have a Global event collapse it for them. You never know your luck.
You have to remember, most of the zoned developable land is already owned by people who have paid too much for it in light of the new Central Govt. directives, and they want their money plus profit back. This means that not enough competition will be allowed between developers to buy at rural land prices and lower DC levies etc., for prices to come down anywhere near to what they could do.
You can read the intent of this strategy in the way the Govt. are going about it. It’s like a retailer (and the Govt. is one of these retailers, talk about insider trading) trying to get rid of his overpriced stock, before you the present purchaser know that the next incoming stock will be cheaper.
Even if you know that it will be cheaper in the future, if the future is a long long way away, then you will probably buy now at the higher price as your need is now. And of course all the marketing is telling you that there has never been a better time to buy than now.
Having done the calculations, prices could be reduced by ½ to 2/3rds depending on the degree of MUD changes. And the developers could still have their full margins on outlay which is a between 17% to30% plus.
Dale JK should have allowed these changes in 2007/8 when the housing market was already down. If banks and landowners then experienced more financial stress there was always the option of economic stimulas from further interest rate cuts and the resulting fall in exchange rate. But he whimped out.
The way I see it is the country is subsidising the wealth of property owners by restricting competition in a similiar way that we used to subsidise farming. Bringing in competition will cause short term pain for some but over time we would all be better off.
I think if MUDs were allowed outside the MUL the effect on house prices would take years to roll through the market. MUDs are quite complicated and it will take time for the market to 'understand' it. I think existing house prices would stagnate, as home owners would not sell at a loss. The ladder just stops moving, home owners who don't move, nothing changes -mortgage is the same.
Over time inflation would mean real house prices would fall. The big pain would be existing subdivision owners who expect to drip feed the market with high price sections who would now find this approach is uncompetitive.
So the question is are we afraid to introduce competition into the housing market because the government is afraid a few landbankers going bankrupt?
The government could support MUDs on a restricted basis to start with to limit there effect on the wider property market. Say only allowing non-profit community development MUDs or eco villages.
Damn Development Charges! We built a house on a piece of land that was subdivided prior to the implementation of DC's. I took the Auckland Council to task suggesting that the infrastructure was already in place when my plot was setup (the irony was it was done by a subsidiary of the council!) and therefore I should not be charged this retrospectively. Ended up taking it to the Ombudsman and she found in the council's favour.
I got to know the wording in that law very well and it's shocking - and after challenging it, it was pretty obvious that it's seen as a tax that's paid whether it's valid or not!
$14K - gone......
I know back in 2010, at Manukau CC there were few cases where DC funds had been charged twice, one to the land deveopers and then to home owners when they built their house. Some DCs were refunded back and some didn't. It was pretty much who they complained to and whether the person you complained to got out of bed on the right side. Some didn't know they were charged twice.
The truly, ghastly saddening thing about all this is:
- the land price, as Hugh P will no doubt chime in and reinforce, is already wildly inflated. It is just Wrong. Why?
- MUL's - a universal price signal to set an Urban price within (or close to) a MUL/squiggle on map.
- As opposed to a Rural price (let's run the broken record once more: top horticultural rual land is around $50K/ha, which equates to around $7.50/square meter allowing for a 33% loss to reserves, roads, utilities etc). Or, say, $4,500 for yer typical 600 sqm urban plot). Raw land price.
- The land is then banked for in some cases decades, with no TLA action to incentivise development via bare-land rating differentials or other subtle hints to Develop or we'll Tax the Hide offa ya. The passage of time alone equates to munny on the bank (opportunity cost).
- Rating via the TLA is in any case on the now-inflated, within-MUL figure. Yum, yum, free munny for the TLA: no services, mucho rates revenue streams.
So ya has a perfect alignment of ducks, amongst the usual suspects
- The original land owner has cashed in and gone on permanent holiday.
- The present land owner is under no particluar pressure to develop and is squatting on a nice little CG which if one is clevver can proceed to be realised tax-free or at a very low marginal rate. Yum. yum
- Any bank involved has a caveat or other registered interest against the land - an appreciating asset. Yum, yum.
- The TLA involved has no services to worry about supplying but is collecting rates based on an urban price EVEN IF they use land value rating. Yum, Yum
- Any developer on the hunt for land to develop expects and budgets to pay the now wildly inflated price - there is no arbitrage possible. It is, to use a totally inappropriate phrase, a level playing field.
So even before the Economically Clueless Councils get their DC hats on, the land price is wrong, by a factor of whatever per-plot sum the owner now wants for it, divided by that original raw-land price of $4,500 for 600 squares.
I'd be surprised if the avaerage raw-land multiple under these conditions was less than 10x.
Now, who's gonna wade into This swamp and start a land-price revolution???
Waymad – correct in everything you have said.
The land price rort comes from the same thinking that leads into charging DC’s. If a push comes to a shove council should allow land to be opened up first rather than developer levies lowered as this affects the developer more than the council. But of course they could not help themselves and want to regain any savings from the land bankers by their new rort – shared land value uplift.
It’s not just the revenue they are afraid of losing, it’s the control that comes with it. The control that says ‘I’m a super city, I work for a super city and therefore I should get paid a super salary.’ For them the result of coming second in this means failure on so many levels. You will notice the word customer/ratepayer is never mentioned because it’s not about us, unless it is to raise rates.
We have been conditioned to pay three times as much for our sections upfront than have our rates go up. As I have posted in this thread, the possible savings will not all reach the end consumer.
Ok, I have generalised and you might think, I think all councils are like this, but I don’t. As you know some small, in need of growth, councils do not charge DC levies, but all councils voted unanimously to reject Central Govts. proposed changes and the likes of Auckland then wanted to impose further taxes like the shared land value uplift.
Smaller rural councils have a great opportunity to lead the charge on this, and it is something the land banked bound cities could not compete with.
In the past, I have worked with a council where we were able to achieve the pricing outcome of a MUD (without it being one). We already have most of the legal framework in place to achieve these prices if the will from all parties is there.
I am discussing with other councils now about the opportunity it presents for them. It is possible for them to protect needed revenue and for their constituents’ to have affordable housing.
MUDs are only a legal entity to carry out the will of Govt. and the people for affordable housing.
MUDs work, in part, because the owners that have paid for the infrastructure retain ownership of it and run it, unlike in NZ where we vest it to council so they can go out and revalue it and secure debt against(on items that have no bearing to that asset).
We do not have such entities because our priority is not affordable housing, as all the evidence supports. MUDs in Texas have been around since about 1912, and have evolved and improved over the years (they didn’t get it right straight away), and in spite of all their experience, we cannot learn how to make housing more affordable.
Maybe we don’t deserve it and if we to take the ‘to know what I am thinking just listen to what I say’ opinion from some of the commentators against MUDs and affordable housing, then we won’t.
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