By Alex Tarrant
Lower land prices up front, but higher ongoing rates payments for essential infrastructure. Will that reduce the overall price of housing?
That’s the question Prime Minister Bill English says the government is looking for an answer to as it embarks on its targeted rates experiments to the North and South of Auckland.
Finance Minister Steven Joyce and Local Government Minister Anne Tolley on Sunday announced the creation of a Crown infrastructure financing company that would invest in special purpose vehicles alongside private interests to fund key trunk infrastructure like roads and water pipes to open up land for new housing development.
The government and investors will earn a return from residents paying “targeted rates” on that infrastructure – essentially a user-pays way of funding roads and water pipes over a period of time.
It sounds like a great plan. There is a problem though: these targeted rates bills are expected to come in higher than the typical rates bills we’re used to. That’s right, we don’t effectively pay full price for the infrastructure we use. (Or some pay more, some less).
For example, Watercare’s Infrastructure Growth Charges do not recover the full costs of growth (ie new pipes for new housing). Particularly if the pipes are to the wops. That’s where these new North and South Auckland houses will be (no offence). The story might be different if we were talking about densification, but it’s an election year, so that’s a no go in Auckland right now.
The government has in recent months stepped up the rhetoric on making Auckland land markets much more competitive. Steven Joyce last week even said he wanted section prices there to become much more reasonable.
Previous announcements regarding the new Auckland plan, RMA reform the Housing Infrastructure Fund were backed up Sunday by the creation of this new infrastructure company. The broad idea is to make the price of land cheaper by opening up much more land for development (or densification).
But will that feed through to lower house prices? English and co. are being a bit cagey on that front right now.
“I would expect that looking ahead, if the policies are right, then you’ll tend to see land being less expensive, but there being a bit more paid for marginal infrastructure,” the PM said at his post-Cabinet press conference on Monday.
“Overall, whether that means the overall price of housing stays the same or goes down is, I think, yet to be seen. But clearly, better regulation of our land markets and more competitive land markets, are going to tend to take the pressure off the price of land,” he said.
“This vehicle, alongside the Housing Infrastructure Fund, are important elements in creating more competitive land markets, which would in time, with better regulation, lead to, on average, lower land prices.”
The government would be testing how much land values might fall, and how much that would be offset by higher infrastructure costs. “But these are, I think, steps in the right direction,” English said.
“We’ll get to test [whether land values would fall more than infrastructure costs rise] as the market realises there’s greater availability of finance, and that the usual bottlenecks, such as council debt ceilings, which have helped underpin higher land prices, are gradually being freed up.”
And so the great experiment begins.
107 Comments
'speculator' is defined as a person who takes part in 'speculation'
What is SPECULATION?
In commerce. The act or practice of buying lands, goods, etc.. in expectation of a rise of price and of selling them at an advance, as distinguished from a regular trade, in which the profit expected is the difference between the retail and wholesale prices, or the difference of price in the place where the goods are purchased, and the place where they are to be carried for market. Webster. See Maxwell v. Burns (Tenn. Ch. App.) 59 S. W. 1067; U. S. v. Detroit Timber & Lumber Co. (C. C.) 124 Fed. 393.
http://thelawdictionary.org/speculation/
Fair enough. And you have used a legal definition, even if a US state one. But I suspect using that will cause many unintended consequences - like ending the NZX, closing most KiwiSaver funds, closing the NZ Super Fund. With these closed, won't this money just move offshore?
And who decides on 'expectation' - a govt official, arbitarily? A court? Could get very messy.
You highlight the psychology behind why a financial system will break rather than be reformed. Quite right you can't stop speculation, let alone find agreement on a definition. Everyone thinks their bit should be exempt. But the process is parasitic, and crowds out productive enterprise that is relies on to support the unearned income for its easier apparent profits.
David , you cannot really define a property speculator ( from a legal perspective ) , but the definition should be someone who acquires a section or vacant land , adds no value to it ( new building, crops, grazing , storage or other use ) or earn any income and simply holds it as a gamble that its value will increase faster than the cost of borrowing or the opportunity cost of money .
Here's an off-the -wall suggestion , maybe buyers should be forced to state their intentions for buying the property at the time , on the title deeds.
If they dont use it for its intended use , then the gain should be taxed at 33%
DC - would it be fair to say that anyone who purchases a property in the Auckland market at present 'interest only' could be considered to be a speculator?
Assuming no capital gains, if the investment (size of loan) is going to be making a loss based on yield vs lending rate - therefore 'investor' is really 'speculating' on capital gains or abnormal/un-forecasted rent increases (or claiming losses which I don't understand how that is beneficial to the tax payer)....
If the investor has sufficient equity, meaning yield is greater than interest payments based on current market conditions, then the investment has sound fundamentals - therefore could be defined as non-speculative?
This becomes like a self setting LVR that adjusts itself to market conditions (rents vs interest rates).
Why do we keep redefining fundamentals and over theorising basic matter which are the way of life in the system we live in? ... I just have the feeling that some of you just argue for the sake of argument - just chewing the same piece of fat!!
Is buying and holding Gold or Silver any different from buying and holding Land or property, is buying shares and investing in companies any different? Why is CG dirty money ( as you try to portray it) ... oh because it is not productive in your view - right?, SO what !! it is very productive to the owner ...
I suspect that some of you have read few words in Uni and trying to show us that you are smart , but not really !! ... Commerce in the whole world including the whole RE markets are based purely on Speculation ( which you lot made a dirty word out of it) ..it is also known as Anticipation of future value and carries a lot of risk, both on the upside and downside, so it is a fair play ...I bet non of you have been in business and know what the word really means ... You all buy goods and services when they are discounted - WHY? isnt that sort of guaranteed speculation? .. why doesn't everyone wait and buy at the regular price and just ignor Sales?
If you lot want to regulate an industry because you dont like it and change parts of our system to socialist and communist type state controlled and distribution regime then you Can't ...and you will not be allowed to ... if there was any merit in such nonsense then much more advanced countries would have done it long time ago .... !!
You definitely struck a nerve there .. the bird's chirping out too many exclamation points !!!!!!
"Is buying and holding Gold or Silver any different from buying and holding Land or property, is buying shares and investing in companies any different?"
Umm.. Yes? People don't live in gold or silver or shares. People need houses to live in. Number one in Maslow's Hierarchy of Needs.
I guess birds don't need houses though...
Exactly - outbidding a young family at an auction so that an 'investor' can have rental property no. 5, knowing that yield is less than interest payments, is very different to buying gold (with cash...not debt)...How many banks are willing to lend someone $500K to speculate on gold as an sole trader ('investor')?
lol, it looks like I am the one who struck your nerves ... get up off your knees boys and stop crying please ...
"outbidding a young family at an auction so that an 'investor' can have rental property no. 5, knowing that yield is less than interest payments" - Are you for real?
you sound like that bidding is on ration in a hungry refugee camp.
If Investor or others like to burn their money and borrow ton of it to dump it in a property that will cause them huge losses - Who are you to Judge that ? .. and what do you know about profit and loss in this business - it is not your money !! ... and no one is accountable but the investor, and no one should worry about it other than the Bank. You lot would NOT accept me telling you what to do with your money or your life - would you ?
Investors are not stupid to do that - Just because you cannot understand or swallow this kind of business does not mean it is Not a sound or profitable practice ... BTW banks will lend up to 70% of the value of Gold or shares ( it is called margin call) conditions apply ...
I suggest that you guys go to Skycity and talk everyone sitting on a machine or table out Ask them to go home and feed their kids ( a lot are beneficiaries and low income people) - coz what they are doing there is blind senseless Speculation -
Good Samaritans like you should not be sitting on PC chewing useless Fat and crying about young families missing out in auctions - they should be out and about telling people to Work and Save -
Pity, every time you fail to understand this issue you resort to emotions which BTW is becoming really petty.
"If Investor or others like to burn their money and borrow ton of it to dump it in a property that will cause them huge losses - Who are you to Judge that ? "
Because we, as taxpayers, are subsidising it via poor CGT rules and Accommodation supplement. And we all have a vested interest in sound financial prudence. Because we all get affected it your house of cards falls down.
What you're doing, gambling on future gains on a loss making "asset' is exactly the same as those at Skycity, who can also only win if someone else loses. You said it yourself.
It's you who does not understand the issue and the collective risk you and your ilk are piling on this and future generations.
Exactly. The banks are supplying the mortgage credit for this debt binge, and the banks are ultimately backstopped by the taxpayers. So the taxpayers are perfectly entitled to have a say in how the banks hand out credit, as taxpayers are the residual risk holders in the banks.
lol, really? I didn't know that ... I will go down tomorrow morning and borrow some more money then as long as we have taxpayer guarantees behind the banks /// :) What could go wrong ? .... taxpayer cannot go bankrupt eh?
Maybe you guys like to write an open letter to the BANKS asking them to stop this lending fiasco because YOU the taxpayers do not approve any new risky loans to investors eh? ... Go on , exercise you rights in preventing Collective Risk , have Your Say mate !! :)
No you dont, no taxpayer subsidises any property investor and Accommodation supplement to people on benefit is not a subsidy to landlord , it is to help lodging people rather than the Gov do it itself .. Ask WINZ if in doubt, and stop repeating this nonsense... another nonsense is the lost CGT , lol, as if you have guaranteed that a gov will be in power and collect it to distribute it around - Not sure what chooks are you counting ?
We are in a in Sound financial prudence ... apparently you have completely misunderstood what I said about gambling so there is no point in repeating myself ...
"Collective Risk", lol, I rest my case -there is no point in one sided discussion ... you might realise one day that you have got it totally wrong.
The banks operate under an implicit taxpayer guarantee. At some point the failure of a bank or banks would pose such a risk to the entire financial system that they could not be allowed to fail: hence the expression, "too big to fail". This implicit taxpayer guarantee is in effect a public subsidy that reduces a banks cost of funding, whether that funding is applied usefully to real businesses or tossed into the black hole of a credit induced property bubble. This implicit guarantee means that while the profits of a bank and its customers may be privatised, in a bank failure scenario its losses may be socialised ie born by taxpayers. Therefore taxpayers are entitled to regulate in broad terms the credit behaviour of banks. And they do, via the RB.
I mean, have you lived under a rock for the last 10 years? Lehman brothers, bank runs, depositor guarantees by governments....ring any bells? I mean, really, is this sort of thing news to you?
Can you help me out a bit with a survey, among your property investor mates, would you describe yourself as more or less sophisticated than the average?
What a very naive comment. Of course taxpayers subsidise property investors, otherwise no one would mind removing the tax breaks.
Accommodation supplement is also absolutely a landlord supplement. Evidence is abundant that in areas the supplement goes up, the rent goes up in the same quantum. In the same way that Kiwisaver withdrawals, Welcome Home etc all added to cost. Without them, landlords would have to accept less, because rent is bound by income.
It is lost CGT - I make no comment on what would be done with it, but it IS lost. The tax could easily be used for infrastructure, health, education, social services, a reduction in PAYE etc. The fact is, NZ is one of the few with no CGT in the OECD, and "coincidentally" the worst placed in terms of rapid increase in prices - because no CGT + easy credit = drunk person at Skycity.
I would say one day you'll realize you got it wrong, but the boomers won't necessarily see the consequence of the action.
You are aware people can build houses and rent houses? These concepts are simple.
When speculators buy houses out from under the noses of young families, they do so by spending more money and the price of housing goes up. In a functioning market this price increase is an incentive to build many more houses and so everyone gets lots of houses to choose from. (In our non-functioning market, Auckland - see title of this post, the costs of building accelerate so fast that the price increases do not cause many more houses to be built.)
Thus it is that eliminating speculators will A) cause prices to fall and allow rich people more housing choices; B) cause prices to fall and have less houses built making more poor people homeless.
Oh I see, so we should in fact encourage speculation so that the price signals the market to build more and more houses? And indeed, young families who are prospective owner occupiers should give a hearty vote of thanks to speculators for enhancing the demand for houses?
Perhaps the dumbest set of comments I have seen on this site for some time. And that's no easy achievement.
Bobster - what cracks me up is that investors/speculators see themselves as the saviors in this situation - not the disease...And talks about 'spending money' when he means creating more debt on a loss making, non-productive asset. This whole thing is going to become a massive drag on our economy in the coming years.
Speculation is creating a 200,000 to 250,000 oversupply of housing in Australia, being built by people with paying productive jobs.
Speculation is creating a deficit of 30,000 houses in Auckland, causing land prices to triple and making people live in cars.
Speculation is like a wave - it can be ridden or it can dump on you.
Meanwhile we all marvel at the comments of King Canute and his court jester...
Any investment which is entirely dependent on capital gains is by definition a speculative investment. Zero yield investments are speculative. Cashflow negative investments are plainly speculative. A material amount of current property property investment in Auckland will be done on zero or negative net cashflow and is therefore speculative. If you are investing equity for which you receive and do not contemplate a cashflow yield , that's a speculative investment.
Many property investor here have tried to explain to you that there is nothing wrong with Zero, negative cash flow, and low yield etc ... these are things you simply do not ( and obviously cannot) understand because your maths are limited to simple a+b=c .... any further speculative math becomes too hard for you mate ... so please do yourself a favour and ask an accountant about this ... Do not only read sites and reports, cos that is obviously compounding the problem and further blurring your vision.
I am curious : how many investments have you had in your life? or have you ever been in a business on your own?
LOL, I really do not want to comment more about this Rick because I really don't like to offend anyone -
With all due respect, you don't have to believe anything we say here .. Please ask an accountant about this business and he will try to explain its INs and OUTs for you ....
The short answers are: NO we dont pay tax on CG because there is no current law to tax properties sold after 2 years of purchase any such TAX .... and No we pay minimum income tax because we use Legal provisions in the TAX law helping us to do that - It is all LEGAL... Yes, our business runs losses as it grows - not entirely on purpose, it's the nature of the business ... and how to run to its full potential .. i.e. its not a shop !!
Is this too hard to understand mate? how many times do we have to spell it for you? ...
NOW, If you and your mates want to get together and vote in a Gov which can change all that , then Good Luck and I wish you all the very best .. until then open your eyes, you might learn something ... I am sick of repeating myself!
"NO we dont pay tax on CG because there is no current law to tax properties sold after 2 years of purchase any such TAX "
Wrong wrong wrong
If the intent was to sell, regardless of the time elapsed (and loss making investment properties are a tell tale sign of intended CG as well as comments on this page) then any profits are taxable.
If they can identify through regular buy sell patterns that is where you get your income, tax is payable.
Whether something is legal doesnt necessarily make it prudent - we are collectively concerned with what a burst bubble will do for everyone else. Job losses, irreversible economic damage.
PS Have a read of this, since your accountant is leading you astray (or you're hearing what you want to hear)
http://www.ird.govt.nz/property/property-selling/
and
http://www.ird.govt.nz/property/property-buying/buy-to-sell/buying-to-s…
Common misconception
I can make a profit on property in New Zealand and it's all tax free.
What the law says: Not true. If you purchase a property with the intention of selling it you'll have tax to pay on any profit you've made. There are also different tax rules if you're involved in property dealing, development or building which may mean you'll have to pay tax on the profit from the sale, even if you didn't intend to sell the property when you purchased it.
What exactly do you mean by speculative maths?
The fact the other commentators are stating is pretty straight forward - buying an asset with negative yield is pure and simple speculation. With that could easily (and should easily) come a risk premium, as other developed nations have implemented. Be it CGT, Stamp Duty, Business lending rules, capital adequacy etc.
As a speculative investment, you understand the risk the asset value can fall, right? Because you all keep arguing that it cannot, because you've speculated that way.
I think the issue is where and how should the Government intervene in the market. I would argue it should be where open market transactions are impacted by market control (eg monopolies, monosponies).
I think the issue with speculation is not to make it illegal, but rather make it unprofitable. No one speculates on Japanese imported cars because the market can react quickly. So we should focus on ensuring that the property market can respond quickly and fairly. I would argue that we should ensure that the market can increase supply to met latent demand - and thereby reducing the profitability of speculation.
My only real pleasure in watching the current Auckland market decline, and the new district plan to come into affect, is to know that land bankers will be hurting.
Eco Bird,
I don't wish to be offensive,but some of the stuff you write is just ridiculous. You seem to imply that you are qualified in economics-are you? The bit about buying goods at a discount being a "sort of guaranteed speculation is" bizarre For one thing,guaranteed speculation is a contradiction in terms-the one precludes the other- and in any case,why is buying something at a discount a speculation? YTou seem to have lost the plot.
No didnt lose the plot ... the only reason why you buy something at a discount ( sales) is the knowledge of its regular price and the certainty that the goods will go back to the RRP in normal conditions ( or when you need it) ,, so people wait for Boxing day and holiday sales to buy essential goods - that is pure guaranteed speculation -
Sure, I do ... and there are lots of those inflated houses on the market selling now for 50-100k less than last year's prices ... but you see it all depends on your analysis and speculation of that market - and not all houses are the same - generalizing is the killer here ...there is no yardstick to use.
housing prices have a different twist to them - you can chose to wait it down, but you risk missing the boat - meaning that if you cannot correctly predict market direction and stick to fundamentals and assumptions, then chances are that you miss out - that is what happened in 2003-2007 and again 2013- till today. People who listened to that same advice in 2010 ( that prices will further go down by 15%) were written off from buying a house for ages because house prices almost doubled !!
I personally would buy today ( and I am looking) , if I spot what I need at a fair value ( which is subject to good research and the value of newly built properties etc)... and do not wait for 3-4 household income - that is worse than waiting for the cows to come home. that is my personal opinion and as you know every person's risk profile is different.
Houses are still cheaper to buy than to build and are available in locations closer to work than most new built ...
RRP in housing has always been on the run upwards (on average) .. any homeowner can assert to that fact ... unlike the prices of TVs and consumer goods.
Speculation in human necessities is dirty due to the negative societal impacts such as homelessness and reduced quality of life. How can you compare that to Gold and Silver? It would more be like hoarding water for a CG and thinking that it is all good. Or stock piling a bunch of life saving drugs because you can make a quick buck when supplies run low.
When will food, water and health care be on the list of things that its okay to speculate on the value of the good/serve and control the provision of it to artificially inflate its sale price? And when the government will become popular to certain segments of society by controlling supply/demand characteristics of each item for financial gain of 'investors' and their own political gain?
If population keeps increasing at the rate its project to, with limited world resources, lets hope the National party standards won't be the guiding values and principles for future governments and 'leaders'.
The IRD is quite happy to distinguish between gold and property. You will very likely be taxed on any gains from buying/selling gold, whereas most people do not pay tax on gains from property. As gold doesn't produce an income itself, the activity is obviously speculative.
http://www.interest.co.nz/personal-finance/80328/ird-issues-exposure-dr…
It wouldn't be a huge leap to say the same of a property investor with a lower yield than their interest rate.
Not saying that I have a problem with speculation, I do it in the stock market quite routinely, but I feel quite comfortable that in buying a parcel of shares I'm not depriving a needy family of a place to live.
Hmm Ok so as always there will be ways to get around any attempts to stop the problem. Really I think it needs to be drastic action.
So the Q is with the desire to remove land speculation how would we address it?
a) ban foreign ownership of land.
b) identify and large piece of land and based on its present use, (say agricultural) force purchase it at a fair market value for its land type. By this I mean a value derived from what the land can produce ie with say cows on it with no "added value" due to it maybe one day used as residential property.
Then break it up into say 20,000 (say) 1/4acre lots in a special purpose vehicle that has to put the infrastructure into it. After a set period of time it gets handed over to the council to look after free of charge.
Property speculators can only exist for one reason and it is shortage of supply.....
If there were an announcement tomorrow that the RMA and Building Act were going to be thrown in the bin and people could build what the like where they liked then every property speculator would be dumping or doing something with very quickly with the land the hold.
Tackling the speculator is a fools game.....you have to tackle the reasons why it is lucrative to speculate in the first place.
I'm lost. Why does the SPV have to be a PPP? To me, that = 'the Government takes the risks' + 'the Private Sector takes the profit'. Cut out the Private involvement in the SPV; issue InfraStructure Bonds backed by the Government and tender out the actual work to the Private Sector. Let them take the risk of enterprise and the Government take on the risk/management of the debt. ( or, maybe that's what it is! But it doesn't read that way....)
To solve the housing crises/shortage why not set up a task force to register the many empty buildings or land around Auckland that could be utilised and investigate why?
If its an investor not intending to rent or land banker then requisition for the homeless or slap on a land tax. That well get land supply moving, price will fall, saving the Tax payer millions on development cost and emergency housing that could go to education, hospitals etc.
That's right why should the Tax payer prop up the investor at the cost of our communities?
Where is this Governments social policy, the very remit they exist?
It a simple effective way to help resolve the housing crises by reducing time and money i.e. development cost - design, consent, funding, tender, mobilisation etc.
There is a cost to set up, but the Government could tender that out.
The biggest effect that morphing Crown Fibre into Crown Infrastructure Holdings has is it gets some infrastructure debt off the books of Auckland Council which is reaching credit rating debt limits. This infrastructure is needed to open up the competitive supply of land -once land use restrictions are removed.
Both Labour and National believe that land-use restrictions add to the land costs or urban housing. In my opinion, Labour have the clearer proposed RMA -National Policy Statements about removing land use restrictions -while Nationals -NPS on Urban Development Capacity -removes restrictions slower/more incrementally.
What National is proposing with Crown Infrastructure Holdings is not new, it is classic National Party steal the good ideas from the opposition rather than doing any hard-yards policy thinking themselves.
"Labour Housing spokesman Phil Twyford asked what had taken the Government so long, noting Labour had proposed the creation of infrastructure bonds funded through targeted rates in 2015."
As stated in Bernard Hickey's article on the government's Crown Infrastructure Holdings policy reform. https://www.newsroom.co.nz/2017/07/23/39688/crown-fibre-gets-a-re-tread
This process indicates Labour on housing has been a successful opposition -so well done Phil Twyford. It would be nice if MSM would do some homework and give credit where credit is due.
Both National's and Labour's proposed city infrastructure providing schemes are kinda like a 'nationalised' version of Texas's 'privatised' Municipal Utility Districts. Which means both Joyce's Crown Infrastructure Holdings and Twyford's Treasury run Infrastructure Bank (to manage his proposed municipal bonds and targeted rate scheme), both have the potential to be highly ideological and politicised.
It raises the possibility that politicians problems with cognitive dissonance re housing affordability will continue. Politicians are trying to hold two mutually exclusive thoughts in their head at the same time. They want to believe they promote equal opportunities, individual freedom and choice, personal responsibility.... blah, blah, blah while also believing that it is ok to promote, through excessive regulation and inadequate infrastructure provision, the property wealth of important constituent groups.
Personally I don't see 'nationalised' MUDs as the final answer to infrastructure provision for the competitive supply of urban land in NZ. What is needed is a system that no one doubts will supply infrastructure when needed. In a weird way what is needed is politicians to show their political will by implementing a competitive/cost effective land and infrastructure system for growing urban areas that will continue without their continued political involvement....
Here is a MUD insurer’s perspective of Texas MUD’s . It gives a good picture of what a privatised MUD market looks like -it is not a free for all -there are regulations maintaining quality etc. http://www.performanceurbanplanning.org/files/MunicipalUtilityDistricts…
An independent Australian economist says that NZ's National government is "too late the hero" when it comes to housing supply and that;
"Labour’s housing policies are certainly far superior than anything offered by the National Government, promising fundamental action on both the demand and supply sides.
It will be interesting to see whether New Zealanders care enough about housing affordability to vote Labour into office. We’ll find out 23 September."
https://www.macrobusiness.com.au/2017/07/nz-government-late-hero-housin…
Crown Fiber Holdings, was described by Brian Gaynor late last year as the "perennial loss-maker". Expanding it's loss-making opportunity across additional infrastructure areas is madness, surely;
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11…
"Crown Fibre has no operating revenue and spends most of its money expanding the UFB network"
Seems a little harsh to criticise it for losing money - does Brian Gaynor also have a problem with the terrible losses made by the public health system? Seems it's a vehicle for spending government money, not a commercial entity.
I also have a vague memory of the government eventually making money back on the fibre rollout by taking a cut of Chorus's revenue in a couple of years time, but can't remember the details (no longer a share holder so removed those details from my brain apparently)
It was set up under the ruse that some day it would make a return: this from it's "About Us" page;
Crown Fibre Holdings (CFH) will:
- deliver on the UFB Objective as above;
- operate in a financially sustainable manner;
- begin investing without providing a commercial return to the Crown; and
- eventually provide a commercial return on the Crown’s investment, and operate as a successful business, when directed by its shareholding Ministers and the Minister for Communications and Information Technology.
And:
Crown Fibre Holdings was formed as a Crown-owned company under the Companies Act 1993. It is of the type listed on the 4th schedule of the Public Finance Act 1989, where joint ownership is necessary or desirable as the Crown intends to reduce its shareholding at some stage to somewhere between over 50% and under 100%.
I assume, now with the re-branding, taxpayer-funders will not get the benefit from that final bullet point objective? Or was some of it sold off for a return recently?
As WP points out:
“All it will do is award and administer contracts from its offices in downtown Auckland. That’s what Crown Fibre Holdings and its 18-staff did because the actual work of building stuff is done by others.
This type of profit-model pretense is a ruse for privatising the profits and socialising the losses.
To attempt to compare it's governance structure with that of public health is just plain wrong - different legislation governing the entities altogether.
PS Do I think the government ever needed to step in and fund a broadband network? Nope.
From the same page,
"In the case of Chorus, the Crown’s equity is made up of non-voting preference shares (which convert to ordinary shares at preset dates) and debt securities with zero coupon (i.e. no interest payable). These operate such that Chorus may return funds to CFH from 2025, with all funds likely to be returned to CFH by 2036"
You're right I was unfair to compare with health, the intent is to make a return, and the agreements are in place for this to happen in the future. I very much doubt if this will be disregarded just because CFH have another job now. I would assume that government got involved to shove some money at the problem early on, so it would be counterproductive to start taking money back out of the project before the infrastructure is in place.
For sure, the private companies involved will have done nicely out of it and it's not my preferred way of doing things, but I'm not sure you're being fair.
The operative word being "may return funds"... my understanding is there is no contractual obligation, but I could be wrong. Again, I see it as a deliberate ruse - using the Crown-owned company model as a vehicle for privatising the profits and socialising the losses.
I would assume that government got involved to shove some money at the problem early on
Whereas I read it as the government subsidising private enterprise - same goes for Crown Irrigation Investments Limited;
http://www.crownirrigation.co.nz/
They've been an odd National government in that they've gone hell for leather 'picking winners'... unfortunately governments have never been good at this. I'd rather have seen them subsidise farmers (i.e., small businesses) to decrease production and pay down debt - given that adds a net positive benefit to the environment and to the private debt balance sheet.
You're right though, I am biased - I just think the Nats took on more debt for (mostly) all the wrong purposes. I don't know that any of this investment actually increased our productivity.
There's a handy PDF summary of the CFH/Chorus agreement at the top of the search results here
https://www.google.co.nz/search?q=Outline+of+UFB+agreement+between+Chor…
I don't have the time or inclination to dig into anything more chunky than that right now, but essentially CFH have provided an interest free loan and bought a load of non-voting shares from Chorus. The loans are repayable from 2025 and the shares begin to attract dividends in the same year. Presumably the 'may' is because Chorus have the option to repay either in advance at face value.
Again, I'm not convinced the government has got a good deal here and it's not my preferred method (I'd much prefer public money to be spent by a public company so that my taxes aren't flowing to shareholders more than necessary), but to complain that they're not making money when they were explicitly setup to not make any money for another decade or so is a little unfair.
Reading this drivel from Bill English, I get so annoyed that I run the risk of posting something that would have David Chaston would ban me for life.
We need to increase the supply of land ( and reduce demand through reduced immigration) .
Thats it , nothing more or less .
Making something more expensive just distorts things more, and will lead to further inequality .
Shelter is a basic entry level need for all humans , and we will pay whatever it costs for it , so making it more expensive means those at the bottom of the social and economic rung will be forced to pay higher rents and a greater proportion of their income on rent .
The developers will get the benefits, not the section buyer.
The devil will be in the details but the outcome will depend largely on what those developers end up paying by way of financial and development contributions.
In the normal run of things councils are incentivised to try to concentrate development into a few areas at a time. This allows them to charge developers financial contributions (under the RMA) to upgrade area infrastructure (especially roading). This money has to be used within five years of collection or returned to the developer so councils need to get as many developments as possible going along, for instance, a road they want to upgrade.
In theory the SPV takes over this process and bypasses the ludicrous complexity and limitations of both the RMA and the LGA when it comes to collecting capital contributions for infrastructure upgrades.
So far so good. But that is only one small component of the overall costs for the buyer of a new section.
When someone buys a newly created section ready for building, the purchase price includes two, sometimes three forms of capital contribution to be applied to infrastructure:
- the physical assets of the development (roads, pipes, footpaths, stormwater collection) which are built by the developer and handed over (vested) to the council at the end of the development
- possibly a financial contribution to put in or upgrade area infrastructure. These projects are outside the development boundaries but required to make the development possible. The council collects the cash and undertakes the projects themselves.
- development contributions. Development contributions are not normally collected for developing local and area infrastructure. They are collected to fund the big ticket items that lots of growth requires (like new poo ponds or new arterial roads). More often than not DC's are applied to projects that have no immediate link to the developments where they are collected.
The developer is responsible for all these contributions and does not have to account in any way to anyone
as to how much of the sale price of a section goes to these items.
There will be no change in items 1 & 3. Developers will still form the streets and cul-de-sacs, the council will still charge DC's for the big ticket items. In the latter case there may be some room to negotiate a small discount (if that's legal). So its really just the area infrastructure. Admittedly that can be hard to properly fund and wanting to get as much of that as possible from development does encourage restrictive planning.
So what the SPV does is take away the need to front-load that capital contribution onto the section price. Instead it is collected over a number of years via rates. All that does is make the government the banker and reduce the cost of financing this capital contribution from private mortgage levels down to government levels.
There are two things wrong with this:
1. the cost of administration of setting and collecting the targeted rate will eat into the potential cost savings
2. taking away this developer cost does not guarantee that section prices will reduce accordingly.
Development is market driven. No developer will sell a section at below market rates if they don't have to. The government's late arrival is too little and too late. I cannot see any landowner now feeling rushed into selling or missing out. So, the price of undeveloped land won't come down any time soon.
I imagine private developers are looking forward to having their input costs go down while section prices hold steady. It can only mean more profit for them. Thanks, Bill!
You are welcome. I forgot to mention depreciation before. Depreciation on infrastructure assets is a big big ticket item in any council budget. I was looking at Hamilton City's Ten Year Plan (as you do on those long cold winter's nights) and noted that about 25% of their water services revenue would be applied to depreciation.
So the targeted rate will have to include depreciation on all the infrastructure assets of the SPV as well as operating costs. Normally it's just a bit of ongoing maintenance. But in the case of water the SVP will have to register as a water distributor with the Auckland DHB and then undertake all compliance measures including water testing required under the Water Safety Plan they will have to write and implement. This will, of course totally duplicate the work Watercare Services is already doing.
But getting back to depreciation. This is normally retained for the purpose of replacing aged assets but there is no law around what the money has to be used for. What Aucklanders don't want is for the SVP to sell the assets to AC at some future date and not hand over the accumulated cash as well. If they don't, then the lucky people in the SVP areas will have to cough up a second capital contribution to replace the worn-out assets.
As I said above there is so much hidden detail below the waterline on this iceberg.
I'm thinking on my feet now but we need to know ASAP how the targeted rate will be calculated.
The SPV, as a public entity, has to charge depreciation. It can't hand it over to AC in anticipation of a future buy-back because that liability, even though off-balance-sheet, would be classed as a form of debt. Effectively, if AC want to buy the assets in the future, they will have to pay the full replacement cost of those assets. I can't think of any scenario that works out well for the ratepayers in these zones.
BTW still grinding away on some explainers on LG finances. You'll find what I have done here. There's some stuff on revaluations at last :-)
For example, Watercare’s Infrastructure Growth Charges do not recover the full costs of growth (ie new pipes for new housing). Particularly if the pipes are to the wops. That’s where these new North and South Auckland houses will be (no offence). The story might be different if we were talking about densification, but it’s an election year, so that’s a no go in Auckland right now.
No offence taken, you don't need to even think of apologising. We aren't the halfwits who designed the expansion of Auckland to be so hideously expensive. We are all familiar with the concept of distance, it is taught in kindergartens. The entire overpriced nature of the Auckland property market is based on this very simple concept - buyers do not want to have an insanely long commute.
This entire pointless debate is how to spend enormous funds to build a hideously expensive, ruinously planned sprawl expansion of Auckland City. The council has run out of money, the private sector is not stupid enough to invest and so the taxpayer is somehow now footing the bill. National are promising $millions and Labour are promising $billions.
And all because Auckland plans to build massive, expensive, stupid sprawl. All because Auckland Transport planning was carried out by people with no understanding of the concept of distance. Which barrel was scraped to get this planning incompetence is a mystery.
Almost every suburb that could have been built next to Auckland City has been moved to the wops.
Dam those debt ceilings stifling growth. Raise the ceilings, we need more debt (no wait, I mean we need more growth). Debt and growth are the same thing, right? In the 21st century, when things are different, they're the same?
I agree with Donald on this. It all seems like a subsidy for developers. Subsidies are a great way to move prices beyond what the market can afford and to pad out profit margins, but has there ever been a subsidy that lowered the price to the final consumer?
Maybe if you've maxed out your debt it's time to sit down, shut up and give someone else a go. As a country I believe we would be much better off if we were to say, strategically, Auckland is big enough. For our own good we need to encourage balanced growth elsewhere.
What needs to be considered is if National and its supporters actually want to fix the housing crisis? I mean their policy for the last 5 years has been based upon grooming their voters and their self-interest (via capital gains/wealth creation). To now pretend they want to fix the issue they've been using to gain support and foster a sense of pride from (wealth creation through expensive houses) is akin to a Lion turning vegan...it just seems unnatural....the shoe doesn't fit...
For goodness sake , what planet is Bill English residing on ? When has an increased cost ( in this case a targeted rate ) EVER led to lower prices ?
Its an oxymoron .
And secondly Auckland City is broke and money is fungible, so a targeted rate income stream is simply going to get gobbled up in those astronomical salaries we pay to those August public servants and debt servicing , it will never go towards infrastructure .
Increase rates and its simply going to be passed on to the more vulnerable ( tenants ) , making Auckland even more unaffordable for the likes of teachers , nurses , healthcare workers and Policemen
The cost of the rates is ongoing, so would reduce the capital cost. In the same way that an apartment with high body corporate rates would cost less up front than an identical apartment with low rates.
Whether it reduces cost over the long run is a more difficult question, but hey, he's a politician so who cares about the long run?
Good thread. I rather suspect that Dipton Bill's take on the whole matter is skewed by the fact that the Christchurch experience actually has held both plot and home+plot prices relatively steady over the course of the rebuild. This however was a happy coincidence of perhaps 4 significant localised factors:
- There was an immediate diaspora of residents to adjoining TLA's, places of work and general living arrangements. Gaia, basically, said 'TINA' and people accepted this. There is no such event planned for Awks.
- Aforesaid adjacent TLA's were alert enough to throw open their doors land-subdivision-wise and some real, actual competition resulted e.g. IZone http://www.izone.org.nz/ where the pitch is 'low rates and no development contributions'. The Awks super-city is (I assume) determinedly non-competitive over its various areas, so no chance of replicating this.
- The geography around Christchurch and indeed the entire plains from Oamaru through to Amberley is flat, good-seismic-bearing for the most part, and well serviced with transport and telco links. That certainly is not the case for Wellingtom or Awks.
- There was a sort of benevolent dictatorship during the CERA era, which overtuirned TLA's restrictive plans and let Ms Market have her way. Lotsa competition resulted, both within and between TLA's, and each now sports gleaming new subdivisions, with thousands of houses in total, and oftern ()as with Rolleston and IZone) built-in local employment opportunities. The Land Use Recovery Plan (LURP) was the vehicle which achieved this, plus the above factors
Good as this has undoubtedly been for Christchurch, it is almost impossible to replicate for Awks: the super-city, the geography, the absence of a compelling exogenous event and the inertia which is inherent to all large organisations - all imply More of the Same.
And as Donald (hi! good to see you back) sagely notes, taking input costs away from developers will simply lead to higher net profits: prices are sticky on the downside....
Regards Auckland:
3 - Auckland is a city on an isthmus, as it grows land becomes increasingly easy to obtain. Also Auckland is a big city that has been growing for decades and several $billion of infrastructure has been positioned at its edge to accommodate further growth. Today there probably isn't any area of land in NZ better able to accommodate low cost growth than Auckland City.
Agree with your other points.
I respectfully part company with you and Hugh P on the performance of Waimak and Selwyn. How I think Greater CHC got through the response to losing 10,000 dwellings in one day is still highly relevant to AKL though.
It is a fact that building rates soared in Waimak and Selwyn when all those households found themselves without a roof over their heads. But I would not describe WDC's and SDC's response as some form of "turning on a sixpence".
Both councils had experienced high rates of sustained growth over a decade or more and all their planning and processes had adapted to a permanent state of high growth. WDC took on a massive sewer project that created capacity for 30 years of population growth well before 2011. They were confident that they could handle the debt burden because of that growth rate.This is only one example of preparations. Both councils would have had outline development plans (master plans) in place years in advance of projected need and would have conducted all the geo-technical surveys etc long before a developer lodged a resource consent application.
My take is that the both councils had sufficient buffers in place to handle sudden changes in demand. When the developers turned up it was easy to say yes because all the preparations were already in place. By contrast AC has been pitifully slow in ramping up.
Kumbel's First Law of Local Government - "Council effectiveness varies in inverse proportion to size" - quite likely holds true as you say.
If you want to see something funny, have a look at the "AC: Future Urban Land Supply Strategy". The picture on the front is (I think) of the Clevedon-Ardmore plains. This land is adjacent to Auckland City and larger than the Hutt Valley. These plains are currently more development ready than almost any other place in NZ. Auckland Council has forbidden development on this land.
A staff photographer at Auckland Council spotted better land in 1 afternoon than the combined Auckland planning departments have found in 8 years.
Hilarious, right?
http://www.aucklandcouncil.govt.nz/EN/planspoliciesprojects/plansstrate…
Well, the experience of Metroland https://www.theguardian.com/cities/2015/sep/10/metroland-100-years-engl… London suggests a path forward here, perhaps. The key point is to capture the Planning Gain in some public entity. The strategy is simple (and will never happen, so this is just a Thought Experiment - the safest kind). And bear in mind I have zero clue about the actual land involved here and cannot be arsed looking it up, so please forgive the inevitable howlers.
- Compulsorily acquire the whole bleeding area under the PW Act for rural land prices and some plausible explanation - like - 'It's for the Children'
- Build trunks: transport - rail plus road, three waters, telco etc lines through the middle of the whole shebang - just like the Metro line extension north of London did back in the 20's and 30's.
- Develop and sell plots at cost-plus, and in large chunks, and quickly. Plot development prices should cluster around the $200K mark even today (common taters might care to chip in on current construction costs here)
- Specifically aim to depress plot prices throughout the wider area as a deliberate sales strategy - release 000's at rock-bottom prices instead of dribbling them out in dozens and clipping the CG ticket
Rough and ready, but there she sits. 'Course it will never happen, but that's the fate of many a Thought Experiment.
And, Donald, as a former County Treasurer (Malvern) I am well aware of the Rolleston pre-planning that set IZone up as the success it now is: that land (north of the railway line) in pre-irrigation times was struggler country - growing stones, scrub and skinny sheep. It was purchased decades ago (after my time and after an amalgamation of Malvern and Selwyn) for rock-bottom prices, so replicates the Metroland trajectory.
But rural counties tend to have good, pragmatic farmer Councillors, who are prepared to take a punt that might need decades to crystallize. That's certainly not the case for most Urban councils, who tend to attract dreamy types who've never had to make payroll next Thursday by selling something Today, and who are easily steam-rolled by wily Staff with magnitudes-greater collective Cunning.
But maybe, just maybe, that's what Crown Infrastructure is secretly being set up for? Metroland?
The funny thing about the govt's Oop North adventure is that they appear to be pushing development in what used to be Rodney District. Pre-amalagamation Rodney was the fastest growing territory in the Auckland Region and consistently in the top 5 in the country.
What we see all over NZ is that when the metropolitans get sclerotic, the peri-urban councils get on with it. For many years Rodney was a vent for Auckland. Like Waimak and Selwyn outside CHC, Kapiti Coast for a while, Waipa outside Hamilton, and Western Bay outside Tauranga.
Rodney Hide's brilliant idea to amalgamate Auckland turned off that vent and it has taken his former colleagues more than 6 years to tentatively suggest prising it open again.
I would also suggest that the councillors in WDC and SDC didn't have to be particularly far-sighted. CCC has consistently proven is was never going to pull the growth rug from under their feet. All WDC/SDC investments were as safe as houses :-)
Rodney Hide deserves every possible level of opprobrium, however not that - no vent closing occurred.
The amalgamation allowed the former Rodney District to turn its growth up to 11, maybe even 20, because Auckland ratepayers now paid for it. The powers that be in Auckland provide very well for the old Rodney District, with large funding for roads and such like pouring into the area.
The problem Auckland faces is that it is running out of money to fund this sort of development, the sort that occurs mostly in far off old Rodney. Thankfully there are plethora of suckers in Wellington who are all now competing to fund the development cost overruns, with taxpayers money of course.
Councils like the MDC do not stick to their core responsibilities and have delved into property development, then become the biggest in the district, auction the sections through greedy land agents and sell them a few at a time at auction to maximise their price. Projects for the greater good of the communities it serves. BS
Just think how nice it would be if they sold them at near cost to help genuine Kiwi's into their first home instead of being one of worst speculators in this sector. This is one Council that would love “targeted rates” on that infrastructure – essentially a user-pays way of funding roads and water pipes over a period of time, DOUBLE DIPPING would be an exciting Idea for them.
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