- Golf courses are different from public parks, as they can only be used by a small number of paying customers
- The benefit of redeveloping golf courses to offer a mix of new neighbourhoods and public parks could be as much as nine times higher than the benefit of the status quo to golfers
- Publicly owned golf courses don’t pay their fair share of rates, meaning that the rest of us have to pay higher taxes.
A key concept running through this analysis is the idea of an “opportunity cost“. We often face mutually exclusive choices – i.e. if we choose one thing, we can’t have the other. In those situations, the “cost” of getting one thing is giving up the opportunity to have the other.
Calvin and Hobbes illustrate the concept of mutually exclusive choices quite nicely:
In the case of publicly owned golf courses, our choices are fairly simple: If we keep them open for golf, we give up the opportunity to have public parks, other sports fields, or housing on them. And if we convert them to other uses, we give up the opportunity to golf now, and the option to choose a different set of uses at some future date.
However, there are other ways to think about the opportunity cost of publicly owned golf courses. For example, what happens when a local government wants to sell down assets, e.g. to free up capital for new investments? If they refuse to consider selling the golf course, what else do they sell instead?
(This isn’t to say that asset sales are necessarily a good idea – that’s really an issue that must be assessed on a case-by-case basis. When politicians propose to sell assets, I think that it’s essential that they are specific about (a) exactly how a sale would lead to better outcomes in the affected market, (b) exactly why they need the money – no vague promises of wish-fulfilment slush funds please! – and (c) how they will avoid losing money on the sale through poor timing.)
In 2002 the former Auckland City Council decided to sell down some of its publicly-owned assets, including some of its shares in the Auckland Airport and its entire public housing stock. The proposed sale of the public housing, most of which housed elderly Aucklanders on low incomes, stirred up opposition. As a result, central government got involved, and purchased the properties through Housing New Zealand:
The Government has offered to buy Auckland City Council’s pensioner and residential property portfolio.
On Monday, 30 September 2002 Cabinet approved an agreement negotiated between Housing New Zealand Corporation and the council.
Housing New Zealand will pay a total of $83 million for the Council’s two portfolios:
1542 pensioner rental units, on 50 sites, with a book value of $101 million. 129 residential units, with a book value of $31 million.
This reflects the full market value for residential housing and a discount for pensioner housing – which takes into account the fact that these sites will always be retained for social housing and that Housing New Zealand Corporation is committed to a fast tracked redevelopment programme.
In short, Auckland City Council earned $83 million for the sale of 1671 public housing units. The deal didn’t increase the total amount of housing in the city, as it didn’t release any land for new development or more intensive redevelopment. Furthermore, although Housing New Zealand was able to keep the units available as social housing, it probably had a bit less money to build new social housing in Auckland that year.
However, as I found when I looked at the benefits of alternative options for Chamberlain Park, the Council could retain a third of the golf course as a new public park and still earn more from selling the land for housing development. Even accounting for the fact that house prices have approximately doubled since 2002, it’s not even close – the golf course is worth about 50% more than the council housing ($240m vs ~$160m).
In 2002, when Council decided to sell some assets, the “opportunity cost” of not considering selling a golf course was having to sell the council housing instead. But the same choice also applies in reverse in the present day. If Auckland Council wanted to get back into the social housing game, to alleviate the impact of the city’s current housing affordability challenges, perhaps it could fund it with the proceeds from golf course sales?
1600 council flats or a single golf course: which do you think has a greater social value?