Phil Goff’s first rates proposal

Yesterday Mayor Phil Goff released his proposal for rates in Auckland for the 2017/18 financial year, which starts on 1 July 2017. The proposal includes several things related to some of the issues we talk about that I thought I’d cover off. Firstly, though the high-level stuff.

The Mayor is proposing a 2.5% general rates increase to honour his campaign promise on rates. But given how much investment Auckland needs, especially in infrastructure that is simply not enough and so he’s also proposing a couple of new ways to raise revenue, this includes:

  • Raising up to $30 million from a new visitor levy to replace ratepayer funding currently spent on attracting visitors and supporting major events.
  • Introducing a targeted rate for new large-scale developments to pay for major new infrastructure, increase Auckland’s housing supply and discourage land-banking
  • Government support to implement a regional fuel tax to help close the $400m gap in transport infrastructure funding identified by central government and Auckland Council under the Auckland Transport Alignment Project
  • Bidding for a significant share of the Government’s Housing Infrastructure Fund

The infrastructure fund mentioned at the end is the $1 billion contestable fund that can only be used to build infrastructure for greenfield developments and is only open to applications from Auckland, Christchurch, Hamilton, Queenstown and, Tauranga. It was already assumed that Auckland would get the vast bulk of that $1 billion available. While it’s only for greenfield infrastructure, I guess it means it could just free up other council resources that can be used for non-greenfield infrastructure.

The proposed visitor levy is unsurprisingly already being opposed by the tourism industry. The paper says the council can’t levy a specific bed tax but can do something to the same effect by charging a targeted levy on accommodation providers and say indicative analysis suggests it would add $6-10 to the cost of a nights stay in a 4-5 star hotel.

While mentioned above, the discussion of fuel taxes, as an eventual replacement for the Interim Transport Levy, is only that the mayor wants to have the discussion so definitely nothing will be changing on this in the next year or two, especially given the government has been hostile to the idea. It seems a bit silly to me to then go and replace the Interim Transport Levy. While it was only ever meant to be temporary it feels like it has been effective and was also a good way for the council to ensure the funding went to areas they really wanted focused on, like public transport and cycling infrastructure. Does this also suggest that Goff won’t push for actual road pricing and stick with an easier and likely less effective fuel tax option?

The one area I did find particularly relevant to some of the discussions we’ve had is around the targeted rate for large-scale developments. Essentially for the same reason the government’s infrastructure fund exists, Auckland is expected to add about 110,000 homes to its urban edges in the coming decades and it’s going to cost a huge amount to pay for the council’s share, potentially up to $10 billion just for transport. And all of this while a lot of new or upgraded infrastructure is needed in the existing urban area too. The infrastructure needed has been the subject of the Transport for Future Urban Growth (TFUG) work. For example, here is the preferred transport network for the South showing just the major infrastructure planned.

TFUG - Draft Preferred Plan - South

 

The proposal would see a targeted rate applied to an area that is expected to developed that would help fund the infrastructure needed to service that area. The council say this has a number of advantages, including:

  • increasing land holding costs, thereby weakening the incentives for landbanking
  • reducing the reliance on existing ratepayers across Auckland to subsidise new housing developments
  • creating a closer link between the rates paid by landowners in a specific area and the uplift in the value of their land as a result of it being available for development
  • establishing a more predictable and secure revenue stream for council

It seems like a fairly elegant part of the solution to the issue of how fund that expensive and large scale greenfield infrastructure but does so by effectively increasing the price of housing in these areas which is bound to be opposed by land owners and developers. It could however also be argued that it particularly benefits those who have pushed to restrict housing development options closer to the city as their actions have helped in pushing more development to the edges and now they might not have to share many of the costs.

In addition to the proposals for what will be charged, there was one other issue of relevance to the blog in the paper under the title of other budget changes. These are potential changes that the council say don’t meet the significant and materiality thresholds but are likely to have high public interest. The item is titled Mass Transit Network.

An expanded and well-connected mass transit network is at the heart of Auckland Transport’s plans for supporting growth in existing urban and future urban areas. Auckland Transport has indicated the intention to accelerate planning and design works on routes and the most optimal mode, whether it be bus or light rail. It has also indicated the opportunity for early acquisition of strategically important properties. The debt impact is projected to be approximately $40 million in 2017/18.

Speeding up the process for these big PT projects would certainly be welcome.

What do you think of the Mayors proposals?

Transport Land Sales a One Way Street?

Today the Auckland Council are deciding on the rates for the coming year. While looking through one part of the document (29.1MB) I came across one aspect that caught my attention. Auckland Transport want to buy $80 million of property in advance so that they’ll have it available when it comes time to actually build the infrastructure they’re planning. For his part, the mayor is proposing that AT only get $30 million in the 2016/17 year and $20 million in the 2017/18 year.

There’s a brief explanation of what is proposed on page 214 and a more detailed report on pages 251-254. That more detailed report gives us these details about what AT would use the money for

AT Advance property purchase

And here are the details for some of the ones I found more interesting.

 

Bringing forward property for future projects

 

337 Lincoln Road

This property is owned by NZTA and they have advised they will be commencing their disposal process. The property has been identified as the preferred option for a bus interchange. The estimated cost for the land acquisition is $6 million.

 

Purchase of property ahead of development

McWhirter Block

A block of bare residentially-zoned land adjacent to the North Westem Motorway is currently being built on by a developer, Part of the site will be required for the future North Western Busway. The developer has approached AT asking if we wish to buy the required portion of land. The market price for the bare single site is considerably less than buying over 40 individual housing units in future and mitigating the effects of the Busway on the adjacent home owners. If the required land is purchased now, the developer will ensure houses are appropriately set back and encing/sound-proofing occurs to mitigate the future effects of the Busway. The required parcel of land is approximately 7 ,880m2 and has an expected value of approximately $8.3 million.

 

Light Rail Depot

AT progressing the investigations for Light Rail Transit (LRT) following tho AT Board’s endorsement of the Strategic Case for CRT. An indicative business case is being prepared for joint agreement between the NZTA and AT. This work is being funded Within ATS Current operational budget.

There is no current LTP to buy any property for LRT and the project is not yet supported by Council or Government.

Planning to date indicates that the ideal site for a required depot is the site currently being used as the construction worksite for the Waterview Tunnel. This site is likely to be declared surplus by NZTA in December 2016. The potential site comprises two sites owned by KiwiRail and NZTA with a value of $30 million. Both agencies are under pressure to recycle capital and better utilise their portfolios, and both sites are likely to be developed should the agencies dispose of the sites. It will be both expensive and potentially difficult to acquire this depot site if sold development.

It’s good to see that AT are already thinking ahead about progressing the Northwest Busway and Light Rail. Having to buy newly developed land to enable it would be extremely expensive so it makes a lot of sense to buy the land now. It’s also interesting to learn where they plan to put a busway station at Lincoln Rd – which hopefully can be built in advance of the busway to enable the full roll out of the new bus network sooner as AT had to hobble it due to Lincoln and Te Atatu bus interchanges not being present.

The motorway interchange looks a lot bigger now

The motorway interchange looks a lot bigger now

What surprised me though was that it appears the NZTA will make AT pay for that land. This is for a few reasons.

  1. The busway should be being developed by the NZTA, just like they developed the Northern Busway.
  2. It appears that when the NZTA want land from AT/Council, Auckland effectively just gives it to them.

To explain #2 a bit more. Last year the NZTA built what they call a Central Incident Response Centre on Union St replacing a carpark the City Centre Master Plan envisaged would see the Cook St off-ramp rerouted through in a bid to detune Cook St.

Union St Carpark Sale to NZTA

For what was probably the best bargain in town, AT sold them the land for $1. Here’s what the NZTA told me at the time.

The land was transferred from Auckland Council’s ownership, but under AT administration.

The transfer was for a nominal sum of $1.

The NZ Transport Agency is making best use of the land now by utilising the site to provide an improved location for the incident response team which provides better outcomes for all its customers. It will provide better access to the Central Motorway Junction, quicker responses to incidents in the Victoria Park Tunnel and northbound on the Auckland Harbour Bridge.

We have designed the Central Incident Response Centre as a fully relocatable building. The full extent of the land we may require for an additional Waitemata Harbour crossing is still to be determined, and that will be done through the route protection phase of works.

If at some point in the future the Union Street site is needed the building can be moved.

Seeing as Auckland is seemingly so generous in giving the NZTA land, surely they should be reciprocating and sell AT the land they need equally cheaply? Of course they should just be getting on with building a busway in the first place and it should have happened as part of the motorway upgrade.

The Value of Well-Designed Cities

When it comes to the debate about housing and development, there’s been plenty of discussion about the physical impacts of decisions we make, for example the height and bulk of buildings. There’s even been to a lesser extent a discussion on the capital costs of development, the costs of building or upgrading roads, pipes and other infrastructure. Some of this is quite evident now with the Transport for Future Growth consultations currently underway.

One area that hasn’t really been discussed at any level – other than probably some obscure high level planning papers – is the impact our development choices have on rates and operational costs. In many ways this is odd given how loudly many sections of our society protest every time rates are increased. But there is a clear link between rates and the types of development we allow.

A few weeks ago there was another fantastic Auckland Conversations talk, this time by Joe Minicozzi.

Joe Minicozzi, Principal of Urban3, pioneers in geo-spatial representation of economic productivity. This helps communities make better decisions through the understanding of data and design. Joe’s work has prompted a paradigm shift in understanding the economic potency of well designed cities.

Joe’s multidisciplinary expertise with city planning in the public and private sectors, as well as his ingenuity with real estate finance, prompted the development of his award-winning analytical tools that have been featured in The Wall Street Journal, Planetizen, Planning, and New Urban News.

Urban3’s research illustrates the benefits of urban density, heritage conservation and mixed-use developments. These have an economic impact that lead to creating sustainable and vibrant cities.

And here’s a short summary video of the key points of the discussion

If you follow many of the discussions the council has on planning and rates issues in Auckland you’ll notice is there’s a huge contradiction between the rhetoric of some groups and councillors towards rates and debt, and the land use/urban polices they also promote.

Some parts of the presentation reference work Kent has produced and written about on the blog before. Joe has picked up on some of that for use in the image below showing the value of property per hectare in the centre of Auckland.

Urban 3 - Value per Hectare

Improving how we use our land has multiple benefits to the bottom line of the council. It can allow for us to use our infrastructure more efficiently while at the same time reducing the amount of expensive new infrastructure needed while also increasing the number of people contributing towards the upkeep of that infrastructure. In short if you want lower rates, cut back on the sprawl.

Rates for Crown-owned land?

Last month, Local Government New Zealand called for charging rates (i.e. local government property taxes) on Crown-owned land. The idea’s also been supported by the Productivity Commission and ACT’s sole MP, David Seymour:

Local Government NZ, which represents the country’s 78 local and regional authorities, is holding its annual conference in Rotorua.

Its members – including Auckland Council – have voted to investigate the possibility, practicality and principle of local authorities extending rates charges to land owned by the Crown.

The same topic has also been covered by a review by Local Government NZ (LGNZ) of local government funding. A manifesto on this will be presented today.

[…]

Act Party leader David Seymour is a strong supporter of charging rates on Crown land. He said that although conservation and recreational land could be excluded, as a matter of fairness schools and hospitals should pay rates because they compete with private organisations.

Mr Seymour said that although there would likely be a slightly lower rates burden on households, better and more efficient use of Crown land would be a bigger benefit.

“We have got this 430ha of Crown land [in Auckland] that allegedly could be turned into houses. Well, why have they waited so long? I suspect one of the reasons is that the Crown can keep land rates-free.”

In June, a draft report by the Productivity Commission, titled Using Land for Housing, recommended the Government start paying rates on Crown land.

It is definitely worth investigating applying rates to Crown-owned properties – and potentially also to Council-owned properties. As Transportblog has highlighted in the past, a surprisingly large amount of land in our cities is owned by governments – for transport reserves, social facilities, golf courses, etc. It’s important to use that land efficiently, and applying property taxes can help encourage that.

By way of illustration, Kent Lundberg recently took a look at a few parcels of publicly-owned land in Auckland, and alternative ways that they could be used. The short story is that there are opportunities that could be grasped if the incentives were right:

From an economic perspective, not charging rates for publicly-owned land will distort public and private investment decisions. That is, it can encourage government departments to use too much land, relative to other inputs. All else being equal, this will in turn reduce the amount of land available for businesses and households.

Let’s consider a few examples. First: schools, which are funded by central government. Schools have a fixed budget based (roughly) on enrollment and the decile rating of the community they serve. In order to educate students, they buy land, construct school buildings, and hire staff.

However, the various inputs to education are not taxed in a consistent fashion. Teachers are taxed – they must pay income taxes regardless of the fact that they work for the government – but land and properties are not taxed. As a result, there is an incentive for schools to use more land, and fewer teachers, as land is untaxed and thus relatively cheaper. This seems troubling in light of evidence that investing in better teaching pays higher dividends than larger sports fields.

A second example: transport infrastructure. William Vickrey, Nobel laureate and originator of congestion pricing, argued that we should be extremely cautious when allocating land to roads, as land used for roads cannot be used for housing or business:

“a cost benefit analysis can justify devoting land to transportation only when the savings in transportation costs yield a return considerably greater than the gross rentals, including taxes, that private businesses would be willing to pay for the space. This in turn means that an even greater preference should be given to space economizing modes of transport than would be indicated by rent and tax levels. And our rubber-shod sacred cow is a ravenously space-hungry, shall I say, monster?”

At present, local and central government do not pay rates for the land under their roads. While they have to buy land to build roads in the first place, they are under no obligation to account for the ongoing and potentially increasing cost of devoting space to roads rather than alternative uses.

To understand why this might be a problem, consider a case in which NZTA is considering building a road through a growing part of the city. At present, land is cheap, but as the area develops it’s expected to get (relatively) more expensive.

If NZTA had to pay rates on the land it used, it would face different incentives that may lead it to pursue a different road design. It may be more willing to consider putting the road underground or configuring intersections in a more space-efficient way, in the expectation that doing so would allow it to avoid rising rates bills in the future. While this could have a higher up-front cost, in the long run society would benefit as it would leave more land for households and businesses.

Lastly, given local governments’ interest in this topic, I’d encourage them to ensure that they are consistently charging rates on council-owned properties, and valuing council-owned land on an equal basis to nearby land in private ownership. At first glance, this seems a bit pointless – councils would just be paying money to themselves! However, if you take arguments about incentives seriously, it’s important for council-owned properties to start to recognise and account for the cost of the land that they occupy.

What do you think about applying rates to publicly-owned land?