Sunday, February 05, 2012

Urban Land prices in GodZone

A word about Development Contributions.

I'm an old grizzled ex-County Treasurer who actually used to administer these babies in the good old days before the dopey Sandra Lee LG Act 2002 injected 'Social and Cultural Wellbeings' into Councils spending arena.

DC's were really about public open space: land, reserves and the like. A simple cash amount, which was held in trust and applied only to reserves, was the norm, and/or a parcel or three of land set aside.

Nowadays, DC's have an incredibly complex calculation: Household Unit Equivalents (bit like the the Twenty' Equivalent Unit (TEU) measure for shipping container space) for almost everything a Council could conceivably dream up cost requirements for.

Recall that every legal human activity can fit within 'Social and Cultural Wellbeing', so naturally, there are Community Development Organisers, Events Planners, Reserves Consultators and dont even get me started on spatial planners, zonerators and other failed architects - all to be fed, housed, and their reports to each other and to the Council to be read and discussed with a straight face. All to be 'contributed' to....and then there are 'hard' spends like roading/water/sewer/drainage incremental impacts to be funded

The net impact of DC's (e.g. for an upcoming major Chch subdivision) is huge - $70K/section. And this impact is upfront - pay now, and this adds at the earliest stage, almost, to the hapless developer's carrying costs ('the carry').

At a commercial credit line rate (making the maths easy) of 10%pa, and a conception-to-first-sale time of 7 years, the rule-of-72 says that that $70K is now $140K. Yup, it has doubled.

See now why land prices in urban subdivisions are sky-high? Add everything together, recalling that those costs earliest on the list generate the highest carrying costs:

- land purchase
- 'carry' on land purchase cost
- survey and consents
- 'carry' on survey/consenting costs
- DC
- 'carry' on DC
- physical land development - civil works
- 'carry' on civil works
- sales and marketing costs
- developer margin
- and I've probably left a few cost items out....

and then ask:

1 - why anyone would be in this game?
2 - And for those brave enough to be there, why section prices are where they are?

The answer to 2 is - because of zoning (original purchase price inflated), the Social and Cultural well-beings (DC's inflated) , and the fact that Council staff have no concept of time=money ('carry' inflated)

After all, the Council staff don't have to carry the 'carry' why not let that consent dawdle in the in-box for another month or six?

Now if the Wellbeings were deep-sixed, yer jest might have yerself a whole new ball game....keep watching!

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