Tuesday, September 30, 2014

TLA's are oblivious to two aspects: UOMI and CG created by lines on maps

There are, RMA reforms apart, two lines of action available to start to effect the needed changes.

1 - impose a UOMI calculation and reporting regime on Councils.  At present  (and quite apart from the injection by TLA's of direct cost into e.g. land subdivision via DC's and other levies) there is no measurement of the economic costs TLA's impose by the injection of Time into processes.  Most land development involves significant, early costs, and rather extended timeframes.  So, as a thought experiment, a land purchase of $10M on Day 1 of a seven-year process, at a commercial WACC of 10%, is going to double that single cost by the time the seven years are up.  Land $10M, interest on that another $10M.

TLA's are oblivious to this rather basic Time=Money equation.

It's time they were made to think it through, measure it, report it and (another delicious thought) be taxed on it.

2 - It is a truth universally acknowledged that a squiggle on a zoning map creates CG out of thin air for owners on the right side of said squiggle.  The Productivity Commission puts the ratio (measured a few clicks either side of a MUL/RUB) at 8 to 10 times.  So a rural raw land price of $50K/ha transmogrifies into $500K/ha.

Cui bono?

The landowner on the urban side of the RUB.
Via revaluations, sales, hearsay and pure osmosis, every existing landowner in (in order) the vicinity, the suburb, the city gets an unearned CG kick on the land value alone.
The Council, via rates levied on the now increased values
Who pays?

To the extent that value increases factor into rates and then rents, Renters
Who mostly comprises FHB's and renters?

the lower deciles.

So, a Re-distribution of said CG would seem to be in order.  But as a CGT on property-holders seems politically out of the question, complex, easily avoidable (e.g. by never selling), why not head to the Source of the CG:  the TLA map-spigglers?

Tax away, from the Councils who create it, the CG their MUL's, RUB's and Zones create.
Make it a Deemed value, using e.g. a Productivity Commish-style annual survey of current market rates to avoid the 'realised increment' loophole on a CGT.
Use the taxed-away CG to pursue policy that actually assists FHB's:  multi-proof factory builds would be a good and do-able start.
This action will, and possibly quite rapidly, significantly alter the incentive structures around TLA's, their Plannerators and Zonerizers, and several useful outcomes might even come to pass:

Zones, MUL's, RUB's cease to be attractive and the drawers-up of these economic distortions could be released to productive work:  factory builds for FHB's for example.
Environmental effects can be handled by the RMA - that's why it is worded the way it is.  A Build-Anywhere-Appropriate ethic would soon arise, and drive away the current 'Build-Anywhere-We-Unelected-Staffers-Tell-You-To schtick.
The judicious re-distribution of the Confiscated Council-Generated CG's (perhaps we need a new acronym:  CCGCG?) to Worthy Causes would soon arise:  politicians are if nothing else, expert at sniffing out the best electoral results for a given dollar.
The taxed Councils, meanwhile, would after the initial shock passed, quickly realise that rating so as to penalise the land-bankers who are sitting on perfectly buildable land, to recover that tax just levied, could be a useful spur to getting it built on....

Now this is all just a rough draft, but what's not to like in the general concept?