Monthly Archives: July 2012

Christchurch CBD rebuild will allow private property owners to gain from public spending

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Never has it been clearer for everyone to see, bold and plain, in central Christchurch that land is given its value by the activities of the community, not by those who own a site. And those who get the right to occupy the best land should compensate the public for this special privilege. That means they should pay regularly. Not just at the time of buying, but all the time.

The newly revealed central city plan is indeed bold and brave, and it is great to see that there is hope after those earthquakes. But hope should not include hope of private land “owners” to gain private profit from their land. Land should be part of the commons, and as such the public, through either the council or the government has the right to charge the occupiers of that land for the privilege. This charge is either called a land rental or a land tax. I prefer the former because it gives us the idea of renting it from the public commons.

Let’s see. In the new CBD plan for Christchurch they have a green belt. Nice. And those who are lucky enough to occupy the residential land surrounding the ‘green frame’ will have lovely views and a recreational area right on their doorstep. Location, location, location, as they say in real estate. It would be ideal land for renting from the public, but a good price should be paid.

Those who own land not needed for public purposes or who buy land right near the shopping precinct will of course have the special advantage of being able to walk out to do their shopping.  Those in the distant suburbs of course have to drive or catch a bus and so they should pay a lower rental on their land.

Land is also given value by nature. Hagley Park and the Avon River both give value to land. We will also have the sporting facilities, a covered stadium, a library, a convention centre, and public transport. All of these community created facilities give value to land. And the commercial hub operated by business people also gives value to land.

Here is what the Earthquake Recovery Minister Gerry Brownlee said this morning on radio: “Most of the land in the affected area has very low value and it won’t have any value until there is a plan to put things back into that part of Christchurch that creates that value. “So it’s a bit of ‘chicken and egg situation’”.

Yes, Gerry it has low value now when there isn’t much happening. But when there is a dense and vibrant core, smaller than the previous CBD so more precious and highly sought after, it will end up having huge value. Even the existence of the plan has put up its value.

So who is going to make all the profit from all this? The Government and Christchurch City Council who put billions into the rebuild and into the stormwater and sewage and community facilities? Not on you nelly. No it is the private “investors” who have the money and the property knowledge to “invest” in inner city land. It is inner city land which in fact is the most valuable in a country. Land is the top class of assets in any country and after that comes buildings.

We await with interest to find out what prices the 840 landowners will get for their inner city land required for public purposes. No doubt the Council, will like Auckland, charge them much the same for the privilege of occupying their land as it does to those in the outer suburbs. The philosophy of ‘user pays’ seems to prevail these days and we are all taken in by the argument that anyone who has sewage and water and stormwater should all pay the same. What incredible nonsense that philosophy is. It reduces the council to a service provider and completely ignores the value of location that a property has.

If the Council isn’t going to charge a proper land rental then the government must do it.

What I learnt on twitter and in a websearch today

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China’s catastrophic deleveraging has begun. Jesse Colombo is a wonderful researcher of housing bubbles which always precede recessions, and his piece on housing in a range of countries is outstanding. Beijing housing prices are up 800% since 2003. There are bubbles in Hong Kong, Australia, South Korea, Finland etc etc. China. After Spain’s housing bubble collapse their cement use dropped 60%. China’s cement increase in one year was 25 times what America uses. This site is always being updated. Steve Keen is following the Canadian housing bubble and is closely watching house prices and unemployment in Australia. Also go to http://thebubblebubble.com. One quarter of homes  built in US last month were bigger than 3000 sq feet.

Annette Sykes thinks John Key should either get a law degree or stay quiet about Maori water rights.

Goldman Sachs executives in 2010 took away $15.3 billion in bonuses, enough to feed every hungry person on the planet. They are setting up office in Perth. The film by Renegade Economist’s Ross Ashcroft, The Four Horsemen,won a prize for the best documentary at the Galway Film Festival.

There are freak tornadoes in Poland, droughts in US, floods in the North Island. A record amount of Arctic Sea Ice was melted in June.

There is a website called http://unlearningeonomics.wordpress.com. I guess there is a bit of unlearning to do!

Various people are working out if Australia and NZ are being hit by the LIBOR scandal. Paula Bazarotti writes on the Democrats for Social Credit website that “Vast sums of money – up to $500 trillion are notionally attached to Libor. If the Libor rate is manipulated by just the tiniest amount – 0.0001 per cent – it can create a profit or loss of $50 billion.”

Home affordability the big issue

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Today there was a great programme on Q+A on TVOne. Murray Sherwin from the Productivity Commission spells out the facts. Median house price for the country is $372,000 and for Auckland it is $500,000. The big factor is the price of land in Auckland is 60% of the value of the section. Don Brash, a commentator quoted a 500 sq metre Pukekohe section as costing $230,000. Bernard Hickey says a young couple might have to borrow 7-8 times their income, but if they have a pregnancy, get sick or if interest rates rise from 5% to 8%, they are in big trouble. Moreoever they often have high student debts as well.  A generation of New Zealanders won’t be able to own their own homes and this is a cause of social strife. We are 10,000 to 15,000 homes short and the problems are mostly in Auckland and Christchurch.

Bernard Hickey said between 2004 and 2007 when house prices rose so steeply, many had leveraged up their equity in homes, and the total increase in wealth of homeowners was in the region of $300b to $400 billion. All of which was private gain for homeowners and banks. My comment is that this was public money and should have been publicly gathered.

The programme highlighted the fact that most of the homes which have been built have been top end houses from spec builders. We need better economies of scale and only Fletchers can do this. There are too few factory built modules.

Dr Bryce Edwards, a political scientist commentator, said no political party has campaigned on affordable housing. Helen Kelly from the CTU said families are struggling and living in poor quality housing. There are 4000 on the Housing NZ waiting list. Wages are too low and the price of renting is rising.

Whereas once 75% of households were owned their home this has now dropped to 65%.

Hickey said that land taxes and capital gains tax must be discussed but the former is a political hot potato. We need land prices to come down. Brash said Capital Gains Tax was not working in Australia and they had the same problem.

Annette King, spokesperson for Labour has apparently said that the Accommodation Supplement needs to be revisited. Sherwin said that all up it is a $3-4 billion subsidy to landlords.

Building costs and consenting costs are too high. There is a monopoly supply of building materials, which add 20% to the building costs.

The answer is not in extending city boundaries. That raises the burden on supply of infrastructure and make travel distances too far. Our challenge as a party is to find a politically acceptable method of imposing a land tax, while reducing the price of building and using the current housing stock efficiently. We must work towards a future where good, low cost houses are provided without increasing costs to local authority in infrastructure.

Even Don Brash said the price of land was the core issue. Nobody on the programme raised the issue of currency reform. It is time to connect the creation of money with land, but do it at government level.

 

Nobody owns the water but charge a rental for the privilege of the 49%

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So John Key is right. Nobody owns the water. But that doesn’t mean that any private company or public/private company should be able to use it without a regular rental to the public for the privilege.

Whether this rental should be paid to Government for the commercial use of the water or partly to Tuwharetoa needs of course to be resolved. What did surprise me was that David Clendon the Green Party spokesperson missed the opportunity to apply Green Party policy on a tax on the commercial use of water. Well if he was just the Treaty spokesperson, where were the leaders in the resource rental business? Have they forgotten their policy or are they just focussing on the snub John Key gave to the Waitangi Tribunal by announcing he didn’t have to take any notice of their findings?

It was fine when Mighty River Power was a publicly owned power company (well it still is, let’s keep it that way despite the empowering legislation!). Tuwharetoa was happy for the public to use the water. But sell 49% to private owners and the scene changes. Now 49% of the water is going to be used for a private purpose, so there should be an appropriate rental paid for the privilege. 49% private ownership means those private owners don’t own the water because, as John Key said, nobody owns water. Therefore those who use it in commercial quantities should pay a regular rental to the public.

Does this mean charging half water rental to the company once half is bought by private people? No it doesn’t actually. It means charge a full rate to the shareholders for the water the shareholders have the privilege of using. That is the principle of resource taxes. Private/public partnerships make the whole set up ridiculous. When it is fully publicly owned there doesn’t have to be any rental paid to the public. It is only when a subset of the public owns it or part of it that a rental should be charged.

All this talk of extra shares and so on is wrong. The fact is that there should be an ongoing rental charged, not a one off charge.

Otherwise the whole selling thing should be called off, which is only logical

Agrarian anarchist Professor Dr Guy McPherson speaks to Kim Hill

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The promos for the Kim Hill interview announced that Guy McPherson’s recipe for saving humanity is to help the global economic system collapse! Fly and help rise the price of oil, then it will collapse and we can save the planet. Take your money out of the big banks too. The Radio New Zealand podcast can be accessed here. This turns environmentalists’ thinking on its head.

Guy lives on a rock in the middle of a desert in New Mexico with his small community. His visit to New Zealand has made a remarkable impact. I had never heard of him before three weeks ago and we were lucky enough to host him and his super wife Sheila last Monday and have him show his life changing slide show in our home.

And I have bought his book Walking away from Empire. It is the stimulation from people like Guy that challenges my beliefs. He says we are now at the stage with climate change where the positive feedbacks are kicking in and we are on target for a six degree warming by 2035. The International Energy Association forecast this if it is business as usual. Only if nations honour their promises will we get to 3.5 degrees by 2035 and they are not going to do this.

He told us that climate change activists are divided into those who want to save industrial civilisation and those who don’t. Seems an awful choice to most of us. But logically he is right. Those who love the planet and want it to survive should hope for economic collapse. So next time I am faced with the option of flying I will do so.

Last night I followed the story on the standoff in the Straits of Hormuz, the 30 mile wide stretch of water near Iran which carries 14 oil tankers every day. One commentator was saying that it the tension between US, Europe and Iran is going to escalate over the next weeks and months. Iran is already drawing up legislation to block oil tankers there. I recommend following developments here, because the rising tensions may trigger a spike in the price of oil and a global economic collapse. All economic recessions have been preceded by a spike in the price of oil.