Category Archives: Manifesto

Party policy

Auckland homeowners benefit at the expense of other New Zealanders

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Media statement

Auckland homeowners profiting from booming house prices are really benefitting at the expense of the rest of New Zealand, according to the New Economics Party.

Spokesperson Deirdre Kent said “If all the private landowners and private banks had reimbursed the public for their windfall gains from rising Auckland land values over the last few years, the Auckland rail loop would have been paid for.

“Or it could have paid for the railway be electrified from Waikanae to Levin or to fix the Gisborne to Napier railway.” She said rising house prices are always due to rising land values. Land values rise because of the action of the community in providing hospitals, transport, roads, schools, sewage, water, businesses, shops and parks. So landowners should pay the public back regularly for this privilege.

“While we allow the private capture of rising land values, we can’t help but get a widening gap between those who own good real estate and the rest of us. The Auckland housing bubble where obscene profits are to be made from selling a house is affecting every New Zealander who pays tax to line the pockets of lucky private landowners and banks. Moreover the relentless rise in the supply of bank credit makes all of our money less valuable.

A regular land fee should be paid to hold land while taxes on labour and sales should go.

For further comment phone Deirdre Kent 06 364 7779 or 021 728 852

 

 

Slideshow on the Post Fossil Fuel Economy – Jobs, leisure and innovation

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The new slideshow is at http://www.slideshare.net/deirdrekent/steady-state-economy-jobs-for-a-postgrowth-economy. It addresses many of the questions our members have been asking and hopefully makes it easier to understand. There are presenter notes with most slides.

Christchurch Eastern Green Frame presents opportunities

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Christchurch has a unique opportunity. The plan of the inner city area includes three “frames”. The largest one is to the east and contains 13 ha of land which will end up as park. Apparently there through the park will be cycleways and walkways. Cyclists will ride past some residential houses and some inner city up market apartments. The south frame will contain the health precinct and the Avon Precinct to the north will have civic buildings.

It is the east frame I have been thinking about. If there are to be private homes in this park – and there is no date for it – then let’s do it right. There are 92 properties to be acquired by Government in the eastern frame. 52 agreements have been reached and there are 30 sites with negotiations being finalised.

In the Press (Sat July 13, 2013) there is a story describing the bitterness of property owners. The Christchurch City Development Unit is  apparently offering ridiculously low sums of money for these properties. The Government can acquire the land under the Public Works Act. If property owners allow this, they can seek compensation through the courts.

The article talks about the Government onselling the land at a profit and it is here that I really started to get interested. Putting aside all the unfairness of not paying market prices for the land and getting it on the cheap, this issue of onselling it is where I draw the line. My view is that the Government should keep the land and then auction the leasehold property to the highest bidder. Thus a full ground rent would be payable. The revenue should ideally be shared by local government and central government.

IMF economist Michael Kumhof says the key function of banks is to create money

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imfToday I made the mistake of going to a website where there was a sentence which made me mad. It said that in New Zealand, banks like finance companies can only lend out deposits made with them. Well I rarely get mad these days but I don’t like untruths being perpetrated. So I thought the best way to recover would go and transcribe the first seven minutes of a talk Michael Kumhof, economist from the IMF made to a seminar in January 2013.  It is on youtube here and here is my transcript, give or take the odd aside I left out.

“Virtually all money is bank deposits.

The key function of banks is money creation not intermediation. The entire economics literature that you see out there today is that it is intermediation, taking the money from granny, storing it up and then when someone comes and needs it I can lend it out to them. That is complete nonsense. Intermediation of course exists, but it is incidental and secondary and it comes after the actual money creation. Banks do not have to attract deposits before they create money. I’m a former bank manager. I worked for Barclays for five years. I’ve created those book entries. That is how it works. And if a leading light economist like Paul Krugman tries to tell you otherwise, he does not know what he is talking about.

When you approve a loan, as a bank manager you enter on the asset side of your balance sheet the loan, which is your claim against this guy and at the exact same time you create a new deposit on the liability side. You have created new money because this gives this guy purchasing power to go out and buy something with it. Banks have created money at that point. No intermediation, because the asset and liability are in the same name at that moment. What happens afterwards is that that guy can spend it somewhere else later but it is still in the banking system. I care about the aggregate banking system. Looking at the microeconomy and transferring the logic to the macroeconomy is really wrong. Someone will accept that payment.

money

What that means is that it becomes very, very easy for banks to start or lead a lending boom even though policy makers might not, because if they feel that the time is right, they simply expand the money supply. There is no third party involved, just the bank and the customer and I make the loan. The only thing that is required is that someone else will accept that deposit, say as payment for a machine, and he knows that is acceptable because it is legal fiat.

There is an important corollary to this story. A lot of loans are not for investment purposes, in physical capital. Loans that are for investment purposes are a small fraction. The story that is often told in development economics is that first you need to have savings, then once you have the savings, you can have investment. So a country needs to have sufficient savings in order to have enough investment. Nonsense too – at least for the part of investment that is financed through banks because when a bank makes a new loan it creates new purchasing power for the investment to go ahead. The investment goes ahead. Then the investor takes his new bank deposit and gives it to someone else In the end someone is going to leave that new deposit in the bank. That is saving.  The saving is created along with the investment. It’s not that saving has to come before investment. Saving comes after investment, not before. This is important for development economics.

The deposit multiplier that is taught in economics textbooks is a fairytale. I could use less polite terms. The story goes that central bank creates narrow money and there is a multiplier because banks can lend out a fraction. It is actually exactly the opposite. Broad monetary aggregates lead the cycle and narrow monetary aggregates lag the cycle.”

Rising Auckland House prices are really a tax issue

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Rising Auckland House prices are really a tax issue

Media Statement July 30, 2013

Rather than ban the buying of homes by people who pay tax in other countries it would be more sensible to impose on them a full ground rent on all urban and suburban properties, according to the New Economics Party.

Spokesperson Deirdre Kent said that while it was heartening to see the Labour Party trying to control house prices, they should be focussing on the fact that homeowners who pay tax overseas are not paying enough tax in our country.  “They are coming to our country and expecting huge untaxable capital gains on their house when they only pay rates here”.

“It is New Zealanders who have helped increase the value of the land they have bought so the rise in value should be captured by the public.  The best way to do this is not wait till they sell, but charge them a full ground rent every year. For urban sites it might be five percent or over of unimproved land value, depending on the zoning restrictions. (Ideally it should be by auction as this allows for the overvaluing of land at the moment.) This revenue should then be shared by national and local government and ground rent should replace rates.”

She said it was the taxpayers of this country who paid for the schools, roads, parks, railways, street lights, community halls, businesses and organisations that gave the site its value.

“It is the same when people paying tax in New Zealand go to Australia and buy a house or when John Key buys a house in Hawaii and expects to receive the capital gain without being a tax resident there. Imposing a charge on holding of land is an important way for countries to retain their integrity.”

For further comment phone Deirdre Kent 06 364 7779 or 021 728 852

 

 

 

Ground rents near Cornwall Park in Auckland

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The Weekend Herald, Saturday July 27, has an article entitled “Paying for park users pleasure is a bitter pill”. It outlines the story of their recent ground rent hikes, where one occupant in Maungakieke Road had walked away from her $2.1million home after refusing to pay the $73,700 asked by the Cornwall Park Trust Board as her new annual lease. Her rent used to be $8,300 a year but was reviewedP1200771 in 2011.

Another has had her ground rent rise from $3995 to $29,000. These dramatic rent increases reflect the change in land value over the last 21 years, the term of the lease.

Well, I did a websearch on this and skimmed through the long legal decision of the Supreme Court (yes, 70 lessees had trooped from the High Court to the Court of Appeal then the Supreme Court challenging the way the trust had valued the land but had failed).

Apparently the trust set restrictions on what could be built on the land and charged a ground rent of five to seven percent of the unimproved value.

We in the New Economics Party have been talking a bit about how ground rents would be set in our proposed scheme where property owners can opt to have their land bought by Treasury using their tax vouchers, and we did some figures based on five percent for suburban properties. We thought ground rent should be set according to zoning and other restrictions.

My first response to this article and to the court judgment is that there appeared to be little understanding either from the court or from the Weekend Herald reporter that the land has gained in value through the actions of the surrounding community and the local and central government not by the Cornwall Park Trust. Sure, these Maungakieke Road residents enjoy the privilege of living next to an amazing park, whose maintenance is paid for by their rents, but they also live in the grammar zone, a great selling point for Auckland houses. In fact an ad for a house on this leasehold land says “Zoned for top schools, Cornwall Park School, EGGs and AGS zones, Remuera Intermediate, near Newmarket, CBD, Remuera, Greenlane Countdown, shops, cafes and restaurants.”

The Trademe website also confirmed the press report that there are plenty of houses on the market in the Cornwall Park vicinity. One at 24 Maungakieke Avenue with 5 bedrooms and 3 bathrooms is vacant and the grass looks extremely high. It has 1000 sq m section and is adjacent to Cornwall Park.

So there is a big problem with current leasehold land, largely engendered by the fact that a Trust which deals with only one aspect of public life – the care of a city park – is charging five to seven percent of the land value, which is actually the percentage that government would charge if the land were publicly owned. The rising land values should not be privately captured but publicly captured to pay for schools, roads, rail, street lights, libraries, hospitals and parks.  And this revenue should be shared by all levels of government.

There is a quite a lot of leasehold land in Auckland. Some is held by Ngati Whatua, Waterfront Auckland (a public body), Dilworth Trust. Many blocks of the Viaduct area, according to the journalist Anne Gibson, are owned privately by businessmen Trevor Farmer and Mark Wyborn. Both these high flyers are into property. The former is listed in the NBR as being worth $400 million in 2012 and the latter $240 million. Perhaps they too are extracting five to seven percent of the unimproved value? Nice if you can get it. Pity about the rest of us missing out. We pay for the infrastructure and that puts up the value of their land and therefore their ground rent!