Use Land Value Capture to help fund the Inner City Rail Link

Public land near the rail hubs should never be sold to private investors to help fund the Inner City Link. That is exactly the land that needs to stay in public hands.

The Jubilee Line Extension of the London underground, built during the 1990s generated huge uplifts in land values for the properties within 1000 meters of the hubs. A study showed that whereas the cost of the extension was £3.5 billion, the benefits to these property owners was £9 billion.
The practice of capturing at least part of this uptake in land value to fund the Inner City Rail Link could easily be applied to Auckland. Land Value Capture has contributed to the funding of the Sydney Harbour Bridge and the Melbourne inner city rail. If the Far North District Council uses this practice to build remote roads, why can’t Auckland?
Helpfully today the Mayor issued a media statement outlining the exact businesses that stand to gain from the City Rail Link construction here. Yes it will bring business that is true, but wow what an increase in the land value they will all reap!  Nice. Public funding brings private gain. Sweet as.
A couple of years ago I had the privilege of meeting Rick Rybeck, a city planner from Washington DC who, after their council had taken out one of the hubs from a plan for such a link, came to him and offered him a huge sum if they would change it back. He eventually worked out their land value would have risen at least twice this. He now works as a consultant on Land Value Capture.

Our land will increase in value with this new community facility

I am excited. We have a wonderful new gym which has been built by Te Wananga O Raukawa, the Maori university on the main road to the beach and I think, because it will attract so many top level basketball and netball games, it will be an asset to the small town of Otaki where we live. On the opening day today we had two top teams playing netball here and that will only be the start.

I am even thinking the value of our own land, less than 1km from the gym, might go up. It will over time and the land values in all the surrounding area will be affected as well, depending on how close they are to this new community amenity (and depending on how many businesses disappear as well). It is a very fine complex, described in the local paper as a world class facility. It came in under budget, on time and without debt, thanks to the great people at the Wananga.

So why should private landowners gain from the increase in land value? Most of us didn’t work to cause it. And those who don’t own property (plenty of renting in our town, plenty of poverty).That is stealing from the public purse. Land value taxes should be imposed so that the public recaptures all this privately accumulated value. That will only happen if rates are levied on land value not capital value and not with 70% of the rates being in fixed charges, as we have now. So we are far from that now and we have adopted the philosophy of user pays. This, because user pays is so convincing, is going to be hard to change.

This happens any time there is a new public facility. Everyone near the the terminal of the Waikanae Railway station benefited when the Paraparaumu line was extended to Waikanae (well it was that part of the cycle – their values didn’t go down while others did). So if a gym raises the value of our land, how much more would the railway coming to our town affect it!!

I just think of all the poor people in our town with no hope of ever owning land. It will widen the gap between rich and poor. And when land prices go up, the banks benefit,the money supply increases and we get inflation. No good for the poor!

We just have substantial challenge how to solve this politically.

Location Value Covenants – joining land tax reform to monetary reform and solving lots of problems at once.

You will have been wondering what we are up to.

Well remember I said we were working with Adrian Wrigley and Robin Smith from a Cambridge think tank? This has continued until I understand what their proposal is and what are the possible objections to what I think is exciting new policy. I have been talking to many members of the party about my enthusiasm for this, because it overcomes all sorts of objections to introducing land tax.

Adrian is the brains behind the Location Value Covenant idea and I have adapted it for Rates Vouchers issued by a local authority. Basically the national version of it is this:

People with a mortgage go to government and bargain. They say we will covenant our property to pay a substantial sum to you if you give us a Treasury Note to the value of the current mortgage (or a lesser amount). The amount settled between them is the sum of what they were paying annually in mortgage plus what they were paying in rates, minus 10-15%. When the deal is done, the government is the recipient of a high sum linked by a covenant to that property. Their revenue increases. The property owners take this Treasury Note (or an electronic version of it) to the bank to pay off their mortgage. 60% of our total mortgage bill is in fixed interest so has no penalty.

Their property now carries a financial burden, so as a result its value drops, but the home owners equity doesn’t. Note above it is Treasury Notes not Reserve Bank notes. Why? Because the Reserve Bank, like other central banks, is too linked to Wall Street and the commercial banks of the world. Treasury is the Government department which accepts taxes. A Treasury Note is something valid for the payment of taxes.

So government is soon gathering enough revenue to pay a citizens dividend and then will be able to drop GST, income tax and company tax. Whereas before the banks had hold of our citizens through mortgages, they are left out in the cold. The Dominion Post put the value of current mortgages recently at $173 billion. This will gradually reduce.


Then the local authority version is this: (another paper)

Would be property purchasers are short of $200,000 for buying a house they want. Instead of going to the bank they go to the local authority and say “We would pay $x a year for mortgage and $y for rates. How about we add those two together, drop it a bit and I agree to pay you that amount regularly and this is written into a covenant on our property title? Would you then give me a note for $200,000 in Rates Vouchers?” The council says that sounds like a good deal and then the purchasers go to the vendor and say “I can pay you in Rates Vouchers for some of this property.” They answer
“What would we do with that?” “Well you could buy a house in this district and pay for it with that because they are valid for the payment of rates.”

This would work as long as the vendor wanted to buy in the area. If they bought using rates vouchers as part payment and this went down the chain till they struck a vendor who just wanted to spend the money in the council area. The Council would help by persuading some of the bigger local businesses to accept part payment in Rates Vouchers. All local tradespeople could accept part payment, and of course they could save their precious national dollars for paying GST and income tax. Perhaps there could be an incentive for circulation built in to the local currency so it would circulate fast, doing good all the way.

The payments are linked not to inflation but to an land value index worked out for the general area. For instance in Chch after earthquakes if the land value in a big area dropped by 50% the payments would drop 50%. Generally land values are less variable than interest rates.

Sooner or later the Government would see that several local authority areas are thriving economically. Unemployment is starting to drop and business confidence is rising. Then local authorities could tell them they could do it themselves you know. Use Treasury Notes to relieve current mortgage holders.

In this way if it came in at local authority level first, the regions would thrive and their economies would move towards using local materials, and local labour and its home prices would drop dramatically. The trend is towards sustainability (a word I rarely use these days but I can’t help myself here, because it isn’t just fashionable rhetoric, it is true!). When government started to reduce income tax, GST and company tax, the people’s purchasing power greatly increases. Take a person aged 40. If you capitalised the value of their future labour it would be much bigger than the capital in their home. Prices would drop without income tax or GST or interest on money (there is less bank created money in the system after it has been operating for a while).

I am inviting New Economics Party enthusiasts to view these papers. Just let me know by email or see me on Facebook or twitter or google +. There is so much to discuss. Everyone has different ideas to raise, but we are making headway.