Why not put Council owned land into a Community Land Trust?

It’s local body election time.

I was privileged to speak with Emer O’Siochru of FEASTA recently. Twenty years ago she was a cofounder of the Irish Foundation for the Economics of Sustainability. She has campaigned for proportional representation. For three years she worked for a Site Value Tax but it was not successful. She is now working on Community Land Trusts.

We spoke about the challenge of connecting Community Land Trusts with local government so that local government could receive income from land rents. Suddenly there it was. She said in Dublin local government and central government owned a third of the land and so why couldn’t that land all go into a Community Land Trust?

Imagine all of us trying that campaign together so that local government all over our countries would be lobbied to do this. Oh yes there would be obstacles. There will only be a few people you know, for instance, in your local Community Board area who understand that allowing property owners to profit from the rising value of their land is depriving society of its rightful income. So for a start there will only be a few to work with. But you only need three or four keen people.

The idea is that instead of Council selling off their land to developers, the council would continue to own the land but the lessee would be able to build a house on it. This is leasehold land. But every year the rent should be reassessed. This could be done by setting up a Land Rental Index to adjust the rent according to the change over that year. Our land is valued every three years anyway. All it means is that a sample of properties would be assessed for their annual rent. You start with an index of 100 and next year it might go up to 102 if there had been development in the district. Or if you live in Westport of Wairoa where land values are declining, the rental would drop.

The main obstacle the Council would raise in New Zealand would be that Council wouldn’t know how to levy rates because it wouldn’t know how much to charge. You see in the Kapiti Coast District Council where I live, rates are on Capital Value plus several Fixed Annual Charges for services. They wouldn’t be able to separate out land from improvements. The rating system on Capital Value discourages building because the more you spend on building the bigger your rates bill. So some campaigner will stop at this point and work to change the rating system. Rating should be based on land value only or Unimproved Value. And fixed annual charges are regressive because the poor pay as much as the rich, which means it is a larger proportion of their income.

The advantage for lessees is that you only need to pay for the house not for the land. Since land comprises more than 60% of the property value in Auckland and usually over 40% in smaller areas, houses themselves become vastly more affordable. The lease would also have to be fair and it would be best for a 75 year period, a lifetime. It is just that the rent must be adjusted yearly to avoid any crazy leaps as in Auckland.

Of course this would all work better if the people who pay rent on their land are also able to escape income tax and GST. They go together. But this problem is for another day.

But somewhere someone will be successful. One day.

Deirdre Kent 

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Rating policy of user-pays is regressive

Well I don’t know where you live, but in my town we have just had another election meeting. I was an observer with a strong philosophy and didn’t this time ask questions about the rating system. But I engaged in a conversation afterwards with a real estate agent friend and it went like this.

Me: Tell me what is the price of land here in Otaki compared with the price of land in Waikanae or Paraparaumu?

Him: Well it’s about double. A section here costs just over $100,000 whereas in either of those places it is over $200,000. I will get you the exact figures tomorrow.

Me: Thanks a heap. So if 71% of our rates is in Fixed Annual Charges nowadays, it means that the rates in Otaki are rather similar to the rates on a property in Waikanae or Paraparaumu, but our section prices are only half that value. Isn’t that hard on the poorer people of Otaki?

Him: But in a user pays system what services are you not getting from the Council?

Me: Actually you have asked the wrong question. We should be asking if there is another way to fund local authorities which is fairer. It is a question of philosophy about revenue raising. I believe that people should pay according to the value of their land, so that it doesn’t penalise you if you want to improve your house and so that you get concentrated development to save expenditure on infrastructure. Empty sections near shops and services should all be used.

section $100k OtakiAnd since then I have been thinking about the parallel situation in central government. I don’t know in what year it became ridiculous to say people should pay for their own education, but I would have guessed the arguments progressive politicians would have used is that it is in the whole of society’s interest that we have an educated population. So Government revenue needs to pay for education. It would be ridiculous now to return to saying people should pay for their own education. It is in nobody’s interest to have an illiterate uneducated population.

The advantages of a rates system based on unimproved land value are many. Not only is it more just, but it encourages the use of valuable land rather than letting it lie idle. Once upon a time the majority of rating systems favoured land based rates, not capital based rates. All referenda which were held favoured land based rates. But in the last few decades we have seen the creeping introduction of first capital value rates (it is now compulsory in Auckland) and then user pays. In Kapiti District Council it is a mix of all three but the dominant one is user-pays.

Otaki house Dunstan large sectionWell, user pays should certainly not be for basic infrastructure. I can see that for conservation reasons it is fair to charge for water after a certain amount of free water has been delivered. But basic infrastucture like water purification is a public good not a personal good. For health reasons alone sewerage and water and street lights are public goods.

You see our town won’t really thrive until the railway from Waikanae to Otaki has been double tracked and electrified. Land values will increase and we can pay more in rates. Sure we have a superb Wananga (or Maori university) and some excellent kura here and we know people move to the town so they can go to the Wananga or send their kids to one of the kura. But frankly our little village is full of second hand shops and fast food shops. Prominent are WINZ, Budget Advice and the Food Bank. Our retailers are struggling and shops lie empty, while outlet shops on the main through-highway thrive. Many of our old people move away to retirement villages and our young move to a city or to Australia. Homeowners struggle to pay their house insurance and rates are over $2000 for a very ordinary property. The standard of housing isn’t high and there is a large percentage of rental properties. I am told that there is a growing trend for landlords to sell up because rents are so low as to make it unviable.

The effect of land value rating on rural land is interesting. Just outside each town on Kapiti Coast there are lifestyle blocks supporting the odd horse and a few sheep while the owners commute to Wellington jobs. As services from council are fewer, their rates are very low under user pays. Rates on these properties would rise, forcing them to amalgamate to viable farming units with high productivity.

I guess our town is like many others and the arguments in yours are similar.

(I understand now the Education Act in New Zealand was passed in 1877, when education became free, compulsory and secular)