Auckland CBD from Mt Eden

Submission To The Royal Commission on Auckland Governance

from the NZ Land Value Rating Association
by Robert Keall





A. THE SUBMISSION.

The original ARA [Auckland Regional Authority] should be re-instituted, in substance if not in name, and the present Councils largely subsumed by it.

The ARA became so successful it was dismantled because of a perceived political threat to autocratic Central Government.

That perception was wrong. Regional Government whilst a creature of statute should be an integral partner of Central Government. The core functions of each should be prescribed, and implemented by both accordingly, in cooperation, not in isolation; the macro/micro administration of the infrastructure, not an agency for social agenda1. Social well-being will flow from integrated infrastructure.

A core function of Regional Government is the coordinated reticulation of roads, rails, pipes, wires and the like; the provision and management of ports, airports, and any other natural monopoly, for private operators paying a competitive market rental, licence or fee where appropriate; contractors, of course; i.e. monopoly profits where there is competition, or a marginal cost, whichever is appropriate.


The Key

The key to a coordinated Regional function in Auckland is the Rating system. The merits of Land Value over Capital/Annual Rental Value are set out separately in "Rates Relief". Opposition from Queen St. will be a major impediment to the whole plan.

Land Value Rating is used by 5 out of the 7 components of the ARC [Auckland Regional Council] and was the basis for most of the original ARA indirect levy accordingly. Just why the new direct Rate should be levied on the Capital Value is not at all clear. Its dramatic unpopularity was not the amount but the unacceptable basis of Capital Value.

The new ARC was expected to change that. Instead, the amount was reduced, and later "smoothed" to achieve a sort of Uniform Annual Charge.

The most practicable, just and popular is Land Value Rating based on valuations by the same valuer, every year, as at the same date, across the Region. This will assist any structural changes desirable and any subsequent changes. Any other will obstruct it! Structural proposals now designed to increase the Annual/Capital Value element will entrench the current problems rather than resolve them.

"Smoothing" the Rates across 7 disparate components on different 3 yearly cycles, influenced by different factors such as agricultural prices, and urban expansion, is not an option.

Our response to the Rates Enquiry Report rejects two of its findings and affirms a 3rd item. All are relevant for this Commission. (Appendix 2)

For over 100 years Local Govt politics and planning have been dictated by a focus on Queen St., underdeveloped on the highest land values in the country, measured by the centimetre. Rating policies have contrived to load the suburbs in order to relieve Queen St and lift the land values accordingly. Regional planning and transparent finance will by-pass all that.

A Rating poll in 1963, to change Annual Rental Value to Land Value in Auckland City to align it with the rest of the Region, failed, owing to a mischievous local contrivance to avert the usual reincidence from suburb to City centre2. The comprehensive annual valuations of the land value only as above, will avoid that.

To resolve the issue a fully informed Regional poll should be undertaken. The first step would be to establish a Regional ratio of improvements to land value, as a benchmark. . Those below the ratio will sustain a Rate increase. Those above will enjoy a Rate reduction, on a Land Value basis.

Land Value Rating will impel, and pay for, the long-sought transformation and attraction of Downtown Auckland. A study in Wellington about 1988 showed that Land Value Rating had actually lifted land values Downtown. It had become the desirable place to be.

The Implications3

Because of the direct cost/benefit of infrastructure to land value, capital cost should be financed from intergenerational sinking funds. i.e. Trustee Security Local Body Stock serviced from Land Value Rates. This would build a cash flow for other such assets, building an inheritance for posterity. Local roads have been built in this way and should continue so.

With the capital cost and maintenance thus covered there is then scope for user charges i.e. your private car on the road, bus fares or cartage charges; metered water; competitive market rentals for the use of wires or radio spectrum, or at least, (in the absence of competition), a return on capital at the current rate of interest. Neither Rates nor user charges can cover the cost of both capital investment and the operation.

In the case of both roads and rail, if the capital cost were covered in this way, cheaper fares and freight charges would relieve congestion as between cars/buses, trucks/trains, for both passengers and freight.

As the charge is also directly related to any area of special benefit it avoids competing, arbitrary, contentious allocations from a petrol tax which would abate accordingly.

In the case of wires the reticulation would best be done by a Regional Power Authority renting out spare capacity to competing telephone, TV or IT retailers. It would also reduce the tiers in the electricity supply chain from 4 to 2 and ensure maintenance and cheaper power, instead of dividends now to remote investors, at the expense of maintenance. Coordinating the reticulation avoids the confusion and cost of duplication. We don't need 4 tiers in electricity supply with generators, wholesalers, retailers and lines operators. Two would do:

  1. National generation (from hydro, wind, sun, coal) with underground transmission
  2. Regional distribution.

Likewise this would be likely in the case of private toll roads reverting, run down, after a short "investment" term. Apart from the unnecessary administrative complexity and higher charges to cover dividends in the meantime. Any toll road, public or private, is another ruse by which a multitude of monkeys pay peanuts now, to benefit the property gorillas. Congestion pricing unselectively hits those who cannot avoid it or afford it. The congestion must be relieved by upgrading and integrating public transport, financed as above.

The reality is that service utilities need the underpinning of a charge on the land values they enhance in order to allow a viable operating cost. At the same time the charge progressively secures to the community the enhanced value instead of capitalising it for the speculator.

The place for the private operator is in the delivery of services. Ownership of the monopoly rights4 is the province of local and central government. Recognising this neatly resolves the political conundrum confronting us and establishes the Proper Partnership between the Public and Private sectors. In some cases re-acquisition of the privatised utility would be necessary - a small price to pay for rationalising basic social needs across the country. No private or public company would allow a subsidiary to pursue its own political agenda. In some cases the private investment of capital could be left intact but with a Resource Rental for the monopoly element set off against other taxes. A Resource Rent for Resource Consent.

In this way the community participates in the free market instead of being robbed by it.

About 1995 the then Auckland Regional Services Trust, (now Infrastructure Auckland), with its interest in "Ports of Auckland", etc demonstrated that communally - owned natural monopolies and infrastructural assets can make a valuable contribution to major community projects.

Bruce Jesson's example of turning a fire-sale of public assets into a golden egg has been applauded quite rightly - but that's all, wrongly! There are still those who would plunder it rather than build on it. Those who could, haven't.

In 1998 Rt. Hon. Helen Clark advocated that the principle be extended to include transport, airports, water and electricity.

Currently, Telstra Clear has consent from the Auckland City Council to reticulate "New Zealand's first national full service broadband network - the only system able to carry a full range of telephone, data, internet, mobile and cable television services to business and residential customers" (New Zealand Herald, 30.10.02). This should be the role of ARC/Vector. Bulk water, wastewater, parks, reserves, planning etc. should not be fragmented and contentious. All the above functions should be co-ordinated and undertaken by the Auckland Regional Council, in line with Helen Clark's perception, and the principle applied to Local Govt across the country. Christchurch and Wellington have just such projects in hand.

The co-ordinated reticulation should be financed (as in the past for roads, water and sewerage) by a combination of -

  • A Special Infrastructure Land Value Rate (Refer Rates Relief)
  • Loan money (an intergenerational sinking fund)
  • A Special Rate for any area of special benefit - as in flood control Infrastructure Auckland
  • A Resource Rental paid by operators
Infrastructure, provision and maintenance, is primary industry which generates job opportunities downstream on at least a 1:4 ratio. This raises real wages and social conditions not possible with social legislation.

Regional Land Value Rating would keep land prices in check and is the antidote to the "underlying", "non-producing," currency inflation, rather than a Monetary Policy5 quite wrongly directed at wages and prices - the effect not the cause6? The diversion is culpably disingenuous. It represents the sacrosanctity of private property in what is public property.

This resolution of Auckland Regional Government will resolve our immediate administrative problems and add to our heritage for posterity.

The World Bank

Quote:
""The Commission is rigged in favour of CVR [Capital Value Rating]. The Royal Commission, according to its Terms of Reference, is obliged to "take into account the implications of the findings of the "Independent" Inquiry into Local Government Rates for local government arrangements in the Auckland region". Among the recommendations of that Independent Inquiry into Local Government Rates, which submitted its Report on 3 August 2007, was the following:
9. That a common rating system based on capital value be promoted across the country for general rates.

Why capital value? The reason given in the Executive Summary is:

57. The Panel favours the promotion of a common system of valuation for rating purposes and strongly favours the capital value system because of the closer relationship of capital values with household incomes.

But if the Panel had truly regarded "household income" as the best base for local taxes, it would have recommended a local income tax (or a system for sharing the national income tax with local Councils).

If the progressiveness of the relationship were the criterion then land values would be preferred - as the Report admits in Table 12-4 (p.197), although the contrary is stated, without support, in paragraph 9.11 (p.118).

Paragraph 9.111 (p.136) is a masterpiece of obfuscation:

In the case of land value (LV) rating, in most areas (particularly urban ones), there are very few land sales upon which rateable values can be generated. This raises questions about the reliability of assessed values under LV rating. Capital value (CV) rating, on the other hand, benefits from the availability of much richer sales information. For instance, in two Auckland cities over the past few years, there were around 50 sales of dwelling for every one sale of land.

Never mind that some of those "50 sales of dwellings" would have been promptly followed by demolition, in which case the land price can be obtained by adding the demolition cost to the sale price. Never mind that in all other cases, the land value can be obtained by subtracting the depreciated replacement cost of the building(s). Never mind that regardless of the rating system, a separate valuation of the building(s) is always needed for insurance purposes. Never mind that you can't estimate the total value unless you can estimate the building value and the land value separately; the former depends on the building(s) while the latter depends on the location, and the combined value depends on both. Never mind that in the absence of significant boundaries, land value per unit area varies smoothly with location, facilitating interpolation and consistency checks, and minimizing the need to subtract building values in order to obtain land values.

While Capital Value rating does not eliminate the need for separate consideration of land and buildings, it does allow the separate values to be kept secret. Perhaps that is what the Report means when it claims that "separate assessments for land and improvements would be unnecessary" (paragraph 9.136;p.140). Even then it concedes that "greater emphasis would be required to ensure that all improvements to property were captured, and a more rigorous approach to valuation inspections would be required." In other words, Big Brother will be visiting you.

Comparing this sparse and contradictory logic with the clear economic arguments for not taxing buildings (see above), one can hardly avoid the inference that the recommendation of CV rating was somehow preordained.

The chairman of that Independent Inquiry into Local Government Rates was David Shand, who is also one the three members of the current Royal Commission on Auckland Governance. To appoint to a Royal Commission a person with known preconceived ideas on the subject under investigation is a fundamental violation of natural justice. But, by writing the desired bias into the Commission's Terms of Reference, the Central Government has made a virtue out of what would otherwise have been an abomination."


End of Quote.

The Commission's Terms of Reference do not preclude Land Value Rating but they do prejudicially, prefer Capital Value, in terms of The "Independent" Rates Enquiry Report which recommends it, without any evidence in support. This contrasts with our well-documented evidence in Rates Relief.

THIS BIASED PRESCRIPTION WILL DIVIDE THE REGION AND WILL DEFEAT THE COMMISSION'S PURPOSE.


1 The Local Government Amendment Act (No 3) 1996, Sec 121 "... requires each local authority to exercise subjective/political judgement concerning rating." Described by a local jurist as a "constitutional travesty," it is a calculated relegation and diffusion of Government responsibility.

2 Annual Rental Value allows a subjective Council assessment of the "fee simple" by contrast with the "capital value" as independently determined.

3 Refer also "Urban Research Program" Research paper 14, Oct 2007, Dr. Chris Harris, (e-mail "ce_harris AT yahoo DOT com") Involving private capital in the ownership, instead of just the operation, immediately sets a conflict of interest between future development, and dividends now. NZ Rail, British Rail, U.K. Water, Enron and Telecom have demonstrated that.

4 Natural monopolies are rights to land, water, airwaves, minerals, fisheries, hydro-power generation and supply, any public utility such as a port, airport, or the monopolistic rights to reticulate wires, pipes, rails, roads, and the like; even the right to pollute.

5 Reserve Bank Chairman Dr. Arthur Grimes affirmed the principle of land tax. The Dominion Post 2/11/2007

6 "Money, Banking, Inflation & Land Price" - on request

image