Saturday, August 25, 2012
Frank Newman: RMA and land prices
Last week the Economist magazine ran an article reporting New Zealand has one the world's most over-valued housing markets. This may explain why. It involves a well-intentioned individual and a scruffy piece of land on the Tutukaka Coast 30 minutes north east of Whangarei.
The 6.6 hectares (16 acres) had been a forestry block that backed onto a coastal settlement. The pines were removed in 2005, and Pampas grass has been thriving ever since. He bought the land in 2006, with the intention of rezoning it from Coastal Countryside to Living. The proposal was for a low density residential development comprising 24 sections. A substantial area was to be set aside as a reserve for native revegetation, and included covenants preventing residents for owning dogs and cats, lest their pets prey upon local Kiwi which have been returning to the Coast is significant numbers.
All well a good, one would have thought, after all people do want to live on the coast and nowadays we all care about Kiwi.
In the last six year he has spent $1.4m going through the consent process (significantly more than the land cost). Last week consent was declined by the Environment Court. He is now exhausted emotionally and financially. To make matters worse, costs are likely to be awarded against him. Good intentions and a common sense approach has he says, “ruined” his life.
Unfortunately this experience is all too typical. Good intentions and a practical view of the life count for nothing in the world of planning and regulation. The reality is it’s an industry built around a complex web of rules and regulation, perpetuated by those who profit from it. The players include councils, planners, commissioners, lawyers, judges, iwi and hapu, activist organsations like DOC and the Environmental Defence Society, an endless queue of experts writing voluminous reports on largely immaterial issues, and others. Each is in there extracting a pint of blood, a pound of flesh, or advancing their cause at the expense of those brave or foolish enough to propose a development.
Unlike these industry players, developers must live in the real world. Should they actually get through the consent process with their finances and sanity intact, they have to turn a profit.
In this example the landowner not only earned nothing while their capital was tied up for six years, they have paid rates, and $1.4m in consent fees. These costs need to be recovered in the section price.
The truth is doing anything that involves the RMA and council consent is gamble. There is a high probability that things will go wrong and cost money. A rational business person faced with those risks will only proceed with a project when the returns justify those speculative risks, and few developments pass that hurdle.
That limits the supply of new sections and what is created comes at a price that includes the developers risk premium and the excessive consent costs. That’s why the average section price is about twice what it should be.
That’s also why development activity has virtually ground to a halt. Is it any wonder those with a bit of get up and go, get up and go to Australian or Christchurch, taking their spending power with them? Given the multiplier effect, for every dollar they don’t spend here, costs society $5.That’s why our welfare is one of the biggest industries, and that’s the real cost of excessive and environmental and obstructive district councils.
The RMA was created as an enabling Act. It has become disabling as case law has evolved through the courts. Unfortunately much of that case law has been shaped by resolute environmental activists pursuing their narrow agenda, and for that we are all paying the price.
at 10:56 AM