Sunday, April 10, 2011

Owen McShane: Why isnt the economy doing better – Part Two

My last column argued we should double the residential build rate to achieve ongoing growth and development.

This column presents some of the actions necessary to achieve that goal. A complete argument would fill a book; the following are just a few examples of actions required by Central Government:

Free us from Incompetent and Unlawful Proposed Plans.

Too many planning documents are published without any serious auditing or checking and immediately impose massive costs and uncertainties on the people and communities of the District or Region. Many are quite incomprehensible, even to experts.

Consequently, as part of the Regulatory Reforms, all proposed District or Regional Plans should be submitted for regulatory review by an RMA subcommittee of Parliament’s Regulatory Review Committee prior to notification.

This RMA Review Committee would test all proposed plans for:

(i) their intelligibility (i.e. well drafted).
(ii) their legality (vires the RMA).
(iii) the quality of their section 32 analysis. (Net public benefit)

Submitters would then be able to focus on the real issues.

Development Contributions must Go.

The Local Government Act 2002 (LGA 2002) empowered councils to collect Development Contributions as a condition of issuing resource and building consents. This pernicious “reform” assumed growth and development was a cost on the community and hence developers should be fined for imposing these burdens on innocent communities.

Councils have seized on Development Contributions as a means of financing their expanded operations, while avoiding rate increases. For a single new lot, or building, these involuntary “contributions” can now add up to more than the purchase price of a section, or of a small building, in affordable housing markets, such as Houston Texas.

They generate the outcome you would expect of any system of fines which financially punish those who want to do things.

Remove Metropolitan Urban Limits (MULs) and other restraints on the supply of land.

This case hardly needs to be made. The contribution of MUL’s to inflated land prices, wherever they are utilised, is now accepted around the world – except by convinced advocates of Smart Growth.

The 2025 Task Force Report (Chaired by Dr Don Brash) made the following observations:

Houses in New Zealand are now among the most expensive, relative to incomes, anywhere in the world.
The Task Force rejects the repeated claim that in some sense too many resources are devoted to housing in New Zealand. Existing houses cost too much mainly because too few real resources are devoted to house-building.
Council zoning restrictions and arbitrary ‘urban limits’ prevent the release of sufficient land to lower the overall price of housing.
There is no shortage of land in this country, but local authorities prevent it being used for its most valuable purpose. That has to change.

On one side of the debate are those who recognize the importance of supply and demand, and the efficiency of markets. On the other side are those who see ‘urban sprawl’ as the greatest threat to civilization and life on Earth – after climate change, of course.

Hardly any of the central planners consider the impact of high compliance costs (the planner’s penalty) on land costs.

Government needs to understand that increases in GST add to these front-end compliance costs and further reduce the residential build rate. Surely Council consenting and compliance costs should be exempt from GST – applicants do not “consume” these council demands.

These impositions and interventions by the State reduce people’s freedom of action and are by no means a free exchange between consumers and suppliers. The “lost” GST revenues would be more than compensated for by increased economic activity.

Most of these compliance costs must be paid prior to issue of title. Consequently, unless ordinary households have residual equity in their property, they cannot borrow to pay these costs. How many families have, say, $80,000 cash in the bank?

This reform should be part of a range of reforms designed to minimise front-end funding of all local infrastructure by adopting proven systems of long-term financing. Affordable housing markets amortize all these costs.

That is why, in Houston, Texas, a fringe section costs only US$30,000 and a 2,500 sq. ft. house costs $150,000 – including land. We know how they do it. We can learn from their experience and achieve the same outcomes here.

Reducing housing costs is a potent way of increasing real incomes, while reducing pressure on interest rates and the NZ dollar. The 2025 Task Force has identified the first key steps in the chain. It is time for Government to act.

Why are New Zealanders are Being Planned to Death?

The collapse of the Soviet Experiment was a clear demonstration of the failure of central economic planning. Yet governments, here and abroad, seem convinced that in spite of the obvious failure of central planning at the national level, it will somehow succeed at the local and regional level.

Local councils are now required to prepare long term (ten year) community plans which promote “Sustainable Development” and which are clearly prescriptive and presume that Council planners know best how to provide for the economic, social and cultural development of their people and communities. They totally overturn the principles of “Sustainable Management”, as defined in the RMA, which was to enable people to provide for their own economic, social and cultural wellbeing.

Applicants now have to consider councils’ Long Term Council Community Plans, Regional Plans, District Plans, National Policy Statements, Structure Plans, Precinct Plans, and now Spatial Plans. All these “plans” can exist as draft, proposed or operative documents, and Council bureaucrats decide on how much weight to give to each. This is a dreadful environment in which to plan for investments. The legal framework and the outcomes are now totally unpredictable.

We are entering a time of unprecedented change, when innovative companies plan no more than six months ahead, and focus on strategies to enable adaptation to change.

Government’s penchant for Central Planning at the local coal-face is forcing our productive sectors into a rule-bound straightjacket.

Future columns will progress these arguments further – especially the actions required of local councils to set us all free.

1 comment:

Theo Perry said...

Over-officious local bodies are a major impediment to development. An experience last week with the Wanganui District Council demonstrates.
While refurbishing a vacant building that had been a hair salon for a tenant who wished to reopen, also as a hairdresser, I was told, for health reasons, that it would be necessary to install a hand basin in spite of there being a sink less than three metres away already which had sufficed in the past. Because this utilised a tradesman ie a plumber, it was a requirement that I get a building permit.
The new basin was situated alongside an existing hair wash basin on the same wall and was connected to the existing plumbing by less than a metre of pipes. The basin cost about $150 and the installation was about a half hour. This is a minor job by any standard.
The deposit for the building permit cost $213 and I was then billed a further $200 (approx) on the issue of the permit, which had been discussed and approved in a ten minute conversation at the counter.
My scream of pain resulted in a reduction of the latter amount to $20, but the mindset of this organisation is clear.
These types of ridiculous charges must stop.