It would be strange to also have to weigh how good that land might be for horticulture or for raising sheep, if you had already ruled both out.
But whether you would be allowed to do either can depend on whether someone has judged your land to be good for horticulture or for sheep-raising. Classifying land by its potential in primary production activities might not be the best basis for regulating land use.
Land Use Capability [LUC] classifications grade land based on its suitability for primary production.
Class I land is flat, has deep fertile soil, and is great for intensive cropping and horticulture. Class VIII land covers hostile terrains like mountains, sand dunes, and unstable scree.
Land classes between those extremes descend from land suitable for cropping, to land mainly useful as pasture, then through to grazing or restricted grazing.
In principle, the LUC system could be used by farmers when deciding what to grow on a piece of land. In practice, based on their own knowledge, they will usually have far better information.
In fact, the system is mainly used for regulation. If land is good for agricultural purposes, it will be hard to get permission to use it for anything else.
The government has proposed making it simpler to do things like build housing on LUC III land while making it harder to earn carbon credits by planting trees on land that has more than limited agricultural potential.
But land has many potential uses outside of agriculture and primary production. It is strange to make its use in agriculture a defining characteristic for regulation. Other uses can also be incredibly valuable.
Some land is excellent for quarrying or mining. We could grade each hectare on a scale from one to eight listing its potential for extractive uses.
Land can also be used for energy, whether through wind, solar, or geothermal generation. If each parcel of land were graded on some Energy Generation Capability [EGC] scale, would it make sense to severely restrict EGC category 1 or 2 land against being used for anything other than energy generation?
When you start to think about it, it seems impossible to come up with an exhaustive list of all the potential uses to which land can be put. As soon as you think you’ve come up with a full list, someone will suggest something like ziplining as a potential land use – and you’re back to the drawing board.
And the best use does not always depend on land’s physical characteristics. Its location can also matter, regardless of its other characteristics.
Land suitable for gold mining needs to have the right underlying minerals; if there is a lot of gold under a remote site, the disadvantage of remoteness can probably be overcome.
But land suitable for housing should be where people want to live. A site that is very easy to build on, but hours away from where most people want to live, is less suitable for housing than a hillside in Wellington that’s hard to build on. At least in the grand scheme of things. The remote site may be perfect for the person who wants to live there.
And land most suitable for apple packing sheds is likely to be right in an apple orchard.
Even if you could come up with the hundreds or thousands of potential land uses for classification, grading every hectare on a scale from one to eight for each of those potential uses, there is another, more substantial, problem.
Experts might be able to assess each of those scales. But if a site ranks as Category II for gold-mining potential but Category I for wind farming, should the owner be banned from taking down his turbines to put in a gold mine instead? Sure, the land is Category I – the very best! – for wind farming. An open-cast mine might mean the land could never be converted back to wind farming.
But if the gold under Category II mining land is worth a lot more than the electricity from turbines on Category I energy land ever could be, even if tallied up over many years, that ought to count for something.
And similarly if land that is great for paddocks is even more valuable when used in housing, or in carbon forestry.
The neat thing about prices is that they adjust as conditions change. If demand for electricity goes up and power prices increase, the owner of a windy hillside will automatically start weighing that land’s wind-potential LUC over the myriad other purposes to which those hillsides could be put. Or, at least, wind farms will start outbidding others for the use of that land.
Land that can be valuable in hundreds of different uses is often regulated based on its potential for use in primary production. It would be heroic for government to formally produce capability assessments over all other possible land uses. And even if it were possible, it would be impossible for a regulatory system to weigh those competing uses nearly as well as the owner can.
And so we come to my alternative to regulating land use based on LUC classification.
Prices already bundle all those competing potentials into one signal – the land price. Because owners capture gains from switching to a higher-valued use, they are best placed to weigh those shifting trade-offs.
So just make it legal for land to shift into its highest and best use, as assessed by its owner, so long as that use does not substantially infringe the equal rights of that land’s neighbours.
And if you disagree with the owner’s assessment, you should be free to put in an offer on the property.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
Land Use Capability [LUC] classifications grade land based on its suitability for primary production.
Class I land is flat, has deep fertile soil, and is great for intensive cropping and horticulture. Class VIII land covers hostile terrains like mountains, sand dunes, and unstable scree.
Land classes between those extremes descend from land suitable for cropping, to land mainly useful as pasture, then through to grazing or restricted grazing.
In principle, the LUC system could be used by farmers when deciding what to grow on a piece of land. In practice, based on their own knowledge, they will usually have far better information.
In fact, the system is mainly used for regulation. If land is good for agricultural purposes, it will be hard to get permission to use it for anything else.
The government has proposed making it simpler to do things like build housing on LUC III land while making it harder to earn carbon credits by planting trees on land that has more than limited agricultural potential.
But land has many potential uses outside of agriculture and primary production. It is strange to make its use in agriculture a defining characteristic for regulation. Other uses can also be incredibly valuable.
Some land is excellent for quarrying or mining. We could grade each hectare on a scale from one to eight listing its potential for extractive uses.
Land can also be used for energy, whether through wind, solar, or geothermal generation. If each parcel of land were graded on some Energy Generation Capability [EGC] scale, would it make sense to severely restrict EGC category 1 or 2 land against being used for anything other than energy generation?
When you start to think about it, it seems impossible to come up with an exhaustive list of all the potential uses to which land can be put. As soon as you think you’ve come up with a full list, someone will suggest something like ziplining as a potential land use – and you’re back to the drawing board.
And the best use does not always depend on land’s physical characteristics. Its location can also matter, regardless of its other characteristics.
Land suitable for gold mining needs to have the right underlying minerals; if there is a lot of gold under a remote site, the disadvantage of remoteness can probably be overcome.
But land suitable for housing should be where people want to live. A site that is very easy to build on, but hours away from where most people want to live, is less suitable for housing than a hillside in Wellington that’s hard to build on. At least in the grand scheme of things. The remote site may be perfect for the person who wants to live there.
And land most suitable for apple packing sheds is likely to be right in an apple orchard.
Even if you could come up with the hundreds or thousands of potential land uses for classification, grading every hectare on a scale from one to eight for each of those potential uses, there is another, more substantial, problem.
Experts might be able to assess each of those scales. But if a site ranks as Category II for gold-mining potential but Category I for wind farming, should the owner be banned from taking down his turbines to put in a gold mine instead? Sure, the land is Category I – the very best! – for wind farming. An open-cast mine might mean the land could never be converted back to wind farming.
But if the gold under Category II mining land is worth a lot more than the electricity from turbines on Category I energy land ever could be, even if tallied up over many years, that ought to count for something.
And similarly if land that is great for paddocks is even more valuable when used in housing, or in carbon forestry.
The neat thing about prices is that they adjust as conditions change. If demand for electricity goes up and power prices increase, the owner of a windy hillside will automatically start weighing that land’s wind-potential LUC over the myriad other purposes to which those hillsides could be put. Or, at least, wind farms will start outbidding others for the use of that land.
Land that can be valuable in hundreds of different uses is often regulated based on its potential for use in primary production. It would be heroic for government to formally produce capability assessments over all other possible land uses. And even if it were possible, it would be impossible for a regulatory system to weigh those competing uses nearly as well as the owner can.
And so we come to my alternative to regulating land use based on LUC classification.
Prices already bundle all those competing potentials into one signal – the land price. Because owners capture gains from switching to a higher-valued use, they are best placed to weigh those shifting trade-offs.
So just make it legal for land to shift into its highest and best use, as assessed by its owner, so long as that use does not substantially infringe the equal rights of that land’s neighbours.
And if you disagree with the owner’s assessment, you should be free to put in an offer on the property.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
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