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2 September 06
Rate rebellion & Reform

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As a highly taxed country with the highest interest rates in the western world, it is little wonder that the spectre of local authority rates escalating - seemingly out of control - has the nation up in arms.

The problems caused by massive rates rises have now been acknowledged at the highest levels with the government announcing an independent inquiry into the whole issue. The effectiveness of that inquiry will depend on the terms of reference and whether Labour is going to be prepared to accept responsibility for the part that it has played in creating the problem through the changes it made to the Local Government Act.

Labour’s 2002 amendments changed the focus of local government away from the provision of infrastructure and core essential services to the promotion of social, environmental, economic and cultural well-being within their communities.  This has meant that councils are now free to engage in virtually any activity they wish, with ratepayers being forced to pick up the bill.

Estimates show that while rates are rising by an average of seven to eight percent across the country, often that figure does not take into account user charges for water, sewerage, rubbish and so on, nor any local amenity levies. When these are factored in, rates rises in the region of 15 to 20 percent are not unusual.

While councils are blaming costs associated with new central government responsibilities for a large proportion of the rates increases, the reality is that much of their upsurge in debt and interest charges are self-imposed. Many councils, are taking on very expensive and controversial projects - like the funding of stadiums and events centres, the running of public transport systems, and the fluoridising of water supplies - and as a result are finding themselves offside with ratepayers, who feel that these ‘think big’ projects are being bulldozed through against their wishes.

As a result of this growing sense of alienation, more and more ratepayers are coming to the realisation that local citizen’s referenda provides a democratic mechanism for dealing with such issues: Once a year - to coincide with a rates demand to minimise costs - councils could send out a referendum questionnaire, along with background information and cost benefit analyses, on matters that are considered to be either highly controversial or very expensive. The key purpose of the binding referendum would be to ensure that those who foot the bill not only play a proactive role in the decision-making process, but are in a good position to make a well-informed decision.

One of the biggest drivers of rate increases in many districts is the escalation in property values. In some areas, like Waiheke Island , valuations have gone through the roof. There, a family who have owned their property since 1836 have just had a 900 percent increase in their property valuation pushing their rates up from $3,000 a year to an unaffordable $16,000! Such families, who face having to sell up or go heavily into debt in order to be able to afford to continue to live in their own homes, graphically highlights the problems that now exist within the present rating system.

Christchurch based Hugh Pavletich, our NZCPD Guest Commentator this week, is the co-author of the Annual Demographia Survey. This survey of the cost of housing around the world shows that Auckland , Wellington and Christchurch are now amongst the world’s most ‘severely unaffordable’ cities in which to buy a home. This situation, largely caused by regional growth strategies, has resulted in land price inflation and falling home ownership rates (click >>> to read the article).

In particular, a strategy adopted by many councils called ‘smart growth’, creates a Metropolitan Urban Limit, which is an arbitrary boundary set by planners for the purpose of containing ‘urban sprawl’. Driven by an environmental ideology that regards subdivision and human activity as a scourge on the environment, planners have long judged low-density ribbon development of housing and small business on the outskirts of town centres, as detrimental. As a result they have sought to limit such growth by artificially restricting the availability of residential and commercial property in order to create higher density developments. The end result has been to create severe land shortages in many areas, which are driving up property values and contributing to massive rates hikes.

The argument used by environmentalists that land is in short supply and should not be developed is, however, misguided. As Motu Economic and Public Policy Researchers Arthur Grimes and Andrew Aitken have highlighted in their report “Regional Housing Markets in New Zealand : House Price, Sales and Supply Responses” only 1.4 percent of New Zealand ’s land mass has been developed! They found that “land prices have an important impact on new house supply: factors that push up land prices stifle new house-building activity. Limiting factors may include geographical or regulatory constraints on developing land for new residential development, or restrictions on subdivision for in-fill purposes” (click to view>>>).

It is now becoming clear that the concept of smart growth is causing more harm than good. Across the Tasman, Prime Minister John Howard is concerned about the same issue. In a story in yesterday’s The Australian he is reported as claiming that the lack of affordable housing in urban Australia is being caused by state governments not bringing enough land on to the market in a timely fashion to meet demand: “Speaking in Adelaide, where housing affordability is almost as much of an issue as it is in Sydney, he pointed out that in the past 30 years land prices, on average, had risen 700 per cent, whereas building costs had remained relatively static. He also accused the states of fleecing people buying newly released land, using development imposts as a revenue-raiser and charging exorbitantly for the services that they and councils historically provided at little or no charge”.

In an article in Reason, “The Politics of Sky-High House Prices – how government jacks up the price of owning your own home” journalist Joel Miller explores the contribution made by government regulations, zoning restrictions, impact development fees, and excessive property taxes in preventing many families with children from realising their dream of owning their own home (click to view>>>).

From the perspective of our overly regulated country, it is hard to believe that some places have few, if any, planning laws and the sky has not fallen in: Houston in Texas has no zoning or other planning regulations, and has one of the world's most affordable housing markets, and Pahrump (see http://www.pahrumpnv.org/) in Nevada – just over an hour's drive from Las Vegas - has no planning requirements, no zoning, and no property taxes at all, as well as very affordable housing!

If you would like to be kept informed of progress on the Government’s Rates Inquiry including updates on the submission process, please visit the NZCPD website and sign up to the Local Government Reform campaign (click here>>>).

The poll this week: The poll this week asks whether you believe the present system of land rates needs to be reformed. If you believe reform is necessary, how do you think local government should be funded? Go to poll >>>

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