Land rentals solve housing bubbles

How Government can help solve Auckland’s housing bubble and bring jobs back to the provinces

The two speed housing economy.

•From 2007 to 2013 Auckland house prices rose on average 13% a year. This is when corrected for inflation.

•Meanwhile in the provinces the real house prices had dropped 20% in that same time.

Auckland house prices Median

price was $561,000though mean price was $648K(Barfoot and Thompson 4 Sept 2013)

The Average Price of a House in Herne

Bay The average price of a house in Herne Bay is $2 million. House prices rise 15% a year so every year it goes up by $300k

This one is $3.75million

The windfall belongs to society•The rise in property value is almost

100% due to land value rising and when land values rise that is because of the activities of the community, of broader society. So 100% of that rise belongs to society.

•Each site is serviced by central and local government, business, organisations and Nature

•Without people land has no value.

In the provinces

• It is not the same. Real house values declined 20% from 2007 to 2013. In a city like Dunedin, businesses have gone, population has moved to Auckland or Australia.

Government must intervene

•It can’t buy land with NZD because there are not enough NZ dollars to do it with.

•So Treasury must create new Tax Credits to pay for land.

•These will be acceptable for tax, student loans and other payments to Government.

A voluntary opt in scheme needed

• Interventions should not cause market turbulence. Moreover Government can’t buy land so change land to leasehold and charge a percentage.

•Why? Leasehold without an index doesn’t work because you get sudden leaps in lease, as in Cornwall Park Trust Board leases.

Why not a straight land tax?

•This requires regular valuations and they can be disputed.

•It also brings a big problem because every year the land value will go down and so the percentage land tax would have to rise. Messy.

•It implies that land can be “owned” and has a “market value”

Homeowners will opt-in and negotiate

•Homeowners can ask Treasury to pay for their land. In exchange the homeowner must pay a regular land fee to government (like a lease).

• Each homeowner will negotiate a fee that is less than they are currently paying on their land in the way of mortgages or rates.

• The title will be burdened with a covenant. and the contract between the homeowner and government will use existing contract law.

No more rates due

•Then the revenue will be shared with local government and there will be no more rates due on that property. Each party stands to gain.

What about zoning?

•Every site is government by zoning. There are certain permitted uses for any site - residential, commercial, industrial and rural. And within residential the zoning will determine how many storeys can be built.

•The easier it is for land owners to develop it and produce an income, the higher the ground rent should be.

What about land banking?

•Those who sit on vacant land waiting for it to rise in value will eventually have to pay a land fee, which will force them to put the land on the market or develop it to get income.

•Landbanking and land speculation will stop.

Would the land fee go up?

•A land rental index would be established by taking a sample of properties in an area and finding the ground rental average and putting this at 100.

• Each year the land rent would be adjusted. The index would only go up if there was new infrastructure, the arrival of significant new business, or the zoning was changed to allow more freedom to develop. Very little change! usually.

How would it stop land banking?

•Speculators who bought land outside a city boundary would be paying a low rental while the land was not zoned for residential.

•As soon as the boundary extended, their rental would rise. This would incentivise them to develop without getting unearned gain in their land value.

Give us an example

•A couple wanted to buy land and build. The land is worth $300,000 so Treasury pays the 300,000 in Tax Credits and this is given to vendor. Mortgage rates would be say 5.6%. Rates $1000

•The buyers then negotiate to pay $15800 plus $1000= $16,800 less 10% = $15, 270 in land rent annually. Savings $1530 a year.

If you opt in you save

Mortgage with Kiwibank

•The land part of our mortgage is $400,000 at 6.2% we are paying on our land or $24,800 and our rates are $2800 a year. Total $27,600 a year on our property.

•We negotiate a land fee of $24,840 a year, saving $2760 a year.

It’s a win-win-win

•Property owners win, so do central government and local government. Only the banks lose. The new Tax Credits circulate in the economy and end up being paid for tax. The government then re-dates these digital credits.

What would happen to those Tax Credits?

•Those with mortgages with Kiwibank could use them to reduce their mortgage.(Possibly also TSB, Co-operative Bank, SBS etc)

• If the land was bought directly from a vendor, the vendor could use them in the normal way as they are acceptable for taxes, student loans and other government services. They can pay their rates in it for another property or spend it in the economy.

New Economics Party

•This slide show has been developed by Deirdre Kent of the New Economics Party of New Zealand

•Enquiries info@neweconomics.net.nz

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