The Economist recently ran an article stating that New Zealand has one of the world’s most overvalued housing markets.
The following may explain why.
It involves a well-intentioned individual and a scruffy piece of land on the Tutukaka Coast 30 minutes northeast 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.
Consent declined
All well, one would have thought; after all, people want to live on the coast and nowadays we all care about Kiwi.
In the last six years, he has spent $1.4 million, going through the consent process (significantly more than the land cost).
The Environment Court declined the consent last fortnight.
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.
Complex rules
The reality is that it is 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 organisations like the Department of Conservation 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.
Prohibitive costs
In this example, the landowner not only earned nothing while their capital was tied up for six years, they have paid rates, and $1.4 million in consent fees.
These costs need to be recovered in the section price.
The truth is doing anything that involves the Resource Management Act (RMA) and council consent is gamble.
There is a high probability that things will go wrong and cost money.
A rational businessperson 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, what is created comes at a price that includes the developers risk premium, and the excessive consent costs.
That is why the average section price is about twice of what it should be.
That is also why development activity has virtually ground to a halt.
Is it any wonder that people with a bit of get up and go, go to Australia or Christchurch, taking their spending power with them?
Given the multiplier effect, for every dollar they do not spend here, costs the society $5. That why our welfare is one of the biggest industries – the real cost of excessive, environmental, and obstructive district councils.
Disabling Act
The RMA was created as an enabling Act. It has become disabling as case law, 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.
Frank Newman is the author of numerous books on investment. He has worked as a share broker, investment adviser and University lecturer. He was a member of the Whangarei District Council for six years. The above article, which appeared on the website of New Zealand Centre for Political Research, has been reproduced here with the permission of its Director Dr Muriel Newman.
