Brian Rudman: Developers rub hands as city begs for funding

Illustration / Peter Bromhead

Instead of all the whining about property developers making windfall profits at the expense of the rest of us, why don't we do something about it? Over the weekend there was one of those night follows day, obvious headlines blaring out that "City Rail Link is putting city fringe on top".

Property sales expert Nick Hargreaves told us Auckland Council's ongoing "investment in transport" plus the proposed rezoning to allow more intensive development along high frequency public transport routes, "will pay dividends for city fringe property owners".

He predicted the same bonanza that enriched the property owners around the downtown Britomart Station following its opening in 2003, will accompany the CRL as it heads underground to Kingsland.

Properties along the way "have been keenly sought by commercial property investors with an eye to the future during the past year". This will continue over the next five years as "savvy investors" snap them up.

The pity is, our less savvy politicians are letting the developers gorge on their windfall profits, without demanding a piece of the action on our behalf. After all, the value of these railside properties are suddenly leaping skyward and not through anything the owners did. It is the result of hugely expensive infrastructure improvements, funded by the taxes and rates of the community at large.

All around the world, in political systems both similar and very unlike our own, other communities have worked out ways to levy ongoing taxes on these "betterments", with the funds going towards both paying off the cost of, for example, the neighbouring rapid-rail system and its ongoing upkeep.

On this score, Hong Kong's Mass Transit Railway (MTR) Corporation is the envy of other urban commuter transport services. Operating on the principle of "value capture", Hong Kongers accept that public transport costs have to be subsidised by ancillary real estate development. MTR buys the development rights of a piece of land from the government (which owns all land) at "before rail" prices, then sells it on to a developer at an "after rail" price.

Contrast this with Auckland Council, which is selling off Queen Elizabeth Square in front of the Britomart Station to the neighbouring developer, and paying an eye-watering level of compensation for tunnelling under his adjacent development site. This to appease him for running a passenger train service that will bring untold numbers of new customers and workers directly and swiftly right to the new tower block.

In Hong Kong, the symbiotic relationship of MTR and property ownership is accepted. For bringing customers to their doors, mall owners might agree to pay MTR a share of the profits, or enter into a co-ownership agreement. MTR even owns several malls itself.

Along similar lines in Singapore there's a development charge, which levies a tax on any uplift of property values that occurs because of any public infrastructure improvements nearby. It also taxes developers who add value to an existing site.

The Productivity Commission, in its recent report on "Using land for housing", claims a betterment tax had not worked in English-speaking countries. It does back the idea of using a targeted rate to achieve a similar effect.

"Targeted rates provide an existing mechanism to 'place a financial cordon' around an area and 'ringfence' the resulting revenue," to help pay off an adjacent railway or other infrastructure, it says.

Auckland Council agreed with the Commission it was a good idea, but pointed out that such a targeted rate on the basis of change in land value is not permitted under the Local Government (Rating Act) 2002. In response, the Productivity Commission called for an investigation into a law change along these lines.

The sooner the better. The Commission quoted a 2010 report calculating that land prices around the New Lynn rail station had risen 8.5 per cent following the 2005 announcement of upgrades to the Western Line of the passenger rail network. The land value of properties within 9km of a train station out West rose by upwards of $244 million after the announcement.

The windfall increase in property values along the CRL route through the CBD will be much more. It's only fair that the beneficiaries of this involuntary lottery start paying for their tickets.

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