Land-banking and the housing crisis

Wellington mayor Justin Lester is right to point to landbanking as one of the major causes of New Zealand’s housing crisis. Whether he can do much about it, though, is another matter.

Lester is frustrated that two major land-bankers own nearly 500 hectares of land on the fringe of the capital. His officers tell him that this is enough for 2740 new homes, or enough to meet an estimated 14 years of demand for greenfield sections for Wellington.

However even Housing Minister Nick Smith has sometimes spoken out against land-banking. Putting a stop to it is another story.

The problem is that in times of rocketing house prices it makes perfect economic sense for a developer to sit on land rather than develop it. Far better to let prices keep on rising and make a bigger profit later. This is what has been happening for years now.

Smith himself once said it was ‘‘offensive’’ that an investor in Auckland could buy land in 1995 for $890,000 and put it on sale in 2016 for $112 million. ‘‘The biggest problem is Auckland is the issue of landbanking,’’ Smith said.

Smith’s approach to the problem was to rely on the special housing areas in Auckland, which allow for faster consents for large housing developments. Developers can face a ‘‘use it or lose it’’ clause which penalises them if they don’t lodge consent applications. His critics, however, argue that this rule doesn’t guarantee house completions.

And that is the problem with land-banking, it seems. It is merely a symptom of a deeper malaise, and fixing it might require radical changes.

Some, such as economist Arthur Grimes, have suggested the Government should use the Public Works Act to buy land for housing. This is a reasonable suggestion, draconian though it might seem. The housing crisis is so serious that radical measures of this sort have to be considered.

The National-led Government, however, with its deep allegiance to property rights and natural sympathy for the business class, would never accept such a proposal.

Nor would it feel much sympathy for other proposals, such as the idea that local body rates should be based solely on land value rather than capital value.

The effect of this would be that an empty section would have the same rates burden as a section with a house on it. This would provide a stiff incentive to develop the land and not ‘‘bank’’ it.

The Morgan Foundation, meanwhile, touts its comprehensive capital income tax, which would provide an incentive to develop the land immediately rather than retain it for an untaxed capital gain.

With all this, the radical proposals gain strength just as the Government demonstrates that its much more tentative policies are failing.