Taking a closer look behind the magic numbers

It will probably come as no surprise to you when I admit that I don’t know much about real estate. However, I do know that a property can be valuable because it, (a) commands a good rental compared to its value, and (b) appreciates in value over time, giving a good, tax-free capital gain for the owner.

As well as charging rates, Wellington City Council also derives income from rental on land it owns. According to the council, it will earn $75 million from its airport shares and ground leases in the next three years.

There are numerous ground leases – land leased to private owners – in Wellington, rumoured to be worth around $32m. Remember that number. These assets earn the council revenue for not much effort or expense.

Are these ground leases good investments? Possibly, although I suspect the mayor and senior council management think not because they are open to selling them.

The argument against selling ground leases is that they are likely to earn way more money from rent and capital gains than any bank deposit or resilience fund. But the mayor, who hasn’t much to show in what has been a difficult term so far, seems impatient for a win. Selling the ground leases would raise $32m, exactly the rumoured cost of the Reading deal, without having to extend the debt limit or increase rates.

Sell the ground leases for $32m and the mayor can pay $32m to Make Courtenay Place Great Again. And it’s all “fiscally neutral”.

But is it? Is that $32 million number really magic? According to the council, “the ($32m) budget only includes part of the purchase ($26m), with the initial deposit expected in the current financial year ($6m)”. So, like the Town Hall strengthening, the Reading $32m may not be the whole story.

Is there an argument for keeping ground leases besides the financial one? Yes there is. Having small pockets of property can be helpful for a council in that you can encourage productive investment by others.

Let’s say a developer wanted to build some affordable housing, and the council saw the economic and social value. It could add in its land (for a good price) to create a bigger parcel of productive land, making a strategic decision to have, for example, more housing in the inner city.

Since the beginning, the Reading deal has been clouded in secrecy. When information was leaked, the furious council leadership issued an expensive and ultimately futile code of conduct complaint to find the perpertrator(s).

Iona Pannett’s motion to nix the deal has seen no information provided by the Kremlin-like council officers who have recommended that the motion be put in private. But suddenly, as the wind changes and more Wellingtonians question the deal, councillors are now calling for public debate – even those ones who were furious that details of the secret deal were leaked in the first place.

I'm reminded of the story of a Restoration playwright who was sitting in an audience at the premier of his own play. The audience hated it and started booing. He didn't want anyone to realise he was the playwright, so he joined in the booing, too, thus escaping detection.

What’s interesting about this shady little cinema deal is that there is no left-right division or even a generational gap. Rightwing councillors John Apanowicz and Tim Brown strongly support their Green mayor’s scheme.

Meanwhile, some Green supporters, other lefties and the centre-right “Reading Four” councillors are dead against it, along with the right-wing Taxpayers’ Union. Its campaigns manager, Callum Purves, said the deal “is just another example of corporate favouritism at the expense of the ratepayer”.

As the Reading saga drags on longer than the finale of Return of the King, you might wonder why on earth the mayor is persisting with a deal that seems of little interest to her core constituency. I can’t imagine that many twentysomethings in Aro Valley said to Geordie Rogers during his campaign, “you’ll get my vote if you pour millions into the Reading complex”.

Surely issues of infrastructure, renters’ rights, housing intensification, public transport, cycling and night safety are much bigger issues to the Whanau whānau? This seems something driven by council managers and officers, with the mayor supporting it because she needs a win.

And the solution? If we had a land-based rating system it would be prohibitive for entities like Reading to sit on vacant land for as long as it has.

They would have to pay rates as high as businesses using that amount of CBD land productively – which could be in the hundreds of thousands.

Rather than doing nothing, as Reading has done while it’s tried to do a deal with the council, they would be incentivised to sell, hopefully to a local company that wanted to use the land productively and do business in the city for a long time. And we wouldn’t have to sell our valuable groundleasestodoit.

Dave Armstrong is a playwright and satirist based in Wellington. He is a regular opinion contributor.