Over the last couple weeks, I’ve been taking a look at the economics of publicly owned golf courses. Unfortunately, I still haven’t managed to work in a reference to one of my favourite Big Lebowski quotes, so I’ll just have to drop it in here without preamble. In the words of the Dude: “Obviously, you’re not a golfer.”
Last week, I took a quick look at the costs and benefits of publicly owned golf courses, arguing that we would be considerably better off if we freed up the land for public parks and new neighbourhoods. After looking at the potential value of the land for housing or business use, which far exceeds the value for golfers, I asked: “Why isn’t the opportunity cost of using lots of land for golf being recognised the prices charged by golf courses?”
To start answering this question, we have to look at how golf course land is valued for rates and other purposes. As I argued when looking at the economics of applying rates to all government-owned land, rates can serve as a “market signal” that encourages productive use of land. Owners of valuable land can expect to pay higher rates, and hence know that they need to get enough revenue from the land to cover them. Conversely, distortions in the rating system can encourage wasteful and unproductive uses of a scarce resource.
So with this in mind, I used Auckland Council’s GIS Viewer to compare the rates being charged on Chamberlain Park and surrounding properties. As the following screencapture shows, there are two overlapping rating units on Chamberlain Park, one for the course and one for the clubrooms:
The following table summarises data on the two rates assessments. In total, the golf course pays about $97,000 in rates. At first glance, this seems like a lot, but it’s actually pretty paltry considering the spatial expanse (expense?) of the golf course.
|Rates assessment||Golf Course||Clubrooms||Total|
|Land area||32.3 ha|
|2014 Land Value||$12,000,000||$9,100,000||$21,100,000|
|2014 Improvement Value||$1,500,000||$1,900,000||$3,400,000|
|2014 Capital Value (LV+IV)||$13,500,000||$11,000,000||$24,500,000|
|2015/16 total rates||$26,876||$69,956||$96,833|
|Average land value ($/m2)||$65|
The land under the golf course is valued at $21.1 million – or around $65 per square metre. This is a comically low valuation. It’s probably been decades since land in Mount Albert was actually that cheap. (I wish it was possible to find buy land that cheaply on the isthmus. I’d buy acres!)
For a comparison, I’ve also looked at the land valuations for five randomly selected residential properties in the immediate vicinity of the golf course. That data, summarised in the table below, indicates that residential land in the area is valued at around $1,100 per square metre – or 16 times higher than Chamberlain Park’s valuation. (As property prices have risen since valuations were conducted, this is likely to understate current prices.)
|Land area (m2)||658||687||708||637||854||3544|
|2014 Land Value||$770,000||$630,000||$700,000||$720,000||$1,000,000||$3,820,000|
|Average land value ($/m2)||$1,170||$917||$989||$1,130||$1,171||$1,078|
Here’s a chart showing the comparison:
The practical consequence of this is that Chamberlain Park only pays a fraction of the rates that it should pay. If the land were valued fairly, the golf course would have to pay around 16 times as much in rates – around $1.6 million. As the golf course only pays $97,000 in rates at present, this amounts to a massive public subsidy.
In fact, the rates subsidy granted to Chamberlain Park is roughly equivalent to the annual value of greens fees, which I estimated at around $1.65 million. (Most greens fees go towards the cost of running the golf course.) People golfing at Chamberlain Park are only paying a fraction of the cost of providing the course, leaving other rate-payers to cover the foregone rates income from the land.
As the average residential rates bill was around $2636 in 2014, and around $214 higher in 2015, this means that roughly 530 Auckland households must pay rates to cover the subsidy for Chamberlain Park (i.e. $1.5m foregone rates from Chamberlain Park / $2850 rates per household = ~530 households).
In short, quite a lot of people are being taxed to pay for this golf course-shaped hole in our ratings system. And because the ratings system under-values the land under Chamberlain Park, the golf course is operating without any clear market signals that it needs to use that land differently.
Now, as I discussed in part 1 of this series, there are legitimate reasons for Council to provide public parks, even if it means foregoing some dwellings or some rates income, as they are open to all visitors and thus provide broader social benefits. So I don’t think that this argument applies to (say) Albert Park or Maungakiekie.
But golf courses are very different, as they can only be used by a small number of people at a time. Golf courses are businesses serving paying customers, just like supermarkets and hairdressers and hotels, and they should be expected to pay their own way. We wouldn’t arbitrarily slash rates sixteenfold for the Mount Albert Pak-N-Save, so why do we do that for the golf course just up the road?