It’s been almost two years since we had a ‘Sunday reading’ post – Matt has been doing his ‘Friday roundups’ instead – but with everything I’m doing on housing, I thought it was worth bringing a few pieces together this week.

Covid and Our Homes

First up, a piece by Auckland architect Mat Brown over at The Spinoff: “How Covid-19 changed the way we think about our homes”. It looks like his company commissioned a survey to look at how people felt about their homes and neighbourhoods during lockdown, and how it might affect their future housing choices (bloody good idea, by the way):

We saw an increased appreciation of the parks and community spaces around our homes. In a world of social distancing, they proved fit for purpose.

Our respondents also indicated an anticipated shift toward walking and cycling and, while on balance there was a nervousness around public transport, the vast majority of respondents anticipated no change in their preferences around buses and trains.

It’s fair to say too that most homes performed well as workplaces, with many people utilising a bedroom or existing office space to work from home. This is a luxury that’s not afforded to everyone and interestingly, almost all respondents said they wouldn’t want to pay for an office space when they bought their next house. If they did, very few said they would pay more than $20,000 – approximately two square metres in an apartment building. Our homes, it would seem, have more flexibility than we would prefer to pay for. Of those homes that didn’t perform well, a common problem was cited: furniture, not size…

If we were to draw conclusions, it would be that lockdown has reminded us we are social animals, and that the social interaction we have within our community is valuable. We enjoy sharing spaces and experiences with our neighbours.

Our homes are lazy and poorly tuned to our day-to-day needs. While many respondents had a spare room to work from, they also lamented a lack of outdoor space. We’ve spent our money on things we don’t need.

What is a ‘home office’, anyway? Is it just a room that’s too small (or not sufficiently well lit) to be called a bedroom? The survey results seem to dispel the idea that we’ll all be looking for a ‘home office’ space in our next home. They also suggest that we should look more carefully at our outdoor space – the size and the quality too.

Covid and Our Homeless

However, homeless New Zealanders were always going to be a high-risk, high-needs group in a pandemic – especially during a lockdown. Organisations in Auckland, Wellington and Christchurch stepped up to the challenge, trying to give people a place to stay during this time – helped along by the fact that almost all ‘commercial accommodation’ was empty and could be made available, and government funding to the tune of $100 million which means that the accommodation could be secured for a whole year.

As a result, “rough sleeping” – the most visible type of homelessness, where people are literally out on the street – was “all but eliminated in just six weeks“. The Herald article, by Isaac Davison, continues:

Charities who work with the homeless say there are only a handful of people left on the streets in all of the major centres, some of whom had refused help.

“It feels like an amazing achievement,” said Zoe Truell, a manager at Lifewise. “It is something we couldn’t have dreamed of being possible or actually happening two months ago.”

“It would be wrong to say we have done 100 per cent,” said Auckland City Missioner Chris Farrelly. “But it’s the closest we’ve come in a generation to getting everyone off the street.”

The bigger challenge – keeping them off the street permanently – is yet to come. Many more people are expected to be made homeless as the economic downturn bites. And placing people with high needs in motels for months could create new problems.

There’s a podcast interview with Isaac and a representative from Lifewise here, a little over 20 minutes long and getting really interesting from 14:30.

“AirBNB properties are… exactly the kind of houses that NGOs want to get their hands on because they’re small, relatively cheap central city properties”.

While Covid-19 has been bad news for everyone who was involved in commercial accommodation – AirBNB, hotels, motels, serviced apartments and so on – it has created an opportunity to do much better for the people on the very edges of our society. Hopefully that can become a lasting improvement. Covid-19 has taken the edge off New Zealand’s housing crisis in a number of ways, and nowhere is this more apparent than in our ‘rough sleeping’ population.

And one for the policy geeks (and all interested Aucklanders)

Lastly, Auckland Council’s chief economist unit argue quite persuasively that Auckland should charge rates based on ‘land value’, not ‘capital value’. The total amount charged would be the same, but the incentives would be different:

Auckland’s current property rates system uses capital values (CV) to determine the variable component of a property’s rates bill. This approach, is widespread in New Zealand, but does not incentivise the most efficient use of land. Land owners who use land efficiently by developing on it, pay higher property rates, because the more improvements you add, the more you pay…

A land value (LV) based rates system approach has several strengths:

1. It incentivises efficient use of land and doesn’t reward those who do not develop their land.

2. It is easy to administer.

3. It is difficult to evade.

4. It doesn’t distort production in the economy – land is fixed and a tax on it won’t mean less of it is produced.

5. It better aligns timing between infrastructure provision and take-up of that infrastructure.

6. It is progressive. Those with more valuable land pay more.

Personally, I’m all for it. The main obstacles seem to be political ones, which the economists do talk about but perhaps not enough. And there are some minor downsides of rating based on land value, which they don’t discuss. It’s worth noting that they are not talking about a new ‘land tax’ as such – they are talking about changing the current Auckland Council rates system, which is essentially a ‘property tax’, so that it only looks at the land component of the property.

The obvious next question is, if land taxes are so great, why doesn’t the government implement one? That’s an even more politically charged issue, since we’re talking about a new tax rather than tweaking an existing system. A land tax would probably be used as an alternative to a Capital Gains Tax, and we all know where the CGT discussion ended up.

A lot of people didn’t realise (or deliberately ignored) that a Capital Gains Tax didn’t have to be a money grab; it was about fixing a hole or distortion in our tax system, and it could have been paired with tax reductions elsewhere to be revenue-neutral overall. Again, I’m in favour of a national-level land tax or CGT if it could be designed well and applied broadly (no exclusions for ‘the family home’). But I’m not holding my breath and won’t really write about it this year.

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18 comments

  1. COVID-19 is very clever.
    People go with the social distance all the time, its been rammed down our throat all the time.
    But when they hop into a lift or Elevator They think that the Covid-19 can not go from person to person.
    During NZ lockdown level 4 I saw people fill up a lift to the maximum HOW STRANGE.

    Right now I hear on the radio news Australia could have this issue read more
    https://www.rnz.co.nz/news/world/420514/covid-19-melbourne-public-housing-towers-under-lockdown

    I told Auckland Transport about lifts at train stations, but I think they lost the plot, I told lots of people in reply all I got in different words “Oh but but lets just keep our head in the sand, we only believe what we want to believe”

  2. It’s a tricky one to politicise, land tax. It allows company tax to reduce, so it’s capitalist. It stops an easy path to the top of the social pile through capital gains and then stay there while contributing nothing to the common good, so it’s socialist.
    It’s left, right, pragmatic and fair, all at the same time. So I don’t hold much hope for it being implemented either:)

  3. Rates and land taxes need to be fundamentally different for urban and rural areas in order to prevent ag/hort becoming uneconomic.
    This means that a nationwide land tax policy is difficult to apply and is typically given over to regional authorities to set as part of their revenue-gathering.

    1. Could you explain further?

      If a land tax is something like 1% (or less) of unimproved value why would this cause problems?

      I’m going to guess you’ll say because a $1 million farm (although unimproved value remember) returns so little that 1% is a big chunk of that. The problem would seem to be that farms are over-valued.

      How is this different from an investment property in town where the rent is only 2.5% of the houses value? ($500/week on $1m house)

  4. Unimproved value rating was the main system in NZ until the 80’s and changing back to it is an excellent idea. Capital value rating came from a push from noisy owners in expensive areas – so in order to get access to more money for their spending – councillors buckled and spread the rates rises over the whole ratepayer base.

    In Wellington it was pressure from a group of wealthy residents in Roseneath – they appeared in the paper in about 1986 with a photo of them and their babies complaining they couldn’t afford the rates – and the council just folded.

  5. Capital value rating makes land banking much more affordable,
    Going back to Unimproved value rating would make an awful lot of car yards uneconomic on their current sites.

  6. Interesting argument re capital vs land value based rating. On one hand it makes land banking less attractive, on the other hand it means the billions of dollars of improvements in the form of CBD office buildings, shopping centres and industrial buildings would go untaxed. That’s a lot of tax that would be foregone and need to be spread back over all land. The question is what that does to the average householder, do the rates go up or down? Probably good if you own an apartment, not so good if you own a house on a full site. I’m guessing the economist owns neither as he or she prefers to invest in shares….

    1. If Councils had shown any ability to allocate land correctly and not create a system where land is 80% of the cost of a new build, I would feel better about letting them use land as a primary driver of funding.

      Seems a bit like getting the fox to run the hen house. If our current experience is anything to go by, suburbs in which inner city residents have lobbied to limit development would pay less than people who are having to buy tiny parcels on the fringes or just accept being priced out of the market. Now, give them an incentive to stoke land prices. Not sure we’re going to see more just and ethical outcomes all of a sudden.

      1. Kind of seems unfair for the council to tax us for not making the best use of our land when it is the council who makes better use of land so difficult or in some cases impossible.

  7. I really can’t see how a national land tax could work. Wouldn’t we end up with Aucklanders paying the vast bulk of NZs tax? Aucklanders would be double shafted (high tax and high cost of living) while someone in invercargill gets the same stuff from the government but pays almost no tax in comparison.

    1. A land tax in the end becomes very inefficient. Once you work through the exclusions (conservation land, Maori land, land granted to Maori in settlements) then there becomes the question about whether family home is exempt (very hard for the retired to bear additional taxes) and then of course there is the agriculture sector who think they should be exempt.

      The only way it works is if there are no exemptions, but this is not politically palatable. We did once have land taxes but they were abolished in 1992 as over the years more and more exemptions meant very little taxes were raised.

  8. So John, given that you are all in favour of a land tax are you able to explain how adding a significant annual cost to agriculture, horticulture and silviculture is going to incentivise more efficient use of that land? What “developments” to the land do you propose? Massive irrigation systems? Greenhouses? Feedlots?

    If the economists’ view of efficiency is more profit per unit of land will that not lead to more artificial fertilisers, more pesticides and herbicides?.. or should we abandon any sort of restrictions on land use and put the most profitable crop on that land; housing?

    1. Seems to me there should be some basic master planning first, so that not only is productive land not charged rates appropriate for housing development, but it is not even zoned to allow it…

      1. “not even zoned to allow it…”

        In general it isn’t, Heidi, thus illustrating that “Land owners who use land efficiently by developing on it” is a perplexing phrase since developing agricultural land it is not what is desired or permitted by existing legislation.

    2. Those are good questions to ask MFD, and I gotta be honest, I don’t know much about rural economics or farming; I’ve never studied it and it very rarely comes up in any work I do. I just had to look up what a ‘feedlot’ was. But if a land tax is thought of as being a pretty good way to tax, then that’s just as applicable to agricultural land as urban land.

      Some Motu research from 2009 found that agriculture only accounted for 24% of land $ value across NZ, but proportionately farmers would be much harder hit. The Motu researchers suggested that maybe agriculture be taxed at a lower rate, or that only land value over say $50,000 per hectare would be taxed. Either of those options could still provide the right incentives.

      Economists are keen on efficiency and ‘good’ incentives, in farming as in any other sector. The examples you give are ones that might have negative externalities (fertilisers etc going into the waterways) or just be a bit controversial for some (feedlots), and economists would be as keen as anyone to see them addressed. And if they are, then I would have no problem with more intensive development.

      And I’m sure farmers would install greenhouses, since that would be a ‘capital’ improvement and it wouldn’t increase their tax burden. They’d have every incentive to do that.

      There’s a larger piece of the puzzle too, which GA has looked at (briefly) and included in our submission to the Productivity Commission when they looked at climate change… and that’s ‘land use change’. Farmers don’t pay for their greenhouse gas emissions (and won’t pay anything until at least 2025). As such, over the last couple of decades there has been a major land use swing towards dairy, which is high-emissions but (untaxed) was pretty profitable. We need at least as big a swing back the other way in the next couple of decades. So it’s not just about intensifying a particular type of farm, it’s about changing what you’re farming, and well-designed taxes can help encourage that.

      Farming in particular, and land generally, needs a real rethink of how it is treated and taxed in NZ, but I don’t think I’ll ever really dive into it; others are looking at it in more detail and I have enough on my plate!

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