Housing

When Newsroom briefed the Govt on KiwiBuild

Treasury used a Newsroom story to remind the Government it was impossible to lower the cost of KiwiBuilds by selling off Crown land for cheap housing.

Treasury used a Newsroom story to remind the Government that it was not able to sell off state-owned land for cheap in a bid to reduce the price of KiwiBuild homes, official documents show.

According to its latest investment statement, Treasury owns roughly $145 billion worth of property, plant and equipment, equal to roughly 40 percent of New Zealand’s GDP.

There’s every chance much of that land has benefitted from the massive growth in the value of land since the early 1990s, but government rules prohibit any of it from being sold off at below its current market value.

The issue is particularly acute as some KiwiBuild developments will be built on Crown land, which will then be sold to homebuyers.

A briefing released under the Official Information Act showed Treasury using a Newsroom story from last July to remind Finance Minister Grant Robertson of the rules surrounding the value of state assets, and to deflect blame that Treasury was responsible for the high cost of land.

Treasury sent Robertson the briefing to clear up statements from the story which it believed to be incorrect.

KiwiBuild hangs in the balance

The future of KiwiBuild currently hangs in the balance, as Housing Minister Phil Twyford looks at ways of reforming the Government’s housing programme.

But one thing Twyford will not be able to do is sell off government land for cheap as a way of reducing the cost of KiwiBuild homes.

This is crucial, as the cost of land is widely regarded as the main reason for New Zealand’s out of control house prices.

In their book Generation Rent, economists Shamubeel and Selena Eaqub said that land costs had risen 73 percent faster than incomes between 1995 and 2015, compared to a 13 percent increase in excess of incomes for construction costs.

Treasury agrees. In a briefing to Robertson, it said that rising land prices “have been the most important cause of rising house prices,” citing a 2017 Superu study which estimated the excess costs of urban planning and infrastructure provision in Auckland were responsible for $530,000 of the price of an average home.

The Government was briefed on the issue back in August, on the back of a story by Newsroom Pro’s managing editor Bernard Hickey about Treasury “driving up” land prices.

A particular quote was singled out:

“…The Government will not sell land to developers for less than market value. In fact, its current Treasury-drive rules for land sales say the Government must maximise its sales price. Sources to the development community tell me Treasury is driving a very hard bargain that is actually driving up land prices even higher in the Northcote development currently being marketed."

Blame transparency (and Roger Douglas).

Treasury said it prepared the briefing for Robertson in case he was asked by media or politicians about the “incorrect” assertion Treasury was playing in increasing land prices.

“As the Minister could have been asked by the media or in the House to respond to this issue, we sent him the briefing to clarify the facts,” said a spokesperson.

It lays the blame for high land prices at the feet of the Public Finance Act, a piece of legislation drawn up by former Finance Minister Roger Douglas, and introduced by David Caygill when Douglas left Cabinet.

The Public Finance Act introduced new accounting principles to government and required that assets transferred between government departments have their costs allocated transparently. It also mean that when assets like land are sold by the Government, they must be sold at market price.

That is because selling below market price would technically be a subsidy, and that would need to be authorised through the appropriations process in the Budget.

“The Public Finance Act […] requires that any expenses or capital expenditure incurred by the core Crown must be authorised by an appropriation,” the briefing said.

“The sale of Crown land at less than its value in the selling agency’s accounts, which reflect market value, creates an expense for the Crown, requiring an appropriation,” it said.

This would mean that should KiwiBuild use land from another government department, it would either have to pay market price for that land, or bid for budget funding to make up the cost of any subsidy of the cost of that land.

Treasury appears happy with the arrangement, saying any subsidy would not reduce the cost of the land, but would rather hide the true cost of the sale, as the Government would miss out on money it could have made from the sale by selling money cheaply.

“Selling Crown land for less than its market value does not reduce its cost — since the opportunity cost of the sale is unchanged. Rather, it non-transparently allocates that opportunity cost between the buyer and the seller, hiding the full cost from the buyer and reducing monies received for use for other public purposes,” it said.

In the case of this specific story, the "driving up" of land prices was not specifically the fault of Treasury, but that of the Homes Land Community, or HLC, which is ultimately owned by the Crown but has to negotiate land prices with private developers.

The Public Finance Act means these negotiations would have to be based on the land being sold at market prices.

So what’s to be done?

Robertson told Newsroom on Wednesday that while he understood the Public Finance Act could create “anomalies” in the way funds were allocated, he would not be immediately looking to amend it, even as the Government continues its work to reform the Public Finance Act.

“Politicians of various governments have been frustrated by it over the years, but it’s there for transparency reasons,” he said.

Treasury has a solution of its own. It said that subsidising land reduced incentives for the Government itself to look at ways of lowering the cost of land.

It suggested changing planning rules to release more land for housing to create a more competitive land market, reducing the amount of land required for each building through intensification, and improving infrastructure finance.