Dead capital: Council ownership edition

By Eric Crampton 21/06/2015

I’ve worried that perhaps Councils haven’t fought back against the NIMBYs because they haven’t quite enough skin in the game.

The basic model in my head has run as follows:

Councillors need to be re-elected. High preference intensity local NIMBYs get disproportionate weight because they’re vocal and very likely to vote. And so things like Auckland’s Unitary Plan unravel: local pressure pops up, local Councillors stand by their neighbourhoods, and Council has little incentive to push back.

Any new development that goes in does add to the ratings base, but the link to Council revenues is weak: absent other changes, an increase in the value of land in one place means a greater fraction of a fixed tax bill falls there with minute and diffused cuts elsewhere; the increase in the rateable base can allow the total budget to increase if Councils are discretionary budget maximisers, but the hassle costs involved in dealing with the NIMBYs just might not be worth the small increase in Council budget that could come from it.

Maybe allowing some site to be turned into low-rise apartments would allow Council to raise another $150k/year without increasing any other property owner’s taxes, but is that really enough to be worth the years of town hall meetings with angry people all promising to throw out the local Councillor because of it?

If that’s the issue, giving Council a bit more of a stake in development could help out. The NZ Initiative a while back proposed, for example, giving Council the GST on new construction activity. On a $20 million construction project, that would be a $3m kick encouraging Council to allow appropriate land use. Council then has a better reason to find solutions that compensate the NIMBYs at the margin while allowing development.

That’s still the model that’s in my head, but what are we to make of this kind of case?

Auckland Council owns massive vacant-lot car parking spaces in Tekapuna. They could transform the space, with parking built into whatever complex went up, if there were compelling public interest in having those parking spaces there. They’d then appropriate almost the entire surplus from the project: put it up to competitive tendering, take the money from the best proposed development, use the money for other projects that compensate the NIMBYs enough to make the deal go through.

Maybe the existing use – the weekend market – is just really really important to local residents. But what of all the other surface parking lots owned by Council? They could easily be turned to commercial or residential use, with a parking garage built into the facility if needed.

Perhaps the opportunity cost of the land just isn’t considered by Council when setting priorities.