By Eric Crampton 23/04/2018


I just don’t get the fixation with making sure that nobody builds a house on agricultural land.

The government plans to make it harder for councils to approve new homes and lifestyle blocks on productive land near urban areas.

A report out today, called Our Land 2018, shows New Zealand’s urban sprawl is eating up some of the country’s most versatile land.

It highlights that between 1990 and 2008, 29 percent of new urban areas were built on some of the country’s most versatile land.

Lifestyle blocks were also having an impact – in 2013 those blocks covered 10 percent of New Zealand’s best land.

Environment Minister David Parker said one area that was at particular risk was Pukekohe, known as Auckland’s food basket.

“We obviously need more housing around Auckland, but we also need to protect our elite soils.

“So we are proposing a National Policy Statement under the Resource Management Act which will require the councils when they are planning where to allow subdivisions or even rural lifestyle properties, they’ll have to make sure that they don’t encroach upon our most precious soils.”

Mr Parker said the horticultural sector had been saying for some time that too much of its best land was being lost to housing and lifestyle blocks, and it was time to take some action.

Where to start.

First up, it’s probably worth agreeing with one bit that the anti-sprawl people have right. Zoning in Auckland is stupid. It is stupid that people who live on major transport and passenger rail corridors can’t turn their houses into apartment buildings to accommodate a lot more people. All of the restrictions against building up encourage building out instead – to the extent that that is allowed. And if infrastructure charging is wrong, that problem will be compounded.

But the solution to that problem isn’t banning people from building out. The solution to that problem is a massive upzoning everywhere in town combined with congestion charging and better user-pays forms of infrastructure delivery like special purpose tax vehicles to pay off the bonds levied to put in infrastructure kit needed for urban expansion.

And it’s very much worth fixing all that.

But suppose you have an agricultural paddock near town. The land can produce horticultural crops worth, say, $1m per year net after costs. The present discounted value of that stream of profits gets capitalised into the price of the land. And so the price of the land will already reflect peoples’ expectations about the value of the agricultural produce that will come out of that land over the long-term.

If a developer is able to pay the farmer more than that, that tells us something important. It tells us that the value of that land in housing is higher than the value of that land in agricultural use. The value of all the agricultural output is already accounted for in the price of the land.

So you really don’t need to protect valuable agricultural land from developers. The price of agricultural land already does that. If for some other policy reason government has decided to artificially subsidise building on that land as compared to other places, the solution to that isn’t banning the development, it’s getting rid of the subsidy. Shift the infrastructure to a user-pays basis.

Banning development on that land only makes sense if you really really believe that the person putting in the ban knows better than either the owner of the land or the purchaser of the land the future price path of agricultural products or dwellings. And in that case the person putting in the ban should just be buying the land directly and reaping the huge and obvious profits from knowing better than the market about futures prices.

We got into this stupid housing mess because the “Let’s protect Precious Agricultural Land” people teamed up with the “Let’s protect Precious Neighborhood Amenity” people and banned anybody building anything anywhere.

I get depressed when a government that came in promising to fix the housing crisis screws this stuff up.

Update: To address the likely first objection before it shows up: you don’t have to worry about the “what if everybody did that” scenario. If land were being bid out of agricultural production and into use in housing, then the expected future price path of food would be a bit higher than otherwise – and the price of the next bits of agricultural land will be bid up. We do have access to imports too. And to address the second likely objection – if you’re going to complain about the cost of food rising as consequence while ignoring that the cost of housing would drop, and ignoring that food can be imported while housing can’t – there’s something wrong with you/