NOTE:  This was meant to be a Friday Digest, but the storms took out  
our broadband from Thursday until this morning, so it has been sent  
out rather late.

Six Items and One Entertainment in this CRMS Friday Digest.

This Digest can also be read as a  pdf file.

Items.
Item 1: Who Really Caused all our problems - the planners, the bankers, or both?
Item 2: Storms, Trees and Broken LInes.                                                      
Item 3: Linkage Zoning – the Latest Smart Growth Folly.
Item 4: Should Councils Collect Fines from their own Prosecutions? –  
Part 2
Item 5: What do we do about Development Contributions?
Item 6: NBR column: 12 July – Why Councils should take independent Advice.

Entertainment:  An Aaron Wildavsky Joke

Fundraising.

Item One: Who really caused all our Problems – the planners, the

bankers, or both?

A common response to the claim that the urban central planners have  
caused the current property and financial crises is that the real  
bubble has been caused by the scandalous lending policies of the  
deregulated finance sector around the world, and particularly in the US.

Probably the easiest response is to avoid pinning down cause and  
effect by simply recognising there have been two bubbles – one in the  
real estate sector and one in the financial sector and they have fed  
off each other. Indeed they are genuinely symbiotic and cancerous.

However, I am reluctant to make life so easy for the central planners  
if only because in my report to the Reserve  Bank in 1996 I predicted  
the impact of "growth management" on house prices and how these  
inflated prices would impact on the financial sector and give Central  
Bankers serious problems wherever they were implemented. I must admit  
I did not foresee the extreme folly of sub-prime lending and the  
lending frenzy which developed over the last few years but madness is  
hard to predict at the best of times.

Many still believe that the housing and lending double-bubble was an  
American problem evenly distributed across the continent.
This table tells a different tale.

http://realestate.msn.com/Buying/Article2.aspx?cp-documentid=6119868

The Coastal states are the hardest hit by percentage and these are  
typically the Smart Growth States. The rate of foreclosures per  
household  is by no means evenly spread. (See last column on the  
right) California, Florida, Colorado and Nevada are all smart growth  
states.
Texas has had a high level of poverty foreclosures but note their rate  
fell 4.57% in the 2007 stats, while California's jumped by 238%.

Last week's Digest recommended Wendel Cox's report on Urban  
Consolidation (Amalgamation) in New York State, as a useful source of  
background material to the Royal Commission on the Governance of  
Auckland. This Digest repeats the recommendation but because of its  
summary of the impact of Smart Growth on urban regions.
For those who remain unconvinced of the role of Smart Growth in  
driving the property/finance double-bubble, Wendel Cox's report is  
essential reading.
Go to:
http://www.nytowns.org/news/Government.Efficiency.The.Case.for.Local.Control.pdf

Then go directly to page 24 of Chapter 5, Smart Growth and the Quality  
of Life,  where Wendel writes:
House prices have increased substantially compared to incomes in the  
United States since 2000.
However, the increases have not occurred in all markets. A "two speed"  
housing economy has developed, with some metropolitan areas  
experiencing huge increases, while others have experienced little  
increase at all. The "housing bubble" as it has been frequently  
called, is not a national trend, but has rather been limited to  
metropolitan areas with overly prescriptive land use policies.

On page 25, in Box 5, he refers to New Zealand authorities on the topic:

A New Zealand government report by Arthur Grimes, Chairman of the  
Board of the Reserve Bank of New Zealand blamed the loss of housing  
affordability in the nation's largest urban areas, Auckland, on  
prescriptive land use policies.
        And
Former Reserve Bank of New Zealand Governor Donald Brash wrote that  
the affordability of housing is overwhelmingly a function of just one  
thing, the extent to which governments place artificial restrictions  
on the price of residential land.

In spite of all the evidence, the Smart Growth advocates insist their  
policies have not caused these housing bubbles. And these are often  
the same people who call Climate Change skeptics "denialists"!

One of the underlying themes of Wendel Cox's report  is that the  
promoters of large scale amalgamation (urban consolidation) normally  
argue that only by having large, unified, Region-Wide government, can  
Smart Growth policies be properly implemented.

Urban Consolidation must be unique in being a costly solution actually  
intended to create a serious problem.

The conclusion to Chapter 5 on page 29 is straightforward and  
unequivocal:
There is a strong association between regional planning, smart growth  
and the loss of housing affordability.
Imposition of regional planning and smart growth would be likely to  
raise the cost of living, making New York [State] less competitive.

Item Two: Storms, Broken Lines and Sacred Trees.

The series of storms which have swept over New Zealand have  
demonstrated that while some people suffer catastrophic damage from  
winds and flooding, many thousands more suffer from extended loss of  
power and telecommunications.

It should be clear that most of the power outages are caused by trees  
falling across power lines.

The Centre has already suggested that the RMA should include a clause  
requiring any Councils that make it time consuming and expensive, to  
trim, prune or cut down trees on private land, must accept liability  
for any damage caused by those trees.

Now that trees have become sacred objects – like the cows of India –  
it cannot be too long before someone dies because a falling tree cuts  
off power to someone's life support system – with the inevitable  
result. It is equally likely that it will turn out the family had  
applied to trim the tree but the local arborist declared the tree  
healthy and fit. The lawyers will see to the rest.

During these last storms there have been many examples of trees  
falling onto houses, cars, or dragging large cliffs and banks downhill  
to block the roads and highways below.

It should now be obvious to Blind Freddy's dog that many Councils now  
make it so difficult and expensive to trim trees that many more urban  
power lines are put at risk of falling branches than in times past,  
when both land-owners and power boards made sure the lines were kept  
clear of falling branches.

Furthermore, in times past the power boards (when government owned)  
used to accept responsibility for trimming trees away from power lines  
in return for their having free access over privately owned land.

These days, the power companies seem to have taken the best of both  
worlds unto themselves. They too are nervous about trimming the sacred  
trees, but, even when their power lines cross private land, they now  
require the landowners to bear the cost of keeping branches clear of  
the lines. I have just been asked to trim some trees on my own  
property and it will cost me about 700 dollars, even though the  
distribution company is getting access across my land at no cost. I  
would have thought I should be able to say "You trim the trees or move  
your power lines onto the public land at the roadside."

This might cost the lines company some extra spending on maintenance.  
But given the events of the last few days, I wonder if these costs  
would be more than offset by the gains in reduced spending at overtime  
rates and the costs of potential lawsuits.

Item Three: Linkage Zones – the latest Smart Growth Folly.

The Centre is working on a paper which lays out the series of events,  
policies and plans which has led to the current crisis in the  
property, construction and finance sectors in New Zealand. Most  
commentators do not seem to realise how deep and widespread the  
problem is – and especially in the property and construction sector.

While attention focuses on the collapse of finance companies, few seem  
to realise that the problems in the financial sector are multiplied  
many times in the property and construction sectors. Every collapse of  
a finance company takes property and construction companies down with  
it, while the inability of property and construction companies to pay  
their interest contributes to the collapse of the property companies.

There will soon be widespread unemployment in the property and  
construction sectors and these sectors mop up young males who would  
otherwise be unemployed. Young males tend to be either providers or  
predators.

We need to kick start the property and construction sectors if we are  
to work our way out of recession. We should certainly do nothing to  
inhibit employment growth.

Consequently, the Centre is dismayed by the news that the Queenstown  
Lakes District Council has decided to introduce one of the most  
extreme Smart Growth policies from the United States, and one which  
directly punishes those who seek to create downstream long term  
employment.

As we should all know by now, Smart Growth (in its many guises)  
creates unaffordable housing, and one outcome of unaffordable housing  
is that Smart Growth cities find it difficult to house their  
tradesmen, nurses, teachers, service workers, and others who earn  
lower/middle household incomes.

Of course, rather than address the structural problem they have  
created, the Smart Growth advocates prefer to introduce further  
distortions such as "inclusionary zoning" which requires developers to  
supply a percentage of houses at below market rate. Naturally this  
increases average prices and further reduces supply. But Smart Growth  
advocates never let facts dissuade them of their theories.

So they now see growth and development as a problem because it creates  
long term downstream jobs and those pesky workers will want to live  
somewhere, probably reasonably close to their work. This increased  
demand will make the existing housing stock even more expensive.

So the Smart Growth Planners in Queenstown Lakes District Council have  
persuaded the Council to propose Plan Change 24.

This plan change argues that because commercial and industrial  
development (such as hotels, tourism attractions, factories etc)  
create downstream employment, the developers must be fined with a  
further round of development contributions so as to create a fund  
which council will use to fund affordable housing in zones "linked" to  
the development proposal.

So if you are proposing to build a hotel in Queenstown, as well as  
your normal development contributions you will be required to put up a  
Linked Zoning contribution to fund affordable housing for the people  
who will work as waiters, clerks, and cleaners in the hotel.

So where does the developer get the money from? From a finance  
company. And if there are no finance companies left in New Zealand  
where do the developers go?

Probably to the Gold Coast.

Item Four: Should Councils Collect Fines from their own Prosecutions?

(Part 2)
The Centre raised this question again in the last Digest in relation  
to TVOne's Close Up programme on the hapless Russell family, who are  
using a motor home to provide some of their accommodation needs on  
their rural property in Rotorua.

As further information has come to hand it turns out this sorry saga  
is simply further evidence of the need to remove Council's powers to  
levy "development contributions" on families who are simply trying to  
improve their circumstances.

It was probably not clear to the casual observer of the TV and  
newspaper coverage that the Russells have been fighting with their  
Council for over a year.
Without detailing the whole story, it turns out that my argument that  
the motor home is not a dwelling is correct. The District Plan  
definitions are quite clear on the matter.

The Russells have had good advice from their planning consultant, and  
when they were first told they needed a resource consent for their  
motor home they wrote to the Council asking for a legal opinion on the  
matter. Council's own legal advisers confirmed that the motor home was  
not a second dwelling according to the definitions in the District  
Plan. You might have thought this would be the end of the matter. But  
you would be wrong.

Council's response was to refer to a rule in their plan which said any  
activity not listed in the zone rules was deemed to be a non-complying  
activity. (This is a disgraceful rule and as a rule of thumb it is  
unwise to move into any district where the plan contains this rule. It  
reflects a particular frame of mind – one which is totally opposed to  
the enabling principles of the RMA.)

The Russell's RMA adviser came back with a letter which quite properly  
referred Council to section 9 of the RMA which says, in essence, that  
a landowner can do what they like with their land unless it  
contravenes a rule in the plan. He asked " where is the rule which  
says the Russells cannot park a motor- home on their property and use  
it as they see fit?" Remember, this motor-home is a genuinely  
operating motor vehicle, registered and with a warrant of fitness, and  
of course the Russells pay their petrol taxes like everyone else. They  
recently drove off on a short tour to relieve their stress.

When confronted with these facts Council's response was "You are using  
it as a dwelling, therefore you must get a resource consent for  
dwelling."
Next thing they will target dog kennels.

Council's environmental officer announced on Close Up that everything  
would be fine if they just applied for a resource consent which would  
cost only $600. However, when the Russells gleefully went down to the  
Council offices the next day they were told it would cost more than  
that, that there would have to be a hearing, and that Council was  
still assessing the level of the necessary development contribution.

So now the real issue is revealed. Ever since the Government changed  
the Local Government Act to give Councils the power to levy all manner  
of Development Contributions and simultaneously removed the right of  
appeal to the Environment Court, many Councils have been targeting  
their citizens as a source of large dollops of cash.

Extortionate front-end development contributions are a key part of  
Smart Growth strategies  and are largely responsible for inflated  
house prices and for generally dragging down the economy. (See Wendel  
Cox's commentary above.) If Councils fine developers they should not  
be surprised if they get less development!

Clearly the Rotorua City Council cannot tolerate the idea that this  
young couple with two young children can avoid paying say, a $10,000  
dollar contribution, by making do with a motor-home for a few years  
while they save to build their house.

Council has used a single complaint from a neighbour with  
"Gypsophobia" to justify their actions – actions which have made the  
Russel's life a misery for over a year.

This is why there is now widespread and growing support for a  
dedicated RMA Ombudsman, to give ordinary citizens some right of  
appeal, during that long period before the Council gets to reach a  
formal and public decision which can then be appealed to the  
Environment Court.

It would be a popular move and it would be interesting to see who  
would oppose it.

[STOP PRESS: The Daily Post reports that the Council had decided to  
waive the Development Contribution which of $8,000 but is still  
processing the application for a resource consent. The Russells have  
had much support from their other neighbours. We can assume the  
Councillors have brought their staff into line.]

Item Five: What to do about Development Levies.

Now that the double-bubble has burst, the full impact of development  
levies is being felt.

For as long as house prices seemed to be on a never-ending upward  
slope, and credit was easy to come by, and could be secured against  
future sales, the Councils felt they could grab as many kinds of  
development levies (development fines) as they could get their hands  
on. Property developers and families were prepared to pay them, and  
the banks were prepared to fund them, so as to get to the market as  
quickly as possible.

But now, development levies are killing projects, large and small,  
stone dead. I know of one family man who simply wanted to cut off a  
piece of his large lot to give a section to his son and daughter-in- 
law to help get them started in life – and in particular to get them  
into their own home.

So he set about planning this "simple" exercise including adding up  
the costs.

He soon phoned his Mayor (who is sympathetic to his plight and gave  
him a good hearing) to explain that when he added up all the costs,  
and in particular the costs of the three sets of levies he had to pay,  
they totalled over $70,000.

That is quite an expensive gift. And of course he could not recover  
these costs from a sale.

And so he has abandoned his act of paternal charity.

This is happening all over the country.

There is only one solution. Remove Councils' right to collect  
development levies from the Local Government Act.
(This has nothing to do with requiring developers to pay their full  
costs of development via the RMA.)

Amend the necessary legislation, and write new legislation where  
necessary, to once again allow infrastructure, large and small, to be  
financed out of long term loans. The intention of development levies  
within the general theory of Smart Growth was to discourage Greenfield  
development and encourage urban densification in its place. It works  
only too well.

The US markets which have maintained affordable housing have not only  
rejected Smart Growth with all its restraints on land supply; they  
have rejected development levies in favour of sophisticated long-term  
financing of infrastructure including genuine and easily implemented  
public/private partnerships.

For as long as Councils continue to enjoy the right to extract  
extortionate development levies from all those who try to create  
wealth, growth and development, we shall never rebuild our economy and  
keep our entrepreneurial young people here in New Zealand.

I have read that John Key is an expert in infrastructure financing.  
Most people are probably unimpressed by this because it sounds like  
something to do with power lines and drains, which have little appeal  
to the family voter.

However, If he bends his mind to applying his knowledge to funding  
local government infrastructure and using long term financing and  
public-private partnerships to eliminate the taxation disguised as  
development levies he should find massive support for his policy.

If he also promised to reform the RMA to enable the supply of "as is –  
where is" sections his support would be even more widespread. Just  
think of all those young couples wanting to buy a section who would  
find they could buy one for 30 to 40 thousand dollars.

Now, that's a "tax cut" worth having.

Item Six: NBR column 12 July: Why Councils should take Independent

Advice – especially when it's free.
My NBR columns on Houston have generated several commentaries on blogs  
both in New Zealand and around the world, even though the mainstream  
media have kept their gaze focused firmly inwards.
One of these blogs caught the eye of Tauranga City Councilor Rick  
Curach, who responded by sending the following memo to the CEO,  
Stephen Town:
Hello Stephen,
Below is a very interesting blog sent to me, which refers to housing  
costs. Particularly interesting are the links e.g. Dallas Federal  
Reserve webpage. They seem in stark contrast with ‘SmartGrowth’s’  
recent strong assertions that development regulation has no effect on  
housing affordability.
Given how critical such information is to our growth planning, this  
certainly warrants a proper response from the ‘SmartGrowth’ consultants.
Housing affordability is a very important matter. Are we being given  
the wrong advice and heading down a slippery slope? Are their  
textbooks outdated – out of touch with actual reality?
Stephen, can you please forward this to ‘SmartGrowth’ for a response.
Thanks, Rick

The consultants – SmartGrowth – responded with a brief report that  
“explained away” Houston’s affordable housing and essentially  
concluded that in New Zealand “there is no other way” than smart- 
growth, even if the end result is severely unaffordable housing.

To read the whole column, go to:  http://www.rmastudies.org.nz/index.php/columns

Entertainment: Adam Wildavsky, son of Aaron Wildavsky, recently

reminded me of one of his father's jokes.

Did you hear about the man who heard that most accidents occur within  
five miles of home?

He moved.

Funding.
It's that time of year again. Never has the Centre been asked by so  
many to do so much. And we try to oblige. However, everything costs  
money and the Government is remorseless in its demands for provisional  
taxes and GST. Many of our normal sponsors are seriously hurting from  
the downturn in property and development. We really don't want to fold  
our tent and creep away so your donations are essential to our ongoing  
efforts. The Centre donation form is attached.
Remember – even a dollar helps!