Straight Thinking – By Owen McShane

Hardly a week goes by without reports of another finance company getting into difficulties, followed by reports of thousands of families losing their life savings.

Commentators blame their favourite bogeymen – greedy lenders, greedy developers, greedy borrowers, greedy real estate agents, greedy young people, greedy old people, and greedy commission agents.

Can anyone do anything to avert further losses?

One group actually could make a difference. These are the District Councils who have been accumulating huge sums of money in the form of reserve, roading, and development contributions.

In times past, reserve contributions were properly paid for out of section sales. After all, the extra parks and open spaces are only required when someone moves in and creates the demand.

However, in recent years, and especially since the boom times, Councils have been demanding payment of reserve, roading, and development contributions, prior to the issue of title.

In other words, Councils have made these payments a condition of consent.

In times past, developers who set aside areas of bush, or who generally enhanced the amenities of their development, were able to reduce their reserve contribution in recognition of their own efforts. In recent times such “trading” has disappeared. Councils now insist these enhancements are a “compliance cost” of the consent, and reserve contributions are a further levy on top of the consent itself.

The end result is that most developers – many of whom are small family enterprises – have had to pay total contributions of $20,000 to $50,000 or more, per lot. A twenty-lot subdivision can create a demand for a million dollars paid over in cash, prior to any revenue from sales.

Until the bubble burst, most of them grudgingly paid up because they wanted to get their properties to market, and as prices continued to rise, these up-front levies appeared to be covered by gains in valuation.

For the same reason, banks and finance companies were prepared to finance these charges, prior to issue of title and prior to sale.

Now the bubble has burst – as all such bubbles must.

The result is that developers who have paid over these large sums – which are all premised on an increase in population and demand for service – now find they are unable to sell their new lots and cannot service their debt.

Consequently, the development companies (unless they are massive and well financed) are unable to pay their financiers, who are then unable to pay their investors, and a new round of families lose their savings.

Many developers on the edge of collapse would be able to pay their interest for a few more years if the hundreds of thousands of dollars now sitting in Council bank accounts, and not being used to fund reserves, roads or anything else, were in their own bank accounts instead.

Councils have really taken these levies illegitimately because the demand for services has yet to arrive. Using the excuse of “user pays” Councils have been demanding “pay before you use”. They can only do so because they enjoy a monopoly on granting consents.

Surely, it is time for Councils to sit down with their local developers and give them back these levies, on the understanding that they will be paid out of future sales – which is when they should have been paid from the outset.

Otherwise people might come to realise that the greediest people might have been those Councillors who have demanded these payments long before there was any demand for service.

Unless Councils take such initiatives many more residents and ratepayers stand to lose their life savings.

We shall know who to blame.

Orenco Station.

In his letter to the Editor of April 4^th, R J Martin says “Portland should be followed” and accuses me of using “facts” that are incorrect – a kindly way of saying I am lying. He claims that I have obviously never been to Orenco or I would have known the station is not surrounded by a wasteland but by an award winning “new urbanist” development. He concludes that we should be following this kind of development.

In 2004 I visited Orenco station as part of a whole day bus tour of Portland, its transport systems, and Transit Oriented Developments, as part of an international conference on such matters. I well remember standing beside stations looking out over large areas of land, lying idle because of restrictions on residential car-parking and so on.

There is a indeed a large area of land close to the Orenco light-rail station that remains undeveloped because the parking limits have made it unmarketable. This area is quite clear on the Google Map at http://tinyurl.com/4xkqnn

The station is clearly identified on the map. The brown fields to the north of the station are zoned for residential with maximum parking limits. These remain undeveloped. The green field to the north of the station is probably a park.

The 2002 report “The mythical world of Transit Oriented Development – Light rail and the Orenco Neighbourhood” found that these restrictive parking rules really had restrained development around the Orenco station for many years and that Light Rail was the least important factor in later development.. The authors conclude:

“To the extent that TOD generates increased transit ridership [In Orenco] it does so at tremendous cost, which must be paid for through a variety of public and private subsidies including free Park-n-Ride lots, employer-provided shuttles, fee waivers and government grants.”

As Randal O’Toole observed in his own report:

“Rail transit is not a catalyst for development; it is a catalyst for subsidies to development.”

Subsidies to Portland’s transit-oriented developments probably come close to US$2 billion, not counting the cost of light rail, streetcars, or other transit projects.

Another example of planning regulations impeding development was the attempt to stop “big box” retail developing around the Cascade Light Rail station serving the Portland Airport. The planners zoned it for “small box” retail because “big box” stores would be too “auto-dependent.” The city spent $28 million on parks, utilities, streets and footpaths but no one wanted to lease a small shop or office miles from any residential areas. The site sat vacant for five years after the light rail link was opened in 2001.

Finally the planners conceded defeat and allowed Ikea of Sweden to build a 26,000 sq metre store on the site. Apparently a Scandinavian big box store is OK but an American big box store is not. Ikea provides 1200 car parks for its customers.

The lesson is that if planners use land-use regulation to try to change people’s behaviour, development will stop unless huge subsidies are used to overcome the losses.

The results may win architectural awards but the medals are hugely expensive to the ratepayers. (For a fair appraisal of the design by one of the Orenco designers go to: http://www.planetizen.com/node/92)

So Mr Martin, I have been to Orenco. Indeed I have spent many days in Portland Oregon, and have personally visited most of the railway stations and have stood on the ground in most of the so-called Transit Oriented Developments. Unlike most observers, such as Mr Martin’s source of information, the “Sunset Magazine”, I have read extensive reports on what has gone on behind the scenes, including the development of what locals call “the Portland Mafia”, busy wheeling and dealing in tax breaks and subsidies.

As P. J. O’Rourke said, “when markets are regulated, the first things bought and sold are the regulators”.

For this reason alone, not everything in Portland is “an example we should be following”.

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Google Earth – A great reality check.

We should all be grateful to Mr Martin for reminding us in his letter that Google Earth is a wonderful reality check.

For example, there are still people who believe that New Zealand is running out of land because of urban sprawl, in spite of the fact that only about 1.5 percent of our land is urbanised. If you suffer from this “fear of sprawl” call up Google Earth, hover over North Auckland, tick the “borders and labels” box, remove the tick from “roads”, and you will see the ARC boundary north of Wellsford. Now work your way down the region looking for all that sprawl, remembering to scan from coast to coast as you go. Draw your own conclusions.

Similarly, people claim we are consuming our coastline with reckless speed and so we must be kept away from this dwindling resource.

Again, use Google Earth to fly up to Cape Reinga, go in close enough to see any settlements – if you can find one – and then work your way down the coast. Try the West Coast of the South Island too.

You might say that’s cheating, because these are remote areas. So line yourself up high over the Coromandel Peninsula, chose a random piece of coastline, and zoom in. If you land on a settlement buy a Lotto ticket – it’s your lucky day.

Just “fly” around the nearest headland to find more empty coastline.

Google Earth does remind us that New Zealand really is 98 percent open space. So let’s relax and enjoy it.

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