| Council action could save many companies |
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| Sunday, 06 April 2008 18:45 | |
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Council action could save many companies, and the life savings of many New Zealanders. Hardly a week goes by without reports of another finance company getting into difficulties and consequent reports of hundreds or even thousands of families seeing their life savings disappear. Much commentary focuses on "Who is to blame?" and everyone indentifies their favourite bogeymen – greedy lenders, greedy developers, greedy borrowers, greedy real estate agents, greedy young people, greedy old people, and greedy commission agents. Few seem to focus on who could step in to reduce the risk and avert further business collapse and further loss of personal savings. The Centre's enquiries suggest there is one group of people whose actions could make a substantial difference. These are the District Councils who have been pocketing large sums of money in the form of reserve contributions, roading contributions and general development contributions. In times past reserve contributions were paid out of sales – because the extra parks and open spaces are only required when someone moves in and occupies the site. However, in recent years, and especially since the residential bubble has been expanding rapidly, Councils decided they should not have to wait and have been demanding payment of reserve contributions, and roading contributions and development contributions prior to the issue of title. In other words, Councils have made payment of these contributions a condition of consent. In times past, developers who set aside areas of bush, or who generally enhanced amenities within or around their development, were able to reduce their reserve contribution in recognition of their own efforts. In recent times such "trading" has disappeared. Councils have taken the view that these enhancements were necessary to get the consent to develop, and reserve contributions were a further levy on top of the consent itself. The end result is that most developers – many of whom are individuals or small family enterprises – have had to pay total contributions of $20,000 to $50,000, or even more, for each section. Until the bubble burst, most of them grudgingly paid up because everyone 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. Consequently Banks and Finance companies were prepared to finance these charges, prior to issue of title. The sums are considerable. A twenty lot subdivision can create a demand for a million dollars paid over in cash, and prior to a single sale. Then the bubble 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. Those who have just gained a consent may also find their financiers are no longer prepared to finance these levies. 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 so the headlines are born. The Centre has spoken to development companies that are on the edge of collapse but who 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 which are not being used to fund reserves, roads or anything else) were in their own bank accounts instead. Councils have really taken these levies unlawfully because the demand for services has yet to arrive. 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 the developers in their cities and districts and give them back these levies, on the understanding that they will be paid out of future sales – which is when they should always have been paid from the beginning. 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 they take such initiatives many more of their own residents and ratepayers stand to lose their life savings. Otherwise, in one way or another, we shall all pay a price. |
