Land supply, taxes and levies prohibiting home ownership

11 August, 2011

The supply of land and basic infrastructure, along with taxes, levies and charges imposed on the housing supply chain are pushing up the cost of home ownership, according to Property Council New Zealand.

Property Council has welcomed the findings of a Productivity Commission report on housing affordability, but argues the high costs of residential property development are passed on to the consumer, affecting the affordability of housing.

Property Council chief executive Connal Townsend said the Commission’s issues paper was a welcome look at the barriers to home ownership. “Taxes, levies and charges, particularly development contributions, are effectively a first-home buyer’s tax.

“Development contributions are a major reason for the excessive cost of housing and there are problems with council practise of levying developers.”

A development contribution is a charge levied by territorial authorities to recoup the costs of growth-related spending, needed because of the specific property development. They result in higher development costs that developers pass on to future residential and commercial property owners.

Many territorial authorities wrongly use development contributions to pay for improved service levels and ‘catch-up’ projects, particularly in high-growth regions.

“As we predicted three years before the onset of the Global Financial Crisis, territorial authorities’ illegal use of development contributions as an alternative to rates as a revenue source has seen significant shortfalls in revenue in many regions as development slowed during the recession.”

Property Council has been a long-time advocate for the legal application of contributions, along with the introduction of an appeal process. Previous High Court cases have resulted in local authorities using taxpayer funds to unsuccessfully defend their policies, including the well-known Neil Construction Limited and others against North Shore City Council in 2007.

A report by Local Government Forum and Property Council, Taxing Growth and Development, published in early 2010, provided a critical review of the role of development and financial contributions.

On releasing the paper, Mr Townsend called the fees a “rort” which were factored into house prices and passed on to buyers. He said new home buyers are bearing the cost of funding community-wide urban infrastructure – funded through development contributions. “We are denying young New Zealanders in particular, access to home ownership.”

Land containment policies, including metropolitan urban limits and restricted building height limits also affect the price of land and property.

“Land shortages have become institutionalised over past years, especially in Auckland, by the lack of available greenfields land and restricted building height limits. This has pushed up the price of unserviced land, which is passed on to the end consumer.”

ENDS

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