MUDS to Assist Greenfield Development?

Could a method of infrastructure building from Texas help with Auckland as she grows?

 

 

budget

Bob Dey in his Unitary Plan coverage commented on who would control the Greenfield land release program once the Unitary Plan goes live. That being who and how will the yellow Future Urban Zones being handled and flipped to the urban zones over the next 30 years.

From Bob Dey’s Property Report

UP8: Crucial question: Who will control land release?

  1. The key question about how greenfields land will be rezoned under Auckland’s unitary plan is: Who controls it, council or developers?
  2. The second question is how infrastructure for rezoned land can be put in place before or as it’s needed, not after.
  3. And the third is: How will it be funded?

The first of those questions is one for the independent panel hearing submissions on the unitary plan. The second has been mentioned by council people from time to time, but without a proposition being brought forward. And the third, on funding, has to be considered if the order of infrastructure provision, or the supplier, changes.

Since 1999, Auckland has had metropolitan urban limits set in concrete, which could only be extended at great cost in time & money, and only after exhausting tireless opposition from the regional council (ie, close to never). Critics of Auckland’s rising housing costs have blamed that inflexibility for ensuring Auckland would be out of step with cities around the world that didn’t have such tight constraints.

Under the new unitary plan, up to 70% of new residential development is to occur inside those metropolitan urban limits as they were when the super-city Auckland Council replaced the regional council & 7 territorial councils in 2010. The balance of development is to occur within a new rural:urban boundary, still not set.

About 10,800ha would be available for rezoning, and that rezoning would ensure a steady supply of land for subdivision.

But who would decide the timetable? And who would choose the next land to be rezoned?

Auckland Council revealed its proposal for a land release programme, and how it would work, in evidence & submissions to the independent panel on the proposed unitary plan in November & December. At first the council proposed writing the programme in conjunction with other parties, but changed that to “in consultation with” – the difference is that, under the first scheme, outsiders would have a say; under the second scheme, outsiders could have a say but the council wouldn’t have to listen.

Sue Simon, counsel for Todd Property Group Ltd, told the hearing panel there had been no consultation on the rural:urban boundary, let alone the proposed land release programme.

She said: “We’re back to the old command & control.” Council witnesses had said there would be open slather without the rural:urban boundary, but Ms Simon said there was no such thing as unconstrained growth, there was always a structure plan. Imposing a land release programme run by the council was to reassert “the attitude that they know better than anyone else”.

It also proposed a minimum 5 years’ supply, not the 20 years or so developers want.

To achieve this supply, the council proposed its land release programme. Presenting the council case on urban growth on 15 December, lawyer Heather Ash told the panel: “Before structure planning takes place, the council’s land release programme will identify the future urban form of land, including land use in the future urban zone as well as the key infrastructure required to service development.

……

“The council considers that the amendment to policy 4 suggested by Ms Trenouth [resource management consultant Chloe Trenouth] – resulting in the obligation for structure planning and the rezoning of future urban-zoned land to have regard to the land release programme – is necessary to ensure that development of future urban-zoned land in the rural:urban boundary occurs in a staged, timely & integrated manner aligned with the provision of infrastructure.”

Ms Ash pointed to further council evidence to indicate that structure planning & rezoning would have regard to the land release programme, and for development to be generally adjacent to existing urban areas, which “will assist Auckland Transport & Watercare to deliver transport, waste & wastewater infrastructure & services aligned with the timing of the proposed development”.

That evidence, and on stormwater, “establishes that it takes time to facilitate bulk infrastructure in greenfields & the locations where it is to be provided will need to be prioritised. In circumstances where there is about 10,800ha of land zoned future urban within the rural:urban boundary, the reality of the situation is that there cannot be a general ‘free-for-all’ of upzoning of future urban land within the rural:urban boundary…..

“While it is envisaged that the majority of development proposals involving rezoning will be guided by the land release programme, they also provide an opportunity for other development proposals to occur out of sequence where the relevant statutory criteria can be satisfied.”

The Government might need to be involved in shaping public infrastructure funding, but there is no need for all infrastructure to be done by the public sector and smooth planning according to a council-devised programme would be less likely to create the competitive friction that would help keep section prices down.

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Source and full post: http://www.propbd.co.nz/up8-crucial-question-will-control-land-release/

 

I believe the answer to all three questions Bob raised at the top can be answered via the Municipal Utility Districts which could offer an advantage to Southern Auckland which houses the largest Future Urban Zone land in Auckland:

 

 

Southern Rural Urban Boundary with Future urban zones in yellow
Southern Rural Urban Boundary with Future urban zones in yellow

 

Municipal Utility Districts (MUD’s) or How Texas provides new housing at prices at three times median income.

From a NZ perspective what makes MUDs work, and could they work in NZ?

For simplicity a MUD needs to be divided into two distinct parts.

  1. Part One: Positive Presumptive Rights and Raw Land

This first involves the general legislative environment that MUD’s operate in Texas in that there is a right to build law on all property. What this means that there is no zoning as we might understand it in NZ.  There is a positive presumption for developers and home builders to undertake development, within specified local and state government guidelines that cover things like environmental protection.  In effect you first identify were you would like to develop, purchase the land by mutual agreement from the owner, and apply to develop within the specified rules, on which the developer covenants a set of further rules (retrospective zoning by default) to attract his target market. The onus is on any party that opposes the application to prove that it does not meet those rules. This is the complete opposite to how land is zoned and developed in NZ were we have a negative presumption to develop ie restrictive zoning ideology.

The two main benefits of the Texas system are:

  1. That because in theory all land is potentially available for development, no one can hold land in a monopoly position, ie there is no ability or advantage to the land owner in land banking. If the land owner on the edge of the city does not want to sell for whatever reason, then the developer just finds the nearest land owner who does. Without the ability to land bank, the land can be purchased close to if not at its present working income value ie the rural land value. For clarity just so the reader gets to full meaning of what I am saying, this would mean being able to buy raw development land in NZ for about $50,000 ha, not the $1.5 to $2,000,000 plus per ha they have to play now. Or to put it another way the standard raw land cost of the average size 600m2 section would be $3,846, not the present $115,3846 to $153,846. However, if this benefit was not enough, it is only the start that positive presumptive rights give.
  2. Positive Presumptive rights also give the developer the confidence in knowing that if he complies within the specified guidelines then he can develop as of right, ie with fear of anyone being able to delay the process. This enables the developer to quickly develop supply to meet demand in almost real-time. The benefit of this is there is no restriction and less financial risk and holding costs because of consenting delays, and because of course any developer can do this, there is plenty of competition to make sure sections and houses are developed at the most affordable price possible.

As there is a direct correlation (irrespective of zoning restrictions) in all cities worldwide between the price of fringe land prices and inner city prices ie lower fringe prices mean lower relative inner city prices, and higher fringe prices mean higher relative inner city prices, Texas inner city house prices are far cheaper than comparable inner city prices in NZ.

So to answer the obvious question, No we cannot, under the negative presumptive ideology and legislation and interpretation of the RMA and LG rules by council in NZ, buy land free from renter monopoly land banking that allows these owners to capture highly inflated super profits for no added benefit. While they are profits for the owner, they are a cost that is passed onto you the home-owner via the developer.

BUT there are still advantages on how MUDs are managed that would allow a NZ style MUD to offer some benefit to home-owners in NZ.

 

  1. Part Two: MUD Development and Management

The obvious difference in how we develop subdivisions in NZ is that in a NZ subdivision when a developer has developed the common area e.g. roads, reserves etc. we vested them to council ie we have paid for that asset (in our section price) and then we give it away for someone else to own and manage on our behalf. These assets include the ownership of all roads and wastewater infrastructure, including in most cases the wastewater treatment station for that subdivision. MUDs are not obliged to join local council systems, and are allowed to develop their own infrastructure systems that, because of modern technology in particular, are cheaper in capital and operation costs than council systems and more environmentally friendly as well. Further a MUD not only keeps ownership but takes the cost of that infrastructure out of the price of the section and it is paid back over its economic life. In Texas there are special Municipal Bonds that are available for this purpose. The MUD owners pay their portion of that infrastructure as MUD rates. Again this lowers the entry price of the section, which in conjunction with the original land being purchased at the rural land price, and further as evidence has shown, because MUD infrastructure is developed more effectively than restrictive negative presumptive policies, the MUD rates are cheaper than if the infrastructure had been vested and rated by council.

If we were looking for a NZ acronym for MUDs we might call them Affordable Community Owed Residential Neighbourhoods (ACORN) as a way to understand their benefit easier.

From a home-owners’ perspective a MUD is a group of like-minded owners who employ others to manage their common assets. In effect very much like a Body Corporate (BC) in that you own your own apartment, plus have shared ownership of the common areas, of which you employee others to maintain. So whereas a BC might be a 200 apartment high-rise building, a MUD would be the equivalent of a 200 section subdivision, or larger.

All a MUD does is retain ownership within the local community, like a BC does, and the employers managers.

The real advantage of a MUD development and Management is that it allows for a community to be developed and managed without the need, or very minimal need, of the local authority. Of course just like the positive presumptive purchase of the land, the development and management has to comply with Government guidelines. The benefit of course to the home owner is a more affordable and better home, and more community involvement and spirit.

But there is also a benefit to the local council from not being too involve i.e. they do not take on any of the infrastructure development risk, and thus ratepayers not associated with the development are protected. And of course, because it is privately developed rather than publicly developed, by its very nature is less risky. Everyone benefits.

There are already private property developments that have used some of the above in NZ, but the benefits of any savings have usually been captured by the restrictive policies of council, eg Value Capture and Inclusionary Zoning so the end purchaser ie the homeowner is no better off than if the developer had stuck with the Status quote.

The key to affordable housing is positive presumptive ownership rights.

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So could MUD’s work for our Greenfield developments? Or is Council too much in Command and Control mode and possibly forcing us down a more expensive road than a MUD could provide us.

 

Municipal Utility Districts I have submitted on before in Auckland Plan, Long Term Plan, and Unitary Plan submissions to no avail so far….

 

A thanks and credit to Dale for the MUD summary. Very much appreciated as both the Long Term Plan, and the Unitary Plan debates go on.