The economic consequences of Covid-19 has put the Christchurch City Council in a seemly impossible situation.
If the Council cuts costs. This will be called a austerity budget that has a disinhibiting effect on the economic recovery. It will counter stimulus spending coming from central government. Government MP’s like Duncan Webb have been quick to publicly warn the Council against this course of action.
Yet CBD businesses are desperate for rates relief. Customers are down -tourists are not coming and many office workers are still working from home. Respected business figures like Richard Peebles are calling on the Council to cut costs and give rates relief to inner-city businesses.
The way to escape this seemly impossible situation is to increase the weighting on CBD unimproved land i.e. car parks whilst decreasing it on improved land i.e. buildings.
Two images from the Tuesday Club talk demonstrate this opportunity.
The Council could change the way it assesses rates in the CBD. It could decrease the weighting for rating purposes of improvements -like buildings, and to keep the effect revenue neutral, it could increase the weighting for unimproved land -like car carks.
Given that in the CBD, for every two parcels of land that has buildings on it, there is one parcel with off-street car parking (information from the first image). This means for every $1,000 a year that rates are increased on properties without improvements, rates on properties with improvements could be decreased by about $500.
So for instance, in the second image if annual rates charged on the car park were increased by $10,000 then the rates on the hotel could be decreased by about $5,000.
This would give rates relief for CBD businesses (this should satisfy Richard Peebles)
It would be revenue neutral for the Council -so would not affect their spending plans -it would not be an austerity budget (this should satisfy Duncan Webb).
It would shift the decision making dial for inner-city land owners. Their investment calculations would change -not improving their land would decrease in profitability -whilst improving their land would increase.
So this rating change would be a stimulus for CBD improvements (construction) and would be supportive of central government stimulus spending (this should also satisfy Duncan Webb).
The inner-city business people I have talked to.
- Agree that leasing out empty inner city land to car parking firms is an easy risk-free option. There are minimal overheads and revenue will be tens of $thousand more than the rates bill. They were of the opinion that this car parking land ownership arrangement has been unaffected by the covid recession. Implying that changing the weighting of rates towards land and away from buildings might better share the financial pain of the economic slowdown for the inner-city economy.
- They also think the most beneficial effect of moving towards taxing land not buildings would be cutting costs for existing business. They informed me that in the Covid affected economic environment landlords are reducing lease payments in Christchurch’s CBD, especially for retail tenants. Shifting towards taxing land not buildings could assist this process. Landlords would be better able to cut leases to retain commercial tenants who might otherwise shut down. This benefits landlords too because they will have less tenants terminate their leases. Christchurch by doing this could avoid Tauranga’s CBD crisis of empty shopfronts plaguing the city centre.
- They were doubtful that there would be an immediate boost to commercial construction as that would be determined by business opportunities which currently is reduced due to the Covid recession. But they did think at the margin it would be helpful and it would help bring forward construction projects when the economy does start to recover.
Commercial rates can be $20,000 per year for a small 250 metre-square café in the centre of Christchurch. Hospitality business owners were quoted in the article -Drastic action needed to protect and restore Christchurch’s hospitality sector, industry leaders say -“that rates in the central city were high, any help to reduce costs for businesses would be gratefully accepted”.
Auckland Council’s chief economist has written a report about the opportunity to switch to a land value rating system.
He summarised that a land value (LV) based rates system approach has several strengths:
1. It incentivises efficient use of land and doesn’t reward those who do not develop their land.
2. It is easy to administer.
3. It is difficult to evade.
4. It doesn’t distort production in the economy -land is fixed and a tax on it won’t mean less of it is produced.
5. It better aligns timing between infrastructure provision and take-up of that infrastructure.
6. It is progressive. Those with more valuable land pay more.
The various political positioning of Duncan Webb, Richard Peebles and a former mayoral candidate are summarised in an article titled -Former mayoral candidate calls for council to make ‘massive savings’ on contractors.
There has been some publicity that has taken half the message from the Tuesday Club meeting about off-street car parking -the bit about discouraging land banking. The former mayoral candidate for instance called…
for the council to ….increase rates on empty land in the city centre.
But this misses the other half of the story. Namely, that building improvements on the land in the city centre is of wider benefit to the Christchurch community and therefore should be encouraged.
This wider benefit means if rates (taxes) are increased on empty land in the city centre then there should be a corresponding and equal reduction of rates on land with buildings on it. If the first part, but not the second part is done, then there is an increase in taxes paid by the inner city relative to the rest of the city. This would discourage economic activity in the city centre. The location where activity is the most beneficial because it is the most accessible, as was explained in the previous paper From Ugly Car Parks into Loved Buildings.
The following images from the Tuesday Club talk illustrate why improving the inner city is of wider benefit to Christchurch.
City employment in Christchurch has improved from the low twenty thousands to the low thirty thousands. Yet since 2013 public transport use has stagnated. On a per capita basis it has declined.
It is possible the abundance of off-street parking and the perverse incentives around rates being lower for unimproved land is one of the causes of poor public transport uptake.
The 2018 Census for Christchurch’s showed that over 21,000 people drove to work in the central city. Another 1000 people were passengers in cars. Yet only a little over 2000 peopled bused and a little over 5000 people walked or cycled –mostly biked.
There are about 20,000 people using Christchurch’s public transport system every day. So having only 2,000 bus trips to CBD workplaces (10% of public transport users) is an unusually low number compared to the proportion of most other public transport networks. Edmonton, a similar sized and shaped city in Canada, for example has a figure of about 25%.
Successful cities ensure their land is developed to its highest and best use.
Land owners should build on their land something that is useful to themselves, useful to customers, useful to tenants and useful to the community.
When a large number of buildings are in close proximity agglomeration benefits are created that produce a stronger economy.
Agglomeration is a spatial resource that allows us to connect, meet, play, work, partner, congregate, employ, share, learn and trade with a greater number and a greater variety of people.
The well designed grid of streets within Christchurch’s four main inner-city Avenues are closer to more people as measured from 5, 10, 15, 30 km’s distance from the city centre than all other places in New Zealand, except the centre of Auckland.
Almost ½ a million people can easily access the centre of Christchurch.
Christchurch central is a resource New Zealand should make better use of.
This should be done because Christchurch City Council has a strategic goal of having 20,000 residents living within the four Avenues. It should be done because the city acknowledges the seriousness of climate change and it should be done because it gives so many new opportunities to people.
The above graph shows population in one kilometre rings from the city centre of Auckland, Christchurch and Wellington.
You can see in this graph Christchurch’s weakness is in the first 2 kilometres. This is unfortunate because this would be an ideal environment for a large walkable community -a mixed residential and commercial built environment.
Compared to Auckland and Wellington, Christchurch is the donut city- empty in the middle. Christchurch needs to encourage more building in its city-centre.
Christchurch does have some strengths though. Look at the 3 and 4 km rings -there are more people living at these distances than even Auckland -this is one of reasons why Christchurch is so well suited to cycling as this is a perfect biking distance.
The best way to understand the above model is to start with land prices. City centre land is so valuable because its centrality makes it the best location for more of the connections, interactions, agglomeration to occur.
This sends a signal to substitute capital for land in the form of artificially building new ‘land’, by building floor space on top of floor space. In this way height increases. Built floor space increases. Population density increases.
How efficiently cities convert increased land prices to built floor space is very important because it affects city productivity gains, adaptation to climate change and housing affordability.
Tokyo is very good at it and London not so much. Tokyo has higher land prices than London yet cheaper house prices. In fact it is cheaper to rent a two-bedroom apartment in Tokyo than it is in Wellington or Auckland.
Note in Christchurch’s case this is not about skyscrapers. It is about encouraging the gentle, organic process of adding height and bulk to the built environment to create human scaled walkable communities.
When London Yimby looked at the option of giving streets the right to replace two-story terrace housing, which is the bulk of London, with four- or five-story mansion buildings, what they found was this could increase the built floorspace fivefold. 500%!
London would probably want more traditional buildings than the above picture -but the picture from an Amsterdam port redevelopment gives an idea of the kind of built environment that could replace Christchurch’s gravel carparks.
The increase in floor space is significant and this sort of built environment improvement is what Christchurch could aim for, especially mixed use buildings, commercial down below, residential above.
If Christchurch taxed land more and buildings less this could lead to many more innovative experiments in turning car parks into useful buildings. This could be much more stimulatory to the economy than the hundreds of $millions being spent on anchor projects like the convention centre and the stadium.
Christchurch if it correctly taxed off-street car parking could build a city worthy of a one or two block walk!