The media has been full of ‘development contributions’ recently. Some people (mainly it seems to me developers and other people in the property industry) blame them for the high price of land. So I thought I might tell you about the contributions
First what are they? Councils provide services like roads, parks, libraries, community halls, sporting facilities. All of these cost money. All of them are used by the people within the council area. Mostly the council does not charge a fee for using them (indeed in some cases such as libraries the state government prohibits councils from doing so –though not for using add on services like the canteens at sports grounds and the photocopiers in the libraries). The council has two ways of paying for the services it provides (Apart from the fee for service). IT can increase our rates (assuming the state government will let councils do so- for it generally ‘pegs’ rate increases to no more then the rise in inflation). Or where an area is growing and people are moving into it and so increasing the demand it can in some way charge the people who are moving in a once off fee. And that second way is the ‘development contributions."
They are not new. Although councils had been levying charges on a piecemeal basis with varying degrees of success (Developers used to take action against councils ) the power of councils to charge was first legislated by Neville Wran’s government when it brought in the present Environmental planning laws in 1980(the Act was passed in 1979 but came into force in September 1980-giving everyone a chance to become familiar with it. I think it would be excellent if governments gave us all a similar chance to get used to new schemes before they were introduced- the Federal government did so with GST).The Act also allowed developers to provide their own services or to dedicate land for parks and so on instead of paying some of the contributions (You can see how this has worked by looking at Somerset Park or the Landcom developments at Metford where many of the parks and cycleways were developed by the subdivider.)
In 1992 Nick Grieners coalition government made some major changes –particularly to make councils have a publicly available ‘plan’ setting out the rates that council will charge for particular developments and there have been other changes allowing developers and councils to enter into planning agreements (this is mainly for large scale developments and allow the council and the developer to set some ground rules). And now the state government and bodies like Hunter Water can charge contributions as well.
Developers could –and did – appeal to the Land and Environment Court against the contributions.
Mostly the scheme seemed to work without much criticism for many years- though sometimes it could be a little unfair. I remember when I was in Cooma the local radio station was building extensions and was levied for car parking. But the nearest public car park was almost a mile away near the court house and the council officers drove from the court house to the radio station building when the court case was on. They were able to park in the street without any problems.
So why the fuss now? I really don’t know, the charges are not all that much- Maitland City Councils general charge per block (there are different and slightly higher ones for specific new areas like Gillieston Heights) is $11397 which is perhaps 6% of the total price of a block of land in a new subdivision ( blocks in the Lake View development at Bolwarra Heights were selling for $195,000 at the beginning of the year) and Hunter Water’s fee is $2617.
The developers push to do away with these means that we –the existing residents will have to pay more in our rates and charges for services which will be used not by us but by new residents.. And if the Tilligery dam ruckus is any guide we will be paying a lot more.
For years now the state government has been trying to make councils charge on a user pays basis (so for example rates are supposed to be broken into amounts for garbage collection and so on). But the developers in complaining about these development charges are trying to shift costs to the general public.
Further Reading and references
MCC contribution rates http://www.maitland.nsw.gov.au/PlanningDevel/S94Plans/S94ContributionRates
Hunter Water rates (note there are two -headworks and an individual locality charge) http://www.hunterwater.com.au/2367.aspx
The state government site (and note the government wants more changes as listed on the site)
http://www.planning.nsw.gov.au/planning_reforms/developmentcontributions.asp
Tuesday, November 18, 2008
Tuesday, November 4, 2008
Regulation and the sub prime mortgage crisis. Or how America got itself in a mess.
I’m going to take a wider view this week and not write about Australian property laws. By the time you read this the dust will be settling on the American Presidential election- which I’m told cost about a billion dollars (which is the same as Americans spend on potato crisps each year). But the problems of the world economy remain.
Some of the commentators such as Piers Ackerman in the Newcastle Herald last month have been trying to blame the American subprime mortgage crisis-which they say started it all- on laws which made USA banks lend to minorities and poor people. Ackerman was vague, he didn’t name the laws but other commentators have: they say the Community Reinvestment Act is to blame. Now that is in fact the only law that made banks lend to minorities and poor people so I guess that’s the one Ackerman is talking about. Ackerman and those like him go on to argue that its regulation that got us into this mess and the only way out is to remove regulation and have what they call a free market.
That this is utter garbage can be seen by comparing America and Australia. America has a far less regulated system then we do, and our banks are (because they are regulated by government agencies) far safer, indeed our four big banks are among the 20 safest and most secure in the world (there are only 20 banks in the world that have an AA credit rating –which each of our big 4 does). And that’s one reason why there is so few problems here. All lenders here are regulated for capital adequacy for the type and size of loans and for many other things- talk to your bank or building society if you want more details.
But what I want to focus on is the Community Reinvestment Act. This was started because American lenders wouldn’t lend to poor people. This wasn’t nearly so much a problem in Australia (partly because the government helped finance lenders through community terminating building societies- one my older readers may remember was the Telarah Community Advancement Association). So in 1977 the US Congress enacted this law. Now its this law that after 30 years of trouble free progress is now blamed for causing the problem. The people like Ackerman who say that this law interfered with the market also say that this interference is responsible for the problems.
The evidence is against them. The Bank for International Settlements economist’s Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust," Ellis goes on to say that the failed subprime loans have been mainly what he calls ‘exurban’ –which includes what we would call rural residential and that loans under the Act were made to poor urban dwellers. Again f the Federal Reserve Bank of San Francisco says that independent mortgage companies (which I think are lenders like Aussi home loans) made "high-priced loans" at more than twice the rate of the banks and thrifts;(which are like building societies and credit unions) most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.
Aussi and lenders like it are regulated here and are not in any responsible for Australian problems nor do they make higher priced loans. Even so the problems that RAMS suffered seem to show that foreign wholesale lenders thought that our non bank lenders had the same sort of problems.
The answer is not the free market that Ackerman goes on about. Its not the answer -if only because its not a free market- my university lecturers told me that free markets were ones in which every person was effectively equal, that no buyer or seller could by itself influence the market and that’s certainly not true here – I am not my bank’s equal, and the banks are big enough to influence the market.
Rather the answer is better regulation, that’s why we can be thankful for the bipartisan approach of our successive federal governments.
Some links: some of the leading deregulationist commentators * http://www.lewrockwell.com/dilorenzo/dilorenzo125.html (don’t believe what you read by this man without checking reviews of his biography of Abraham Lincoln-which he advertises on his site (he believes the slaveowning Southern states were right to succede and keep on owning slaves. " "Consider this inflammatory assertion: "Eliminating every last black person from American soil, Lincoln proclaimed, would be 'a glorious consummation.'" Compare the nuances and qualifications in what Lincoln actually said: "If as the friends of colonization hope, the present and coming generations of our countrymen shall by any means, succeed in freeing our land from the dangerous presence of slavery; and, at the same time, in restoring a captive people to their long-lost father-land, with bright prospects for the future; and this too, so gradually, that neither races nor individuals shall have suffered by the change, it will indeed be a glorious consummation." One need not be a Lincoln admirer to recognize that DiLorenzo is making an unfair characterization." http://www.claremont.org/publications/pubid.226/pub_detail.asp)
An article from the Wall St Journal http://online.wsj.com/article/SB122298982558700341.html
J A Millon on CNN http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html
(but note these people don’t provide any detailed analysis)
Luci Ellis (warning a long and technical paper ) http://www.bis.org/publ/work259.pdf?noframes=1
The US Federal Reserve analysis http://www.frbsf.org/news/speeches/2008/0331.html
Traiger & Hinckley LLP. (2008). The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis (also long and technical) http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
Some of the commentators such as Piers Ackerman in the Newcastle Herald last month have been trying to blame the American subprime mortgage crisis-which they say started it all- on laws which made USA banks lend to minorities and poor people. Ackerman was vague, he didn’t name the laws but other commentators have: they say the Community Reinvestment Act is to blame. Now that is in fact the only law that made banks lend to minorities and poor people so I guess that’s the one Ackerman is talking about. Ackerman and those like him go on to argue that its regulation that got us into this mess and the only way out is to remove regulation and have what they call a free market.
That this is utter garbage can be seen by comparing America and Australia. America has a far less regulated system then we do, and our banks are (because they are regulated by government agencies) far safer, indeed our four big banks are among the 20 safest and most secure in the world (there are only 20 banks in the world that have an AA credit rating –which each of our big 4 does). And that’s one reason why there is so few problems here. All lenders here are regulated for capital adequacy for the type and size of loans and for many other things- talk to your bank or building society if you want more details.
But what I want to focus on is the Community Reinvestment Act. This was started because American lenders wouldn’t lend to poor people. This wasn’t nearly so much a problem in Australia (partly because the government helped finance lenders through community terminating building societies- one my older readers may remember was the Telarah Community Advancement Association). So in 1977 the US Congress enacted this law. Now its this law that after 30 years of trouble free progress is now blamed for causing the problem. The people like Ackerman who say that this law interfered with the market also say that this interference is responsible for the problems.
The evidence is against them. The Bank for International Settlements economist’s Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust," Ellis goes on to say that the failed subprime loans have been mainly what he calls ‘exurban’ –which includes what we would call rural residential and that loans under the Act were made to poor urban dwellers. Again f the Federal Reserve Bank of San Francisco says that independent mortgage companies (which I think are lenders like Aussi home loans) made "high-priced loans" at more than twice the rate of the banks and thrifts;(which are like building societies and credit unions) most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.
Aussi and lenders like it are regulated here and are not in any responsible for Australian problems nor do they make higher priced loans. Even so the problems that RAMS suffered seem to show that foreign wholesale lenders thought that our non bank lenders had the same sort of problems.
The answer is not the free market that Ackerman goes on about. Its not the answer -if only because its not a free market- my university lecturers told me that free markets were ones in which every person was effectively equal, that no buyer or seller could by itself influence the market and that’s certainly not true here – I am not my bank’s equal, and the banks are big enough to influence the market.
Rather the answer is better regulation, that’s why we can be thankful for the bipartisan approach of our successive federal governments.
Some links: some of the leading deregulationist commentators * http://www.lewrockwell.com/dilorenzo/dilorenzo125.html (don’t believe what you read by this man without checking reviews of his biography of Abraham Lincoln-which he advertises on his site (he believes the slaveowning Southern states were right to succede and keep on owning slaves. " "Consider this inflammatory assertion: "Eliminating every last black person from American soil, Lincoln proclaimed, would be 'a glorious consummation.'" Compare the nuances and qualifications in what Lincoln actually said: "If as the friends of colonization hope, the present and coming generations of our countrymen shall by any means, succeed in freeing our land from the dangerous presence of slavery; and, at the same time, in restoring a captive people to their long-lost father-land, with bright prospects for the future; and this too, so gradually, that neither races nor individuals shall have suffered by the change, it will indeed be a glorious consummation." One need not be a Lincoln admirer to recognize that DiLorenzo is making an unfair characterization." http://www.claremont.org/publications/pubid.226/pub_detail.asp)
An article from the Wall St Journal http://online.wsj.com/article/SB122298982558700341.html
J A Millon on CNN http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html
(but note these people don’t provide any detailed analysis)
Luci Ellis (warning a long and technical paper ) http://www.bis.org/publ/work259.pdf?noframes=1
The US Federal Reserve analysis http://www.frbsf.org/news/speeches/2008/0331.html
Traiger & Hinckley LLP. (2008). The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis (also long and technical) http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf
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