Monday 16 November 2015

Pricey golf courses

Bernard Hickey trawled through 269 pages of Auckland Council reports to find this gem, reported in this morning's Hive News:
Elsewhere, Auckland Council released 269 pages of reports by Cameron and Partners and EY on Friday on alternative financing sources, including an estimate that its golf courses are worth NZ$2.1 billion if they were put to other uses, including for housing. The report estimates just four of the courses -- Remuera, Pupuke, Takapuna and Chamberlain Park -- are worth NZ$1.4 billion, but have a rateable land value of just NZ$47 million.

Remuera, for example, only pays rent to the Council of NZ$130,000 per year, yet EY estimated the fair market ground rental at NZ$16 million a year.

"This represents a significant subsidisation to private interests and raises questions about whether at least parts of this asset – the land the golf course occupies – could be considered for higher value uses," EY wrote.
The Cameron Partners report looked at Auckland's debt limit. Auckland is constrained by a 250% debt-to-revenue ratio limit. While they've about a billion dollars in additional capacity to take on debt, nobody wants to be right at the binding limit.

And so if Auckland's to use debt to help fund infrastructure in a growing city, how can they do it? The report discusses options for asset recycling: selling off, in whole or part, some of Council's assets. The report says Council owns $506 million in commercial parking buildings. Releasing 5% of Auckland's parks and reserves for use as housing could bring $2.25 billion. Auckland's golf courses are valued at $61 million for accounting purposes but the top four alone would be worth $1.4 billion as housing.

The report also highlights Council's failure to think hard about the opportunity cost of its asset ownership, failures in its cost of capital analysis, and political incentives preventing divesting of assets owned at the Ward level where returns flow to the general Council budget.

The nonsense around use of Council-owned land is one reason I like the idea of applying a land tax to Council and Crown-owned land. Council would pay the Crown based on a proper valuation of Council's land assets, and the Crown would pay a similar tax back to Councils. Councils seem to have a very hard time thinking about the opportunity cost of their asset holdings; turning some of those opportunity costs into annual on-budget expenditures could sharpen thinking.

Thanks to Bernard Hickey for the pointer. If you haven't subscribed to his Hive News yet, and are interested in NZ policy, you should.

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