Mike Greer wants Municipal Utility Districts

According to reports from journalist Bernard Hickey, Mike Greer who is influential in government circles due to his achievements in the construction sector has asked for Municipal Utility Districts (MUDs), which are US style developer led urban areas that at least initially are separate to existing local government jurisdictions. Mike also states that the cat’s out of the bag with respect to over priced land and asks for a major government funded house building programme at this weeks Master Builders Construction Conference.

Mike Greer owner of one of New Zealand’s biggest home building companies -Mike Greer Homes and joint owner of New Zealand’s biggest home prefabrication factory - Concision

Many New Zealanders may be reflectively critical of MUDs because they do not like the automobile dependent sprawl that is characteristic of affordable Texan cities where MUDs are used. But this sprawl is more related to the large amount of motorways and lack of public transport which the US Federal government provides, not these local institutions. MUDs although separate from local body control still exist within a framework of rules, for instance they need to get approval from a Texan State environmental agency. In New Zealand that process could have some sort of transparent environmental points system, so that a MUD that had good public transport links would be approved or if the development had higher standards of self-sufficiency with respect to say, sewerage waste, energy efficiency, food etc it could also get automatic approval.

Bernard’s link also contains information about the opportunity Housing New Zealand (HNZ) has to contribute to a large scale government build programme.

Housing New Zealand land could be used more efficiently under the new intensified Unitary Plan to add another 30,000 houses to Auckland’s housing stock through Hobsonville and Tamaki-style build-and-sell programmes.

Although there is no guarantee these new homes will be HNZ houses or even affordable homes - the government could simply sell the land/intensification opportunity to the highest bidder. Thus perpetuating the problems of the status quo housing crisis; over priced land and unaffordable houses.

Bernard also reports that Mike Greer likes Phil Twyford. That Mike has talked to Phil twice this year in his office. And that Mike thinks Phil has a good understanding of Auckland’s housing crisis. It seems Mike Greer supports many of Labour’s housing proposals and there was a strong overlap between what Mike and Phil said at the Construction Conference.

Phil Twyford detailed Labour’s housing policy so far at the conference in a significant speech. Phil described how Labour would create an urban development authority (UDA) which he called an Affordable Housing Authority to cut through restrictions and achieve economies of scale to improve construction sector productivity. Phil re-iterated his support for removing restrictive municipal zoning boundaries which have ramped up land values and his support for targeted rates and municipal bonds to finance infrastructure (fresh, waste and storm water systems, local roads, lighting, parks etc) - so new developments do not over burden existing rate or tax payers.

Phil Twyford’s speech doesn’t quite support MUDs, but it does support something very similar - targeted rates and municipal bonds. Phil’s speech doesn’t exclude the possibility that the targeted rates/municipal bond system could evolve into a MUD type system at a later date.

My opinion of targeted rates versus MUDs is the following, but for those of you who are not familiar with MUDs here is a good link describing the way MUDs work in the US from a MUD bond insurers perspective;

I can see why Mike Greer asks for MUDs. I think it is the reasons I like greater freedom for property owners to be able to reciprocally intensify. I want more competition and transparency in the housing market - to keep everyone honest - including central and local government.

Without this competition whoever controls the greenfield development consenting process or the targeted rate system and the Urban Development Authority housing intensification system are the critical questions. Will they run it efficiently and as effectively as possible? Or will they have other goals - career advancement, empire building, local government strong arming central government for extra funding/services, political/vote buying, industry/crony capture, hidden central government fiscal revenue gathering - if land prices can be pushed up, then that is extra revenue for central government, due to HNZ’s property portfolio having such a large amount of housing intensification potential.

Look at what the Christchurch Central Development Unit (CCDU) did in Christchurch’s CBD, it was basically a UDA by a different name and it certainly was not efficient, competitive or transparent. Mike Greer was badly burnt by the CBD residential build tendering process.

I discuss this in my article - $1 billion Fletcher/Crown housing development - Christchurch CBD. Note I wrote this article 15 months ago and it is now 4+ years since the worst aftershocks died away in Canterbury and still not a single residential unit has even been built on the CBD land which the CCDU compulsorily acquired. Yet the private sector is churning out 500 homes a month in Canterbury, mostly in peripheral and peri-urban locations. Here is a Mike Greer quote about this go-slow Fletcher/Crown deal:

“They (Fletcher) are obviously doing a very good sell job to the Government, aren’t they. “I’m pretty disappointed a local bid didn’t get it. I think it’s pretty sad for Canterbury.” A local bid would have produced something much better, in his view.

“I guess they (Fletcher) offered more for the land than we did, that would be the biggest carrot for the Government, wouldn’t it.”

Greer said their proposal was “taller”, some eight storey apartment buildings, because they were planning for future population growth as well. It comprised 1200 apartments and townhouses in a price range of $300,000 to $1 million. The main part of their project was aimed at middle New Zealanders.

“We wanted to encourage policemen and nurses and all those kinds of people that work in the city to live in the city.”

“I think we would have created something far better for the people of Canterbury than what they are going to get.” “My biggest concern is they go offshore…to sell these as investment properties.” That would be devastating for the city, in his view.

It cost the consortium $600,000 spent to make the bid. “To be honest the whole process was a bit of a shemozzle, an absolute waste of money. I won’t be doing any bids ever again.” “Our proposal was probably far too fancy for the Government, it looked after the people of Christchurch too much and didn’t provide a massive economic return for the bidder and the Government. Our bid was focused on building something world class.”

“It’s a funny old world this post earthquake world. There’s more politicking on houses than I ever imagined,” Greer said.

The point of allowing MUDs or reciprocal intensification is not necessarily to produce large scale housing developments, which lowers costs due economies of scale etc. It is to keep the big players (including central government) that could produce those house numbers, honest: by the competitive effect of freedom of entry, so that those lowered costs are passed on to the customer - the home buyers - something this current government for whatever reason is reluctant to do.

An important aspect of MUDs is there is no incentive to drip feed the development onto the market. If a developer buys a plot of land and builds infrastructure for 500, 1000, 2000…. houses - their aim is to get the MUD bond to repay their infrastructure costs as quickly as possible, before another MUD enters the market and potentially undercuts them. One of the conditions to get a municipal bond (to get insurance/reinsurance) is that x percent of the 500, 1000, 2000 houses must be built and occupied by a diverse group of property owners. Those home buyers have to do due diligence - in a way MUDs are like bodies corporate - so the buyers are not just assessing the individual housing unit but the scheme in its entirety. Those first buyers need to consider if the whole development is competitively priced because they do not want to be paying a high share of the municipal bond debt. Those first buyers need to be assured that the development will sell quickly - they will assess whether the whole scheme is good value for money, not just their individual house. With MUD provided housing all the interests are correctly aligned to ensure competitiveness - the developer, the new community, the bond issuer and the bond insurer. It is not clear to me that a system of targeted rates would correctly align all the competing interests.

Note how the MUD developer is incentivized to correctly assess market demand (500, 1000, 2000 houses) and only supply the current needed amount.

In a housing supply system comprising of a government sponsored build programme and a private construction sector with some MUD developer involvement. The government sponsored build programme is the fixed base-load supply, providing certainty for long term investment, to improve construction sector productivity etc. The private property development sector/MUDs are the competitive (freedom of entry) variable supply that can ramp up and down in response to demand pressures. It is not clear to me that a targeted rate system would address the issue of responsive competitive variable supply as well as MUDs would.

Does anyone else have an opinion on how New Zealand should reconfigure the rules for private sector housing supply?

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