The Post: Compulsory purchase of mall could create unrealised potential

Read the original article in the Post

It takes a lot to unite the Wellington City Council right now, but the owners of Johnsonville Mall may have just about managed it. Or so it seems from the council’s threat this week to compulsorily purchase the local “eyesore” that is the mall.

This represents, at least rhetorically, a break with the habits of the last 40 years. We have long been told that the best a state body can do is to steer, not row: to create the conditions for firms to do their thing, but not act directly itself.

This is hands-off, laissez-faire government. Hence we see, for instance, ministers subsiding low-end landlords through the Accommodation Supplement rather than building state houses en masse.

This has not been very successful, and helps explain why so many things in New Zealand cost so much and work so badly. Yet steering is still the limit of our ambitions. The housing debate has been dominated by the question of rezoning land: changing – one might say steering – the places where developers can build.

That reform, much-needed, has already delivered benefits in places like Auckland. But it is incomplete: developers, left to their own devices, will not automatically provide affordable, high-quality housing. We have, comparatively speaking, neglected state housing, currently 43,000 homes short of its 1990 level (when adjusted for population growth).

So it is striking that a Wellington City Labour councillor, Ben McNulty, has majority support to commission a plan to hasten redevelopment of Johnsonville Mall, potentially including compulsory purchase. He has the backing of conservative colleague Diane Calvert, who rightly says it’s time for action “rather than just solely relying on [mall owners] Stride”.

For non-Wellingtonians, the short back-story is that the mall is a disaster: a half-empty, low-slung sprawl of neglected shops right next to a major train station, when it should be the hub of a beautiful, medium-density, low-emissions development sporting shiny new retail, revitalised public transport and affordable housing. Under Stride, the mall’s long-established owner, redevelopment is forever promised, and never delivered. “Always tomorrow” could be their motto.

It’s unclear if the council has the courage to act on its compulsory-purchase threat. But it should.

This would, admittedly, terrify right-wing economists, who believe property rights are sacrosanct. And so they should be, 99% of the time: but not always. Compulsory purchase, after all, was used – albeit controversially – to build the new Kāpiti Coast highways. And one can’t argue that roads matter more than houses.

Some might say those compulsory purchases were justified because roads can take only one route. But perfect development sites are equally rare. If we are to urgently house more people, and rapidly minimise carbon emissions, we can’t let Stride stall progress for another 20 years.

One counter-argument is that, if there were development opportunities, Stride would have spotted them far before any councillor could. But the potential here is plain to see. And the argument that all-knowing firms automatically maximise opportunities is pure market theory, not reality.

Companies will, for instance, wrongly oppose cycleways because their owners over-estimate the proportion of customers who drive. Some businesses are simply sluggish, settling for a low-risk, land-banking life. Or they may lack the cashflow for redevelopment, and be unable or unwilling to borrow.

Property firms may also under-invest when they can’t capture redevelopment’s wider public benefits: better housing, lower emissions, improved transport. If rebuilding costs $100m, say, and the commercial benefits are $105m, a firm mightn’t take the risk. But if those public benefits have an estimated monetary value of another $45m, redevelopment suddenly makes sense. And the only body that will act to capture those benefits is a public one: in this case, the council.

McNulty’s colleague Iona Pannett is worried about his plan, arguing the council isn’t a good developer. But it needn’t be.

The council’s task is to purchase the site at a fair rate and, assisted by experts, draw up a master plan, delineating the broad outcomes the city desires: more retail, enhanced rail services, affordable houses. Such planning – admittedly complex – then catalyses private investment. For good urban development, British research suggests $1 of public money is needed to “crowd in” $4 of private cash. Once a master plan is out to tender, dynamic firms can do their best work: sensing retail opportunities, managing development risk.

A last counter-argument against compulsory purchase is that it has often been used to confiscate Māori land. And that’s true enough. But what if part of the new development was handed to iwi, and used for papakāinga housing or similar? An instrument of injustice could become an instrument of justice.

The compulsory purchase question, of course, goes much wider than Wellington. Every city will have a prime site where the private sector is land-banking or otherwise sitting on its hands, and compulsory acquisition could unblock progress. If the capital led the way, others might follow.