Auckland – The Super (Expensive) City

Has Auckland Council squandered millions of ratepayer dollars in a property development?

 

It’s billed as the biggest urbanisation project in the country, outside of the Christchurch rebuild. A public-private partnership between Auckland City and a major shopping mall developer. But IAN WISHART discovers ratepayer-funded multi-million dollar payments to the developer that the council doesn’t want to talk about, or let the documentation be released, and a developer who says the council has cost them a fortune.

There was a time, not so long ago, when anyone shooting up Auckland’s nor’western motorway came to a screeching halt at the very edge of the city. In the rear vision mirror, bright lights, big towers and urban sprawl. Through the windscreen, a T-junction where the motorway met Hobsonville Road and just stopped, dead. Across the road, rabbits frolicked happily amongst the grass, while the trees in ancient backyard orchards dangled juicy apples and sweet peaches from gnarly branches on trunks resembling contemporaries of Methuselah.

Not so long ago.

Then, in the 1990s, on the city side of Hobsonville Road, developers carved up sleepy hollows, booted out the sheep and gave us Westgate: the city limits shopping mall. Unlike the Westfield malls that feature all-weather covered shopping, Westgate was a giant carpark rimmed by big retailers.

The developers behind the project, New Zealand Retail Property Group (NZRPG), housed bigger ambitions, however.  The prime mover behind NZRPG is Auckland businessman Mark Gunton. Nearly 87% of the company is owned by a trust associated with Gunton. Aside from Westgate, NZRPG own the Highbury and Milford shopping centres on Auckland’s north shore and Fraser Cove in Tauranga.

It is the meadowland at what was the end of the Northwestern Motorway that is slated to become the jewel in NZRPG’s crown, however.

Over the past decade, NZRPG and associated interests have purchased substantial landholdings on the northern side of Hobsonville Road, and as anyone driving past the area now knows, they are well on the way to constructing what they call “Westgate 2” and what the Auckland Council refers to as “Massey North”.

It’s been a largely under-the-radar development, a $1.2 billion plan to build a new “town” as part of the new supercity plan. The Massey North retail complex will rival the current Sylvia Park Mall in size, most of it in undercover shopping unlike neighbouring Westgate. When Auckland Mayor Len Brown and the Government’s Housing Minister Nick Smith talked up the housing supply on the city fringes, Massey North was one of the areas they were referring to.

But here’s where it gets interesting.

The Massey North development turns out to be a “public/private partnership” between NZRPG and the city council. For “council”, read “ratepayers”. And according to critics who’ve approached Investigate with internal council reports, this PPP appears to be a sweet deal for the “private” side of the partnership.

As anyone who has ever subdivided land knows, part of the cost of subdivision consent is setting aside areas of “reserve” that the council can have, and paying to construct roads within the subdivision that will then also vest in the council.

The way it works is the developer coughs up for the cost of internal roads for the subdivision, and if council requires any of them to be built to higher, arterial road standard, the council pays the difference in cost. It’s not rocket science, and the leading test case on the issue, Waitakere City Council v Estate Homes Limited, was decided by the Supreme Court back in 2006.

In fact, on this Massey North site itself, individual landowners, not affiliated with NZRPG, have been threatened with huge bills from council if they don’t give up some of their land for future road construction to the council. One resident, a widow warned her bill could be a million dollars under a principle known as ‘betterment’, complained to Mayor Len Brown, while on the other hand fellow landowner Cannuck Holdings Ltd – a company related to NZRPG – managed to get the council to agree in writing that “the Council will acquire that part of the CHL land required for road-widening under PWA [Public Works Act] and will compensate CHL for the land taken.”

So why, you may well wonder, have Auckland city ratepayers been asked to fork out around $7 million to pay for a street within the existing Westgate Mall that was built some 15 or so years ago? Great question, the story goes somewhat like this:

According to an internal council report, New Zealand Retail Property Group ran into financial difficulties during the planning for the Massey North development. They needed to sell assets quick to raise money. To help fund Massey North, they asked Auckland City Council to buy 6,000 or so square metres of internal roadway inside the existing Westgate Mall for between $6m and $7m. That’s a stonking great $1,000 per square metre of roadway.  The council didn’t have to buy it, because that road had long ago been built and paid for. Nonetheless, council went ahead with the purchase, although to date they are resisting numerous requests to disclose publicly precisely how much they paid.

Curiously, the internal council report reveals that the valuations were based on ordinary values of countryside in the wider area. If true, that would mean two-hectare (20,000m2) lifestyle blocks in nearby Kumeu should be selling for $20 million, not $500,000. On the face of it, suggest complainants, clearly, something isn’t right. Why did ratepayers make effectively a $7 million gift to a private developer by purchasing an internal thoroughfare originally built and paid for back in the 1990s?

The internal council report speaks the answer this way: “It’s for the public good”. The way council sees it, they’d prefer to pay millions to developers in public-private partnerships who can’t meet their obligations, than see lynchpin projects like Massey North delayed. There was a risk, officials told councillors, that the entire project could collapse if NZRPG did not get some quick cash from the council.

On the one hand, it’s an argument that is hard to argue with. The new mall complex, at 77,000m2, will rival Sylvia Park and provide hundreds of local jobs, as well as increase the value of properties in the rural northwest of Auckland by bringing such a huge shopping hub so close. With Auckland’s controversial draft unitary plan hanging on city limits developments like this, it is easy to see why it’s become a political cause as well. But on the other hand, critics argue, “at what price?”

Other developers, they say, are not getting multi-million dollar handouts from ratepayers. Why should the public pay the city council’s favoured property developers to get even richer?

It’s a good question. Mall developers are not the ordinary breed of subdivider, they’re like the SAS of the construction sector, with a special ability to get planning dispensation on things mere mortals and ordinary rich-listers would find impossible.

“If you wanted a nuclear power plant built in the city, these guys could get consent to do it,” remarked Mt Wellington resident Brent Murdoch, only half-jokingly, to The Aucklander back in 2010. Murdoch was opposed to planning consents allowing Sylvia Park’s owner, the Kiwi Income Property Trust, to build 20 storey office blocks on its site.

Mark Gunton’s NZRPG, likewise, hit local bite-back from North Shore residents when he announced plans to build similar towers above the Milford shopping centre. Of course, now that the draft unitary plan has been unveiled with its blueprints for multi-storey buildings all along suburban streets throughout Auckland, the wider agenda has started to become clear – these developers were simply adjusting their plans to what they apparently knew was around the corner.

The $7 million paid for an existing internal street within the Westgate Mall is merely the tip of the iceberg when it comes to what the critics label ‘corporate welfare’, however. Ratepayers are being asked for fork out around $30 million in total to NZRPG, according to internal council reports. The council claims NZRPG was upfront about being in financial difficulties and needing the council to buy some of its assets.  The question is, what were those “assets” really worth?

The council report gives as an example a 1500m2 site in the proposed Massey North development suitable for a town library. “NZRPG values the library land at over $1.8 million, whereas Council’s valuation is $0.59 million”. For anyone who can’t do the math, NZRPG wanted three times more for the land than council had valued it at.

But again, here’s where it gets interesting. Even at the lower level, the council is clearly valuing land in Massey North at around $400,000 per 1000m2, or $4m per hectare. That’s a massive increase on existing lifestyle block prices, by a factor of about 20x. So what are we to make of NZRPG then asking ratepayers to fork out three times more than the already inflated council valuation?

Auckland councillors were informed that the council had calculated NZRPG’s assets on offer “valued at pre PC15 [Plan Change 15, the official moniker for Massey North] zoning levels, ie, as Countryside Environment. If Council seeks to purchase these assets after the town centre is built then the price will be significantly higher.”

Really?

If the library land was valued at ordinary “countryside” levels, that would make a 10 hectare lifestyle block in Auckland worth around $40 million, not the two million or so that most people would pay. It appears obvious even the council’s valuation was

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