Economist and soil scientist at odds over moves to protect some land from developers

The release of Our Land 2018, the Ministry for the Environment’s report which deals with the state of New Zealand’s land resources, has triggered a debate between an economist and a soil scientist on Sciblogs.

The report shows the extent to which New Zealand’s urban sprawl is eating up some of the country’s most versatile land.

Dr Eric Crampton, Head of Research at the New Zealand Initiative, said he just doesn’t get the fixation with making sure nobody builds a home on agricultural land.

He sees no need for some land to be protected from developers, arguing that market mechanisms do the job well enough, thank you.

Pierre Roudier, a scientist in the Soils & Landscapes team at Landcare Research and a Principal Investigator at Te Pūnaha Matatini, disagrees.  Banning the development on our best soils makes sense because it acknowledges resources values that can’t be measured in economic terms.

Dr Crampton’s opinion post, syndicated from Offsetting Behaviour (it originally appeared HERE), cites a Radio New Zealand report (HERE) which said the Government plans to make it harder for councils to approve new homes and lifestyle blocks on productive land near urban areas.

The ministry report highlights that between 1990 and 2008, 29 per cent of new urban areas were built on some of the country’s most versatile land.

The Radio New Zealand report went on to note that lifestyle blocks were also having an impact – in 2013 those blocks covered 10 per cent of New Zealand’s best land – and quoted Environment Minister David Parker’s concerns.

Mr Parker said Pukekohe, known as Auckland’s food basket, was one area at particular risk.

More housing was needed around Auckland, he said, but “our elite soils” needed protecting too.

“So we are proposing a National Policy Statement under the Resource Management Act which will require the councils when they are planning where to allow subdivisions or even rural lifestyle properties, they’ll have to make sure that they don’t encroach upon our most precious soils.”

Mr Parker further said the horticultural sector had been saying for some time that too much of its best land was being lost to housing and lifestyle blocks, and it was time to take some action.

Here’s how Dr Crampton responded:

First up, it’s probably worth agreeing with one bit that the anti-sprawl people have right. Zoning in Auckland is stupid. It is stupid that people who live on major transport and passenger rail corridors can’t turn their houses into apartment buildings to accommodate a lot more people. All of the restrictions against building up encourage building out instead – to the extent that that is allowed. And if infrastructure charging is wrong, that problem will be compounded.

But the solution to that problem isn’t banning people from building out. The solution to that problem is a massive upzoning everywhere in town combined with congestion charging and better user-pays forms of infrastructure delivery like special purpose tax vehicles to pay off the bonds levied to put in infrastructure kit needed for urban expansion.

And it’s very much worth fixing all that.

But suppose you have an agricultural paddock near town. The land can produce horticultural crops worth, say, $1m per year net after costs. The present discounted value of that stream of profits gets capitalised into the price of the land. And so the price of the land will already reflect peoples’ expectations about the value of the agricultural produce that will come out of that land over the long-term.

If a developer is able to pay the farmer more than that, that tells us something important. It tells us that the value of that land in housing is higher than the value of that land in agricultural use. The value of all the agricultural output is already accounted for in the price of the land.

So you really don’t need to protect valuable agricultural land from developers. The price of agricultural land already does that. If for some other policy reason government has decided to artificially subsidise building on that land as compared to other places, the solution to that isn’t banning the development, it’s getting rid of the subsidy. Shift the infrastructure to a user-pays basis.

Banning development on that land only makes sense if you really really believe that the person putting in the ban knows better than either the owner of the land or the purchaser of the land the future price path of agricultural products or dwellings. And in that case the person putting in the ban should just be buying the land directly and reaping the huge and obvious profits from knowing better than the market about futures prices.

We got into this stupid housing mess because the “Let’s protect Precious Agricultural Land” people teamed up with the “Let’s protect Precious Neighborhood Amenity” people and banned anybody building anything anywhere.

I get depressed when a government that came in promising to fix the housing crisis screws this stuff up.

Update: To address the likely first objection before it shows up: you don’t have to worry about the “what if everybody did that” scenario. If land were being bid out of agricultural production and into use in housing, then the expected future price path of food would be a bit higher than otherwise – and the price of the next bits of agricultural land will be bid up. We do have access to imports too. And to address the second likely objection – if you’re going to complain about the cost of food rising as consequence while ignoring that the cost of housing would drop, and ignoring that food can be imported while housing can’t – there’s something wrong with you.

Pierre Roudier –  in a response just posted at Sciblogs, says he was drawn to Dr Crampton’s article because of its title, “Precious arable land”. He then says:

 Alas, the irony of the title was lost on me, and the article the author penned actually suggests the protection of these versatile soils is not needed — despite what is advocated by the “anti-sprawl people” (a mysterious conglomerate formed when the “Let’s protect Precious Agricultural Land” people teamed up with the “Let’s protect Precious Neighborhood Amenity”).

Dr Roudier notes that at the heart of Eric Crampton’s argumentation is his belief that the value of soils is somewhat accounted for by the market:

The problem with this line of thinking is that the value of agricultural outputs produced out of a piece of land represents only a minor part of the overall value we get from the land. Apart from food and fibre production, there is a wide range of services that, at heart, are provided by soil: filtering nitrates, storing water, mitigating flood risk, or storing carbon.

The provision of this multitude of services is why soils are an important determinant for the economic status of nations as a whole4. And it is also for this reason that soils are a critical part of the environmental infrastructure of any nation, and at the intersection of most of the challenges they face:

  • Food security
  • Energy security
  • Ecosystem services provision
  • Biodiversity protection
  • Climate change abatement
  • Water security

Critically, food production is only one service addressing one of such challenges. And unfortunately for soils, the other services they provide are not easily quantified, and therefore very poorly captured by markets.

Dr Routier then examines Dr Crampton’s views on the pricing mechanism ruling out the need to protect valuable agricultural land from developers.

The value the developer is ready to pay the farmer for only covers one service that is only relevant for one user (food production for the farmer, building support for the developer), Dr Routier says. The overall value for the other users (the rest of society if you want) is unaccounted for.

He goes on:

The other reasons the soil science community (which I guess is referred to as “the Let’s protect Precious Agricultural Land people”) argues for more protection for versatile soils has to do with the way their very nature. The timescale at which the value of land is considered is way too short.

Crampton thinks about returns on a yearly basis, when a mature soil will need anywhere between 10 and 50,000 years to form and can continue providing services across generations.

Moreover, soils and their properties vary a lot across New Zealand. The versatile soils we are talking about, the soils surrounding Auckland, are incredibly rare (5% of NZ’s are for versatile soils, less than 1% if we are talking elite soils).

Soils are a finite resource, Dr Routier notes: once we build on them, there’s no going back, on a human timescale.

And like housing, it’s not a resource we can import. So we have to think very strategically about the soils we want to retain for their services, and those we want to sacrifice to housing (and there’s no question we need to do that).

Dr Routier then turns to Dr Crampton’s claim that banning development on precious land makes sense only if we really believe the person imposing the ban knows better than the land owner or land purchaser the future price path of agricultural products or dwellings.

It’s not so much that “the person putting in the ban knows better than either the owner of the land”, it’s that the value the government puts on the soil resource goes beyond (i) food and fibre production, and (ii) the rather short timescale used by developers. Banning the development on our best soils makes sense because it acknowledges the true value of the resource, its finitude, and the need to protect it across generations.

Call that kaitiakitanga if you prefer.


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