Fairness and Equity
The principles of "fairness and equity" are fundamental attitudes that underpin any healthy relationship.
For me these principles came into focus back in 2000 when beginning the negotiation for the development agreement to enable implementing the project now known as Addison in Takanini.
The negotiating parties each had different characteristics and motivations. These differences made the negotiation an unequal and asymetrical contest such that any prospect of reaching an agreement difficult at best.
In these circumstances, the opening moves to a negotiation are subtle but important lead into the negotiation. There are perception barriers that have to be surmounted to even open a negotiation before one could even contemplate concluding an agreement.
In order to make progress there are three elements that must be in place before opening,
1. The people negotiating must have the right personal characteristics, specifically being technically competent across the field, open and communicative.
2. Be capable of forimg a working relationship
3. Understand the motivations of the parties on both sides and the reasons for engaging in negotiation.
The parties in the Addison example, one being a Private Company and the other a District Council.
The agreement to be reached was to determine the provision of infrastructure for developing Addison. Who was to pay and when, how much to pay for each infrastructure element, how the cost was to be shared and how this work was to be funded.
The Private Company in these circumstances is in a very weak position negotiating with a District Council with all its statutory powers. The District Council is effectively a gatekeeper and the agreement represents the the toll or tax to be paid for allowing the development of Addison to proceed.
This negotiating situation is neither fair nor equitable therefore the nature of the engagement had to change. For example the standard developer negotiation method is to deny any effect from their development thereby denying any responsibility for cost. This developer stance forces the District Council into a equally confrontational stance.
In the Addison example to take such a negative negotiating position was clearly ridiculous. The development was planned to provide approximately 2000 homes and clearly hard to deny this would have no impact.
So instead of denying, Addison acknowledged they as the developer were going to have an effect therefore they should work together with the District Council to quantify the effect of the Addison development. Once those effects were quantified whether they be roading, stormwater, wastewater, water supply, parks and reserves or community facilities then the cost of provision would be known.
With the technical quantification in hand then individual infrastructure components of the Addison development could then be allocated to the party best positioned to deliver. The same technical methodology can be applied to the allocation of cost
The benefit of this method is the negotiation is purely technical and not emotional. It can quickly be seen to be fair and equitable.
However the opportunity presented by the Addison development is not always available. Those opportunities present in Addison were
1. The developer had secured a large landholding which could justify the funding of infrastructure in advance
2. The District Council was willing to offset Development Contribuions payable against the provision of infrastructure.
3. The District Council was willing to facilitate the provision of local infrastructure by including the local projects normally provided in full by the developer within the Development Contribution methodology.
Where these circumstances do not exist the private sector faces difficulties that are often not fair or equitable.
An example is where a large developer is involved who do have access to funding for the provision of infrastructure but do not have a large enough landholding to recover the funding or justify the cost. Council and its Council Controlled Organisations are currently not willing to assist with an equitable recovery of cost form the infrastructure beneficiaries. There are many developments throughout Auckland where this situation exists and is a significant contributor to development delay.
Another example is where there are multiple landowners where no single landowner is big enough or financial enough to deliver infrastructure.This forces the landowners to put aside their individual commercial competition to work collectively. The greater the number of landowners within a development area the less feasible this becomes and the greater the need for Council intervention. Invention that Council is reluctant to provide and generally leaves it to the private sector to resolve.
This results in stalemate and in order to escape this bind the developer has few options. These options include waiting for capital growth over time then selling, obtaining a resource consent of some description and then selling. The harsh reality is that many have paid too much for the land and are unwilling to sell at a loss. All of the above changes the owner of the land from being a developer to a land banker. They do not have a viable development to move forward and cannot sell without making a loss.
The end result, an unwillingness to do anything and above all avoid destroying hard earned capital so the land remains idle.
How to proceed?
This is not a call for public money, subsidy or other financial intervention.
What is asked for, is that the public bodies in whom we as a community have collectively granted the power to be willing to form a productive relationship with the private sector to implement a fair and equitable methodology to enable the private sector to fund development.
It is not as though we have not done it successfully in the past, so why not use those same methods now when we are in urgent need?