Your property rights count for very little under the Resource Management Act 1991 (RMA), yet they count for a great deal under New Zealand’s Public Works Acts (PWA) that date back to the 19th century.

If the government dictates the future use of your land under the PWA ,you are entitled to compensation but not if it does so under the RMA.

This article argues that the PWA got it right, and so should the RMA.

One apparently influential argument against putting the compensation principle into the RMA is that to require a local authority to pay you under the RMA when it stops you from enhancing the value of your property means you should pay it when it allows you to do so, for example through a betterment tax.

Well, pardon me for breathing!

Nevertheless, this argument merits some dissection. It relies for its force on widespread misunderstandings about property rights, the compensation principle and the circumstances in which payments are due for loss or gain.

In a nutshell, having a property right means you do not have to pay anyone for exercising it. Nor should you have to pay for a right taken without compensation and subsequently restored.

Finally, a right to compensation cannot be separated from a requirement for someone to fund that compensation, ideally those who benefit from the taking. You can’t have one without the other.

The PWA covers these matters in a very principled manner. So should the RMA.

So what are the arguments for including the compensation principle in the RMA?

The principle has been accepted for centuries. For a start, it is unfair to take from or tax a single property owner for a benefit enjoyed by the public at large. The principle also promotes efficiency.

First, it preserves landowners’ incentive to invest in their properties, enhancing their value.

Second, it confronts public authorities with the cost to the community of a proposed forgone land use. The principle is also constitutional, dating back to Magna Carta and beyond. Many jurisdictions have written it into their constitutions.

This principle has heavily informed Waitangi Tribunal deliberations over claims for compensation by Maori for takings dating back to the 19th century.

From an economics perspective, the absence of a compensation principle means the RMA fails to confront those who want to put land to one use with the cost to the community of the forgone uses.

This type of failure is the biggest cause of environmental problems recognised by economists. Those problems may take the form of over-exploitation (for example, over-fishing) or under-exploitation (for example, undeveloped land that could be of much greater value to the community as productive land).

The RMA is heavily biased toward creating the problem of underexploitation. It has long had a pro-status quo, anti-development bias, particularly toward investments in new housing. Impeding change also impairs resilience, as the Christchurch earthquake experience illustrated.

Today, the RMA is arguably well on the way to creating a general presumption in favour of having land revert to its natural, unkempt, unproductive state. After all, that state avoids adverse environmental effects and minimises the risk of loss from natural hazards!

Who is liable?

Under the PWA people are free to return their own land to its natural state, as some do. But if the state chooses to so condemn private land, that would not be at the expense of the private owner. Moreover, the state should only do this for good public interest reasons. These include a meaningful cost-benefit assessment.

So who should be liable for paying such compensation and in what circumstances?

Consider the case of a district plan rule that takes vested use rights in land from the existing owner for the benefit of others.

The affected parties could presumably have agreed to that exchange in the absence of that rule – at a mutually agreed price. Should the fact that the exchange is forced on the owner by the rule preclude those benefiting from paying consideration to the existing owner? The fairness, efficiency and constitutional arguments suggest not.

Ideally, the beneficiaries would pay for the benefit conferred on them by funding full compensation paid to the deprived landowner. The Regulatory Responsibility Taskforce commended this principle in 2009. Of course, where the beneficiary group is the public at large, funding compensation from general taxation is warranted.

The PWA accommodates the “betterment tax” principle in several ways. It allows land value gains to reduce the amount of compensation. It requires compensation to be funded by a benefiting private utility.

It leaves it open for government to fund the compensation from a special levy. It requires land no longer required for a public work to be offered back to the former owner, or successor owner, at full market value. (Obviously this last case only has force when compensation was paid in the first place. Maori are not being asked to pay market value today for the restoration of land originally taken without compensation.)

The compensation and betterment principles do not justify paying or charging property owners just because some government action has altered property values. For example, it would be absurd and unprincipled for central government to subsidise owners of shares every time the Reserve Bank raises interest rates causing share prices to fall, and vice versa.

The primary issue is not whether property values rise or fall; it is whether the cause was a taking or gifting of vested property rights.

Suppose the Auckland Council abolished its restrictions on housing development outside the metropolitan limit. Suppose land values rise outside the limit and fall inside it. Politics aside, should it tax those owners who gained and compensate the losers?

If those who gained have had a use right restored or enhanced and had been compensated for the original impairment, there may be a case for a betterment tax, but not otherwise.

If the rights of those holding land inside the Auckland metropolitan limit are unimpaired by the change, as seems likely to be the case, no compensation is due.

Why can’t the RMA be informed by these PWA provisions?

Dr Bryce Wilkinson is a senior fellow at The New Zealand Initiative.