KEY POINTS:
Large tracts of the South Island high country are farmed under leases that are perpetually renewable at the discretion of the lessee.
These leases limit the range of activities on the land, and require that the farmers pay rent to the Crown based on unimproved land values.
In other respects the leases provide farmers with an approximation of freehold rights to occupy and use the land, exclude others from using the land, and transfer their rights to others.
So despite the Crown's interest as a lessor, land subject to pastoral lease is not public land. The Crown must negotiate agreed terms if it wishes to review tenure without breaching the legal rights of the lessee.
Changes in views about the optimal use of the high country have resulted in the Government instituting a tenure review process, under which leaseholders and the Crown agree to terms on which the leaseholders are willing to transfer the rights to use and occupy the land to the Crown.
The Crown has funded its purchase of the lessees' rights with a combination of cash and freehold land retained by the farmer.
Without the use of freehold land as part payment to the lessee the cash payments to farmers would naturally be much higher.
Ann Brower (Perspectives, January 17), claims that tenure review of the South Island high country is a huge giveaway that is providing farmers with freehold land at prices far below its true value and paying farmers cash in addition.
These views lack credibility because they are based on a comprehensive misunderstanding of the leaseholders' interest in the land and the economic and valuation principles that underlie the tenure review agreements between farmers and the Crown.
Brower notes that tenure review has been completed on 490,000ha of pastoral lease land, of which farmers have retained 276,000ha as freehold land and received $15.6 million in cash payments.
To complete these transactions, the Crown must buy the leasehold interest, not just in the 214,000ha that it has placed in the conservation estate but in the entire land area.
So if, consistent with recent market transactions, I use an average price of $1000 a hectare for the lessees' interest in the land, this means that the Crown has acquired lessees' interest in pastoral land valued at $490 million.
To fund this purchase the Crown has paid $15.6 million in cash and 276,000ha of freehold land. This implies that on average the freehold land transferred to farmers has been valued at $1719 a hectare (since $1719 x 276,000ha = 474.4 million, + 15.6 million = $490 million).
A 70 per cent premium on the valuation of freehold land over the valuation of leasehold land ($1719 versus $1000 a hectare) is consistent with calculations that I made on the basis of earlier work by Brower and provides reasonable assurance that the freehold land is not being given away.
It is a very approximate figure that does not take into account the type of land, its development potential, and other issues such as payments made by the Crown to obtain access to the conservation estate across the freehold land.
But by indicating that commonly accepted economic principles are being applied, it serves to refute any claims that a giveaway is taking place.
Some of the land transferred to freehold title may be very valuable when developed for recreational or residential use.
It is, however, inappropriate to compare the costs of the land to farmers with the value of the land after further development unless we also include allowance for the very substantial development costs and risks associated with these projects.
The fact that tenure review settlements are not open market transactions does not in itself represent a problem. New Zealand has a long history of valuation of lessees' interests in land - both urban and rural, private and public - and a substantial body of open-market sales of lessees' interest as well as other indirect economic evidence on which valuers for the Crown and the lessee can base their valuation of the land.
The public naturally has an interest in tenure review since it is motivated by the fact that alternative and multiple uses of the land, rights of access for recreation, and permanent restoration to conservation estate, now assume much more importance for the public than they did 50 or 100 years ago.
Consistent with this change in social preferences, tenure review has resulted in 214,000ha of land now leased to farmers being added to the conservation estate.
In addition, the transfer of some land to freehold tenure is socially beneficial because this more easily facilitates multiple use of land, and alternative uses of land than did the pastoral leases.
If, as Brower claims, politics is an exercise in strategic hypocrisy that is all the more reason to reject any attempt to politicise tenure review.
The Crown is negotiating to buy the perpetual leasehold rights of pastoral farmers.
The outcomes to date appear to be consistent with market valuations of leaseholders' interests, and consistent with economic principles place a substantial premium on the value of land that is transferred to freehold title.
Payments of cash and freehold land represent the necessary costs associated with the creation of improved conservation and land use outcomes in the high country as they are valued by contemporary society.
* Neil Quigley is Professor of Economics and Deputy Vice Chancellor (research) at Victoria University in Wellington.
