OPPORTUNITY LOSS

Last week I continued sharing the 2012 BERL report about the economic impact on Ngāti Kahu of land loss as the result of colonisation and land seizures up to 1865 and introduced the concept of quantifying the cost to Ngāti Kahu of lost opportunities by considering three counterfactual scenarios that could have produced credible outcomes in which Ngāti Kahu could have benefited from those opportunities.

Scenario one looked at what could credibly have happened if, instead of being seized from us, the land was sold by Ngāti Kahu for its full value, and the additional value gained, namely the £39,919 at 1865, was put on deposit, or in low-risk, long-term government bonds from that time until the present.

Essentially, BERL found that the additional value which Ngāti Kahu would have received had the land been sold at full value would have accumulated an additional sum of £ 39,919 by 1865.  If Ngāti Kahu then invested these funds in low risk British Government gilts the total value accumulates to £333,049 in 1945.

Post 1945, if this capital sum was transferred to the New Zealand long-term (10-year) government stock (at rates listed, initially, in NZ Official Year Books and, latterly, from Reserve Bank Bulletins and web-site information), the total value accumulates to $63,209,977 in 2011.

This figure is calculated assuming that a sum equivalent to the shortfall was deposited in British Government gilts from the date of loss to 1945, then the annual interest earned was re-invested in a similar deposit to 1945. then, from 1945, the investment was transferred to New Zealand Government long-term 10-year stock, and annual interest was similarly re-invested over the period 1945 to 2011.

Therefore, in this scenario, the value of the opportunity loss to Ngāti Kahu in 2011 is $63 million.

The second scenario considers what could credibly have happened if the land had become Reserve land over which Ngāti Kahu retained ownership. 

This scenario is a possibility because, at that time, the Crown was designating Māori owned land as “Reserve Lands” under one or other of the various Native Reserves Acts being enacted during the period. 

As reserve lands the unimproved value (namely ‘everything below the roots of the grass’) was reserved to Māori with the intention that the income from the reserve lands would be returned to the Māori owners.

Under this scenario, BERL estimated the value of the unimproved interest in this land at 2011 by using Quotable Value Limited data on unimproved value of rural land in Census Area Units 500202 and 500208.  As a result, they found that the lands seized from us had an unimproved value in 2011 of $307 million.

Given the development opportunities that have arisen in the area over the past couple of decades, there is an arguable case that the opportunity loss was even much higher than $307 million.

The third and final scenario envisages what could credibly have happened if Ngāti Kahu had retained ownership of its land and been able to develop its own rohe.

This scenario assumes that Ngāti Kahu retained full ownership of the land, and thus the development of the properties located on that land.  The development of the rohe is expected to have proceeded in much the same way as it has under alienated ownership.

BERL estimated the total capital value of this land at 2011.  Using Quotable Value Limited data on the capital value of rural land in these Census Area Units, BERL found that this land had a capital value in 2011 of $380 million in 2011 on the basis of capital (improved) value.

BERL noted that the use of the capital value of rural land implies that in this scenario the land continues to be used for rural purposes.  Again, this is a relatively conservative assumption, noting BERL’s earlier comments as to the possibility of residential or lifestyle options.

Therefore, in this scenario, the loss of capital value to Ngāti Kahu, had they been allowed to retain ownership and develop the land themselves, is estimated at $380 million.

However, BERL considered that the value of the economic loss suffered by Ngāti Kahu will be higher than the figures summarised below:

• $63 million had Ngāti Kahu received full value for the land and invested in low-risk bonds
• $307 million had Ngāti Kahu been allowed to retain the beneficial interest in only the unimproved value of the land
• $380 million had Ngāti Kahu been permitted to retain ownership of the land and participate in its development.

The economic loss to Ngāti Kahu includes not just the present capital value of loss, but also the stream of lost annual income from their interest in the land asset. These annual income losses will be covered in a later column.