Follow us on Twitter

Auckland’s Economic Future

Auckland feels like it’s at the cusp of something of a transition between being an ‘overgrown town’ and a ‘real city’ – with the distinction between the two manifesting itself in the difference between the Council’s vision for Auckland and central government’s vision. In the transport arena, central government thinks that the biggest problem is congestion on Auckland’s roads – which needs to be solved through building more roads. This makes sense if you think of Auckland as just an overgrown town – where widening a road normally seems to fix the transport problem faced. However, it doesn’t work in a large city and alternative approaches – like building a high quality public transport system – are increasingly necessary.

An article in yesterday’s Herald articulated the growing recognition – once again seemingly mainly led by the Council – that Auckland’s scale provides economic opportunities and the potential to be the “growth giant” of the country which simply don’t exist elsewhere in New Zealand:

Auckland Council chief economist Geoff Cooper says the city’s growth is far outstripping the rest of New Zealand.

“Auckland will add a person to its population every 19 minutes. This compares to one person every two hours for Christchurch and one person every 2.5 hours for Wellington,” he says.

With that rate of growth will come big challenges, especially on infrastructure, particularly tunnels, tarmac and bridges.

As the only chief economist employed by a territorial authority in New Zealand, Cooper says he is in a unique position, able to provide a level of data beyond many other councils’ resources.

Auckland is a powerhouse for the national economy, Cooper says, and average labour productivity for firms in the CBD is 139 per cent higher than outside the Auckland region, according to a Motu study.

“This shows just how important the central city is, not just for Auckland, but for New Zealand as a whole.

“Auckland firms are prepared to pay a high rental premium because of these returns. Creating an accessible and high-amenity city centre will be critical in allowing more firms to take advantage of these returns and generate a high performing business district,” he says.

There’s an interesting conundrum around Auckland’s rate of growth compared to the rest of the country – in that as Auckland gets bigger it creates a wider variety of economic opportunities and a sheer scale which improves productivity. Yet at the same time, to enable economic growth Auckland needs investment in infrastructure, spending that probably wouldn’t be necessary if that same growth happened elsewhere in the country. For example, Invercargill could probably cope with quite a lot more growth before needing any major transport investment.

That sort of “distributing growth” approach seems like it was perhaps more suited to economies of two or three decades (and beyond) ago, that modern 21st century economies. When lots of employment is in low-skilled manufacturing then it doesn’t really matter where the factory sets up – and looking around New Zealand there are still quite a lot of large factories in fairly small towns (resulting in those towns generally becoming incredibly dependent on that industry). However, in more service and knowledge focused economies with a greater and greater focus on skills, agglomeration benefits, specialisation and so forth. In this type of economy, large cities with large and diverse labour pools tend to do well.

Perhaps this is reflected in Auckland’s economy doing reasonably well in recent times:

“As Harvard professor and urban economist Edward Glaeser notes, ‘despite the technological breakthroughs that have caused the death of distance, it turns out the world isn’t flat, it’s paved. The city has triumphed’,” Cooper wrote.

The Auckland economy grew by 2.1 per cent in the past 12 months.

“While this is not particularly glamorous in its own right – Auckland’s 10-year average is 2.5 per cent – against the backdrop of a European sovereign debt crisis, a double-dip recession for Britain, stuttering growth for Germany and a reduced growth outlook for China, it looks rather more attractive,” Cooper said.

I think I fall on the side of taking advantage of Auckland’s potential size and the economic opportunities it provides, even if that comes at the cost of additional infrastructure. Distributing growth may have worked OK in the mid-2oth century economy but it just doesn’t seem to be the way of the future. This decision has some massive implications, perhaps the most relevant one to this blog is the key importance of projects like the City Rail Link in enabling Auckland to achieve its potential.

35 comments to Auckland’s Economic Future

  • On the money. Cities work and endure because density affords productivity advantages that outweigh costs. Urban transport investment is about enabling density – pure and simple – that’s the essential advantage of cities. Inadequate transport infrastructure just limits density, and therefore the competitive advantage of the city. Anyone arguing in favour of population distribution has it wrong – big cities drive the knowledge economy. Transport constraints in central Auckland simply push that growth to the CBDs of other big cities – people and capital are more mobile now than ever.

    There’s nothing particularly profound about that, yet our government remains willfully ignorant of cities and what makes them competitive.

    • Or perhaps what’s worse than inadequate infrastructure investment is the wrong infrastructure investment: Billions poured into the dispersive highways actually represents spending to de-agglomerate and are therefore may well be worse for the economic performance of cities than less spending!

      It is clear that one size does not fit all across NZ and that Auckland is very much the outlier as the one city of scale.

  • Something the National government needs to come to terms with is the fact that we must grow and intensify our urban areas to grow the economy. This intensification and development will occur whether they like it or not. They only choice they have is whether we facilitate that growth in Auckland city, or do nothing and facilitate the growth of the Sydney and Melbourne cities instead.

  • I think Geoff Cooper has been doing a good job over a number of articles and opinion pieces of clearly articulating some of the issues that need to be dealt with. Good job Geoff

    • MFD

      “average labour productivity for firms in the CBD is 139 per cent higher than outside the Auckland region”…No it is not, Mr Cooper. It’s 39%. Go back and read the Motu report (page 16, figure 1).

      • 39% higher, or 39% of? Big difference. Assuming it’s the former, his central argument isn’t upended by the mistake as that’s a pretty significant number. You’d think any government would want to understand that and try to encourage more of this productive urban growth wouldn’t you……..?

      • Could also be a herald typo, or a reporter misreading their notes, they do seem to do that fairly regularly

  • Geoff Houtman

    Can someone forward these articles to Brownlee?

    I don’t think he reads widely…

  • Funding

    The problem is MMP is it not?
    Why would a goverment want to lose voters by allowing high rise density which 50%-75% dont want?
    Its like saying National would still be in Goverment if they built a prison on queen st, Auckland. It’s a joke. This is why prison’s are built in towns where voting doesnt play a part in goverment re-election.

    And BTW do you see any central goverment spending 10-15% of their GDP on rail loops at this point in time?.. not to mention those funds going offshore no doubt. i.e. FBU too busy

    • Bryce P

      It’s not a bloody rail loop! The trains are not going to be going around and around like a little Thomas set.

      How does MMP affect this situation and 50 – 75% of Aucklanders dont’ want high rise highly intensified buildings in their neighbourhood but if they were shown viable low rise (4 story) buildings as are being built in Auckland and have been in Europe for a long time they would be more enthused but as people like demographia keep pushing images of only high rise as an alternative then people have no other vision. And what does the type of development that Auckland want’s have anything to do with government? After all which is the single biggest bungle that led to the leaky home debacle? The changes to the 1991 building act. Auckland had nothing to do with that – it was all government.

      Why do the funds to build the CRL have to go overseas? They don’t. Apparently we have ample construction capabilities given the $10b + that’s being spent and forecast to be spent on road building.

    • Yeesh, some people just love to moan don’t they. FYI:

      They’ve just built a new prison in Mt Eden, less that 1km from Queen St.

      The CRL would be 1 to 1.5% of our GDP, not 10 to 15%. And yes, other governments are building city rail tunnels at this time, you only need to go as far as Melbourne and Brisbane to find cities building new underground rail links right now.

      And why spiel off the spurious claim that 50%-75% of Aucklanders don’t want high rise? Where is anyone saying that high rises should be built outside of the CBD? It certainly isn’t in the Auckland Plan. Making up numbers to gripe about something that isn’t happening anyway, pretty daft.

      • Stu Donovan

        Brisbane? Where!?! Cross-River Rail is not being built as far as I know … but the rest of your comment stands in royal righteousness.

        • I though that both Melbourne and Cross-River Rail were in the same boat as Auckland, programmed and funded for planning and design, but not yet funded for construction? Or is Brisbane not that far along?

    • conan

      NZ GDP is $NZ208B in 2012, maximum spend in any one year on the CRL is $568M in 2018. Without taking into account GDP growth that is 0.2% of GDP in that year.

      References:
      GDP: http://www.stats.govt.nz/browse_for_stats/economic_indicators/GDP/GrossDomesticProduct_HOTPSep12qtr.aspx
      http://www.aucklandtransport.govt.nz/improving-transport/city-rail-link/Documents/FAT-CRL-Finance-Committee-presentation-23May2012.pdf

      Funding, be sure to post your references to your claim that more than 50% of Aucklanders don’t want high rises as part of the mix of residential options available in the city.

  • Malcolm M

    Could it be argued that investment in dispersion in Auckland (more roads) is competing for economic activity that would be better suited for regional areas such as Hamilton or Tauranga ? Whereas investment in aggregation competes with economic activity that would otherwise occur in the CBD’s of Sydney, Melbourne, Singapore or Hong Kong. Would be great to get some evidence of this.

    What benefit is there for Nikki Kaye to stick with the National Party ? She clearly supported the CRL before the election, and could well lose her seat at the next election because of National’s decisions on the CRL. If she went independent she could say she was putting the interests of her electorate above her party, while also being consistent with National’s pre-election policy on the CRL, and have a greater chance of being re-elected. Are there some central Auckland businesses that would pledge funds toward her re-election campaign as an independent ?

    • conan

      Could you post some evidence of her ‘clearly supporting the CRL before the election?’. I directly asked her prior to the election about her support for the CRL and the answer was more along the lines of ‘we’ll see’ rather than ‘I support it 100%’.

  • Malcolm M

    I remember Nikki Kaye said she supported the CRL on her website prior to the election, but it’s no longer there and I didn’t make a copy.

  • Ian

    If Auckland slid into the sea tomorrow leaving no trace I doubt that the country would be worse off. The demise of a large chunk of manufacturing leaves only the rural sector (including forestry) and traditionally fragile tourism to earn the funds that the country requires to stay afloat. Perhaps your readers could tell me what wealth is generated in Auckland central that didn’t have its genesis in the aforementioned industries, When a farmer can buy a new piece of farm equipment on the corner of Queen and Wellesly Streets or auction off a couple of dozen bales of wool in High Street then the city in 2013 will have come into its own.

    • Bryce P

      What a pointless, inflammatory statement.
      If Auckland was not here then there would be a city somewhere else. Have a look around the world and you will find other countries with primary industries that are not based in cities but they too have cities. Towns get bigger and port towns do very well. It’s just the way it is. Maybe you could come back with something constructive? People on this blog have already acknowledged the part of farming and forestry. They know it’s there and realise it plays a part of Auckland’s existence just like mining in Australia and the effect is has on cities like Perth.

    • How about my job, the company I work for exports planning services to foreign clients. I’ve just worked out a single day’s work for an international client by just one of our staff earns more foreign currency than exporting 2,400kg of raw milk. No farm machinery or wool baling required, not to mention the costs of delivering our products are almost nothing. Not bad eh?

      • Riccardo

        Working class people often don’t understand that things done behind desks by people in suits are actually more productive than things done with your hands. They don’t understand human evolution. Human productivity, and hence lifespan, extended by tools and teamwork/specialisation.

        Not just teaching a man to fish, but working out how to get the fish to catch themselves. That’s how human history has run.

        Cities are an integral part of that, and lower productivity things are done outside or onthe fringes of cities, the highest productivity activities done in the core, in highrises, where the land costs are highest.

        • Bryce P

          In the same way most people in offices have no idea of the inequity of how the ‘working class’ operate either. those traffic guys standing in the rain keeping traffic safely moving? $15 an hour or lower. The mechanic with $30k of his own tools and unable to claim a single cent of GST or depreciation against those tools (unlike in Australia)? There is a very minimal tax free payment (out of wages) to compensate but it is so small it doesn’t even matter. That’s why I got out.

          • riccardo

            i guess that is the point. those jobs arent especially productive. hence not well paid. anyone can do them anywhere really.

            for a lot of working class people ive met, if they cant classify you as butcher, baker or candlesttick maker, they cant picture it and give up. they sometimes get suspicious. “do they pay people to do that???”

        • MFD

          You seem to be burdened by your own prejudices and stereotypes regarding “working class” people. While many of you were taking it easy over Christmas/New Year work on Auckland’s rail system was being undertaken by people including “working class” and others, in teams, using highly specialised tools and being paid shift allowances and penal rates for public holidays. Their employers pass on the additional labour costs (together with margins) and thus, by the definition of productivity used in the 2008 Motu report, they were very productive.

          I was also working during this period. 4 months of planning on a project for 4 days of 24/7 work, implemented by “working class” people with specialised skills, qualifications and pride in their work that I doubt you would have any comprehension of. These people were also very productive; I know because I have seen their employer’s invoices. They were not working in high-rise buidings or in an urban or sub-urban environment. I didn’t ask them if they understood human evolution (not remotely relevant) but they knew that they were getting good money in return for skilled and difficult work at a time of year when most of you were taking it easy. I have huge respect for the “working class” people that turn my projects and designs into reality. It seems to me that you, Riccardo, regard the “working class” with disdain.

          In the same way that the (labour) productivity of a business can be determined by value added per employee, the productivity of an individual can be gauged by what they get paid (since the denominator is 1). It follows, then, that on public holidays a “working class” person is more productive than on a normal weekday. It also follows that if a “working class” person works overtime they are more productive since the law requires them to be paid more.

          Labour productivity is, however, determined by primarily by supply and demand. Supply exceeds demand for unskilled workers but try calling out a plumber at 3 am when you are knee deep in the overflow from your toilet and tell us that they are unproductive because they work with their hands. Their invoice will indicate otherwise. Imagine if their were only 17 (aren’t prime numbers wonderful?) plumbers in the whole of NZ. They could command (for a short time) huge prices and hence would have phenomenal productivity. The productivity of a job changes with circumstances.

          Back to the Motu report…Industry type has a greater influence on productivity than employment density, according to them. One of the industry sectors held up as being particularly productive is Mining/Energy/Water/Quarrying. In the Herald today it states that Taranaki has the highest average salary of any region in the country because of the oil & gas industry. Frankly, given a choice,I would rather see an increase in mining, with employment opportunities across the spectrum, than more finance, accounting, insurance, advertising and legal jobs in the CBD of Auckland. Moving people with zero productivity (unemployed) to modest productivity seems to have big benefits. Maybe it doesn’t have to be an either/or choice.

          Lastly, the term “productivity” that I have used is in the same context as the Motu report. It’s a narrow definition that fails to take into account the efforts of many such as volunteers, homemakers etc.

          Back to work now; designing a product for a New Jersey company to be manufactured in China. Rural Auckland location. No commuting or employment density required or desired. Not typical, I know, but I like it.

    • Stu Donovan

      I work as a specialist transport consultant for boss man Nic.

      Normally I am based in Auckland City Centre, but for 3-4 months per year Nic exiles me to Brisbane, where I will earn the (annual equivalent) of NZ $300k+ in export revenue for New Zealand. So I’d rather if you didn’t try to sell your wool/hay on Queen Street – that space is much better used selling sweet sweet mochas and fancy lime green socks to people like me.

      You may also want to consider the fact that urban areas are the primary market for agricultural products, so even if Auckland was not a high productivity area (and it clearly is) then it’d still be a centre of consumption. As such, the prosperity of rural areas and urban areas are intrinsically intertwined – one has natural resources whereas the other has human resources; they go together like milk and honey.

      I’d suggest you drop the dim-witted anti-Auckland bravado; it says more about your own insecurities than anything else. Please enjoy your rural lifestyle, just don’t undermine the contribution made by people who choose to live in cities like Auckland.

      • Nick R

        Just for the record: Stu is his own boss, he picks his own socks and chooses to drink sugary effeminate coffees on his own accord ;)

        • Bored

          the sentiments and direction of this blog are making sense now…….

          How many of the regular bloggers are employed by the same company………?

          • Two do work at one place although they were blogging here before they took those jobs. The blog does not represent any views except those of the author of each post. Anyway this is much more an evidence based site than many so if you disagree with a view here we are keen to see your argument… where ever you work, or whatever your view. However bored you are.

  • Don

    Try the luxury boat building industry. Quoted as $1.7B and growing… I suppose you could argue it is not CBD but is NOT rural or tourism.
    http://article.wn.com/view/2011/03/19/Marine_industry_to_set_course_for_the_next_four_years/

  • Jamie Walton

    All very nice, but at the end of the day something has to be made/produced/built (doesn’t it?), e.g., Nick’s company is planning something, and that something is something that (presumably) someone wants to make/produce/build (albeit overseas). Otherwise there’s no point; it’s just overgrown teenagers playing computer games, i.e., a complete waste of time (and space).

    Ian was being a devil’s advocate (I think), but he does have a point: people in the USA are starting to realise that all that manufacturing that got sent over to China is starting to bite them (toxic/unsafe products with embedded spyware, etc.).

    Stu makes a very good point that cities are consumption centres, and without consumption, production serves no purpose whatsoever (about the only thing Adam Smith got right).

  • Jamie Walton

    Nick, I agree entirely; the less resources used the better, and reducing waste should be a top priority. I was simply meaning that the “knowledge” activity usually ul

    • Jamie Walton

      Whoops, pressed the button by mistake, finished now:

      Nick, I agree entirely; the less resources used the better, and reducing waste should be a top priority. I was simply meaning that the “knowledge” activity usually ultimately has some practical application (unless it’s pure art).

  • Riccardo

    Your bullying tone does not intimidate me MFD.

    Why do you assume I was relaxing over the period, I was working, on the 23rd floor of a tall office building, like millions of others.

    Why is your New Jersey company located in one of the largest agglomorations of humanity there is, rather than say Wortham Texas? You might be able to work from the sticks, most economies, including the Chinese one you mentioned increasingly depend on urban economics to deliver prosperity.

    And you say ‘rural’ Auckland? Oxymoron. Why not work from rural Bluff? Rural Hokitika? You boast you do your work away from a city, doesn’t sound too far to me.

    Nope, my comments stand. Your prejudices are far more revealing than mine.

    I don’t regard the invoiced cost as reflecting productivity, nor no I regard $200 to fix a leaky tap as reflective of value. Too many markets are rigged.

Leave a Reply