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Sprawl and Housing Affordability

Whether or not having a ‘limit’ around the edge of Auckland (call it a MUL or a RUB of whatever) drives up the cost of housing is a fairly long-running debate. The argument in favour of this assumption is encapsulated by an opinion piece in the NZ Herald a week or so back by Don Brash:

At the moment, less than 1 per cent of New Zealand’s area is urbanised. We are one of the least densely populated countries in the world. The council has quite deliberately chosen to make land expensive.

And the consequences of that decision are disastrous, socially and economically.

It’s disastrous socially because for most low and middle-income families, buying a house in Auckland is now not even remotely possible, and for those families who do make the attempt, it almost inevitably means both parents working outside the home. Most low and middle-income families can’t even make the attempt, and often live in over-crowded, poor quality rental accommodation.

At the moment, the median house price in Auckland is some seven times the median household income. It should be about three times, as it was 20 years ago and is now in many of the fast-growing cities in, for example, the United States.

Why is it possible to buy 500sq m sections on the outskirts of Houston for $40,000, whereas 400sq m sections on the outskirts of Auckland cost $400,000? The answer lies simply in the fact that in Houston there are relatively relaxed attitudes towards using land on the outskirts of the city, whereas in Auckland that has been prohibited.

SPRAWL_02

We’ve recently discussed the question of whether or not sprawl is a good idea, and I think that’s largely a separate debate to this one. What’s particularly worth testing here is the question of whether opening up large amounts of greenfield land will improve housing affordability or not. The Auckland Housing Accord and its accompanying (although rather contradictory) legislation means that we may well be testing this question in the relatively near future – but recent evidence suggests that standalone housing built on the urban periphery is generally very expensive. Let’s take a look at what was noted in a Central Government report on housing and affordability  recently:So standalone houses on the urban periphery generally aren’t that cheap to build, whereas most higher density housing types are comparatively affordable to construct on a per unit basis. And it seems that the availability of affordable housing units is very much linked to the number of higher density units being built:Now one of the reasons why recent standalone houses might be so expensive is because there’s (apparently) not a lot of greenfield land going around – which means that it’s fairly scarce and therefore high value. Expensive land means that a developer needs to put a big house on the site (or two or three smaller ones, which is generally banned through planning rules) in order to make a profit. So maybe opening up more greenfield land could lower the price of that land (more supply leading to lower prices at a set level of demand) and therefore result in it being “economically sensible” to build cheaper standalone dwellings on that greenfield land.

An interesting question then, however, is “how much extra greenfield land would be needed to make a difference?” Plus, perhaps, also a question around whether there really is a shortage of greenfield land being supplied. Let’s refer once again to the Central Government report, this time in relation to land supply:land-supply
The key ‘takeaway’ point from the above slide is that only a small proportion of land which is zoned for development and served with infrastructure has actually taken the next step to being developed. As “boosting housing supply” requires a lot of extra houses to actually end up being built, we find ourselves with two further questions:

  1. If we want to go from around 2,000 sections being “ready to go” (i.e. subdivided) up to around say 10,000 – does that mean we need five times as much land zoned and serviced as we have now? In other words, is the market always going to drip-feed the subdividing of zoned and serviced land into sections, no matters how much land is available?
  2. Do we instead need to focus on what’s holding up the 15,000 sections worth of land that is zoned and serviced from actually being split up into subdivided sections and eliminate those barriers?

Option 1 may well lead to achieving the desired amount of increasing housing supply, but at a truly staggering cost to ratepayers and taxpayers in the form of new roads, new schools, new water pipes, new wastewater pipes and so on. Furthermore, if it’s only around 13% of zoned and serviced land which is actually going to be split up for development to occur on it, then we’re going to be building an absolutely vast amount of roads, pipes, schools and all the rest which are totally surplus to requirements – at least in the short term.

Undoubtedly this post raises far more questions than it has answers, which is unsurprising. There just doesn’t appear to be much evidence that the best way to improve housing affordability is by building more houses on the edge of the city. Or that it’s a lack of zoned and serviced land which is holding up the release of new greenfield sections onto the market. Or that increasing the supply of land zoned for greenfield development will actually do anything – especially not in the short or medium term, to improve housing affordability.

It’s all a bunch of questions, a bunch of very expensive questions if the Auckland Housing Accord does decide to open up greenfield land in the vague hope of improving housing affordability.

parking lot_01

134 comments to Sprawl and Housing Affordability

  • John Polkinghorne

    I was very surprised by that editorial from Don Brash. Not the overall thrust of it – it’s well known the Act party have those views, although they gloss over the fact that their ideology should also favour having fewer restrictions on intensification.

    It’s this bit that I’m surprised at: “Why is it possible to buy 500sq m sections on the outskirts of Houston for $40,000, whereas 400sq m sections on the outskirts of Auckland cost $400,000? The answer lies simply in the fact that in Houston there are relatively relaxed attitudes towards using land on the outskirts of the city, whereas in Auckland that has been prohibited.”

    For an economist to say that the housing issue is that simple is intellectually dishonest. Mr Brash knows the issue is not that simple – indeed, that there’s a lot of debate over whether the issue he mentions is even the most important one – and he does the Herald readers a disservice by putting that in print.

    • First off, I am very much in favour of intensification and would prefer to minimise sprawl as much as possible. I do believe that intensification along with good PT/cycling creates a much nicer city from my experience of living in such cities in Europe.

      However, doesnt the example of Houston and other low density sprawl cities like Atlanta, with very low property prices (at least on the periphary of the city, miles from the centre and public transport) present a problem to the view above, at least in terms of housing affordability? I have researched this and it is difficult to find anyone really breaking down why Houston in particular has achieved such low property prices other than just making a heap of land available. I understand there are other considerations like cheap illegal labour and very cheap materials (obviously a problem in NZ).

      I have also struggled to find examples of dense cities in developed countries that have affordable housing. It is easy to find examples in low wage countries like Romania – from my personal experience – where housing is very dense and cheap. A lot of countries that have denser housing with good PT/cycling in Northern Europe (especially Germany) also have quite low home ownership and high renting rates. One exception is Sweden but apparently Sweden has an affordability issue.

      I know affordable housing isnt the only consideration in urban development and I personally would not like to see Auckland become like Houston. The impression I have from all the people who have visited and a lady in our office from Houston, is that it is not a very nice place to live unless constantly driving long distances is a pleasure. It seems right now Auckland is much more like LA with spread out density (and we also have abig parallel with the destruction of our street car network) but IMO it could easily turn into Houston/Atlanta if we release a lot more greenfield land.

      On the other hand, Houston also hasnt solved the problem of unaffordable housing close to the CBD – it is still really expensive and their very restrictive exclusionary zoning, especially in relation to big lots and minimum parking, make this hard to change. I have read some articles saying that this is now slowly changing (against the wishes of their own NIMBYs) and I know that a lot of money is being spent on light rail in Houston.

      It sounds from your comment like you have some insights into Houston and its affordable housing. Can you share them or point me to somewhere I can read about this issue?

      Is there anyone from Europe who can clarify whether housing in their dense, transit cities are considered affordable or do those cities also have the same issues as Auckland?

      • Kent Lundberg

        ” examples of dense cities in developed countries that have affordable housing” – I think Chicago would generally meet these conditions.

        • Thanks Kent – you are right: http://www.deptofnumbers.com/affordability/illinois/chicago/

          I see that Chicago was included in the Demographia affordability study and classed as having restrictive land policies but with a ratio only slightly higher than Houston.

          Do you know the reasons for that? Have they put in place requirements for affordable housing in developments? Does Chicago have less exclusionary zoning?

          • Kent Lundberg

            Chicago, like Houston, is a pro-growth city. They just happen to be building up. Goosoid I emailed you something to your listed account.

      • Tom

        In mid-range European countries salaries are at 1/3 of NZ ones and basic expenses is at 1/2 that a NZ resident pays. Urban housing is usually very dense and getting denser as old houses are torn down and replaced with apartment buildings.

        If you buy a flat you will probably have to take out a 30-year mortgage. In absolute terms you’ll pay less than a kiwi (~60sqm flat x $3000 per sqm ≈ $180.000) but relative to income you’ll pay more. Now this example is of a solid, well insulated new apartment, in a good area in the capital city. Temperatures on the mainland can vary from -20 to -5 in winter and 25-35 in the summer so good build quality matters.

        But what’s with these cherry-picked Houston examples? It’s not a big surprise that it’s cheap for them to build in a hot climate on flat, worthless land a long way away from anything. The Houston urban area is 25.000 km2 … so that $40k house might be 150km from the city center. A quick google search gives the median price in Houston at $250k USD and average Auckland prices at $480k NZD. And this is after the big housing crash in the U.S. that killed their growth for the better part of a decade. So, a big difference but much smaller than a “$40k house” implies.

  • PMS

    The “drip feeding” mentioned in Option 1 needs further analysis as for markets to work there must be competition on the supply side. Unfortunately this recent example http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10887742 shows that land banking is indeed occurring, the scale of which is unknown. Of course it can happen in brownfields locations as well, but the argument put forward by Mr Brash etc seems to ignore the “market dominance” position that can happen to restrict supply and push prices skywards. Someone mentioned a while back whether any analysis has been done of area ownership on the urban fringe – would be an interesting view.

  • Form follows finance.

    Expensive housing is a result of excessive debt availability. Altering land supply is fiddling with detail compared to the immediate, powerful, high volume impact that debt availability has on the market. Zoning does not equal supply, as Patrick points out, and never will. In contrast to debt it has a long delivery lag, unpredictable behavioural caveats, and self-regulates to ensure price stability/growth.

    Want affordable housing prices [rent and ownership] together with good urban form where people have good location choices? Return to state capital intervention – not the building homes for the most vulnerable, important thought that is, but fundamentally steering what is currently a broken market.

  • Noodle

    Let’s say this Housing Accord does open up big new areas of greenfield land. What’s that going to do to land prices? I think two things will happen:

    1) Big increases in land value for the new areas rezoned from rural to urban.
    2) Potentially (if the scheme achieves what it’s goal) big declines in land value of greenfield areas already zoned for development. This is because such land is no longer scarce.

    I tend to think that (2) above would discourage development of that land as the financial positions of those holding existing zoned greenfield land would now struggle for finance.

  • Perhaps they could look at some of the other components of Real Estate that effect pricing. Maybe it’s not all about more greenfield space. What about the Real Estate industry 1. A quick look at a Texas Real Estate site and they ALL had prices. No Auctions. No Price by Negotiation. We get told it is the fairest way to sell by Auction so we know the true market value, but only when it suits. The commercial Realestate sits empty for years and they don’t take it to auction. 2.. They have capital gains tax. 4 The way we list our Real Estate ads is still by North, South, West, and Inner City. Creating tribes of people who don’t consider other areas. So the north spreads rather than improving a close to town area. What if trade me changed it’s listing based on the Unitary Plan to dwellings in certain areas, like Innner City, Metro, Village, Country Living, Bush Living, or Coastal. 5. A quick trade me search reveals 800 apartments for sale in Auckland and 950 for rent. Maybe there are some other factors that are impacting on our pricing and availabilty problems that need to be addressed.

    • tuktuk

      Good thoughts. I think the biggest and most important soundbite to grab is that from what you’re saying, Houston has a capital gains tax. That is the rebuke to fire back toward the TV cameras next time they want that one liner.

      What if any controls does Houston have on land banking? or, does their market (including capital gains tax) work to discourage such practises?

      In NZ, this just glares out as an outrageous capital gain –

      ‘Yi Huang Trading Company owns 39 Flat Bush School Rd, which it bought in 1995 for $890,000.

      Now, this 29ha block is listed on the market for $112.6 million, promoted as “the land of opportunity, vacant but close to Barry Curtis Park”.’

    • Just looking at your points:

      1. I hate the auction situation as well but I suggest that is more a symptom of the over heated market rather than a cause. Agents put stuff on auction because they can never be sure what insane price the buyer will pay in a seller’s market. I believe in Houston the problem is shifting the houses as there are so many, therefore the agents need to put a price on them.

      2. CGT – but Australia has a CGT and it still has a housing affordability problem. I am not against a CGT but I dont believe it will be a magic bullet.

      3. Listing details – yes maybe, but again I dont see TradeMe changing its website is going to lower house prices.

      4. Apartments – yes and I am sure that the more restrictive lending practises of banks in nZ have a big impact on that. Often they will only lend 50% of the price of an apartment but will lend up to 95% on an exurban house – even if the owner will then need to spend over 50% of their income on housing and travel. An apartment dweller might have no commuting costs but that isnt relevant to the bank – it is all about the perception of security over the lending.

      Tuktuk – in the long term, a CGT might encourage land banking as it may discourage developers from selling. In the short term in the period leading up to introduction you might see a glut of properties as the developer tries to get rid of it before the CGT comes in. Again, a CGT hasnt stopped unnaffordable housing in Australia.

      • Right now land-bankers are incentivised to hold land for a decade, at which point proceeds of sale are tax-free (the taxable income decreases by a straight-line 10% per year the land has been held). Closing that loophole so that the proceeds of sale were always fully taxable would change the current situation where it’s better to hold than to sell because there’s a light at the end of the tax tunnel.

        • If they are commercial developers and bought the land with the intention of making a profit, it wont be tax free. It will be taxed as income. The current system already deals with commercial profit making, just not with private profit making.

  • If dwellings are really available on the outskirts of Houston for 40k that would suggest they are foreclosed subprime properties and are in no way evidence of good of a stable, equitable, well functioning planning and financial regime. More a sign of a crazy wild west system complete with abundant human misery.

    • Frank E

      Man you pick at extremes to try to attack the model that you (I repeat you) think isn’t a utopia. Look Houston has significantly lower house prices overall & this is despite the fact that it is growing at a faster rate than Auckland. I admit it’s not perfect, as stated above Chicago is probably a better model to follow but it is doing something right.

      I don’t know where the abundant human misery. I guess you don’t mind me making the unsubstantiated point that all apartment dwellers are miserable (I hope you got my point).

    • John Polkinghorne

      Yahoo Homes lists 3,928 foreclosed properties available in Houston, and 10,291 other sections/ houses for sale. Foreclosures do wonders for home affordability, but unfortunately they’re not that great for the wider economy…

      • As correctly pointed out by Frank, Houston is surely not perfect but it seems to be doing something right. Just compare the following two very recent articles:
        Houston Tops List of Fastest-Growing U.S. Cities and HOUSTON’S HOMEBUYING BONANZA SHOWS NO LET-UP

        It seems that, dispite huge population growth (much higher than anywhere in NZ or Aussi), housing supply IS meeting demand in Houston

        Even in Foreclosures as mentioned above, Houston is significantly BELOW the US national level (see comparison graph at bottom). Even levels of foreclosure, Houston is clearly doing better than most other US cities such as Chicago, Los Angelos and Las Vegas

        Much as dense advocates may think it tastes bad, the “Houston Medicine” will probably aloso work for Auckland (perhaps a spoon full of sugar will help :)

        • Which medicine is that Tony- an oil and gas boom? or being surrounded by limitless flat land in every direction?, or building the most unsustainable carbon belching auto-dependant city on earth?

          Houston is not very relevant to anywhere much, except Houston, so specific are its attributes. And it is certainly no practical model for Auckland.

          • Sorry Patrick, I am confused ? First you claim low cost housing in Houston is due to foreclosures:
            If dwellings are really available on the outskirts of Houston for 40k that would suggest they are foreclosed subprime properties and are in no way evidence of good of a stable, equitable, well functioning planning and financial regime. More a sign of a crazy wild west system complete with abundant human misery.

            Having pointed out that Houston has much lower foreclosure rate than most cities in the USA, you now appear to have totally changed your reasoning giving the following possible causes of Houston’s low housing:
            an oil and gas boom? or being surrounded by limitless flat land in every direction?, or building the most unsustainable carbon belching auto-dependant city on earth.

            It could be as claimed by Don Brash:
            The answer lies simply in the fact that in Houston there are relatively relaxed attitudes towards using land on the outskirts of the city, whereas in Auckland that has been prohibited.

            Now the reason why Houston is interesting is not because it has low cost housing. Detroit also has low cost housing but no-one wants to be like Detroit. Houston is interesting because it has experienced major job growth over many years and still kept the cost of housing down. In fact, its obviously a winning combination for many and while you may not like Houston, some love it !

            You may be correct in that Auckland is not like Houston (inserting some evidence backing up this claim would help). But if Don Brash and others are correct . . . well then the answer is for Auckland to copy Houston by scrapping its Urban Growth Boundary with the result of lower cost housing for all !

          • Tony as is completely clear from my comment I was referring specifically to Brash’s example of 40K dwellings when i mentioned foreclosures, whether or not Houston has high or low levels of foreclosure compared to other places is completely irrelevant to that point.

            If you read the post above you would see that development of greenfields land around Auckland is not ‘prohibited’ yet is also not rushing to market, things are not quite as simple as they may seem from Johnsonville. Perhaps Dr Brash’s sprawl developer friends do not quite yet find market conditions perfect enough, and are enjoying the political pressure pressure being forced on the Council in the hope that this will lead to them securing even more public subsidy for their ventures. Afterall even if they were to build cheaper dwellings out on some freshly ruined countryside they know that these will be expensive for people to access so in practice will struggle to be actually affordable. Access affordability is a key component in dwelling affordability; where really does matter.

            I did in fact mention ways that Houston differs from Auckland being the global capital of the multi-billion dollar oil and gas industry, currently enjoying a boom in local production, and being on a flat plan without much in the way of geographical constraint and are both so uncontroversial as hardly needing footnotes in a blog comment. And despite recent rises fuel and other vehicle costs are considerably cheaper in Texas than NZ, so the dispersed urban form and attendant auto-dependancy you are promoting is easier to achieve there. Plus other externalities that I guess you prefer to ignore, for example the average carbon emissions per capita NYC 6.5 tonnes Houston 15.5 [p301 Leo Hollis Cities are good for you, Bloomsbury 2013].

            Detroit is another North American city unlike Auckland. Isn’t this a fun game, would you like to name some more?

          • JeffT

            Brash lives in an inner-city apartment. He doesn’t practise what he preaches.

  • Sailor Boy

    Land prices are high because the property market is high, not vice versa.

    If you buy a $5,000,000 block of land on the urban periphery with plans to land bank you don’t care if it takes 10 years to come of or 40, you are still likely to be making 100-200% on your investment.
    Land on the periphery sells for $400,000 a section because a developer knows that land at $400k, a house at $250, developers fees, real estate fees, and legal fees is less than that house will sell for. Land won’t get cheaper until property gets cheaper, property can get cheaper without land getting cheaper.

    Some things that will actually help;
    Capital gains tax to stop rapid price inflation.
    Allowing cheaper housing typologies, ie the unitary plan.
    Increasing the interest rate for mortgages, and stopping low deposit mortgages all together.
    Better rent agreements will help as well, but that is a complex legal reform.

    • swan

      It depends on the relative size of the total market (i.e. total housing stock) vs the peripheral supply of new sections. At the moment the supply on the edge is small and hence the supply of sections doesnt do much to reduce the market price. If however we had liberalisation of land use this would change. The land bankers are onto a winner as they “know” that their land will be taken up for development in the future whenever they make that desicion. You need to get to the market to a point where landholders do not know that their land will ever be used for development if the wait, and others develop instead of them. To do this you need to essentially make all land available for residential use. Furnishing an area with services (if this is in fact necessary) would happen after an owner has made a commitment to developing. The infrastructure could be funded through debt that is held over the land and repayable by the land owners. This would then create an incentive for immediate development.

      • Sailor Boy

        As in build the infrastructure now, and then charge the development fee after.
        Yes that would encourage development now, but it would not reduce land prices, and there is no way we can do that for 100,000 sections.

        • swan

          No what I am saying is you a) – Allow residential construction throughout the region. b) build the infrastructure (if required) for any area that is nominated for development by the owner. The infrastructure is funded by debt which is held over the land and is repayable by the owner. The owner doesnt pay – the land can be taken over by the council.

          • Sailor Boy

            Ok, so if I want to build in Redvale I have to pay back all of the roads, as well as my share of roading upgrades further in town, and the sewer and water and electricity, as well as the trunk upgrades for those, and pay enough to subsidise the PT for 30 years, and extend the busway to Redvale?

            That seems fair, but then if I make an error and can’t turn a profit then the council takes the land and I walk away scot free? Yeah, na.

            Also, it won’t improve affordibility as land will still cost 400k for a section, and houses will still cost 300k to build.

          • swan

            How do you know how much a section will cost if we had large scale liberalisation? Rural land outside the boundary is less than 10% of urban land. Supply shocks affect the price level remember.

          • Sailor Boy

            No it won’t. Simply allowing people to build on more land at their own expense doesn’t increase the supply at all, if you did that today then there would still only be 1800 sections tomorrow.

            Even so, why would we want more land free on the urban fringe?

          • Swan

            That makes no sense. Are you just trolling?

          • Sailor Boy

            Which part doesn’t make sense?

            If we did all the things you said right now, there would still only be 1800 sections free.
            It wouldn’t be a supply shock, as the sections will still trickle to market, hence your whole argument falls apart.

            Also, why would we want cheap land on the periphery?

          • Swan

            Repeating it doesn’t make any more sense.

          • Swan

            Read Dales comment below. He explains the incentives in practice in Houston:

            “Texas approach takes away any monopoly position a land owner is given by the NZ system. If a land owner on the periphery of a city tries to get a high monopoly price for their land, the developer can leapfrog past to cheaper land.”

            The incentives change and land banking no longer makes sense.

            As for your question, you can look at it from a utilitarian or a classical liberal standpoint. Both are aligned in this case!

          • Sailor Boy

            There is a critical difference. House prices in Houston on the periphery are so low that land isn’r expensive because a house will never get enough to recoup that cost.
            In Auckland a developer will get 600k for a house, and will still want 400k for the land.
            You have a very naive view of the supply and demand relation if you think that your plan will work.

          • Swan

            Your comment implies that you think price is independent of supply. That may hold in very special cases for minor changes to the supply side, but in general it isn’t. Show me a city with liberal land use policies and over the top high prices, I don’t think you will find one.

          • Sailor Boy

            No my comment implies that supply has a very limited effect.

            Also, if you want an example take Houston.

            http://www.loopnet.com/Listing/18192988/2915-N-Main-St-Houston-TX/
            1500sqm 5 kilometres from the CBD costing 1.2mNZD their property prices are exactly the same as Auckland, sections 40k from the CBD cost 40k for a 700sqm section.

            The supply hasn’t affected the price, the location has.

          • swan

            So why does land just outside the MUL cost 10% of what it would if it was inside the MUL, allowing for locational effects? See Arthur Grimes – as far as I know it is the only and most comprehensive study of the effects of the MUL on price to date. He is pretty clear on the fact that the MUL is binding.

            http://www.motu.org.nz/publications/detail/spatial_determinants_of_land_prices_in_auckland_metropolitan_urban_limit

          • swan

            Also – sample sizes of one are not statistically significant….

          • swan

            Furthermore… Houston has a pop of 6million so four times that of Auckland. It also has a GDP per capita about 40% higher than Auckland. And at a given distance from the city land prices are the same??? Sounds like Houstons got cheaper land on that basis. Unless, in addition to arguing against basic supply and demand, you also want to argue that pop size and income have no effect on land prices??

          • Sailor Boy

            Yes, land just outside the MUL is significantly cheaper, because the zoning is different. If I have to point that out you are clearly trolling.

            And, actually it is you arguing against basic supply and demand not I. Finding a whole heap of oil doesn’t make petrol cheaper, land won’t do the same to housing.

            You are ignoring Houston’s credit issues which are far more important than that difference in income.

          • Swan

            Sailor boy, have you noticed how certain fruits are cheaper at certain times of year? It is because of increases in supply.

          • My question is, if bananas were already cheap and plentiful would increasing the supply of bananas further bring down the cost of mangos? Or would we need to increase the supply of mangos?

            The key point is there isn’t one land/housing market in the same way there isn’t one market and price for all fruit. There is a multitude of housing markets, an supply and price changes in one submarket have little if any impact on other markets.

  • Melon

    I’m not sure that I know anyone that wants to live on the urban periphery in Auckland – I’d rather rent in the metro area than buy on the outskirts. And Patrick is right – the US property market is a terrible comparison considering the subprime meltdown that occurred there a few years back.There are entire semi-ghost towns of foreclosed houses in the outskirts of major towns and cities, with poor transport links and a general air of hopelessness. Perhaps Don should look at places that haven’t had major trauma in the property market in the last 5-10 years? Look outside the US and I think you’d find Auckland’s problem is universal. Sure, opening up Greenfields will help, but only if it works in conjunction with intensification and a myriad of other factors that would lower property values and be an act of political suicide for any party or person willing to implement them.

    • swan

      I think the idea that lowering property prices is political suicide is not correct. Most people either do not own a house, or only own one house (and live in it). If you are the first category, you benefit from lower property prices, and if you are in the second you are not detrimentally affected by lower property prices except for two special cases: 1. You have a very large mortgage and you go into negative equity, so your cushion of available credit disappears, or 2. You are planning on downsizing. Neither of these categories represent a large proportion of people. So overall the majority of people are either positively affected by lower property prices or neutral.

      I, for example, own one house but would nonetheless benefit from lower house prices as I want a bigger house one of these days.

      • Melon

        But if the value of your house drops along with the prices of other houses, wouldn’t that limit your options? Given that there are significant numbers of people paying off mortgages, I’m skeptical to believe that it wouldn’t have a significant political cost (to mortgagees and politicians) if someone were to tackle the issue of house prices head on. I’m talking about a CGT, limiting foreign buyers, streamlining the RMA as well as opening up greenfields for development. Don’t get me wrong, I’m 26 and would love to move back to Auckland in a few years to a housing market that wasn’t as overheated as the current one, a market that would allow me to live close-ish to the CBD and close to good transport links. I’m all for the the aforementioned steps for purely selfish reasons. However, I can’t see people of my parent’s generation being thrilled about the prospect of their current asset losing – say – 10% in value after they’ve just finished paying it off. I also can’t see people being thrilled about paying off a mortgage on a $500,000 home purchase than is now only worth $400,000. Am I missing something?

        • Melon

          ^Euch, I can’t syntax, but you get the picture.

        • I think the simple answer is you focus on two things:

          1) House prices not continuing to increase so rapidly over time. Nobody’s house value drops, but they don’t increase so much over the next ten years either.
          2) Introducing market segments that don’t exist, like quality terraced houses or mid rise apartments. These things are cheaper and could be bought cheaper. That lower the average cost of housing overall, but probably won’t do much for existing houses on full sections. It’s sort of a case of who cares how much a big house on a quarter acre costs if you can buy a nice terrace or apartment for $300k.

        • Swan

          If all houses drop in value by 20%, my 500k house will be worth 400k. The 700k house I want will be 560k. So I am up by 40k. Unless your parents are planning on significantly downsizing or moving to Kaitaia, the value of their house makes little difference to them. They are consuming all the production of their investment so are not “long” on housing.

  • AdG

    All the multitude of reasons for inflated houses prices mentioned no doubt have to some extent an influence on house prices. Aside from these, I would add, is that there is a direct correlation with the fact that as Auckland progressively becomes a more exciting and attractive city to live in (something that has certainly happened over the last few years), people are prepared to pay more of a premium for being close to, in and around it. I.e the attractiveness of the city is generally proportional higher land prices. Which is why opening up land at the edges has limited appeal and finding affordable solutions through various forms of quality intensification is the way to go.

  • Malcolm M

    An dwelling is only worth what a bank will lend for it. The much higher deposit required for apartments would tend to reduce their price relative to standalone housing. How does the banking industry justify this bias ? It would make some interesting questions in parliament. A recent US study shows that over the last 30 years default rates are much lower in walkable areas with good public transport.

    http://streetsblog.net/2013/06/03/study-walkability-linked-to-much-lower-risk-of-default-on-housing-loans/#more-84118

    Interestingly, the study indicated higher land taxes on the periphery. I suspect the development costs of edge developments were partially covered by local government loans paid through rate levies on the development. The result : low house prices but the high land taxes mean high human misery. The small local government areas and the need to provide police, fire and school costs from rates mean that in many parts of the US mean there is limited capacity to cross-subsidise services on the periphery from the inner core. This is actually a disadvantage of the Auckland super-city, because the level of cross-subsidisation is not transparent and can become a political football.

  • Of course what is not mentioned about the Flat Bush land is that houses couldn’t have been built there in the mid 90′s, not because of the zoning, but because there were no services any where near there. Now the council and govt have built sewer, stormwater, roads, schools and so on, of course it is worth much more. Nothing to do with zoning.
    Of course Houston does have miles of flat valueless land in every direction, Auckland hardly has any. Flat Bush is the last parcel in South/East Auckland, and Long Bay last patch in the North Shore, and all zoned residential.
    Auckland also has periods of high rainfall, very sensitive harbours, often rolling topography, which gives high earthworks costs, none of which I see in Houston.

  • robert

    Apartments only get a hard time from the banks because they are so vulnerable to losing value. Most if not all apartment developments lose up to 30% of their value within a few years of construction. They were probably overpriced to start with and the speculators and time share type sales techniques were used to hype the market. Usually the quality of apartments was very low.
    The funny thing is that during the recent crash there were apartments selling at 30 to 35% below 2007 values and you could nt give them away . My question is if there is so much demand for apartments why didnt they sell like hotcakes at 30% off. In comparision the main residential market was approx 10% to 15% below 2007 values.
    My own personal observations are that body corp levies and rates kill the market. As a new wave of austerity swept across the country paying at least $5000 for Body corp and up to $2000 for rates stops buyers in their tracks .should council charge such high rates on apartments??? Should body corps charge such high fees.
    Regarding land …a rough rule of thumb for developers of land is the retail value of a development is devided equally between cost of land,development costs, and profit. ie 100 sections for sale at $300,000 gives 30,000,000 would cost 10million to buy the raw land another 10million to develop and give a 10million profit. As the costs of raw land went up along with the development costs the ratio changed to 40/40/ and 20% profit. The land bankers in this scenario get the benefit and right now land banking has accelerated with a huge amount being done by overseas interests.
    I agree that using higher rates from council when a zone change occurs is one way to force the land onto the market. However we could also do that with inner city land so that it is also optimised which may be an effective way to get urban renewal instead of extending the urban limits.

    • Sailor Boy

      Maybe because with 0k you could buy an 800k house or a 160k apartment?
      That might explain the demand. Also, the apartments that didn’t sell were shitboxes to be quite honest.

  • Noodle

    I wonder what the Unitary Plan NIMBYs think of Houston’s general lack of planning rules inside existing urban areas. Does Dick Quax advocate for that in Auckland?

    • Kevyn

      Houstonians don’t think they have affordable housing where it is really needed:
      “The proposed changes would allow greater housing density outside Loop 610, enabling builders to fit more houses on the same piece of land, bringing down the price of each home. However, the cost of land is key, experts say, and getting land cheap enough to produce middle-income housing in areas where people want to live will be difficult.The proposed ordinance will be discussed at City Council Wednesday.”

      http://www.houstonchronicle.com/news/houston-texas/houston/article/Development-rules-change-targets-housing-4422075.php

      or check these reasons why some fringe areas are so cheap (go to reply #3):
      http://boards.straightdope.com/sdmb/showthread.php?t=315736

    • As the articles Kevyn cites explain, Houston is actually doubly bad in its planning. It has no urban limit but also has very restrictive exclusionary planning rules (minimum parking, minimum lot size etc). So it is very hard to build high density housing except in a few areas – meaning the high density areas are very expensive – basically everywhere inside the Loop (inside the big freeway). This is slowly changing but is running into the same type of NIMBYism we see in Auckland.

      Until recently there has also been almost no public transport other than a very crappy bus service that only poor people used. I read an article that a lot of areas had actually campaigned against bus routes in their area as they argued poor people would bus there and commit crimes – though I would have thought it was difficult to make your get away with a TV on a bus. Now there is some light rail though of course it is constantly criticised as a waste of money.

      What Houston doesnt have is land use zoning – so in theory a cement factory could be built right next to a primary school. In practise that wont happen – what it has meant is that employment is incredibly dispersed as businesses can be established anywhere.

      So although Houston is held up as a triumph of free market and what people will choose if given the choice, the choices have actually been possibly even narrower than Auckland.

      I find Houston fascinating in the same way as a gruesome sports injury – amazing to think it is possible but I sure hope it doesnt happen to me. However, IMO this will be the route that Auckland will be forced down if the MUB is released and the current NIMBYism stops decent intensification. I think it is also the model the current government favours.

      I find it hard to argue against the fact that the Houston model is one way of delivering cheap housing. I just also think it also incredibly environmentally irresponsible (but consiedring a lot of the advocates for it (e.g. Hugh Pavlevitch/Andrew Atkin) link to this website http://www.theobjectivestandard.com/exploit-the-earth-or-die.asp – the advocates obviously dont care) and also wont create the kind of urban community that makes a city a nice place to live. Just a collection of homogenous suburbs around a very weak dull core.

      • Thank you for clarifying what this discussion is really about . . . environmental responsibility. I also believe the debate is really between those who want to have low cost housing and sprawl versus those who want to have high cost housing and “environmental sustainability”.

        Given the choice, it is clear that most people are choosing to live an city that consists of “a collection of homogenous suburbs around a very weak dull core” . . . Houston has been and continues to be one of the fastest growing cities in the USA. People are speaking with their feet saying low cost housing, dispersed employment and sprawl is the life they want to live. Perhaps this is why opponents of sprawl are now resorting to laws that essentially remove this option for ordinary people.

        • Tony again I have to call you for gross over-simplification, you describe the world as some pure level playing field that always expresses the desire of the people as if there are no complicating factors. People do not have perfect opportunities to express their desire. Houston has grown as there is work there, and the sun shines. Really you would have us all believe it’s only because of the unrestrained sprawl and how fabulous that is. Anyway this is simply the result of a selective data set. One city, Houston is indeed sprawlier than others. Here is a couple charts with a range of urban typologies from the US. The data does not support your conclusion:

          http://www.theatlanticcities.com/neighborhoods/2012/06/urban-or-suburban-growth-us-metros/2419/

        • So you really believe that it is that simple and that binary? There is no possibility of finding a way to have a good mix of low cost high density and low density (that I think the UP is going for) that allows environmentally responsible development and a dynamic interesting city? I find it sad that you would give up so easily. Do you subscribe to the “Exploit the Earth or Die” philosophy?

          As Patrick says above, Houston is not a level playing field as I am sure you are aware. It has very restrictive exclusionary zoning laws with the exception of some inner city areas (which are in high demand and have high prices). Houston is also trying to create a dynamic inner city provided with transit options as it recognises it cant sprawl forever.

          Until the 1930s cities didnt have any exclusionary zoning (though some still had urban limits) and cities could grow organically with a mix of housing. This also resulted in a lot of private street cars to provide access to that housing. From the 1930′s and especially after WWII exclusionary zoning started to try and create areas where people could get away from the industrialisation in the centres. As that industrialisation has now largely disappeared to the periphary of its own accord – why dont we now get rid of these restrictions and let the city grow organically again?

          One answer – pro-sprawl, auto-dependent advocates and NIMBYism who dont understand or like cities. That is at least as big a reason for high housing prices as urban limits.

          • I believe that there IS a simple trade-off between availability of land and the cost of housing (i.e. the laws of supply and demand apply to housing). And yes, there IS a good way to have a good mix of low cost high and low density . . . it’s called let people choose where they want to live ;)

            Again yes, I do know Houston is not a level playing field but name one city that is ? You rightly point out, high cost housing occurs in all cities including Houston ! Some areas are more desirable than others and this is reflected in the housing cost (again economics 101).

            However, what Houston does prove is:
            * big growing cities can have low cost housing
            * people like moving to and living in cities with low cost housing
            * given the choice of living in areas closer to the core but in higher density housing or further away in lower density housing, lots of (but clearly not all) people generally choose the latter. A primary reason in Houston’s case is lower cost of housing cost but better schools in suburbs and the fact that most employment is outside the core (like in Auckland but not Wellington) are also important factors.

            Houston shows that low cost housing has been be achieved in a growing city without an urban growth boundary. The real issue is not whether high cost housing is somehow enevitable in a big and growing city (it clearly is not). The real issue on the Urban Growth Boundary is really about other things such as:
            * whether urban growth/sprawl is more exploitative of the earth or otherwise environmentally unsustainable (i.e. the overall cost is too high) and
            * whether the proposed alternative to restrict residential land supply and require higher density housing result in an overall better outcome . . . difficult to prove given it will mean higher housing costs for most as well as prohibiting those who are prepared to live in fringe suburbs the choice to do so.

          • ‘And yes, there IS a good way to have a good mix of low cost high and low density . . . it’s called let people choose where they want to live’

            Just adding a smiley face and some capitals does not make this a meaningful sentence. Your argument for why people want to live there is presumably that some do. Whereas everyone in Manhattan or Shanghai or Hong Kong are all there under duress? This is nothing other than a circular and silly argument.

            ” whether urban growth/sprawl is more exploitative of the earth or otherwise environmentally unsustainable (i.e. the overall cost is too high)”

            Cute to pretend that there is some kind of argument here; the greater the dispersal the higher the energy use; sprawl is both more expensive and more environmentally damaging, this is clear. Houstonions emit 15.5 tonnes of carbon each compared to Stockholms 3.4 for example.

          • Dale Smith

            Sorry Patrick, but you are drawing too long a bow with that suggestion. Houston’s GDP growth is 8.5 per annum currently, and in Stockholm the unemployed are rioting in the streets. Unemployed people with no mobility have a very low carbon footprint. Growth causes more goods to be moved which is by trucks and vans mainly, and always will be. The growth for growths sake is an argument worth having, but it could not be used as evidence against providing affordable housing. Irrespective of high growth or low growth, Houston house prices are at low medium price to income ratios compared to NZ.

          • “given the choice of living in areas closer to the core but in higher density housing or further away in lower density housing, lots of (but clearly not all) people generally choose the latter. A primary reason in Houston’s case is lower cost of housing cost but better schools in suburbs and the fact that most employment is outside the core (like in Auckland but not Wellington) are also important factors.”

            No, all it proves that is if given the choice between low cost housing or high cost housing, people will choose low cost housing – again Economics 101. I agree with your two other points.

            You cant say Houston proves that the majority of people prefer to live far from the core as they dont have any other choice. In fact, from my experience of living in cities all over Europe and Australasia, the majority of city dwellers would prefer to live in low cost housing close to the core. That is the point I am making (and maybe you missed) on the exclusionary zoning issue – as long as that exclusionary zoning exists there is no free market and therefore no real choice.

            Some European cities have little or no exclusionary zoning, especially no minimum lot sizes or minimum parking. And many have affordable housing though often low ownership rates as people opt to rent. From my reading, pro-sprawl advocates tend to ignore Europe (especially Northern Europe) as concentraing on the English speaking world is much easier.

            The vast majority of research indicates that intensification is more environmentally sustainable than sprawl. Of course they are only theories backed up evidence. You can deny that and bring up reports by people like Demographia. But you can also dig up “proof” that the “theory” of evolution is not true.

            Dispersal of employment is a result of sprawl not a cause and happened in Auckland after the National Government scrapped the rail expansion planned after WWII despite its successful implementation in Wellington. Have you read this paper on the history of Auckland transit?: Slow Train Coming: The New Zealand State Changes its Mind about Auckland Transit, 1949-1956. Christopher E Harris

            The 1951 plan for transport in Auckland, if implemented, would mean we now had a much more centralised and less auto-dependent city – perhaps more like some of the Canadian cities with high transit use.

            Employment dispersal is a bad idea and reduces a lot of the agglomeration benefits of cities, lowering salaries and holding back business development. But perhaps you deny agglomeration benefits as well despite the research?

          • Dale Smith

            Agree that lowering prices will allow people who want to live closer in to do so. So do I take it that we agree prices should be lower, but maybe do not agree how we achieve that? Having been involved in property development both in NZ and Texas for nearly thirty years, I am certain what causes the higher than need be price of land in NZ, and know that there is a way of achieving lower prices and higher density. The agglomeration benefits you speak of don’t exist as much as you claim because, as other research shows, if you ring fence the CDB area (where the money is earnt) and exclude the areas where the people that come into the CBD live (a cost of living), then naturally the data is skewed. And dispersion of employment is not bad. A work from home business or telecommute is more efficient. The fact we are having this discussion by employing our thought via the internet is more efficient than if we had to meet in some central point to have a discussion. Christchurch is a very good example of what happens to a city if you remove the CBD, – not much. Have had an employee who was forced to work at home because of the earthquake say it is the best thing that has happened to the them and the company, their overheads are lower, productivity has gone up, and the $50 a week in fuel they are saving is like getting a $70 per week pay rise, and it did not cost the company anything, not the mention one less car congesting the road and the petrol use. Of course not all industries can do this, but those that can should. As it is, CBD’s only account for about 20% of the employment in a city.

          • Thank you both for your further comments. While we may not agree, I do appreciate the focus on the issues and the provision of at least some evidence & further information as it developed from both of you as the discussion progressed.

            I think we both now understand each other and the points where we might both agree and disagree wrt this topic.

          • Well thank you too Tony, and I’m sure you’re right we’re unlikely to agree. I still can’t for the life of work out why you are so determined to find arguments to support doing things as badly as possible, it just seems so perverse to me, what a strange thing to dedicate your time to.

          • Thanks Tony – appreciate your constructive engagement as well.

            I do worry sometimes that on both sides of the pro-sprawl/pro-density debate that there is too much ideology involved and it becomes a bit like arguing religion – it doesnt really go anywhere. I think there is a basic disconnect between the sides on what is important and what the ultimate aims should be – which in then end really decides what side you are on.

            I guess it will just be hammered out by the democratic process.

      • Dale Smith

        Yes, it is interesting to watch the NIMBY response, which of course anyone could be accused of if they were against something eg high density advocates against less restrictive zoning. But I do sympathize with those that would like to see higher density housing, as more is needed, but the Unitary Plan was badly ‘pitched’.
        Very good point on Houston’s exclusionary zoning. What you are really talking about are restrictive covenants, which most NZ subdivisions’ that were built in the last 20 to 30 years have. This enables them (depending on how they are written) to be exempt from what council are trying to force on them. It’s only the older subdivisions that are subject to the rules, if they come into effect. Texas MUD’s are in effect private so they tend to have restrictive covenants that reflect what their owners want. They are incredibly diverse, so you can have upmarket MUD’s to mobile home MUD’s, high density MUD’s to low density MUD’s. But any which way they are far cheaper than here.
        Also if you want to see a cement factory (Allied Concrete I think) surrounded by residential housing, and across the road from a school, go to Wairau Road in Milford.

        • Dale, I disagree that restrictive covenants and exlusionary zoning are the same thing. I understand restrictive covenants and how they work very well being a commercial/property lawyer.

          Then you say below that restrictive covenants “but does not override the rights of your neighbour” that isnt true if I want to subdivide my property into smaller lots but the covenants prevent me doing that. Then my rights are definitely being overriden – do you agree?

          I know though that at least in Houston city (maybe rather than the general Houston metro area) there are a lot of very strict and restrictive exclusionary zoning rules that are imposed by the local government rules – not by private restrictive covenants. These cover such matters as minimum lot size, minimum parking, minimum setbacks etc. This article that Patrick linked to earlier talks about the effort now to get rid of those rules in Houston: http://www.planetizen.com/node/61868

          My only point I am trying to make here is that lauding the Houston approach as the panacea to all our housing woes ignores that Houston isnt a level playing field between sprawl and density. It cant be used as an example to say that the vast majority of people (especially young people) would rather live in a big house far away from a core city. In my experience most people (again especially young people) at the same price level will trade off size for proximity to the amenities a core city offers.

          I would also point to less solid facts such as creating a nicer urban environment and having a dense and exciting core served by public transport. But I realise that is more of a personal preference and that people with a more rural outlook (especially Baby Boomers) might not appreciate those things – but I think that is changing as the world becomes more urban.

          I personally think we should do away with urban limits and exclusionary zoning and let cities develop organically as they did until the automobile became dominant after WWII. Living in cities that have preserved that pre-WWII urban environment has convince me it leads to the best solutions. Urban environments developed between 1910 and 1950 in particular around street cars are very functional and great to live in.

          • Dale Smith

            Gooseoid – Apologises, I see in re reading my comment on exclusionary zoning and restrictive covenants that I could have made the point better. This was that they are trying to achieve the same thing, ie restrict/exclude something.

            Many covenants are badly written, but if they are written to meet a certain market, then don’t buy if you don’t agree as obviously you are not the intended market. Covenants are the private equivalent of council imposed zonings and are more based on what the purchaser has agreed to, rather than what council think you should agree to.

            The idea in restricting/excluding something is to make it more valuable as in the scarcity of certain goods makes them more valuable, at least to the people that seek that product. Many covenants expire say after 30 years in recognition that the owners needs may have changed, but others do not in recognition (hoped) that that urban form will always have more of a ready market with the restriction than without.

            I see no problem for covenants or exclusionary zoning being changed as long as the people being affected (and who bought under the collective umbrella of covenants/zoning) have asked for it.

            This leads us unto Nimbyism and an old true joke about when they introduced decimal currency, an elderly lady wrote in to object in that it was unfair on all the elderly as they had only known shilling, pounds and pence. She wondered if the Govt. could not delay it until all the old people were dead.

            I think it is fair and reasonable to expect when you buy a house, that you know that your neighbour cannot take away your rights as protected by zoning and/or the covenants and conversely you cannot take away their same rights. Let me make this clear, the long view beyond your boundary is not part of those rights. Yes, height and height to boundary regarding shadow and sunlight, plus common sense privacy orientation is, but not your long view. This is where the unitary plan got it wrong.

            Density could be greatly increased without sacrificing sun etc. and the zonings should have gone down that route first, which in part they have, but the public have become so used to objecting to stuff under the RMA they cannot see and will never see, that they have lost perspective of where they sit in space. Now even to have a disagreeable thought is enough for a legitimate objection. And without proper communication by council, people have every right to think the worst.

            For clarity, I am against nappy valley sprawl just as I am against high density slums. There are some great high density designs that are very good in providing the ‘long view’, either in real or creative form. Research has shown that view, or lack of, is one of the greatest determinants of variation in price.

            Yes, urban living is increasing but suburbia is also part of urban form. And the high cost of raw land and its bed fellows, developer levies, zoning uplift, inclusionary affordable (subsidised) housing zoning, and bureaucratic time delays seriously impact on the quality of housing and its affordability.

            I have run the figures on a typical NZ subdivision and ‘what if’ we developed it under the MUD model. And you can cut the price of a developed section by two thirds. Initially, this can only be achieved on the fringe, but as I pointed out in a previous post, as there is a direct correlation between fringe and CDB prices in all cities, the lower the fringe price, the lower (relative) is the centre. It’s not a linear line as the fringe can be slightly higher because of new build land and development costs, relative to older poorly maintained subdivisions closer in. But over time, lower prices on the fringe will result in lower relative land prices closer in, enabling those that want to be closer in to do so.

            Add onto to this smaller compact sites and houses for those that want them and everyone wins, oh except present land bankers, speculators and those that need capital to grow at bubble growth. Therefore there are many vested interests that do not want prices to be more affordable and this is one reason why this cannot be started from within the present MUL and the need for boundaries to be done away with as in Texas, but as they do, with the appropriate environmental restrictions and user pay use.

            The only reason I have bothered to share this summary (as unpopular as it is likely to be) with this forum is that I agree with it, in part, on a better denser urban form, but if you really want sustainable high density, then you have to lower land and development costs across the board.

          • Dale, thanks a lot for your continued engagement – a very fair, interesting and balanced contribution.

            I dont like restrictive covenants and I think they are quite discriminatory – but noone is forced to buy a section in a subdivision that has them.

            I agree 100% that we need a balance between expansion out and growth within the existing city. I actually thought the draft UP did that quite well, or was at least a start in that direction, but as you say people seem to have a knee jerk reaction against these things.

            For me (and after all this is a transport blog) I still think the transport plan is more important than the housing plan. Form will follow function and the function now is to just move cars around.

            Looking at the 1951 plan for Auckland and what could have been frustrates me but also gives me hope that Auckland can be something different from the auto dependent city we have now. It is all a choice.

          • Patrick Reynolds

            Yes that’s the thing. Our interest is in the quality of urban form and the transport focus of this blog is a result of that, not the other way round. If we can just improve the quality of out Transit offer then the other factors will follow. And the thing is that Auckland is well placed to quickly have a really good and efficient Metro system that could serve both existing areas and new greenfields development [especially in the south] all for the construction of a short 3.5km underground Link at the heart of the city. With a high quality of connectedness new developments are more likely grow locally and be more economically viable, as well as not present a heavy burden onto the infrastructure of the whole city.

            It’s not dispersal in itself that is undesirable, it’s auto-dependant formless disconnected dispersal that is so costly. And I guess Houston is the most successful poster child for that typology, but there are plenty of much less successful examples.

          • Dale Smith

            Thanks Goosoid, Yes transport is a very interesting parallel partner to housing. My main focus is to reduce the non-value added costs associated with land and house development. What this would achieve is more disposable income for individual families who you would then expect, like or hope would be spent in the ‘right areas’ in housing quality and transport. This right thing won’t happen initially of course, because of what I call ‘consumption bounce’, that is if you have been spending all your money on providing a roof over your head at the expense of other needs and wants, if your housing needs are reduced, in the first instance you will use these savings to catch up on those wants and needs until they are satisfied. Examples of needs could be a health issue, the wants a new car (no one is going to use the saved money to buy extra rail passes, sorry ). The point is you won’t save that money initially, and some of it will be spent in the wrong place. So I can understand why some PT advocates want house prices to remain high so you cannot afford a car and running costs, and therefore your only alternative is subsidised PT or ‘shanks pony’. However, in my opinion, the best way is to reduce house prices (without subsidy), increase disposable income, and then increase transport costs to reflect the true cost of their use (this is where I think the intervention should be), which is paid from the increased disposable income of the user group. Subsidies will always be needed for any group like the unemployed. This true transport cost increase does raise issues for both car and PT and would make sure all transport industries sort solutions to lower their costs and/or increase revenue. Transport of all sorts has increased human mobility and this has a direct correction with productivity and income. Both cars and PT are under threat from the ability to Transport ideas/communication without moving at all, as our ability to communicate has shown without any car or PT in sight. Cheers for now, going to walk the dog.

          • Dale that is a very strange idea that ‘some PT advocates want house prices to remain high so you cannot afford a car and running costs’. That is a very perverse idea, or rather two ideas, neither of which make any sense at all. As a PT advocate I can assure you that I want neither ‘expensive housing’ nor people to be priced out of car ownership.

            But we do understand that an important component of the cost of living, and one indivisible from dwelling cost, is the cost of access. People automatically understand this too and therefore are prepared to pay more better located properties as they don’t view housing and movement costs independently. In short a cheap dwelling in a disconnected and expensive to access location [in both time money] is not really a cheap dwelling in practice. This is why there are lower priced dwellings on sale and unsold today on the periphery, despite the shortage of supply. Where matters as well as what.

            Anyway, don’t just take my word for it here’s the research: http://www.vtpi.org/aff_acc_hou.pdf

          • Dale Smith

            PR- It’s not a happy coincidence that expensive housing and the non-ability to afford many things downstream of that (http://www.interest.co.nz/property/64824/otago-uni-study-estimates-over-crowding-causes-over-1300-hospital-admissions-year-and) , ‘help’ PT. Only the ignorant talk of unintended consequences and what is perverse is to promote a certain agenda without acknowledging that the particular method you are using is creating serious harm elsewhere. You say you do not want expensive housing, but if you promote certain things like restrictive zoning that cause all housing to be more expensive, then you have to take some responsibility for the downstream effects. The policies that lead to restrictive zoning also trigger a raft of other reactions from the policies makers that not only further promote this, but also increase revenue. It is always hard to make these policy makers understand, but then it is to be expected when their salary is dependent on them not understanding.
            Litman, like some of his earlier reports are a good read, but as usual fail to explain why Texas cities, that have all the same physical, social, demographic issues etc. with housing as mentioned in his reports, are able to achieve housing that is truly affordable. What he assumes is that front end costs are value-added cost (the majority of them are not), and therefore the only way they can be reduced are by subsidy. Out of the 34 ways mentioned to make housing more affordable, only about three could be described as trying to address non-value added costs.
            It is counterintuitive to many I know, but if you really wanted to make housing more affordable then you need to remove non-valued added costs (waste) from the system. Things do not become more affordable by adding costs.
            Making houses smaller and smaller as a way to off-set the increase in land and housing costs is missing the point, and the real opportunity. Cheaper housing across the board and more disposable income would give people more choice. If you trust them enough to make the right choice based on your observation that higher density living and PT are what more people are preferring, then you will see an increase in people moving into the centre from the fringe, and into more higher density living.

          • Dale, I do find it a bit annoying that the only kind of “restrictive zoning” you acknowledge is the urban containment zoning. The point I was making earlier about exclusionary zoning is that this form of restrictive zoning is at least as inflationary to house prices as the urban limit and especially inflationary in areas of high demand (Ponsonby, Grey Lynn, Devonport etc). Many European cities illustrate this by being able to offer low cost housing even with much more restrictive urban limits than anything you would see in the New World.

            Again, you seem to be assuming that Houston and other similar cities do present choice. But you acknowledged yourself that Houston has really strict exlusionary zoning in the vast majority of the city, especially on lot sizes and minimum parking – two things that really drive up house prices in high demand inner city suburbs. This also forces people to spend a lot of money on transport, which may take their combined housing/transport costs over 45% of income, meaning they are no better off financially than someone who spends a lot of money on housing but little on transport (like me for example).

            “make the right choice based on your observation that higher density living and PT are what more people are preferring” – from the areas of Auckland that are now over average $1m, it appears people are making that choice, it is just that demand far exceeds supply. As long as a small group of privileged Aucklanders fight hard to keep those desirable suburbs exclusive and low density, that will not chnage.

            I am not really arguing against you as I agree with most of what you are saying, I just hope you can acknowledge that claiming that people’s housing choices in Houston are a completely free market is not really accurate. It is as distorted as any other housing market with a lack of inner city, high density options and quality transit.

          • Dale Smith

            Goosoid- On the contrary, I do acknowledge other forms of restrictive zoning, of which exclusionary zoning is one sort. Yes, exclusionary zoning and restrictive fringe zoning, I agree push prices up.

            And I totally agree that Houston has restriction. I have pointed out before the correlation of lower prices on the fringe to higher prices in the CDB, is a common denominator between all cities world-wide, irrespective of their Restrictive zoning practises. Part of this correlation is things like exclusionary zoning/location. And part of the location factor is not that they are closer to the CBD per se. but the first settlers in did get first choice of the most desirable land and so it has stayed. Yet in spite of having these exclusionary zoning policies, Houston prices are a lot lower by income than NZ. And this is the main point; in spite of this they are cheaper. You also have to remember that when you read an article from Houston, their definition of what is dear is not the same as ours. Same words, different definitions. It’s all relative.

            However, there is a big difference between exclusionary/covenant zoning and fringe restrictive zoning. Exclusionary zoning/covenants are restrictions that the owners (and councils of the day) willing entered into, so as to protect and have some long term certainty over what they wanted in their investment. It is natural for these restrictions to increase the value of the property as that what restrictions, as I have previously commented, are meant to do. I think that it is fair and reasonable for these purchasers, as the law allows, having this certainty. Now council (through the Unitary Plan) is wanting to change the present zoning to a less restrictive zoning.

            Of course many inner city folk are upset with the Unitary Plan as they do not have the protection of covenants once council is no longer representing their interests.

            In my development experience, as people lose faith in council to represent their interests, and the police to protect their property etc., they become more amenable to covenants, BC’s, gated communities etc.

            As I also commented, long views are not protected, but older period inner city subdivisions can become the long view that other subdivisions/apartments like to look over. The irony is that these older subdivisions were the suburban sprawl of their day.

            On the other hand, restrictive zoning on the fringe is trying to stop land to be given further value (value-added), for example to be given an exclusionary residential zoning that may then have further exclusionary covenants added. Note that these types of value-added costs are only protecting the value of the initial value-added capital costs. Texas MUD’s are no different in this regards, they have their own zonings/covenants that represent the market of people whom the developer expects to sell to. Of course, what this value is, is a matter for a developer to interpret, the market will have the final word on whether he got it right or not. Restrictive zoning does add a large non-value added cost in zoning uplift, which is the wrong type of cost to add.

            The understanding of how different restrictions works and peoples psychological response to them, the definition of cost and value as in value and non-value added costs, and the definition of what affordable means, are the biggest inhibitors to achieving better urban form and truly affordable housing.

  • Auckland: The Land Bankers Paradise
    http://www.macrobusiness.com.au/2013/06/auckland-the-land-bankers-paradise/

    Supply and demand.

    Choke off supply (urban limit and intensification restrictions, ever tighter building regs & RMA red tape) while boosting demand (increasing population, low interest rates/easy access to credit, no capital gains tax, etc) and the result is pretty predictable.

    It’s not rocket surgery

  • Never mind, the democracy slayers are here to force Auckland out over the countryside with special powers, so will soon be able to have all the crappy disconnected shacks by the motorway you can eat; by royal edict from our ever loving masters, be thankful, peasants: http://www.scoop.co.nz/stories/PO1306/S00048/process-gaps-hurried-passage-of-housing-bill-criticised.htm

  • At the peak of the last house building boom (2002-2006)10,000 houses were being built each year due to a 30,000 immigration net increase per year.

    Immigration numbers to Auckland are the lowest in over a decade . This is the main reason why there are only 2000 houses built each year in Auckland (not land supply restrictions) as there are very few new customers who want to build.

    The current price increases are artificially driven by internal and external investors. There needs to be more analysis on the drivers as the Government Housing accord will not solve the drivers of the house increases. What it may do is create a situation like the Irish land oversupply crisis which ultimately sunk its economy.

    It is peoples expections of where they want to live that is unaffordable as there are lots of affordable houses in Auckland. In fact there are even $50K sections available on the edge of Auckland.

  • Peter H

    3rd Annual Demographia International Housing Affordability
    “In Perth, a restrictive regulatory regime has been
    associated with raising the total price”
    Median Multiple
    2006 = Melbourne 6.6, Sydney 8.5, Perth 8.0
    2012 = Melbourne 7.5, Sydney 8.3, Perth 5.9
    https://www.propertyoz.com.au/rdc/library/Demographia%20survey%202007.pdf

    Demographia had lots of negative comment on Perth that year, then never says much about Perth again in following Survey.
    Anyone know if Perth changed its regulatory regime.

  • Torbayite

    I think some of these fears of lack of local control are unfounded.
    National MP Nick Smith, in working to the “Mckenzie agreement” made it clear the process should ”be driven by local people”. He promised government funding, providing solutions were supported by local people and warned he would not listen to ”extremist positions” from either environmental groups or developers wanting to influence people. (some people were opposed to high intesity dairy farming due to effluent and other environmental concerns)
    This was supported by local woman Jacqui Dean who is chairwoman of the Mackenzie Sustainable Futures Trust.( set up in 2011)
    For details see http://www.odt.co.nz/regions/north-otago/256417/goodwill-key-mackenzie-future
    Surely if this considereation is given to locals in rural South Island, Aucklands locals concerns will also be addressed.

    • No reassurance there at all. He has already come up and shouted at us with an oversimplified version of what needs to happen, I’m sure he can find someone to agree with and then exclude dissenting voices as ‘extremist’. Anyway consulting in the Mackenzie is one thing, with 1.5m in a city another. We have a local voice that we elect but this process deliberately cuts that out.

      • Torbayite

        True Patrick. Also Nick Smith probably knows local woman Jacqui Dean as she is the local National MP and is a member of the Local Government & Environment Select Committee and a member in the BlueGreens, National’s environment policy advisory team.

  • Torbayite

    Oops sorry the above was a comment for the MOT got it wrong blog

  • Dale Smith

    The conclusions drawn by PR are in correct . Having lived and worked on property developments in both Texas and NZ, including the Texas methodology for land and housing which is the Municipal Utility District (MUD), I am well versed in the reasons why they have affordable housing and we don’t.
    First thing you have to understand is that there is a direct price correlation between CBD (higher) and fringe (lower). This correlation is there irrespective of whether the city has restrictive growth boundaries or not.
    The lower the price on the fringe, the lower the price relative going back into the CDB. Houston has high density living, it’s just at a lot lower price that Auckland. The Auckland Housing Accord won’t work because it identifies which land will be released and therefore the land is banked or spec’d up in price. Texas and others works because in theory because they say that all land is available unless identified (environmental reasons etc.) otherwise, whereas in NZ we say no land is available unless identified (released by council) otherwise.
    Texas approach takes away any monopoly position a land owner is given by the NZ system. If a land owner on the periphery of a city tries to get a high monopoly price for their land, the developer can leapfrog past to cheaper land. Because in theory anyone can do this, developers have to be careful that they do not over develop because the margins are not there to carry unsold stock. But because they are not hampered by council planning gain and bureaucratic delays etc., they can build very quickly to meet demand, or stop very quickly if demand is not there.
    This system is very similar to the Toyota method in that it allows for the price to be kept the same in spite of any increase in demand. After all, the reason of the demand (in part) is due to the price being and staying at that stable price.
    Also as developers are responsible for the building and running (with the home owners) of the subdivision, the council does not have to provide infrastructure and thereby carry risk, during the most risky part of a development. However, they have the legal right to annex the MUD in the future if they wish. Which they do with the majority of them as they provide good cash flow (rates) for the council.
    There is more to explain on the above and a number of other reasons for their affordability, but too much to cover here.
    Interestingly, about mid-1980, our house prices relative to income were about the same as Texas’s. Since then, our NZ prices to income have slowly risen to double, while the Texas ratio has stayed the same.

    • but Houston has unlimited flat land in every direction. Auckland lacks a wide spread of good places to build due to geographic reasons. Therefore if there was no MUL the monopoly situation would still exist.
      The MUD’s are an interesting proposal though, and are the main reason land is much cheaper I would say. In general they mean that homeowners do not pay for the utility costs upfront, but pay it off through a targeted rate over 30 years. Of course there is no council, but loans are taken out on the private market.
      I can’t see this being replicated in Auckland with NZ’s very weak finance sector.
      Also Dale is interesting to note in Auckland that the highest price rises have occurred in suburbs close to the CBD, much higher than suburbs further out.
      Macroeconomic issues also cannot be discounted, such as the ease of foreign resident purchase, and very favourable tax treatment for residential property.

      • Interestingly Houston is looking to change its ways:

        “In order to facilitate the construction of more workforce housing, Houston is considering changing its development rules for the first time in 14 years. Will increasing density limits in the “doughnut” beyond Loop 610 help bring down prices?”

        “In seeking the first fundamental changes to Houston’s development rules in 14 years, city officials stress that the revisions will produce more workforce housing, giving middle-class families an affordable alternative to the suburbs,” report Mike Morris and Nancy Sarnoff.”

        http://www.planetizen.com/node/61868

        • Yes thanks Patrick, that is the article I wanted to link to below.

          Does that indicate Houston has reached the limit of what people are prepared to accept in sprawl? I mean some opf those suburbs 30-40kms out – are they really part of Houston? Arent they really small country towns built near Houston?

          • Dale Smith

            Yes you are correct goosiod, many MUD’s are large enough to be classified as small towns, even large towns (Woodlands has grown to about 70,000 inhabitants). The cities can legally annex the MUD’s as the city grows out to them. And cities only annex them if they are being run efficiently. The city then manages them and collects the rates and takes over the provision of services. About 50% of the growth of Houston in the last thirty years has been the annexing of MUD’s. Also many MUD’s are also the centre for employment, so many of the inhabitants do not have to commute into the CBD.

      • swan

        Luke C if that were the case, we wouldnt need to have this debate – the council could just abolish any ring fence and it would not make a difference.

        We do have a lot of land, not quite like Texas, but if you look North to Dairy Flat, West to Kumeu and South to Drury/Karaka, we have got plenty of land.

        • much of this land is cut up for lifestyle blocks, so very difficult to do comprehensive redevelopment of this land. With the Unitary Plan I believe this type of subdivision will be impossible under the future urban zones, so this should help.
          Developers not large enough to build the services themselves in NZ, even at Pokeno is new pipelines built to Pukekohe.
          Note sections at Pokeno still start from $160k and with houses from 400k. Cheaper than Auckland but no where near Houston prices. This area didnt suffer from the landbanking issue, just need plan change to go ahead. Also note housing cost still $240k, that is much bigger reason for difference that the land.

          I think the important thing is controlled release of land to ensure suburbs designed well. Remember also in Houston fuel is far cheaper than here, with highways funded not so much from petrol tax but wider taxation. So endless sprawl not necessary.
          Houston has been the fastest growing area of the US since 2008, but based on oil and gas investment. Sprawling suburbs built in many other cities are almost worthless, with brand new house being demolished to avoid paying rates. Of course this a huge weight on the countries financial system, and thus the worlds.
          As petrol continues to go higher these houses will become very undesirable due to high travel costs, and impossibility of any form of efficient transit system.

          • swan

            It is the controlled release of land that allows land owners to behave monopolistically. It turns it into a one way bet.

      • Dale Smith

        If the reason for cheaper housing was just because the land was flat, then both Los Angelos and Christchurch would have Houston prices relative to income. Interesting both Houston and Christchurch were built on swamps, which of course has development problems of their own. However, the point you make about a sites physical constraints is a good one, but it is not the reason for the excessive land costs that happen in countries like NZ and cities like Los Angeles and Vancouver.
        MUD’s use public funding, but while this funding does make some difference to the successful working of a MUD, is not crucial to whether they work or not.
        Yes you are correct that many other factors contribute to land and house prices, and some of these could also be described as non-value added costs ie waste and should also be removed. Having viewed following posts, I will try to answer some of those comments which will hopefully offer a different perspective.

        • Sailor Boy

          LA is not surrounded by flat dry land at all. There is the sea on one side and a mountain range on the other. Likewise with Chch.

    • Thanks Dale for this excellent contribution to the discussion . . . understanding some of the background logic really helps :)

    • When you say “Houston has high density living, it’s just at a lot lower price that Auckland” do you mean in the centre or in the periphary? I understood from a lot of articles I read that in the Loop and Galleria areas (for example) the housing is still very expensive and unaffordable – as a lot of people want to live there.

      The affordable housing is located far, like 35-40kms from the centre and also very far from transit. I looked at one property being advertised for about US$200k and the public transport option on Google maps was “drive 5 miles to bus stop”. Do you think that is representative of the fringe housing in Houston?

      This article also seems to indicate that there is a move (similar to Auckland) to free up the existing very restrictive exclusionary zoning in Houston but that it is being met with NIMBY opposition the same as Auckland.
      http://www.houstonchronicle.com/news/houston-texas/houston/article/Development-rules-change-targets-housing-4422075.php

      • Dale Smith

        When they are talking expensive in Houston, it is relative to Houstons overall lower prices. But I agree that there are also some amazingly expensive places in Houston like River Oaks. Also the Galleria is pretty high density (95 stories), and when I was there in the 80’s, was the highest skyscraper outside a metropolitan area in the world. I have already made an earlier comment on exclusionary zoning (restrictive covenants), it enables people to protect their property rights, but does not override the rights of your neighbour, so is not the same as Nimbyism.

    • Also, to what extent does the availibility of cheap (illegal?) immigrant labour affect house prices in Texas?

      • Dale Smith

        Since the labour is unskilled, not much. If it did, Los Angeles would also have Houston prices. However, over all wages in Texas are lower, but they have a higher discretionary income. What cheaper land is doing is attracting business to Texas. The business has lower office development/lease costs, plus there employees can buy more affordable housing, this means the business can pay them less (business is now even more competitive), but the employee still has more discretionary income than if the business had been build (if it could have afforded to) elsewhere. It’s a win win for both the business and employee.

        • Sailor Boy

          Not really, unless the company needs unskilled or broad type labour. Density brings agglomeration benefits to specialised industries that cheap land doesn’t.

          • Dale Smith

            The evidence of the majority of business starts in Texas compared to other States speaks for itself. And in a competitive world high density low land cost is going to be more competitive than high density high land cost, especially, when the higher disposable income of the employees is taken into account.

          • Sailor Boy

            Of course there are a lot of business start ups in texas, but what start ups are they?

          • Read today that there are 250K people directly employed in the oil and gas sector in Texas. Texas also has the most wind turbines of any state and that solar and wind business has been growing at double digits in the US now for over a decade. Texas is both windy and sunny, and has a lot of land, so is extremely well placed to profit fro energy transition as well as the current shale boom. It’s an energy rich state.

            People have been moving to Texas for jobs, and not because they just love that dispersed urban form [perfect example of false attribution, that]. And Houston is the energy capital not just of Texas, not just of the US, but of the western world. It also is on a flat plain and receives the highest federal subsidies for the Highway programme, and has sprawl promoting regulations.

            Guess what? it’s sprawlly and growing.

            Just don’t try to tell me that proves sprawl is best and we must push it here. That does not follow.

      • Dale Smith

        This link http://www.kmjnow.com/pages/landing?CEOs-Calif-Worst-for-Biz-=1&blockID=685801&feedID=806, better describes why businesses are moving to Texas, and not California.

  • Frank J

    Could someone with some Photoshop skills please impose a map of Auckland over a map of Houston at the same scale to show how much of Auckland’s periphery is taken up by water?

    I was just looking on google maps and at a glance it looks like there are suburbs in Houston at an equivalent distance from the centre (as the crow flies) as 10 km into the ocean off Muriwai. And that is without even taking topography into consideration.

    Removing urban limits would not solve the poor development potential of the Tasman sea.

  • Sailor Boy

    We are also ignoring that petrol prices are entering an era of exponential increases. This land will be worth nothing in 20 years, why are we building houses here?

  • Stu Donovan

    the other thing to keep in mind here is that urban economics theory (Muth-Mills-Alonso etc) suggests that the rate of decay in land values in a monocentric city is a function of commuting costs.

    So the fact that land values on Houston’s fringe are lower than the same relative location in Auckland may just suggest that the former has higher transport costs, and hence is less valuable. This may reflect longer travel distances and/or increased congestion. Land values are also a function of amenity, and it may be that Houston’s urban periphery has less amenity compared to, say, Hobsonville.

    I also agree with previous commentators that have noted how Houston’s density controls may be more significant Auckland’s than urban limits. But I also agree with other commentators who have noted that constraints on land supply on the urban fringe will drive up property prices – just probably not to the degree envisaged by the likes of Brash.

    Releasing more land won’t solve housing affordability issues, even if it places some downwards pressure on prices. And releasing more land will create transport issues – because we keep subsidising travel at peak periods. It is really only due to these subsidies that people think it is reasonable to live on the outskirts of Auckland/Houston and commute to the city everyday for work. If peak hour travel was priced accurately then such locational choices would not happen nearly so often,

    But it’s not clear to me, in the presence of these subsidies, that allowing development to occur in the fringe is an efficient outcome. It may be, I just don’t know and I have not seen any research that provides much analysis of this issue.

    • Sailor Boy

      I live on the edge of Auckland and commute to the city everyday. I mean the very edge, the other side of the road is grazing land all the way to Silverdale.

      It takes an hour on the either on the bus/bike to Albany, and on the Busway, it is awful to waste that much time everyday. Why anyone would want to live that far from town is byond me, but it is beyond my control.

      People want to live in Milford, and Taka and Herne Bay to be close to stuff, prices won’t go down until we let more people live there.

  • KLK

    Auckland already has affordable houses, and guess where they are? On the urban fringe. Only 20% of houses in the region are below the pre-GFC peak and that’s where the majority of those are.

    People don’t want to live there now but the pro-sprawl advocates claim it’s the panacea. They will claim it provides choice, but only if your choice includes hours of congestion and a boring existence. Sorry, but the generations after you are demanding a little bit more. If they advocated compulsory developer-funded RTNs to the CBD and major centers I would give it some thought. But they don’t. So I can’t.

    The way I see it, under the UP we all win. The dinosaurs get their 100,000+ homes in greenfield developments in the provinces – sorry, hours-away suburbia. those of us in the 21st century get the vibrant (read: non-1950s provincial) city Auckland is destined to become. We can all live where we want and be happy, right?

  • Bryce P

    If I were able to sit in a comfy train with wifi, where I could happily write emails / blog post’s etc, I would be quite content to spend an hour travelling each way if I could live closer to the beach. I would not consider sitting on a bus with limited leg room (even for a short ass like me), weaving in and out of traffic, constant diesel engine noise etc, for an hour.

  • John Polkinghorne

    The MUD model seems interesting, but isn’t that one of the reasons why prices in Houston might be cheaper? From a very cursory reading – and I don’t know anything about this system except what I’ve just read – it seems that with MUDs, people pay off the infrastructure costs for their property over time, rather than all at once. You pay a lower up-front price for a house, but you’re taking on a future liability of paying off those infrastructure costs over 20 or 30 years.

    If that’s correct, then part of the price differential between Houston and Auckland is simply because in Auckland your infrastructure costs are already paid for when you buy the house. Although a big chunk of the cost for new infrastructure comes out of general rates rather than coming from development contributions, infrastructure growth charges and the like, so there is a bit of a subsidy there, and an implied future liability to some extent.

  • The Claw

    Stu, you are onto something with “subsidising travel at peak periods”. If such a thing existed it would encourage too many businesses to operate in the CBD and would also encourage government planners to “zone” all the office jobs in the CBD. Which do you think is more to blame?

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