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Transport costs & housing affordability: part 2

Last week’s post about how considering transport costs is an important consideration when really understanding housing affordability has led to a fairly epic comments thread. This is perhaps because many sprawl advocates are so used to hammering the “sprawl is the only way to improve housing affordability” line that they feel quite threatened by a more comprehensive analysis of the situation.

To summarise many of the points made by blog authors within the comments thread:

  • The research validly highlights that transport costs rise as you get further from the centre of Auckland and this counter-balances – to some extent – the higher housing prices experienced in some inner areas.
  • We think it’s highly hypocritical for people to bang on about the need to remove urban limits while maintaining strong support for the majority of planning rules that limit development potential in already urbanised areas. Councillors such as Dick Quax and Cameron Brewer are particularly bad when it comes to this hypocrisy – surely height limits, building setback requirements, parking minimums, density controls and the like are just as much “social engineering” as urban limits.
  • In places where sprawl has resulted in affordable housing (Texan cities are often given as the example) there has been huge (billions upon billions) spending on highways and other infrastructure to support that growth. Hardly the ‘market outcome’ that the proponents suggest.

We have supported urban limits in documents such as the Auckland Plan and the Unitary Plan. In fact we support stronger control over the release of greenfield land in the Unitary Plan compared to what’s currently proposed. The reasons for this are obviously multi-faceted but basically come down to the significant public cost of providing new areas with sufficient transport, water, wastewater, stormwater, schools, parks, medical facilities etc. With so much public investment required to make new development areas liveable, quality communities it’s critical for there to be a carefully staged plan of what areas will be developed when. Not having an urban limit makes this process extremely difficult and potentially undermines the efficiency of public investment because you often see “leap frog” development or a mismatch between where development happens and where public investment has occurred.

Putting that never-ending debate aside though and returning to the issue of how transport costs change our understanding of housing affordability, there are some additional maps in both the journal article referenced in our original post and in the thesis the article is based upon, which provide interesting further information. Please note that we have been asked by the thesis author Kerry Mattingly to not publish the thesis online.

The first interesting map looks at the proportion of household income that is spent on rent across different parts of Auckland. The author provides a number of reasons for using rent rather than mortgage repayments, which appear sound and supported by previous academic studies.

rent-proportion-incomePerhaps what’s most interesting about this map is the lack of a clear pattern, with proportions being high in some areas (North Shore, southeast and parts of the isthmus) but low in other ‘patches’ – generally areas that appear to correspond to concentrations of Housing New Zealand property.

One map that does show a clear pattern is the mean annual commuter variable cost – which broadly tracks the amount of money each household annually spends on commuting.

annual-commuting-costEven though the methodology for preparing this map obviously didn’t assume everyone worked in the city centre, we still get a clear pattern that indicates the further you live from the city centre the more you spend on transport. Relatively employment-rich South Auckland sees lower commuting costs than employment poor west Auckland, but still generally not as low as the commuting costs for the inner isthmus.

The upshot of comparing these two maps is simply that when you add transport into the mix, the true ‘affordability’ of different areas changes quite significantly. That’s perhaps best illustrated in this third map – which shows how much (as a percentage of housing cost) transport adds onto the cost of living in a certain area.

transport-increases-costsThis map is a little bit challenging to interpret initially, but basically it shows what proportion of housing cost would need to be added on to reflect the additional cost of commuting in that area. For most of the inner isthmus it’s less than a quarter of the housing cost that’s added on – so the housing costs make up most of the “combined housing and transport cost” that would be faced by someone living here. For areas further out – particularly it seems in the south (despite its relatively large number of jobs) – the proportion is much higher, often meaning that someone may need to add half again to the cost of housing to truly recognise the combined housing and transport cost of that area.

As a final point, I’ve overlaid (just roughly) the approximate location of land zoned future urban in the proposed Unitary Plan on top of the map above (excluding Warkworth as it was too far north to fit for me).

transport-increases-costs-addFUZThe concerning conclusion from the map above is that most of the land we’re proposing to urbanise over the coming years lies in areas where transport costs will be a huge added burden. In essence, even if the additional greenfield land does provide cheaper housing costs (and the high costs of Flat Bush give reasonable reason to be skeptical of that outcome), that ‘gain’ will probably be significantly undone by the high transport costs experienced by those living in these new parts of Auckland.

 

 

38 comments to Transport costs & housing affordability: part 2

  • Fred

    That last map is telling. Those areas will be Auckland’s future slums.

  • Where’s Waiheke Island on these maps?

  • atla

    Great post Matt. It strikes me that one of the most disturbing things about about the increased number of dwellings proposed for the outskirts of the city is the real lack of amenity, green space and commercial areas zoned in close proximity. Residents of these areas will be forced to travel increased distances to work and public amenities, contributing to the Iack of affordability you’ve demonstrated above. Auckland Council needs to focus housing density within the work/amenity/transport rich inner suburbs. The prohibitive factor here appears to be the heritage zoning overlays which have been applied in a blanket manner rather than a more desirable fine grain approach. If the Council reviewed it’s heritage policy here, and combined that with increased commercial, amenity and quality green space provisions along the high density zoned western rail corridor I believe we’d achieve a much better result.

  • Simon

    While I’m generally sympathetic to the arguement that housing and transport costs should be linked to give an idea of averall fixed living costs, it seems that the presenting housing costs as a percentage of incomes and transport costs as a dollar amount inherently makes conclusions difficult. What you really want (and perhaps it’s in the thesis and just not able to be shown here) is rent + commute in Grey Lynn = X and rent + commute in Pukekohe = Y to allow direct comparison.

    • jonno1

      Exactly Simon. I read the post three times trying to find the missing data, ie quantifying the rent component. For example, taking the middle and centre (yellow and blue) zones, the annual average transport cost difference is about $1200. So what is the average annual rental cost difference, like for like? I suspect it’s a lot more than $1200/annum. (<$25/week? I don't think so!).

      Matt L, can you locate that missing data? You hint at it when you say "For most of the inner isthmus it’s less than a quarter of the housing cost that’s added on … For areas further out … the proportion is much higher, often meaning that someone may need to add half again to the cost of housing". I'm guessing you took that from map 3, but that can't be right as the travel cost in both cases will be a tiny fraction of the rental cost (I would guesstimate a ratio something more like 2% vs 10%). So the legend "Percentage Increase with Commuting Costs" must mean something other than its apparent meaning.

  • JohnP

    I think the 3rd graphic was the one the Herald published. The more I studied it the less relevant it appeared to be. First it is total costs including land and transport that matter versus the benefit you get for living in a particular place. (more correctly total marginal cost and marginal benefits when you are making a decision). Second the market already prices transport costs in that is why land closer in costs more- that is the point. So when you buy close in you are paying a premium on the land that crystalises the transport savings. If you work in the cbd that means you are no worse off, but if you work elsewhere you may have paid a premium that is no benefit to you. Third you could replot the graphic with red in the centre and blue on the outer to show the amount of transport premium you have to pay to live in the centre. As you say it is a challenging graphic but in my view obvious and meaningless for policy. Why is it better to pay more for land and less for transport? Finally all the graphics ignore the benefit you get for living somewhere. Rational people have made choices resulting in market prices. If they choose to live in Hobsonville (red in 3rd graphic) the it is because the benefit they get is at least equal to the cost. I will continue to bang on about urban limits because that has increased land prices. You can bang on about maximum height and daylight controls if you wish but I simply think you are dreaming if you think changing that will be politically palatable. Planning rules can only work if they get through a political process and a lot of wealthy educated people feel strongly about seeing some sunshine.

    • JimboJones

      ‘a lot of wealthy educated people feel strongly about seeing some sunshine’ – maybe they should live in the outer suburbs instead of the inner suburbs.
      A good city can provide for everyone – high density in the centre gradually becoming lower density in the outer suburbs. It is silly to do the inverse of this just because some people don’t want to move to an area more suited to their desires.

      • JohnP

        Yes I agree. A lot of people are better off living in the suburbs. I am not an apologist for people living in an inner city villa who are squandering land. But I am a realist and I have been dealing with the entitled Ponsonby types since the late 1980′s. My last point is simply that a policy counts for nothing if you can’t get it through. I thought when we made submissions on the Auckland Plan against the RUB that it fell on deaf ears but looking at the Unitary Plan perhaps there were enough Councillors listening to make a difference.

        • JimboJones

          If we are doing things that are bad for Auckland just to appease rich voters I would suggest there is a problem with a system. Auckland has twice elected a Mayor that believes in a compact city yet he doesn’t have the power to make it happen. Yet Michael Bloomberg and Boris Johnson seem to have the power to make changes in their cities. Do we need to give the mayor more powers?

          • Do we need to give the mayor more powers?

            When “we” is “National Party-led central government”, the answer is “Even if we do need to, it’s not going to happen in a million years.”

          • obi

            I’m sure that National would love to go in to the election with Labour promising to give Len Brown new powers. That’d probably be worth an extra ten percent in Auckland.

            One of the issues that Brown has is that no one wants to risk being associated with him. Everyone has heard the rumours of prostitutes and other mistresses, and the secret China trip is still a mystery. The prostitutes rumour was referenced on Jono And Ben At Ten, so that is pretty mainstream. Councillors and even Labour MPs won’t want to risk their political capital supporting some Brown policy and find themselves dragged in to the next Brown mess. The irony here is that the one person who can support a Brown initiative and get away with it is John Key. I think people accept that Key has to deal with people he would rather not. Like Titewhai Harawira at Waitangi every year. Key has become Brown’s best friend, but only because he is Brown’s only friend.

            But does the mayor need extra powers? As far as I can see, you’re talking about the power to override the full council and to bypass legitimate democratic opposition posed by groups of Auckland residents. Because they’re the people that are slowing down implementation of planning proposals. In which case, I’m quite happy that the mayor has to work with people rather than ignoring them.

        • Mission

          I think John that the problem is whether all externalities are properly accounted for in the pricing of land. Quite probably they aren’t when it comes to infrastructure costs. Certainly environmental costs (particularly carbon) are not properly priced. It would be best if we could rely on proper pricing rather than regulation via the District Plan for managing sprawl. But that is of course very hard to implement and administer

          • JohnP

            Externalities are one of my pet subjects. They lead to market failure but in most cases there is a way of addressing them. Externalites can be addressed through creating the “missing markets” like a trading scheme, Pigouvian taxes where the state imposes a tax impost, or internalising where one person or company takes control (like the Enclosure Acts for the English commons). When we buy petrol we pay around 64 cents per litre in tax excluding the GST component. That tax is something people take into account when they choose to drive and is a disincentive to use your car. Only 1 cent per litre goes to the emissions trading scheme. But the rest of the tax still works in a Pigouvian manner as a disincentive to release carbon. The fact the Government spends a lot of it as general tax on things other than carbon reduction shouldn’t make any difference to people choosing to drive or walk or take the bus. The biggest externality is probably congestion which occurs due to our failure to charge for road space. A congestion charge (as opposed to a toll used to fund new roads) would internalise that effect and in my view is needed regardless of where we build houses.

          • I agree with you that there is no way to deal with congestion other than pricing the road use. I would like to see something like the Stockholm model where the price changes as the congestion builds up. This was not initially wanted by Stockholm residents but a later vote kept it in place once residents saw the benefits. PT and cycling use went up as well.

            Of course, we also get back to the question of whether we need to “solve” congestion – is it really a problem or the sign of a healthy vibrant city? Very little congestion in Detroit.

            The point is that people on grade separated PT and bicycles are not affected by congestion – only the motorists – who are not in congestion, they are congestion.

          • Brendon Harre

            I wrote the below for a friend recently but it seems to be relevant here…

            Roads have a natural congestion point, below that point, one road user does not interfere with another. Above that point every addition user inhibits all other users.

            A road user or congestion charge is one way to bring down the users to the congestion point.

            It is a little like car-parking pricing. Too high and car parks are inefficiently not being used. Too low and car parks are never available when people need them.

            Or a private swimming club, they may charge an annual membership fee to cover capital costs and a use a entry fee at peak times to prevent over crowding.

            But I don’t see the user or congestion charges as representing the capital costs of building the pool, car park or road. The user charges just allocate the use of whatever arbitrary amount of public good is provided. The perfect amount of transport might have been provided to give maximum use but no congestion, in that case user charges should be zero.

            Public goods are difficult to analyse because of these features.

            A private good you can simply set up a bidding process, the winner gets whatever and pays the price, all others don’t pay and don’t use. So the system incentives you to reveal your choice. Public goods do not work that way. There is the big problem of potential users not revealing their demand. The free loader problem.

            XXXX you have to read up about public good pricing theory. I can give you some text books if you want.

            But in my opinion clubs like the swimming pool model are the best option. Local councils or Regional councils can be seen as a club. Taxes are your annual membership fee. If you don’t like the services go somewhere else.

            Local councils are particularly relevant because transport is a heterogeneous public good. Different places due to size, income, geographic choke points, location of important demand features, ports, airports, major hospitals and so on will have a different solution to achieve congestion free transport.

            So transport is different to say primary school education where you can expect roughly the same service everywhere, one qualified teacher per x number of kids.

            If you look at pricing before the transport link is provide. So try turning a public good into a private good. Say like surveying and a land recording system turned free to graze land to private farm ownership as we know it. But farmers can fence, subdivide, change use as they see fit from then on.

            For transport there is no free entry by other players, it has to be the State who does it. They are the only player that has and should have the right of eminent domain. So whatever is provided comes back to the ideas the State has, their models, beliefs etc.

      • atla

        JimboJones have you seen Auckland’s Propsed Unitary Plan?! They are infact proposing the “silly” inverse.

    • “You can bang on about maximum height and daylight controls if you wish but I simply think you are dreaming if you think changing that will be politically palatable.” – Yes of course. If something is difficult we should just give up.

      It doesn’t appear that abolishing the RUB is particularly politically palatable either – so will you be giving up on that as well? The fact is the people you are talking about don’t want change at all – either up or out.

      The decisions made about Auckland’s future should be based on evidence and clearly defined outcomes – not what is easier or more politically palatable. That is how we got in this mess in the first place.

      • JohnP

        “The decisions made about Auckland’s future should be based on evidence and clearly defined outcomes” Yes but the outcomes are all political in nature. Only two groups are available to make these decisions, either its people who work at the Council who are not accountable to the public, or the decisions are made by people who are elected onto the Council who are accountable. Lucky for us the latter have directed the former to the draft Unitary Plan we now have.

  • obi

    A couple of points…

    Not everyone commutes. Retired people often move to outlying areas, often near a beach. Freeing up equity from an expensive inner-city home is an additional benefit.

    Not all salaries are equal. Commuters from the outskirts in to the CBD are likely to be earning a lot more than commuters from the same area traveling to Albany or Manukau. Someone living in Warkworth for lifestyle or family reasons can easily afford $4k a year to commute in to a $150k job in the CBD. For a UK equivalent, think of the traders commuting in to the City from Essex or St Albans, compared to the low paid workers shoehorned in to high rise council blocks in Deptford.

    • “think of the traders commuting in to the City from Essex or St Albans” – Yes but they generally do that by train which saves them a lot of money. That isnt really an option in Auckland because we have only built for the car.

    • jonno1

      Good points obi. I have a friend who commutes from Puhoi to the CBD every day – up at 4am, 90 minute drive, parking costs on top. She wouldn’t have it any other way, it’s a lifestyle choice. I, on the other hand, live a stone’s throw from the city centre (well, maybe a tad more than that), work from home, and wouldn’t have it any other way; walking distance to shops, cafes, restaurants and PT. Go figure.

      goosoid – not sure when you last checked, but even annual train passes in the London area are not cheap, although probably cheaper than Auckland relative to city salaries, which make your eyes water.

      • Sure but a lot cheaper than driving and paying congestion charges. The point is, at least there is a choice, one that doesnt exist in Auckland for those on the outskirts.

        • jonno1

          Yes true, I forgot about congestion (and parking) charges! Both big factors. I have friends in both the north and the south who commute by train for either one hour (fast train) or two hours (slow train). My son who works in the City commutes by tube from south of the river. He would never take his car in on a weekday.

  • Fred that is an offensive comment you left there sorry but it is.

    Quoting:
    As a final point, I’ve overlaid (just roughly) the approximate location of land zoned future urban in the proposed Unitary Plan on top of the map above (excluding Warkworth as it was too far north to fit for me).

    The concerning conclusion from the map above is that most of the land we’re proposing to urbanise over the coming years lies in areas where transport costs will be a huge added burden. In essence, even if the additional greenfield land does provide cheaper housing costs (and the high costs of Flat Bush give reasonable reason to be skeptical of that outcome), that ‘gain’ will probably be significantly undone by the high transport costs experienced by those living in these new parts of Auckland.

    Yes and no Matt with transport costs in those future urban areas. It is a yes if we have:
    1) A focus on a mono-core typed based planning as the Auckland Plan wants but Auckland is rejecting and drifting away from on its own steam
    2) Rapid Mass Transit is not near by

    It is a no if
    1) Large scale employment centres are near by
    2) Rapid Mass Transit is near by

    If you look at Southern Auckland those Greenfield areas are near both large employment centres (or future employment centres) and near mass transit and state highway networks.
    Your large employment centres in the South are
    1) Drury South heavy industry site
    2) Takanini Light Industry site
    3) Wiri industrial complex which is could be expanded with the Puhinui Gateway
    4) Manukau City Centre – the main commerce hub for the area
    5) East Tamaki and Highbrook
    6) Airport and flanking industrial complexes
    7) At the most furthest point Otahuhu and Westfield industrial complexes

    Most of those sites are easily linked by either a State Highway, a bus route, or the Southern Line (rail)

    So your transport costs in those black underline areas can be significantly lowered if the worker in these new urban areas chose to work more locally AND if Council via the Unitary Plan allows these employment centres to flourish without the excessive development controls

    • JohnP

      Ben your post is borne out by the 2006 census data which shows few people from the peripheral areas actually commute all the way into the CBD. Commuterview shows most Papakura commuters stay local or go into Manukau to the areas you mention. Sorry I dont think I can post the graphic showing it. Same for places in the old Rodney area. People commute locally or to the old North Shore city area. The idea that everyone needs to get to the cbd is just out of date.

    • Tamaki

      Soon it will be easy to commute from south Auckland to north Hamilton and vice versa. Time wise, it could be faster than within akl. The future is a conurbation from whangarei to Cambridge. within that area, where will the next dollar of transport investment generate the maximum regional benefit?

  • Brendon Harre

    Matt L Re: “The concerning conclusion from the map above is that most of the land we’re proposing to urbanise over the coming years lies in areas where transport costs will be a huge added burden. In essence, even if the additional greenfield land does provide cheaper housing costs (and the high costs of Flat Bush give reasonable reason to be sceptical of that outcome), that ‘gain’ will probably be significantly undone by the high transport costs experienced by those living in these new parts of Auckland.”

    These are valid conclusions. I also do not think the new urban areas will supply the housing market with what it needs and the obvious response is that house values will continue to escalate unless there is a collapse in demand, from say a spike in interest rates, net loss in migration from Auckland, economic depression with high unemployment etc.

    I can see from your comments about supporting UGB that your method of solving the mis-match between new development and public amenities indicates you believe in ‘up’ development. But as other commentators indicate that is often opposed. Becoming log-jammed in political arguments. There is some ‘up’ developments that get through, like the replacement of old state housing with better and denser new state housing and private dwellings. This should be supported but is not enough to be the silver bullet to solve the affordability problem. House values and to a lesser extent rents continue to escalate.

    I would suggest that there is a way for new development to match public amenities and that is for Auckland City council be given extra funding so they can over time develop a new city. That the extra funding allows extensive PT and motorway infrastructure with the model being the Northern European mix between public and private transport that seems to be the democratic desire of Auckland voters. That a whole new city area is the zoned residential, except for the planned areas for transport links, parks and commercial areas.

    This should open up huge competition for developable land with good (future) transport links. Thus reducing the artificial scarcity value of land and allowing residential land (and public amenities) to be supplied to the market elastically.

    I believe the public costs of doing this would be a lot lower than the private costs of another property boom.

    • TimR

      Hi Brendon. What do you think the funding model looks like for this up-front investment?

      • Brendon Harre

        There is a number of possibilities.

        LG could get bigger direct grants from central government for specific projects as best as they can from one off negotiations with CG. So similar to what we do now but CG being more generous. This is likely to go in fits and starts and lead to mismatches that Matt L described.

        Or there could be a more systematic process.

        So LG could get direct grants from CG for each new resident.

        Or LG could get taxes that directly relate to economic growth. PAYE, GST on construction costs (but not land costs), Fuels taxes.

        All the above are used in various parts of Northern Europe that we could model off.

      • Brendon Harre

        Simple answer is that if the Auckland public (and elsewhere too I think are expressing the same thing) is wanting the European mix of public and private transport then we should look at the political and funding institutions that they have in Europe. Don’t reinvent the wheel, just copy the best from German, Denmark, Netherlands, Finland….

        It is not just the physical infrastructure we need to copy but the political institutions that allowed it to happen.

        I think this sprawl or not to sprawl, green belts and UGB debate is a weird throwback to Britain. You can have a perfectly good public transport, biking and walking centric urban developments without UGB and green belts and with the right to build being at the citizen level not the local/central government level.

        Germany has the right to build housing explicitly stated in its constitution as a basic right citizenship right, yet it is one of leaders in non-car centric urban developments. Certainly far ahead of Britain.

        Carless urban developments like http://en.wikipedia.org/wiki/Vauban,_Freiburg occurred in the freer urban development landscape of Europe not in restrictive Britain.

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