Back in 2014 I wrote a short paper exploring how population density had evolved in New Zealand and Australian cities. Among other things, the paper provided a rough estimate of the degree to which various cities were going “up” or “out” – i.e. whether population growth was increasing or decreasing the density of the neighbourhood that the average resident lives in.
Based on the data, you could divide New Zealand cities into a couple of different categories:
- Cities that are growing slowly or not at all, e.g. Dunedin, Whangarei, Gisborne
- Cities that are growing and becoming increasingly dense, principally Auckland but also Wellington to a slightly lesser extent
- Cities that are growing primarily by spreading out, e.g. Hamilton and Tauranga
- Christchurch, where normal urban processes were disrupted by the 2011 Canterbury Earthquake and the slow rebuilding effort since then.
There is an interesting comparison to be drawn between Auckland and Tauranga. They are both port cities with stunning natural environments, lots of sunshine, a fondness for urban motorways, and high growth rates. Tauranga is obviously much smaller, with less than 1/10th of Auckland’s population.
But whereas Auckland was the city that went “up” the most, Tauranga went “out” more than any other NZ city this millennium. Between 2001 and 2013:
- The population of Auckland’s urban area grew by 23%, but its urbanised land area* only expanded by 11%
- Tauranga’s urbanised population grew by 27%, while its urbanised land area expanded by 25%.
[* Defined as Census meshblocks with more than 3 residents per hectare. This isn’t a perfect measure as it tends to exclude industrial areas.]
In other words, Tauranga’s urban population expanded proportionately to its population, allowing it to remain a low-density suburban city. In order to accomplish this, the city opened up substantial new greenfield areas to the south, west, and east:
The future seems to herald more of the same. Tauranga-Western Bay of Plenty’s 2013 SmartGrowth Strategy identifies some opportunities for “possible intensification”, but largely commits to outward growth along motorways:
Tauranga’s sprawl serves as a useful “counterfactual” scenario for Auckland – does an abundant supply of greenfield suburbs necessarily result in cheap housing?
Perhaps. But it doesn’t seem to have worked out that way in Tauranga. According to the Demographia housing affordability survey, which compiles a range of useful data but is rather weak on interpretation of that data, median house prices in Tauranga-Western Bay of Plenty are currently 8.1 times higher than median household incomes – an increase from 6.8 the previous year. This is rather high by national and international standards.
Moreover, house prices in Tauranga appear to have followed a broadly similar trend to Auckland, with a run-up in the 2000s, several years of flat or falling prices after the 2008 Global Financial Crisis, and rapid price inflation in the last year or two.
What does this tell us about housing markets? Three things, I think.
The first is that people are willing to pay higher prices to live in cities with desirable amenities like harbours and sunshine. This shouldn’t be a surprise to anybody. We pay more to eat in restaurants that offer better ambiance and tastier food. Why wouldn’t we pay more to live in nice places? And Tauranga, like many other New Zealand cities, is undoubtedly an attractive location:
The second is that greenfield land supply is not necessarily a solution for house price inflation. Tauranga is less than one-tenth the size of Auckland and its house prices are already high relative to local incomes. Adding greenfield land supply hasn’t prevented or reversed previous price increases. In larger cities, where fringe locations are much less of a substitute for desirable central locations, it’s likely to be even less effective.
The third is that Tauranga (and many other New Zealand cities) may have to rethink their approach to housing policy. This is especially true for cities experiencing rapid growth. According to Statistics NZ’s latest (medium) population projections, Tauranga’s population is expected to increase by a further 43% over the next three decades. So the pressure on Tauranga’s housing market is likely to continue unless something changes.
In this context, it’s worth asking a few critical questions:
- What is a reasonable expectation for house prices, given geographical constraints, environmental and man-made amenities, and demography and demand?
- If greenfield land supply isn’t sufficient to enable growth without accelerating prices, what other policies are needed? For example, how can planning policies facilitate choices of dwellings in various places at various price points?