50 Years of waiting for an Auckland Rapid Transit system.

Ian Reynolds 1946 by Brian Brake

My father, Ian Reynolds 1922-2005, was an architect (as was my mother). He was also a what was then called a Town and Country Planner. After returning from working in England after the war he spent the rest of his career as partner in a big multidisciplinary practice in Auckland (missing the city of his youth: Wellington. Office in Wakefield St, where the AUT business school is now). There he was responsible for a chunk of our post-war modernist heritage, as well as a lot of planning work. Especially at the University of Auckland, master-planning the campuses and involved in the campaign to retain the city one, which thankfully won out. Notable design work includes the School of Engineering and the Thomas Building both on Princess St, his practice also designed the School of Architecture while he was head of the architectural division.

In 1967, which is of course now 50 years ago, he was interviewed by the Herald about transport in Auckland (in full below). And it makes for a pretty interesting read, surprisingly relevant still, perhaps alarmingly so. I’m pretty sure his 1967 self would be very surprised that we are only now getting round to building the Rapid Transit Network he describes from the De Leuw Cather report. Although later of course he witnessed the defeat of Robbie’s Rail, and much else that should have given life to the 1960s plans for balanced transport networks. The interview shows a clear vision of that possibility, and how that would have led to a different more urban pattern of development for Auckland than we currently have:

Readers will no doubt feel that indeed; some apples don’t fall very far from the tree, yet re-reading this I am amazed now at how little I ever discussed these issues with Ian. I think on his side that was because of a sorrow felt by the idealistic modernists of his generation about the development of Auckland in the later part of the last century. Interestingly for many there was a move into environmentalism from urbanism (not that either phrase were current at the time) as centrally directed motorways and private land speculation took over completely from state planning and housing investment. Perhaps that is where this generation’s lasting legacy can be seen. Especially evident in the careers of two of Ian’s colleagues; captured perfectly in this obituary of planner FWO Jones (known even to us kids as ‘Fwo’) and the just recently deceased KRTA partner Dave Thom, who was very active in the national parks programme, and in making the theoretical case for environmentalism as a core practice of engineering internationally.

But it must be remembered that the denser city was always considered the necessary corollary to the protected wilderness, as this keeps the city from spreading so much into the country. The term sprawl is after all the shortened version of urban sprawl. His generation did achieve much in protecting key wild places, but I think Ian keenly felt that on urban form they suffered a life long defeat. So it would be good to show him Auckland now, the last ten years since his death have seen a profound change. I think he would be gratified by many of the trends; the full return of the university to the city, the strong revival of inner city living (though not so much the design of many of the buildings), the rail revival (he was a dedicated train user; taking the overnight train to Wellington regularly instead of flying, which he loathed, he was also an equally dedicated pipe smoker; which got him in the end).

There is so much that is still accurate in the document, both happily and otherwise, I think he is right both about our relative lack of corruption and waste, but also the dominance of political expediency over good policy in transport and urban form:

Here he refers to the ‘Morningside Deviation’ the 1940s version of the CRL suffering the same fate (see here for earlier schemes):

It is important to remember that at the time of the interview the population of Auckland was around half a million, so the arguments then are even more pressing now there’s another million souls living here. And some concerns have disappeared completely, such ‘inner city decline’. Of course had the described bus/rail system been developed alongside the motorways the pattern of the city’s development would be different; less sprawl, more complexity, not radically different just less monotone. A city of greater variety and one less entirely dominated by traffic. One that pushes less aggressively into the surrounding countryside… Instead we have built one network entirely, the motorway system, and largely one developmental typology, low density dispersal, and the city is poorer for it. And now we must urgently add the missing complementary Rapid Transit Network, as those 1960s planners quite correctly foresaw would be required to prevent a road only system choking to death on its own overuse. At least as the city is three times the size it is so the cost is now affordable; if only we would stop so expensively adding to the one now complete system….

Sketching in Kendal 1950

Development update: January 2017

2017 will be the Year of the Terrace.

Not these terraces. RIP. Image source: Te Ara

Terraced homes, built in rows: neighbours on either side, but not or above or below. They’re relatively cheap to build, and they’re within the reach of many small/ medium-sized building firms, ones which have traditionally concentrated on detached houses.

Of course, Auckland is building many kinds of housing – from detached McMansions right through to compact apartments. But terraces are a nice middle ground for many people, and this year they’ll be built in all corners of Auckland, and in many of the more central parts as well.

Which corners? For starters, Orewa, Silverdale, Whangaparaoa, Long Bay, Albany, Hobsonville, Massey, Sunnyvale, New Lynn, Mt Wellington, Flat Bush, Mangere Bridge, Takanini, and Papakura. As a rough guide, terraces will get built anywhere in the city where they’re allowed, and where the land values aren’t too high.

In high land value areas, people will probably hold off and try to build apartments instead. This may be a bit of a waiting game depending on the area. The high value areas include the central suburbs, much of the North Shore, etc. Many of these suburbs have already had their share of ‘intensification’, with sausage flats and back sections subdivided over the last 50 years or so. In these areas, it’s only apartments which will give a big enough leap in value for them to get further intensified.

Many of those apartments will be low-rise, maybe 2-3 storeys. They’re not much more complicated than terraces, so a lot of builders could start to look at them as well – and the Unitary Plan gives more flexibility around where they can be built. 2018 could be their year, but terraces have had a head start.

The RCG Development Tracker shows hundreds of apartment and terrace projects across Auckland. Big ones and small ones, private and public, and many Special Housing Areas. Enough to house many thousands of Aucklanders, if we could just get them all built.

So let’s check out the growth trend for terraces:

In Auckland, we’re now at near-record levels for terrace consents. Over 2,000 homes per year being approved, with a strong upward trend. Contrast that to apartments – which hit 2,000 a year but have eased back – and retirement village units, which have also eased back.

All of these “attached” dwellings combined add up to 4,443 homes approved in the last year, still less than the 5,694 detached houses approved. I’ve previously claimed that 2017 will be the first time Auckland approves more “attached” homes than detached ones – that prediction will succeed or fail based on how terraces do this year.

Here’s the other graph that makes terraces a winner in 2017:

The average house now costs almost $450,000 to build (just the construction cost, not any of the other costs. Tell that to the next person who mentions Demographia). Most of the homes we build in NZ are detached houses: over the last 25 years costs have tended to increase smoothly, although there’s a sharper trend at the moment with builders under pressure.

There aren’t that many apartments built, so the line is a lot jerkier based on individual developments having an influence. Very few were consented from at least 2008-2013, so don’t pay too much attention to that part of the graph. The real kicker, though, is the huge cost increase in the last year or so: the average apartment now costs more to build than the average new house!

I put this down to the small number of builders who can handle apartment construction – mainly big commercial firms, most of who are very busy, not just with apartments but with offices, the Christchurch rebuild and all the rest. If any Australian builders are reading this, they’ll be looking at the graph and wondering how soon they can set up an office in Auckland. Hopefully some are, we desperately need the competition. Apartments should be much cheaper to build than they are at the moment.

Retirement villages are in the same boat, and up to almost $400,000 per unit. Of course, most of these units are apartments – Auckland’s retirement villages have started to build upwards in a big way.

Terraces have had a much smoother cost curve, like houses. They’ve avoided the huge cost inflation of apartments in the last year, and the average terrace now costs about $230,000 to build.

There’s a lot of other costs that go into new homes besides just the construction – but at the moment, terraces have a big cost advantage. Add that to the fact they use a lot less land, and you can see why developers all over Auckland are trying to get into terraces.

2017 – The Year Ahead

In this last post for the year, I want to look at some of the things I think will be big discussion points during the year as Auckland continues to transform into a better city.

City Rail Link

With works now well underway on the first sections of the CRL the project will remain a strong talking point in 2017 as we follow its progress. We start the year with changes at Britomart with the new temporary entrance coming into use. Early in the new year the CRL team are expected to put the rest of the project out to tender.

Well also be focusing a lot on what happens to the streets after construction is finished. The works so far have shown the city can still function well with the significant disruption that’s occurred already and so we believe there’s an opportunity to vastly improve them for pedestrians, not just put them back as they were.

Mass Transit

The government don’t like the idea of Light Rail on Dominion Rd but begrudgingly acknowledge the need for more rapid transit capacity. So in ATAP, they referred to the idea as ‘Mass Transit’ and said the NZTA would be looking at bus alternatives before confirming what would happen in the future. This work is already well underway and I’d expect it to be released early in the new year. We know AT had already put a lot of work in before deciding on the Light Rail option, including analysing many bus alternatives. So to be credible, this new study will have to show how it deals with the issues, like city centre street capacity, that led to AT picking light rail in the first place.

If they ignore those issues, it will put Light Rail on the same track to existence as the CRL did with the government and its agencies producing competing and often incomplete analysis before finally agreeing with the project.

The issue of congestion around the airport is also likely to be a big factor and one I think will only increase pressure on politicians to get this addressed.

Rapid Transit

I expect we will hear more in 2017 about how AT plans to develop the Rapid Transit Network. At the very least the Northwest Busway which was identified in ATAP as needed in the first decade. We know AT have already been doing some work looking at this. I also think we’ll hear more about other RTN projects such as AMETI and how to deal with electric trains to Pukekohe, either extending the wires or using battery powered trains.

New Network Rollout

In 2017 we are will see the roll out of the new bus network in West Auckland in June followed by Central Auckland a few months later.

Parnell Station and new rail timetable

In March the new Parnell Station is finally due to open. The old Newmarket Station building was moved to the site just before Christmas and is being refurbished as part of the station. The opening comes alongside a new rail timetable that AT say will speed up services – although that may be only by a couple of minutes so not the significant improvements that are needed.

Government Elections

Government elections will likely be a strong point of discussion in the coming year, especially in the latter half as voting draws near. It was of course made more interesting by John Key’s sudden resignation a few weeks ago. Transport is not usually a major talking point but we’ll certainly be watching it. Housing is certainly shaping up to be a massive issue though so it will be fascinating to see what impact that has.

Cycleways

We’re expecting to see a lot of progress on cycleways this year we move ever closer to mid-2018 cut off of the Government’s Urban Cycleway Fund. Some of the ones due to start this year include

  • The Nelson St extension from Victoria St to Quay St
  • Quay St extension to The Strand
  • The next sections of the Eastern Path
  • Ian McKinnion Dr
  • Franklin Rd

We’re also hoping to see progress on Skypath this year now that the consent issues are out of the way.

 

Waterview

After around 5 years of construction, in April the Waterview connection is finally due to open. It will be fascinating to see just what impact the project has as there’s a very high chance it will cause significant congestion, especially leading to the city.

SH20a – Kirkbride Rd interchange

The grade separation of Kirkbride Rd and SH20A is also due to be completed in 2017

East-West Link

The hugely expensive East-West link is going to get a lot of attention in 2017 as it moves through the consenting process. The NZTA lodged applications for consent just a few weeks ago and the EPA process needs to be completed within nine months of that. A lot of mainstream media focus will be on the Onehunga area where there is a lot of opposition to what the NZTA have proposed.

Northern Corridor

The Northern Corridor will also be going through the same process as the East-West link but so far there hasn’t been anywhere near the level of opposition to the project, especially seeing as extending the Northern Busway is now a key feature of the project.

Auckland Plan refresh

A big discussion this year will be the refresh of the Auckland Plan, the 30 year strategic plan for Auckland. Since the first Auckland Plan around six years ago, we’ve made significant progress on some issues, such as the CRL and Unitary Plan but we also face a lot of new challenges, especially around the provision of housing. It will be interesting to see how much the vision for Auckland changes.

Auckland Transport

We’ll obviously be following closely what happens with Auckland Transport in 2017. One big thing to watch is that AT will be hunting for a new CEO this year.

All up, 2017 is shaping up to be another huge year and we’re looking forward to seeing what happens. See you next year

State Houses and Social Housing (part 3)

State housing, or “social housing” more generally, is often in the news for one reason or another. Governments over the years have all had their own policies. In this post series, I won’t really be looking at the pros and cons (at least not much) – I’ll mainly be looking at some of the numbers. Here are parts one and two of the series.

Part 3: Was State Housing ever a big deal?

My last post looked at state housing over the years – with the government building 2,000 homes a year over four decades (the 1940s-1970s). Some state homes were sold off, but the number had still reached 60,000 by 1980, and peaked at 70,000 in 1990.

Those are big numbers. But New Zealand had 400,000 homes in 1940, and 1.6 million today. State homes are a pretty small share of that. Were they ever a big part of the overall housing ‘stock’, or of home construction?

I’ve had to smoosh some different data together to answer this question. Firstly, the number of homes in New Zealand (technically, “total occupied dwellings”) as recorded in each census. Secondly, figures on the number of state homes, and the number built.

Firstly, a graph showing the percentage of all homes which are owned by the government:

percentage-of-state-owned-homes

The government never owned more than about 7% of the total housing stock in New Zealand, but for many years it owned around 6%. The ‘absolute’ number of homes owned kept growing until 1990, as above, but the percentage stayed pretty stable. In the 1990s, the government of the day sold off more than 10,000 homes, and the percentage (and absolute number) fell. Today, state homes make up just over 4% of all homes in NZ.

The next graph shows the percentage of all homes which were built by the government:

percentage-of-state-built-homes

For many years, the government was a bigger player in home building, building as many as 20% of all the new homes between 1945 and 1951, and at least 10% of homes for many other periods. The last gasp was with the Lange government; ever since, state home construction has been quite minimal, especially compared with the amount carried out by the private sector.

It’s interesting to compare this with another country – Patrick managed to find the following chart for England:

social-homes-uk

It’s obviously hard to compare the UK with New Zealand – it has 14 times the population, and is growing at a proportionately slower rate. The welfare and social policies are quite different.

In the UK, it seems it was “local authorities” rather than the central government which did most of the building. They carried out the lion’s share of all home construction in the post-World War Two years, and remained a major force into the 1970s. Over those three decades, councils delivered about half the new homes built in England. “Housing associations”, which are also non-profits, made a smaller contribution in the postwar period, but have picked up some of the slack from councils since the 1990s.

What changed? Thatcher’s government came in and enacted a “right to buy” law in 1980, so tenants would have the right to buy their homes, and at a big discount to market value. But the councils weren’t allowed to reinvest much of the proceeds in housing (and, in fact, they didn’t even get all of the proceeds themselves). As a result, the number of council homes fell, as did the rate of council home building.

One last comparison: in 2015, the UK completed 2.6 new homes per 1,000 people, and 0.6 of those were social homes. New Zealand completed 5.9 homes per 1,000 people, and 0.2 of those were social homes.

State Houses and Social Housing (part 2)

State housing, or “social housing” more generally, is often in the news for one reason or another. Governments over the years have all had their own policies. In this post series, I won’t really be looking at the pros and cons (at least not much) – I’ll mainly be looking at some of the numbers.

Part 2: State Housing Through the Years

There are a couple of easy-to-read histories of state housing here and here, and another take here. I’ll look at some different aspects in this post, although I’ve relied on the data from those sources in terms of the ‘stock’ and ‘construction’ of state homes.

State housing began to take off in a big way in the 1940s, and the number of homes kept rising until around 1990, peaking at 70,000.

Source: http://www.teara.govt.nz/en/graph/32421/total-state-housing-stock

Source: http://www.teara.govt.nz/en/graph/32421/total-state-housing-stock

The chart stops at 2002, but numbers haven’t changed much since then. Depending on whether you’re looking at occupied homes only, or all state-owned homes, or adding in the properties which Housing NZ leases but doesn’t own, you’re looking at 64,000-68,000 ‘state homes’ today.

Those figures are just snapshots of how many state homes there are at a point in time. They’re affected by the number of homes built each year, and by the number of homes sold off. Tenants have often had the right to buy their home, or the homes may have been sold to other social housing providers or on the open market. The graph below shows the number of state homes built or sold each year:

Source: http://www.nzhistory.net.nz/media/photo/construction-and-sale-of-state-houses-1938-2002

Source: http://www.nzhistory.net.nz/media/photo/construction-and-sale-of-state-houses-1938-2002

State home construction was quite significant from the 1940s right through until the 1970s. Around 80,000 homes were built over those four decades, averaging 2,000 a year.

Again, the chart above stops at 2002, but here’s one which I’ve put together which runs from the mid-1970s up to the present day. It uses different data – building consents, whereas I imagine the previous graph is based on completions:

state-homes-consented

After the fast-building 1970s, the level of construction ebbed in the early 1980s. There was a bit of a resurgence in the late ‘80s – more than 1,000 a year – but very few homes were built in the 1990s or 2000s.

So, on to the 2010s. National deserve credit for ramping up home construction in the last few years. The last time this many state homes were being built was under the Lange government. 700 of the homes were to replace earthquake-damaged ones in Canterbury, but there’s also a growing state presence in other places, especially Auckland. Even without the Canterbury rebuilds, there have been 1,400 state homes consented in the last three years, higher than any other period since the ’80s.*

Housing New Zealand will actually be scaling up its build rate even more – to 1,000-2,000 homes a year.

On the other hand, if National had started building more state homes as soon as they were voted in eight years ago, it could have taken the edge off the housing crisis for some of the most vulnerable people in Auckland. It could also have smoothed the boom-bust-boom for the construction industry, meaning today we might have a more experienced workforce, and more homes to show for it. The industry shrank by 20% in the post-GFC years.

Hindsight is always 20/20, though. No doubt the government might have done things differently if it knew what was coming, but it was really just continuing 20 years of lacklustre state home building.

 

* However, this may well include developments where Housing New Zealand keeps some homes and sells off others to social housing providers or on the open market, so the number of ‘new state homes’ could be overstated.

What do garage bands and tech startups have in common?

Russell Brown’s Public Address article on the impending closure and redevelopment of the King’s Arms music venue got me thinking. Russell highlighted the importance of certain types of physical spaces for a music scene’s ongoing vitality:

What the King’s Arms and the Powerstation have in common is that they are reasonably large rectangular boxes, which makes them ideal rock ‘n’ roll venues. That’s a hard kind of building to find – and an even harder one to build – in the current environment. While the Wine Cellar and Whammy have done a good job of making the most of their space and Galatos seems to work well, the only real “big box” on K Road is The Studio.

As the article investigates, a confluence of positive and negative trends is putting pressure on spaces for live music at the centre of Auckland. On the one hand, the success of the city centre as a place for both employment and residential living means that redevelopment is spilling out to the city fringes that traditionally served a mix of cultural purposes. On the other hand, the city-wide housing affordability crisis is putting the screws on rents.

As I discussed in another recent post, when rents rise faster than general consumer prices across the entire city, it’s a sign that there is a shortage of housing supply relative to current housing demands. In other words, we haven’t built enough. In Auckland, if rents had kept pace with consumer prices since 2001, they’d be $120 per week lower than they actually are, or $6240 per annum. Here’s a chart:

auckland-mean-real-rents-01-16-chart

Russell doesn’t mention it in his article, but rising rents have a second negative effect on the sustainability of a local music scene. They make it more difficult for people to start bands, as the time that would have gone towards practicing, writing songs, and hustling for gigs and recording time goes towards paying the rent instead.

David Lowery (Camper Van Beethoven frontman and one of my favourite musicians) neatly set out the link between low rents and dynamic music scenes in a 2011 blog post about the Santa Cruz milieu that spawned his band:

…music scenes rely on low property values in particular transitional neighborhoods.  Neighborhoods that had once had another purpose but now had fallen out of primary use.  Cheap space and a tolerance for noise are important commodities for bands.

You could argue that the old beach rentals along the lower end of Ocean street and the neighborhoods clustered around the old harbor qualified as in transition.  Too seedy and rundown for beach rentals these houses were subsequently occupied by the more adventurous.  Arty students, musicians and other slackers now occupied many of these cottages.

But our cottage was effectively cut off from these neighborhoods by the river levee.  In retrospect I now see it was very Dungeons and Dragonsish of the locals to refer to the homeless population that slept in hideaways along the river as “trolls”.  Indeed walking to my house at night I learned to steer clear of these trolls as many were quite aggressive or totally insane.   You definitely felt penalized after unexpectedly making contact with these folks.

But the isolation was very good for a couple young mathematicians and songwriters. I was able to really dive into the most difficult proofs and songs in that cottage.  Later when I moved to a better part of town I found that I had to go to the science library to get any deep thinking done.

If you want a vibrant music scene, you need a combination of young people – university towns are great for this – and low rents. That was the recipe underpinning the Dunedin Sound in the 1980s, and pretty much any other successful music scene.

But this isn’t just about cultural vibrancy. The same factors underpin long-run economic success, as they affect people’s willingness and ability to start and grow new businesses in a city. Entrepreneurship is very important. Economies thrive not by continuing to do the same thing over and over again, with minor refinements and productivity increases, but by generating new ideas and making new goods and services.

Affordable rents aren’t the only factor that contributes to a vibrant startup culture, but they are an important one. In this respect, tech startups are similar to garage bands: in the early stages, they need a bit of cheap space to allow them to experiment.

steve-jobs-and-wozniak-1977

Apple Computer, 1977

(Other factors that probably matter include an educated population, low levels of corruption, support for primary science and research and development, an active venture capital market, and good access to markets. New Zealand does well on the first two, and iffy on the last three.)

Data on growth in inflation-adjusted mean rents suggests that constraints on housing supply in Auckland over the 2001-2016 period have imposed an implicit ‘tax’ of around $6000 on someone living here and trying to start a business. Possibly more, if you’re trying to pay the rent and rent commercial space for your business. There are obviously other advantages to being in Auckland. It’s got the best international connectivity, access to a large and growing urban market, and a talented and diverse pool of workers.

However, we can’t be sanguine that those advantages will outweigh the ‘tax’ that a lack of housing places on new businesses or creative endeavours in Auckland. Left unaddressed, rising rents will dissuade startups, resulting in a less dynamic, less prosperous economy. (And fewer good bands.)

Fortunately, there are things we can do to address this issue. The most important is to let more housing and commercial space get built, especially in areas that are accessible to jobs and other good urban things, as that’s a key factor in getting rents back in line with consumer prices. The Unitary Plan does quite a bit to enable more construction, but reforming and fine-tuning our urban planning system will be an ongoing challenge.

Improving transport choices is another key priority. The city fringe area is an attractive location for live music because it is both relatively dense (by Auckland standards) and very central. When you put on a show, people can get to it. (And, depending upon when it ends, you can get a drink and still be able to take the bus or train home.) Other parts of the city aren’t as well-connected, which serves as a barrier. Fortunately, we can fix this by improving transport choices throughout the city – more frequent bus routes, more rapid transit corridors, more safe cycleways.

What do you think about the prospects for starting bands or businesses in Auckland?

State Houses and Social Housing (part 1)

State housing, or “social housing” more generally, is often in the news for one reason or another. Governments over the years have all had their own policies. In this post series, I won’t really be looking at the pros and cons (at least not much) – I’ll mainly be looking at some of the numbers.

Part 1: Social Housing Today

“State housing” is a term we hear a lot of. Over the years, the ‘state’, or government, has had a major role in housing. They’ve built homes, and continue to own a large number. Housing New Zealand owns or leases around 68,000 homes at present.

house-038

‘State housing in Otara’, URL: http://www.nzhistory.net.nz/media/photo/state-housing-in-otara, (Ministry for Culture and Heritage), updated 21-Jul-2014

“Social housing” is a less common term. In New Zealand, the state has always been the dominant provider of social housing. Other providers exist, but maybe a bit below the radar. They’re nowhere near the size, and often focus on a particular region, or a particular community.

Who is involved in providing social housing?

  • Central government (mainly Housing New Zealand)
  • Local government (many councils are involved in social housing, often focusing on ‘pensioners’)
  • Other social providers (Salvation Army, churches, Maori groups, and various other non-profits)

The National government wants these other providers to take a greater role, partly through selling them some existing state housing. It’s fair to say that the process hasn’t gone smoothly so far. The controversial bit is the implication that, as other social providers step up, the government will step back, so there’s no net gain. It’s not really clear how this will pan out.

So, the state owns (or leases) 68,000 homes. Councils own at least another 11,000, based on census information. The Wellington, Christchurch and Auckland councils have the largest portfolios. In fact, the other two councils have more social homes than Auckland (around 2,200 each vs our 1,450).

It’s harder to find statistics on ‘other social providers’, but they seem to provide around 5,000 homes.

By comparison, there are about 1.8 million dwellings (homes) in New Zealand, with about 1.7 million households. So there are probably around 5% of households who live in social housing nationwide. I’ll give a bit more context to that in later posts.

garrison-banner

Garrison Henshaw, Three Kings. 22 apartments for elderly and disabled tenants, completed in 2013. They replaced 4 older units on the property. Source: Housing New Zealand

Partly because of the government’s desire to broaden the social housing sector, the distinctions between the providers above aren’t always clear cut. For example:

  • The Tamaki Regeneration Company is a 59/41 partnership between the government and Auckland Council, and all the 2,800 Housing New Zealand homes in the area have now been transferred to it. The ‘regeneration’ will include a mix of state, other social and ‘market’ homes.
  • Hobsonville Land Company is owned by Housing New Zealand and therefore the government, but it has its own structure. It isn’t providing for social housing in Hobsonville – and actually hasn’t built any homes itself – but does still have wider goals besides just maximising profits. The HLC is now also working on the redevelopment of state houses in Northcote, which will include social housing.
  • The government wants to sell some of its Housing New Zealand homes to other social providers, but will still be involved to some extent, as well as providing a level of funding.
  • Auckland Council’s pensioner housing (1,452 units) is being transferred into a joint venture with The Selwyn Foundation, since the housing wasn’t eligible for government funding support if it stayed under direct council ownership.
  • Christchurch City Council is doing something similar, and other councils may well follow suit.

I’ll focus on quantitative issues in this post series, mainly looking at numbers of homes. My approach treats every home as equal, but of course they’re all different. A standalone house in Pukekohe is different to an apartment in Tamaki. A recently refurbished state house is different to one which is still waiting its turn, damp and cold. Knocking down a three-bedroom house and replacing it with three one-bedroom units means more homes, but not more bedrooms.

Qualitative issues are also important: social housing is about people, not buildings. I won’t look at these issues, it’s not an area I know much about, but here are some of the questions that people may have:

  • Where existing homes are being redeveloped (e.g. Tamaki), are existing residents being treated fairly?
  • Are the people with the greatest need for housing able to be identified and housed?
  • Should people with less need be provided with social housing, or given some other kind of support, or left to fend for themselves?
  • How much is the tenant paying to live in social housing? Is that amount fair?
  • Are people getting the other (non-housing) support they need?

Some of these are operational issues – part of Housing NZ’s job is to make sure they identify the people with the greatest housing need. Some of these issues are strategic ones for social housing, and often they’re political issues too.

Some of these issues reflect what we as a society feel is ‘right’, and of course our value judgments can change over time. The quote below shows the shift in focus for state housing over the years:

“Under Labour [in the 1930s-1940s] state houses were advocated as an alternative form of tenure for all New Zealanders, under National [in the 1950s] state housing became a residual provision for those locked out of homeownership”.

It’s probably safe to say that ever since the 1950s (and certainly today), state housing has aimed to provide for the more vulnerable people in society, rather than a broad cross-section of New Zealanders. However, the government continues to have a role in many other housing incentives: Accommodation Supplements, Kiwisaver withdrawals and HomeStart subsidies, Welcome Home Loans etc.

Zoning reform: Why have house prices gone up in Auckland?

This is an addition to an ongoing series of posts on the politics and economics of urban planning reform. In an earlier post, I took a look at the costs, benefits, and distributional impacts of urban development. Basically, enabling more flexible / responsive urban growth is a good idea for society – but many of the gains accrue to new entrants to the housing market. But how large are those gains? In other words, how much lower would housing prices be if we had a totally flexible development market?

Answering this question is challenging because housing markets are complex. In economic terms, housing is both a “consumption good” – something you buy to live in today – and an “investment good” – something you buy in the expectation of future returns. Prices are affected by the current balance of supply and demand, but also by interest rates, expectations about the future, etc.

One simple way to disentangle these factors is to look at the relationship between consumer prices, rents, and house prices:

  • When rents rise faster than general consumer prices, it indicates that housing supply is not keeping up with demand
  • When house prices rise faster than rents, it indicates that financial factors – eg mortgage interest rates and tax preferences for owning residential properties – are driving up prices.

The reality is a bit more complex. For instance, rising prices (relative to rents) can reflect expectations that housing supply will be more limited in the future. So the increase in rents is not likely to fully capture the impact of constraints on housing supply.

With that in mind, here’s some data for Auckland. I’ve sourced mean rents from MBIE’s rental bond tenancy data and median house prices from REINZ data published by interest.co.nz, and deflated both by the consumer price index published by Stats NZ. It covers the period from December 2001 to June 2016. During this time:

  • In nominal (ie non-inflation-adjusted) terms, mean rents rose from $288 per week to $512 per week. If they had kept pace with general consumer prices, they would have only risen to $392 per week.
  • In nominal terms, median house prices rose from $255,000 to $821,000. If they’d kept pace with rents, they would have only risen to $453,000.

In other words, rents have outstripped consumer prices, and house prices have outstripped rents. Here’s a chart:

auckland-real-house-prices-and-rents-2001-2016-chart

A simple take is that supply shortfalls matter, but so do financial factors. At absolute minimum, Auckland’s shortfall in housing supply relative to demand accounts for one-quarter of the rise in house prices over this period. (The true figure is likely to be higher, as recent increases in prices are likely to be driven in part by the expectation that Auckland’s housing shortfalls will continue into the near future.)

However, supply doesn’t explain everything. It’s likely that financial factors, like falling mortgage interest rates and tax preferences for owning residential properties (eg our lack of a comprehensive capital gains tax), account for a fair share of the run-up in house prices since 2001 – possibly even a majority of the increase.

Interest rates seem to have played an important role. According to RBNZ data, the average mortgage interest rate have declined since the 2008 financial crisis – from 8.76% in June 2008 to 5.10% in June 2016. That would have reduced the cost of servicing a mortgage by around 31%, meaning that buyers can afford to borrow a proportionately larger amount.

On the whole, lower interest rates seem to ‘explain’ a bit less than half of the increase in house prices over and above the increase in rents. Between 2000 and 2016, the cost to service a mortgage on a median Auckland home rose by around 87% in real terms – significantly less than the 137% increase in real house prices.

Here’s a chart showing a breakdown of the factors that appear to have contributed to the increase in house prices over this period, based on trends in rents and mortgage interest rates. This suggests that, of the 137% increase in real median house prices from 2000 to 2016:

  • 31 percentage points could be ‘explained’ by rising rents, which reflect a shortfall of housing supply relative to current demands
  • 44 percentage points could be ‘explained’ by falling mortgage interest rates, which lower the cost of borrowing money
  • The remaining 62 percentage points couldn’t be ‘explained’ by either rents or mortgage interest rates – this could be due to expected future shortfalls in housing supply, or other financial factors.

auckland-house-price-increases-breakdown-chart

It’s a bit hard to explain the remaining 62 percentage points in this chart, but some other ‘financial’ explanations could include:

  • New Zealand’s tax treatment of residential property, and in particular investment properties – unlike many of the countries we ‘trade’ capital with, we don’t have any form of capital gains tax on property. All else equal, this means that we should expect structural inflows of cash into our housing market, driving up prices.
  • The impact of ‘cashed-up’ buyers coming in without the need to borrow money to invest in properties – including, but not limited to, foreign buyers.

What does all this mean?

First, we do need to investigate other factors that might be distorting the housing market, like the tax treatment of residential property and the impact of foreign money seeking a safe haven. A large component of the increase in house prices can’t be readily accounted for by rising rents or falling mortgage interest rates. That’s probably a signal to probe deeper.

Second, constraints on housing development still matter quite a lot, even if shortfalls of supply over current demand (as reflected in rising rents) don’t ‘explain’ the majority of the rise in house prices. Increases in rents in Auckland over the last sixteen years have been large in average dollar terms.

If rents had kept pace with general consumer prices, the average renting household would be paying $120 less in rent on a weekly basis. That adds up to $6240 a year, or around 7-8% of the income of the average Auckland household. Large numbers.

That’s a reasonable proxy for the cost to the average renting household of restrictions on housing supply, including zoning policies that don’t allow more homes to be built in locations that are accessible to jobs and amenities. A lot of households would be a lot better off if we took a more enabling approach to development.

What do you make of this data on rents and house prices?

Guest post: A right to reciprocal intensification

This is a guest post from Brendon Harre in Christchurch. It addresses an issue that’s near and dear to Transportblog: How do we better enable positive change in the built environment?

Solving the housing crisis in New Zealand will require many reforms and much effort. Some of the needed reforms will face opposition and will be difficult to implement. There will be tension between the national concern about improving housing supply versus some local interests in retaining the status quo.

I want to focus on one particular easy to implement policy option, which I think could successfully navigate this political dynamic. The essence of the proposed reform is to establish a nationwide intensification right for situations where neighbours agree. A right to reciprocal intensification will create a new urbanist tool for New Zealand, allowing a better housing intensification supply response, so that people can build in parts of our towns and cities where people want to live.

The first step would be to agree as a country on a height limit that all property owners could construct up to as a right. I would suggest three stories would be reasonable, as this is a similar scale to natural features like trees.

ponsonby-six-sisters

The ‘Six Sisters’, John Street, Ponsonby

Local areas through zoning provisions would still retain existing setback and shade planes rules that determine how far buildings must be constructed from site boundaries. For instance, a shade plane is an angle going inwards, which building height and bulk cannot exceed. It is taken from a certain height directly above the section boundary -2.5 metres in the below diagram. These rules also limit the size of buildings – and hence reduce the number of dwellings that can be built on a given site.

setback-planes-diagram

The second step, which is the main thrust of my proposal, is that New Zealand should adopt a system where neighbours can reciprocally agree to drop the shade plane and set back restrictions along their common border. This reciprocal intensification right could be implemented as a national policy statement under the RMA, which local authorities would then be obligated to implement. So in the above diagrams, if there was a section to the north or south and if the two property owners agree, then they would both have the right to build up to their adjoining boundary – utilising the appropriate building code for firewalls etc. If other adjoining neighbours disagreed, then on those boundaries the standard setback and shade plane rules would apply.

Of course there would be many property owners who wouldn’t want their neighbour to build right up to their boundary. But some would see the advantage in co-operating, so they have the option of adding a granny flat or redeveloping their entire site. Making this reciprocal intensification right a choice eliminates the major criticism of up-zoning. Being, up-zoning dictates an exchange of a neighbour’s access to sun, views and privacy for the opportunity to intensify. Some property owners believe they will be worse off if this exchange is codified into the zoning map.

If reciprocal intensification rights were spread across a large enough area, then this would give the opportunity for a lot of intensification – in the form of duplexes if two neighbours agree and European style terrace housing if many neighbours agree. There are 1.8M private dwellings in New Zealand – if just 1% of those properties were intensified from one dwelling to three per site over, say, ten years, that would net an additional 36,000 new homes. I am not sure if 1% and one house intensifying into three are reasonable expectations, but it shows that even with modest assumptions this proposed policy reform could have an impact on the housing market.

The main benefits of a right to reciprocal intensification are:

  • It decreases transaction costs for site assembly. The national policy statement would mean no resource consent or property purchase would be required to develop sites more comprehensively. Currently to achieve site assembly, either neighbours would have to go through a complex and uncertain RMA process or a property developer would need to buy up the neighbouring sections.
  • It encourages a more desirable urban form as it gives property owners the ability to build across their property frontage so that new housing faces the street. Currently our zoning rules encourage infill housing that goes down the length of the property.
  • It gives greater housing supply options for building types with construction costs per square metre comparable to standalone housing.  Small apartment buildings tend to be cheaper to build compared to high rise apartments because they can be built as 3-story walk-up units. There is no need for an expensive concrete elevator core, mechanical ventilation, sprinkler systems, underground parking and expensive structural engineering.
  • It allows housing supply to respond to locational demand.
  • It allows housing supply to respond to housing size demand.  There is evidence of an under supply of 1–2 bedroom homes in the property market: The largest increase in household groups are singles and couples, yet very few one or two bedroom homes are being built.

generation-rent-household-and-dwelling-size

I believe reciprocal intensification will be driven by both supply – in terms of its ability to lower the cost of infill and redevelopment – and demand. Demand will come from urban areas with high amenities – like proximity to employment, easy public and private transport access, markets/shops, entertainment and desirable natural environments like beaches, parks and forest.

In Auckland not all high amenity areas have been up-zoned by the new Unitary Plan. So for the city most suffering from New Zealand’s housing crisis there is an opportunity for reciprocal property right supply to increase housing supply in places where there is a demand for it. Density maps of Auckland indicate that outside of the city centre there is a sudden drop-off to a flat density gradient, unlike similar sized and geographically constrained cities –such as Stockholm. Economic theory indicates density should gradually decline with what is labelled the ‘missing middle’ housing.

Missing Middle

Reciprocal intensification rights will not by itself be enough to enable all of the development we need. Other intensification restrictions such as minimum section sizes, minimum car parking requirements, site coverage rules, viewing shaft restrictions, heritage restrictions, secondary kitchens, etc may be as or more significant in the way they restrict the supply of housing intensification options and should also be reviewed by affordable housing policy makers.

However, I think reciprocal intensification rights would be a less controversial first step to intensification compared to widespread up-zoning, which results in some property owners who oppose intensification to fight such measures. These local interest groups which may only represent a minority of locals obstruct reasonable efforts to address restrictions on housing supply.

I believe New Zealand should give greater weighting to the national concern about affordable housing supply compared to the minority local interest in retaining the status quo. It has been my goal with this reciprocal intensification proposal to create a fair and appropriate first step to address this imbalance.

Extra:

  1. This article was based on an article for Interest.co.nz titled Brendon Harre and David Lupton set out the case for more, and more variety of intensive housing options in New Zealand’s urban areas and a longer version of the article which also discussed the possibility of larger co-operative neighbourhood schemes.
  2. There are some architectural slides from a US city that transformed traditional standalone housing suburbs into suburbs of duplexes and terraces by reducing allowable section sizes to a little over 100sqm and by not having side yard setback and shade plane restrictions. The end result is quite pleasing.
  3. There is an article and podcast of an academic economic discussion of the wider costs to the economy that unaffordable housing imposes, how the various restrictions on house building contribute to this and some possible remedies, H/T Facebook group Market Urbanism.

Do Government Powers of Compulsory Purchase Help or Hinder Urban Development?

Preface

How do legal institutions interact with economic outcomes? I think it’s fair to say that legal institutions often don’t register on economists’ radars, mainly because life is simpler when you assume the law is exogenously determined by factors beyond your control. 

While such assumptions are valid for many types of economic analysis, legal institutions are not exogenously determined factors, at least in the long-run. By engaging with legal institutions, economists may be able to identify ways they could be improved. Of course reforms of legal institutions are slow to implement, but they do occasionally happen. Recent amendments to the RMA being a case in point. By engaging with legal institutions, economists can improve our analyses and help to identify possible opportunities for reform = Win-win.

The high-level question I want to answer in this post is whether these powers help or hinder urban development. My interest in these matters was prompted by the Productivity Commission’s recommendation for Auckland to establish an Urban Development Authority (UDA) with powers of compulsory purchase. That is, the UDA should have the power to expropriate privately-held property for the purposes of urban development. I think it’s fair to say the idea of an UDA with compulsory powers of purchase has attracted interest from across the political spectrum, including the Government (source).

In this post I consider why government’s need powers of compulsory purchase and, second, how should such powers be exercised. This post does not present conclusions or recommendations, mainly because I haven’t formed many yet. Instead, it seeks to identify some relevant economic and legal literature as a means of stimulating discussion.

I welcome your comments: Do you think Auckland needs an UDA and, if so, then should the UDA have powers of compulsory purchase? If yes, then what are the potential risks and how would you mitigate them? I’d also be keen to hear about possible alternatives. Enjoy.

Reference: The post that follows draws on an academic paper I am writing about government powers of compulsory purchase. In the interests of avoiding academic self-plagiarism, I should mention that the paper was written first, while this post was written second.

Introduction

The historical development of most cities has been significantly influenced by government interventions. The Eixample of Barcelona, the boulevards of Paris, and the highways of New York are all noteworthy examples of government interventions that have left large and permanent marks on the affected cities.

The powers of compulsory purchase governments use to appropriate private property in order to undertake these interventions is a perennially controversial topic. One U.S. presidential candidate, for example, recently described powers of compulsory purchase as: “… absolute necessity for a country, for our country. Without it, you wouldn’t have roads, you wouldn’t have hospitals, you wouldn’t have anything.” (Team Fix, 2016). In contrast to this effusive support, Justice O’Connor’s dissenting opinion in Kelo v. City of New London argued that contemporary legal interpretations of the scope of the powers mean “Any property may now be taken for the benefit of another private party … beneficiaries are likely to be those citizens with disproportionate influence and power …” (O’Connor, 2005).

Given these divergent views, there would seem to be value in developing a clear understanding of the economic evidence on which the powers are based, certainly before we expand the number of government institutions that have recourse to these powers. In particular, I think there is a need to understand why governments need powers of compulsory purchase and how they should be exercised. The standard economic justification for the powers is that — in their absence — information asymmetries gives market power to landowners, leading to hold-out problems. This is where landowners refuse to sell so as to capture surplus associated with the government’s investment. By annulling landowners’ market power, compulsory purchase avoids hold-out problems and enables efficient levels of government investment. It’s important to note that private actors seeking to assemble property don’t face the same issues, mainly because they can negotiate anonymously to buy properties via third-parties.

Exercising powers of compulsory purchase is not without economic costs. Perhaps the most notable costs arise from involuntary transfers of property, which may result in welfare losses for affected landowners. To counter this issue, most jurisdictions require governments to demonstrate that the proposed intervention is in the public interest, and to pay adequate compensation to affected landowners. These legal requirements give rise to two additional economic questions: How should we define “adequate compensation” and “public interest”?

Neither definition is as straightforward as it first appears. Most jurisdictions define adequate compensation using market prices. Some scholars argue the value of property to its current owners, however, includes idiosyncratic attributes, such as sentimental attachment, which are not reflected in market prices (Nadler and Diamond, 2008). Other scholars argue that these idiosyncratic attributes are already accounted for in market prices, while noting that the landowner’s loss of autonomy is not (Lee, 2013).

Definitions of public use are similarly complex. In the U.S. the definition of public use has even been broadened to include wider economic impacts arising from private activities. Under this definition, governments have been allowed to use powers of compulsory purchase to appropriate private property, which is then transferred to private third-parties. The aforementioned opinion by Justice O’Connor in Kelo v. City of New London was prompted by precisely such a situation. Even where the resulting asset is publicly-owned, there are many situations where public access is restricted, for example by user-charges and/or regulations, which are on the surface not readily distinguished from private ownership. From an initial survey, the economics literature doesn’t seem to have a good answer to the question of how one defines “public use”.

Finally, the processes involved in determining adequate compensation and demonstrating public interest may generate non-trivial transaction costs. Imagine, for example, the resource cost of the recent Unitary Plan hearings, where many highly-skilled, well-paid people were paid to sit in a room for months if not years. Is it possible that the transaction costs involved in a particular legal process outweigh its benefits? I think so. At the very least, there seems to be a need to understand potential interactions between legal processes and transaction costs. It may, for example, be more efficient to offer more compensation early in the process, so as avoid transaction costs downstream.

Answers to such questions are not a trivial academic exercise. Evidence also suggests that protection of property rights affects the incentives facing governments and citizens alike, and impacts on long-run economic development (Acemoglu and Robinson, 2005). Powers of compulsory purchase may also have implications for social justice, with some studies finding that land owned by low-income households is more likely to be taken (Carpenter and Ross, 2009). Recent experiences in Auckland, whereby wealthy neighbourhoods successfully opposed the proposed Eastern Motorway across Hobson Bay, provide some indication of why such patterns may emerge. In the U.S., scepticism over the use of powers of compulsory purchase has given rise to significant opposition from across the political spectrum.

Initially simple questions are, upon closer inspection, revealed to be anything but. Understanding why governments need powers of compulsory inspection, and how these powers should be exercised, can contribute to more informed policies on Urban Development Authorities.

Of course, this doesn’t mean that I’m opposed to an UDA having powers of compulsory purchase. Personally, I’ve always been attracted to the notion of a “New Zealand Place-Making Authority” (NZPA) to counter-balance the NZTA’s movement focus on movement. I think the potential benefits could be significant. Nonetheless, the powers such an institution should have is an open-question.

Gnawing in the back of my mind is the fact that powers of compulsory purchase have in the past been used to pursue questionable outcomes. The highways of New York promulgated by Robert Moses, for example, were justified under the auspices of slum clearances. One of the great urban thinkers of our time, namely Jane Jacobs, was spurred into action by a government body wielding powers of compulsory purchase. Would ignoring the risk such things happen again be indicative of the “fatal conceit”?

References

Acemoglu, D. and Johnson, S. (2005). Unbundling Institutions Daron Acemoglu and Simon Johnson. Journal of Political Economy, 113(5):949–995.

Carpenter, D. M. and Ross, J. K. (2009). Testing O’Connor and Thomas: Does the Use of Eminent Domain Target Poor and Minority Communities? Urban Studies, 46(11):2447– 2461.

Nadler, J. and Diamond, S. S. (2008). Eminent Domain and the Psychology of Property Rights: Proposed Use, Subjective Attachment, and Taker Identity. Journal of Empirical Legal Studies, 5(4):713–749.

O’Connor, J. (2005). KELO V. NEW LONDON (04-108) 545 U.S. 469 (2005).

Team Fix (2016). Transcript of the New Hampshire GOP debate, annotated.

Further reading

Blume, L., Rubinfeld, D., and Shapiro, P. (1984). The Taking of Land: When Should Compensation be Paid? The Quarterly Journal of Economics, 99(1):71–92.

Burrows, P. (1991). Compensation for Compulsory Acquisition. Land Economics, 67(1):49– 63.

Kelly, D. B. (2006). The Public Use Requirement in Eminent Domain Law: A Rationale Based on Secret Purchases and Private Influence. Cornell Law Review, 92:1–66.

Miceli, T. J. and Sirmans, C. (2007). The holdout problem, urban sprawl, and eminent domain. Journal of Housing Economics, 16(3- 4):309–319.

Strange, W. C. (1995). Information, Holdouts, and Land Assembly. Journal of Urban Economics, 38:317–332.