City Centre Investment Map

The last five years have seen Auckland change dramatically for the better. If you were in the city then you wouldn’t have found any of the shared spaces, much of the area surrounding Britomart was still run down and unused and Wynyard Quarter as a people place didn’t exist. While we’ve already seen a lot of change the next 10 years promises even more and much of it – such as the CRL – will fundamentally alter Auckland for the better.

In fact there is so much going on in Auckland’s City Centre right now that it’s starting to resemble a sand pit. There are a huge number of publicly and privately funded improvements happening. Importantly they are leveraging off each other to make Auckland a more liveable and attractive place. That’s good for Auckland’s economy which in turn is good for the entire nation. It also bears reminding that the changes and growth that’s occurred in recent years hasn’t spelt doom on the regions roads as all the growth in travel to the centre has happened not on in cars but via PT and active modes.

To highlight all of the known changes that are planned or desired for the next decade the council have created a map showing all the ones they know about (there are bound to be more appear over that time – especially private developments). Note: not all of these projects have funding confirmed yet so not all might happen. Click to enlarge the images or go here for the PDF version (2.6MB).

City Centre Projects April 2015

City Centre Projects April 2015 Legend

There are of course a few things missing from this map. A few I noticed quickly are AT’s Light Rail plans, Cycle lanes on Pitt St as part of the Nelson St Cycleway and cyclelanes on Karangahape Rd as part of the city centre priority routes.

The major criticism I can see in all of this is that the map is focused on the city centre. That’s understandable seeing as it’s come from the city centre integration group however perhaps the council should create an interactive version for the entire region. It could show what’s going on and how projects like the CRL benefit the entire region.

I’m looking forward to the changes that planned. It should make the city centre a much more vibrant and interesting and liveable place.

What’s with ‘The Void’?

Could Auckland have something like this running on a couple of major city routes before this decade is out? The AT board is to decide later this month how to proceed with its Light Rail plan and with what sort of pace. Everybody it seems loves trams, but why now and why there? What problem are they addressing? In a follow-up post I will discuss the financial side of the proposal.

CAF Urbos Light Rail for Utrecht

CAF Urbos Tram recently ordered by Utrecht

First of all lets have a look at Auckland’s situation in general terms. Auckland is at a particular but quite standard point in its urban development: 1.5 million people is a city. The fifth biggest in Australasia; behind Sydney, Melbourne, Brisbane, and Perth. But on the location with the tightest natural constraints of the group; squeezed by harbours, coasts, ranges, and productive and/or swampy farmland, it shares the highest density of the group with Sydney in its built up area. And is growing strongly. It also has the poorest Transit network of the group and consequently the lowest per capita Transit modeshare [although the fastest improving one].

So these three factors scale, growth, and density are all combining to create some serious pressure points that require fresh solutions especially on existing transport routes, and particularly on the harbour constrained city isthmus.

This pressure is on all transport infrastructure, at every scale from footpaths [eg Central City, Ponsonby Road]; the desire for safe cycling routes; on the buses, trains, and ferries; to road space for trucks and tradies, and of course road and street space for private vehicle users. Transit demand in particular is going through the roof and this is way ahead of population growth and traffic demand growth, especially at the higher quality Rapid Transit type of service where growth over the last year has been at an atsonishing 20%.

This is to be expected in a city of Auckland’s current state as Transit demand typically accelerates in advance of population in cities of a certain size, because of the universal laws of urban spatial geometry, as explained here by Jarrett Walker;

This problem is mathematically inevitable.  

As cities grow, and especially as they grow denser, the need for transit generally rises faster than population, at least in the range of densities that is common in North America.  This is completely obvious if you think about it, and I stepped through it in more detail in Chapter 10 of Human Transit.  In brief: Suppose a particular square mile of the city doubles in population.  Transit demand would double because there are twice as many people for whom transit is competing.  But independently of that, if density is higher, each person is likely to find transit more useful, because (a) density creates more disincentives to driving and car ownership while (b) density makes it easier for transit agencies to provide abundant and useful service.   Those two separate impacts of density on transit, multiplied together, mean that transit demand is rising faster than population. Again, go to my book for a more extended and thorough argument.

And that this means that the infrastructure needs of our growing city is likely to be ‘lumpy’. Big long lasting kit that is costly and disruptive to build become suddenly urgent:

As transit demand grows in a growing city, it hits crisis points where the current infrastructure is no longer adequate to serve the number of people who want to travel.  Several major subway projects now in development are the result of transit’s overwhelming success using buses.  I’m thinking, for example, of Second Avenue in New York, Eglinton in Toronto, Wilshire in Los Angeles,  Broadway in Vancouver, and Stockton-Columbus in San Francisco.

Broadway, for example, has local buses running alongside express buses, coming as often as every 3 minutes peak hours, and they are all packed.  In that situation, you’ve done just about everything you can with buses, so the case for a rail project is pretty airtight.   In all of the cases I mention, the rail project usually has to be a subway, because once an area is that dense, it is difficult to commandeer enough surface street space, and we tend to have strong aesthetic objections to elevated lines in these contexts.

As driving amenity is very mature in Auckland there is very little opportunity to add significant driving capacity to streets and roads to much of the city at any kind of cost, and certainly not without a great deal of destruction of the built environment. This has long been the case so in a desire to solve capacity and access issues with a driving only solution we did spend the second half of the last century bulldozing large swathes of the Victorian inner suburbs into to make room for this spatially very hungry mode. This solution is no longer desirable nor workable. Below is an image showing the scar of the Dominion Rd extension citywards and the still extant Dom/New North Rd flyover. These were to be the beginning of a motorway parallel to Dominion rd to ‘open up’ or ‘access’ the old isthmus suburbs.

1963, Dominion Rd flyover in the foreground

1963, Dominion Rd flyover in the foreground

Where we can’t nor want to build ever wider roads we can of course add that needed capacity though the higher capacity and spatial efficiency of Transit. Most easily with buses and bus lanes. There are also potential significant gains to made at the margins by incentivising the Active modes with safe routes especially to Transit stations and schools and other local amenity.

However as Jarrett Walker describes above there comes a point where buses, through their own success, cannot handle the demand as the number of vehicles required start to become both less efficient and more disruptive than is desirable. At this point demand can only be met with higher capacity systems with clearer right of ways. Such systems require expensive permanent infrastructure and are never undertaken lightly.  The CRL, being underground, clearly fits this definition and is due to begin in earnest in the new year. And although the physical work and all of the disruption of the CRL build occurs in the Centre City, the capacity and frequency improvements are to the entire rail network, and therefore much of the city: West, East, and South.

But not everywhere. Not the North Shore, not the North West, and not in ‘the Void’, as AT call it, the isthmus area between the Western and Southern Lines. Shown below in purple with the post CRL Rapid Transit Network. This area has a fairly solid and quite consistent density, housing about the same number of people as West Auckland, around 150,000. Note also the South Eastern Busway [AMETI] plugging directly into Panmure is very much a kind of rail extension for the Transit-less South-East, as is the Manukau spur further south.

RTN Void

The Void

These three major areas will still be relying on buses. The CRL, New Bus Network, and Integrated Fares will enable and incentivise more bus-to-train transfers that expand the reach of the core rail network and that this will help limit the numbers of buses going on all the way to the city. But this is primarily for the South, South-East, and West of New Lynn, there will still be an ever increasing number of  buses with from the remaining areas converging on the City Centre. AT calculates that we need to act now to cut the bus numbers from at least one of these major sources to leave room for growth from the others, and all the other users and uses of city streets. [More detail on this in Matt’s previous post, here].

The North Western is currently getting more bus priority with the motorway widening, and hopefully proper stations at Pt Chevalier, Te Atatu, and Lincoln Rd [although NZTA and/or the government are showing little urgency with this aspect of the route]. Also priority improvements to Great North Rd and further west too. The North Shore is the only one of the three with a Rapid Transit system [which also should be being extended now], and while there is still plenty of capacity on the Busway itself, like the other routes these buses are constrained once in the city. This leaves the very full and frequent ‘Void’ bus routes as the ones to address with another solution first.

So essentially LRT for this area has been selected because of the need:

  • for higher capacity and efficiency on core Isthmus bus routes
  • to reduce bus numbers on these routes and especially in the central city
  • adds Queen St as an additional high capacity North-South city route
  • for extra capacity both before and after CRL is operational
  • to address Auckland Plan air quality, carbon emissions, and resilience aims
  • to enable major public realm improvements along routes, especially Queen St

and possibly because:

  • it may be able to be financed as a PPP so helps smooth out the capital cost of building both projects [more on this in a follow up post]
RTN + LRT
Above is a schematic from AT showing the two proposed LRT branches. The western one leading to Queen St via Ian Mackinnon Drive from Dominion and Sandringham Roads, the eastern one down Symonds St from Manukau and Mt Eden Roads, some or all routes connecting through to Wynyard Quarter. More description in this post by Matt.
It is worth noting that this area, The Void, gets its very successful and desirable urban form from this very technology; these are our premier ‘tram-built’ suburbs. With all the key features; an efficient grid street pattern, mixed use higher density on the tram corridors, excellent walking shortcuts and desire lines. So what the old tram made the new tram can serve well too.
Auckland Isthmus tramlines

Auckland Isthmus tramlines

With all door boarding and greater capacity LRT will speed more people along these routes with fewer vehicles and lower staffing numbers. Frequency will actually drop from the current peak every 3 minutes down to 5 or 7 minutes [I’m guessing]. This along with the narrower footprint required by LRT is a big plus for other users of the corridor. But the huge gain in travel time comes from improvement to the right of way and intersection priority that can be delivered with the system. Stops are presumably to be at intersections, instead of midblock as buses are, so the passenger pick-ups are coordinated with traffic lights.
But best of all for this writer is that LRT is a tool to drive enormous and permanent place uplift. The removal of cars and buses from Queen St, improvements to New North and Dominion Rds, hopefully including that intersection itself, a fantastic new Dominion road with the potential for real uplift to premier status.  It will spur the redevelopment of the mixed uses zone all along Dominion Rd. This is real place quality transport investment. And all of course while moving thousands and thousands of people totally pollution free and with our own mostly renewably generated electrons. Breathing in the Queen St valley will become a fresh new experience.
Light Rail in Queen St 1 - Nilut
We all look forward to hearing the proposed details of the routes and of course the financials. I will follow up this post with my understanding of the thinking on this next.
Light Rail in Queen St 2 - Nilut
Finally it is very good to see that there is no dispute over the necessary solutions to Auckland’s access and place quality issues, just the details and timing. Auckland Transport’s map above is pretty much the same as our solution in the CFN. We are delighted that AT are planning for four light rail routes were we proposed one.
CFN
There are of course plenty of debates to had about further extensions to the Transit networks that this proposal invites; LRT in a tunnel from Wynyard to Onewa, Akoranga, and Takapuna? Then up the Busway? From Onehunga to through Mangere to the Airport? Along Grey Lynn’s apartment lined Great North Road, to Pt Chevalier, and the North Western? Panmure, Pakuranga, Botany, Manukau City Airport? Which of these need to be true grade separate Rapid Transit and for which are bus lanes or busways a more cost effective option? Are their others that would be better suited to extending the rail network? Is there enough density elsewhere in the city to justify other LRT routes?
CFN 2030 + Light Metro

Mill Road economic evaluation

In this earlier post Matt discussed the proposed Mill Rd project in South Auckland.

I actually grew up in Franklin (Waiuku) and know the wider sub-region quite well. Mill Rd is, in my experience, an unsafe stretch of road within a somewhat disconnected/fragmented network. So there’s definitely some transport/land use issues in the area that deserve our attention.

Tick to AT on that front.

As a transport economist, however, one must always ask whether the benefits of a proposal are commensurate with the costs. In terms of Mill Rd, the economic benefits of the proposed project are shown below (NB: This is extracted from the scheme assessment report pg 79).

Project benefits

The benefit cost ratio of the project is stated to be 2.2. This means that the project receives a “medium” rating for economic efficiency under NZTA’s project evaluation policies. It’s worth nothing that in Peter’s post on the MoT’s analysis of capital spending on roads, local road projects were found to typically have BCRs in the range of 3-4. Mill Rd’s economic efficiency is, in comparison, somewhat underwhelming.

Digging a little deeper we can see that the largest 3 benefits attributed to the project are 1) travel time savings ($271m); 2) agglomeration benefits ($69m); and 3) vehicle operating costs ($27m). I thought the benefits ascribed to agglomeration were the most interesting (NB: For those who haven’t heard of “agglomeration” before, you might want to read some of our previous posts on the topic here and here).

In a nutshell the literature suggests the primary agglomeration economies typically arise from:

  • Regional economies of scale, i.e. larger markets for goods and services (especially more efficient labour markets). This can be achieved by either bringing more people/firms into the city and/or bringing existing people/firms closer together by reducing transport costs;
  • Local knowledge spillovers in dense urban environments that increase productivity; and
  • Efficiencies in the public provision of infrastructure/services.

When discussing agglomeration benefits the Mill Rd SAR notes (emphasis added):

“Agglomeration economies describe the productivity advantages that arise from the close spatial concentration of economic activity. There is a strong link between transport provision and the benefits that arise from the spatial concentration of economic activity. 

The contribution of the improved Redoubt Road-Mill Road corridor to the upgrading of the Auckland transport system qualifies for the agglomeration benefits to be taken into consideration. Economic Evaluation Manual, Vol.1, Section A10 provides the methodology for estimation of these benefits. 

The corridor provides an access route to Auckland CBD and Manukau City Centre. Both are major employment and commercial centres, which justify an adoption of the agglomeration benefits for the project. The value of these benefits was assumed at 20% of the total benefits, which is conservative as similar projects in the Auckland region use values in excess of 25% to 30%.

Having observed that agglomeration economies arise from the close spatial concentration of economic activity, the SAR then proposes to estimate agglomeration economies by applying a blanket 20% factor to total benefits.

At this point I emitted audible “hmmm”, a bit like Homer Simpson day-dreaming about warm pie (NB: Source).

drooling-homer-simpson

 

The SAR is correct that agglomeration benefits can arise from spatial concentration of economic activity. Where the SAR seems to make a fairly large leap of faith, however, is by assuming that the Mill Rd project (and specifically the land use patterns it enables) will logically lead to sizable positive agglomeration benefits. It’s worth noting at this point that from a quick read the above extract is the only discussion of agglomeration economies in the entire (200 plus page) report, despite them supposedly representing the second largest source of benefits for the project.

Before discussing agglomeration economies in more detail let’s introduce an important concept” The “counter-factual”. This describes would happen without the Mill Rd project. In the case of agglomeration economies, we’re primarily interested in land use effects, i.e. what would those 10,000 households do in the absence of the Mill Rd project?

It seems plausible to suggest that some households would simply choose to locate in the area anyway, while enduring slightly longer travel-times. For these households the agglomeration effects are almost identical to the base case. Other households might instead choose to locate somewhere else, most likely in a more central location. This  would actually tend to generate larger agglomeration benefits than would have arisen had they located in the Mill Rd area, i.e. for these households the Mill Rd project can be considered to have a negative effect on agglomeration economies.

This discussion highlights two important points about agglomeration economies: 1) You can’t have a very informed discussion about them without first carefully defining the counter-factual (land use) scenario and 2) depending on this counter-factual scenario, it is possible that transport investment gives rise to negative benefits, because it encourages/enables development to spread out more (and create more congestion) than would have eventuated otherwise.

In this context, simply assuming a 20% agglomeration premium on total benefits strikes me as a tad presumptuous. Let’s now go back to the three micro-economic channels that contribute to agglomeration economies that we listed above and consider how they relate to the Mill Rd project.

First, it seems unlikely the Mill Rd corridor will, on its own, impact on regional economies of scale. It’s simply not a sufficiently large step change in accessibility that it would encourage more people/firm to migrate to Auckland than would have done otherwise. Indeed, with Auckland’s annual population growth running at approximately 50,000 people per annum, the total growth expected in this area over the next 30 odd years (25,000 people) is a veritable drop in the growth bucket. It’s primary effects seem to be bringing Papakura closer to Flat Bush and Botany Downs, and both of these centres slightly closer to Manukau. Unlike the SAR, I’m not sure how it provides a new access route to the city centre, at least to a degree that would have implications for regional productivity.

Second, it seems unlikely that the Mill Rd will contribute much to knowledge spillovers. In a geographic sense, the area is right on the periphery of the metropolitan area, and relatively remote from employment areas to the north. It is especially remote from the city centre, which is the source of most of the knowledge spillovers in Auckland. While secondary centres like Manukau do experience some agglomeration economies, these seem more likely to arise due to the two types of agglomeration discussed above and below.

Third, Mill Rd doesn’t seem to give rise to major efficiencies in the provision of public infrastructures and services. Indeed, the Mill Road transport project represents approximately $20,000 in CAPEX costs for every household that is expected to locate in the immediate vicinity. It seems plausible to suggest that these households could be accommodated for similar (if not lower costs) somewhere else in the region. To make the case for these agglomeration economies, we would expect to see evidence of surplus capacity existing in nearby health and education facilities.

So what’s the take-away message from all this econo-mumbo-jumbo-fiddle-faddle?

First, even taking the economic evaluation of Mill Rd project at face value, we find that it’s a fairly mediocre local road project. While there are transport issues in this area, addressing them in this way seems expensive compared to most local road schemes around the country.

Second, I’m not confident it is reasonable to assume the agglomeration benefits of the Mill Rd project equate to 20% of the total benefits. By extension, I question whether there is sufficient evidence to include them in the base economic evaluation. Instead, it seems more reasonable to treat them as a possible sensitivity, and even then 20% seems to be a very high premium given the location of the project. Removing these benefits from the evaluation causes the BCR for the project to drop from 2.2 to approximately 1.8. It’s important to note this is not necessarily a terminal issue for the project; the proposed scheme obviously still manages to address some importany problems in the wider area. It’s just probably not as urgent as it appears from the evaluation.

Finally, it highlights what I think is the most important and interesting policy issue: That is, the need for land use policies to be informed by transport outcomes, and possibly linked to financial incentives. In this case, it seems like the Mill Rd project will cost quite a lot. Perhaps, then, there is a need for AC to revisit the merits of enabling growth in this area. Indeed, AT can rightly say that they are to some degree simply responding to land use plans developed by AC. And the latter may want to consider whether development would even occur out this way in a hypothetical situation where the actual infrastructure costs were internalised into the costs of development and ultimately passed onto consumers?

What do you think is the best way to balance public/private interests when it comes to transport and land use outcomes?

 

 

 

 

Auckland Conversations: Charles Montgomery

Happy-City-cover-lrez

If you haven’t already added this to your calendar (and you’re in Auckland) then make sure you do so. Next week Charles Montgomery, the author of Happy City is in Auckland and will be holding an Auckland Conversations talk. Patrick wrote a review of the book last year.

Wednesday 15 April
Back to the Future Expo 5pm
Auditorium doors open at 5.30pm for a 5.45pm start
ASB Theatre, Aotea Centre, central Auckland

Charles Montgomery is brought to Auckland in partnership with the New Zealand Planning Institute Conference 2015 – Back to the Future.
For years, self-help experts have told us that we need to do inner work in order to improve our lives. But what if our cities themselves had the power to make or break our happiness?

Drawing on brain science, psychology and rich personal stories, Charles Montgomery explains how cities influence how we feel, behave and treat other people in ways most of us never realize.

Everything from our transportation systems to the depth of our front yards has an unseen effect on our minds, emotions and social lives.

Charles Montgomery uses fascinating and often funny social experiments to demonstrate that we are not helpless. We can change our lives by changing our relationship with our cities – and each other.

By understanding the effect that design has on our emotions and decisions, we can all share this empowering new vision of city life.

Find out more about Charles Montgomery and Happy City.

You can register for the talk here.

Of course if you can’t be there the talks are filmed – and sometimes streamed live.

2015 Long Term Plan Final Feedback

The council have announced the results of the public submissions on the Long Term Plan. We saw a few updates during the consultation including this one from on the results up to 19 February. At that time there had been around 5,000 submissions however the full consultation ended with over 27,000 – that’s a lot more than the 10,000 from the previous LTP.

Auckland Council’s 10-year budget consultation received a record 27,353 written submissions, with the majority of Aucklanders opting to support the advanced transport network, it has been revealed today.

In addition to the written submissions, there were 1,354 pieces of feedback via social media and more than 1,400 Aucklanders attended a Have Your Say event. The previous LTP consultation received 10,084 submissions.

The consultation saw Aucklanders provide feedback on a number of issues including the levels of investment in the region over the next decade and what council needs to do to fix the region’s transport problems.

Figures show that 50% opted for the advanced transport network and 29% supported the basic transport plan. On the question of funding the transport options, 34% supported motorway tolls, while 27% favoured a fuel tax and rates rises.

Auckland Mayor Len Brown says that elected officials now had a responsibility to listen to what Aucklanders have said.

“Aucklanders have spoken and their wishes are clear,” he says.

“They want a more comprehensive transport system that will cater to the needs of our growing city.

“The council now has a responsibility to listen to what they have said and act decisively through the decisions we make.

“Yes, it will be challenging to get where we need to go, but there is no doubt in my mind that Auckland is ready for that challenge.

“Our future depends on us having a transport network that is fit for purpose and has the ability to cope with the increase in population that will take place here over the next 30 years.

“So my thanks go to all those who got involved to give us their views. I will do everything in my power to ensure that we don’t let them down.”

Elected officials will now consider the feedback in a series of briefings and workshops ahead of final decisions that will be made on May 7 & 8.

The plan will be formally adopted by the council on 25 June and the final plan, including 21 local board agreements, will be available at www.aucklandcouncil.govt.nz along with a summary of decisions made in July.

The accompanying report provides a lot more information. First up the demographic breakdown. This is something Peter looked into more closely in this post. I’ve updated his table with the final information which shows that over time the numbers from some demographic groups did improve however some segments of the population are still well over represented. One of the biggest shifts has been in the 15-34 age brackets which likely highlights the great work that Generation Zero did and shows that younger people are keen to be involved when engaged correctly.

2015 LTP Final Demographics

The next table breaks down the results by local board area (where it was available) and you can see that the rural areas, the North Shore and much of the Isthmus area tend to be over represented while the west and south to be under represented.

2015 LTP Final Local Boards

Moving on to the actual results.

Of the people that answered, 54% disagreed with the proposed 3.5% rates increase which was up slightly from the earlier updates. This update doesn’t say whether people think the rates should be higher or lower but I assume most would think the latter (was 79% last time).

More interesting are the areas where people want more or less focus to go on. There are some notable changes compared to the earlier feedback. Previously those saying to spend more on transport only slightly outnumbered those who said spend less. The comparison now shows a lot more people want more spent on transport. The other major change is for parks and community. Previously those wanting more spent were only about half of those saying to spend less whereas now it is much more even. The graphs for the other results aren’t that different to the earlier results.

2015 LTP Final Changes in Investment

Next up the question of which of the two official transport plans people support and preferences for how the Auckland Plan network should be funded. The results seem very similar to the numbers from February. It’s worth remembering that the council tried to push both of these questions as a binary choice yet the results are anything but.

2015 LTP Final network and funding preferences

So what is it people think we should be focusing on? In short public transport and cycling. I wonder what out transport budget would look like if it mirrored the results below. Of course this isn’t that dissimilar to the results the AA released a few weeks ago.

2015 LTP Final Changes in transport Investment

The last question I was interested in was on the public’s views for merging a few CCOs such as Waterfront Auckland and Auckland Council Properties Ltd to create a single one called Development Auckland.

2015 LTP Final Development Auckland

Now we wait to see if the councillors listen to the results.

Demographia and omitted variable bias

My last two posts about Demographia’s analysis of house prices prompted quite a bit of discussion. I thought that it may be worth expanding on my points and clarifying why they mean that we should take Demographia’s conclusions with a large grain of salt.

Economists (and statisticians) have a term for what Demographia has done: “omitted variable bias”. This can occur when there are multiple variables that have a causal impact on an outcome. If we attempt to understand that outcome without considering all explanatory variables, we run the risk of biasing our conclusions.

Economists are trained to identify and address issues arising from omitted variable bias. Here, for example, is a comment on the topic from a widely used undergraduate econometrics textbook:

Now suppose that, rather than including an irrelevant variable, we omit a variable that actually belongs in the true (or population) model. This is often called the problem of excluding a relevant variable or underspecifying the model. We claimed in Chapter 2 and earlier in this chapter that this problem generally causes the OLS [ordinary least squares regression] estimators to be biased.

Now, I realise that’s a bit obscure, so let me be more specific. Here’s a list of (some) factors that can influence house prices, with a view on their expected impact:

Variable Expected impact
Expectations for future population and economic growth Future expectations tend to be capitalised into house prices – i.e. prices will tend to be higher in areas with better growth prospects
Consumer and natural amenities People are willing to pay more to live in nicer places
Interest rates (and availability of finance) Lower interest rates enable people to afford a larger mortgage on a given level of income
Construction sector productivity Lower productivity will increase the cost of supplying new dwellings
Tax policies, including capital gains taxes and mortgage interest deductions Taxation of capital gains will reduce willingness to invest in housing for capital gains
Tax subsidies for mortgage-holders will tend to push prices up
Other housing market policies, such as rent subsidies or public housing provision Rent subsidies tend to be captured by landlords and thus will tend to push up prices
Ongoing construction of state housing will add supply to the low end of the market and thus constrain price increases
Urban planning policies Policies that constrain the development of new housing in desirable areas, or make it more costly or uncertain to develop, will reduce supply and push up prices

Demographia only addresses one of those seven variables. Because they fail to account for the other six potentially explanatory variables, their estimates of the welfare impact of urban planning policies are not likely to be reliable. Without controlling for other potential explanations for high housing prices, it’s impossible to say whether their conclusions about any individual city are correct or not.

Consequently, my recommendation to people seeking to understand the impact of urban planning policies on housing costs is simple: Ignore Demographia and go read the relevant economics literature instead. For those who are interested in doing so, here are a few papers that I have learned a lot from. They apply a range of modelling approaches, but what they have in common is that they undertake a detailed analysis of rules, rather than making sweeping and unsupported generalisations:

  • Glaeser, Gyourko and Saks (2005) studied the impact of building height limits in Manhattan by looking at the gap between observed sale prices and the marginal cost to add another floor to high-rise buildings. They find that constraining the supply of high-rise apartments imposed a significant “regulatory tax” on residents.
  • Grimes and Liang (2007) took at look at land prices around Auckland’s Metropolitan Urban Limit, finding evidence of a “boundary discontinuity”. They interpreted this as evidence that the the MUL is overly restrictive.
  • Kulish et al (2011) developed a hypothetical model of the impact of several factors on housing and transport costs. They modelled density restrictions as well as increased transport costs and lower building productivity, finding that building height limits raise housing costs and increase sprawl. I have previously discussed their findings.
  • MRCagney (2013) examined the impact of minimum parking requirements in Auckland, finding that they impose a loss on developers and businesses by forcing them to over-supply parking. They also cause worse congestion, meaning that not even drivers benefit. Luke C briefly discussed this study in a post on the Unitary Plan parking rules.

My favourite economics paper on planning regulations is Cheshire and Sheppard’s 2002 study on the impact of greenbelt rules in Reading, UK. The authors observed that greenbelts have both positive and negative effects. On one hand, they limit the supply of land for new housing, which drives up costs. On the other hand, they give residents access to public open spaces, which people like. Rather than ignoring this trade-off, they used house price data to model it.

Overall, Cheshire and Sheppard did find that allowing development in Reading’s greenbelt would make people better off. However, they also found that a failure to consider the amenities produced by planning rules would have resulted in too high an estimate of the gains in wellbeing. In other words: right direction, wrong magnitude.

In light of the evidence, my view is that failing to account for urban amenities and other explanatory variables in an analysis of the impact of supply restrictions can result in two errors:

  • First, it can make us over-optimistic about the degree to which loosening rules will affect housing prices. That’s not to say that less restrictive planning regulations couldn’t make us better off – just that we should not expect house prices to fall by 60-75% as Demographia implies when it says that Auckland should have a median multiple of 3.
  • Second, it can lead to perverse outcomes, by encouraging us to eliminate rules that are serving a useful purpose. Often (although not always) planning rules are managing the external social or environmental costs associated with some developments. A proper cost-benefit analysis – which Demographia has not done – will consider both the pluses and minuses of rules.

In short, housing markets are complex, and any analysis needs to consider that fact. To reiterate my point from last week: Demographia takes an inappropriate, overly simplistic view of house prices. This may be good for grabbing headlines, but it’s not good economics.

Photo of the Day: 50 shades….

STONEFIELDS_3919

The new suburbia; detached buildings so close you wonder why they bother and every mood from drab to dreary. At least you can no longer hear children play… now they’ve been banned.

Alternative explanations for Auckland house prices

Last week I took a look at the economics underlying Demographia’s “International Housing Affordability Survey” and found them severely lacking. As it turns out, Demographia’s data isn’t much good as a measure of the costs of poor planning rules – but it does seem to provide some information about people’s “revealed preference” for urban amenity.

To recap: urban economics suggests that differences in the level of the median house price to median household income ratio between cities can be interpreted as differences in livability. All else equal, people should be willing to pay more to live in cities that offer better quality of life.

But how should we interpret changes to the median multiple from year to year? If a city’s median multiple rises from 5 to 5.5, does that mean that the city suddenly got 10% more livable? Or did something else happen?

Demographia is very certain that higher median multiples are the product of one thing, and one thing only: limits on sprawl into greenfield areas. Here’s Don Brash, former Governor of the Reserve Bank of New Zealand and former head of several right-wing political parties, laying out that view in Demographia’s 2008 report:

Once again, the Demographia survey leads inevitably to one clear conclusion: the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land.

With that in mind, Demographia’s data seems to indicate that housing in Los Angeles and Las Vegas (as well as many other US cities) suddenly became a lot more affordable in the late 2000s. It’s obvious that they must have removed their Metropolitan Urban Limits – how else to explain such a big drop? Oh, wait…

Demographia Los Angeles Las Vegas median multiple

(It’s slightly disturbing that our Reserve Bank used to be run by a man who doesn’t believe that interest rates and credit conditions can affect house prices. But I digress.)

Here’s a graph of changes in Demographia’s median multiple estimate for Auckland since 2004. We haven’t seen the same drastic swings as in the US, where the housing bubble and bust was pronounced, but house prices have risen relative to incomes. (Although, as Stu found in his analysis of different measures of housing costs, this hasn’t flowed through to rents or mortgage payments, due in part to changes in interest rates.)

Demographia Auckland median multiple

This change has been especially pronounced in the last few years. Since 2012, Auckland’s median multiple has risen roughly 22%. Does this mean that we’ve become 22% more “livable” during that time?

With all due respect to the good work done by Auckland Council and Auckland Transport since their inception, probably not. So we need to look for alternative explanations, of which there are several. I’ll focus on three in particular.

The first potential explanation is that there has been a market failure. Residential construction slumped massively during the Global Financial Crisis, with the most significant reductions occurring in the supply of apartments and attached dwellings. Here’s a graph that John Polkinghorne put together illustrating that trend:

NZ building consents

Incomes and employment have mostly come back from the recession, but construction has been a bit slow to respond. I suspect this reflects technical constraints within the development sector, as it takes a while to organise finance, find sites, and hire the cranes, bulldozers, and blokes/blokesses in hardhats. Until they get into gear, there may be a bit of an undersupply – but one that will tend to sort itself out.

The second potential explanation is that the introduction of Auckland’s Unitary Plan has caused people to expect housing supply to be more constrained in the future. While the Unitary Plan envisages the gradual expansion of the city’s Metropolitan Urban Limit to meet new demand for greenfield suburbs, it maintains extensive controls on the supply of new dwellings in accessible, high amenity areas. Moreover, the plan actually got significantly more restrictive following the consultation process.

Transportblog has highlighted this issue a number of times before. To recap, here’s a map (from Koordinates) that shows where the Unitary Plan got more restrictive as a result of consultation. The areas in red have been down-zoned to restrict development, while areas in green have been up-zoned. The large orange areas show future greenfield land. As you can see, there are not a lot of opportunities to develop new dwellings in the isthmus and lower North Shore, while West Auckland has been happy to facilitate growth:


Unitary Plan changes from draft to proposed version on Koordinates

Timing is important here. Demographia’s figures suggest that there was a jump in house prices relative to incomes between the end of 2012 and the end of 2013. This coincides with the notification of the Unitary Plan in September 2013, which, as described above, will ease greenfield land supply while limiting development opportunities in the inner suburbs.

However, there is also a third potential explanation: that our rising house prices reflect increasing awareness of Auckland’s great quality of life. For most of the last decade, our city has been near the top in Mercer’s Quality of Living Survey. It’s been ranked third for five years running.

So maybe the story is that potential migrants and investors have observed that, by international standards, Auckland offers high quality of life at an affordable price. And they are in the process of arbitraging that away.

I’ve illustrated that process in the following graph, which shows the relationship between Demographia’s median multiple (X axis) and Mercer’s Quality of Living Survey (Y axis). The trend-line is estimated based on 2012 data. I’ve also plotted Auckland’s median multiple and Mercer index in 2015.

The red dot that represents Auckland is moving towards the trend-line, suggest that its prices are catching up with its livability.

Demographia Auckland median multiple change 2012-2015

Previous studies have found that growth in New Zealand house prices is strongly correlated with net migration – i.e. migrants tend to bid up house prices. Net migration to New Zealand did, in fact, start picking up in 2013 – around the time that Demographia’s estimate of the price to income ratio began to rise. Perhaps this is evidence for the “amenity arbitrage” hypothesis?

NZ net migration Feb 2005-2015

So, which explanation is true? Honestly, it’s impossible to say without a lot more detailed analysis. My point in writing this is not to argue that there is a single explanation for changes in Auckland’s house prices, but to point out that there are many possible explanations. Housing markets are affected by a number of factors, and it’s inappropriate to focus on one without controlling for the rest.

This is, essentially, why Demographia’s analysis fails. Rather than articulating a model that encompasses all of the potential explanatory factors, they have settled on a single number and insisted that it must be interpreted in a single way. It’s hard to see the value in that approach. And it’s definitely not good economics.

Urban Form: AKL v CHCH

For those interested in the divergence of development patterns in New Zealand cities it is hard not to be struck by this page in the weekend’s real estate section.  Auckland is still growing out, but it is also growing up. Christchurch not so much, just out. Time will tell which model better suits the demands of this century. This also clearly illustrates how Auckland is an exception in NZ in more ways than just its size:

AKL v CHCH dev patterns

The transport benefits of street trees in cities

A while ago Kent and I made a proposal for a tree lined boulevard in Auckland. Curiously, the biggest theme of the comments section was about the perceived lack of value that trees bring to the street corridor. It seems that most people consider street trees to be at best, decoration, and at worst a waste of time and money, dangerous even. Indeed I have seen road design handbooks whose only mention of trees was to outline all their problems in the section of ‘non-frangible fixed hazards’ (in traffic engineering terms, frangible means something that will break off when you drive into it, rather than stay solid and crumple your car around it).

I wanted to use this post to outline some of the reasons why trees are beneficial for our city streets. Not just beneficial from appearance or character, but beneficial in the sense of making the street work better in terms of its transportation and land use.

A word of clarification up front however. I am  talking about trees on city streets, particularly urban inner city streets with speed limits of 50km/h or less and ‘stuff’ around that people actually do there (like live, work or play, and not just move). Trees on rural highways and back roads with nothing going on but through traffic are a different story.

So my point is street trees are not merely decoration and can be included in street design specifically for several practical, technical reasons. In no particular order, these are as follows:

 An outer row of trees can provide physical separation between the traffic lanes and the footpath, cycleway and retail frontages.

Your friendly local highway designer will tell you that trees are a fixed hazard, according to the Austroads design manual at least, and that a high speed highway needs a wide exclusion zone either side so that speeding drivers who run off the road can careen onwards without hitting anything. While this is a very appropriate safety treatment for a state highway out the back of Waipukarau, it is completely inappropriate for a city centre arterial.

For a start we don’t want a high speed highways through our inner city. That what the motorways are for and we don’t want cars and trucks to speed through dense people-focussed places at street level. Rather we want move plenty of vehicles in an efficient manner while keeping to a reasonable speed limit for a city arterial. Consistent reliable travel times and total throughput are far more important that high speed alone.

Secondly, we certainly don’t want vehicles running off the traffic lanes at high speed. In an urban context this means running over whoever happens to be walking on the footpath at the time and smashing into the front window of a shop or office building! We want to keep traffic in the traffic lanes.

Thirdly, we don’t want to waste scarce city land on wide empty shoulders for our main roads: we can’t afford the land and don’t want the severance it creates. Nobody wants downtown to look like Albany (and in fact I’m not sure if anyone especially wants Albany to look like Albany either!), and we shouldn’t really be spending good money to create empty verges in town centres.

So indeed, one very practical reason for street trees is to keep traffic in the traffic lanes and out of the footpath and shops. We could use bollards or Jersey barriers for separation, or wide swathes of land, or we could use trees.

Better to hit a tree than a primary school?

Better to hit a tree than a primary school?

Trees provide a physical barrier to prevent vehicles being parked across the kerb.

This physically stops people from parking vehicles on the footpath, or in medians or other non-traffic spaces. Again we could install bollards all the way along the edge of the road, but trees can do the same job too.

A physical barrier to stop people parking on the footpath.

A physical barrier to stop people parking on the footpath.

 

Street trees provide shade to the footpath and cycleway.

Shade would not be of concern to someone designing a rural highway, where they don’t want nor expect any pedestrians or anyone else not in a vehicle for that matter. But if we are talking inner city streets such things must be considered. People walk, cycle, wait, linger and loiter on city streets and a little shade goes a long way in the summertime. Indeed in Melbourne they have started a program of street tree planting to mitigate the increasing number of heatwaves, and shading the tarmac is a good way to reduce the urban heat island effect and manage stormwater. Trees are a handy component of a complete street that has many simultaneous uses, and users.

Well placed trees can shade the footpath to provide a comfortable walking environment.

Well placed trees can shade the footpath to provide a comfortable walking environment.

Trees can visually screen heavy traffic from the footpath and adjacent buildings.

…and to a lesser degree provide some containment of noise and fumes. Once again this is a very practical concern if we are discussing inner city corridors, particularly those that are ripe for commercial development. Heavy traffic is a necessary evil on city arterials, generally speaking, but it’s impact can be mitigated through design elements such as this.

Trees provide a perceptual barrier that visually narrows the the carriageway.

Perhaps most importantly, a rows of trees can be used to visually narrow a simple two way street or split the opposing directions of a multi-lane arterial with a physical and perceptual barrier. In the case of a multiway boulevard a row of trees can be used separate the local and through lanes from each other.

Overseas, using trees to separate lanes is an intentional feature designed to break up the wide roadway into discrete sections, each section being relatively narrow. The purpose of this is to perceptually narrow and contain each piece of road to no more than two  narrow lanes to remove the visual cues that encourage speeding. In effect the trees act like side walls, narrowing each part of the road and forcing drivers to maintain limited speeds. Without them, any multi-lane street would present you with a wide, straight, flat roadway many lanes wide, all if which tell your subconscious mind that you are able to put your foot down. Of course the highway handbooks define this as the problem of ‘shy lines’, assuming lanes should be as fast and wide as possible and describing anything less in terms of reduced capacity. But this capacity reduction comes from lower speeds, which is precisely the thing we are after on streets, if not highways. Furthermore the shy line effect is almost negligible on 50km/h arterials, it’s really a highway thing.

The literature is quite clear on this topic: people drive fast on big wide roads, and creating a visually constrained roadway is the best means to keep then to the speed limit (ever been infuriated driving on the highway behind someone who is slow on the single lane sections, but who speeds up second they get to the passing lane? That’s them simply responding to the form of the road: going slow and cautious on the narrow winding bits, and driving faster when it goes wide and straight. Its a simple, instinctive perceptual response…)

So we prefer to see this ‘problem’ as part of the solution. Here the trees become a perceptual traffic safety device for reducing speeding and keeping traffic moving efficiently at the proper speed limit.

Octavia Boulevard, SF. Rows of trees turn an eight lane monster into groups of two lane streets.

Octavia Boulevard, SF. Rows of trees turn an eight lane monster into groups of two lane streets.

But what about simple beautification? 

Finally however, what if the trees were just ‘useless’ beautification? And what of the potential for ‘useless’ good quality paving, street furniture, artworks even? Is it a waste of time to make things attractive? Should we spend money on a nice looking and pleasant urban environment?

In the case of the city centre or other town centres, absolutely we should. Recall what we are talking about here are on the whole prime commercial redevelopment sites, where we should aim to maximise both the sale value of the land release, and the intensity and value of the subsequent developments. Simple ‘beautification’ would reap big dividends on the final form of development in the corridor. That’s not to say street trees are all you need to create a blue chip commercial precinct bringing in rates and business investment, but they definitely contribute. Beautification is a practical function when it comes to catalysing redevelopment.

 

An "un-beautified" road. What sort of development would this attract? Hat tip stroadtoboulevard.tumblr.com

An “un-beautified” road. What sort of development would this attract? Hat tip stroadtoboulevard.tumblr.com

 

So there we are, several reasons why street trees should be considered as technical components of street design with specific transport outcomes. For a wider discussion of all the benefits of street trees, transport and otherwise, check out the 22 Benefits of Urban Street Trees by Dan Burden.