Auckland a City of Opportunity?

A new report comparing Auckland with 30 other international cities by PricewaterhouseCoopers (PWC) paints a grim picture in many of the categories we talk about. Titled “A City of Opportunity”, the report released last year compared 30 cities from around the world. Following the 2012 version of the report a separate study was done to see how Auckland compared and the same thing has happened again with the 2014 version. This gives Auckland a useful tool for comparison. The results were given at an Auckland Conversations event last week and you can watch the presentation here while the presentation itself is here.

 

 

While many of the other reports that rank cities do so as a metric for assessing what to pay staff posted overseas, the PWC report appears more focused on the economic opportunity from cities working together. However like other reports, it is based on how a city scores across a number of criteria. In this case there are 59 variables spread across 10 categories which themselves combined into three high level groups with the report taking both a quantitative and qualitative look at city life. One of the things they mention is that while not all variables are under a cities direct control e.g. education, that it doesn’t mean a local council should just ignore the impact they have and should be active in trying to get the government to continue to improve the system. The groups, categories and variables are

PWC - Cities of Opportunity - Ranking Critera

 

The 30 comparator cities are shown below and were picked so there was a mix of cities from all regions of the world and with different attributes. The map below shows the cities along with their overall ranking (the higher the number the better).

PWC - Cities of Opportunity - Cities

 

One of the interesting outcomes that was noted was when the result of the rankings was compared with GDP data.  As you can see there is a correlation between cities that score well and those that perform better economically. It was also mentioned that in some cases – such as a study of 15 Swedish cities using the same methodology – this relationship is even stronger.

PWC - Cities of Opportunity - Economic Impact

Moving on to Auckland, the results below show how the city compared against the 30 other cities in 2012. As you can see we were doing ok in some areas but others we really lagged behind. It is noted that our main weaknesses are:

  • Transport and Infrastructure
  • Economic Clout
  • City Gateway

PWC - Cities of Opportunity - 2012 results

Some metrics aren’t expected to have changed much so not all measures have (yet?) been reviewed in 2015 but the results of four were given.

  • Technology Readiness
  • Transportation and Infrastructure
  • Economic clout
  • Demographics and livability

Here are some the comparisons for these areas. It’s important to remember that the rankings below are how Auckland compares to the other cites, not the scores that it achieved for each segment. PWC say Auckland has been improving but the issue is that in some cases other cities are improving at a faster rate meaning we’re falling down the rankings.

In technology and readiness the governments fibre roll-out initiative is paying off and Auckland is improving and so to is it’s ranking in Software development and multi-media design however other metrics are falling. In the case of Internet access in schools PWC said it wasn’t just about having access to the Internet but also how schools are adapting to it and making the most use of technology.

PWC - Cities of Opportunity - Technology Readiness 2

 

For Demographics & livability Auckland continues to do well for quality of living but slips down the rankings on the other metrics. Of interest, we’re still ranked fairly well for traffic congestion as while many locals think things are bad, congestion is considered nowhere near as bad as many other cities. One aspect in the discussion on traffic congestion that I found interesting was that the example of prioritising walking and cycling in Amsterdam was highlighted. It was said how contrary to what many people and car drivers assumed, walkers and cyclists spent more in city shops than those who drove did and on that basis it was better for the economy to remove the cars.

The very low score for demographics relates to the large ageing population we have which presents both an opportunity (if people work longer) as well as a challenge for the future once they start leaving the workforce.

PWC - Cities of Opportunity - Demographics & livability

The transport and infrastructure results are particularly interesting and concerning. As you can see Auckland ranks very poorly for its public transport system, especially the coverage and cost of it. This is something that electrification, the new bus network and integrated fares help improve but even with those it’s likely we’ll still be very far down the list. The housing result will probably raise a few eyebrows however it was described as being not just a cost to buy measure but also how easy/hard it is to get into a house (regardless of whether you’re buying it).

PWC - Cities of Opportunity - Transport and Infrastructure

And lastly economic clout where we’re doing well in some areas but very poorly in others. This is in part because other cities have been much more affected by the economic conditions in recent years than Auckland/NZ has. The question is if Auckland can sustain the rate of growth it’s been achieving in the last few years because if it can’t, it would likely fall down the rankings.

PWC - Cities of Opportunity - Economic Clout

These are summed up to the following strengths and weaknesses.

PWC - Cities of Opportunity - Strengths and Weaknesses

All up Auckland remains a city with a huge amount of potential, especially thanks to the natural environment we have and it’s clear we’ve been doing some things right. It’s also said that some of the plans we have are good too but one major issue is making sure we get the execution right.

NZTA OIA Response on Additional Harbour Crossing

Prompted by the news that the NZTA is tendering work for route protection of the Additional Waitemata Harbour Crossing (AWHC), I initiated an OIA request to the NZTA which has now been responded to.

I requested, on behalf of the Campaign for Better Transport:

1. A statement defining the land transport problem or issue that the proposed AWHC solution is attempting to address.
2. The studies and comparative assessments of alternative solutions that the NZTA has conducted, including, but not restricted to, an electrified rail only crossing of the Waitemata Harbour between the Auckland isthmus and the North Shore.

The NZTA responded with the following PDF documents:

  • Attachment A: Additional Waitemata Harbour Crossing Preliminary Business Case, January 2011. The business case includes a statement outlining the problem which the Additional Waitemata Harbour Crossing project is attempting to address (refer to ‘Description of Service Need’ on page 9)
  • Attachment B: Waitemata Harbour Crossing Study Phase 1: summary report option short listing, November 2007
  • Attachment C: Waitemata Harbour Crossing Study 2008: Study Summary Report, April 2008

Question 1: What Problem Are We Trying to Solve?

The Description of Service Need is this:

statementofserviceneed

What stands out here is the statement that the “AHB currently provides the only direct, cross-harbour vehicle link between the CBD and the North Shore.”  Resiliency seems to be a major driver behind a solution which supports six lanes of general traffic in a tunnel, with the possibility of rail at some indeterminate point in the future. What is odd is that there is no mention in any of the supplied documents of the Western Ring Route, a $2bn project adding resiliency and reducing demand on the existing Harbour Bridge which, in the NZTA’s own words, will “create a seamless motorway between Manukau and Albany”.  This is due for completion in phases in the next few years.

There are also the usual predictions of increasing traffic volumes, which threaten to “adversely impact on the length and reliability of travel times”. Quite why it is vital to minimise the travel times of single occupant cars isn’t explained.  Regardless, the Business Case uses traffic volumes in 2008 as the basis of forecasting, before the Northern Busway had a chance to make much of an impact.

traffic volumes

However, as Matt pointed out in this post, traffic volumes across the bridge have stubbornly stayed at 2008 levels, at least up until 2014.

AHB Annual Volumes to 2014

And that pretty much sums up the statement of need. As far as analysis of the need for mass rapid transit goes, there’s this analysis of the Busway:

Forecast demand for the Busway indicates that the morning peak hour flows into the CBD could increase to 250 buses per hour in 2041, representing a 138% increase over the 2009 volumes. This figure is the recommended target capacity for the Busway system, representing 12,000 passenger movements per hour6. However, achieving the target capacity is currently hindered by capacity constraints close to the CBD where the provision of dedicated bus facilities is more expensive and bus volumes are at their highest. One of the advantages of a new crossing would be the ability to have dedicated bus lanes across the AHB which would maintain a high level of trip reliability for passenger transport users.

On rail, the Business Case assumes a rail link between Gaunt Street Station in the Wynyard Quarter (underground) and Akoranga Station (at grade). The basis for modelling the tunnel is this diagram:

tunnel map

Construction cost alone of the combined tunnel is $4.6bn in 2010 dollars, with a total nominal cost over a 30 year period calculated as $12bn for the tunnel, including all capital expenditure and operating costs, with a risk factor as well:

nominal costs

The Business Case document comes up with a BCR of 0.4 for the combined tunnel option, including wider economic benefits and not including tolling.  Not so much a Business Case for the proposed AWHC then, but more a massive red flag suggesting  that not building the proposed tunnel is actually more economically beneficial for Auckland.  Even more worryingly, even though there is an assumption that the motorway will be widened to four lanes between Esmonde and Northcote road, there doesn’t seem to be any explanation of how the capacity of the Central Motorway Junction will be increased to cope with the additional three lanes of traffic each way that a new tunnel crossing will provide for.

Incidentally, transport modelling and the Cost Benefit Analysis excluded rail (p.25)

A parallel work stream to this study — The Network Plan — undertook an assessment of the longterm capacity of the existing Busway and concluded that a rail crossing was not required within the timeframes considered for the CBA. As such, the transport modelling excluded the modelling of rail, and the CBA includes costs for the roading component of the crossings only (i.e. the cost for the rail tunnel is excluded).

There is an interesting discussion on tolling (up to $8 each way modelled), but perhaps that is best left for another post.

Question 2: What alternatives have been evaluated?

The Business Case takes it as a given that capacity for additional vehicles is required.  This stems from the earlier options papers, which do indeed include an examination of a rail only crossing, which is the second question of the OIA request. Attachment C covers three short-listed options, with variations for each:

options

The study concludes (p.43) that a combined road / rail tunnel option is best – Option 2C.

summary

So although a rail tunnel was the best passenger transport option, the study recommends a combined road / rail tunnel. The option evaluation process appears not to have used a CBA / Economic Evaluation Manual approach, and it is difficult to tell exactly why option 2C is favoured over a rail only crossing. There is no comparison of BCRs between the rail only and combined tunnel options.  Presumably there is a strong weighting for resilience, but again discussion about the Western Ring Route is non-existent. However, the study also carries this warning on p.45:

Limited spare capacity on the strategic and regional arterial networks on both sides of the Harbour, together with the need to move towards a more sustainable transport system, mean it will be neither practical nor desirable to provide sufficient cross harbour road capacity to match demand. Any additional connectivity should therefore be provided to the best practicable standard, that is, in balance with the remainder of the Auckland road network, and in a cost effective manner.

And cost should probably be one of the most important factors. Page 36 has a table of costs for the different options.

optioncosts

A rail only tunnel was costed at about a quarter of the cost of a road / rail tunnel.

In summary, I don’t really think NZTA’s solution is going to work.  By design, it will increase the number of single occupant cars in the CBD and surrounding motorway networks and, according to their own analysis, make the economy of Auckland worse than if the project doesn’t proceed.  (And that isn’t even considering the impact of tolls on the economy.)

I don’t accept claims that the tunnel will be “future proofed” for rail either.  You only need to look at the history of future-proofing in Auckland (think Te Iririrangi Drive or the Manukau Harbour Crossing) to know that most likely it will never happen.

The taxation and expenditure of over $4bn dollars could make a real difference to Auckland if it was spent on the right things.  I think Aucklanders should get a say on this. Allowing the AWHC route protection to proceed in its current form, at a cost of tens of millions, is the thin edge of the wedge. If planning starts for a tunnel for single occupant cars, then that is what we’ll end up with.

This isn’t urgent. We’ve got time to get it right.

How might the RMA amendments and the Auckland Plan impact on the Unitary Plan?

The advertisement below is from the last local government elections. Here Councillor Denise Krum rallies against the draft Unitary Plan, especially the degree to which it enables “intensification”. Denise’s advertisement claims the draft Unitary Plan is “too intense” and will “change our streets forever”. Instead, Denise advocates for greater restrictions on the degree to which property owners can develop their property in the urban area, and more expansion of the city. Denise was subsequently elected.

Denise Krum

Denise is particularly critical of 3 storey height limits, and goes to the trouble of hoisting herself up (some might say by her own petard) in a scissor-lift so as to highlight differences in building heights.

From this advertisement it seems clear Denise does not support the draft Unitary Plan and instead considers restrictions on intensification as being necessary to preserve community well-being. It is notable the advertisement does not contain any references to any research or surveys which support the positions Denise adopts on these issues. Is it too much for me to expect political advertising to include references to evidence supporting the positions being advanced? Perhaps.

When it comes to planning, however, evidence matters. Recent 2013 amendments to the RMA increased the burden of proof with regards to S32 reports, especially in terms of the economic analysis that should be undertaken to support proposed policy provisions. For those who are not familiar with planning jargon, a “S32 report” attempts to evaluate the effectiveness of proposed policies in comparison to potential alternatives. The 2013 RMA amendments requires S32 analysis to identify, and where practicable quantify, the economic benefits and costs of proposed policies. Some smarty-pants lawyers had this to say about the RMA amendments at last year’s NZPI conference (source):

“Arguably the most significant and material change is an expansion and detailed elucidation of the reference to “benefits and costs”, in the context of assessing efficiency and effectiveness … Post 2013s 32(2) requires, in much more detail, the following:

An assessment under subsection (1)(b)(ii) must—

(a) identify and assess the benefits and costs of the environmental, economic, social and cultural effects that are anticipated from the implementation of the provisions, including the opportunities for—

(i) economic growth that are anticipated to be provided or reduced; and

(ii) employment that are anticipated to be provided or reduced; and

(b) if practicable, quantity the benefits and costs referred to in paragraph (a).

The task of complying with these requirements is not insignificant. A systematic approach will need to be taken in preparing s32 reports to ensure that they are compliant and address environmental, economic, social and cultural effects, including opportunities for economic growth and employment.”

Ever since the RMA amendments came into force I have pondered how they might impact on the proposed Unitary Plan, especially with regards to density controls? I have also been wondering how the strategic direction established in the Auckland Plan, which I think was developed under the auspices of the LGAAA, would be relevant to the Unitary Plan?

My interest was further piqued when councillors, such as Denise, dramatically reduced the level of intensification that could occur in metropolitan Auckland, since which time house prices have soared. The differences between the draft and the proposed Unitary Plans is highlighted in the map below. Areas of red show areas where down-zoning occurred, which includes most of the isthmus. These are the areas where property prices are high (and increasing), i.e. where market-driven intensification seems most likely to occur.

Down zoning

From this it seems fair to say that proposed Unitary Plan imposes tighter density controls. The question is whether these controls are supported by economic evidence that meets the requirements of the (amended) RMA? And, moreover, how apparent tensions between the strategic direction of the Auckland Plan and the approach adopted in the proposed Unitary Plan would play out in a hearing context?

The economic costs of density controls are relatively intuitive: They forgo and/or displace land use development. This means we get less of it, especially in higher In terms of the economic benefits of density controls, those who are opposing intensification, such as Denise, will need to present evidence to show that levels of density which are common-place elsewhere, e.g. cities in Australia and Europe, will cause significant harm to communities should they be replicated in Auckland.

I’m skeptical as to whether this evidence exists. Most of the research I’ve read, such as this review by UNSW for Queensland Health, finds no conclusive evidence that higher density development has negative impacts on well-being. In fact, there’s evidence it’s beneficial to many outcomes, such as childrens levels of physical activity and obesity rates. So much for the meme that children need a big backyard to stay fit and healthy!

In my experience living in Auckland and overseas, buildings of approximately 6 storeys seem to have relatively negligible negative impacts on well-being and/or amenity. The photos below illustrate two buildings from Amsterdam and Auckland, but I could have easily added many more photos of multi-storey buildings from Brisbane, Sydney, and Stockholm. While there are large differences in style, I find both buildings quite attractive (the first photo is used under license from myself; the second photo belongs to Ockham).

Amsterdam nightmare

_CM15340 crop-600-600-450-450-crop

For these reasons, I have been somewhat heartened to read the interim guidance on view shafts that was issued by the Commissioners who are overseeing the Unitary Plan hearings process. In this guidance the Commissioners note “the objectives, policies and rules in relation to viewshafts do not meet the s32 requirements of the Act” for several reasons, most notably “amendments were made to s32 in 2013 to require employment and economic growth opportunities (including lost opportunities) to be taken into account and these post-date many if not all of the legacy plans.” The Commissioners go on to note the “PAUP is the first substantive planning process to propose increased levels of intensification to achieve a quality compact city so it is appropriate that the viewshafts are now re-evaluated within that strategic context” and more importantly “… if it is possible to quantify those costs of the viewshaft provisions, then that would assist in decision …

I want to emphasise from the outset that I don’t have a strong view on the relative merits of view shafts. This post is less concerned with the nitty-gritty of viewshafts than it is with understanding how the 2013 RMA amendments and the Auckland Plan may impact on the Unitary Plan, most notably:

  • First, the presence of planning provisions in legacy plans is not strong evidence (in of itself) that those provisions should be retained in the Unitary Plan, mainly because the legacy plans pre-date both the 2013 amendments and the Auckland Plan. Hence, they have not been tested under the current legislative and strategic context.
  • Second, the Commissioners appear to consider that the strategic context provided by the (non-statutory) Auckland Plan, in addition to the Regional Policy Statement, is relevant to the provisions of the Unitary Plan, especially with regards to the development of a quality compact urban form.
  • Third, in light of the 2013 RMA amendments the Commissioners appear to place a higher expectation on economic analysis, especially where proposed provisions do not appear to align with the aforementioned strategic direction of the Auckland Plan.

The Commissioners thus seem to be attempting to strike a balance between strategic outcomes and economic analysis, and do not seem to be placing too much weight on legacy plans. This is heartening because, frankly, the legacy district plans contained many provisions that are of dubious value. Moreover, where provisions proposed in the Unitary Plan run contrary to the Council’s stated strategic direction, then there seems to be an expectation from the Commissioners that this misalignment is supported by robust economic analysis.

Of course, whether this preliminary guidance on view shafts is indicative of the Commissioners’ ultimate position and/or whether it apples to other topics, e.g. minimum parking requirements, is something that will only become clear in the fullness of time. In the meantime, I’d be interested in hearing your thoughts.

Professional and personal disclaimer: The views expressed in this post represent the theoretical and philosophical musings of a not quite defunct economist. This economist is not a planner nor is he a lawyer (so don’t expect to be able to sue me for much money). The views expressed herein should not be construed to represent the views of my colleagues, clients, friends, or pets. They do represent the views of my Mum, whom I love very much. Nor do they necessarily represent my own views in the future – at which point my views may have changed in response to further evidence and information. 

Blanket Heritage Check to be Removed?

Some fairly important news about the Unitary Plan has emerged in relation to the Pre-1944 demolition control the council wanted to implement. The control prevented all houses built before 1944 – that weren’t already covered under normal heritage provisions – from being demolished without any assessment of whether it needs heritage protection. Land owners would still be able to get consent however it is argued that by making it harder will prevent people from even trying. The control seemed to come about following regular complaints from heritage groups about anything old being demolished.

In interim guidance from the hearing panel released Wednesday it was announced that they are not convinced by the arguments put forward by council and some submitters on the need for the control. They say there is a lack of robust section 32 (s32) analysis and evidence and that the provision has not been assessed in the wider context of the strategy for a more compact and higher density city. They go further to say that it places unnecessary constraints and burdens on land owners who may want to develop their property.

They say they think that if the council want to change the way they protect a number of residential areas that they should go through a plan change to do so which would also require them to produce a robust section 32 analysis of the relative benefits and costs of the change. That would also enable more public participation on the issue. As an example they were concerned that large numbers of people who owned/lived in properties affected by the control didn’t submit on the Unitary Plan who were likely happy with the existing provisions.

The map below shows the scale of the control and as you can see it primarily affects the isthmus and east coast of the North Shore. It’s also worth noting that many properties in some of the gaps have more formal heritage protection.

Pre-1944 Building Control

Understandably heritage groups are upset saying the decision is a ‘mistake’ and a ‘bombshell’ however I’ve long thought the same way about proposing the control in the first place. The council have said in the past that they choose 1944 as the cut-off point as that’s a date they have good records from of what housing stock existed. To me the whole thing is just to arbitrary and clunky in its current form and even though the control wasn’t blanket protection its effect would have been to prevent most small scale development as land owners would be too put off by the requirements.

In addition to this while the heritage protection groups fight to keep anything and everything old, at the end of the day it’s generally not them who pay the price for the impact blanket rules like this have. If it prevents sensible development in the right locations it can affect the entire city and in particular young people who want a place to live that isn’t out on the suburban limits

When it comes to heritage I quite like this from reader Stephen Davis. If we really want to protect heritage should we require those in heritage areas to also ride around in a horse and cart.

Lastly I think it also opens up the opportunity for the council to have a wider discussion with the community about development and change. As we know Auckland Transport are considering installing Light Rail on the Isthmus right through some of the heaviest areas affected by the pre-1944 controls. One of the issues we’ve mentioned in the past is that while the light rail corridors are busy, we really need to leverage off such a project and enable more development to help make it successful. Perhaps this news is opportune time for the council to start having that discussion

LRT routes

Given this interim guidance it will be interesting to see just the panel say about other rules which can severely restrict development potential such as minimum parking requirements, minimum yard sizes, building setbacks, maximum site coverage and density controls.

Auckland’s Historical Settlement Pattern since 1840

From the Auckland Plan, how Auckland has developed since 1840.

Urban Settlement Patterns post-1840

Toil and trouble; economy burn and housing bubble #4

Like Jack Tame, I’m surprised by the slow update of apartment living in New Zealand. I am also bored by the degree to which “wheel estate” dominates the public discourse, which I suspect is symptomatic of wider policy issues.

38668-atl

No other country in which I have lived dedicates such a disproportionate amount of oxygen to the machinations of a single, relatively uninteresting market. Property seems to be the default topic of conversation, and default investment, for normal everyday people. This suggests that the returns to investment are too high relative to other potential investments, and by extension that a disproportionate amount of domestic capital will be invested in property. Notwithstanding the over-allocation of domestic capital,

This raises the question of how might we reduce demand for houses, without reducing the supply of housing itself. There see to be two areas where action might be required.

First, Auckland Council needs to drop many of the density controls which are inhibiting the supply of housing in central areas. The Unitary Plan contains a preponderance of absurd residential rules that are ultimately ill-suited to urban areas. Second, Central Government needs to change policy settings that seem likely to stimulate excessive demand for residential property. This includes domestic tax settings that seem likely to attract capital from both domestic and international investors.

Central Government has heaped blame on Auckland Council, without accepting that it also bears some responsibility for problems arising from excessive investment in property. The failure of Central Government to step up to the plate has seen it cop some deserved criticism.

 

d25242c6977c9365ac049542740f8651df25d78e_620x311

 

In their defence, the Government earlier this year announced a number of measures designed to curb demand for residential property investment, most notably

  • Redefining “intentions” – Whereas previously the onus was on the IRD to demonstrate that the people buying/selling properties were doing so for investment purposes, a new brightline test assumes residential property bought and sold within two years is investment and as such is subject to normal tax rates.
  • Collecting information from international investors – The Government will now collect information from property investors who are tax residents in another country. This is designed to reduce opportunities for money laundering.
  • Applying a new withholding tax to foreign investors – The Government also announced its intention to introduce a withholding tax on sales of property by non-resident investors. Few details on this withholding tax are currently available, although it is expected to come into effect in 2016.
  • Increased funding for tax compliance measures – A further $29 million will be provided to the IRD for monitoring and enforcement to ensure compliance with tax obligations.

The Government’s announcements were announced hot on the heels of initiatives being implemented by the RBNZ, such as applying tighter loan-value restrictions (LVRs) on residential property investment in Auckland.

So what’s happened to property prices since these measures were announced? Well, they seem to have kept rising. That’s actually not very surprising, given that net migration continues to run hot, while the RBNZ has also decided to cut interest rates in response to falling prices for NZ exports and increasing volatility in global financial markets. Moreover, most of these measures have only been announced and have not yet taken effect.

One of the more interesting piece of information to emerge in recent months is discussed in this article, which reports analysis by MBIE. This shows Auckland’s housing market has followed similar trends to capital cities in Australia. This suggests two things. First, it reinforces the view that global factors are partly behind increased demand for property in New Zealand and Australia. Second, it suggests Australia’s recent efforts to restrict investment by foreign investors have not been particularly effective.

fig13aShould we expect the aforementioned changes to the tax treatment of property to dampen investor demand for houses?

First, I want to emphasise that we probably don’t want measures to have too great an impact too quickly, i.e. we don’t want to manufacture a rapid slump in property values which threatens the stability of the wider economy. The better outcome, in my view, would be to implement policies that gradually reduce real house prices over a long period of time.

On the other hand, there’s a general consensus emerging that the Government’s changes are at the mild end of the response spectrum. To provide an example, the so-called “brightline test” for defining property investment applies only up to 2 years after the property is purchased. This is a relatively short time-frame, which seems likely to not capture many property transactions that are undertaken for investment purposes.

Back in 2010, Treasury provided the following advice to the Minister of Finance about the length of the brightline test (source):

“Any brightline period is inherently arbitrary. We consider a 5 year test would be the minimum that could apply before the advantages would outweigh the disadvantages. There is currently a 10 year brightline test that applies to property dealers and developers, so this period could be used as a precedent to apply to other real property sales such as residential investment property.” (page 2).

This Treasury memo also contained the following table , which summarises brightline tests which are applied in other jurisdictions. This highlights how the 2 year period proposed in New Zealand is relatively short.

Brightline test

On the “bright” side, the Government may argue that getting the “brightline test” adopted is a first step. Thereafter, the length of the test can be extended, as and when required to manage house price inflation. Beyond this, however, there’s not much more the Government can do given current policy levers. I guess the proposed withholding tax for non-resident property investors could be adjusted upwards if investment from those sources was found to be a problem, but it’s only addressing a small part of the demand curve.

So what’s the verdict?

Well, while the Government’s proposals are a step in the right direction, they are relatively timid and unlikely to have a meaningful impact on behaviour. Most notably, even with these policy changes, we will still be taxing property relatively lightly compared to other countries. I think there’s an argument to move much more strongly; there are some real macroeconomic risks in the global economy, e.g. Greece and China. Moreover, net migration to New Zealand is highly volatile, and could drop significantly from current levels if the global economic outlook improves.

My personal preference would be to implement a fiscally-neutral national land tax . This could be implemented gradually over time, e.g. start at a rate of 0.05% and increase it in 0.05% increments annually until house price inflation drops to reasonable levels. Revenue generated from such a tax could be used to reduce taxes elsewhere. Hence a land tax would be pitched as a tax shift, rather than a tax increase.

For now the Government seems focused on the progressing the measures it has announced. All I hope is that this represents the start of policy initiatives designed to address New Zealand’s hyper-active interest in property investment.

 

Housing Preference trade offs

There have been many issues in the debate how Auckland should develop and a lot of it comes down to preferences and in particular housing preferences. On the one side of the debate there are those – who are often baby boomer generation or older – who claim that no-one wants to live in an apartment and that we all want big standalone houses. They extrapolate that to mean we should focus on building a lot more standalone houses on the urban fringe.

We (and others) have long said that a range of dwelling types are needed in many locations to give people choice in where and they live. That allows people to make trade-offs based on their location/amenity preferences and how much they’re prepared to pay. That means even you would prefer a large house, if living closer to the city is important to you then you may be prepared to live in a terraced house or apartment rather than have a large house on the outskirts of town. Of course many also prefer higher density living.

Previous research in to the issue of preferences was often simplistic not taking into account the real world constraints and trade-offs people make. As reported by the herald yesterday, new research for the council finally addresses that missing part and has some interesting findings. The report is here (4mb).

Perhaps its key finding is that while there is a majority of people who would prefer a standalone house, the current housing stock more than satisfies that demand that outside the city centre there is a shortfall of units and apartments.

The research divided Auckland up in to eight general sectors “according to land value and spatial location” as shown below. This was used to help in identifying where people currently live and where they would be prepared to live based on various factors.

Housing Choice Survey - Sectors

Respondents were asked to identify the relative importance of 58 features grouped across five categories without considering any constraints. The five categories are:

  • Convenience and access (14 features)
  • Proximity to facilities (9 features)
  • Local environment (9 features)
  • Property features (13 features)
  • Dwelling features (13 features)

Each feature was ranked as either ‘very important’, ‘of some importance’ or ‘not at all important’ and then they had to pick the top five of the ones they ranked very important. That resulted in this outcome for the five categories

Housing Choice Survey - Cagegory Importance

The top 15 individual features are shown below. As you can see a safe neighbourhood is by far and away the most important thing while a standalone dwelling is just over half as important. I was a little surprised that none of the amenity (proximity to facilities) featured in the top 15.

Housing Choice Survey - Top 15 features

Below are how the respondents rated features in each of the categories – remember these rankings are without any constraints.

Housing Choice Survey - Rating features - Location

Housing Choice Survey - Rating features - Property

Housing Choice Survey - Rating features - Dwellings

Housing Choice Survey - Rating features - Access

Housing Choice Survey - Rating features - Amenities

The second stage of the survey looked at what happens when a financial constraint is added in. Key findings from this were:

  • Almost half of the respondents (47%), when faced with a set of housing options that they could afford, chose a final housing option that was within the location that they had initially preferred. The match between initial preference and final choice is strongest for Sector 2 (Auckland Isthmus), Sector 3 (North Shore Coastal) and Sector 7 (East Auckland).
  • There was a difference in final location choice according to whether people were buying or renting. Buyers selected final housing options across all eight sectors while 75% of renters made a final choice in three sectors: North Shore Coastal, South Auckland and Auckland Isthmus.
  • The choice of housing types strongly favoured medium (61%) and large (26%) sized dwellings as defined by bedroom number, with renters showing more acceptance of medium sized dwellings.
  • Detached dwellings were the final choice of just over half (52%) of all respondents. This preference was similar for both buyers (54%) and renters (50%). Interestingly, the choice experiment shows that there is also a strong preference for other typologies, with 25% of respondents picking an attached dwelling (joined unit), 15% selecting low rise apartments and 8% selecting high rise apartments.
  • Just over half (51%) stated that their final housing option reflected the actual housing choice they would make, if they ‘planned to move tomorrow’, while almost one in five (19%) selected ‘don’t know’. A smaller but nonetheless significant proportion indicated that the final option did not meet their housing preferences (30%).
  • In general, following the choice exercise, respondents reported that dwelling value and house type were of more importance in their decision-making process than was location or dwelling features.

The table below shows the results of the once costs were considered. The numbers in green show the 9% who would move to a more expensive area after considering the implications. The blue is the 47% would stay in the same area they were in and the red represents the 40% who would shift to lower priced typologies if they were available. As you can see the isthmus is the preferred option followed by the coastal North Shore and East Auckland i.e. coastal areas.

Housing Choice Survey - Final Choice

The report highlights that there is clearly a mismatch between what housing stock exists, what is being currently being consented and what people would choose if it were available. They say the idea of high density in the city centre and low density elsewhere doesn’t match the preferences shown in the study highlighting that we need more dwelling options in a lot more places. The question is whether our future planning laws will allow for that.

In particular what we need is the missing middle

Missing Middle

Image source: Missing Middle Housing, Opticos Design, Inc.

Of course those boomers who think no one wants an apartment and that everyone wants a stand alone house refuse to believe it and continue to spout that it’s the council’s fault for not allowing unlimited sprawl.

Letter to NZTA

 BRITOMART JULY 15_3753
After the launch of the National Land Transport Programme in Auckland last week  I wrote the following letter to NZTA with our concerns focussed on two future projects in particular. We have already received a reply confirming engagement on the issues raised:
We are all having quite a bit of trouble taking all the transport institutions seriously over RTN designations and intentions. The failure for any action to have been taken over a route through Mangere and the Airport over the last decade, and the constant reductions of any available space for a rail ROW there, or at least one not prohibitively expensive, make all the assurances we hear increasingly hard to believe.
 
Now we are expected to have no concerns at all about a process which shows every sign of just being another massive state highway with a little pretend drawing of a train in the sump of a massive road tunnel.
 
Tommy Parker confirmed today that buses on the bridge are to be the RTN solution, ie what there is now.
 
Our view is that this puts the cart before the horse. NZTA should not be starting with a solution without any clear description of the problem. We do not see why it needs a designation over a stretch of water to analyse what may be missing across here. Although it is not the designation that is the problem, but the lack of a needs focused, creative, and open minded analysis that troubles us.
 
As to us it is clear that what is missing from the existing bridges is a real RTN route [assuming SkyPath happens]. Therefore we expect to see real exploration of what delivering rail only tunnels [or bridge] would do to shape demand here. A rail system would certainly be higher capacity than road tunnels, and, well planned, would also likely be much cheaper and stageable. Adjacent rail systems do add resilience as the TransBay Tunnels did in Loma Prieta earthquake of 1989 in San Francisco. And not do have all of the disbenefits of the massive increase in vehicle numbers throughout the whole city [congestion!] that more traffic lanes will.
 
We know than any additional road capacity here would be a total disaster for the city, which we are currently de-carring, and the CMJ which is already full, and the North Shore local roads. We also know, and NZTA almost brags about this [see below], the main outcome would be a traffic inducement on a massive scale:
 
AWHC - Induced Demand
This is ‘decide and provide’ in a bad way, a huge programme of traffic creation; $6 Billion to get people out of buses and into the driver’s seat. What ever we build across this route will be used; what an amazing opportunity to choose to shape both demand and the city in a wholly positive way.
 
However the fact that NZTA is not currently allowed to spend on rail capex, and anyway really is mainly a State Highway provider and then is not calling for any outside expertise to explore rail systems is also not encouraging:
AWHC -Route Protection scope
It is our view that both a driverless Light Metro system, or a continuation of AT’s proposed Light Rail network across the Harbour, to Takapuna and up the Busway, need to be properly explored as the next possible crossing over the harbour. As they are likely to achieve all of the aims NZTA and AT are charged with delivering for the city much more completely and at a lower cost than any additional traffic lanes and without any of the disbenefits.
 
– the economic benefits of true spatially efficient urban transport system linking the Shore to city and the isthmus RTN
– make a massive transformational shift to public transport
– real carbon and other pollution reductions of scale from a 100% electric system
– huge place benefits, including a real reduction in city car and bus numbers
– no additional massive costs on approach roads
– resilience of additional systems as well as route
 
We would like to meet with NZTA at the highest level to discuss this further.
 
We are extremely concerned that institutional momentum is building for a very very poor outcome for the city and country and are determined to improve this process.
 
We look forward to your reply,
 
kind regards
 

More on the National Land Transport Programme

Last week the latest iteration of the National Land Transport Programme was announced. This is largely a business as usual plan, dominated by the big spend on a few massive state highways projects. However there are a few things to be celebrated, especially for cycling, and even more in the language and thinking in the supporting documents. This was repeated at the launch too, especially in the words of NZTA CEO and AT Board representative Geoff Dangerfield, and NZTA Auckland/Northland Regional Director Ernst Zöllner.

BRITOMART JULY 15_3344

The high level aims are all strong and commendable. The focus on ‘economic growth and productivity, safety, and value for money’ are incontestably valuable. If they were to add ‘resilience, energy security, and environmental performance’  it would probably be a perfect list. But of course this is really set by the Government Policy Statement.

Dangerfield was his usual clear and persuasive self, setting a high level context and skilfully bating away questions. Zöllner was particularly articulate about both the dynamic nature of the situation in Auckland and the unformed quality of Auckland’s PT networks; especially the incomplete nature of the core Rapid Transit Network. Both noted the strong growth of PT ridership numbers, which will see a rise in the PT opex spend.

Here’s what the agency says about the Transit and Active modes, in the Providing Transport Choices document:

NZTA The role of PT.
And
NZTA Economic Growth through PT

All incontestable good sense, and exactly the sort of points regular readers here would recognise, especially the emphasis on the value of the high quality own-right-of-way Congestion Free networks of rail and dedicated busways.

People using public transport on high-quality public transport services with a dedicated right of way, like the Auckland Northern Busway or metropolitan rail networks, can now enjoy fast, efficient journeys on comfortable modern buses and electric trains, while freeing up road space for other people and freight.

There remains, however, some considerable daylight between this analysis and the actual projects being funded. This is especially the case with the comparatively tiny sum of $176m for Public Transport Capital Works in Auckland out of a total $4.2 billion spend over the three year period in the region [~4%] and $13.9 billion nationally. This sum [half of which is from the Council’s Transport Levy] will bring much vital kit, like the Otahuhu, Manukau City, and Te Atatu bus interchanges. But is a long way from fixing those big gaps in the RTN network. In response to my questions on this they quite reasonably countered that some funding for bus capex is in other budgets, notably under the AMETI programme, as part of the North Western massive highway works, and the Northern Busway extensions.

However the two Busway sums do not result in the construction of even one metre of additional RTN. For the Northern Busway the previous minister deleted construction of the proposed extension from the accelerated motorway package [a loan to be met from future NLTF], so all we are left with is ‘future proofing’ and no one can ride on a busway that has only been future proofed for. On the Northwestern we do get the improvement of bus shoulder lanes and a station at Te Atatu; but no RTN. AMETI is the best of the bunch, but that’s only if the proposed BRT does happen instead of the place-ruining flyover that appeals more to some entitled voices there.

Then we come to the great problem that the National Land Transport Fund is barred from investing in rail infrastructure yet Auckland is now showing the huge value of using this separate network for moving increasing numbers of people completely outside of traffic congestion. And some RTN routes are clearly best served by rail. Just as well the Council has the courage to just get on with the CRL first stage by itself so at least this vital gap at the heart of the RTN is getting a start.

The case for near term investment in PT and especially for completing the RTN can be summarised thus:

  • current demand growth of 20+% on Auckland’s Rapid Transit Network,
  • the RTN is showing improved operating cost effectiveness as it grows,
  • the strongly voiced value the agency sees in quality PT networks especially their positive effects on traffic congestion and economic growth,
  • the well known relationship between what is invested in and what then grows in use plus the positive externalities of increased PT use,
  • and the observed sub-optimal nature of the city’s current PT networks in both quality and extent, ie the clear opportunities for improvement.
So despite the good work being undertaken by many in all our transport agencies: NZTA, AT, and MoT, there seem to be structural problems that are leading to important opportunities being missed in our only city of scale. It is this context that I wrote to NZTA Auckland and Northland Director Ernst Zöllner with concerns about two specific projects that embody these issues. As this post is already quite long I will run the letter tomorrow morning in a follow-up post…

Ministry of Transport CEO on the future

An interesting piece on Radio NZ what the CEO of the Ministry of Transport think will be the future of transport in NZ. I agree with some of what he says but in others it seems like he off the mark. You can listen to an interview here


Or listen here

New Zealand had 2,488,008 licensed cars and vans on its roads at the last count three months ago.

However Mr Matthews, who is also Secretary of Transport, said in three decades there will be little point in people owning such vehicles.

“I have to say as a self-confessed petrol head and the owner of five vehicles, the concept of not owning a vehicle is pretty hard for me to swallow.

“But for my grandchildren, I’m sure it won’t be so difficult for them to imagine,” he said.

Mr Matthews told the transport summit he foresees major changes in how people travel, envisioning a future “more tailored to individual needs” and with “more choice”.

“You’ll no longer need to look to see when a bus, train or taxi will be available because there probably won’t be any bus stops or bus timetables, in fact there’ll be no parking as well.

“You’ll probably no longer need to worry about cleaning out the garage to get the car in because you probably won’t own a car.

“It simply won’t make any sense anymore for you to own your own vehicle,” Mr Matthews told the internationally-attended summit.

I agree that in the future people probably won’t own cars however I’m a bit sceptical it will completely happen within 30 years given the pace of change in the car industry, for example the average age of a vehicle in NZ is around 13 years and getting older. The issue of bus stops are an interesting one though as he doesn’t appear to be suggesting that buses themselves will disappear. In my view we’ll still see PT but increasingly it will high quality, high capacity options such as busways and rail (light and heavy) and more dedicated stations rather than small stops. Within that system driverless cars are likely to be quite a useful last mile solution.

Of course if we don’t need carparks or a garage and driveway that also opens up a huge amount of space in urban environments that can be put to better use. In cities like Auckland where space is at such a premium that presents interesting opportunities.

One area I think he’s way off the mark is on the future of freight

He said there needed to be a drive toward significant improvements in the productivity and efficiency of freight supply chains, and he believed freight vehicles would be self-driving.

“These modern road trains will be more flexible, more responsive to market and consumer demands than any of our current train systems can ever be… The rail network outside of Auckland and Wellington, which is shared with commuter services, already effectively provides a separated freight corridor.”

Mr Matthews said these corridors could be transformed into high-speed freight networks.

“Rail may not be the technology of choice in the future for New Zealand… I imagine the space the corridors currently occupy being allocated for a different way of use.

“Imagine platoon trucks not guided by rails, but by a system that allows them to operate safely on narrow concrete pads through these dedicated freight corridors.”

Ripping up the railways and turning them into truckways has been a desire from the trucking industry for decades. Is it really practical for us to spend what would be 10’s of billions to rip up the existing working rail network and replace it with continuous concrete strips strong enough to carry super heavy trucks. Included in that is bound to be a need to duplicate the corridor seeing as most of the rail corridor is single track. We’re then going to have fleets of driverless trucks to run on these truckways in a platoon just like trains and carriages do now. To be honest I’m not quite sure what we gain from this suggestion and if it’s automation that’s desired it would surely be cheaper and easier to upgrade trains to be driverless and then invest in automated systems to quickly load and unload trains at destinations.

The UK consultant who is also quoted in the piece sums up one of the issues quite nicely too.

“Platooning of trucks has been tested, successfully tested quite a few times – it works – technology is not a real problem.

“The problem is acceptability and the problem is liability – acceptability because car drivers don’t want to be associated with large trains of trucks where the person doesn’t appear be in control.”

One thing I will say about the views of the MoT CEO, at least they are starting to look to the future. These comments follow on from a report late last year looking at future demand in which only one of four scenarios would see travel demand increase. They’ve also been doing more work thinking about the future – one piece of which I’ll try to talk about this week.

ResizedImage700325-FutureDemand-Diagram2