Photo(copy) of the Day: The Rational Plan

I guess this is just one of those ones we should have on high rotate. The advice from the North American consultants in 1965 for Auckland at the height of the sprawl era was this: ‘a co-ordinated bus and rail Rapid Transit plan‘ to go along with the gradual construction of motorways. How prescient this looks as the following 50 years have shown how inefficient and expensive a monomodal autodependent transport plan is for cities.

De Leuw Cather_Highway Report

And now as we finally inch towards the partial delivery of just such a system it is plainly obvious how rational it is; ongoing 20% growth on the Rapid Transit Network settles the long running claims that it would never work in Auckland.

It is extraordinary that the government claims Auckland Transport and Auckland Council don’t have a good plan. It’s only the same plan that we’ve always had, but have never been allowed to implement. First because the various councils ‘couldn’t agree’ but now because there is insufficient ‘alignment’ with the government’s plan, which is undisclosed in any holistic form, but clearly is just more motorways everywhere. The Auckland plan, is evidenced, popular, already working, but starved of cash.

To 1986 and beyond…

Indeed.

And here, on a projected future motorway map you can see the core rail part of the ‘coordinated bus and rail Rapid Transit plan‘:

 

DE LEUW CATHER_7416

*Thanks to the excellent Auckland Library archive.

Trade over distance and the Auckland export paradox

What, exactly, does Auckland do to pay its way?

Last year, I took a look at the geography of the New Zealand economy, finding that New Zealand’s three main cities accounted for at least 56% of GDP. Auckland alone accounted for at least 34% of economic activity – considerably more than the entirety of rural New Zealand:

City share of NZ GDP map v2

(By the way, these figures are likely to under-estimate the size and productivity of the Auckland economy. Dave Maré’s 2008 paper on the Auckland productivity premium used firm micro-data to get a more accurate estimate, finding that Auckland accounts for around 40% of New Zealand’s market economy. See page 15 for figures.)

So Auckland’s economy is large. But are Aucklanders doing anything especially productive, or are we just selling houses to each other? (Or worse, to Johnny Foreigner!)

As New Zealand is a small, open economy, we have a tendency to focus on exports as a key measure of economic success. This makes sense – we can’t make everything locally, so we need to earn foreign exchange to pay for all the cars and oil and smartphones and bicycles that we want to buy.

At a national level, we export around 30% of GDP, which is low by the standard of other small open economies and worrisomely concentrated in a few undifferentiated primary commodities:

Source: World Bank

Source: World Bank

By comparison, a 2010 study commissioned by Auckland Council found that exports of goods and services accounted for around 14-16% of Auckland’s GDP:

The value of Auckland region’s exports has increased relatively steadily over recent years, with an average annual growth rate of around 2 percent recorded for both commodity and services exports for the period 2001-2008. The economic impact undertaken as part of this study suggests, however, that there has been a small decline in the relative importance of export sales to the Auckland region economy over this period. First in terms of commodities, it is estimated that the direct and indirect value added impact produced by commodity exports as a percentage of Auckland’s GDP has fallen slightly from 9 percent in 2001, to 8 percent in 2008…

Measured in value added terms, the direct and indirect contribution of service exports to the regional economy has remained fairly constant over the last decade at around 6-7 percent of GDP.

So Auckland’s not exactly an export powerhouse. What, then, are we doing to afford the food that we’re buying from rural New Zealand and the manufactured goods we’re buying from offshore?

Last year, the Productivity Commission published some new research that points towards an answer. Their report, which has the attention-grabbing title of “Trade over distance for New Zealand firms: measurement and implications“, looks at the degree to which firms in different industries are co-located with their domestic customers. They put together some nifty measures showing how likely different industries are to “trade” across New Zealand regions.

The Productivity Commission researchers concluded that:

In New Zealand, firms producing highly tradable services tend to locate in the main urban centres (Figure 8a). Wellington has the highest employment share in high and medium tradable service industries, reflecting the concentration of government in the capital. Market-based services that are tradable over distance tend to concentrate in Auckland – there is a positive and significant correlation between tradability in market-based service industries and their Auckland-based employment share (Figure 9). As such, around 40% of total employment in market-based service industries in the medium to high tradability category is Auckland-based (Figure 10). For services in the low-tradability category, the share of employment based in Auckland is 32%.

In other words, Auckland has a comparative advantage in producing services that it can “export” to other New Zealand regions. Here’s a key chart from the report, which compares tradability (y axis) with Auckland employment share (x axis) across high-level industries:

PC tradability and Auckland share chart

If you look at the service industries (orange dots), excluding public administration, you can see the clear correlation between tradability and Auckland share of employment. Industries that have to be very close to their customers, like retail and health, aren’t concentrated in Auckland.

On the other hand, four especially tradable service industries – finance and insurance; information, media and communications; professional, scientific, and technical services; and wholesale trade – are highly concentrated in Auckland. (Interestingly, these industries span both blue-collar and white-collar work.)

So perhaps the story is that Auckland “pays its way” by producing services that the rest of New Zealand buys. The work that Auckland does for the rest of the country isn’t always visible – we’re not trucking boxes of it south from Auckland to the Waikato – but it is very real.

Furthermore, Auckland’s “exports” of services to other New Zealand regions have implications for the national trade balance. If Auckland wasn’t doing the banking, engineering, accounting, and wholesaling, we’d probably have to purchase those services from Australian cities instead. (Jane Jacobs would observe that Auckland is following the typical path to urban success – “import-competing” economic growth.)

By way of illustration, consider where Fonterra, New Zealand’s largest exporter of dairy products, chooses to locate its headquarters. They’re not based in Hamilton or Christchurch, closest to the cows and dairy factories. No: Fonterra is in Auckland, which doesn’t produce much milk but does offer the best access to skilled labour, professional services (accounting, legal advice, advertising, etc), and international connections (i.e. the country’s main international airport). They value those services, and recognise that they can’t get as many of them outside of Auckland.

What do you make of Auckland’s role in the New Zealand economy?

‘Thanks, but no I really don’t need a lift’

The Public Transport offer in Auckland has a long way to go, but on some routes, especially in the inner city, it can be not only the quicker but also more pleasant option than driving, particularly once the hassle and costs of parking are considered. We look forward to this advantage being spread out to more areas and for more people as the Electric Trains, the New Bus Network, Proper Buslanes, and Integrated Fares roll out over the next couple of years.

Yet there is still the issue of people’s mindset. I understand this well as it wasn’t until I returned from living in Europe that I just didn’t unthinkingly reach for my car keys to undertake even the shortest or most ill-suited of journeys in Auckland. But also over that time PT services have improved from almost completely useless to on many occasions pretty handy. The Rapid Transit system is at last reaching utility as can be clearly seen by consistent rise in uptake, but there are also bus services like the Inner Link that I now use regularly because, once armed with a HOP card, it is often the best option for many journeys. Frequent enough, and a great place to check my messages between commitments, or just stare out into the city sailing by, perhaps even thoughtfully. It can also be pretty social:

BUSES ETC_8274

Ride Social: On the Inner Link

My partner and I have recently had two instances that are deeply illustrative of how far many Aucklanders have to go with their car addiction. An addiction born of the environment; as for so long only one means of movement was well supported.

Both times we were happily bussing it, only to be dragged off into relatively unpleasant and time wasting car experiences by people determined to do us a favour and generously save us from perfectly efficient and enjoyable Transit trips.
The first, after a dinner out we were dragged, past our bus stop, into the limitless helllhole that is the SkyCity car dungeon, our hosts struggling to find their car on the bizarre sloping and labyrinthine parking floors, paying an absolute fortune to release it once found, seriously taking way longer and much less pleasantly than hanging on Albert St on a clear evening, even for the relatively roundabout 020. 
It was very kind of our friends but I really really would have rather had the bus trip home. The conversation, thereafter, became all about how vile SkyCity is as an experience and how expensive the parking was; which was an order of magnitude higher than our combined busfares.
The second, Maria was on Ponsonby Rd buying flowers en route to the hospital (Bhana Bros; what will we do without you?), only to bump into a mutual friend who insisted on driving her to Grafton. What ensued was a longwinded driving/parking hopeless nightmare. Compared to taking the Link, as she’d intended [directly point to point; unlike the drive], or riding, as I usually do to get to the hosp. and there’s been a lot of that over last few years, what a stupid way to cover that route! Yet this person wouldn’t have a bar of it, absolutely full of how she’d saved Maria from some kind of malady and done her a great favour…. But it actually made her late for her next appointment and robbed her of a contemplative moment on the bus.
Nick adds:

I had a similar experience not too long ago. Drinking near Britomart late at night, group decides to go to a bar in Ponsonby. They start the inevitable horse trading of who is driving what and where and whose car I have to go in the boot of.  I say bugger that and announce I’m catching a bus, the rest look at me like I’m insane. Basically begging me to cram into their car which is parked in some building like they are saving me from some huge hardship. Me and one other get the Link up no worries, and are well onto our second drink before the rest arrive complaining about nowhere to park etc. All absolutely flabbergasted we got there faster on a bus. One person didn’t believe us and said we must have run straight to a taxi. Anyway, who wants to be driving when bar-hopping?
I get this totally because if you don’t use PT at all you sort of don’t see it, except as that thing blocking your way when driving, also you don’t know how it works, where to catch a service or how long it might take, or what the hell a HOP card is. And it also means you pretty much always have your car with you piling up parking charges or nagging you about the wisdom of having that drink. I really do feel much freer in the city without my car, free to change plans, free to socialise. In the city the car is a burden.
And continued improvements to services are baked into the pie, especially now the the Transport Levy is in place. Although it is extension to the Rapid Transit Network that would be truly transformative. Here is the coming spread of the Frequent Network:
RPTP Current Network
RPTP Proposed 2018 Network
RPTP Proposed 2025 Network
Those that still only ever think of driving are clearly the majority in Auckland but there is a considerable upside to this observation because as the kinds of improvements that are available in only some places become more widespread it means that there are many more Aucklanders who will discover this advantage and add using these services to their options for movement. When and where it makes sense to.
The data supports the idea that this is already happening as the transit trips per capita figure keeps steadily advancing despite the rising poulation. It is now at 50.5 PT trips per capita from 44 in 2011, still very low compared to similar cities, and reason enough to expect ridership to keep climbing. As long as Auckland Transport keep improving services measurable.
But also thinks of new ways of getting HOP cards into more new hands. Events where PT journeys are part of the ticket price are currently the main way that AT are doing this. But with Fare Integration I think its time they started approaching major employers near good services to include HOP cards in renumeration packages. And for the government to revisit Fringe Benefit Tax rules for both PT and car parks.

The SH1/SH26 roundabout – what is going on?

In this recent post Matt asked why we were still building dangerous intersections. One part of his post caught my eye, specifically proposed changes to the intersection of SH1 and SH26 in the Waikato. The location of this intersection is shown below.

SH1 and SH26a

 

You can see that the intersection exists firmly within the Hamilton urban area. Moreover,  I understand the area to the east is planned for residential growth in the future. I.e. there will be more and more residential development to the east.

The reason this caught my eye is because the proposed changes, in my opinion, seem likely to result in a horrific clusterfuck of an intersection that will, at a minimum, destroy urban amenity and, potentially, result in pedestrian carnage. In my opinion, this roundabout design is completely inappropriate for an urban area. And unlike NZTA I don’t agree t hat potential delays to vehicles are sufficient reason to provide wholly unsatisfactory facilities for pedestrians. Facilities that are so lacking that they seem likely to increase the risk of injuries to pedestrians who need to cross at this intersection.

The proposed changes are illustrated below.

Hamilton SH1 -SH26 upgrade

 

Now I should mention that the NZTA press release for the changes mentions an additional pedestrian crossing is to be located on SH26 to the east, which I presume (although can’t be sure) is beyond the extent of works shown above. The press release also noted the presence of a pedestrian underpass on SH1 to the south, which is being retained in the new design.

What NZTA are proposing for the southern and eastern approaches to the roundabout is relatively poor practice and ill-suited to an urban area such as this.

But perhaps most importantly, the proposed pedestrian facilities don’t seem to address what happens on the western approach to the roundabout. As anyone can easily see from StreetView below, NZTA’s beautiful junkspace landscaping is *already* being severely trampled beneath the feet of hapless pedestrians as they scamper across the existing road. QED there’s an existing problem that needs to be resolved, not ignored as the proposed design has done.

Crossing

Anyway, I was sufficiently motivated by this proposal to start digging for more information.

The background study for these intersection changes was completed in 2008. Given that it’s now almost 8 years since the study was completed, I thought I’d go and look at traffic volumes since that time. In the figure below I’ve totalled the AADT on the two closest counts on SH1 and SH26 over time (NB: This will double-count many vehicles, which is why the total AADT shown here is significantly higher than the figure of 37,000 vehicles per day using the intersection that is quoted in the NZTA in their press release. Nonetheless it’s likely to be broadly indicative of general trends in AADT).

AADT

 

The volumes bobble around a bit, although current AADT is about 3% below the level achieved in 2008, i.e. the time that the report supporting the proposed changes was developed. Is it reasonable to assume that vehicle volumes will increase or decrease from here?

Well, there’s some growth out this way so it’s plausible to suggest there may be more demand. On the other hand, there’s one major question that I’m not confident is addressed by the studies associated with this upgrade: The Waikato Expressway, specifically the Hamilton section.

For those who aren’t familiar with this project, it’s part of the RoNS programme.

While I’m no fan of the RoNS programme per se, if these projects are to go ahead then I would at least expect NZTA to maximise their potential benefits, especially with regards to re-configuring parallel routes to support more livable urban places. In this context, the Hamilton section of the Waikato Expressway is  high-speed, high-capacity route that seems likely to shift vehicles away from the existing SH1 and away from this roundabout. Construction of the Hamilton section is expected to start in 2016 with a target opening date of 2019.

I note that the NZTA website states that the Hamilton section of the expressway will:

  • Connect the Ngaruawahia section of the Expressway, completed in late 2013, to the Cambridge section, due for completion in late 2016.
  • Reduce traffic congestion and improve safety on Hamilton’s local road network by significantly reducing through traffic.”

And yet NZTA’s proposed changes to the SH1 and SH26 intersection (which appear to have been formulated prior to the RoN being confirmed) are designed to increase capacity.

One has to wonder why the NZ Transport Agency is spending $2 million to create a situation that is more dangerous for pedestrians than the present one, while at the same time spending the best part of half a billion dollars building a high-speed bypass around the same intersection.

Call me a simpleton if you will but I would have thought the more logical sequence of actions would be:

  1. Complete the Hamilton section of the Waikato Expressway in the next 3 years as planned; and
  2. Monitor changes to vehicle volumes in response to growth (which apparently is quite low at the moment) and expressway; and
  3. Develop options for the intersection which respond to these changes, but which are also appropriate for an urban area.

In terms of #3, this really brings us full circle. I cannot understand why NZTA would think the proposed design is appropriate for an urban area. I can tell you that in my opinion it’s most certainly not. While I’ll reserve my full and final judgment until I have more detailed information to consider, the proposed intersection seems to compromise pedestrian safety to a level bordering on negligence.

I know that’s a big call so let me present some reasons why:

  1. The design does not seem to meet the present need for a pedestrian crossing on the westbound SH1 approach, e.g. to access the adjacent school. There is already demand for this pedestrian movement, as we can see from StreetView. This demand will only increase as the area develops in the future.
  2. The approaches are wider than the current facility. The western approach on SH1 , for example, is three lanes wide. This will increase the distance pedestrians will have to cross before they reach the landscaped sliver of land in the middle of the road.
  3. The design incorporates features that seem likely to increase vehicle speeds. The western approach on SH1, for example, now includes what is effectively a “slip lane” for vehicles travelling through. This features will enable/encourage vehicles to maintain their speed on their approach to (and exit from) the intersection. This will increase risks to pedestrians who (legitimately) need to cross the western approach, and the severity of accidents.

I draw two *preliminary* conclusions from all this. First, the proposed changes to the intersection is unacceptably dangerous for pedestrians and should not proceed as designed. Second, the proposed intersection has been designed without consideration of the Waikato Expressway and thus are likely to represent poor value for money and low strategic fit.

I’d really like to know what others think: Am I mis-reading the situation here? Or is it as bad as it looks? An outdated and seemingly dangerous design being imposed on what is very much an urban area, just prior to a major expressway bypass opens? What is going on?

The urban planning conundrum

Since I moved to Auckland, I’ve been trying to make sense of local trends in house prices. Why have they risen over the last decade? Will they keep going up, or crash back down to earth? What’s driving all this?

Over the last few years, a lot of the focus has been put on the role of planning regulations in pushing up prices. I’m sympathetic to this focus, as it looks like there may be a few barriers to building the kind of city I’d like to live in. But I also suspect that the causes are a bit more complex than planning alone. After all, housing markets are big, confusing (and confused) things.

Others are more confident that planning was what done it. For example, the annual Demographia Housing Affordability Survey states, quite confidently, that planning regulations – an “institutional failure at the local level” – are the main cause of high house prices:

The purpose of the Demographia Surveys is to alert the public and policy-makers if housing exceeds 3.0 times annual household incomes, that there is institutional failure at the local level. The political and regulatory impediments with respect to land supply and infrastructure provision must be dealt with.

Former Reserve Bank governor (and former leader of both National and ACT) Don Brash made matters even clearer in his foreword to the 2008 edition:

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.

In short, planning rules – especially metropolitan urban limits – are bad. Very bad. They are the main reason that houses in some places are unaffordable, which Demographia defines, somewhat arbitrarily, as median house prices that are more than three times the median household income:

Demographia affordability categories

Now, according to Demographia, Auckland currently has a “median multiple” of 8.2: “severely unaffordable”. Based on their figures, the median house price in the city at the end of 2014 was $613,000. (This actually seems low – perhaps they’ve converted it to USD?)

In order for Auckland to meet Demographia’s definition of an “affordable” market, house prices would have to fall by $390,000, or 63%. Given that they think that urban planning/metropolitan urban limit policy is the main cause of high house prices, we can take this as their estimate of the cost of those policies. $390,000, per house.

This is obviously a very large number. If house prices fell back to the “affordable” level, it would have ruinous effects on NZ’s financial system and household wealth. (Frankly, this does not seem like a very good outcome.)

So that’s Demographia’s estimate. Recently, several New Zealand economists have taken a more detailed look at the costs of planning regulations in Auckland. For the most part, they analyse the impact of planning rules that were put in place by previous councils:

  • Motu’s paper on the costs of planning regulations concludes that they add between $32,500-$60,000 to the cost of a new standalone house and $65,000-$110,000 to the cost of a new apartment. These figures were sourced from a survey of developers and accounted for the impact of a number of individual rules ranging from balcony rules to section size controls.
  • NZIER’s paper models the impact of urban limits and height/density limits. (This paper uses a similar approach to the one I discussed here.) It concludes that these two rules cost households the equivalent of $1800 per annum. In present value terms, this is somewhere on the order of $30-40,000 per household (depending upon what discount rate you use).

[Disclaimer: I know the authors of both studies and have a great deal of respect for their work. In a professional capacity, I provided comments on earlier drafts of both papers. This is somewhat unavoidable given the size of New Zealand…]

Here’s a chart comparing Motu and NZIER’s estimates of the cost of planning regulations with Demographia’s estimate:

costs of planning regulation chart

In other words, these estimates suggest that Auckland’s planning regulations explain only 10-30% of the difference between Auckland house prices and a median multiple of 3. Even if we add together the estimates from the two papers, we don’t get anywhere near explaining the gap.

So: whose estimates of the cost of planning should we believe?

Personally, I trust Motu and NZIER’s analysis, as it’s backed up by empirical research and/or economic modelling, whereas Demographia’s is mainly justified by rather repetitive and self-referential haranguing. Consequently, I don’t think we can conclude that planning regulations are a sufficient explanation for Auckland’s relatively high house prices.

That doesn’t necessarily mean that we should be sanguine about planning regulations. While things will change under the Unitary Plan, the costs associated with existing rules are reasonably large. And, in contradiction to Demographia’s claims that constraints on greenfield land supply are the biggest problem, both papers find that existing regulations place higher costs on higher-density developments.

The Motu paper finds that existing planning rules add twice as much cost to apartment developments as to standalone houses. Similarly, the NZIER paper finds that height limits (and other controls on density) are slightly more costly than urban limits. (This is partly because Auckland is mostly surrounded by water, meaning that preventing land from being used efficiently is much more deleterious than it would be in a city with more land.)

If these issues aren’t addressed, it may be more difficult to get the Auckland that we want: a city that gives people better housing choices, that lets them live in places that are accessible to jobs and amenities, and which efficiently accommodates the next Aucklander.

What do you think about the cost of planning?

Accelerated Project Costs

The government aren’t the only one discussing budgets today as the Auckland Council are holding a session of their budget committee. It will see the council discuss the recently approved Accelerated Transport Programme which has been brought about by the introduction of a $99 levy per residential property to pay for transport. I’m not sure if the councillors who have since written to Len Brown asking to discuss the levy again will be able to do so or not. As we know the Transport Levy allows for around $170 million a year worth of extra investment in Auckland for three years. We already have a rough idea of where the money will be spent, this is shown below.

interim-programme

We also had a decent idea of what projects will be funded and it looks pretty good – although for most of it we didn’t know just how much money had been assigned to individual projects. One part of the agenda for today’s meeting finally gives us that detail. The most interesting parts are in Attachment A & B.

The first attachment lists each project in the council’s overall Auckland Plan Transport Network (APTN). Three separate columns list how much the was budgeted for the project over the next ten years based on the APTN, the do not much Basic Transport Network (BTN) and a third column what will the outcome is under the levy funded Accelerated Budget.

The tables show there has been quite a bit of change among some projects, presumably reflecting additional thinking that has gone one since the LTP analysis was done. As an example some projects have been re-scoped which has resulted in increases or decreases in costs or changes in timing has brought funding forward that was previously outside the 10 year horizon of the LTP. An example of some of the changes are below.

LTP Accelerated Plan project changes example

However changes over the 10 year plan are in some ways a bit meaningless as there will be another LTP in three years that will likely rehash the priorities and also have to deal with changes in funding that will likely result from the proposed Transport Accord. As such it’s only really worth focusing on the next three years and the tables below show just how much funding is proposed for each project over that time. Unfortunately it’s not the highest quality but if needed click through to the PDF linked earlier to get a slightly better version.

LTP Accelerated Plan Budget

LTP Accelerated Plan Budget 2

By the time you read this the council will likely have already discussed this item so feel free to add to the comments if any changes happen.

Building on Government Land

The Government are announcing their budget today and one of the surprises in it slipped out yesterday. The government plan to open up to 430 hectares of of publicly owned land in Auckland to be developed.

3 News can reveal a major part of tomorrow’s Budget will be a plan to develop housing on parcels of Crown land in Auckland.

A work tender mistakenly placed on a government website today details how the programme aims to deliver housing developments “at pace”.

Finance Minister Bill English and Prime Minister John Key are keeping quiet on tomorrow’s Budget.

The problem is one of the big secrets is out, bizarrely, with a tender advertised on the Ministry of Business, Innovation and Employment website for development of housing on Crown land, including residential land parcels and government land parcels.

It’s looking to: “Identify suitably qualified parties or consortia with the capability and capacity to deliver housing developments at pace in Auckland.”

After 3 News saw the advertisement, the Government gave over a document (see below) admitting more details. The Government will open up 430 hectares of public land in Auckland for affordable housing – that’s more than 50 rugby fields of land.

Housing Minister Nick Smith said he expected “thousands” of houses would be built on the land by private companies.

Dr Smith said money from the Budget would be provided for the Government to buy some of the land off universities.

Dr Smith said the private companies that built houses would not have to pay for the houses upfront, instead paying the Government once the houses were sold.

That is likely to be controversial, as it will be seen as the Government giving a leg up to private companies.

So the Government wants to start building houses and put them on public land, like that owned by the University of Auckland on its Tamaki campus.

“I’m having a pretty close and hard look at where there are land holdings that will help deal with the challenges over housing that we have in Auckland,” says Dr Smith.

Dr Smith is talking about land owned by universities, schools, tertiary institutions, health boards, defence, Housing New Zealand, the New Zealand Transport Agency and Department of Conservation reserves.

“You’d be quite astounded by some areas of reserves, and when you say the word reserve you assume that’s a park or land that is effectively vacant or being under-utilised,” says Dr Smith.

Making better use of the land we already have within the urban area is of course a far better strategy than carte blanche opening up of land of land on the edge of town. We’ve even talked before of places where we could do that, such as the Grafton Gully Multiway Boulevard idea which would improve transport and open up development opportunities on a decent chunk of government owned land.

Grafton Gully Blvd - Development

We don’t have full details yet however overall I think the idea from the government is the right one – although I’m not sure about the part where developers only have to pay once a house is built and sold.

To give an idea of just how much land the government are talking about, 430 hectares is about the same size as the land within Auckland’s Motorway collar.

Auckland CBD area

Of course that area will be spread throughout the city across many different sites. That leaves the question of just where the government has land. The answer is in a surprisingly large number of places. The map below is a couple of years old but shows all land owned by Housing NZ or listed as owned directly by the Crown. That still excludes a lot of land such as that owned by the NZTA but it does give a sense of of just how much there is out there.

Govt Land in Auckland

 

 

As you can see there’s a lot of government land around, especially Housing NZ land in clusters around Tamaki, Otara, Mangere and Mt Roskill. There are also some large individual chunks although they are unlikely to be involved as some include the likes of Paremoremo and Wiri Prisons, scenic reserves and schools. What all this means is the 430 Hectares are likely to come from freeing lots and lots of smaller sections for higher density developments. That’s not a bad thing at all although the reaction from locals to changes in Tamaki shows it might not be a straightforward change. Below is a closer look at the Tamaki area showing just how much government land there is there.

Govt Land in Auckland - Tamaki

The moral case for immigration

In a post several weeks back, I talked about the economic case for immigration and population growth. In it, I hypothesised that:

New Zealand has a strong feedback loop between net migration and economic growth. When growth prospects get worse – as they did in the 1970 and 1980s – it dissuades people from coming here and encourages Kiwis to leave for greener pastures. This in turn worsens growth prospects by sucking consumer demand out of the economy and reducing perceived household wealth (i.e. lowering house prices).

By contrast, good growth prospects tend to attract migrants to New Zealand’s cities and encourage potential emigrants to stay. This in turn leads to a virtuous cycle between higher growth and increased migration.

In my view, building good cities that attract and efficiently accommodate population growth can make us better off by strengthening the agglomeration economies at work in New Zealand’s economy. It can also make us better off in non-economic ways: consider romantic relationships, for example. If you’re young and single (or old and single), you should absolutely prefer more people to be arriving than leaving. The more young, mobile people are staying or arriving in New Zealand cities, the better your odds are of ending up in a good relationship.

However, I don’t think the economic case for immigration is as strong as the “moral” case for immigration. That’s because immigration is one of the most powerful mechanisms for enabling people to lift their incomes and social status. Migration can offer individuals opportunities that they never would have had in their home countries.

I’m going to discuss some economic research on the topic, but first I want to explain why it’s important to me.

Basically, in the 200-400 years in which reasonable data on my ancestors is available, migration has been just about the only thing that has enabled us to have any significant social or income mobility. Ever.

Migration has worked out well for me. Moving back to New Zealand has given me opportunities that I might not have had in the United States. Thus far, I’ve had a more interesting and fulfilling career and I’ve been surrounded by interesting and friendly people while doing it.

Migration also worked out well for my parents and several of their siblings, who left New Zealand in the 1970s and 1980s during the wave of economic destruction caused by collapsing commodity prices and Muldoonist Think Big initiatives. Like many other New Zealanders, they’ve done well overseas.

And, back in the 1840s-1890s, migration to New Zealand opened up opportunities for social mobility and independence to my great-grandparents and great-great-grandparents. In fact, those were just about the first opportunities anyone in my family had to get ahead. If it weren’t for migration, we’d still be lower-middle class in some grim former mill town in northern England.

I’m grateful for the opportunities that migration has offered me and the opportunities that it’s offered to my family. Furthermore, I feel strongly that more people should have similar opportunities. I don’t believe in pulling up the ladder. If some hard-working folks from Nigeria, Guatemala, Bangladesh, Samoa, or wherever want to try their luck moving to an unknown country, I’m all for it. Give them a fair go.

Several recent papers by University of Otago economist Steven Stillman (another immigrant!) and several co-authors help quantify how valuable giving people the opportunity to immigrate can be. Stillman uses evidence from two “migration lotteries” operated by the New Zealand government. Under a programme started in 2002, a small number of Tongans and Samoans randomly selected from a pool of applicants are offered residency in New Zealand.

Evidence from the Tongan migration lottery shows significant improvements in well-being for migrants. Stillman and his co-authors found evidence of:

  • “Very large gains in objective well-being result from migrating to New Zealand (Table 2). The weekly wage of principal applicants rose by NZ$321 (US$200) within a year of first moving which is almost three times the weekly wages of the control group in Tonga (NZ$117).”
  • “More subtle and complex effects on subjective well-being…” After four years, they observed a “very substantial rise in the other components of mental health, of about three points, which is equivalent to one quarter of the wave 2 scores for the control group in Tonga.”

Evidence from the Samoan migration lottery shows that migration can also improve wellbeing for migrants’ families in the old country, at least in the short term. Stillman and his co-authors found that migration increased household consumption and reduced poverty in households that sent migrants to New Zealand, although these effects faded away over time.

In short, even after controlling for self-selection bias (i.e. the fact that migrants tend to have both motivation and resources to migrate), migration seems to make people better off. It doesn’t necessarily work for everyone, but it certainly works for most people.

In my view, the evidence suggests there are good economic and moral arguments for enabling migration, rather than cutting it off in the good times. If we want to manage house price inflation, it would be fairer and more sensible to pursue other policies instead. This could include (but certainly isn’t limited to):

  • Changes to tax policy to harmonise our property taxes with major trading and investment partners – as Stu highlighted, our unusually low property taxes distort people’s investment decisions and push cash into housing
  • Supply-side policies like a revitalised programme of state house construction or urban planning policies that enable people to build more housing in areas that are accessible to jobs and amenities.

What’s your experience with immigration? Remember, you or your ancestors came here relatively recently by boat or by airplane!

Thoughts on a Transport Accord

Over recent days and weeks the suggestion of an agreement between the Council and the Government – a Transport Accord similar to the Housing Accord agreed to in 2013 – have grown stronger and stronger. It’s easy to see why an accord would be desired from both parties. The council want a secure source funding from the government to help address the city’s growth. Similarly the government seem keen to have more definition around the cost implications but also there seems to be some political motivations at play. I think they want to be seen to be doing something and I suspect they may also want to get an accord signed before the main local body elections heat up as it’s likely transport will be a major talking point.

While there’s a lot of talk that an accord there’s not a lot of detail about just what it may entail. That’s because what work that has already happened is firmly behind closed doors and will likely stay that way for some time. The media so far have largely being playing the idea that an accord is primarily about agreeing on a set of projects and this has focused a lot around Simon Bridges interview on The Nation just over a week ago when he said he dismissed rail to the airport. I increasingly think that his comments reflect more of an ideological hiccup than any serious discussion that’s been had. By that I mean that when pushed to name projects that shouldn’t be on the list he retreated to the only one possible. For ideological reasons it had to be a rail project as criticising road or bus projects would have just made the rest of his comments seem absurd and it couldn’t be the CRL as the government have already committed to that – albeit not in the time-frame it is needed.

Thinking through what’s actually been said about the accord so far it seems that perhaps it’s not so much about specific projects but instead something more fundamental. Below are a few excerpts from recent articles. First from the interview on The Nation

What would a transport accord do exactly?
First and foremost, alignment. It would mean that— I think the questions you’re asking me would be answered. We’d have a sense of agreement on the problem, on the congestion numbers. We’d have a sense of the priorities and what we’re trying to achieve. Is it that fewer big projects, more projects around the city, or what is it? And then it’s that mix of projects that at the moment we don’t know.

And from Saturday in the Herald.

“It’s really about seeing if we can get better alignment between Government and council on transport priorities,” Mr Bridges said. “We’re conscious that we don’t want to make this too pointy-headed but it will be a quite complex, involved process, taking at least a year. We want to test each others’ assumptions and see if we can get alignment on the numbers.”

What we appear to be seeing is a continuation of the same kind of response from the government that was seen in the wake of the City Centre Future Access Study. Basically the government and it’s ministry’s don’t even agree with Auckland Council/Transport on key inputs into the decision making. That includes assumptions like how fast the city will grow (i.e. population or land use etc.), how costs and preferences will change and likely many other areas. They also don’t agree on the outcomes we should be focusing on i.e. should we be discussing congestion or access and how should the outcomes be measured.

The reason those aspects are so important is that sometimes even small changes in the assumptions you use or the outcomes that you need to achieve can significantly change the types of projects that will be needed. What’s more the less agreement there is between these fundamental issues the more changes there is for politicians to swing priorities without basis. An example is like the ruler in this video below. The ruler represents transport policy with the tip being specific transport projects while the finger represents the impact that politicians have. Currently we’re like the fourth example and swinging around like mad from even a little political pressure. Where a transport accord should hopefully be useful is to move us more towards the first example where there political pressure doesn’t exert that much change in policy

Essentially the process sounds like it’s doing a back to basics approach first and justifying each and every step and this time ensuring that all groups agree on the details. While that’s not necessarily a bad thing it does kind of seem like redoing much of the planning work that AT have already been doing over a number of years. Given the amount of work AT have already done I’d then expect the results to come out similar to what they have already shown in planning documents like the RLTP. I covered whether Auckland has an effective transport plan just over a week ago. Here’s one of the outcomes showing a substantial lift in public patronage over the 30 year window from the more expensive plan.

pt-patronage-modelling

Just how the transport accord will end is unknown however I would hope that at least at a technical level there would be some fairly close alignment in most of the inputs and outcomes needed.

In saying all of this I think that in any criteria there also needs to be recognition from the government as to just what Aucklanders say they want for their city. This is especially important if the people making these decisions are sitting in a desk in Wellington. We have a good idea of what residents want from the LTP consultation as shown below and it is backed up by other surveys that have been conducted over the years. Just measuring outcomes based on impacts of a few measures such as congestion or required vehicle flows could lead to distorted and negative outcomes such as removing pedestrian, cycle or PT infrastructure in a bid to find more space for cars, the very things Aucklanders say they want more of.

2015 LTP Final Changes in transport Investment

Lastly I also hope that a Transport Accord could lead to innovation in how we plan for transport in Auckland. I think it’s absurd that given the interrelated nature of the regions transport systems that we have different organisations planning local roads/PT, state highways and rail projects. While I know the various organisations do work together there still seems like there’s a disconnect that leads each organisation of focus on their specific areas rather than seek the best overall solution to Aucklands issues. Perhaps it’s time for at least the planning and financing functions to be joined into one team – even if physical implementation is left with the various organisations.

Do property taxes affect housing affordability?

A few weeks ago, I took a look at property taxation in the US, Canada, and New Zealand. I found that Auckland homes are taxed lightly by comparison – rates average 0.39% of house value. Property tax rates are twice as high in most of the other cities I looked at. In some cases – e.g. Houston, where property taxes average 2.31% of home value – they are much, much higher.

This should come as no surprise to anyone who’s read the literature. For example, Grimes and Coleman (2009) find that New Zealand under-taxes property:

McLeod et al (2001; p.26) showed that the proportion of taxation raised through property taxes was lower in New Zealand than in Australia or the United States. Taking into account all levels of government (federal, state and local), Grimes (2003) found New Zealand’s share of property taxes in government revenue was relatively low, at 5.7%, compared with a (20 country) OECD average of 8.3%. As a share of GDP, New Zealand’s property tax share was also relatively low at 1.8% compared with the average rate of 2.4%.

They go on to suggest that introducing even a relatively small land tax could result in fairly large changes to land prices. It’s intuitively sensible that higher property taxes would discourage people from bidding up prices – the more they pay for land, the more they pay in taxes!

Stu recently took a look at the same research, and some of the broader trends, and concluded that higher property taxes could take some heat off the housing market. But how much does property tax really matter for housing affordability?

To get a rough sense of the relationship, I’ve put together a chart showing the relationship between property tax rates (x axis) and Demographia’s “median multiple” measure of house prices relative to incomes (y axis). It includes data on all 59 US, Canadian, and New Zealand cities with a population over 1 million.

Notice the substantial negative correlation between property taxes and median multiples. There is a strong tendency for places with lower property taxes to have higher house prices, and vice versa. The least “affordable” places all have relatively low property taxes.

property taxes and median multiples chart 1

Overall, this chart suggests two things: First, New Zealand’s relatively low property taxes may contribute to our relatively high house prices. Notice how Auckland’s house prices seem to fit the overall trend in the data.

Second, as I’ve previously argued, Demographia’s analysis is largely meaningless as they have failed to account for the full range of explanatory variables, from interest rates to tax policies to economic fortunes.

Here’s another view on the same data. I’ve taken the natural logarithm of both variables to smooth out the relationship, and put a trend-line through the data points. This simple bit of analysis suggests that:

  • About 44% of the variations in median multiple can be “explained” by differences in property tax rates. For a bivariate regression, this is quite high.
  • The slope of the regression line suggests that, within this sample of cities, a 10% increase in the property tax rate is associated with a 4.6% reduction in the median multiple. Again, that’s a quite strong relationship.

property taxes and median multiples chart 2

I don’t think we can draw any firm policy conclusions from this data, but it certainly suggests that our low property taxes are worth investigating as a cause of our high house prices. In the words of xkcd, “Correlation doesn’t imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing ‘look over there’.”

Correlation doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there'.

Finally, it’s worth taking a closer look at the four US cities with the highest median multiples – the top data points on the left hand side of the first chart. They are all large cities in California – San Francisco, Los Angeles, San Jose (i.e. Silicon Valley), and Sacramento (the state capitol). They provide a great illustration of why failing to account for multiple, correlated explanatory variables can undermine an analysis of house prices.

But first, a California-themed music break:

In California, state-level legislation establishes a common planning framework. There are local variations, but if one city is constrained by regulations – as San Francisco and Silicon Valley are – the rest are likely to have similar problems. To give an example, the California Environmental Quality Act, which is the state’s equivalent of the Resource Management Act, has traditionally required all new developments to assess their impact on traffic congestion and mitigate it. As a 2011 Citylab article explains, this requirement has prevented the development of space-efficient forms of housing and transport:

There’s also a great irony underlying the use of LOS [traffic Level of Service] as part of CEQA’s environmental impact checklist. It seems self-evident that bike projects are favorable to the environment, but the use of LOS to evaluate them can sometimes imply quite the opposite. The person who filed the 2005 lawsuit against the San Francisco master bike plan, for instance, suggested that because bike lanes raise LOS they also raise congestion and car idling, and thereby cause pollution.

That’s not the only contradictory aspect of LOS. Case in point: a developer whose building fails an LOS threshold can mitigate the environmental impact by widening the street, which of course would attract more cars and pollution. So instead of encouraging dense development and lower vehicle mileage — the hallmarks of a transit-first city — San Francisco’s use of LOS as part of CEQA actually discourages livable design. In a three-part series on LOS at Streetsblog, one transportation consultant called LOS the “single greatest promoter of sprawl and the single greatest obstacle to transit oriented development” in California.

However, CEQA and its absurd requirements for traffic assessments (etc) aren’t the only thing going on in California. State-level laws have also constrained local governments’ ability to raise property taxes. Proposition 13, a citizen-initiated referendum passed in 1978, caps property tax rates at 1% and fixes them to the value of the house at the time it was purchased, plus a 2% annual increment for inflation.

This has had a number of perverse effects, including stripping away funding from California’s formerly excellent primary and secondary education and setting it on a path of decline. (Prop 13 is basically exhibit A in the case against binding referenda.) It has also distorted the housing market. Because home-owners know their property taxes won’t increase if the value of their house increases, they may be more willing to speculate on capital gains.

A 1982 paper by economist Kenneth Rosen offers empirical support for this hypothesis – he found that reductions in property tax rates were almost immediately followed by proportional increases in house prices.

Consequently, it would be foolish to analyse the Californian housing market without attempting to control for both taxation and planning policy. If you only looked at one policy, your conclusions would be biased by mis-attributing the effects of the other policy. (That’s precisely what Demographia seems to have done, by the way.)

What’s true for California is also true for New Zealand. I find it hard to take seriously the claims of people who attribute housing affordability solely to regulatory policy and fail to consider the potential impact of our low property taxes.

What do you make of the data on property taxes and house prices?