Why is Auckland growing?

Auckland is growing. In fact, it’s among the fastest-growing places in New Zealand, both in the short term and over the last century. (We must be doing something right!)

But why is Auckland growing? Where are the people coming from? There is a surprising amount of confusion about this issue.

Some people seem to think that Auckland is growing mainly due to immigration, and that if we “turn off the tap” growth would slow down to a more sedate pace. This perception has been fed by historically high levels of net migration to NZ over the last year – even though this has mainly been caused by New Zealanders not moving to Australia:

New Zealand has had a record net gain in migrants of 61,200 in the September year, driven by more Kiwis coming home and fewer leaving for Australia.

The annual gain in migrants has been setting new records for the past 14 months, and there were 118,800 arrivals in the September year and 57,600 departures…

There was also a net gain of 100 migrants from Australia, the sixth month in a row to show a net gain, reflecting weaker economic conditions across the Tasman.

The fall in migrant departures was mainly due to fewer New Zealand citizens leaving for Australia. Departures of Kiwis to Australia fell 15 per cent to 21,500 in the September year, which is less than half the peak departures set in the December 2010 year.

However, when we look at the data, it turns out that migration is not the main cause of Auckland’s rapid population growth. In fact, most of the growth over the last three decades – and most of the forecast growth over the next three decades – comes from “natural increase”. Auckland is growing mainly because Aucklanders are having children.

But don’t just take my word for it – let’s take a look at the data.

I’ve gone to Statistics New Zealand’s surprisingly unusable Infoshare tool and downloaded the following data:

  • annual permanent and long-term international arrivals and departures to the Auckland region (from the International Travel and Migration – ITM category)
  • annual live births for the Auckland region (from the Births – VSB category)
  • annual deaths in the Auckland region (from the Deaths – VSD category).

I used these data series to calculate annual net migration (arrivals – departures) and natural increase (births – deaths) from 1992 to 2015. I’ve ignored a third source of growth – migration between regions – as it’s relatively small. John P has previously taken a good look at that issue. Here’s the chart:

Auckland sources of population growth chart 1992-2015

This graph shows us several important things:

  • First, net migration – those scary red bars – has been really high in some years, but really low (or even negative) in other years. It fluctuates quite a lot.
  • Second, natural increase is much more consistent over time, although it looks like there may have been a bit of a baby boom during the prosperous Clark years.
  • Third, natural increase is almost always larger than net migration. In 18 of the last 24 years, natural increase accounted for a majority of Auckland’s population growth.

Natural increase accounted for 58% of Auckland’s growth over this period, while net migration accounted for the rest. We’re growing mainly because people are having babies. I have yet to see a proposal to turn off the “baby tap” that does not involve violations of people’s privacy and human rights.

In a similar vein, it’s also worth looking at the composition of net migration. Here’s a chart comparing permanent and long-term international arrivals to Auckland with departures from Auckland:

Auckland arrivals and departures 1992-2015 chart

Notice how the two sets of bars tend to move in tandem. When we get an influx of arrivals, we also get a decrease in departures from Auckland. What this means, in practical terms, is that it capping net migration would force us to cut immigration quite severely in a boom time, to compensate for the fact that fewer New Zealanders leave overseas during these periods. This does not seem like a great policy, as it will hamper businesses’ ability to recruit staff at a time when they are expanding fastest.

So that’s the recent past. What might the future look like? According to Stats NZ’s most recent population projections, Aucklanders having babies will continue to account for the majority of the city’s population growth. 62% of Auckland’s population growth over the next three decades is expected to come from natural increase. Here’s the chart. Net migration is running hot right at the moment – ahead of Stats NZ’s medium projections to 2018 – but it will cool off in the future:

Auckland sources of projected population growth 2013-2043 chart

But let’s say, for the sake of argument, that we did succeed in significantly reducing net migration to Auckland. Setting aside the question of whether this would be a good idea – I don’t personally think it would be – we need to ask how much of a difference it would actually make.

So here’s a quick and dirty simulation. I’ve taken Stats NZ’s population projections and reduced projected net migration by 50% – which I think we can all agree is a significant reduction. The results are shown in the following table:

Year Stats NZ medium projection Population projection with half as much net migration
2013 1,493,200 1,493,200
2018 1,646,500 1,606,500
2023 1,767,500 1,707,500
2028 1,890,900 1,810,900
2033 2,010,500 1,910,500
2038 2,123,000 2,003,000
2043 2,229,300 2,089,300
Average annual growth rate 2013-2043 1.34% 1.13%

As you can see, a major reduction in net migration to Auckland would have very little impact on the city’s population growth. Instead of growing to 2.2 million by 2043, it would only grow to… 2.1 million. Furthermore, the city’s projected annual average growth rate would fall to 1.13%, but that is still much faster growth than Stats NZ is picking for other regions.

It’s tempting to think that we could avoid growth pressures by cutting immigration. However, the historical data and population projections suggest that we’d be dealing with substantial growth due to natural increase. Conclusion: it makes much more sense to focus on improving our ability to supply new dwellings.

Effectiveness & Efficiency == Abundance?

In the last few months we’ve published several posts which have, in various ways, touched on some important issues facing local government in Auckland. In this post I seek to summarise some key concepts that have emerged in these posts, and consider some broader implications for Council policies, especially relating to transport.

For a self-confessed policy wonk it’s been heartening to see posts on seemingly arcane policy matters such as ratestransport levies, golf courses, and heritage policies attract passionate and oftentimes informed debate. This is not to say we’ve been able to reach agreement on the issues. Indeed many people disagree, for example, on whether Auckland Council should continue to own golf courses.

In the face of such disagreements should avoid posts on these topics? Should stick to puppyhood and apple pie posts about Amsterdam, which everyone can either get behind or comfortably ignore – by virtue of the fact that it doesn’t challenge anyone’s pre-existing notions? I don’t think so. To do so would be to rest lazily back in incomplete hammocks haphazardly woven from our own subjective experiences.

Rather, it is primarily through debating controversial issues that we can begin to understand our own values, and those of others. Even if we don’t start with the same values, we might reach agreement on relative priorities. This post is written in such a spirit. Or at least that’s my intention.

Of course the “DNA” of the post was born from my own incomplete hammock. For this reason I encourage you to tear it apart and splice it back together. Democracy often works best when people with different values work together to breed superior mutant hybrid policies.

Just so we’re on the same page: I define “policies” as things that local government either invests in and/or or regulates. And when I say “invest”, I am referring both to operational investment, e.g. public transport subsidies, as well as capital investment, e.g. owning golf courses. Without further ado …

Opportunity costs. The issue of opportunity costs has popped up frequently in our posts on rates and golf courses. That is, when Council decides to invest in something, then this will reduce the money available to invest in other things, i.e. investment has an opportunity cost in the short-term.

Some Council assets, such as Ports of Auckland, generate a direct income stream. Moreover, this income can be generated at a rate that is higher than Council’s “cost of capital”. Such investments actually increase Council’s ability to invest. Other assets, e.g. golf courses, do not generate (net) positive revenues. By continuing to own golf courses, Council’s has less ability to invest in other things, including public transport and walking and cycling.

Now, many people have argued Council’s investment in golf courses is worthwhile despite their (high) opportunity costs. I’m OK with this provided people are clear about the fact that maintaining investment in golf courses will reduce Council’s ability to invest in other areas. Put another way, I want the opportunity cost associated with golf courses, and all other Council investments, to be made explicit – so we can formulate some relative priorities.

As I discuss in more detail below, Council’s ability to increase rates to fund improvements in services is constrained by our democratic “willingness-to-pay”. Opportunity costs are important and they are not something we can simply sweep under the carpet.

opportunity cost

In Peter’s last post on golf courses, for example, it was suggested that the opportunity cost of Council’s investment in golf courses amounted to mere “pennies”. My quick back of the envelope calculation suggests Council ownership of golf courses amounts to an additional ~$100 in rates per household per annum (NB: This primarily reflects their capital value). This cost arose simply because Council has debt, on which it must pay interest. Hence owning golf courses increases the debt, and by extension the amount of interest that must be paid. This is the opportunity cost of owning golf courses.

Now, $100 per household per annum may not sound like much to some people, but it is worth keeping in mind that it’s approximately equivalent to the temporary transport levy that was recently adopted by Auckland Council (to howls of outrage from some quarters). Moreover, in just 3 years the revenue from this transport levy will enable Auckland to pursue a much more ambitious transport investment programme, especially for public transport and walking/cycling.

This is all just to highlight the importance of opportunity costs, and the potential gains that might follow from optimising Council’s investments. Which brings me onto the topic of …

Level of investment. It is useful, I think, to think about the “level”” of Council’s investment somewhat separately from the “mix” of investments.

In my previous post on rates I suggested that we should measure the level of Council investment in terms of $ per capita. The figure below highlights some broad possibilities in Council spending. We can either increase, maintain, or reduce government expenditure. Those are your options – and your homework for next week is to find out where your local Councillors stands on these issues.Level of investment

Notwithstanding what you hear in the media, Council is currently holding rates constant in real terms. But because the population of Auckland is growing, holding rates constant in real terms equates to less spending per person, i.e. we’re in the blue box in the above figure.

The blue box requires either 1) cutting services and/or 2) improving productivity. If Council wishes to hold services per capita constant, then productivity improvements will need to be equal to or higher than the rate of population growth. In Auckland, the latter is humming along at 3-4% p.a. That gives you a feel for the scale of the fiscal challenge Council is currently operating under.

Productivity improvements are one area where the public sector may be able to learn a bit from the private sector. For example, Air New Zealand has committed to identifying cost savings that are sufficient to offset inflation. This is discussed in the slide below (NB: Source).

Air New Zealand savings

It’s key to note that Air New Zealand are, in general, looking to realise these savings not through one-off “slash and burn” type changes, but instead through sustained, incremental improvements that are made across all areas of their business, i.e. they seek to leave “no stone unturned”.

I think Council needs a similar approach. It’s better to identify efficiencies consistently, rather than wait until major cuts are required. In this context, I think it’s reasonable for people, like Peter, to identify areas where savings might be made, such as golf courses. Other people may disagree. That’s fine, provided they have alternative ideas on how to either 1) find savings and/or  2) increase revenues.

Finally, I should say that I place “user charges” under the general rubric of “cutting services”. This is because if something was previously provided free, and we change it such that people now have to pay, then this is effectively a cut in service. This is *not to suggest* that user charges are necessarily a bad thing. I support, for example, user charges for things like wasterwater, parking, and development where they encourage the right kind of efficiencies. Which brings us nicely to the next topic …

Effectiveness and efficiency. This is an important distinction, which I think is frequently conflated – probably because the concepts are not always easy to separate.

From a public policy perspective I think of “effectiveness” as a question about whether a policy contributes to wider strategic objectives, including consideration of (potentially unintended) consequences. Efficiency, on the other hand, considers whether policies are well implemented. It may be, for example, that a particular policy supports strategic objectives, i.e. is effective, but nonetheless is implemented in an inefficient manner, such that the benefits are not as high as they could be.

While I tend to despise wish-wash diagram spam, I do think the following figure illustrates the distinction between effectiveness and efficiency quite nicely for y’all.


Let’s say, for example, that Aucklanders collectively decided that Council ownership of golf courses was an “effective” policy, insofar as it contributed to wider strategic objectives. The next question people like Peter and I would ask is whether Council was delivering golf courses in the most efficient manner?

We might then put forward questions such as:

  • Do we own the right number of golf courses and are they in the right location?
  • Are Council golf courses priced/sized appropriately? E.g.:
    • Should we increase green fees so that the users covered not just operating costs but also some of the opportunity costs?
    • Should we convert 18 hole golf courses to 9 hole golf courses? And If so then should we create public parks and/or residential/commercial development?

So even if we conclude that continued Council investment in things like golf courses is effective, we might still want to consider ways to make that investment more efficient. And that latter in turn would realise savings to invest in other Council services, and/or lower rates …

Focus on public transport. How might these concepts relate to public transport? Most Aucklanders, myself included, appear to be of the view that public transport is “effective”, i.e. our aspirations for the city see a larger role for PT.

But is Auckland’s public transport system efficient? Well, no not really. Or at least not yet.

It is true that sustained capital investment in public transport has started to flow through to “the bottom line” in terms of higher farebox recovery. For the uninitiated, farebox recovery measures the percentage of operating costs which are covered by fare revenues. Recent trends in Auckland’s farebox recovery over time are illustrated below.

2015-09 - Statement of Intent result

You can see that in the last year or so it’s increased from ~46% to ~48%. This is heading in a positive direction, but is still quite low in comparison to many high performing cities overseas (with the notable exclusion of Australia – which is something of an outlier in terms of its operating costs, mainly for rail). Amsterdam, for example, achieves 75%, while Edinburgh, London, and several German cities achieve closer to 100%. The implication? All other factors being equal, these cities will have more money available for other things.

So how might we improve the efficiency of public transport in Auckland?

Well, the first thing I think we should do is to remove subsidies for cars where it is effective/efficient to do so. Cars are currently subsidised in terms of the parking they use, as well as the externalities they generate, such as congestion, noise, and air pollution. By charging people more to use cars, we would increase demand for public transport and hence generate increased revenue from the existing system. Such actions are, however, relatively slow to bear fruit, so we need to also look elsewhere.

In terms of the public transport system itself, we know AT is currently working on a range of things like growing HOP uptake, implementing PTOM (i.e. new bus contracts), rolling out bus lanes, reducing rail dwell times (and possibly staffing), the New Network, and the CRL. I am optimistic about these changes and their collective potential to improve the efficiency of our PT system. For those who are interested, my colleague Jarrett Walker has written some interesting stuff about making PT more efficient.

As mentioned above, improving the efficiency of PT is a means to an end, not necessarily an end in itself. More specifically, reducing PT operating subsidies frees up money within the existing PT budget to invest in efficiency-enhancing infrastructure, such as more bus lanes. In this way, improving the efficiency of our PT system gives us the opportunity to reinvest in the system, and thereby make it more useful and more abundant.

Key message? Operating PT efficiently allows us to provide it more abundantly. And abundant PT is what many of us want. For this reason, if you’re keen for PT to become more widely available and/or more widely-used, then you should also support initiatives that seek to make it more efficient. These measures may make trade-offs that involve cutting services in some areas, simply because the “opportunity cost” attached to those services is too high. I don’t think we should shy away from such decisions; we can’t make a great PT omelete without throwing away some bad PT eggs.

In short, if we can improve the effectiveness and efficiency of Council spending across all areas, then we can all look forward to more abundant public goods and services. This applies to golf courses, public transport, libraries, and indeed everything else that Council invests in.

Now I think I’ve said enough and it’s time to hear what others have to say …

Sunday reading 25 October 2015

Welcome back to Sunday reading. This week, we’re starting with a look at the law of unintended consequences. At Vox, Brad Plumer describes how “Europe’s love affair with diesel cars has been a disaster“:

Europe’s diesel push seemed like a perfectly sensible idea at the time. But they execution was badly botched, full of unintended consequences over the next 20 years.

One main drawback of diesel cars is that they can emit higher levels of other harmful air pollutants like particulates and nitrogen oxides. And those ended up being much harder to clean up than experts initially predicted. We now know that Europe’s regulators have failed spectacularly to control diesel pollution, relying on weak rules and flimsy testing procedures. Lots and lots of automakers — not just Volkswagen — have been manufacturing diesel cars that emit far more gunk than they’re supposed to. It’s one reason why cities like London and Paris are still clogged with unhealthy levels of air pollution, causing thousands of premature deaths each year.

It also appears that Europe’s diesel push didn’t actually do much to help global warming, as one 2013 study by Michel Cames and Eckard Helmers found. The CO2 benefits from switching to diesel cars were overrated and likely offset by the extra soot the engines produced. On top of that, Europe’s entrenched diesel industry has impeded progress on hybrid and electric car technologies that might have provided far deeper emissions cuts.

And on the topic of unintended consequences, I try to keep an eye on happenings in San Francisco, where a tech boom has collided with geographic constraints and regulatory limits on intensification to produce a shortfall of (affordable) housing. Given San Francisco’s reputation for progressive politics, many people are tempted to see this as a failure of the left. Not so, argues Robert Cruickshank at Calitics: “Progressives didn’t cause the San Francisco Housing Crisis“:

Metcalf argues that progressives allied with NIMBYs to make it difficult if not impossible to add new housing supply in SF. But this misses the fundamental purpose and point of progressive housing activism in SF. The goal is to stop displacement – and given SF’s attributes, a free market approach won’t solve that.

Because SF is built out, and because land values began to rise in the mid-1970s, and because of macroeconomic policies that began to push investors to demand bigger profits from the private sector, this all meant that new construction in San Francisco was going to be expensive to build and therefore expensive to rent. The private sector was never all that interested in building housing for the poor or the low-income. And after 1980, the private sector certainly was not interested in building that kind of housing.

So for many progressive San Franciscans, private housing development was seen as a way to get rid of the leftists, the people of color, LGBT residents, and the poor. Stopping the loss of affordable housing became a priority.

However, this did not mean that SF progressives became anti-supply – or that they are responsible for the city’s present crisis.

Since Mayor George Moscone and Supervisor Harvey Milk were assassinated in 1978 by a right-wing former cop, SF has been governed by pro-business moderates. There has been only one exception to this, the four-year term of Art Agnos from 1987 to 1991, and it’s not clear whether he was more of a progressive or more of a NIMBY (in reality he appealed to both, but for different reasons).

Progressives haven’t held the SF mayor’s office in at least 24 years, by even the most charitable reading. Surely pro-business mayors like Frank Jordan, Willie Brown, and Gavin Newsom should be held accountable for the city’s housing crisis.

During the last two decades, SF progressives worked hard to advance their own solutions to the housing crisis. Those solutions always included new supply…

Locally, of course, people have been proposing a profusion of solutions to New Zealand’s housing issues. This week, the Productivity Commission’s final report on their Using land for housing inquiry was released. Greg Ninness at Interest.co.nz summarises thusly: “Productivity Commission recommends changing everything“:

It has made 70 wide ranging recommendations which, if adopted, could have a major impact on the way new housing is developed in this country.

Some of its recommendations are clearly aimed at making it easier to develop more high density housing such as apartments.

These include:

  • Requiring councils to undertake a cost-benefit analysis before introducing height restrictions on buildings and increasing current height limits where it cannot be shown that the benefits they create outweigh the costs.
  • Avoiding wide-ranging heritage or special character policies that restrict redevelopment of housing stock. The report recommends that councils should instead concentrate heritage and special character policies on individual structures rather than whole suburbs.
  • Councils in high growth areas should avoid explicit limits on housing density and review existing limits with a view to removing them.
  • Remove requirements for apartments to have balconies and restrictions requiring apartments to be a minimum size.
  • Remove minimum parking requirements from District Plans.

The report also recommends changing the way councils calculate their rates.

It recommends basing rates on the land value of a property rather than its capital value (which includes the value of any buildings on it).

This would also favour multi-unit dwellings such as apartments and would be likely to increase the share of rates paid by houses on larger sections.

It would also encourage owners of vacant land to develop it more promptly rather than land banking.

But there’s more to housing than just the supply side – the quality of accommodation in New Zealand continues to be a major issue. Radio New Zealand reports new data suggesting that renters have it much tougher than home owners:

Statistics New Zealand has found that people who rent a home live in far worse conditions than people who buy one.

It said just under half of all renters reported problems with dampness or mould, compared with about a quarter of home-owners…

The report says cold was the biggest problem, and this also affected renters worse than buyers.

Other groups to complain about poor housing were people renting in groups, single-parent families, younger adults and Māori and Pacific people.

Māori were the most likely group to say extensive repairs were needed on their homes, with 13 percent of those surveyed claiming that, while out of Pacific people surveyed, 43 percent reported their homes were often or always cold.

Eleanor Chisholm at One Two Three Home puts forward the argument for a rental warrant of fitness (WOF) regime aimed at bringing poor quality rental accommodation up to standard:

A rental housing warrant of fitness (WOF) sets out a list of fundamental features of a safe and healthy house. If a house fails any component of the WOF, it’s not fit for people to live in. There is a lot of public support for a WOF because of the way that unhealthy housing affects the wellbeing of tenants all over New Zealand.

Despite this support, the Government announced that they had rejected the idea of implementing a warrant of fitness for rental housing. At they same time, they proposed a number of amendments to the Residential Tenancies Act. Some of the important amendments will make smoke alarms and a minimal level of insulation mandatory in rental homes. They also released a slew of documents that they considered when they made their decision.

One document I found particularly interesting was the cost-benefit analysis for a housing warrant of fitness, commissioned by MBIE. This showed that the changes that were announced are insufficient and inconsistent with the advice the Government has received. In this blog post, I’ll discuss what the cost-benefit analysis showed, and how the proposed amendments to the Residential Tenancies Act are unlikely to allow us to reap the full benefits of healthy housing.

Overall, Chisholm observes that a rental WOF scheme would return around $1.50 in benefits for every $1 of cost – suggesting that it could be an efficient way to bring rental housing up to standard.

On a separate note, apparently Wellingtonians aren’t mistaken about the weather down there. Karl Mathiesen at The Guardian looks at the data and finds that Wellington may in fact be the world’s windiest city:

The capital of New Zealand is, by reputation, the windiest city on earth and it can make every day something of a trial.

“I would never say I have learned to ‘love’ Wellington’s most famed element and, at times – most times – I find it to be exhausting,” says Patte. “However, you know you’re home when there’s a southerly blowing.”

Judging which is the world’s windiest city is tricky, as no global database for cities exists and measurement techniques are not standardised. Other contenders include Rio Gallegos and Punta Arenas in Argentina and Chile’s windswept southern Patagonia. St John’s in Canada is north America’s windiest city, averaging between 13 and 15mph.

Wellington sits on the Cook Strait, a passage between New Zealand’s north and south islands. The winds of the Roaring Forties, which spin uninterrupted from South America thousands of miles to the west, are funnelled into this 14-mile-wide gap, creating a “river of wind” that rocks the boats in the harbour day and night at an average of 16.6mph. The north island’s strongest recorded gust of 154mph was measured on Hawkins Hill in 1962, just a few kilometres from the city centre.

When I lived in Wellington, I used to run in the weekly waterfront 5k series. On some days, I had the distinct impression that the wind was somehow blowing in my face in both directions. It seemed a bit unfair.

Since we’re on the topic of remote but scenic capital cities, Jarrett Walker (at HumanTransit) took a visit to Reykjavík and has put together a photo essay and a word essay about the place. I appreciated these photos:

And here are some classic waterfront photos reminiscent of Vancouver.


Note the cyclist’s shadow; at 64 degrees latitude, the beautiful qualities of evening side-light last for much of the day.


That giant tennis ball floating in the harbor seemed a perfect bit of whimsy.  It’s a park, with a military history.

Jarrett also considers what the public transport situation looks like in a small city like Reykjavík:

Iceland’s most interesting challenge is that it’s a small country at a time when we’re all supposed to worship bigness, so it probably takes some effort for Icelanders to stay focused on solutions that suit their scale.  Iceland’s population is only about 330,000, of which 2/3 are in greater Reykjavik.  If it were in the EU, Iceland would be the smallest member by population, smaller than Malta and certainly smaller than giant Luxembourg.

What’s more, Iceland’s population is small for good reasons, mostly limitations of land, sunlight, and climate.  For most of Icelandic history, fish has been the only abundant food resource, but today even that is in need of management.  Agriculture so close to the Arctic Circle will always face limits even if much of the soil hadn’t washed away — the result of medieval Norse colonists cutting the ancient birch forests faster than they could regenerate.  Today, Iceland is a world leader in the sustainable management and restoration of natural resources, but in such a remote and challenging location there’s not much point in growing beyond what the bare land and low-angle sunlight can support.

So one basic challenge for Icelanders is how to listen to all the roving “experts” whose message is just an appeal to presumed feelings of international envy.  “You’re a European capital!,” they say.  “How can you not have streetcars and subways and a ‘high-speed train’ to the airport?”  This peer-pressure is supposed to overrule all the facts of Iceland’s own geography and situation.  You might as well tell Reykjavík that “real European capitals” need medieval and Renaissance buildings, even though there wasn’t a town here until the 1700s…

These abstract, envy-based rules are always the death of public transit.  They also imply that no other feature of a place could possibly compensate for the failure to satisfy – that nobody would come to Iceland because they want what only Iceland has to offer.

Finally, here are two articles on how our societies – global and local – function. First, in the New York Times, Tyler Cowen takes a look at “the egalitarian tradition of economics” – referencing economists historical opposition to slavery and their contemporary support for more open immigration:

Professors Levy and Peart coined the phrase “analytical egalitarianism” to describe the underpinnings of this tradition. For example, Adam Smith cited birth and fortune, as opposed to intrinsically different capabilities, as the primary reasons for differences in social rank. And the classical economists Jeremy Bentham and John Stuart Mill promoted equal legal and institutional rights for women long before such views were fashionable. Their utilitarian moral theories placed individuals on a par in the social calculus by asking about the greatest good for the greatest number…

So where will a cosmopolitan perspective take us today?

One enormous issue is international migration. A distressingly large portion of the debate in many countries analyzes the effects of higher immigration on domestic citizens alone and seeks to restrict immigration to protect a national culture or existing economic interests. The obvious but too-often-underemphasized reality is that immigration is a significant gain for most people who move to a new country.

Michael Clemens, a senior fellow at the Center for Global Development in Washington, quantified these gains in a 2011 paper, “Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?” He found that unrestricted immigration could create tens of trillions of dollars in economic value, as captured by the migrants themselves in the form of higher wages in their new countries and by those who hire the migrants or consume the products of their labor. For a profession concerned with precision, it is remarkable how infrequently we economists talk about those rather large numbers.

Truly open borders might prove unworkable, especially in countries with welfare states, and kill the goose laying the proverbial golden eggs; in this regard Mr. Clemens’s analysis may require some modification. Still, we should be obsessing over how many of those trillions can actually be realized.

And on a more local scale, Anya Kamenetz from the (US) National Public Radio takes a look at school zoning. As anyone who’s ever talked to a real estate agent in Auckland’s inner suburbs knows, school zoning exerts a powerful influence over property prices and, indirectly, the shape of our cities. But Kamenetz finds that concerns that letting in the “wrong sort” of student will reduce educational outcomes are overblown:

The tacit assumption was that sending children to a majority-minority school would entail a sacrifice, one that pits their own children against their (presumably) progressive ideals.

But there’s plenty of evidence that suggests the opposite: White students might actually benefit from a more diverse environment.

Here are three reasons why.

1. Their test scores won’t be any lower.

The federal government just released a report looking at the black-white achievement gap. It found something remarkable: “White student achievement in schools with the highest Black student density did not differ from White student achievement in schools with the lowest density.”

Translation: After controlling for socioeconomic status, white students essentially had the same test scores whether they went to a school that was overwhelmingly white or one that was overwhelmingly black.

This finding “confirms decades of research that white students’ achievement is not harmed” by the color of their classmates’ skin, says Genevieve Siegel-Hawley, an education professor at Virginia Commonwealth University, who researches race, stratification and inequality in American schools.

That’s it for the week. See you next time.

Photo of the Day: New Canadian PM takes Subway home on Election Night

New Canadian PM Justin Trudeau has wasted no time in clearly positioning himself as pro-city and pro-Transit with the release a series of shots of him using the Montréal Metro on election night.


First Turnbull now Trudeau. Transit is obviously seen by these new leaders as a marker for broader policy; climate change, energy, infrastructure, and, no doubt, their accessibility to the people they represent. Only travelling in big-arsed fossil fuelled BMWs looks decidedly dated in this context.

We look forward to real policy and budgetary change consistent with these images to be clear this isn’t just PR, and we also look forward to our politicians catching up with this trend, and in a real way: Key, Bridges; your move….?

Trudeau twitter

Sunday reading 18 October 2015

Ghost parcels. Auckland.

Ghost parcels. Auckland.

John Greenfield. “Ghost Parcels Show How Urban Highways Squandered Valuable Land“, StreetsBlog Chicago. Captivating images and interesting discussion about the ghost parcels that remain after the motorways wiped away neighbourhoods.

Alissa Walker. “How a Former Video Game Designer Created the Best Intersection For Bikes“, GIZMODO. Nice story about  how quickly innovation in street design is being applied around the world.

The US’s first “protected intersection” opened this month on a busy corner in Salt Lake City. With only a few modifications to the traditional car-centered intersection, it keeps cyclists completely separated from vehicular traffic, makes them easier to see, and even gives them a head start at the light.

Andreas Lindinger. “Transforming a street: Before-After images of Vienna’s Mariahilferstrasse” Vienncouver. Neat before an after swiping images from Vienna.

Before and After (via Vienncouver)

Before and After (via Vienncouver)

Pippa Coomb. “Free our streets for bikes! Taking inspiration from London’s FreeCycle” CycleActionAuckland.

Of course it made me wonder when we are going to have Auckland’s first genuine FreeCycle-style event with the roads made available just for people on bikes. We’ve had Playing in the Streets in 2012, Ciclovia in 2014 and Open Streets Auckland earlier this year, which were lots of fun and opened streets for people to enjoy … but just didn’t cater for riding en masse on a dedicated route. Besides FreeCycle, there are lots of other successful examples from around the world – NYC has the Tour de Brooklyn, the Tour de Bronx, and the epic 5 Boro Ride. So why not Auckland?

Rachel Bachman. “Do Bike Helmet Laws Do More Harm Than Good?“, Wall Street Journal.

Some cyclists and academics say helmet laws discourage a convenient form of exercise in an era of inactivity. Sedentary lifestyles can have quieter but wider long-term effects than bike crashes, such as billions of dollars in health-care costs for chronic conditions, they say.

Piet de Jong, a professor in the department of applied finance and actuarial studies at Sydney’s Macquarie University, actually calculated the trade-off of mandatory helmet laws. In a 2012 paper in the journal Risk Analysis, he weighed the reduction of head injuries against increased morbidity due to foregone exercise from reduced cycling.

Dr. de Jong concluded that mandatory bike-helmet laws “have a net negative health impact.” That is in part because many people cycle to work or for errands, experts say. People tend to replace that type of cycling not with another physical activity such as a trip to the gym, but with a ride in a car.

David Levinson, “No New Roads: A Strategy for the Future of Transport“, Strongtowns. An excerpt from the new book The End of Traffic and the Future of Transport by David Levinson and Kevin J. Krizek.

Eyeing technological advances with current trends, we envision scenarios that are in stark contrast to the conventional planning done by most governments and industry trade groups. In short, we conclude that the US should largely stop building new roads and widening existing ones. Instead communities ought to gracefully abandon excess lanes on underutilized or redundant roads. All of this points to shrinking the size of remaining roads, managing those roads better with location-specific, time-of-day pricing, and reducing the share of the surface of those roads devoted to the car.

Kate Abbey-Lambertz. “How The Decline Of Cars Is Changing Cities For The Better“, HuffPost Business.

Since those days, Schwartz has been joined by many experts who realize cities and their residents suffer when cars are the top transportation priority. At the same time, Americans have been driving less, with the annual number of vehicle miles traveled, or VMT, declining since 2004. The trend is so surprising that it took awhile for experts to believe it would be sustained.

“There was a revolution that nobody noticed,” Schwartz told The Huffington Post. “Everybody kept predicting they would go up. …. In 100 years, there has never been such a rapid change in transportation since the advent of the streetcar and the automobile.”

Schwartz said much of the VMT drop is due to millennials, who are driving less than their predecessors and relying more on bicycling and public transit. More millennials want to live in walkable communities with public transit than do older generations — though the majority of millennials still live in suburbs.

Schwartz often warns mayors that to keep young residents from moving away, they need to build dense downtowns, public transit and walkable streets. Those features attract 20-somethings — and also have economic, health and environmental benefits.

Lois Cairns. “Christchurch’s 50kmh speed limit too high, expert claims“, Stuff. NZ must be one of the last OECD countries to get the memo that slower speeds make safer streets. Here’s a nice article on research and advocacy of Dr Glen Koorey on the subject in Christchurch.

Dr Glen Koorey, a senior lecturer in transport engineering at the University of Canterbury, believes the city’s roads would be safer if the slower speed zones that apply outside many schools were applied in other parts of Christchurch too.

Research shows that crashes at speeds of more than 40kmh have a much higher risk of killing or injuring someone.

Briefing Papers 11: Challenges In Auckland’s Residential Construction Sector

AUT’s Briefing Papers initiative has kindly allowed us to syndicate their recent series on housing. The eleventh (and final) paper is written by Auckland Council chief economist Chris Parker:

There are a number of challenges facing the building industry in Auckland, around scale, quality, efficiency and price. Scaling up the building sector raises questions: What are the crowd-out risks for other sectors in Auckland, as the building sector tries to outbid them for labour and materials? How can public policy better support industry to meet various sectors’ needs?

Policy makers have a number of initiatives to help gear up industry for major expansion, including:

  • the ‘Building and Construction Productivity Partnership’ (since ceased)
  • MBIE’s ‘National construction pipeline’ (latest issue was July 2015)
  • Workforce skills roadmap for Auckland construction’ to support skills sector growth.

Recent analysis commissioned by the Council suggests house prices are high because of anticipation of redevelopment opportunities enabled by the Proposed Unitary Plan once it becomes operative.

Builders and tradespeople may move from Christchurch to Auckland as the rebuild ramps down, but capacity challenges will remain.


There has been little, if any, measured productivity growth in New Zealand’s construction industry for over 30 years. (One problem is measuring the quality improvements that result from productivity growth.)

The cost (excluding land) to build the average 200m2 house is not far off $400,000 — about five multiples of Auckland’s median household annual income (of approximately $80,000). Contrast this with the ideal ratio of three to one, including land.

The Productivity Commission in its 2012 Housing Affordability inquiry attributes low productivity growth performance in the residential construction industry to:

  • structure:
    • the industry’s small scale and lack of scale economies
    • fragmented industry structure requiring a myriad of subcontractors and informal contracting
    • skills issues
  • conduct:
    • low levels of innovation
    • ‘bespoke’ (tailored) nature of our homes
    • inferior management skills and practice (e.g. project management)
    • councils (as building consent authorities) being excessively risk averse and stymieing innovation in design, materials and construction techniques.

Poor retention and attraction of workers

New Zealand has an issue with attracting and retaining builders and tradespeople internationally, as the figure below shows:


Builders advise that this is caused not by barriers to entry, but because it is an unattractive field to be in this country these days:

  • low wages — from low productivity
  • punitive liability rules — 10-year personal liability and joint and several (rather than proportional) liability
  • too little initiative afforded to builders — building inspectors do not afford builders with much leeway to use initiative and deviate from plans because of concerns about quality assurance. Poor project management and quality assurance

Work that I co-led last year for the Productivity Partnership found that project management was:

  • generally poor (but with pockets of excellence)
  • not seen by builders as being particularly useful
  • desired by buyers, but they didn’t really know how to express their demand for it.

Project managing a house build is tough: some 20–25 subbies are required each build (with a high level of specialisation of trades), plus multiple visits from building inspectors.

Better project management can reduce the risk of the highly networked sector coming to a slow grind during peak demand periods. Also if project management is poor, then don’t hold out much hope that quality assurance management processes will be any better. (Builders will often default to ‘if you want a job done properly, then do it yourself’.)

Auckland Council building control staff struggle with significant industry quality issues, with 25%–40% of all building inspections failing. A council’s role ought to be limited to compliance (e.g. auditing quality assurance processes), but inspectors often find that quality assurance isn’t being done at all.

So councils fill the vacuum. That’s because they are liable for potentially all the harm caused by others (because of the government’s joint and several liability rule) and because they have a legally defined ‘duty of care’ to consumers. So they effectively start micromanaging builders, which in turn repels builders.

Move to proportional liability

The government needs to think more carefully about replacing the ‘joint and several liability’ rule with ‘proportional liability’ (like Australia). People and organisations including councils should be liable only for the losses they contribute, not for losses out of all proportion to what they caused. At the moment building firms are incentivised by the joint and several rule to be extremely small for two reasons. One, so that they can personally supervise build quality (rather than delegate). The other, so they can disappear from plaintiffs, and liquidate (or ring-fence assets) so that they are not left carrying all the liability caused by other people.

This change would reduce the incentives for firms to be extremely small, and will help them to achieve efficiencies of scope (i.e. different trades and skills in-house) and scale (i.e. more work). Larger firms can support more management overheads to undertake project management, quality assurance, and investment in staff. Inspectors would likely cut builders some more slack, which will improve efficiencies and help address key issues about attracting and retaining staff in the industry.

The Productivity Commission raised their concerns that current liability rules exacerbate the cottage industry structure, and thus its conduct and poor performance in its 2012 housing affordability inquiry. It asked the Law Commission to consider the impact on industry structure, conduct, and performance when advising the government on whether to keep or change the ‘joint and several liability’ rule. The Law Commission didn’t. So the advice to retain the rule that the government has received is incomplete.

Other changes needed

Other opportunities for improvement and continued development include:

  • supporting large scale residential development
  • investment in new production technologies, such as offsite prefabrication and Building Information Modelling (BIM)
  • opening up new supply chains to mitigate any market power in the current industry (such as importing material from the USA)
  • developing new avenues for product approval as per the Building Code, including adopting overseas product testing
  • creating new housing typologies and design formats (e.g. modular housing and attached dwellings, which may also bring non-residential construction (i.e. commercial) techniques into the residential sector)
  • developing new effective project management approaches and quality assurance
  • developing new processes for building compliance, including private accreditation systems and private sector insurance to help protect consumers from risk
  • supporting skills training (both new recruits/apprentices and more senior skills such as project management, business management etc).

I am also sounding out interest from other local/central government departments to co-commission analysis to assess:

  • where will the resources be drawn from, and which industries might be at risk of crowd-out from an expanding construction industry[1]
  • what support those industries may need for Auckland’s longer term prosperity
  • where emphasis should be placed on improving the quality of construction sector regulation.


There has been a lot of focus on how land use regulation affects Auckland’s house prices. But that may be largely overcome once Auckland Council’s Proposed Unitary Plan is updated and becomes operative, possibly by late 2016. Challenges in the residential construction sector, though, will need to be addressed if housing supply is to increase fast enough to meet demand.

[1]      This may involve CGE (computable general equilibrium) modelling. The work could also build upon the following publication: Department of Labour (2011) Labour Market Adjustment in the Construction Industry, 2001–2009

Briefing Papers 10: The Housing We’d Choose

AUT’s Briefing Papers initiative has kindly allowed us to syndicate their recent series on housing. The tenth paper is written by Auckland Council social researcher Alison Reid:

Auckland is at a turning point in how it must think about and deliver housing solutions. According to Statistics New Zealand’s medium projections, Auckland’s population is anticipated to grow by a further 517,000 people in the next 20 years. This growth will be driven by natural increase (births minus deaths) as well as net in-migration from other parts of New Zealand and overseas, and will drive the demand for an increasing number of dwellings. Further to this, increasing diversity in household structure and size, an ageing population, and increasing divergence of the ability to afford the costs of housing will drive demand for a variety of appropriate and affordable housing solutions. All of this is occurring in a broader context of a desire to curb urban sprawl and realise the efficiencies of a ‘compact city’ approach.

The issue of enabling and encouraging supply-side factors to meet this demand is a priority for Auckland Council, and for central government. The Auckland Plan includes a priority to ‘increase housing choice to meet diverse preferences and needs’. The Plan also proposes an urban form for Auckland of a ‘quality compact city’ with up to 70% of growth occurring within the 2012 Metropolitan Urban Limit (MUL) over 30 years, but with flexibility for up to 40% outside the MUL. This emphasis on future ‘intensification’ within the urban area is reflected in the bold new vision of the Proposed Auckland Unitary Plan, with its provisions for a range of building heights and density within the existing urban area.

Much of Auckland’s future housing stock already exists, and it is predominantly detached dwellings – 75% of dwellings at the 2013 census were stand-alone. This city has a long tradition of building, owning and living in stand-alone houses. It’s what we are used to. A dominant narrative continues to perpetuate that households prefer stand-alone dwellings and that the market is delivering what people want.

But when was the last time we checked that out? To what extent is the new housing coming on-line meeting the current and future needs of Aucklanders? To what extent is the dream of owning a ‘quarter-acre pavlova paradise’ still relevant?

These questions were at the heart of The Housing We’d Choose study, recently completed by Market Economics and Research First on behalf of Auckland Council. The study adds an important contribution to our understanding of the demand side of the housing equation. It is based on work previously undertaken in Australia, and included a sophisticated choice exercise in which respondents had to choose from a discrete set of housing types and sizes, within their own financial constraints. It also asked Aucklanders what was important to them when thinking about choosing a place to live. The central aim was to explore what Auckland households would choose to live in, if a wider range of options was available.

In sum, the research found that households would choose a much broader range of housing types and sizes across Auckland, if it was available. They would trade-off housing type and location for adequate size (large or small) and price. Furthermore, there is a ‘mis-match’ in several parts of Auckland between the types of housing that people said they would choose and new housing that is coming on line.

The quarter acre pavlova paradise dream is not dead yet, but it’s not universal. The Housing We’d Choose study found there remains a general underlying preference for stand-alone houses, and a deep connection to owning a piece of land for many, particularly among households with children. Over half (52%) chose detached options, if they could afford them. Over half rated a stand-alone house as being ‘very important’ when they were thinking about choosing a place to live, and quite a few of those who chose a townhouse /unit or apartment, particularly those in buildings that were ‘low rise’ (up to four stories), made a comment along the lines that they would actually have preferred a stand-alone dwelling.

But while the majority of households will still demand stand-alone detached housing, this demand is more than satisfied by the existing stock of housing. The real gap in the market is higher density attached dwellings and apartments within the high amenity established suburbs. A quarter (25%) of respondents chose an attached unit or townhouse, 15% chose an apartment in a building up to four storeys, and 8% chose an apartment in a building five storeys or higher. Many indicated they were very happy with that choice – particularly older people living in couples-only situations or on their own.

The research shows that people would choose different housing types across Auckland than currently exist, particularly in the areas away from the city centre. When we compared what people said they would choose with what’s coming on line (using Statistics New Zealand building consent data from January 2013 to March 2015) we found that there was a general over-supply of stand-alone dwellings, particularly in south Auckland and on the isthmus, and a corresponding under-supply of attached options in all sectors outside of the city center. The north shore coastal area was the only sector to show a general under-supply of all housing types coming on line.

The research also reminded us of an important corollary to any emphasis on the types of housing that Auckland households would choose – that is, the cultural shift that faces Auckland as we embrace a future of living in new housing formations and in closer quarters. As Auckland’s population continues to diversify ethnically, culturally, and across age and socio-economic lines, new neighbourhoods are being delivered, old neighbourhoods are facing real change, and people are being asked to live closer together than they have before. It was apparent through participants’ comments in the focus groups and in the surveys that people want to feel safe and they want their kids to be safe. They want a sense of privacy from the outside world, and for many that meant not being able to be seen by others inside their own home. For many this was not something that living closer together in more intensified housing styles could offer.

Much of this can be mitigated by quality design and build, continuing to learn from overseas examples and what has worked in the past, as well as efforts to increase a sense of neighbourliness, tolerance and community spirit.

The full title of this study is The Housing We’d Choose: A study into housing preferences, choices and trade-offs in Auckland. It was commissioned by the Research and Evaluation Unit (RIMU) within Auckland Council and is a component of Auckland Council’s 12 point Housing Action Plan. The findings will be used to inform a range of housing policy responses and discussion. The full report can be found on the Knowledge Auckland website.

Briefing Papers 9: Housing and transport: proximity matters

AUT’s Briefing Papers initiative has kindly allowed us to syndicate their recent series on housing. I wrote the ninth paper in the series:

The decisions that individuals and societies make about housing are deeply linked to decisions about transport. The ways in which people get around are affected by where they live and how their neighbourhoods are designed. And transport, in turn, has a host of broader effects. It affects our happiness and wellbeing, the efficiency of our economy, our expenditures on infrastructure, how clean our air is, and how much of our public health spending is consumed by diabetes and cardiovascular disease.

In recent years, the policy debate about housing has focused largely on prices and aggregate supply dynamics. Transport usually only enters the frame when asking when roads will be built to enable greenfield areas to be subdivided. In my view, this is too narrow a perspective.

A more holistic perspective on housing policy would ask further questions. First, how does the built environment, including housing, influence people’s travel choices? Second, does it matter how people get around? And third, are we offering people the housing and transport choices they desire?

The “Five Ds”

In her 1961 book The Death and Life of Great American Cities, Jane Jacobs observed that “dense, diversified city areas” were full of people travelling on foot, in contrast to the suburbs and “grey areas”. Half a century later, transportation researchers Reid Ewing and Robert Cervero (2010) reached the same conclusion, with added statistical rigour, after reviewing hundreds of academic papers.

Ewing and Cervero concluded that there are “five D’s” that influence people’s travel behaviour: density, diversity, design (of street networks), destination accessibility, and distance to public transport. The denser the neighbourhood, or the greater mix of uses within it, the more likely people are to walk, cycle, or take public transport. By contrast, single-use areas with disconnected street networks are amenable to cars and not much else.

Another way of putting this is that proximity matters. Being close to more destinations gives people more opportunities to make trips in a variety of ways. People respond to the availability of choices by, in many cases, choosing alternatives.

This isn’t simply a result of selection bias, in which car-loving people live in car-based neighbourhoods. The characteristics of the place you live can in fact change the way you travel. Consider the results of a recent study in Vancouver, which found that people who prefer an auto-oriented neighbourhood, but live in a walkable one walked twice as often, took public transit twice as frequently, and drove nearly two days less per week than those who prefer and live in an auto-oriented neighbourhood.

What happens to us when we travel?

But does it matter if people live in places that lack the “five D’s”? In other words, should we care how people get around (and how far they must travel)?

In a word: yes. When people live in places that offer them better transport choices – i.e. the option to walk, cycle, or take public transport as well as the option to drive – it’s better for them and better for society.

There are three key advantages to living in a place that offers proximity and transport choices.

The first is that proximity can save people time, money and stress. When I used Census data to analyse household expenditures on housing and transport in New Zealand’s three main cities, I was surprised to find that financial savings from lower rents further out of the city tended to be fully offset by added commuting costs. When you factor in the added time that people must spend on the roads, living further away starts to look like a false economy.

To make matters worse, longer commutes can be psychologically costly – a 2014 study by the UK’s Office of National Statistics found that, all else equal, longer commutes were associated with lower and lower levels of happiness. As Charles Montgomery observed in Happy City, people buy houses once but must commute every day.

The second reason to appreciate proximity is that it can be more economically efficient. Longer distances between people increase the “spatial transaction costs” that they must bear to socialise, trade ideas, and do business. By contrast, the “five D’s” give people greater opportunities for interaction. This is important, as economies ultimately rely upon people’s interactions and transactions – between workers and businesses, entrepreneurs and investors, shoppers and retailers, and students and educators.

We have a good idea of how these effects may play out in Auckland. Land-use and transport modelling undertaken for the Auckland Plan (and subsequently presented to hearings on Auckland’s Unitary Plan) shows that developing a more compact, mixed-use city will give workers much better access to jobs, and businesses much better access to workers and customers. Interestingly, it is also expected to result in lower congestion, suggesting that people who would prefer to drive also benefit from increased transport choices.

Finally, enabling people to live in areas with better transport choices can make us healthier. This wasn’t necessarily the case a century ago. When New Zealand’s cities were being established, urban planning aimed to mitigate diseases of proximity. In his history of city-building in Australia, New Zealand, and the Pacific coast of North America, Lionel Frost observes that suburbanisation began as a public health panacea: it made people “safe from the deadly miasmas of the inner city” by allowing them to “dig a simple cesspit at the back of a relatively deep lot”.

But things have changed since then. Instead of struggling with cholera and other diseases of proximity, we are now afflicted by diseases of inactivity, such as diabetes and cardiovascular disease. According to a study commissioned by Auckland, Wellington and Waikato councils, physical inactivity caused 246 premature deaths in 2009 – roughly equivalent to road deaths in more recent years. Nearly 50% of New Zealand’s population is physically inactive.

Public health agencies are acutely aware of the social costs associated with living in neighbourhoods that do not offer people transport choices. But although they are responsible for addressing the health issues arising from housing and transport issues, they don’t have a lot of influence over how we build neighbourhoods. Perhaps that should change.

Unmet demand for transport choices

But are we simply getting the housing and transport choices that we choose? After all, most Aucklanders drive most of the time. Data from New Zealand’s Household Travel Survey indicates that Aucklanders did 94% of their travel (measured in kilometres) in cars, either as drivers or passengers. Other transport modes barely featured.

However, surveys consistently suggest that people would like to have more choices than they do. Take, for example, Auckland Council’s recent “Housing We’d Choose” study, which surveyed Aucklanders to find out how they weigh up the price, quality, and location of housing. When considering how convenient a location is, 38% of respondents ranked easy access to public transport as important, well ahead of access to a motorway as important (29%).

However, only a minority of Aucklanders actually live within close distance of good public transport services. According to PhD research by my colleague Saeid Adli, less than one in ten Aucklanders lives in a neighbourhood where they can access more than 50,000 jobs in a thirty-minute public transport commute. This is significantly below the share that say they would like to live in such a place, which indicates significant unmet demand.

In a similar vein, the Vancouver research I cited earlier finds that 20% to 30% of people living in “auto-oriented” neighbourhoods would prefer the opportunity to live within walking distance of more destinations. Meanwhile, only 3-12% of people living in walkable neighbourhoods would have preferred to live somewhere auto-oriented.

How can we get the choices we want (and need)?

In other words, people want to live in places that give them transport choices, but can’t. How did this happen, and what can we do about it?

Historically, the disciplines of urban planning and transport planning have adopted a “one size fits all” approach to meeting people’s needs and desires. If the average commuter drove a car, policymakers responded by building lots of roads, and neglecting public transport, walking, and cycling. If the average business provided a parking lot for customers and employees, policymakers responded by regulating to require every business to provide a similarly-sized carpark. If the average household needed three rooms and a backyard, policymakers responded by subsidising the construction of many standalone houses – and regulating the alternatives out of existence.

This is an absurd approach and it must change. Housing and transport policies must recognise the diversity of needs and desires that different people have, and respond by providing or enabling choice. While not everyone wants to live in a neighbourhood that offers the “five D’s”, many people would quite like the opportunity. Why not give them that choice? It’s good for them – and it’s likely to be good for the rest of us too.

Transport CBA, housing supply, and the spatial equilibrium

In comments to a recent post I wrote reviewing recommendations from the Australian Productivity Commission’s review of public infrastructure investment, reader Brendon Harre raised an important question about transport cost-benefit analysis (CBA). He commented that:

“the benefits of providing a grid of urban transport options (without mode bias) in advance of development in order to keep land, commercial and residential property affordable is not measured”

This is an important issue that’s worth careful consideration. As a best guess, I think that Brendon’s point isn’t quite true. In a roundabout way, transport CBA does capture benefits associated with enabling development. However, the modelling tools available might over- or under-estimate the magnitude of those benefits in some cases.

Let’s start by reviewing how transport CBA works in New Zealand. Here are the key steps:

  1. A transport agency or council comes up with a land use forecast – i.e. a rough idea of where people are going to live and work in the future.
  2. The transport agency then identifies two (or more) futures scenarios for the transport network in the area. For example, they may consider one scenario in which no new roads were built, and one in which a new highway is built at the edge of town.
  3. The agency then models the transport network under the fixed land use forecast and multiple transport network scenarios.
  4. Based on the modelling, it then calculates how travel times (and vehicle operating costs, emissions, etc) differ between the scenario. It sums up the reductions in travel times (etc), multiplies them by the average value of time, and then uses the resulting dollar value as the numerator in a benefit-cost ratio (BCR).

This procedure obviously bears little relationship to what we observe in practice. In reality, there is significant endogeneity between the availability of infrastructure and land use outcomes. In other words, if you build it, they will come, and vice versa. You can’t assume that land use will remain fixed if transport options change!

Another way of saying this is that rather than “banking” travel time savings from wider or faster roads, people tend to “re-invest” them into other things, such as living in a larger or cheaper house in a different location. (Or re-scheduling trips from off-peak times, shifting modes from PT, walking or cycling, etc.) Public transport is different, as it doesn’t get congested, but the principle is somewhat the same – speeding up journeys allows people to travel more.

Economists call this phenomenon “induced traffic”. I’ve previously discussed this phenomenon from a slightly different angle, focusing on the implications of induced traffic for how we manage and invest in road networks. I’ve argued that we should stop telling ourselves the lie that increased road capacity will ever “fix” congestion and accept that all we can do is give people alternatives to participating in congestion and implement congestion pricing to free up the roads.

However, I think it’s also worth considering what induced traffic means from a housing supply perspective. It’s useful to start by thinking about how individuals might respond to the opportunities created by new transport infrastructure. Let’s use the City Rail Link as an example, as we’ve got a good idea of what it will do for travel times:


Suppose I’m currently living in Morningside (I’m not, but it’s a simpler example) and facing the following costs for transport and housing:

  • Rent of $250 a week, assuming I’m flatting
  • Public transport fares of $30 a week, as a single journey to Britomart costs $3 with a HOP card
  • Travel time costs of around $130 per week, assuming that I value my commute time at around $20 per hour. It currently takes around 40 minutes to travel from Morningside to midtown by train, including the walk at the end.

Now let’s consider what will happen when CRL is done. My travel time will be cut dramatically – after CRL, it will only take 15 minutes to commute from Morningside. This is a big saving in travel time. Under these assumptions, CRL will make me better off by around $80 a week (i.e. ~4 hours saved * $20/hour).

However, I’ve also got the option to live further west in search of cheaper housing. Let’s say I choose to move to Henderson, where I pay a bit more in train fares (around $4.80 per trip) and save a bit of travel time relative to my old location. This only makes sense to do if it enables me to save at least $80 in rents for a similar dwelling. Otherwise, moving further out has made me worse off than simply staying in place and “banking” the travel time savings.

What we learn from this example is that the perceived benefits from relocating following the construction of new transport infrastructure, including lower housing costs or better quality housing, should be roughly equal to the added travel time cost of doing so. Economists describe this concept as the “spatial equilibrium” – i.e. people trade off housing and transport costs. As I found when looking at housing and commute costs in NZ cities, we can observe this trend empirically.

(That being said, there are reasons to think that moving further out in pursuit of cheaper housing is not necessarily a great idea. In The Happy City, Charles Montgomery argues that people overestimate the benefits they get from a bigger house, and underestimate the misery of longer commutes. But let’s set aside the impact of cognitive biases for the moment…)

The upshot of this is that, the standard approach to transport CBA actually seems to capture many of the benefits of new housing supply following transport infrastructure development. This sounds perverse – didn’t I say that transport models didn’t reflect reality very well? – but it makes sense when you think about how individuals make decisions about where to live and how to get around.

However, there are two caveats to this point. The first is that individuals don’t internalise all the costs (or benefits) of their location choices – there are externalities. If one location is better at generating positive spillovers in production or consumption (“agglomeration”), cheaper to serve with publicly-funded infrastructure, or responsible for fewer greenhouse gas emissions, it might be better to build infrastructure that will encourage people to live there. This is captured imperfectly in transport CBA at present – but it doesn’t have much of an impact on housing supply.

A second, more subtle issue is that our capital budget may be too constrained to deliver enough transport capacity to enable a sufficient supply of housing. For example, we may be pursuing a costly and land-intensive approach to supplying peak transport capacity that results in diminishing returns from investments. If that’s the case, we need to ask whether we have cheaper opportunities to add capacity to the transport network. (Or, alternatively, start raising taxes, which is always a popular option.)

What do you think about the spatial equilibrium in our cities?

Sunday reading 27 September 2015

Tim Harford, “What cities tell us about the economy“, Undercover Economist:

Jacobs is not the only person to argue that economic development may be profitably studied through a magnifying glass. A new research paper from three development economists, William Easterly, Laura Freschi and Steven Pennings, offers “A Long History of a Short Block” — a Shinohata-style tale of the economic development of a single 486ft block of Greene Street, between Houston and Prince Street in downtown Manhattan.

Easterly, a former World Bank researcher, is well known in development circles for his scepticism about how much development can ever be planned, and how much credit political leaders and their expert advisers deserve when things go well.

“Here’s a block where there is no leader; there’s no president or prime minister of this block,” he explained to me. Greene Street, he suggests, offers us a perspective on the more spontaneous, decentralised features of economic development.


The lessons of Greene Street? Getting the basic infrastructure right — streets, water, sanitation, policing — is a good idea. Aggressive planning, knocking down entire blocks in response to temporary weakness, is probably not. Predicting the process of economic development at a local level is a game for suckers. Most importantly, even a tremendous development success — the United States and, within it, New York City — is going to show some deep wrinkles to those who get in close.

Also from New York, here’s urban economist Ed Glaeser’s perspective on how that city could address its housing cost issues: “Build big, Bill“:

Mayor de Blasio’s focus on creating or preserving 200,000 “affordable units” over 10 years, many of which would come at the expense of market-rate units, offers the prospect of two permanently separate cities:

In one New York, the market-rate city, housing will be freely accessible to anyone willing to pay — but many will be priced out as increased affordability requirements raise building costs.

In the “affordable” New York, housing will be dribbled out unenthusiastically by lottery to lower-income renters by developers who have no incentive to treat them with respect but see them only as a cost of selling market-rate units that will be even more expensive to carry the subsidized ones.

The possibility of scoring a prized, below-market unit like the type the city creates through special carveout programs creates intense competition for these units; a flock of my graduate students once left class early to enter into the lottery for subsidized units in Boston’s new Mandarin Oriental.

Giving people a small shot of winning an affordable unit lottery is no substitute for encouraging the creation of a far more abundant supply of ordinary rental apartments. Radically upping that supply would leave far more New Yorkers able to rent something for a reasonable price on the free market, instead of allowing rents to continue to rise for most while a select few win access, via waitlists and lotteries, to a separate class of apartments at below-market rates.

Once upon a time, New York City understood this. In the early 1920s, we were building 100,000 new housing units, accessible to people across the economic spectrum, every year. As a result, the booming city remained affordable to working- and middle-class people like my grandparents.

How was this possible? For one, the city’s regulations back then were relatively modest, focusing primarily on safety and light. Thanks in no small part to that limited red tape, the cost of producing new units was relatively low, and — surprise, surprise — they got built.

In a similar vein, the San Francisco Bay Area Renters Federation asks: “How does adding expensive housing help the little guy?” They’ve put together a quite neat mathematical model to illustrate the dynamics of the market:

A central question of our housing debate is whether building new (expensive) housing protects existing low-cost housing, or destroys it. I have had the great fortune over the last year and a half to discuss this question with hundreds of people. What we all have in common is whatever side we take, we believe the relationship is perfectly obvious.

In an effort to clarify my own thinking, and double check that my mental model didn’t have any hidden internal inconsistencies, Davi Caetano, Phil Nova, Matt Lichti, Avi Flamholz, Jean-Ezra Yeung and I wrote a simulation of a housing market. Our initial conditions were 15,000 people and 10,000 housing units. Our intervention was adding 2,000 more “luxury” units.  What we found was that after adding luxury units, displacement decreased at every income level.


But who benefits from the new units? Is it only the higher income displaced people?

Let’s compare just the blue sections before and after the addition of the 2000 high-scoring units.


Displacement decreases in every income category, and completely disappears in the higher income categories. This is part of the result is particularly relevant to the conversation in San Francisco over whether to subsidize middle income housing, and whether to build “luxury” housing with abandon.

Renters who have very low and intermittent, or zero income – the elderly, people on disability, the temporarily unemployed – will need subsidies in order to afford to live in SF, or anywhere. That is uncontroversial. What’s phenomenal about the past few years in San Francisco is how many middle and higher income people are finding themselves displaced. Famous example: Kelly Dwyer. Dwyer works for the City of SF, and her husband is a firefighter. Nonetheless, they find they cannot afford the type of housing they want in San Francisco. Ironically, throughout her political career Dwyer has been an opponent of the rapid and substantial increases in residential housing capacity that would have enabled her to stay in SF.

Since we’re now in San Francisco, it’s worth reading Scott Weiner’s argument that “San Francisco should always have a subway under construction” in Medium. Weiner is a member of the SF Board of Supervisors, so his view carries some weight. Incidentally, while San Francisco is at the centre of an urban region of over 5 million people, the city itself has less than a million people. And it’s growing less rapidly than Auckland.

San Francisco is experiencing unprecedented growth. The city has 200,000 more people than in the early 1980s and 100,000 more than in the early 2000s. We are growing by about 10,000 people a year and are projected to add another 150,000 residents by 2040. We see the results of this growth on our streets every day, with more and more auto congestion and a harder time for our extensive bus network navigating the streets and meeting schedules. Indeed, Muni buses travel at the slowest average speed of any urban bus system in the country, at just over eight miles per hour on average.

We are working hard to make our surface transit system run more efficiently — reducing the number of cars on the road, increasing the number of buses and light rail vehicles, creating transit-only lanes and bus rapid transit lines. Yet, as important as this work is for our city, it isn’t enough. We need to move more transit underground, meaning we need more subways.

Subway construction is a critical part of the future of dense urban centers all over our country. New York, which is already served by an extensive subway system, is building the Second Avenue Subway to serve the east side of Manhattan. Los Angeles is expanding the Purple Line Subway, which will extend the city’s growing metro system from Downtown all the way to Westwood. Internationally, we have seen aggressive investments in subway systems pay off in places like Santiago, Chile, which has the second largest network in Latin America, after Mexico City…

If you read on, Weiner’s got some good ideas about institutional and funding changes needed to keep transport investment going.

Over at Washington Post’s Wonkblog, Emily Badger and Christopher Ingraham take a look at the most popular housing typologies in big US cities. A few interesting things pop out to me. Philadelphia and Baltimore are rowhouse cities (or terraced houses as they’re called in the UK and NZ) – pretty anomalous in the US situation. Los Angeles and Seattle have got a surprisingly large amount of large apartment blocks, but few rowhouses or small apartment blocks. And even some cities we think of as pretty sprawled out and subdivided – Atlanta, Houston, Denver – have a decent mix of apartments:

wonkblog most popular housing typology by city chart

However, all households aren’t created equal. A reader pointed me towards this disturbing article on rental tenancies in Auckland. (I rent, but I’m lucky enough to have a good landlady and a dry apartment. You shouldn’t have to be lucky to have a decent place to live!) Jess McAllen, “Rental nightmare: Are our tenants second-class citizens?” Stuff:

Damp spongy floors, peeling wallpaper and the smell of “mud” and “pond water” are recognisable descriptors to anyone who has lived with mould – which, it turns out, seems to be most Auckland renters.

Andrew King from the Property Investors Federation, whose group represents about 6000 landlords owning 22,000 properties, says that some of the power to stop it is in their hands. He says tenants often do things that encourage mould, such as not heating homes and drying clothes on clothes racks.

“A lot of tenants actually keep their curtains closed during the day. Both parties need to take responsibility for mould.”

Similarly, Housing Minister Nick Smith is proposing a $1.5 million education programme as part of his Minimum Standards bill to educate tenants and landlords about mould.

“The Green Party says mould is solely the responsibility of landlords,” says Smith in response to their alternative draft amendment to the Residential Tenancies Act of 1986. “But professional advice I have received is that mould largely depends on the way tenants are ventilating their homes.”

But the renters Sunday Star-Times interviewed, at least, have gone above and beyond their duties in ventilation – often spending lots of money on dehumidifiers and heat pumps – and find Smith’s comment patronising.

The dire conditions are making them sick, they say. In the case of one 20-year-old, mould destroyed the possessions of her dead mother.

Over on the other end of town, housing is a challenge for different reasons. In his NZ Herald column, Bernard Hickey reminds us that location is an important, if costly, “status good” for families: “The lure of the ‘Double Grammar zone’“:

Is there any more powerful phrase in the minds and spreadsheets of Auckland’s real estate chatterati than “double Grammar zone”?

Just the thought of those three words plastered across a real estate billboard is enough to make any red-blooded agent salivate. It’s also enough to make any property developer in the zones see stars and dollar signs. That’s why as many as 1800 apartments are expected to be built in the Auckland Grammar zone over the next three years.

But those three words and the thought of all those apartments is also enough to make the principals of Epsom Girls Grammar School and Auckland Grammar School go green at the gills.

Hickey looks at a number of ways that the desirable schools could accommodate growth. His last option seems quite elegant – in fact, Act actually proposed something similar back in 2003. Perhaps it’s time for the local MP to stand up for his alleged libertarian principles:

The final option is to simply turn the schools private. There is certainly plenty of demand for such assets. Private equity group Pacific Equity Partners is reported to be in talks to buy Academic Colleges Group, which includes schools in Auckland, for $500 million.

Perhaps the free market Act party could get behind such a public asset sale? That would be a double-riot option with a sideshow lynching of the local MP.

All the options are ugly, but are the inevitable result of creating a resource with public money that is highly desirable and virtually free to all those able to buy into the zones.

On a completely different note, here’s a fantastic TED talk by Swedish transportation researcher Jonas Eliasson. He’s looking at the success of Stockholm’s congestion pricing scheme:

Eliasson draws a good analogy between road networks and other complex social systems:

Planning a complex social system is a very hard thing to do, and let me tell you a story. Back in 1989, when the Berlin Wall fell, an urban planner in London got a phone call from a colleague in Moscow saying, basically, “Hi, this is Vladimir. I’d like to know, who’s in charge of London’s bread supply?”

 And the urban planner in London goes, “What do you mean, who’s in charge of London’s — I mean, no one is in charge.” “Oh, but surely someone must be in charge. I mean, it’s a very complicated system. Someone must control all of this.”

 “No. No. No one is in charge. I mean, it basically — I haven’t really thought of it. It basically organizes itself.”

It organizes itself. That’s an example of a complex social system which has the ability of self-organizing, and this is a very deep insight. When you try to solve really complex social problems, the right thing to do is most of the time to create the incentives. You don’t plan the details, and people will figure out what to do, how to adapt to this new framework.

According to Eliasson, even rather small congestion charges can induce a big change in behaviour and hence congestion. Incidentally, the fact that a 1-2 euro charge got 20% of traffic off the road during rush hours means that those rush hour trips weren’t very valuable to the people taking them – an insight that transport agencies should take into account when planning to expand peak road capacity at a high cost:

Stockholm is a medium-sized city, roughly two million people, but Stockholm also has lots of water and lots of water means lots of bridges — narrow bridges, old bridges — which means lots of road congestion. And these red dots show the most congested parts, which are the bridges that lead into the inner city. And then someone came up with the idea that, apart from good public transport, apart from spending money on roads, let’s try to charge drivers one or two euros at these bottlenecks.

Now, one or two euros, that isn’t really a lot of money, I mean compared to parking charges and running costs, etc., so you would probably expect that car drivers wouldn’t really react to this fairly small charge. You would be wrong. One or two euros was enough to make 20 percent of cars disappear from rush hours. Now, 20 percent, well, that’s a fairly huge figure, you might think, but you’ve still got 80 percent left of the problem, right? Because you still have 80 percent of the traffic. Now, that’s also wrong, because traffic happens to be a nonlinear phenomenon, meaning that once you reach above a certain capacity threshold then congestion starts to increase really, really rapidly. But fortunately, it also works the other way around. If you can reduce traffic even somewhat, then congestion will go down much faster than you might think.