What does New Zealand do to pay its way, in the global context? And what could it do differently?
These are an important questions because New Zealand is a small, trade-exposed country. We produce some of the things that we need locally, but many other things must be imported, which means that we need to export something in return. For instance, I’m writing this post in a flat built from bricks that were (probably) fired in New Lynn and timber that was sawn locally, sitting on a chair that was made in Auckland. But the computer I’m writing it on was assembled in China using parts and patents from all over the world.
I’ve previously taken a look at what Auckland exports, both internationally and to the rest of New Zealand. This time, I want to look at the picture for NZ as a whole, and see how we compare with a number of similar countries using data from the World Bank’s excellent World Development Indicators dataset.
The following table summarises some economic and population data on New Zealand and nine other small OECD countries. New Zealand is one of the smallest (4.6 million people, equal to Ireland), with the second-lowest GDP per capita ($37,800 USD, just ahead of Israel). In terms of urban development, we have a mid-pack urbanisation rate (86% of us live in towns or cities) and quite a lot of land per person (second only to Australia and Norway, which have much more hostile climates).
||2015 GDP per capita (current US$)
||2014 exports as a percent of GDP
||2015 urbanisation rate
||2015 and per capita (ha/person)
As this data shows, New Zealand also exports a comparatively low share of its GDP – only 28% in 2014, second only to Australia (20%). Other small OECD countries tend to export a considerably higher share of their GDP, indicating that they are more engaged with global trade patterns and potentially more successful in carving out economic niches for themselves.
The composition of exports can teach us something about how countries’ economies work. I’ve broken down exports into nine broad categories – five types of goods exports, and four types of services exports – to understand what these ten countries trade. That’s shown in the following chart.
We can immediately see that New Zealand doesn’t export much, on a per capita basis – around US$12,000 per person. (I’m ahead of my quota for the year!) Interestingly, we’re on par with Australia, which has a considerably higher GDP per capita.
As you can (hopefully) see, New Zealand’s exports are very heavily weighted towards food – almost half of our exports fall into this category, reflecting our specialisation in agriculture. But we’re not the biggest food exporter. The Netherlands actually exports more food per capita than New Zealand, in spite of the fact that it’s much more densely developed, with an average of 0.2 hectares of land per person compared with 5.7 hectares per person in New Zealand.
Clearly, density is not destiny: an increasing population doesn’t have to crowd out agricultural exports, provided that farmers and food processors are willing to specialise in higher-value products rather than just extruding tonnes of cheap commodity cheddar, and cities are allowed to go up in order to minimise demands to develop farmland.
However, the big difference between New Zealand and most other small OECD countries isn’t agricultural exports: it’s manufacturing and knowledge-intensive service exports. Notice the size of manufacturing exports (the blue bars) and computer, information, and communications services (the dark grey bars) in many of the other countries. Denmark, Finland, Ireland, Israel, the Netherlands, Sweden, and Switzerland all outperform us by a large margin in both areas.
What this data shows is that if we want to raise our standards of living, we will have to do different things than we’ve done in the past. We can undoubtedly get more value out of our agricultural exports – but, as the example of the Netherlands shows, the best way to do that is to invest in higher-value products, rather than increasing the dairy herd at great cost to water quality.
Ultimately, a transformative increase in New Zealand’s exports will require us to develop new products and services. For that, we need well-functioning cities. Manufacturing and knowledge-intensive services tend to be exported from cities, rather than rural areas. Increasingly, both industries benefit from agglomeration economies, such as the increased ease of sharing and generating knowledge in cities. They don’t necessarily occupy much land, but they do depend upon having a critical mass of skilled people and the right international connections.
What do you think of New Zealand’s export performance?
Elections last year in other English-speaking countries got me thinking about the urban implications of political geography. The US presidential election and the UK’s Brexit vote both featured large divides in voting patterns between big cities and rural areas and small towns.
As the Economist observed, the US electoral map actually consists of a whole bunch of Democratic-voting urban areas and Republican-voting rural areas, rather than red and blue states. Even in Texas, which votes consistently Republican, Houston voted massively for the Democratic candidate. The red areas in this map are mostly empty:
And as the BBC observed, the vote against Brexit was strongest in London, a few other large cities like Manchester, and Scotland, while smaller towns and rural areas went the other way.
As much as anything, this speaks of a cultural and political divide between urban and non-urban areas. Many people have written tedious articles on this issue, implicitly claiming that this area or that represents “Real America” or “Real Britain”. (My perspective: If you have a definition of “Real America” that excludes large cities, you’re doing it wrong because most Americans live in large cities.)
I don’t want to get into that debate here. Instead, I want to ask: Is the same thing happening in New Zealand? Are our large cities – Auckland, Wellington, and Christchurch – diverging from the rest of the country?
Demographically, Auckland is different. It’s faster-growing than the rest of the country, as is Christchurch. It has more young people, and more people who were born overseas. (Many of whom have come to identify as New Zealanders and share New Zealand values.) But is there evidence that Aucklanders think differently than people elsewhere?
Electoral returns provide valuable information on peoples’ preferences and values. Peoples’ votes reflect, to a degree, how they see the world and what they value. Consequently, I’ve analysed data from the last six New Zealand general elections (1999-2014) to understand how big-city New Zealanders compare to the rest.
Over this time, political parties’ fortunes have swung dramatically. The National Party’s share of party votes has been as low as 21% and as high as 47%, while Labour’s has been as low as 25% and as high as 41%. The Greens doubled their vote share over this period, from 5% to 11%, while NZ First came back from a brush with death due to a 4% party vote. Other parties – the Alliance, ACT, United Future – have ceased to exist or survived only as single-MP zombie parties.
Consequently, I’m most interested in changes in party vote shares in different places. That will tell us whether big-city Kiwis are responding to changes in parties’ perceived competence, policies, and the general economic and social environment as rural and small-town Kiwis.
The following chart summarises the share of party votes that National received in Auckland (23 electorates in 2014), Wellington (6 electorates), and Christchurch (5 electorates). I’ve started with National as it got the most party votes in the most recent election. This graph shows that:
- Auckland tends to vote for National at a similar rate to small-town and rural New Zealand
- Wellington, on the other hand, has diverged – it has been substantially less National-leaning than non-urban parts of the country since 2005
- Prior to 2011, Christchurch also seemed to be less National-leaning, but this gap has closed since the earthquakes.
Here’s a similar graph for the Labour Party. This time, Auckland has matched the “Rest of NZ” trend less closely, with the result that it is now somewhat more likely to vote for Labour than non-urban parts of the country. Wellington, again, has usually voted for Labour at substantially higher rates.
The Green Party is where things start to get interesting. Both Wellington and Christchurch give a substantially higher share of their party votes to the Greens than the rest of the country, and this gap has widened in every election since 1999. Auckland, by contrast, continues to vote for the Green Party at a rate that’s similar to small-town and rural New Zealand. This data doesn’t allow us to understand why – it could be due to policy preferences, or simply to the fact that the Green Party hasn’t historically had many Auckland-based MPs to campaign for the vote here.
Finally, New Zealand First. This is the only area where we can observe large divergences between how Aucklanders vote and how small-town and rural New Zealanders vote. Over the last six elections, there has been a consistent gap between the NZF party vote in the three big cities and in rural areas. This is likely to reflect NZF’s political positioning, including its opposition to immigration and advocacy for policies to support small towns rather than big cities.
The broad lesson from this data is that Auckland’s political preferences do not not seem to be diverging from small-town and rural New Zealand. Across the city as a whole, Aucklanders vote much the same as other New Zealanders. This is very different than the trend observed in the UK and US, where recent elections have brought differences in preferences and values into sharp relief. And it’s also different to the trend observed in Wellington, which is substantially more left-leaning than non-urban NZ.
A provocative hypothesis
Without getting into the rights and wrongs of different political parties – Transportblog is a nonpartisan endeavour – I would argue that this data is good news for Auckland and New Zealand. The way we vote suggests that we are less likely to suffer from the same ills as the UK and the US. And, over time, it should mean that we get better urban and transport policy from central government.
First, in spite of the demographic differences between Aucklanders and New Zealanders living outside the big cities, voting data suggests that we broadly share the same values and preferences. On the whole, Aucklanders have responded the same way to parties’ electoral appeals, suggesting that they too are bound by common interests and respond to the same economic and social trends.
This reduces the risk that we end up in a similar place as the US or UK – unable to agree on basic aspects of how our society should operate, with sharp divisions between people in different places.
Second, because Auckland sits in the political centre, political parties must pay attention to its needs if they want to get elected. As the past six elections show, Aucklanders’ votes are available to centre-right parties and centre-left parties, provided that they make a good case for themselves. And, unlike in the US where you can win the presidency while losing New York, Los Angeles, Chicago, San Francisco, Philadelphia, Boston, Denver, Seattle, inner Atlanta, etc by 50 percentage points, it’s not possible to lose big in Auckland and win the national election.
This is a very good thing for Auckland, as the city has some unique needs as a result of its rapid population and economic growth. It needs policy support to enable it to build more housing, especially in the existing urban area, and transport investments that are fit for purpose, including greater attention to its rapid transit network and urban cycling. These ideas are broadly popular with Aucklanders:
Local government can address some of this, but central government needs to come to the party as well as it is an important source of funding and policymaking. The politics of Auckland create strong incentives to do that. Over time, this will mean a city that gets more of its problems fixed, and more of its opportunities realised. And New Zealand as a whole will benefit from having a more productive, dynamic city that can, say, pay taxes to fund comfortable retirements in Whakatane and Timaru.
What do you think about the way Aucklanders vote?
This is part of an ongoing series on the politics and economics of zoning reform. Previous posts have argued that the benefits of enabling urban development generally outweigh the costs, but that local government political dynamics may serve as a barrier to achieving those benefits. As a result, any plausible reform programme must account for political and institutional dynamics, which can either speed or stall change.
As I wrote a few weeks back, California has ended up in a mess on housing due to the unintended consequences of 1970s-era legislation that made it harder to get new housing approved (and easier for neighbours to object) and reduced the financial incentives that local government have for approving development. This has led to rising prices and housing affordability problems.
As an example of how hard it can be to consent new developments, especially in existing urban areas, take a look at this article from SFist:
Developers initially intending to turn a Mission District auto shop into 20 units of housing have backed away from that plan following a ruling by the city that the building has historical significance. Curbed reports that likely because of that determination, and the resulting requirement that any alteration to the 20,400-square-foot auto shop at 3140 16th Street retain said significance, Texas-based developer Mx3’s plans to demolish the building are no longer viable and the company will instead look to build a two-story restaurant.
Mx3 wouldn’t confirm, but a community meeting notice obtained by the publication lists the proposed building as having exactly zero housing units.
Here’s the building in question. As auto body shops go, it’s nice, but is it nice enough to justify a two-year consenting process that ultimately resulted in nothing being built?
California’s housing affordability crisis is made up of tens of thousands of similar stories. Developments that could have gone ahead, providing people with housing, but which instead got mired in interminable consenting processes and endless rounds of public notification and objections. I’m all for public input on plans – it’s legitimate to have a say on how your city will evolve – but at a certain level this becomes insane.
Earlier in the year, California Governor Jerry Brown proposed legislation to try and modestly reform California’s system for consenting new housing development. In effect, the present system doesn’t allow ‘by-right’ development – you have to apply to the city for a permit to build even if the development complies with the zoning code. Brown had suggested creating an exception for developments that comply with the zoning code and provide a certain amount of ‘affordable’ units.
This is about the most mild reform imaginable, but it still went down in flames. The Los Angeles Times reported on the reasons for the bill’s failure back in September:
The measure challenged the primacy of local control over housing, inflamed powerful entrenched interests and was eyed warily by the very groups representing those the plan was supposed to help.
Because of the resistance, Brown’s effort became so unpopular in the state Capitol that not one of 120 lawmakers was willing to publicly stand behind it. After weeks of little action, the plan died a quiet death last month, never having received a vote in the Legislature.
The truly astounding thing was that the opposition to the bill was led by the groups that would have the most to gain from enabling more infill and redevelopment in cities:
Labor unions and environmental groups, both highly influential on the state’s ruling Democratic majority, became the proposal’s fiercest antagonists.
Their beef? Brown’s plan would have allowed qualifying projects to avoid additional review under the California Environmental Quality Act, known as CEQA, the state’s chief environmental law governing development.
The 1970 law has helped preserve the state’s environment, but has also been sharply criticized by many including Brown, who contends its restrictions can strangle development and that it’s abused by labor unions and others to leverage labor-friendly hiring rules and other perks.
Robbie Hunter, the head of the State Building and Construction Trades Council, acknowledged that some labor groups have used the environmental law this way. But he argued that’s no different than developers and businesses that have also threatened CEQA lawsuits to stymie rivals’ projects.
Ordinarily, you’d think that construction unions would benefit from enabling more construction in the midst of a housing crisis, while environmental groups should appreciate the fact that more medium-density development can help to curb urban sprawl. But not in California!
The most perverse element was the opposition from low-income tenants groups:
Aimee Inglis, the acting director for Tenants Together, a statewide advocacy organization for renters, said the governor’s proposal wasn’t going to improve renters’ lives. The more acute crisis isn’t the housing shortage, Inglis said, but rather land speculation and other forces driving poor residents from their communities.
Brown’s plan would have made it easier for developers to tear down existing housing to build new homes. Even if that new construction created more units for low-income residents, it still would have displaced those who have lived in neighborhoods for a long time, Inglis said. Beyond that, she said, removing some local approval would have cut renters from debates over where housing should go and what it should look like.
“We support affordable housing,” Inglis said. “But it’s not important enough right now for us to give up all this other power.”
I’ve put the last sentence in bold because it nicely explains why it is so difficult to reform California’s zoning and planning system. Essentially, the current system is badly broken, and the outcomes for housing affordability and social equity are terrible. But it’s also a system that gives many people leverage, in the form of multiple opportunities to object to development, propose referendums to carve out more for themselves, or partially insulate themselves from the adverse consequences of housing unaffordability (eg rent control).
While reforming the system would lead to better outcomes, the first step requires many of those people to give up their power to oppose or direct outcomes for development. That feels risky, and people don’t want to do it.
This tells us two important things about how to approach zoning reform in other places:
- First, reform is easier if there are fewer ‘veto points’ for new development to start with. Opportunities to oppose give people power, and they will be reluctant to give it up later on, even if it turns out that there are unintended negative consequences. This doesn’t mean forsaking environmental reviews or notification to neighbours, but it does mean that it’s important to think carefully about how processes will work in practice.
- Second, the politics of zoning reform tends to dominate over the economics. In other words, it’s not enough to prove that the outcome from reform would be better for society as a whole. Rather, it’s necessary to provide people with some certainty that they will be better off as a result of giving up power. Unfortunately, this often resembles ‘buying off’ politically powerful groups, which isn’t really that desirable.
What do you make of the California experience?
The Motu Institute recently published new research into the urban productivity premium in New Zealand, or the degree to which firms and workers in big cities tend to produce more and earn higher wages. This is an essential issue for urban and transport policy as it gets to the heart of why we have cities. As we’ve discussed in the past, cities offer opportunities for better connections between firms, workers, and customers, leading to better economic outcomes. (Economists usually describe this as agglomeration economies.)
In the paper – with the enthralling title of “Urban productivity estimation with heterogeneous prices and labour” – researcher Dave Maré sets out to update and extend some of his previous work on the topic. His new research investigates two issues that might bias estimates of the urban productivity premium:
- Imperfect competition in small markets: Firms in large cities face more competition and hence will tend to have less market power (ie ability to jack up prices) than firms in small cities. This tends to result in low estimates of the urban productivity premium.
- “Sorting” of skilled workers into cities: People with higher skill levels – which could mean more education, more experience, or better ideas – tend to gravitate towards cities. (Similarly, cities tend to have different mixes of firms and industries.) Not controlling for this can result in a high estimate of the urban productivity premium.
Even after controlling for these factors, Maré finds evidence of a non-negligible productivity premium in Auckland. That is,
We document an urban labour productivity premium, with Auckland firms having labour productivity that is 17.9% higher than that of firms in other urban areas, and 17.0% higher than firms in rural areas. Some of this premium is due to the mix of industries in different cities. Auckland has a disproportionately high share of employment in industries that have above average labour productivity. Adjusting for this composition reveals a smaller, but still sizeable, premium of 13.5% relative to other urban areas, and 11.3% relative to firms in rural areas.
Here’s a chart showing how other parts of New Zealand compare to Auckland in terms of productivity, after controlling for industry mix, workers’ skill levels, imperfect competition, and a range of other factors like firm size. (This chart is based on the first column in Table 3 of the paper.) As you can see, firms in Auckland are more productive than firms in other parts of NZ, with Wellington (4.2% less productive) and Tauranga (9.4% less productive) being closest to Auckland.
It’s worth noting that Maré’s new estimates of Auckland’s productivity premium are considerably smaller than his previous ones. In a 2008 paper, he estimated that firms in Auckland were around 51% more productive than firms elsewhere in New Zealand. These are obviously very different numbers! But, as explained in an appendix, the majority of the differences are due to different procedures regarding data selection and processing.
Notwithstanding the exact number, Maré’s new analysis raises a few important conceptual questions about the urban productivity premium. His analysis shows that a large share of the difference in productivity between big cities, small cities, and rural areas is down to the fact that skilled workers tend to sort themselves into cities. When we control for workers’ skill levels, we tend to get lower estimates of the urban productivity premium. Or, if you prefer that in economese:
The meta-analysis by Melo et al. (2009, Table 4) reports that studies that control for labour quality generally yield agglomeration elasticities that are 5 to 6 percentage points lower than studies that do not. In the current study, labour quality adjustment lowers the estimated agglomeration elasticity by 0.057 (from 0.079 to 0.022).
However, I’m not sure it is totally appropriate to adjust for skill levels, as it’s possible that cities’ ability to attract and retain talented, innovative, and motivated people (and productive firms) is in fact a type of agglomeration economy. In other words, we might be controlling away the effect of interest!
Open migration between Australia and New Zealand means that people who can’t find an appropriate place (urban and economic) in New Zealand can easily go to Australian cities. So the alternative for skilled people who are dissuaded from living in Auckland isn’t necessarily that they’ll go and start up a business in Hamilton. Instead, they might head across the Tasman, where their skills are totally lost to New Zealand.
What does this mean for urban policy in New Zealand? I’d tentatively identify two key ideas we might want to focus on in order to allow our cities to get better at attracting and retaining productive people and firms.
First, we need to think hard about whether our policies make it attractive for mobile people to come to (or stay in) our bigger cities. This is a key consideration for, say, urban planning reform, as high housing prices driven by constraints on housing development are an important barrier to people coming or staying. Evidence from the US suggests that, if left unaddressed, high house prices can systematically dissuade people from moving to productive places where they can put their skills to best use.
Second, we also need to think about how to preserve and enhance the amenities that are on offer in New Zealand cities. Our relatively clean air, reasonably well-preserved coastal environment (clean beaches, marine reserves, etc), and accessible forests and natural parks are important attractions, but other areas are letting us down. For instance, rural and small-town water quality is rapidly declining due to expanding dairy farming.
More relevant to transport, street design in New Zealand is pretty retrograde, leading to a lack of high-quality public spaces where people actually want to be. All too often, we insist upon shoving cars down corridors, heedless of the fact that some streets have higher value as places to be. But we know we can do better: places like O’Connell St and Wynyard Quarter give many people joy on a daily basis.
What do you think about the urban productivity premium? And how can we get more of it?
Last week I was in Brisbane for work. There seem to be quite a few cranes around the city, including midrise apartment developments creeping along the riverfront to the west of the city centre. The Brisbane CBD proper is still quite sterile at night after all the office workers have left – it’s an absolute pain in the neck to try and find dinner. But it seems to be developing little live-work satellites along the side of the river.
Transportblog kept an occasional eye on development trends over in Australian cities as a sign of what could happen in Auckland. (If urban planning rules and the development sector were geared up for it.)
New data suggests that Australia’s apartment boom is paying off: Prices are levelling off and potentially even falling, and city centres are becoming increasingly vibrant around the clock due to an upsurge in residential population.
However, the odd thing is that this success story is being reported as a bad thing by Australian journalists.
First, Jonathan Pearlman (The Straits Times) warns that an “apartment glut looms in major Aussie cities“:
In the two largest cities of Sydney and Melbourne, high prices and strong demand for properties in the inner city or near railway stations have led to a dramatic shift away from houses to apartments.
The central bank and analysts have warned of a looming “apartment glut” which could deflate the nation’s soaring property market.
Economist Shane Oliver from AMP Capital told The Straits Times that apartment prices in parts of Sydney and Melbourne are likely to fall by about 15 to 20 per cent over the next two years.
The falls could cause a broader decline across the market, even though some areas, especially in Sydney, still have an undersupply of housing.
“We have a huge spike in supply of apartments over the next couple of years, often in fairly concentrated areas,” he said. “It will cause an indigestion problem.”
This seems like an excessively negative spin. Personally, I would describe this as “improving housing affordability” rather than an “indigestion problem”. But regardless of how you describe it, it does seem clear that building lots of apartments can improve affordability. (As it seems to have done in the Auckland city centre.)
Second, Michael Bleby and Nick Lenaghan (AFR) say that “things not so great when you go downtown” in Sydney and Melbourne. Again, this seems like a good-news story being spun as bad news:
Neither Sydney nor Melbourne is the old-fashioned post-5pm ghost town it once was – when Australia’s army of office workers deserted its day time environment en masse for homes in the suburbs.
The country’s two largest CBDs are now thriving residential centres. People walk their dogs, buy their groceries and exercise on streets that just decades ago were limited to suit-wearing, white collar employees.
“You couldn’t have envisaged this, given our suburban history and the fact that the city just died at night,” says Sydney Lord Mayor Clover Moore. “Australia’s grown up in the last couple of decades.”
That change in Sydney and also further south, in the Victorian capital, marks a huge turnaround. The problem is, it’s too successful. A city can’t thrive on residents alone. It needs workers – preferably highly paid ones – in industries that make the city a place people want to go to.
We’ve also seen this in Auckland. Unprecedented and unexpected growth in the city centre population has led to a downtown revival: More people, more restaurants, more street life. This is a basically good thing, as it means a city where people can get more of the things that they want.
However, perhaps it’s possible that things can get out of whack – that development can tilt too far in one direction for a while, and “crowd out” other uses. The problem is that the “solutions” proposed in Melbourne and Sydney are likely to make the problem worse. Take this for instance:
In Melbourne, the state government has introduced plot ratios to rein in the extent of development on each site. In a bid to swing the balance back toward commercial space, developers can win additional height if they provide a “public benefit” which, oddly enough, these days includes office space.
[…] The sort of tenants that global cities are seeking to attract – the offices of global corporations that in part sell themselves to their own customers based on their prime global footprint – won’t just swap the CBD for somewhere nearby, Rawnsley says.
“If they can’t find a home in the Sydney CBD or the Melbourne CBD, they’re not going to go Box Hill or Parramatta, they’re going to Singapore or Shanghai or Tokyo or Seattle,” he says.
If a lack of office space in the city centre is driving economic growth and productive firms to locate in other cities instead of Melbourne, restricting the size of buildings in the Melbourne city centre will almost worsen the problem, not improve it.
What do you think of the news from Australian cities?
Auckland Council and the Government have recently signed an official agreement to jointly fund the City Rail Link (CRL) – a move that both had previously committed to in principle, but not on paper. This is good news for the city, as it gives us certainty about how CRL will progress. (It is also a fine example of the value of good analysis and patient persuasion – this government was initially very skeptical of the project but has gradually changed its tune.)
Given Auckland’s constrained geography and lack of future transport corridors, CRL probably won’t be the last major tunnelling project we investigate. If we want additional transport corridors, we’re going to have to reclaim land, build bridges, or dig tunnels.
Auckland: pinchpoints and natural corridors of demand
So it’s worth asking: Are tunnelling costs reasonable in Auckland? Could they be reduced? These are important questions. The cheaper tunnelling is, the more transport corridors we’ll be able to buy in the future.
To help answer this question, Alon Levy at Pedestrian Observations compiled a nice dataset of construction costs for rail tunnels (part 1, part 2). He gathered data for over 40 rail tunnel projects that have been completed or planned over the last decade or so. While the data is a bit imprecise – based on a mix of ex-ante cost estimates and ex-post contract costs, and converted between currencies using purchasing power parity exchange rates – it provides a useful basis for benchmarking CRL costs.
According to the full business case released in July 2016, the midpoint estimate for the cost to construct and commission the CRL is $2.5 billion, once adjusted up for expected future inflation. Here’s how the cost profile is expected to go:
Converting this back to 2010 US dollars is not an exact science, because we’ve got to adjust for recent and future inflation and purchasing power parities between NZ and the US, but as a rough estimate I would say that the CRL cost is equivalent to around $1.4bn in 2010 US dollars. As CRL is 3.4km long, this equates to costs of around US$410 million per km.
Here’s a chart showing how CRL costs compare to the costs for 42 other urban rail projects. (Note that a number of the projects on the lower-cost end of the scale had significant above-ground portions that tend to be cheaper to build.)
All in all, the CRL is ranked 11th on cost – it’s on par with the costs of the Amsterdam North-South Line or Budapest Metro Line 4. It’s nowhere near as expensive as recent underground rail projects in New York or London, which tend to cost more than $1 billion per kilometre. But nor is it as cheap as metro extensions in Spain or South Korea, which cost more like $100 million per kilometre.
For reference, here’s a subset of the data for 19 projects, including the City Rail Link. This shows a few important facts:
- First, project costs vary more between countries than within countries – all of the projects in the US are ludicrously expensive, all of the projects in Japan are mid-pack, and all of the projects in Spain, Italy, and South Korea are cheap.
- Second, there is basically no correlation between project scale and per-kilometre costs. It isn’t necessarily cheaper (or more expensive) per kilometre to build longer tunnels. However, there are likely to be other economies and diseconomies of scale that are harder to observe, such as crowding-out when trying to complete too many projects at the same time.
||Approximate cost per kilometre (million 2010 USD)
||East Side Access
||New York (US)
||Second Avenue Subway Phase 1
||New York (US)
||San Francisco (US)
||Singapore Downtown MRT Line
||Amsterdam North-South Line
||City Rail Link
||Budapest Metro Line 4
||Toei Oedo Line
||Nanakuma Line Extension
||Paris Metro Line 14
||Copenhagen Circle Line
||Naples Metro Line 6
||Milan Metro Line 5
||Seoul Sin-Bundang Line
||Seoul Subway Line 9
||Barcelona Sants-La Sagrera Tunnel
Lastly, we should be asking: What can we do to be more like South Korea or Spain when it comes to tunnelling costs? Some of the differences between locations are likely to be impossible to change, as they depend upon geography. But others are possible to change, as they relate to construction methods, design standards, and processes.
A few years ago, Alan Davies (Crikey) identified a few of these factors:
Toronto transit advocate Steve Munro… analysed a report by transit agency Metrolinx comparing the cost of tunnelling for Toronto’s new 6.4 km Sheppard Subway with that for the new 40.5 km MetroSur line in Madrid. Madrid is a popular benchmark because it has literally built hundreds of kilometres of new heavy/light rail lines over the last 40 years.
After adjusting for differences in how land acquisition is costed, he says the respective costs of Sheppard and MetroSur were $142.5 million per km and $87.1 million per km. Both lines opened at the same time. The key differences Mr Munro identifies are:
- No environmental assessment was conducted on MetroSur
- The standards for fire safety are more stringent on Sheppard
- Stations are 50% longer on Sheppard
- Non-tunnel construction was undertaken 5×12 on Sheppard, compared to 7×24 on MetroSur
- Sheppard was built with dual tunnels, MetroSur with a single tunnel. Mr Munro says “the trains in Madrid are smaller and require a smaller combined tunnel than would be the case in Toronto. Single tunnels eliminate the need for cut-and-cover box structures at crossovers and effectively reduce the scope of excavation at stations where these crossovers are located”.
- The use of cut-and-cover tunnelling on Sheppard was confined to stations, but it was used for 30% of MetroSur
- It was more expensive to tunnel through the glacial rocks and streams of Toronto than the compacted sand of Madrid
- MetroSur provided greater economies of scale as it was one of a number of projects. “Construction activities simply moved from one project to another rather than being reconstituted for each expansion, and more of the design was done during construction.”
- Sheppard has two large interchange stations over its 6.4 km, whereas MetroSur has five interchanges over its 40.5 km
Physical factors like geology explain a lot of the difference between Sheppard and MetroSur, but so too do standards. Community expectations on a range of variables – for example environmental standards, engineering and operating standards, safety standards, the level of citizen input – appear to be key drivers of higher costs in Toronto. It seems there is a very strong commitment in Madrid ‘to get on and get it done’.
In other words, if we’re going to build more tunnels in the future, we had best be prepared to commit to the concept and take a hard look at how we can get things done more cheaply.
What do you make of the data on tunnelling costs?
This is a repost of an article I wrote last December explaining why I’m optimistic about housing affordability in Auckland – and New Zealand’s ability to solve problems in general. I think my optimism has held up reasonably well. Since then, New Zealand’s conversation on housing affordability and urban planning has matured in some important ways – crystallising in the response to the Independent Hearings Panel’s recommendations on the Auckland Unitary Plan.
As Toby Manhire observed, “the most remarkable thing is the response… on the whole it’s been incredibly positive”. Reasonable people could have reservations about aspects of the IHP’s recommendations, but most of the views I’ve seen recognise that the finished plan is a good step forward to solving the housing challenges the city faces.
Meanwhile, the UK has voted to Brexit the EU and a large share of Americans – possibly even a majority if we’re unlucky – are planning on voting for Trump. So New Zealand seems to be ahead of the curve on pragmatic problem-solving. Yay!
What’s the problem?
Housing is expensive in New Zealand, especially in Auckland, where median house prices have increased fivefold since the early 1990s (in nominal terms). Roughly half of this increase has occurred in the last four years, which is causing quite a bit of concern:
Housing markets are complex – prices are influenced by both demand-side and supply-side variables. As a result, it can be difficult to tell a single, simple story about why prices have gone up or down in any given year. Take the recent rise in Auckland house prices. Some people argue that it’s a financial bubble (a demand-side explanation); others blame high migration (demand) or distortionary tax policies (demand); and others cite inflexible planning rules (a supply-side explanation) or low construction productivity (supply).
Although short-term dynamics can be mysterious, elasticity of housing supply is the main long-term driver of housing market outcomes in a growing city. The easier it is to build new dwellings in the right places in response to increased demand, the less upward pressure there will be on prices.
The empirical evidence suggests that housing supply in Auckland is slightly inelastic – somewhere in the range of 0.7 to 0.9. This isn’t horrible, but nor is it sufficient to get housing supply in balance with demand.
Severe geographic constraints – Auckland’s harbours and steep hillsides – appear to be an underlying driver of the city’s inelastic housing supply. In this context, settling for average urban planning policies means getting a limited supply of housing and high prices. Consequently, we have to make it much easier to use scarce land efficiently. That means reforming our approach to planning regulations. In the past, we adopted land-hungry policies like minimum parking requirements or severe building height limits without thinking through their ill effects. That has costs, and we need to do better.
Auckland is not the only city coping with high housing prices and a lack of supply – you see similar problems in places like London, New York, San Francisco, and Sydney. However, I would bet that New Zealand will do a better job sorting out its housing affordability issues than other places. In fact, I am betting on it! I’m renting in Auckland, which means that I bear all of the downside and none of the upside of spiraling housing prices.
There are three reasons for my optimism:
1. Our proven track record of policy reform
Let’s start with a pat on the back. Having lived in New Zealand, the United States, and Nigeria, I’d say that Kiwis are, by and large, pretty reasonable when it comes to public policy. We’re not very corrupt, which removes one major source of inefficiency. We generally recognise that as a small, distant trade-exposed country we can’t afford to do things inefficiently. And, due to New Zealand’s small size, there’s usually no need to over-complicate things.
Policymaking anywhere will always be subject to cognitive and professional biases – people screw things up, and sometimes it takes a while to sort it out – but New Zealanders don’t seem want totally irrational or insane policies. Unlike the US, say:
Possibly as a consequence, New Zealand has a record of reforming policies that aren’t working, either incrementally or in one go. The classic example of this is in trade policy. From the 1930s to the 1980s, the New Zealand government oversaw an extensive set of import controls. Te Ara describes this policy:
Faced with declining export returns and a foreign exchange crisis, a Labour-led government introduced foreign exchange controls and import licensing regulations in 1938. The regulations prohibited the import of any goods except under licence or where exempted.
Importers had to apply to government for both an import licence and the foreign exchange needed for purchases. The quota – the amount that could be imported with a licence – was set on the basis of imports the previous year.
Just as restrictions on the efficient use of land produce windfall gains for landowners while foisting large costs on renters and new home-buyers, import licensing created fortunes for some manufacturers while making most consumers worse off. As a consequence, after experimenting with some liberalisation of trade policy in the 1970s and 1980s, the remaining import controls were swept away in the late 1980s.
Recent changes in transport policy also demonstrate our ability to reform bad policies. Over the last decade, there have been some important, although undoubtedly incremental, moves to reform our inefficient monomodal urban transport system.
For example, last year I reviewed a 2010 research research report on deficiencies in NZ’s public transport planning and operations – and was surprised to find that almost all of its recommendations are being implemented in Auckland, Christchurch, and other places. Since 2010, Auckland has:
- Established a public agency (AT) that can plan and deliver a PT network and supporting infrastructure
- Developed and begun implementing a frequent, connected network that satisfies best practice network design principles
- Reformed bus contract models
- Implemented integrated ticketing (and soon, integrated fares)
- Started to build bus interchanges and bus lanes.
This is a big deal, but it’s hardly the only story in town. How about the fact that central and local governments are now coming to the party on urban cycleways? For the first time ever, significant investments are going towards one of New Zealand’s “missing modes”.
We now have an opportunity to take the same approach to urban planning – reform what isn’t working and get better outcomes.
2. The structure of our governments
The current structure of New Zealand’s governments makes it easier to implement reforms and make them stick. We have two key advantages in this area that offer a smoother path to policy reform.
First, New Zealand’s government has a unitary structure rather than a federal one. This means that most powers are concentrated in central government rather than distributed among multiple layers of government. Political centralisation certainly isn’t all good – in the past it’s often led to a perverse situation in which urban transport policy is being designed by rural politicians.
But in this case, it makes policy changes much easier. If central government were to, say, issue a National Policy Statement on urban development or rewrite sections of the Resource Management Act (which governs the development and implementation of urban planning rules), it would lead to changes in the way that local governments regulate. That option isn’t usually available in federal systems.
Because any proposal to liberalise planning rules inevitably creates controversy at local body election time, central government involvement can potentially assist in getting important changes over the line.
Second, the creation of the unified Auckland Council ensures that all growth tradeoffs – and the negative consequences of preventing growth – are internalised within a single council. Gone are the days when councils could simply refuse to zone for growth and assume that it would become someone else’s problem instead. Now a single council is responsible for sorting the region’s problems out.
You can see the results in the Unitary Plan – a document that’s not perfect (no plan is!) but which takes some important steps forward. For example, it removes MPRs from the centre zones, which are intended to accommodate a mix of business and residential uses, cuts back minimum lot sizes throughout much of the city, and creates some midrise residential zones.
Amalgamation does come at a potential cost to Tiebout competition, in which adjacent councils compete for growth. But I suspect that the benefits outweigh the drawbacks. As the San Francisco Bay Area shows, local government fragmentation doesn’t necessarily result in more housing supply – the Bay Area has 93 local governments but building permits have still been falling since the 1970s.
New Zealand’s unitary government structure and the creation of a consolidated Auckland Council create the potential for “virtuous cycles” in which local and central government egg each other on to improve urban planning regulations and processes. To date, this has led to things like the Special Housing Areas, which aims to ease consenting in selected areas, and the Unitary Plan hearings process, which is intended to review the plan and allow it to be implemented faster.
The hearings process, in particular, has encouraged Auckland Council to think carefully about its proposed zoning rules. For example, following instructions from the hearings panel, the council is considering rezoning some areas to enable more housing. This is an important step towards recovering from the ill effects of past down-zoning.
3. The political agenda
Lastly, housing affordability has hit the political radar at a national level. There is an increasing consensus that reforms to urban planning rules are a key part of the solution. The latest Productivity Commission report on using land for housing outlined some key policy changes, and politicians from several major parties have subsequently endorsed a number of these recommendations. For example:
In other words, there is likely to be cross-party support for sensible reforms to urban planning that build on the good work that’s already been done by central and local government.
Globally speaking, it’s somewhat unique – and fortuitous – to have so much attention placed on urban planning issues at both a local and central government level. For example, in the US, a few economists in the Obama administration are starting to talk about the drawbacks of overly restrictive planning regulations. But President Obama has very little ability to influence zoning in San Francisco or New York.
New Zealand is different. We are generally willing to reform policies that aren’t working for us, we’ve got government structures that can facilitate that reform, and our elected representatives are paying attention to the problems and potential solutions. Those seem like good reasons for optimism!
Can cities fill up? Has Auckland simply become too populated to accommodate any more people, as some have argued? Do we need to put up the “closed” signs?
In a word, no. There is plenty of room to accommodate more people within the existing urban footprint, although doing so would require us to do things a bit differently. It wouldn’t mean losing the things that make Auckland special – but it could mean that we gain some new amenities.
Emily Badger over at Washington Post’s Wonkblog has put together some interesting graphics showing how cities almost always have the capacity to accommodate a few more people. She writes:
Echoes of a similar suspicion to the contrary, though, are widespread in how we talk about the places where we live. The entire city of San Francisco is “cooked. Done.” There’s no more room in Silicon Valley, either. Brooklyn is at capacity. Boston, too. The nicest parts of Northwest Washington long ago reached the limit. Chicago’s coveted Lincoln Park wants fewer people. Even whole countries now suffer from this condition: Britain just can’t take in any of those refugees because the island, at long last, is full.
Built into these arguments is a powerful but slippery contention: It is possible to fill up a place…
“Economists reject absolutes like ‘full’ and ‘need,'” says Joe Cortright, one of several urban economists I asked. “It’s always about tradeoffs and choices.”
Cities, in particular, are about tradeoffs between hectic streets and vibrant economies, between scarce parking and neighborhoods worth traveling to, between cramped subway cars and the mass of humanity that makes the subway possible.
And so, from an economist’s point of view, there is no such thing as a full place. Especially not in America, where our neighborhoods, as urban planning professor Sonia Hirt puts it, are “astonishingly low density” compared to the rest of the industrialized world. Maybe your particular geology can’t handle the foundation of a mile-high skyscraper. But, for the most part, we can always make choices to make more room, to build taller and denser, to upgrade schools and rethink roads to let more people in.
That we don’t isn’t a limitation of physics. It’s a matter of politics disguised as physics.
Here’s one of their graphics showing how much more intensely urban space is used in different places. (Side note: these figures are based on average density across the urban area, which can be misleading in some cases. Population-weighted density is a far better measure.) If you’re at the bottom end of this range – as Auckland is – it’s hard to argue that it’s physically impossible to build up a little bit.
However, points on a map don’t necessarily feel very real. So here’s another comparison between Auckland and San Francisco (via Mikavaa). As you can see, the Auckland isthmus is about the same size as the tip of the San Francisco peninsula:
We can see the difference between the two cities even in a satellite map. San Francisco’s urban footprint shows up as a swathe of white and grey, while Auckland’s is largely a mix of green and muddy grey. That’s not to say that San Francisco is all concrete jungle. It’s preserved extensive urban parks – the Presidio, Mount Tamalpais, Ocean Beach, McLaren Park, Golden Gate Park, etc – and reclaimed much of its waterfront for people. But its parks, unlike Auckland’s are situated within a densely-developed, productive, high-amenity urban fabric.
A comparison with San Francisco, a city with similar geographic constraints to Auckland, shows how inefficiently our limited space is used. The tip of the San Francisco peninsula houses around 1 million people. The Auckland isthmus accommodates less than 400,000 people. (The San Francisco figures include San Francisco City, Daly City, and South San Francisco; the Auckland figures include the Waitemata, Albert-Eden, Puketapapa, Orakei, and Maungakiekie-Tamaki local boards.)
Although San Francisco is over twice as densely populated as the Auckland isthmus, it isn’t exactly compromising on aesthetics or amenity. The city is widely appreciated for its beautiful natural settings, which are enhanced by appropriate infrastructure:
It’s also known for its historic buildings and beautiful neighbourhoods. Here’s an example of a fairly typical form for a San Francisco neighbourhood – lots of timber-framed midrise buildings close together:
And lastly, San Francisco’s always had a vibrant and innovative culture, both in the arts and in the booming tech industry. In other words, the city’s density has supported, not undermined, its natural surroundings, built environment, economic productivity, and cultural vibrancy. Of course, the city’s got some challenges – such as high housing costs resulting from limits to further intensification – but they are largely a consequence of its success as a dense place with high amenity and high productivity.
But overall, what this comparison shows is that Auckland has the potential to use its limited land area far more efficiently – without compromising our natural or urban environments.
Aucklanders (and, I suspect, people in general) complain about high and rising property taxes. But are our rates actually too high? Compared to what?
An article last year reported on what ratepayers are paying in each of New Zealand’s territorial authorities:
Not surprisingly, rates in the most sought-after areas are also high. Those living in Auckland, where the average household income is around $76,000, face annual bills of $2636. The average house price in Auckland was $678,533 in February.
But residents in Christchurch face comparatively low bills. At $1706 a year, they make the top 10 for cheapest rate bills.
In other words:
- In 2014, the average Auckland ratepayer paid rates equal to 0.39% of their property’s value ($2636/$678,553). This year, of course, that figure will be lower as property values have increased much, much, much faster than rates bills.
- In Christchurch, the average ratepayer paid rates equal to 0.37% of their property’s value ($1706 divided by the average home price of $462,086).
The article didn’t bother comparing New Zealand’s rates bills with property taxes in other countries, so I went out and gathered some data on property taxes in the US and Canada, two countries that are frequently cited as examples for New Zealand to follow. (Albeit sometimes for very different reasons.)
Before getting into the figures, I should say that this isn’t a perfect comparison, because:
- There are more layers of government in Canada and the US, due to their federal systems
- Local governments in Canada and the US have more fiscal responsibilities – schools are funded by local governments in the US and provincial governments in Canada, for example
- But they also have more options for levying taxes – in the US, local governments can impose income taxes, sales taxes, and business taxes. In Canada, provincial governments can do the same.
Overall, the Canadian data is likely to be much more comparable than the US data, as municipal governments’ responsibilities and tax powers are more similar. With that in mind, here’s how Auckland stacks up to the major Canadian cities. The data is from a 2014 Globe and Mail article:
Basically, Auckland (and Christchurch) has quite low property taxes relative to most Canadian cities. The only city that pays a lower property tax rate is Vancouver. (More on that below.)
And here’s how Auckland’s residential property tax rates stack up to the five most-taxed and least-taxed American states. The data is from tax-rates.org:
In keeping with American states’ reputations as “laboratories of democracy”, different states seem to be testing out very different property tax policies. If Auckland and Christchurch were in the US, they would be among the most lightly-taxed places in the country. Certainly much less so than that bastion of high property taxes, Texas.
Wait a minute, Texas?
Here’s what tax-rates.org had to say about Harris County, which contains Houston:
Harris County has one of the highest median property taxes in the United States, and is ranked 152nd of the 3143 counties in order of median property taxes.
The average yearly property tax paid by Harris County residents amounts to about 4.26% of their yearly income.
Here’s a chart comparing property tax rates between a selection of major US cities. Houston is head and shoulders above the rest, in terms of property taxes. And, nonwithstanding the disclaimers, Auckland seems to be relatively lightly taxed:
Perhaps the lesson is that if we want to be more like Houston, which some people cite as an example for Auckland to follow, we should start by raising property taxes. The median Houston homeowner pays US$3,040 in property tax. That’s roughly equivalent to NZ$4,100, or 50% more than Aucklanders pay.
Houston needs the cash to pay for all those roads, of course. But its relatively high property taxes are also likely to be one of the hidden causes of Houston’s relatively affordable housing. This is because high property taxes tend to discourage people from bidding up house prices – the more they pay for houses, the more they pay in taxes!
On the other side of the coin, literally, Vancouver offers much lower property taxes. Another analysis of Canadian property tax data shows that the average Vancouver homeowner pays CA$2,322 in property taxes. That’s roughly equivalent to NZ$2,500 – or slightly less than Auckland rates. It seems like Vancouver’s compact, transit-oriented urban form is quite cheap for local taxpayers.
And finally, there’s no evidence that rates are especially high in Auckland or other New Zealand cities. If anything, it’s the opposite – property is taxed unusually lightly in New Zealand.
What do you make of this data?
Environmentalists sometimes have an uneasy relationship with cities. Because they concentrate a lot of people and economic activity in relatively small places, they also concentrate a lot of negative environmental effects. All that concrete, all that energy being consumed, the kilometres of malls and highways and subdivisions! It can’t possibly be good, can it?
As it turns out, cities can be quite environmentally friendly. The same factors that make cities economically efficient – the ease of interacting with others in a dense environment and the economies of scale that arise in large, well-connected places – can also make them environmentally efficient.
However, there are large variations in environmental efficiency within and between cities. Cities which offer better housing and transport choices tend to have much lower per-capita carbon emissions – a fact highlighted by a 2011 study of carbon emissions in 100 cities:
- In the United States, the emissions per person in Denver are double those of people in New York, which has a greater population density and much lower reliance on private vehicles for commuting.
- In Toronto, residential emissions per person in a dense, inner city neighbourhood with a high quality public transport system are just 1.3 tonnes of carbon dioxide equivalent, compared to 13 tonnes in a sprawling distant suburb.
Auckland’s Low Carbon Action Plan presents some of this data in a fascinating infographic:
Interestingly, Auckland doesn’t come out too bad on this comparison. We’re nowhere near as efficient as Vancouver, Stockholm, or Copenhagen, but we are in the same ballpark as moderately efficient North American cities like New York and Seattle. This is probably down to our high share of renewably generated electricity, as well as our relatively short commutes.
But can Auckland become more environmentally efficient, or will it grow in a way that causes it to lose its edge? In order to get a sense of this, I took a look at variations in carbon emissions from commutes within New Zealand’s three largest cities.
The maps below presents some preliminary estimates of carbon emissions. They’ve been calculated using the Census journey to work data presented in my recent Location Affordability Index paper, which allowed me to identify how far people were travelling to work and what mode of travel they were using, as well as some supplementary assumptions and estimates from several sources (e.g. EECA, NZTA). [I will put together a working paper on the analysis when my work at MRCagney permits!] Lighter yellows reflect lower average annual carbon emissions from commute trips, while darker blues represent higher emissions.
A few first thoughts about these findings:
- These maps really show the power of proximity. People near the centre of the city tend to travel shorter distances to work, on average, because they’re closer to more jobs. This is obviously good for commuters – which is why house prices are so high in Ponsonby and Mount Eden – but it’s also great for the environment.
- They also demonstrate the importance of transport choices. Commute emissions in Wellington suburbs tend to be much lower than in similarly-situated Auckland suburbs, because many Wellingtonians can choose between driving, an efficient electric train system, a frequent bus network, and relatively good walking and cycling.
- Lastly, these maps highlight the perils of urban growth. Suburbs at the fringe of the city are much less environmental efficient than suburbs closer in. For example, moving from Mount Eden to Flat Bush could be expected to raise your commute emissions by one ton a year. (And leave you sitting in traffic for that much longer!) This is a particular challenge right now in Christchurch, where satellite towns with long commutes have absorbed households displaced by the earthquakes.
Of course, as a coastal city Auckland has some strong incentives to reduce its carbon emissions:
Paddleboarding on Tamaki Drive may be fun for a day… (Source)