The good news about intensification

I thought a commenter on a recent post about a new apartment development on Great North Road had a really great point about the state of the debate:

…the fact is the intensifiers are not winning the argument, as was noted by someone else above. I wish they were but with the tin-ear people have here for this sort of argument, it doesn’t surprise me that it is being lost. Compare the nuanced arguments made here about transport (expansive, studied proposals like the CFN) to the “developers and freemarkets will sort it out” type arguments around intensification and you’ll see what I mean.

This rings true to me. Although I would argue that a lot of thought has gone into Transportblog’s analysis of policies like the Unitary Plan or the effects of limits on density, it’s often difficult to tell the good news stories about market-led intensification.

This is challenging in part because there appear to be trade-offs. Building an apartment building in Ponsonby is obviously a good thing for new residents, as they get to live in a nice area that they might not otherwise be able to afford. But it also has some disadvantages for existing residents, who may feel like they have to put up with more traffic, less sunlight on their porches, and so on and so forth.

In short, it’s easy to fall into an “us versus them” narrative – which is what I was arguing against in the earlier post. I don’t think this is necessary. There are many positive stories about rising residential densities and a lot of benefits for existing residents. We should start telling these stories.

Basically, it boils down to this:

If more people live in a neighbourhood, more services will be available locally for all residents.

Higher population densities make it more efficient for transport agencies to run high-frequency bus routes. They make it easier for supermarkets to open up in closer proximity, competing down prices for groceries. They make it easier for councils to justify improving local parks, improving streetlighting, and upgrading streets. Density allows there to be a cafe or two on every block, so residents can easily step out for a hot drink in the morning. This is all good stuff!

Essentially, having more people around you means that there’s a bigger local market for all sorts of useful things. As densities increase, neighbourhoods will become more convenient for the people who live in them. But if they don’t, there’s never going to be a reason to run a bus every ten minutes. There’s never going to be an incentive for Countdown to open a shop one kilometre down the road from New World. The cafes and drycleaners and florists will never set up across the street.

Here are a few examples of the kinds of environments that could be enabled by intensification. Importantly, these aren’t high-density neighbourhoods – they tend to be composed of terraced houses, row houses, and 4-6 storey apartment buildings rather than massive high-rise towers.

Here’s Greenwich Village, Jane Jacob’s old hood and one of Manhattan’s medium-density neighbourhoods. Look at how many retail and dining choices the residents have:

manhattan greenwich village

Here’s a typical cafe in Paris, another city that’s great due to its density and mix of uses. The city’s awash in local cafe and restaurant options because it is dense enough to support lots of them.

paris_cafe-rainbow_tours

Here’s an example from San Francisco – the Castro district, which is one of the spiritual homes of gay and lesbian culture in North America. Medium densities in the area support fantastic (if a bit off-the-wall) nightlife.

san francisco the castro

And finally, one from Auckland: this is the Elliot Street shared space, which never would have happened without the apartment boom in the city centre. I bet a lot of people around Auckland are looking at how great this is and asking, “when will my neighbourhood get something like this?” The answer is: When your neighbourhood has enough people to support it!

ELLIOTT ST

So, what would you like to see happening in your area? Do you think that having a few more people around would help it happen?

Why Demographia’s data is irrelevant and misleading

Demographia is a pro-sprawl think tank in the USA that publishes density and house price data for cities across the world. They’re often seen using their statistics to argue that the only way to deliver affordable housing is with suburban fringe expansion into greenfields land.

Demographia’s data on housing affordability has come under fire in the past for slipperiness with definitions and misleading choice of measures. But their analysis of population density has gotten less attention – although it’s even more riddled with errors.

Demographia’s approach to calculating density is simple but misleading. They have simply calculated the total number of people in each city and divided it by the total land area covered by that city – including unpopulated areas like parks and reserves. This measure of average density is actually quite irrelevant. For example, Demographia uses it to claim that Los Angeles is more dense than New York.

As Peter outlined in this recent post, what is much more relevant is the density of the neighbourhood that the average person lives in, rather than the density of the average acre of land in the city.

For argument’s sake, consider a village of one hundred acres with one hundred residents. By the measure of area weighted density the density is simple, one person per acre. Does this represent the reality of how people live? Well it could, if everyone lived alone in a separate house on an acre of land. But what if they didn’t? What if everyone lived in a single apartment block in the middle of town that sat on one acre of land? Well then the density the people actually live at would be 100 people per acre. That’s a hundred times more dense… but the same density by Demographia’s measure!

And what if it were something more complex? What if a quarter of the town lived in the one apartment building, half lived in eighth-acre sections around it, and the remaining quarter were spread out over the rest of the land? Doesn’t that sound a bit closer to the reality of most cities? One person per acre means nothing for this theoretical town, half the people live at eight times that density and a quarter at fifty times the density.

Just in case you’re still unsure, in the image below the dots represent dwellings and each box has the same number of dots in it. Overall they have the same average density however in reality they would feel like two very different places.

patterns-of-density

In short population-weighted density is a much better indicator of the density of the neighbourhoods people chose to live in, and a much better way to describe cities and housing.

With that in mind, it was a simple task to take Peter’s data and throw it on a chart. In simple terms these show how many people live in neighbourhoods (Census meshblocks to be precise) grouped by density in Auckland, Wellington and Christchurch.  I’ve also picked out the density level that Demographia says each city is.

Auckland Wellington Christchurch charts_Page_1

Auckland Wellington Christchurch charts_Page_2 Auckland Wellington Christchurch charts_Page_3

It’s easy to see a few things here. First of all we can see that neighbourhood density can vary quite a lot within cities. One number just can’t describe how people live. Second, we can see there is something of a bell curve. Most people live within the middle range of densities, those living very low or very high are small in number, but that middle is actually quite broad. Third, we can see how far off Demographia is. Their supposed summary statistic isn’t anywhere near the middle of the curve, it’s actually near the bottom in each case.

For example it seems the Demographia figure describes the density at which roughly five percent of Aucklanders live. Nine percent live at lower densities, and 86% live at higher densities. Many people live in neighbourhoods that are two or three times more dense than Demographia’s misleading average. In short, Demographia’s figures are irrelevant for the vast majority of Aucklanders (and Wellingtonians, and Christchurchers). They don’t reflect how the majority of people choose to live.

Sorry Demographia, your data is plain useless.

Inner suburban development, then and now

One of the last vacant lots in Mount Eden is currently under development. It’s a big section on the corner of Mount Eden Rd and Kelly St – formerly occupied by what seemed to be a slightly feral orchard. It’s large enough to fit three or four old-style Mount Eden villas with generous backyards, or several blocks of walk-up apartments with space for shared vegetable gardens (and possibly even garages)

While I liked having the empty lot and the trees in the neighbourhood, I thought that development could have been a great opportunity to contribute to Kelly St’s unique character. Here’s a picture of what’s across the road: an elegant art deco building on the corner, built out to the site boundaries and joined up to a row of cool brick buildings hosting various businesses.

20141022_182554

But the developers didn’t (or couldn’t) build something in a similar style. Here’s what’s going up across the street. It’s completely uninspiring, completely out of step with the rest of the neighbourhood, and completely within the rules.

What the Kelly St site is getting is a dull cul-de-sac with eight or ten two storey boxes. They have the superficial aspects of a traditional Kiwi home – the pitched roof, the setbacks from the edge of the site, and, of course, the two-car garage out the front – but they’re packed in densely with no yards to speak of.  As I’ve written before, this should not be surprising, as when land is expensive people try to use it efficiently. But it is a bit disappointing.

20141022_182547

Aesthetic judgments are slippery and subjective, but I think most people would prefer more buildings like the ones in the first picture, and fewer buildings like the ones in the second picture. My question is: What can we do to get good buildings to happen more often?

The case for free-market urbanism

In the National Review, a conservative American magazine, Reihan Salam takes a look at the confused state of the American debate over intensification. His article, entitled “The Great Suburbia Debate” criticises the position taken by Joel Kotkin, a long-time campaigner for low-density suburban development. He writes:

Though I’m an admirer of Kotkin, and though I can’t speak for every conservative who has made the case for denser development, he gets a number of important things wrong…

For example, Kotkin claims that “some conservatives” (again, no names) have been “lured by their own class prejudice” into turning against market forces. “In reality,” Kotkin writes, “imposing Draconian planning is not even necessary for the growth of density.” Of course, this is exactly the argument that Edward Glaeser makes in The Triumph of the City, a manifesto for the pro-market, pro-density right. “In places that have both liberal planning regimes and economic growth, such as Houston and Dallas,” he observes, “there has been a more rapid increase in multifamily housing than in cities such as Boston, Los Angeles, San Francisco or New York.” Indeed, this is why many conservatives, myself included, have explicitly argued that cities like New York, San Francisco, and Los Angeles should look to the liberal planning regimes of Houston and Dallas as a model. (To be clear, by “liberal” planning regimes, Kotkin means less-restrictive, more market-oriented planning regimes, and so do I.)

The global cities that manage to be both highly productive and affordable, like Tokyo and Toronto, tend to have liberal planning regimes, which allow for rapid growth of housing stock, and in particular of the multifamily housing stock. These regions are characterized by rapid housing development in the suburbs and in the urban core, and their “suburbs” tend to be more urban than low-density suburbs in the U.S. governed by stringent planning regimes that tightly restrict multifamily development. When Glaeser makes the case for density, he does so not by calling for “imposing draconian planning” on cities and towns. Rather, he explicitly calls for the relaxation of land-use regulation.

[...]

Kotkin relies heavily on the work of Wendell Cox, a transportation consultant who seems to believe that denser development is necessarily a product of central planning. In desirable regions, however, less restrictive planning regimes will naturally lead to higher densities, as property owners will naturally seek to maximize the value of their investments. Restrictive land-use regulations tend to limit density, not impose it on unwilling landowners.

Salam’s article is excellent and I recommend reading it in full. I pulled out these excerpts as they highlight a few essential facts that often go missing from the debate over urban policy:

  • Denser development cannot be imposed by fiat – it will happen if and only if there is market demand for it (as there often is in places that are accessible to jobs and amenities). If nobody wants to buy apartments, then no apartments will get built!
  • Urban planners can’t simply require people to build at higher densities – but they can limit density to below what the market wants.
  • The rising demand for higher density development isn’t a market distortion, but evidence that the market is working.
MERCHANT Q

The market’s been at work in New Lynn (see also: Transportblog’s development tracker)

In short, we must interpret rising population densities as the result of many individual decisions rather than the whim of an urban planner. My research shows that population densities are rising rapidly in Auckland and several other large NZ cities, which suggests that we’re voting heavily for density with our feet and our wallets. This is, as Salam suggests, a natural outcome of market forces and should be accepted with equanimity. We should recognise this demand where it exists and make complementary public investments in walking and cycling facilities and public transport.

Lastly, I’d note that people from all across the political spectrum should be able to appreciate cities. As Jane Jacobs observed in The Death and Life of Great American Cities, a good urban neighbourhood demonstrates many of the virtues that conservatives celebrate, such as small business ownership, a close-knit community that watches out for itself, and independent-minded civil society (often battling against big government bureaucracy in the form of overreaching traffic engineers).

Jane Jacobs campaigned against this Pharaonic act of bureaucratic hubris (Source)

Jane Jacobs campaigned against this Pharaonic act of bureaucratic hubris (Source)

As a result, we often see centre-right mayors implementing good urban policies. Big-city mayors such as New York’s Michael Bloomberg, London’s Boris Johnson, and Buenos Aires’ Mauricio Macri have been right at the forefront of the movement for better cities. They’ve realised that better cities are more prosperous, and that it’s possible to improve a city by improving the choices available to people.

The importance of housing choices in cities

Good cities should provide choices to their inhabitants. Any big (or small!) city is composed of a variety of people with various preferences, needs, and budgets. Look around you: Aucklanders are a bloody diverse bunch, and we’re getting more so as I type these words.

The Aucklanders of the future will want to get around in different ways, live in different places, and entertain themselves in different ways. In fact, this is already happening. It’s the reason for the success of the innovative mixed-use developments on the waterfront, the runaway success of Britomart and other rail upgrades, and, on the flip side, declines in vehicle kilometres travelled per capita.

At Transportblog, we recognise the importance of choice in cities, which is why we’re so enthusiastic about opportunities to invest in a better public transport network and better walking and cycling options. We believe that offering Aucklanders more travel choices at an affordable price will improve our living standards. Full stop.

What’s true in the transport market is also true in the housing market. Offering a greater range of housing choices will raise the living standards of Aucklanders, because we want to live in different types of homes. Enabling higher-density development in more areas will make some people much better off, because they want to live in dense environments, without making anyone else worse off.

Critics of intensification often fail to understand this argument. They say: “Oh, you just want to make everyone live in a tiny shoebox apartment!” In fact, the exact opposite is true. Enabling some people to choose to live in apartments or terraced houses will ensure that there is more land available for others who would prefer a lifestyle block in Dairy Flat or a quarter acre in Flat Bush.

Essentially, urban planning that enables housing choice allows for both high-density and medium-density living options and more low-density suburban living. This isn’t idle conjecture – it’s a well-established finding in urban economic theory and the empirical literature.

A few years ago a team of economists from the Reserve Bank of Australia put this idea to the test using economic modelling techniques. Their paper, entitled “Urban Structure and Housing Prices: Some Evidence from Australian Cities” (pdf), tested the impact of different urban policies. (NZIER economist Kirdan Lees has also done some similar work for New Zealand, but his initial paper (pdf) did not look at building height limits. In any case, the results are similar.)

The RBA economists model a relatively simple, monocentric city with employment and amenities concentrated in the centre and the residential population radiating out in a circle – the basic workhorse model in urban economics. While this is a simplification, it can easily be generalised to a polycentric city – just imagine multiple centres rather than a single centre. Their “unconstrained equilibrium” looks like this:

Kulish et al (2011) unconstrained

In short, densities – and building heights – are highest in the areas that are most accessible to employment and amenities. Land prices are also highest in these areas. This doesn’t occur as a result of a planner’s fiat – it happens because lots of people want to live close to the action. Others, of course, would prefer to be a bit further away with more space – and that is what they get in the unconstrained urban equilibrium.

Next, the RBA economists simulated the effects of imposing a building height limit. In effect, limiting building heights would prevent people from choosing to live at high densities near employment and amenities. Here are the results – the magenta lines show the effects of the constraint:

Kulish et al (2011) building height limit

Pay close attention to the middle two panels. They show that a building height limit does not just restrict high-density development in the centre – it also raises densities in the outskirts of the city. In short, a city that constrains medium to high density development doesn’t just fail to provide options for people who want to live in apartments. It also fails to provide options for people who want quarter acre sections or lifestyle blocks.

Has this happened in Auckland? It’s difficult to say for certain, but my research on population densities in NZ and Australian cities found that Auckland was missing out on both medium-density suburbs and low-density exurbs.

Finally, as the first panel shows, these restrictions are expected to raise the cost of housing for everybody, regardless of location or housing preference. As I said at the start, good cities provide choices for their inhabitants. Failing to provide for choice in the housing market just means that we all pay too much for homes that don’t suit our preferences.

So, what’s your dream Auckland home? Subject to budget constraints, of course…

Alain Bertaud in Auckland

Back in July former World Bank urban planner Alain Bertaud and his wife Marie-Agnes, a fellow professional in the field, came down to New Zealand at the invitation of the NZ Initiative and the Minister of Finance’s office to deliver a series of talks on urban economics. He had a number of thought-provoking things to say to urbanists of all stripes – a message that was very much in line with Transportblog’s core principles and big ideas.

He looks much happier in person

While Bertaud is sometimes cited as a proponent of low-density urban sprawl and motorway development, his arguments about urban development were nuanced and thoughtful. The Bertauds are, after all, urbanists themselves. They have chosen to live in vibrant, dense, and diverse cities – Paris, Washington, D.C., and lately New York. (That’s a revealed preference if I’ve ever seen one – they certainly don’t live in Houston!)

In addition to seeing Bertaud’s talk , which is available online here (pdf), I was lucky enough to sit in on a smaller discussion section with other professionals in the field. I took three key messages away from the talk and the conversation.

First, cities are labour markets. We often forget this fact, even though it’s the reason we have cities at all. Cities are the physical expression of agglomeration economies, or the productivity advantages of locating near other people and businesses. In Bertaud’s view, ensuring the efficiency of urban labour markets means ensuring that people can access a large number of jobs from their homes.

As a result, he argued that urban and transport planning should aim to keep down commute times. He recommended looking at two key measures – first, the number of jobs available within a 30 minute drive, and second, the number of jobs available within a 45 to 60 minute public transport journey. Here, for example, is his analysis of commute times in Singapore and the US.

Bertaud travel time graph

Bertaud didn’t recommend any specific policies to reduce travel times, although he spoke positively about Singapore’s use of demand-responsive road pricing and development of an expansive metro network to reduce average travel times. As a transport economist there are a couple of key observations I’d make on the topic:

  1. Building more roads is not a good way to reduce travel times. Induced demand – people driving more or moving further out of town in response to new road capacity – usually eats up the forecast travel time savings. In short, people travel more but they don’t travel any faster. If you want to actually reduce driving times, the only way to do it is to introduce road pricing.
  2. Cities with reasonable densities and an underdeveloped public transport network – like Auckland! – are in a good position to improve employment accessibility through investments in rapid transit networks and better bus networks. Fortunately, Auckland’s pursuing this approach.
  3. In light of induced demand, the best way to improve the accessibility of jobs may be to simply make things closer together. The efficiency of dense urban environments is often underrated. For example, although the roads in downtown Manhattan are far more congested than Houston’s, Manhattan’s effective labour market is much bigger simply because everything is so close.

Second, we must plan for the cities that actually exist, not the cities that we wish could exist. Bertaud presented an excellent graphic to illustrate this point. It showed four kinds of cities – three that exist and one that does not (and can not):

Bertaud urban structure graph

Most cities that exist today are what Bertaud calls “composite cities”, meaning that a significant share of jobs are located in the CBD or in major centres, while other jobs are scattered around in industrial parks, neighbourhood shops, etc. In this city, people have a range of different travel needs. Many people need to get to large-scale, high-density employment hubs, which are efficiently served by rail lines and busways, while others are better off driving to more dispersed employment locations.

In short, real-world cities require a range of transport solutions, and they will not function well if one mode is unreasonably neglected. We don’t have to go far for an example of the perils of mode bias: the remarkable renaissance of the Auckland city centre, and its increasing contribution to New Zealand’s economy, would not have been possible without reinvestment in the rail system and the development of Britomart.

citycentre-pt-patronage-screenline

City centre screenline survey results show public transport accounts for all growth in inbound trips over the last two decades

However, Bertaud criticised what he described as the “urban village” model, which hypothesises that if employment is dispersed evenly throughout neighbourhood centres then people will travel only to the nearest centre. This is a seductive idea – it promises to reduce travel distances by distributing employment. Unfortunately, it doesn’t exist in the real world because people have complex travel needs. Even if one member of a family chooses to live near where they work, their partner will often have to commute to a job further away.

We see this flawed idea pop up from time to time in New Zealand from advocates for suburbanisation. For example, people sometimes argue that we could reduce congestion by stopping growth in the city centre and relocating it to Manukau central instead. Aside from the fact that we tried this before and it failed, decentralising employment would only increase congestion from all the cross-town trips and reduce the efficiency of Auckland’s labour market.

We don’t have to go far for an example of the failures of the urban village model. Christchurch lost its city centre in the 2011 Canterbury Earthquake, and employment dispersed throughout the city. Although the jobs have decentralised, the city now suffers from higher congestion as it can’t run efficient bus services or provide enough road capacity.

Third, it’s important to ask whether planning regulations are restricting development in areas that are accessible to employment and amenities. Economists in New Zealand have spent a lot of time talking about Auckland’s metropolitan urban limits while paying little attention to regulations in the rest of the city. Bertaud argues that limits on density, such as building height limits or minimum lot sizes, can price out the poor from accessible areas. Incidentally, this may be happening in Auckland – my research found that poorer people tend to live further from employment hubs and commute longer distances as a result.

Bertaud said that when he was advising developing-world cities on planning policies, he’d often start by creating a map of the minimum lot size required by existing rules and estimating what share of the city’s population could afford that amount of land. Here, for example, is his map of floor-to-area ratios in Mumbai, India, which shows that in most parts of the city people are required to buy 1 square metre of land for every 1 square metre of dwelling they want to build. As land is quite expensive in Mumbai, this is basically a policy that requires the poor to get out or build illegally:

It would be fascinating to see a similar map for Auckland if anyone wants to have a go…

If you went to Bertaud’s talk, what did you think of his ideas?

Population-weighted densities in New Zealand and Australia

Urban population density is a hot topic – some people complain that it’s getting too high in Auckland, while others worry that it’s too low to get the urban outcomes we want. Either way, density matters – it can have a big impact on:

  • The efficiency of infrastructure provision and public transport services
  • Urban productivity and levels of competition in industries like retail
  • Amenity for residents – higher density can support cultural institutions and local vibrancy, but some people may prefer more open space
  • Preservation of open space and agricultural land on the urban fringes
  • Cities’ energy efficiency and use of resources.

However, we seldom ask: What is population density and are we measuring it correctly?

With the support of my employer, MRCagney, I’ve just written a short working paper that looks at this issue: Population-weighted densities in New Zealand and Australian cities: A new comparative dataset. It can be read in full here (pdf) and comes with an interactive spreadsheet that allows easy comparisons between cities.

This paper presents a new, more robust measure of density: population-weighted density. In contrast to simple average density measures, which basically measure the number of people living in the average hectare of land in the city (which is generally found in a low-density fringe suburb), this measure estimates the density of the neighbourhood in which the city’s average resident lives. As a result, this measure is much more representative of the lived experience of a city’s residents. The US Census Bureau has used a similar approach in their recent population density profiles.

While a wider range of results are available in the full paper, some of the most interesting findings actually relate to Auckland. In short, there have been some massive changes to the city over the last decade:

  • Auckland’s population density has increased 33% since 2001 – the city’s population-weighted density is now around 43 people per hectare after a decade of infill development and intensification
  • As a result, Auckland is now the third-densest city in Australasia – behind Sydney (76 people/hectare) and Melbourne (45 people/hectare) but significantly ahead of Wellington (38 people/hectare), Perth (30 people/hectare), and Brisbane (34 people/hectare).
  • There is no geographic reason why good public transport will not work in Auckland. Cities that are less dense than Auckland have successful, high-patronage PT systems.

And now, some visualisations!

Here are maps of Auckland’s population density in 2001 and 2013. As you can see, the city’s gotten incrementally denser throughout its entire area – look at the slightly darker shades of blue appearing all over the isthmus, on the North Shore, in the West and in Manukau.

Auckland density 01-13 v2

If we zoom into centres of New Zealand’s three largest cities, we can see that there have been big changes in city centre density in both Auckland and Wellington. Christchurch, on the other hand, as suffered from the effects of the 2011 Canterbury Earthquake, which demolished much of the city centre and reversed the city’s tentative moves towards apartment living. In spite of rapid demographic transition in Auckland’s city centre, rising density hasn’t really spilled over to surrounding suburbs.

Akl Wgtn Chch city centre comparison v1

Comparisons between cities also provide some interesting insights. The following chart, from the interactive spreadsheet, compares population density profiles in Perth and Auckland. Perth has frequently been cited as an example for Auckland due to the success of its electrified rail network, which now carries over 60 million annual boardings. However, Perth’s less dense, and significantly more sprawling, than Auckland. Clearly, low density isn’t holding back Auckland’s PT system.

Auckland Perth density profiles

The following chart makes that point even more clearly. It shows population-weighted densities and annual public transport ridership in eight large Australasian cities. Although Auckland is the third-densest city, it’s got the lowest PT boardings per capita.

Density and PT ridership

In short, Auckland is in an especially good position to benefit from a virtuous cycle in its transport system. Recent increases in density throughout the urbanised area have contributed to rising ridership on public transport, strengthening the case for further investment in projects like the City Rail Link, the AMETI busway, and the city’s New Network. Delivering a better public transport system will, in turn, encourage further land use change.

If you’re interested in this topic, take a look at the working paper and the interactive spreadsheet. What do you think about Auckland’s changing urban form?

Space is expensive in cities, so why don’t we use it more efficiently?

Land is a scarce and expensive resource in Auckland, as the city’s strong economy and natural amenities (sunlight! beaches! bush!) mean that a lot of people want to live in a relatively small area. But we often insist upon acting like urban space is worth nothing – why else would we have so many underutilised parking lots around the place?

To an economist, this is perplexing. Econ 101 predicts that when one factor of production becomes expensive, firms and households will respond by substituting other inputs instead. This is easy and intuitive to grasp in practice. For example:

  • If your local fish and chip shop puts up the price of snapper fillets, some people will choose to buy terakihi instead.
  • If wages for checkout operators increase, supermarkets will consider installing self-checkout counters to save on staff costs.

We should expect the exact same thing to happen in the housing market. Broadly speaking, developers produce housing (H) using a mix of land (L) and capital (K), which we can loosely think of as the size of the building constructed on a site. So, for example, a ten-story apartment building will tend to have a quite high K/L ratio, while a detached house constructed on a large lot will have a low K/L ratio.

retrofitting suburbia density gradient

Gradient of low to high K/L ratios (Source: Retrofitting Suburbia)

Warning: Arithmetic ahead. Come back after three paragraphs if you don’t like that sort of thing.

If we assume (as economists so often do) that housing production follows a standard Cobb-Douglas production function, then total dwelling supply can be modelled as a function of land and capital inputs, where a is the input share of land:

Housing equation 1

We can use this equation (plus a little bit of simple calculus) to estimate the marginal rate of substitution between L and K. Or, in other words, the degree to which rising land prices will encourage us to build up to save on land. If we assume that PL is the price of land and PK is the price of capital, then the ratio of K to L is given by the following equation:

Housing equation 2

We can immediately observe a couple of crucial relationships from this equation. First, if the price of land increases (and the cost to build up doesn’t), we’d expect the K/L ratio to rise – in other words, we expect people to build taller buildings on more expensive land. Second, if the cost to build up decreases – for example, through a technological innovation such as steel-framed buildings or elevators – the K/L ratio should also rise. This explains the emergence of high-rise Manhattan in the early 20th century. Third, the relationship between changes to prices and changes in the K/L ratio will hold true in both low-density and high-density areas, although changes will occur at different rates.

Armed with this economic framework, we can start to make sense of the way that various cities look.

Here’s New York. It doesn’t look like this because it’s full of people who, unlike Aucklanders or Texans, have a mysterious preference for tall buildings. It looks like this because land is expensive and people have responded in a rational way.

Manhattan

Here’s an aerial photograph of a suburb in Atlanta, Georgia, one of the world’s true hellholes. Once again, it doesn’t look like this because Georgians have some oddly-shaped utility function. It looks this way because land is cheap in Atlanta (and motorways are large).

atlanta suburbs

And here’s a picture of a typical Paris boulevard that somebody has photoshopped an enormous woman into for unknown reasons. While I’m sure many Parisians would claim that they have a unique cultural preference for seven-story apartment blocks with cafes underneath, Paris actually looks this way because land is expensive and developers have responded accordingly.

paris street with giant woman

With that in mind, how does Auckland stack up in terms of efficiently using its expensive land? Well, as it turns out we’re doing some smart things and some blitheringly idiotic things. Here’s a brief tour.

The Northern Busway: Really smart. Adding two lanes for buses has enabled the capacity-constrained Auckland Harbour Bridge to carry many more commuters than it otherwise would have been able to do. Today, 40-45% of the people crossing the bridge during rush hour are on buses. It’s the most revolutionary transport investment to hit the Shore since the Harbour Bridge’s completion.

Northern Busway efficiency

Manukau Centre’s sea of carparks: Mind-bogglingly irrational. As the map shows, Manukau actually devotes more land to parking lots than to commercial uses. Whoever laid it out obviously hadn’t paid any attention to Auckland’s real estate prices.

mcc-coloured

City centre shared spaces: Bloody clever idea. Turning service lanes and carparks into spaces for businesses to expand and people to enjoy allows us to make much better use of space in the city.

Fort Lane Before and After

Spaghetti Junction: A tortured trade-off. Demolishing a tenth of the city’s housing stock and abandoning much of the city centre to urban blight was undoubtedly an audacious gamble. The motorways move a lot of people, but we’re never going to reclaim the valuable, centrally located land that they occupy.

Newton then and now

Vancouver’s Skytrain – a future option for Auckland? Now this is about as cunning as a fox who’s just been appointed Professor of Cunning at Oxford University. Vancouver built a space-efficient (and cost-effective) transport system that created an incentive to build more densely. A perfect example of the virtuous cycle in which better transport options encourage more efficient use of land.

Vancouver’s Skytrain also provides an impressive contrast to the effects of Spaghetti Junction on Auckland’s city centre, which raises the question – are we smart enough to start building like that, or are we going to carry on with the pretense that urban space is free?

Vancouver skytrain development

View the full video showing changes from 1985 to 2012.

Auckland’s Chief Economist speaks up for future generations – Auckland needs to grow “up and out”

Auckland Council’s Chief Economist Geoff Cooper was in the paper on Thursday with a few interesting arguments about urban planning. The article is refreshing because in it Cooper challenges a few of the many sacred cows in the debate over growth and housing affordability.

In particular, Cooper discusses the “up versus out” narrative that has been wrapped around Auckland’s urban growth. In recent months, for example, both the New Zealand Initiative and consultancy NZIER have published research papers arguing that Auckland should open up greenfield land to improve housing affordability.

Cooper argues that these analyses have failed to notice the fact that the proposed Unitary Plan already does this:

Despite this complexity, discussion on Auckland’s urban policy is often reduced to “up” (intensification) or “out” (sprawl).

This simplification overlooks three key issues — Auckland Council’s proposed urban limit policy, the policies underlying a compact city, and the political economy of urban policy.

The proposed plan vastly extends the urban limit, aiming for an average of seven years infrastructure-ready land supply available at all times. Once implemented, around 20 per cent more urban zoned land will be available.

This is enough for up to 76,000 new dwellings (roughly equivalent to all of Hamilton).

Calls for more land supply miss the solutions being implemented.

In my view, a policy of greenfields growth could result in not insubstantial economic costs. These risks are discussed in a range of new studies,evidence which present evidence suggesting outlying locations are not necessarily more affordable once transport costs are taken into account (often difficult to do in advance). So while house prices might be cheaper, the costs of getting around can offset those savings. Not to mention the external costs of congestion wider society must bear from more development in peripheral urban locations.

On the other hand, Cooper also critiques debates over residential intensification. He points out that removing *restrictions* on urban intensification development, so as to enable more compact and diverse forms of housing, doesn’t amount to “forcing intensification upon communities”, as some have claimed. Instead, the Unitary Plan tends to remove barriers that prevent people from living at higher densities in locations that provide the attributes they seek, such as amenity and accessibility. Cooper comments:

Proposed policies for a compact city are also misunderstood.

Compact living policies are about creating choices, by reducing existing regulations that stop people living in higher density areas, when they want to.

The inherited planning framework by Auckland Council is heavily biased towards the “quarter acre section” through rigid regulations. This creates a push for urban sprawl.

The city’s rules prevent the supply of housing people want in the areas they want to live in – close to the city, with good transport and other amenities.

These preferences are clearly shown in soaring house prices on Auckland’s isthmus.

The draft plan was designed to create greater housing choice. But this has been scaled back significantly during public consultation.

Residents want to preserve their lot, but it comes at a cost to future Aucklanders. New height limits have been introduced in many suburbs, while existing height limits have been tightened, as have density constraints which means it will be harder to gain access to attractive suburbs.

The important thing Cooper highlights here is how policies that restrict housing  supply in desirable areas come with a significant cost. There’s a wide range of international evidence suggesting restrictive planning regulations, such as minimum parking regulations, density controls, and building height limits, tend to raise the cost of housing. A 2002 paper by Edward Glaeser and Joseph Gyourko, for example, found American cities with more restrictive zoning were less affordable:

The bulk of the evidence marshaled in this paper suggests that zoning, and other land use controls, are more responsible for high prices where we see them. There is a huge gap between the price of land implied by the gap between home prices and construction costs and the price of land implied by the price differences between homes on 10,000 square feet and homes on 15,000 square feet. Measures of zoning strictness are highly correlated with high prices… [I]f policy advocates are interested in reducing housing costs, they would do well to start with zoning reform.

New evidence from Auckland suggests that our planning regulations may have a similar effect, driving up housing costs above construction costs. While the proposed Unitary Plan loosens some regulations, it arguably doesn’t go far enough to truly improve housing choice and housing affordability. Indeed, in some locations it proposes much more onerous regulations than exist under existing district plans, such as on minimum size requirements for apartment. Such requirements have the potential to exacerbate housing costs for the households that can least afford it.

Finally, Cooper also highlights the sometimes perverse nature of the political economy of urban planning. As many people have pointed out, planning regulations have significant effects on intergenerational equity. While restrictive regulations might be good for existing homeowners, they’re extremely bad for new homeowners – and by extension future generations.

It seems fairly obvious to me that if a city is systematically unwilling to allow new housing supply to be built in desirable, accessible areas, then skilled young people will increasingly face a Hobson’s choice: Either pay too much for housing in an accessible place, or pay too much for transport in a cheaper fringe location. And in the long run, we can expect these people to choose another city to live in. Indeed, unaffordable cities place will tend to be disadvantaged in the increasingly global competition for skilled young labour. In this other recent article Cooper actually makes this very point: Auckland competes for people, business, and capital more with Brisbane. Sydney and Melbourne than with other places in New Zealand.

Unfortunately our political system seems especially bad at solving the intergenerational problems even though this is arguably one of its core functions.

This Government’s inability/unwillingness to make headway on carbon emissions being the prime example. As a young Aucklander with many Kiwi friends living overseas. I am fairly sure that the people who will benefit from better housing policy are, for the most part, not voting in elections or going along to consultation meetings. Many more may have not even been born yet. It is these voices that are so often not heard, nor even acknowledged, in the debates on the Unitary Plan.

Responsibility for this issue lies jointly with our political representatives and mainstream media outlets, who tend to lack the courage to push back on even the most blatant self-interested objections to urban development.

Ultimately I think it’s really useful to have Auckland Council’s Chief Economist speaking out on these issues and highlighting that Auckland needs to both grow “up and out”. Now it’d be nice if more people at a central  government level started to champion the same issues.

Campbell Live’s great urban episode

On Monday night Campbell Live dedicated an entire show to urban issues.

The first segment looked at density in Seattle showing that done well it can be popular and not a blight on the landscape.

Campbell Live - Seattle

Next up was an interview with Janette Sadik-Khan

Campbell Live - JSK

And lastly a few vox-pops from what appears to be on Ponsonby Rd.

Campbell Live - city views

I do find it funny when people slam the central city but then say they haven’t been there for five years. Back then Wynyard Quarter didn’t exist, the shared spaces didn’t exist and places like Britomart weren’t as developed and neat as they are today. It’s easy to forget that they are only really new additions to our urban landscape.

All up it was a great show and I hope more mainstream media start looking at these issues.