Development update: August 2016

If you’re not one of the avid followers of the RCG Development Tracker – “Trackies”, as they like to be known* – you might have missed a few tweaks I made last month.

The Tracker does a good job of showing discrete, one-off projects, but it’s a little harder to represent major long-term developments. For example, Hobsonville Point is going through massive growth at the moment, and delivering something like 5,000 new homes by the time it’s finished.

What I used to do for places like Hobsonville Point or Stonefields was show some of the individual projects – apartment buildings, etc – but not the overall development. I’ve now added in the outlines of these areas to the Tracker map, and added brief descriptions. The tricky part, which I haven’t quite worked out yet, is how to best represent them in the Tracker tables. Currently they’re excluded for the most part, but watch this space.

Anyway, let’s talk about Stonefields. Looking at Stonefields today, you could be fooled into thinking it’s almost finished, but the reality is it’s not even halfway.

Stonefields

Stonefields in the RCG Development Tracker – yellow dots are apartment buildings

 

Most of the townhouses and terraces planned for Stonefields have now been built, but there are still around 1,500 apartments to come. So far, only 1,000 homes have been consented in Stonefields, and the master plan (below) envisages 2,500 in total.

Stonefields master plan 08.2011

The first homes were completed in 2007, but those were the ‘easy’ ones – along Ngahue Drive and Magma Crescent, at roughly the same level as the surrounding suburbs, opposite a golf course and in a traditional detached format.

The construction then moved into the quarry itself, not helped by the GFC and recession hitting in 2008 (the original developer, Landco, went into receivership and Todd Property Group took over). In those years, it was much easier to sell detached townhouses than terraces, so the townhouses were built first. In the last few years, there’s been a gradual shift towards building terraces and apartments.

The first apartment building (Saltus) was completed in 2013, two more followed in 2015, and another two are under construction at the moment. There will be quite a number still to come.

Stonefields School opened in 2011, and the Stonefields Market opened in 2014, although the SuperValue supermarket didn’t open until February 2016. The parks and landscaped areas around Stonefields were developed gradually, with the playground opening in September 2014 (although not without controversy).

Stonefields could take another five years to complete, and have a population of around 6,000 people – that’s double the current population of 3,000(ish), and as late as 2006 there was no one living there at all.

One issue with Stonefields is that it has quite poor transport connectivity – the only access routes are along College Rd. In the New Network, Stonefields will be served by the 725 bus linking it to the Panmure and Glen Innes train stations. However, the bus will only run every 20 minutes at peak times, and every 30 minutes at other times.

Hopefully, as Stonefields’ population keeps growing, it will support more frequent bus services…

 

* I just made this up.

Slicing the housing cake: Developer profits versus capital gains

Who benefits from enabling housing development? And who bears the costs of restricting it?

One common refrain is that reducing regulations to enable housing will deliver higher profits to developers, while disadvantaging existing homeowners, who must contend with more people living in the neighbourhood. Another view is that restricting housing supply primarily benefits existing homeowners, who earn (untaxed) capital gains, while disadvantaging people who don’t own homes.

Along with Fran O’Sullivan, Arthur Grimes, Bernard Hickey, and many other commentators, I tend to agree with the second viewpoint: The primary distributional impact of restrictions on housing supply is to benefit existing homeowners at the expense of future homeowners. In this post I will argue that 1) we face a choice between existing and future home owners and 2) profits from development pale in comparison to untaxed capital gains on property.

So if you’re concerned about rampant profiteering, then you should be in favour of enabling more housing development.

Profit, homeowners, and false dichotomies

Developers undoubtedly set out to make a profit. They are after all putting their own time and money into building something, which in the process exposes them to risks. In this context it seems reasonable that they get something in return, otherwise, why would they develop housing at all? Whether developers earn a reasonable profit then effectively comes down to competition, and the best way to encourage competition is to enable lots of people to be developers.

In general, the more we restrict and regulate the supply of housing, then we will get less supply and less competition.

Those who rally against developers making profits seem to ignore that most of Auckland’s existing housing stock resulted from profit-seeking developers. This includes many houses that are now protected for heritage reasons. So it’s not clear to me that simply because developers are look to make a profit today, that the resulting developments will not be valued.

It is certainly fair to say that developers will only able to make a profit from development if they build something that people are prepared to pay for today. This is another way of saying that developers must consider their customers , i.e. people who want somewhere to live. So it strikes me as a false dichotomy for people to argue that developers “put profit before people”: If developers didn’t meet the needs of at least ***some*** people, then they wouldn’t make a profit.

Instead, the main trade-off seems to be between existing and future homeowners. I think Arthur Grimes described the trade-off best when he said (source):

My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house.

In this quote Arthur observes that we primarily have a choice between existing homeowners and future homeowners. He doesn’t mention developers at all. So when councillors vote for regulations that restrict housing supply, they are effectively voting in favour of existing homeowners. This is fine, provided they are comfortable with adopting what I consider to be a typically conservative position. These councillors are, in effect, behaving like Tories; they are protecting those who already have wealth.

The effects of restricting supply: Dislocation and rampant profits

However, building new homes isn’t the only – or even the main – way to make a profit in Auckland’s current housing market. Due to restricted housing supply, we aren’t building enough homes to meet demand. As a result, prices have risen.

Rising prices has two primary effects. First, it squeezes low-income people out of the market. This is a well-documented phenomenon. As the California Legislative Analyst’s Office found in an analysis of the San Francisco Bay Area, suburbs that developed less housing experienced more displacement. Without new housing development, every new resident must displace an existing resident – a vicious dynamic that hits low-income households hardest:

LAO development and displacement chart

A lack of housing supply is compounded by distortionary tax policies – principally our unwillingness to tax unearned capital gains on housing – with the result that house prices are going up at a fast clip. This provides an unearned, untaxed capital gains windfall for people who are lucky enough to own property.

Unearned capital gains, unlike developer profits, are a win-lose scenario. People who own houses win, as the value of their assets rise. But people who are renting or trying to buy a home lose to an equal extent, as they face higher and higher prices.

So how large are capital gains compared to developer profits, anyway?

In recent years, untaxed capital gains on residential property have been very large relative to developer profits. According to data from the Reserve Bank, untaxed capital gains on residential property exceeded $100 billion last year:

  • In the first quarter of 2016, the total value of residential property in New Zealand was $905 billion
  • One year earlier, the value of residential property was only $791 billion.

By comparison, according to Statistics NZ’s most recent (2014) Annual Enterprise Survey, which tracks industry performance, residential housing construction firms (ANZSIC E301) made gross, before-tax profits of a mere $570 million. Even if we add in “other construction services” (ANZSIC E321, E322, E323, E324, and E329), which includes land development firms as well as a whole bunch of other stuff, total residential development profits add up to no more than $2 billion a year, before tax. And developers pay taxes on those profits! For the visual learners out there, here’s the data in a chart:

Developer profits vs capital gains chart

In other words, the profits that developers earn are relatively insignificant compared to the unearned, untaxed capital gains that have accrued to property owners. I would argue that the latter are largely the result of regulations that restrict housing supply, and hence represent a transfer from future homeowners, and to a lesser degree developers, to existing homeowners.

So what’s the takeaway message from all this? Well, if Councillors like Mike Lee and Cathy Casey are concerned about profiteering in New Zealand society (and they say they are), then they should start pushing to enable more housing development in Auckland. Yes, developers may make slightly more money in the process, but this increase pales in comparison to the reduction in untaxed capital gains that would accrue to existing home-owners. If you’re concerned about people making unearned profits, then regulations that restrict housing supply and which drive up the prices of existing dwellings should be your primary target.

Development update: July 2016

Christchurch

It’s been a while since our last update of Christchurch building consents – the number of new homes being approved by the various councils in the area.

Chch consents to May 2016

Christchurch City has had a bit of an uptick in the last couple of months, whereas consent numbers in the surrounding districts (Selwyn and Waimakariri) have flattened off – for Selwyn, at least, still much higher than the historical average.

I’m surprised by the ongoing strength of the consent figures in Christchurch, not just for residential construction (i.e. homes) but also for non-residential (i.e. everything else). It seems like it might be a while longer until we get much movement of builders from the Garden City to Auckland.

Also, since a reader asked for it, here’s a comparison of the overall Canterbury region vs Auckland. This is based on the actual value of construction carried out each quarter (although it’s been seasonally adjusted to remove some of the noise).

AKL vs CANT construction

So, although Canterbury has just over a third of Auckland’s population, in early 2014 it was carrying out about the same amount of building work. This was a truly massive redeployment of resources, more than $1 billion per quarter – see how it compares to Canterbury’s pre-earthquake level of activity.

Canterbury has dipped back a little from its peak, but based on the building consent data (which is a bit of a ‘forecast’ of future activity), it’s probably going to plateau for a while longer.

Auckland, on the other hand, has had sharp increases recently – the level of activity has just about doubled in the last five years (although this includes price increases).

Lastly, before we leave Christchurch, one of the long-delayed ‘anchor projects’ for the CBD is finally starting, with the Government deciding to go it alone on the Convention Centre after the preferred developer pulled out.

Auckland

Given Auckland’s housing issues, I try to update the graph below each month. It shows the number of new homes being consented in Auckland each year.

AKL consents to May 2016

It’s a little hard to see here, but the figures in the last couple of months have been pretty disappointing. The total number of consents has dropped back a little (from 9,566 a year to 9,434). Plus, the number of apartment consents has fallen back from close to 2,000 to around 1,500. The numbers are pretty volatile – a big building could have 100-200 apartments, so the timing of those makes a big impact. We’ve now had three months when almost no new apartments were granted consent.

Detached houses, though, have been on the rise. Any new homes are better than no new homes, so that’s something, but it’s the ‘denser’ housing that needs more effort.

In happier news, downtown Auckland is still buzzing even in the cold weather, and there’s plenty going on with the start on the CRL, demolishing the old Downtown centre, Wynyard Quarter work and more.

Lastly, I’d like to give a shoutout to the new Quay St cycleway, which is a great addition to the cycling network but also a neat ride in its own right.

Development update: June 2016

It’s been a little while since I wrote a “Development Update” post, and a lot has happened since then:

  • The final batch of Special Housing Areas was approved.
  • Downtown Shopping Centre has closed, and is about to be demolished. Tunnels for the City Rail Link will be built underneath, and the site will be redeveloped as Commercial Bay, an office tower and shopping centre.
  • Speaking of the City Rail Link, it’s is now officially under construction.
  • My count of homes which are currently “under construction” keeps edging up – it’s now up to 6,000, and that’s just for Auckland apartments and terraces.
  • Several major buildings have been completed, including Urba Residences (144 apartments just off K Road), Unilodge on Whitaker (300 student apartments) and VXV Three (offices in Wynyard Quarter). Vinegar Lane keeps ticking away, with Countdown also open as of today.
  • A number of new homes are now being marketed, such as NXN Apartments, Nugent Rise, The Eight, Eden Green and The International.

So, quite a bit then, and it’s all in the RCG Development Tracker, along with a host of other information on 700-odd projects.

It all adds up to a pretty big ‘pipeline’ of homes which are recently completed, under construction or being sold off the plans.

Pipeline to June 2016

The tricky part is that, as I’ve written previously, the construction sector is getting really stretched. That’s worth a post of its own, which will happen in the next week. In the meantime, the government keeps finding it politically convenient to blame the Council for all of Auckland’s problems. Convenient it may be, but it’s not particularly helpful for Aucklanders.

Unfortunately, based on “building consent” numbers, Auckland has actually gone backwards in the last couple of months, in terms of the number of homes approved for building.

Dwelling consents to Apr 2016

9,353 homes were consented in the year to April 2016, down from 9,534 in the year to February. The main reason is that apartment consents are volatile, and have had a couple of bad months. It’s a different picture than the top graph shows – that’s more of a “leading” indicator in a sense, so consents should come back up again.

None of it is enough, though, and if you want a bit more evidence:

  • The Auckland Plan target is for the city to build 13,000 homes a year over the next 30 years.
  • That includes an average of 10,000 homes a year in the first decade, which started in 2012 so we’re already playing catchup on that. Plus, as per the graph above, Auckland has only ever achieved 10,000 homes a year a few times, and that was when we were building far more apartments than we are currently.
  • I’ve recently done some calculations that Auckland needs to build 14,000 homes a year to meet current demand (with immigration at its current high levels).
  • We’d need at least 16,000 homes a year if not for the fact that Aucklanders have also been moving to other parts of New Zealand, which partly balances out the immigration from overseas.
  • Most economic commentators think Auckland already has a shortage of 20,000 to 50,000 homes, which will take many years to address.

This is a huge challenge, although it probably looks pretty good if you’re a builder!

The end of Auckland’s old growth model

The New Zealand Council for Infrastructure Development’s public shark-jumping exercise the other week got me thinking. While their flagship policy of a new megabillion eastern tunnel project is a bit mad, their report does a reasonable job of diagnosing one of the core problems facing Auckland. That is, the city’s land-use and transport plans are not always well aligned.

That’s illustrated nicely in their maps of intensification opportunities around rail stations – red circles indicate places where apartment and townhouse development is generally discouraged under the draft Unitary Plan.

NZCID - ATAP response - Land Use Train

In short, we’re fixing our city’s rapid transit network – and it’s long since time we did that! – but we may need to do more to get the best out of the investment by enabling intensive development around train stations.

As a point of contrast, I recently visited Sydney on the way back from a work trip to Australia and spent a day wandering around the city looking at stuff – it’s a great walking city. And I’ve got to say: they don’t waffle around with upzoning there. When they choose to redevelop a brownfield area, the debate isn’t between whether two or three storeys should be allowed. The question is whether to go ten, twenty, or thirty storeys. And they’re willing to back that up with new rapid transit where needed.

Auckland is different. We build rapid transit infrastructure haltingly, in fits and starts, and when governments choose to accelerate road projects, busways are left to progress through the queue. And while the Unitary Plan is a fine step forward, it’s really just the start of the conversation about how we should modernise our planning rules for a 21st-century city.

But change is needed. Because, as NZCID’s report unintentionally illustrates, Auckland’s arrived at the end of its growth model of the past 50 years. It’s kaput. We may be able to kludge it back into action for a bit, but make no mistake: it will seize up again. And so we need to design a new growth model.

The old growth model was as follows:

  • Build some roads and water pipes out into the countryside
  • Build some houses on the paddocks this opens up for development
  • Repeat when necessary.

This isn’t necessarily a bad model. It’s simple, and it works reasonably well provided that some schools and shops and jobs move outwards as well. But it’s got some subtle pathologies – e.g. street networks that preclude future transport choices, environmental impacts, etc.

And, more importantly, this growth model is inherently self-limiting in a location like Auckland. There are two reasons for this:

  • First, geographic constraints. Auckland is situated on a narrow isthmus between two harbours. We run out of proximate land for housing much more rapidly than other cities – which means that we must build up much more rapidly than other growing cities.
  • Second, the spatial cost of road transport. Geography gives Auckland many pinch points – over the Waitemata Harbour and across the portages at either edge of the isthmus. It’s intrinsically challenging to keep pumping cars through narrow pinch points. Adding motorway lanes will only get more costly in the future – as NZCID’s eastern motorway proposal demonstrates.

We can’t avoid the consequences of these constraints by metamorphosing into a polycentric city… because that’s already happened. Only one in five jobs is located in the city centre and fringe. The rest are elsewhere. If there are major gains to be had from dispersal, we have already achieved them. We can’t count on more of the same to help us escape the geometric realities.

And here’s the thing: If we insist that we must keep on doing more of the same, we will instead do nothing. If it is truly necessary to build something like NZCID’s eastern motorway tunnel to enable urban growth in Auckland, we probably won’t grow. It’s not feasible to spend a decade of Auckland’s transport infrastructure budget on a single road. (And it’s not ethical to borrow the money from future generations, who don’t have a say in what gets built.)

So we need a different growth model. I don’t have all the answers – who does? – but here are a few thoughts on what that might look like, focusing on the transport infrastructure part of the picture. (Elsewhere, I’ve discussed the role of pricing and the need to rethink policies that limit housing choice.)

First and foremost, we must recognise that this growth model is self-limiting due to its reliance on a single transport mode – cars. Cars are great for lots of things, but they occupy a lot of space both when in motion and when sitting around. This is not an advantage in a city as geographically constrained as Auckland.

If we invest in a way that ensures that all new entrants to the city must use cars for most travel, then it will come back to bite us. If people know that new housing in their neighbourhood will inevitably mean more people parking in their preferred spot on the street, they will oppose it. (No matter how mindlessly hypocritical it is to claim a property right over a public street!) If they know that a new suburb on the edge of town will mean more cars jostling for space on the road during their morning commute, they will oppose it.

And if they’re presented with the bill to build all the new roads needed to keep the cars flowing, they’ll vote against it. Roads are expensive, and people don’t like it when their rates go up.

Second, we must recognise that there are alternatives. Public transport and cycling can offer great mobility at a much lower spatial cost than cars. If we want to increase mobility in a growing city, we need to make much greater use of these transport modes.

Litman-space-required-by-mode

It can be challenging to make the transition, as developing these networks means thinking about infrastructure and transport services differently. It means paying much more attention to how humans may behave out there on the street – i.e. what will make them feel safe in a cycle lane, or what will make it possible for them to transfer painlessly between buses. But it’s fundamentally possible.

Third, one key consideration when building these modes is that they should be built in advance of growth, so that they can lead and shape development rather than trying to catch up with it. At present, we very much take a “roads first” philosophy to greenfield areas – i.e. building lots of lanes on day one, and coming back years later to retrofit public transport to address the resulting congestion.

The perverse consequence is that this locks in a largely car-dependent urban form on the edge of the city, exacerbating the self-limiting features of our current growth model. Unwinding that is costly and difficult. A “rapid transit first” approach would save us a lot of that trouble.

Fortunately, as Matt highlighted in a recent post on Auckland Transport’s consultation on transport for future urban growth, that’s a realistic option. We’ve got the ability to develop rail stations in Drury and extend busways to Silverdale and Northwest Auckland.

TFUG - Draft Preferred Plan - South

But change doesn’t happen of its own volition: policymakers have to choose to change. So here’s a simple message: If you start a sentence by saying “we need more land for housing…” the next words out of your mouth should be “… and therefore here are some rapid transit investments we should make to support it.”

Development update: March 2016

Through my employer RCG, I’ve just put out a research piece giving 2017 as the first time that Auckland will build more attached homes (apartments, terraces) than detached houses.* This is one milestone, but really it’s just one of the ways in which Auckland is changing to become more city-shaped, as Patrick puts it. While the number and percentage of attached homes will bounce around, I believe that they’re increasingly important for Auckland’s growth, and in the long term they’ll make up at least 50% of the new homes we build.

That doesn’t mean that leafy suburbs will be razed wholesale, or that we’ll stop building detached houses, or that everyone will be forced to live in an apartment. According to the 2013 census, Auckland has:

  • 332,000 detached houses
  • 50,000 units in buildings with 1 storey
  • 43,000 units in buildings with 2-3 storeys
  • 16,000 apartments in buildings with 4+ storeys

Clearly, detached houses aren’t going anywhere – it’s just that they’ll be joined by more flats, terraces and apartments too. That means more housing choice.

AKL dwelling consents to Feb 2016

Housing choice is a good thing, but to bring it back to transport: Auckland needs better public and active transport so that it can handle more people, living closer together, without just getting more and more congested. The city needs transport choice as well as housing choice. We’ve often talked about Flat Bush as an area which has denser housing – including plenty of terraces and low-rise apartments – but which has very poor provision for public transport. That’s a recipe for traffic jams, long commutes and worse outcomes across the board. The new growth nodes in the future – Hobsonville, Massey, Takanini, Silverdale – need to avoid these mistakes.

 

The (Very) Big Picture

I try to get a bit ‘big picture’ with these posts, but I want to zoom out even further right now: let’s look at the overall New Zealand construction sector. At the moment, it’s as busy as it’s ever been. Statistics New Zealand measures the amount of “building work put in place” each quarter, showing how much construction is occurring. They say:

“For the December 2015 quarter compared with the September 2015 quarter, after price changes and seasonal variations are removed… total building activity rose 2.5 percent… the trend for all building work grew 1.8 percent, and is at its highest level since the series began in late 1989”.

There are regional differences – Canterbury construction will be tapering off in the next few years as the earthquake rebuild continues, and Auckland construction is booming. On the whole, though, the construction sector is pretty much flat out. Forecasts like the National Construction Pipeline Report, and the latest information on building consents, suggest that the outlook for the next few years is very busy too.

Growing industries are meant to be a “good news” story, and they are, and this means more jobs and more economic activity and all the rest. But it’s not without issues, because the construction industry relies on having a trained workforce, and it’s hard to keep growing the industry at 5% or 10% or 15% a year when construction is already a pretty big part of the economy and most of the people who know how to swing a hammer are already swinging.**

The graph below, from the Household Labour Force Survey, shows the number of people employed in construction at an all-time high:

Construction workers

Many builders are running at capacity already, and there are probably some specialist areas where it’s almost impossible to find builders to take on new projects – or at least, without paying through the nose. Peter’s looked at these issues in road construction previously, and I’ve heard that some Auckland apartment developers are struggling to find builders as well.

So, one issue with a very busy construction industry is that prices go up. Another worry is that there’s less focus on quality control, potentially resulting in buildings which aren’t up to scratch. It’s certainly something the industry, councils and government need to keep a close eye on.

Phew. So that’s the very big picture. It’s a good time to be a builder, but it’s going to be hard to find all the construction workers, tradesmen, consultants and other workers needed in the next few years, and hopefully the quality of the build isn’t compromised.

 

* Technically, we’re predicting 2017 to be the first year that more attached homes get building consent than detached houses. It will probably be 2018 or 2019 before Auckland completes more attached homes than detached houses.

** A hammer, that is.

Unitary Plan Fantasies

Introduction

In this post I discuss two related questions that concern common “fantasies” about the Unitary Plan, specifically:

  • Question #1: To what degree has Auckland’s density changed during the last few decades?
  • Question #2: To what degree does the balance of brownfields/greenfields development in the Unitary Plan differ from the past?

We might be able to agree on answers to these two questions. Why? Well, they are positive questions, insofar as they refer to attributes, i.e. density and brownfields/greenfields development, which are able to be subject to empirical measurement and testing.

Ideally people would agree on answers to important positive questions before moving onto normative questions, because the latter are not empirically testable. An example of a normative question would be: “How much weight should we place on the preferences of existing homeowners versus potential homeowners? I hope the difference is obvious; normative questions tend to be gnarlier.

It’s often helpful to separate positive from normative statements. People can often vehemently disagree on the answers to normative questions, while still agreeing on the answers to positive questions. Hence, in this post I will try to provide clear answers to two important positive questions that seem to be frequently misunderstood by those who oppose the Unitary Plan. Rest assured that I hope to tease out some of the important normative questions in more detail in a subsequent post.

Question #1: To what degree has Auckland’s density changed during the last few decades?

The answer to this question is simple: In the last 10-15 years the population density of Auckland has increased. In this working paper, Peter quantifies the density for various New Zealand cities, which are summarised in the following table. We see that Auckland’s population-weighted density (i.e. the density at which the average resident lives) has increased by around one-third (33%) in just over a decade.

As Peter discusses in this post, increased density is consistent with other empirical data. When we look at population growth in Auckland, we find that the population of central areas, especially the city centre, is growing faster than other places in the region. Waitemata (which covers most of what we refer to as the “Isthmus”) stands head and shoulders above the rest in terms of population growth, both in total and relative (%) terms, as shown below.

The increase in density observed in central areas doesn’t seem to be caused by regulations on urban expansion. Instead, Auckland seems to have grown denser primarily because there is increasing demand from people to live and work centrally, i.e. as a result of people’s preferences. Research by Arthur Grimes, for example, has found that Auckland’s central areas have become much more valuable relative to less central areas, as illustrated in the figure below.

This change is significant, and is mirrored in cities elsewhere, such as Amsterdam (NB: Amsterdam has always controlled urban expansion, providing further evidence to suggest that controls on urban expansion are not behind changes in the relative values attached to centrality). Increasing density in Auckland are also consistent with the experience in Sydney and Melbourne, as illustrated in the figure below (NB This figure is taken, incidentally, from the excellent ChartingTransport website). Here we see that density in both Sydney and Melbourne increased by a similar % to that observed in Auckland. 

So from where I’m sitting the answer to the first question is fairly clear: Over the last 10-15 years or so Auckland has become a much denser place, and it’s become denser because more people and firms want to locate in central areas. As far as I know the sky hasn’t fallen on our heads. Indeed, from what I can tell Auckland has been doing relatively well of late. 

In this context, the imposition of regulations preventing intensification would seem to have the following impacts:

  1. Reduced development and higher property prices;
  2. Fewer people and jobs being located in central areas;
  3. Increased urban expansion, with associated infrastructure, congestion, and energy costs; and
  4. Transfer of wealth from those who have less to those who have more (further reading).

The likes of Richard Burton, Dushko Bogunovich, and David Seymour may argue that the costs of regulations preventing intensification are outweighed by the benefits, e.g. maintaining the “character” of inner-city suburbs.

I know of no quantitative evidence to show this is the case. On this basis I think it’ fair to say that their claims are unsubstantiated, at least in quantitative sense. I note that recent changes to the RMA (passed, incidentally, with the support of the ACT Party) places a higher bar on the economic evidence needed to support restrictions on development. In the absence of such evidence, and given the large body of quantitative evidence that demonstrates the costs of regulations that prevent intensification, arguments against intensification would seem to be rather flimsy. I can only hope that the IHP agrees.

Question #2: To what degree does the balance of brownfields/greenfields development in the Unitary Plan differ from the past?

The answer to this question is hinted to in the previous discussion: In the last two decades most development has happened within the existing urban area, i.e. brownfields. More specifically, development has been split 71% and 29% between brownfields/greenfields respectively. Data supporting this analysis is summarised in the table below, which is extracted from the Development Strategy published by the Auckland Council (available here).

The historical percentage of brownfields/greenfields development is similar to that enabled by the Unitary Plan (60-70% and 30-40% for brownfields and greenfields respectively). At this point I think it’s worth highlighting a rather extraordinary exchange from Peter’s recent post on the linear city (source).

Capture2

To explain:

  • “Brian” asks Duskho Bogunovich (who works for Unitec and has publicly criticized many aspects of the Unitary Plan) what proportion of Auckland’s historical growth has been accommodated within the urban area (“brownfields”) and what proportion has been outside (“greenfields”); and
  • Duskho replies with “I don’t know” but then suggests a ratio of 1 part brownfields to 5-10 parts greenfields. Converting this into percentages would imply that Dushko believes 9-17% of historical development has been brownfields, with the balance in greenfields.

Dushko’s numbers are at odds with the data presented above. Indeed the data flips his percentages around completely. Now, in Dushko’s defense this particular question asked about the last *30* years whereas the data presented above goes back only *20* years. On the other hand I can’t see this ratio changing too dramatically though even if we went back one more decade.

The key takeaway message from this exchange is that 1) Dushko doesn’t know the actual brownfields/greenfields ratio and 2) the data which is available suggests a brownfields/greenfields ratio that is at odds with his intuition. I personally would expect that those who oppose the Unitary Plan, such as Dushko, would spend some time familiarizing themselves with the empirical evidence, especially when such evidence is crucial to the argument they are themselves advancing.

Keep this issue in mind when you consider another one of Dushko’s comments (source):

But forcing massive intensification inside Auckland cannot fix the housing crisis anyway … The city must grow both ways – up and out – to allow the land and housing market work properly. And getting the ‘up/out’ ratio right is crucial … this ratio for Auckland is probably 1:2. That is, 1/3 should be growth by intensification, and 2/3 by growing out (new suburbs; satellite towns; redistribution to the outer region – Waikato and Northland). Sadly, the council, in its ‘compact city’ ideological zeal, managed to get this ratio exactly the opposite – 2:1. The ‘70% fantasy’. This is PAUP’s fatal flaw. That’s why the Plan is a dud. And will never be implementable. Unless we use the North Korean approach.

In Dushko’s world, Council via the Unitary Plan is “forcing massive intensification” that is at odds with the “right ratio” for intensification. Dushko’s sees evidence of “ideological zeal” and “fantasy”, ultimately concluding that the PAUP is “fatally flawed” and a “dud”, which will not be able to be implemented unless we resort to North Korean style policies. Hyperbole much?

Especially when one considers the empirical data. Put simply, the Unitary Plan simply is proposing to continue long-established trends in Auckland’s urban development, which have resulted in steadily increasing density with a 70%/30% brownfields/greenfields split.

People like Dushko might argue that we would be better off if changing these trends. I’d disagree but, hey, let’s have that debate. It’s fair game.

What doesn’t seem fair game is for people like Dushko to criticize Council’s Unitary Plan and suggest it represents a “radical” change from the past, when in most respects it’s business-as-usual. Perhaps the only way the Unitary Plan can be described as “radical” is that it provides for only 80,000 new homes to be developed over coming decades, when official population projections suggest we will need approximately 400,000.

Conclusions

I started this post by posing two “positive” questions, to which I have since suggested the following answers:

  • Question #1: To what degree has Auckland’s density changed during the last few decades? Auckland has become 33% denser since 2001. This change appears to be driven more by the growing desire of people and firms to locate centrally, rather than regulatory controls on urban expansion. The increase in density observed in Auckland, and the increasing value placed on central locations, is consistent with trends observed in cities overseas, such as Sydney, Melbourne, and Amsterdam; and
  • Question #2: To what degree does the balance of brownfields/greenfields development in the Unitary Plan differ from the past? The last two decades of Auckland’s developent has seen a 71% to 29% split between brownfields/greenfields development respectively. This data seems to be at odds with the views of many people that oppose the Unitary Plan, who argue that Council is forcing “intensification” and a “compact city” on Aucklanders.

What do you think is fact or fantasy when it comes to the Unitary Plan? And on that note, what is your fantasy for Auckland. In 20 years time would you prefer to be 1) more dense; 2) less dense; or 3) about the same as now? Vote below.

Development update: February 2016

Auckland’s population keeps on growing, with a hearty mix of migration and wee bairns. And with that comes demand for development of all kinds. Residential gets most of the attention, and fair enough too: we’re still struggling to build enough homes for everyone who wants to live here.

The Auckland Housing Accord between the government and council is into its third year. I’m eagerly awaiting the release of Auckland Housing Accord Monitoring report #9, hopefully by the end of this month. Will it be a riveting read like Auckland Housing Accord Monitoring report #8, or prescription medication for insomniacs like Auckland Housing Accord Monitoring report #5? Find out right here on TransportBlog.

Seriously, though, getting new homes built is a pressing issue for many reasons. And one of the main tools in the Housing Accord is identifying “Special Housing Areas” where approval processes can be streamlined and new zoning can be used.

The latest ‘tranche’ of SHAs was announced earlier this month, and as with all the other tranches, the urban/ infill/ apartment/ terrace ones have been mapped in the RCG Development Tracker, along with another 600-odd developments in many sectors.

The council has closed off requests for new SHAs, so that they can focus on the requests they already have. With the legislation set to expire in September, there’ll probably be just one more tranche to come.

 

Building Consents

Building consents are the best measure of how many homes are being built, or about to be built.

In Auckland, 9,251 homes were given building consent in 2015, up 21% from 2014 (7,632 homes). This is progress, but those numbers need to keep growing – to at least 13,000 a year, or even higher to start chipping away at the undersupply.

AKL consents

 

Down in Canterbury, home building activity is tailing off. Christchurch is still a little way off replacing all the homes lost in the earthquakes, but it’s getting there. The number of building consents peaked in 2014 at almost 6,700 homes were given building consent in 2014, and that’s fallen back to 5,800 for 2015. Many construction workers will look to move up to Auckland where there’s still plenty of demand for new housing.

Chch consents

Development update: January 2016

2015 was a good year for the retail sector, and early indications are that stores had a good Christmas too. December is the busiest time of the year for retailers. They’ll move mountains to make sure that new shops (and shopping centres) are open in time for Christmas trading.

Up until 2007, the retail sector was on a roll, and new shopping centres were being built all over the place. That changed when the recession hit in 2008 (and online shopping has no doubt had a big influence as well).

Retail development has been coming back to life over the last couple of years, and 2015-2016 sees the biggest expansion since the GFC. These centres are all shown on the RCG Development Tracker page (not to mention apartments, terraces and a host of other things).

In Auckland, we’ve already had the NorthWest Shopping Centre open out in Westgate. This was the first “new build” regional mall since Westfield Albany opened in 2007. At a more urban level, Lynnmall opened its new Brickworks precinct.

IMG_4183

The Brickworks at Lynnmall. Source: Kiwi Property

 

On a smaller scale, there are the centres that consist of a supermarket and a few small shops, usually of the ‘day-to-day’ shopping variety. The new Countdown-based centre in Hobsonville falls into this category, and even the first stage of the Ormiston Town Centre (based around Pak ‘N Save) for that matter. In Christchurch, there were two new ones, Spitfire Square at the airport, and The Landing at Wigram.

2016 will be a reasonably big year for retail too, with new centres like Tauranga Crossing and (in Westgate again) Zone 7, a large format centre.

Although the Christchurch CBD rebuild still has some way to go, three of the largest retail/ office developments – The Crossing, the BNZ Centre (aka Cashel Square) and The Terrace – will have their first stages open in time for Christmas.

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The Crossing – soon to be the largest shopping centre in the Christchurch CBD. Source http://www.rebuildchristchurch.co.nz/blog/2015/3/vision-for-the-crossing-unveiled

 

Last August, I wrote:

With ongoing population growth, and some niches emerging, there will be more opportunities for retail – but with fewer new centres than last decade. And if the economics of new malls don’t stack up, could we see renewed interest in the “high street”?

Rhetorical question that one, the answer is “yes”.

As for residential development, December/ January has been a bit quiet in terms of new launches – real estate agents try to get these launched at least a few weeks before Christmas, otherwise they’ll leave them until the new year. Summer is obviously a busy time for builders, with long days, so it’s all go on various building sites around the place (I can hear one out my window right now). There’s a few projects finishing up this summer as well – Summit on Symonds, The Orange, The Seddon or Parkview Residences to name a few. More on that next month.

The high cost of free parking

The announcement of the Commercial Bay development last week got me thinking about minimum parking requirements.

MPRs were removed from the city centre back in the late 1990s. Prior to that point,all new developments were required to provide parking at roughly the same rate as suburban developments. After that point, individual developers, businesses, and residents got to choice how much parking they wanted.

I’ve always thought that this was a strong factor in the downtown revival we’ve seen since then. If they hadn’t been removed, money that has gone into developing housing and space for businesses would have been diverted into unproductive parking spaces instead.

City Centre Population - 1996-2015 2

Precinct’s new 39-storey tower on the waterfront shows what a difference MPRs make to development. Commercial Bay will ultimately have 39,000 m2 of commercial office space, 18,000 m2 of retail space, and 278 carparks. It’s going to be a big, bold addition to the waterfront. But it simply wouldn’t be possible if MPRs were still in place.

Tower 1

To get a sense of the difference that MPRs would make, I went back to the Auckland isthmus district plan, which will soon be replaced by the Unitary Plan. For developments outside the city centre, it required:

  • one carpark for every 40m2 of office space, and
  • one carpark for every 17m2 of retail space.

In other words, if those MPRs still applied to the city centre, Commercial Bay would have required over 2000 carparks. That’s seven times as much parking as the developers actually want to build. Effectively, it would mean constructing the equivalent of AT’s Downtown Car Park at the bottom of the tower. Say goodbye to ground-floor retail. Say goodbye to laneways through the building. Say hello to bad air quality and inhospitable accessways cutting up the footpath.

Furthermore, MPRs would have dire financial implications for the project. According to Precinct, Commercial Bay will cost $681 million to build. If MPRs required the development to include another 1750 carparks, at a cost of $30-50,000 apiece, it would add $50-90 million to the cost of the project. That suggests that MPRs would impose a “regulatory tax” of  7-13% on downtown development.

But would all those extra carparks have any value? In a word, no. The fact that Precinct chose not to build them suggests that they don’t see the value in providing parking spaces rather than office or retail space. And, as a corollary, it’s likely that their tenants and customers don’t see the value in having seven times as much parking, either.

It’s not as though there are any pressing social requirements for another 1750 carparks, either. Three six-car electric trains can deliver the same number of people to the city centre. At present, Britomart can do that every ten minutes at peak times. After the City Rail Link is constructed, it will be possible to double rail frequencies through the city centre. And our public transport system can do all of this without adding to road congestion – which you can’t say about people driving into the city centre.

AT Rail Capacity Image

The high costs of minimum parking requirements aren’t limited to the city centre. Down in Christchurch, for example, a neighbourhood bar and restaurant is having to shut up shop due to MPRs:

Two Christchurch business owners are “disgusted” by the city council’s ruling they need to create 62 extra car parks to continue operating as is, saying they will likely close their bar.

Dwayne and Tiffany Vaughan, who run Kaizuka Eatery and Garden Bar in Cashmere, have been engaged in a year-long stoush with the Christchurch City Council over its licensing arrangements.

The council said the owners changed the scale of the business operating under the on-licence. The cafe was initially a small part of a garden centre but had grown to take over the premises.

The owners needed an on-licence variation that would in turn trigger resource management and building consent requirements.

According to the City Plan, 10 carpark spaces were required per 100 square metres of public floor area, but reductions could apply. The 800sqm bar had 18 car parks, meaning it would need another 62 to meet the requirements.

Setting aside the complete insanity of even having MPRs for bars – why on earth would we want to encourage people to drive to the pub? – this requirement imposes large costs for parking spaces that don’t seem to be necessary for the business. (After all, it’s been operating since March 2014 with the current number of parking spaces.)

It would probably cost over $1 million for the bar’s owners to comply with MPRs, assuming that they would have to spend around $20,000 to buy land and build carparks. The benefits of this policy are vaguely defined and potentially negative, if abundant parking encourages more people to drive and drink.

All of which begs the question: Why do we still have this costly and useless policy?