Mid-week reading: strategy games, housing politics, fossil fuel subsidies, and the benefits of bike lanes

Welcome back to mid-week reading, which is (happily) becoming a more intermittent feature. One of the most interesting things I’ve recently read was Jonathan McCalmont’s exploration of anarchist scholar James C Scott’s arguments about the way that governments interact with their people: “Seeing like a state: why strategy games make us think and behave like brutal psychopaths“:

Cloaked as they were in the trappings of religion and medieval warfare, it was all too easy to overlook the morally dubious nature of the games’ relationship between players and in-game characters. Indeed, it was not until the release of Bullfrog’s Syndicate (1993) that the political savagery of the strategy genre became fully apparent. Stripped of the moral fig leaf of historical context, Syndicate asked us to assume to role of a corporate CEO who used cybernetically enhanced slaves to battle rival CEOs for control over a virtual environment that enslaved the entire human race. For the first time, players were asked to embody not mythical beings or historical princes but ruthlessly exploitative capitalist tyrants. The fact that playing a corporation was no different to playing a god or a warlord merely served to drive home the moral message: You are a complete bastard

What all of these games have in common is a tendency to make even the most liberal of gamers behave like brutal tyrants. For the player of strategy games, little computer people serve only as a means to an end. We do not care about whether or not our little computer people are happy, we only care about whether or not they are productive. If they are not productive then they are in our way and little computer people who get in the way of their players tend to wind up brutalised, enslaved and dead.

Second, on a different note, Tim Watkins (Pundit) reflects on the government’s reaction to the Auckland housing crisis. While the article’s a few weeks old at this point, Watkins’ points are still worth considering:

What’s become clear is that Auckland’s problem is no longer a land supply problem, it’s a house supply problem. The Special Housing Areas have opened up over 50,000 sections according to the government, but only 1000 houses have been built. Even Auckland Council estimates six and a half years worth of land is ready to build on. What’s missing is a will (or requirement) to build, tradie capacity and, arguably, a government commitment to a mass building programme.

Instead, what we’ve got from National seems to be an admission any fix on Auckland house prices is years away and what matters to them now is spreading the blame.

Watkins also highlights infrastructure as a key problem:

Auckland Council is in a bind on infrastructure. Not that you’d know it from most of the debate, but it’s willing to sprawl somewhat. It’s problem is the lack of roads, rail, sewers, footpaths and the like on the outskirts of the city and an inability to pay for it.

Auckland Council is maxed out on debt; if it borrows more it suffer a credit downgrade and the local government authority that borrows on behalf of councils simply won’t let it do that, as I understand it. It can’t raise rates, because they’re already high and they’d suffer a revolt. Thy want to introduce congestion charges, but the government won’t change the law to let them.

Third, the Economist offers a good analysis of the opportunity that current low fossil fuel prices offer for policy reform:

The most straightforward piece of reform, pretty much everywhere, is simply to remove all the subsidies for producing or consuming fossil fuels. Last year governments around the world threw $550 billion down that rathole—on everything from holding down the price of petrol in poor countries to encouraging companies to search for oil. By one count, such handouts led to extra consumption that was responsible for 36% of global carbon emissions in 1980-2010.

Falling prices provide an opportunity to rethink this nonsense. Cash-strapped developing countries such as India and Indonesia have bravely begun to cut fuel subsidies, freeing up money to spend on hospitals and schools (see article). But the big oil exporters in the poor world, which tend to be the most egregious subsidisers of domestic fuel prices, have not followed their lead. Venezuela is close to default, yet petrol still costs a few cents a litre in Caracas. And rich countries still underwrite the production of oil and gas. Why should American taxpayers pay for Exxon to find hydrocarbons? All these subsidies should be binned.

What a better policy would look like

That should be just the beginning. Politicians, for the most part, have refused to raise taxes on fossil fuels in recent years, on the grounds that making driving or heating homes more expensive would not only annoy voters but also hurt the economy. With petrol and natural gas getting cheaper by the day, that excuse has gone. Higher taxes would encourage conservation, dampen future price swings and provide a more sensible way for governments to raise money.

An obvious starting point is to target petrol. America’s federal government levies a tax of just 18 cents a gallon (five cents a litre)—a figure that it has not dared change since 1993. Even better would be a tax on carbon. Burning fossil fuels harms the health of both the planet and its inhabitants. Taxing carbon would nudge energy firms and consumers towards using cleaner fuels. As fuel prices fall, a carbon tax is becoming less politically daunting.

Lastly, new evidence from New York shows that protected cycle lanes, in addition to being safer and more enjoyable for people on bikes, can also improve life for people in cars:

When New York City first started adding new protected bike lanes in 2007, some drivers made the usual argument against them: Taking street space away from cars would slow down traffic. After years of collecting data, a new report from the city shows that the opposite is true. On some streets redesigned with protected bike lanes, travel times are actually faster. And it turns out the new lanes have a range of other benefits as well.

For pedestrians, the bike lanes make walking safer by shortening crosswalks and making crossings more obvious to drivers. Pedestrian injuries have dropped an average of 22% on streets with bike lanes. Not surprisingly, cyclist injuries have also decreased; on 9th Avenue, for example, even though far more bikes are on the street, cyclist injuries have gone down by 65%.

For cars, a better traffic flow comes partly as a side benefit from a safety feature added with the bike lanes. Cars turning left now have pockets to wait in—so they’re less likely to hit a cyclist riding straight, but they also stop blocking traffic as they wait.

“Having that left turning area, where you’re able to get out of the flow, you can see the cyclist, the cyclist can see the turning vehicle, you can pause and not feel the pressure from behind to make a quick movement,” says Josh Benson, director of bicycle and pedestrian programs for the New York City Department of Transportation. “That’s a major major safety feature of these type of bike lanes. But it also helps the flow.”

Housing Issues Hotting Up

Housing issues in Auckland have become a fairly constant news piece in recent years and the affordability issue has become louder and louder. And it’s not just people wanting to buy a house either but also for renters as rental prices rise too, something that is particularly tough for those on low incomes.

We know that one of the key tools to helping unlock development in Auckland is of course the Unitary Plan – depending on what final form it takes. It reached a new milestone last Friday as the Independent Hearings Panel held its final hearing on it. The amount of work the panel has undertaken has been significant. There were 9443 submissions and 3951 further submissions. The hearings began in September 2014 and there have been 242 days of hearings and there were more than 10,000 pieces of evidence.

Between now and July they’ll be working on their final recommendations to the plan which will be voted on by the council. With elections coming up it’s anyone’s guess as to which way councillors will vote. One thing that does seem clear though is that pressure is increasing on them from the government, in particular Housing Minister Nick Smith.

On the weekend he told by both TVNZ’s Q&A and Newshub’s The Nation that he will be imminently releasing a National Policy Statement (NPS) under the RMA which will put pressure on the growing councils like Auckland to open up land.

“Next month I will be producing a national policy directive under the [Resource Management Act] that will put far tougher requirements on growing councils to ensure they are freeing up long-term the land that is required so that we don’t get into the sort of juggernaut that has been at the core of the unaffordable housing problems in Auckland.”

At first blush that sounds similar to the “throw open the gates” type statements he made when he was made housing minister however since that time he seems to have moderated some of his comments and gained a better understanding of some of the finer issues such as density restrictions that prevent intensification. As such I am hopeful that the NPS he’s developing will also address these constraints too.

I also hope the government consider the impacts on infrastructure as part of any policy. Just throwing open the land might sound like the immediate solution but that land also needs infrastructure to support it and that isn’t cheap. The Council, Auckland Transport and NZTA have been working on the Transport for Future Urban Growth which is planning for about 110,000 dwellings on greenfield land and just the major infrastructure is likely to cost around $8 billion.

Yesterday Smith also became a bit more personal calling Councillor Mike Lee a NIMBY, a hypocrite and part of the problem for opposing intensification in Herne Bay.

“Mike Lee is guilty of Nimbyism,” said Dr Smith.

The Government has designated the site of the old Gables pub a “special housing area”. That allows for fast-tracked development, with between four to seven of the apartments “affordable housing”. It’s about getting more housing into inner-Auckland’s “urban intensification”.

But neighbours don’t like it, and, local councillor Mr Lee is on their side. Mr Lee wrote earlier this year, saying the development was “overriding the civil rights of neighbouring property owners”.

Dr Smith responded, saying he found Mr Lee’s position “ironic”, “odd” and “part of the problem”.

“We cannot have that sort of Nimbyism. That’s at the core of where Auckland has gone wrong. That’s why I’ve politely written back to Mr Lee and said ‘actually, you are being a hypocrite’.”

Nick Smith on Housing

Unfortunately, in many ways Nick Smith is right, over the last few years Mike Lee has fairly consistently voted against rules that would enable more housing, especially in the in inner suburbs.

John Key is also threatening the council and at his weekly press conference yesterday said:

The Prime Minister also warned that the Government would not be able to “sit back” if Auckland councillors did not deliver enough houses in the city.

Asked to elaborate, Mr Key said ministers would make announcements in this area soon.

Could the government ultimately force the Unitary Plan through if the councillors don’t approve it or worse could they install commissioners?

While I don’t agree with everything they’ve said, one positive is that the government have made some better noises around some housing issues. In saying that they also remain very quick to blame the council for the current issues when they need to take a share of the blame too. The reality is the Unitary Plan process is one the government created and more so, some of the ideas like an NPS could have been pushed years ago. Other tools that they’ve implemented such as the Special Housing Areas have resulted in at least some developers using it as a tool for to increase the value of their land-banking.

The bad news is that even if the government and council’s all do their bits well, our housing issues are something that could take decades to resolve. We’ll now have to await with interest to see what comes out of the budget and out of the NPS the government are preparing.

Apartments and housing affordability

The NZ Herald’s been running a series on Auckland’s housing affordability crisis. The articles thus far have ranged from thoughtful and thought-provoking to downright imbecilic – such as a mortgage broker’s suggestion that young people could afford homes if they gave up their Sky subscription. I think there’s a Tui ad for that.

One of the best bits, however, is the interactive map of housing affordability that data journalist Caleb Tutty put together. Here it is in animated gif form:

The map shows the share of properties sold within each suburb over the last year that you’d be able to afford, depending upon how much of a deposit you’d saved up.

For example, here’s what the affordability map looks like if you have $100,000 in the bank. Under current bank lending policies you can borrow 80% of the house value, meaning that your deposit will buy you a half-million dollar house. Observe how the vast majority of the city is coloured red, indicating that the majority of properties would be beyond your reach.

NZH home affordability map $100k deposit

Incidentally, a $100,000 deposit is a prohibitively large sum for most young Aucklanders. According to Stats NZ data on incomes, in 2015 the median pre-tax weekly income for Aucklanders in their late 20s (25-29) was $729, or around $38,000 a year. Income taxes take about $5,700 of that sum, leaving $32,300 to provide for the necessities and save for a deposit. (On average, people in their early 30s earn a bit more – $901 per week – but that doesn’t close the gap.)

Consequently, the average young Aucklander would have to save something like one-third of their after-tax income for ten years in order to afford a deposit on a half-million dollar home. So in other words, if you’re young, you’re probably screwed no matter how thrifty or prudent you are… unless your parents are wealthy and generous.

However, there are some tentative bright spots in this rather disheartening picture. To illustrate, I’ve reduced the deposit to $70,000, which is still pretty onerous but not impossible for young people. That would allow you to buy a home worth $350,000. Here’s the map. Now the entire city is shaded a deeply unaffordable red. You can hardly buy anything anywhere. The isthmus is red. The North Shore is red. The Waitakeres are red. Manukau is red. You can’t even afford to live in Otara or Manurewa.

NZH home affordability map $70k deposit

But if you zoom in closer, you’ll notice that there is still a solitary green patch of affordability in the middle. The majority of apartment sales in the city centre are still in your price range! You can afford 55% of the properties sold in the city centre or in neighbouring Grafton. (Manukau central is the next most affordable place – just under half of the dwellings sold there are cheaper than $350,000. But there are fewer homes there.)

NZH home affordability map city centre

Prices in the city centre aren’t necessarily cheap in an absolute sense – but it nonetheless offers many more options for a young buyer seeking to buy a starter home than anywhere else in Auckland.

Why is this?

It’s not because demand to live in the city centre is low. Its residential population has quadrupled since 2001 – a rate of increase that far outstrips the rest of the city. Today, there are more people living in the Auckland city centre than there are in Whanganui.

City Centre Population - 1996-2015 2

What sets the city centre apart isn’t low demand but high supply responsiveness: the city centre has stayed affordable because lot of apartments have been built there. This includes a mix of expensive apartments and small, affordable apartments to meet a range of different demands for space. Former All Blacks coach Graham Henry is moving into a luxury apartment in the Viaduct Harbour, while there are many students on low incomes living a bit further up the hill.

These maps show one simple thing: Building lots of apartments works. The one place in the city where we’ve allowed it to happen – the city centre – is now the most affordable place in the city.

There’s nothing that special about the city centre. It’s hardly the only place in the city where it’s physically possible or commercially feasible to build apartments. We could allow the same thing to happen in a lot of places, and reap the benefits.

This doesn’t mean a high-rise building on every street. It’s possible to build lots of apartments while keeping building heights to a quite human scale – three to seven storeys, say. This is the model that’s worked well in a lot of European cities. Like this new neighbourhood in Freiburg, Germany:

Source: Celsias

Source: Celsias

It’s also a model that allowed fast-growing New World cities to develop and prosper a century ago – as this excellent article from Bike Portland points out. This is the type of building that we used to build:

So what’s the holdup?

Midweek reading: Road pricing and safety, urban-rural, the history of California, and trees

Starting this week I’m trying out a new feature: a midweek post rounding up some new articles on transport and urbanism. (Time for writing more substantive posts has been a bit tight lately.) The themes will be familiar to regular readers.

Let’s start with congestion pricing – a perennial topic of fascination for economists. Congestion pricing is mainly seen as a policy to improve the efficiency of road networks by “pricing in” the cost of delay that motorists impose on each other. But, based on London’s experience with a cordon charge, it may also improve road safety for all users. Charles Komanoff at Streetsblog NYC reports on some new data:

Evidence keeps mounting that congestion pricing can catalyze major reductions in traffic crashes. A year ago I reported on research that vehicle crashes in central London fell as much as 40 percent since the 2003 startup of London’s congestion charge. The same researchers are now expressing the safety dividend in terms of falling per-mile crash rates, and the figures are even more impressive.

The researchers — economists associated with the Management School at Lancaster University in northern England — compared crashes within and near the London charging zone against 20 other U.K. cities, before and after 2003. Their conclusion: Since the onset of congestion charging, crashes in central London fell at a faster rate than the decrease in traffic volumes. As important as the reduction in traffic has been for safety, at least as much improvement is due to the lower crash frequency per mile driven.

In short, driving in the London charging zone isn’t just smoother and more predictable, it’s safer. And safer for cyclists as well as drivers, with the number of people on bikes expanding considerably as car volumes have fallen.

And on that note, a reminder that the best way to improve the safety of cycling is to increase the number of cyclists on the road (or better yet, cycleway):

But that’s the big smoke. It couldn’t happen here, in small, rural New Zealand, could it?

Maybe not. “Town Proper”, an urban design and transport blog, points out that we often get it wrong when thinking about the rural-urban balance in our society. (Riffing off a post I wrote a while back.) We tend to “mistake want as demand“:

Purportedly New Zealanders value open space, ball games and big houses. That does not hold up to our litmus test though. As reported above, most of New Zealanders have chosen to forgo big houses, large and open (private) spaces in exchange for the vitality of a denser area.

It is not like there is a critical shortage of open land in New Zealand – you can easily buy a dozen or so hectares with a big house for below Auckland’s average house price. Rather, people do not want to live there.

When you have multiple wants, you must make a choice as to the prioritization of your wants. It seems that while New Zealanders might want the rural lifestyle they have decided to choose the urban lifestyle over it. This is where so many commentators make a mistake, they confuse wants for demand. Demand is when you not only have the want for something, but also the ability (and the willingness to expend that ability) to obtain it.

There is little demand to live in rural areas (only 20% of Kiwis live in rural areas, and most of them in “rural centers”), why? I propose that generally Kiwis value the advantages of an urban area above the disadvantages.

Indeed. When planning cities, it’s important to take into account people’s needs and the real choices that they face, not just a hypothetical idealised notion of how people should live.

Which brings us to California. The land of technological disruption is steadfastly refusing to allow its housing market to change. And so demand for urban space – particularly the dense, connected urban space of San Francisco – is colliding with scarcity. TechCrunch’s Kim-Mai Cutler puts the issue in historical perspective: “A Long Game“:

I believe we’re hitting another major juncture, although I don’t know when it will deteriorate to the point that it forces real reform. California’s fragmented, post-war suburban model, which was created for a more even wage distribution in a mass industrial economy, is clearly becoming more dysfunctional by the year for a knowledge-and-services economy with a wider level of income stratification.

Not only are we not building enough housing overall, we have scarce sources of funding for supporting those on the lower-earning ends of a rapidly widening income spectrum. So we end up politicizing and extracting funds out of new construction even though we are 40 years deep into a largely self-imposed housing shortage.

There are a couple of disturbing trends showing up in the data. If you look across the state’s workforce, Californians born in 1990 are on average spending 50 percent of their income on housing. That’s way above the 30-percent-of-income level that is generally considered to be the threshold of whether housing is affordable or not in public policy conversations.

income-spending-housing

Then, if you look at working-class segments, commutes are rapidly rising for the lower-income workers in the region:

This is troubling because commute time is one of the strongest predictive factors in determining a child’s chances of climbing from the lowest income quintile to the highest-earning one. That morning and evening time between parents and children that is taken up by commuting is invaluable for bonding and child development.

The data on the length of commutes is incredibly important. As I found when I looked at Auckland’s commuting patterns, lower-income households can access lower rents by living further out, but the gains tend to be erased by added commuting costs. If there are also additional social costs from long commutes, it reinforces the importance of giving people the option to live closer in.

Back in New Zealand, and on a very different note, Peter H from Hamilton Urban Blog takes a look at street trees in Frankton Central, Hamilton. This kind of micro-scale analysis of urban places can be incredibly valuable in illuminating what’s good about a place and what can get better.

The following map shows existing street trees in Frankton Central. Viewed in terms of ecological function, Frankton Central’s street trees represent an incomplete system with gaps. Although the mapping of street trees points towards a substantial number of trees in the Frankton, these have only limited impact on the experience of green in the wider area.

Frankton central TreesThere are a number of streets with sporadic tree canopies as seen in the map above. The green network created by street trees varies widely in quality. Both ends of Commerce St have thriving street tree corridors that give those areas a distinct character. The interesting trees contribute an artistic flair to the retail part of Commerce St.

There are new plantings throughout the town, particularly in south-eastern streets, but the ecological, architectural, and urban quality benefits of these trees are not yet evident. The current town green network has gaps and there are sections of the Frankton that do not have any real trees.

It would be interesting to see some similar maps for different parts of Auckland. I wonder if Auckland Transport maintains a database of street trees in its road reserves?

A brief explanation of what just happened with the Unitary Plan

Over the past week Transportblog has published several posts on the brouhaha (or is that kerfuffle?) about Auckland Council’s position on Unitary Plan rezoning.

However, we haven’t really taken a higher-altitude view on the issue. So here’s a quick summary.

The underlying issue is that Auckland’s home prices are really, really high, and rising rapidly. Rents are also rising faster than incomes. That’s great news for people who already own homes, but terrible for everyone who doesn’t.

The housing affordability crisis is particularly bad for young people and low-income households, who may be renting or trying to save up to buy a home. These people directly bear the costs of rising prices.

Home prices are high and rising because Auckland isn’t building enough homes. If there isn’t enough housing to meet demand, prices must rise until some people give up and go away. This may mean living in overcrowded flats, living in unheated garages, staying in abusive relationships to stay housed, or simply packing up and leaving Auckland.

Residential zoning rules determine how many homes can be built in the city. The Unitary Plan originally proposed by Auckland Council applies low-density residential zoning to much of the city, including many of the areas of highest demand. This means that few new homes can be built in Auckland.

On Wednesday, Auckland Council voted against considering changes to zoning to enable more homes to be built in areas that are accessible to jobs, education, and transport.

The most likely outcome of this is that Auckland will continue to build too few homes and prices will continue rising. The social ills caused by that dynamic – poverty and unhealthy housing, crimped opportunities for young people, unsustainable levels of car-dependent sprawl, and high rates of outward migration among the young – will also continue.

Tauranga: Sunshine, sprawl, and high house prices

Back in 2014 I wrote a short paper exploring how population density had evolved in New Zealand and Australian cities. Among other things, the paper provided a rough estimate of the degree to which various cities were going “up” or “out” – i.e. whether population growth was increasing or decreasing the density of the neighbourhood that the average resident lives in.

Based on the data, you could divide New Zealand cities into a couple of different categories:

  1. Cities that are growing slowly or not at all, e.g. Dunedin, Whangarei, Gisborne
  2. Cities that are growing and becoming increasingly dense, principally Auckland but also Wellington to a slightly lesser extent
  3. Cities that are growing primarily by spreading out, e.g. Hamilton and Tauranga
  4. Christchurch, where normal urban processes were disrupted by the 2011 Canterbury Earthquake and the slow rebuilding effort since then.

There is an interesting comparison to be drawn between Auckland and Tauranga. They are both port cities with stunning natural environments, lots of sunshine, a fondness for urban motorways, and high growth rates. Tauranga is obviously much smaller, with less than 1/10th of Auckland’s population.

But whereas Auckland was the city that went “up” the most, Tauranga went “out” more than any other NZ city this millennium. Between 2001 and 2013:

  • The population of Auckland’s urban area grew by 23%, but its urbanised land area* only expanded by 11%
  • Tauranga’s urbanised population grew by 27%, while its urbanised land area expanded by 25%.

[* Defined as Census meshblocks with more than 3 residents per hectare. This isn’t a perfect measure as it tends to exclude industrial areas.]

In other words, Tauranga’s urban population expanded proportionately to its population, allowing it to remain a low-density suburban city. In order to accomplish this, the city opened up substantial new greenfield areas to the south, west, and east:

Tauranga urban growth 2001-2013

The future seems to herald more of the same. Tauranga-Western Bay of Plenty’s 2013 SmartGrowth Strategy identifies some opportunities for “possible intensification”, but largely commits to outward growth along motorways:

Tauranga SmartGrowth Strategy map

Tauranga’s sprawl serves as a useful “counterfactual” scenario for Auckland – does an abundant supply of greenfield suburbs necessarily result in cheap housing?

Perhaps. But it doesn’t seem to have worked out that way in Tauranga. According to the Demographia housing affordability survey, which compiles a range of useful data but is rather weak on interpretation of that data, median house prices in Tauranga-Western Bay of Plenty are currently 8.1 times higher than median household incomes – an increase from 6.8 the previous year. This is rather high by national and international standards.

Moreover, house prices in Tauranga appear to have followed a broadly similar trend to Auckland, with a run-up in the 2000s, several years of flat or falling prices after the 2008 Global Financial Crisis, and rapid price inflation in the last year or two.

What does this tell us about housing markets? Three things, I think.

The first is that people are willing to pay higher prices to live in cities with desirable amenities like harbours and sunshine. This shouldn’t be a surprise to anybody. We pay more to eat in restaurants that offer better ambiance and tastier food. Why wouldn’t we pay more to live in nice places? And Tauranga, like many other New Zealand cities, is undoubtedly an attractive location:

Source: Wikipedia

Source: Wikipedia

The second is that greenfield land supply is not necessarily a solution for house price inflation. Tauranga is less than one-tenth the size of Auckland and its house prices are already high relative to local incomes. Adding greenfield land supply hasn’t prevented or reversed previous price increases. In larger cities, where fringe locations are much less of a substitute for desirable central locations, it’s likely to be even less effective.

The third is that Tauranga (and many other New Zealand cities) may have to rethink their approach to housing policy.  This is especially true for cities experiencing rapid growth. According to Statistics NZ’s latest (medium) population projections, Tauranga’s population is expected to increase by a further 43% over the next three decades. So the pressure on Tauranga’s housing market is likely to continue unless something changes.

In this context, it’s worth asking a few critical questions:

  1. What is a reasonable expectation for house prices, given geographical constraints, environmental and man-made amenities, and demography and demand?
  2. If greenfield land supply isn’t sufficient to enable growth without accelerating prices, what other policies are needed? For example, how can planning policies facilitate choices of dwellings in various places at various price points?

The Herald and Housing Affordability

The media are once again going off on the topic of housing affordability, after the release of the latest report by Demographia saying that Auckland is one of the most unaffordable cities in the world.

A survey of the median house prices around the world has revealed Auckland to be among the five least affordable cities to buy a house. The annual Demographia survey, released today, compares prices to incomes in 367 cities. Auckland is one of the worst in the world due to extremely high house prices coupled with moderate wages.

We’ve often talked about the issues with how Demographia produce their results. They take an overly simplistic view of the discussion, and exclude important factors. But while the scale of the issue is likely wrong, that doesn’t mean the general outcome – that housing affordability needs to be improved – isn’t correct.

We also disagree with their proposed solution of unfettered greenfield development. For Demographia, it seems that opening up greenfield land is always the solution, regardless of the question being asked. While land supply is an issue, they like to conveniently ignore the impact of planning regulations on existing urban land that prevents development across most of Auckland. They also like to ignore the cost to tax and ratepayers of providing the infrastructure needed to enable that greenfield development. For example, based on Auckland Transport’s figures it will cost about $67,000 per dwelling to provide the roads needed in the major new greenfield areas that are proposed.

Future Urban Land - North Transport Networks

Many people may want a home with a large backyard on the fringe of town, but many just want a home. A lot are prepared to forgo a large backyard for the added amenity of living closer to the city or other urban centres – but they are unable to do so, as so much development has been restricted.

This brings me to the main point of the post, the media (especially the Herald) who want to have it both ways.

While today they’re lamenting house prices, the Herald has spent much of the last few years championing opposition to one of the key tools that will help address housing supply, the Auckland Unitary Plan. From when the draft plan was released almost three years ago, they’ve given countless space to those opposing any change in Auckland. They’ve deliberately misled the public and recently they’ve even become so absurd as to call two-storey townhouses “Highrise” in their bid to whip up fear and anger over the plan.

Of course politicians of all stripes shouldn’t escape blame. Whether they’re also trying to whip up fear, generally oppose change or just have it happen in some other neighbourhood they are as much to blame. They also seem to me to have less desire to actually fix problems. After all, which of them are really going to stand up to house owning voters and say they’ll enact policies which could result in existing house prices falling or at best stagnating for many years as a result of changes.

Regardless of what you think the solutions are, it still feels like we’re some way off any real changes happening.

On a related note: I suspect we could see John Key include housing announcements in his announcement on Wednesday when he also announces support for the CRL to start in 2018. There have been suggestions the government have been talking to the council and CCOs like Watercare looking at what other big infrastructure projects could be brought forward to help speed up housing supply.

Why I’m optimistic New Zealand can solve its housing troubles

What’s the problem?

Housing is expensive in New Zealand, especially in Auckland, where median house prices have increased fivefold since the early 1990s (in nominal terms). Roughly half of this increase has occurred in the last four years, which is causing quite a bit of concern:

Interest.co.nz Aucklan stratified house price index 1992-2015

Housing markets are complex – prices are influenced by both demand-side and supply-side variables. As a result, it can be difficult to tell a single, simple story about why prices have gone up or down in any given year. Take the recent rise in Auckland house prices. Some people argue that it’s a financial bubble (a demand-side explanation); others blame high migration (demand) or distortionary tax policies (demand); and others cite inflexible planning rules (a supply-side explanation) or low construction productivity (supply).

Although short-term dynamics can be mysterious, elasticity of housing supply is the main long-term driver of housing market outcomes in a growing city. The easier it is to build new dwellings in the right places in response to increased demand, the less upward pressure there will be on prices.

The empirical evidence suggests that housing supply in Auckland is slightly inelastic – somewhere in the range of 0.7 to 0.9. This isn’t horrible, but nor is it sufficient to get housing supply in balance with demand.

Severe geographic constraints – Auckland’s harbours and steep hillsides – appear to be an underlying driver of the city’s inelastic housing supply. In this context, settling for average urban planning policies means getting a limited supply of housing and high prices. Consequently, we have to make it much easier to use scarce land efficiently. That means reforming our approach to planning regulations. In the past, we adopted land-hungry policies like minimum parking requirements or severe building height limits without thinking through their ill effects. That has costs, and we need to do better.

Auckland is not the only city coping with high housing prices and a lack of supply – you see similar problems in places like London, New York, San Francisco, and Sydney. However, I would bet that New Zealand will do a better job sorting out its housing affordability issues than other places. In fact, I am betting on it! I’m renting in Auckland, which means that I bear all of the downside and none of the upside of spiraling housing prices.

There are three reasons for my optimism:

1. Our proven track record of policy reform

Let’s start with a pat on the back. Having lived in New Zealand, the United States, and Nigeria, I’d say that Kiwis are, by and large, pretty reasonable when it comes to public policy. We’re not very corrupt, which removes one major source of inefficiency. We generally recognise that as a small, distant trade-exposed country we can’t afford to do things inefficiently. And, due to New Zealand’s small size, there’s usually no need to over-complicate things.

Policymaking anywhere will always be subject to cognitive and professional biases – people screw things up, and sometimes it takes a while to sort it out – but New Zealanders don’t seem want totally irrational or insane policies. Unlike the US, say:

Possibly as a consequence, New Zealand has a record of reforming policies that aren’t working, either incrementally or in one go. The classic example of this is in trade policy. From the 1930s to the 1980s, the New Zealand government oversaw an extensive set of import controls. Te Ara describes this policy:

Faced with declining export returns and a foreign exchange crisis, a Labour-led government introduced foreign exchange controls and import licensing regulations in 1938. The regulations prohibited the import of any goods except under licence or where exempted.

Importers had to apply to government for both an import licence and the foreign exchange needed for purchases. The quota – the amount that could be imported with a licence – was set on the basis of imports the previous year.

Just as restrictions on the efficient use of land produce windfall gains for landowners while foisting large costs on renters and new home-buyers, import licensing created fortunes for some manufacturers while making most consumers worse off. As a consequence, after experimenting with some liberalisation of trade policy in the 1970s and 1980s, the remaining import controls were swept away in the late 1980s.

Recent changes in transport policy also demonstrate our ability to reform bad policies. Over the last decade, there have been some important, although undoubtedly incremental, moves to reform our inefficient monomodal urban transport system.

For example, last year I reviewed a 2010 research research report on deficiencies in NZ’s public transport planning and operations – and was surprised to find that almost all of its recommendations are being implemented in Auckland, Christchurch, and other places. Since 2010, Auckland has:

  • Established a public agency (AT) that can plan and deliver a PT network and supporting infrastructure
  • Developed and begun implementing a frequent, connected network that satisfies best practice network design principles
  • Reformed bus contract models
  • Implemented integrated ticketing (and soon, integrated fares)
  • Started to build bus interchanges and bus lanes.

New Network Model

This is a big deal, but it’s hardly the only story in town. How about the fact that central and local governments are now coming to the party on urban cycleways? For the first time ever, significant investments are going towards one of New Zealand’s “missing modes”.

We now have an opportunity to take the same approach to urban planning – reform what isn’t working and get better outcomes.

2. The structure of our governments

The current structure of New Zealand’s governments makes it easier to implement reforms and make them stick. We have two key advantages in this area that offer a smoother path to policy reform.

First, New Zealand’s government has a unitary structure rather than a federal one. This means that most powers are concentrated in central government rather than distributed among multiple layers of government. Political centralisation certainly isn’t all good – in the past it’s often led to a perverse situation in which urban transport policy is being designed by rural politicians.

But in this case, it makes policy changes much easier. If central government were to, say, issue a National Policy Statement on urban development or rewrite sections of the Resource Management Act (which governs the development and implementation of urban planning rules), it would lead to changes in the way that local governments regulate. That option isn’t usually available in federal systems.

Because any proposal to liberalise planning rules inevitably creates controversy at local body election time, central government involvement can potentially assist in getting important changes over the line.

Second, the creation of the unified Auckland Council ensures that all growth tradeoffs – and the negative consequences of preventing growth – are internalised within a single council. Gone are the days when councils could simply refuse to zone for growth and assume that it would become someone else’s problem instead. Now a single council is responsible for sorting the region’s problems out.

You can see the results in the Unitary Plan – a document that’s not perfect (no plan is!) but which takes some important steps forward. For example, it removes MPRs from the centre zones, which are intended to accommodate a mix of business and residential uses, cuts back minimum lot sizes throughout much of the city, and creates some midrise residential zones.

Amalgamation does come at a potential cost to Tiebout competition, in which adjacent councils compete for growth. But I suspect that the benefits outweigh the drawbacks. As the San Francisco Bay Area shows, local government fragmentation doesn’t necessarily result in more housing supply – the Bay Area has 93 local governments but building permits have still been falling since the 1970s.

New Zealand’s unitary government structure and the creation of a consolidated Auckland Council create the potential for “virtuous cycles” in which local and central government egg each other on to improve urban planning regulations and processes. To date, this has led to things like the Special Housing Areas, which aims to ease consenting in selected areas, and the Unitary Plan hearings process, which is intended to review the plan and allow it to be implemented faster.

The hearings process, in particular, has encouraged Auckland Council to think carefully about its proposed zoning rules. For example, following instructions from the hearings panel, the council is considering rezoning some areas to enable more housing. This is an important step towards recovering from the ill effects of past down-zoning.

FrameWORK_Housing_ZoningCapacity

Down-zoning in Los Angeles (Source: Re:Code LA)

3. The political agenda

Lastly, housing affordability has hit the political radar at a national level. There is an increasing consensus that reforms to urban planning rules are a key part of the solution. The latest Productivity Commission report on using land for housing outlined some key policy changes, and politicians from several major parties have subsequently endorsed a number of these recommendations. For example:

In other words, there is likely to be cross-party support for sensible reforms to urban planning that build on the good work that’s already been done by central and local government.

Globally speaking, it’s somewhat unique – and fortuitous – to have so much attention placed on urban planning issues at both a local and central government level. For example, in the US, a few economists in the Obama administration are starting to talk about the drawbacks of overly restrictive planning regulations. But President Obama has very little ability to influence zoning in San Francisco or New York.

New Zealand is different. We are generally willing to reform policies that aren’t working for us, we’ve got government structures that can facilitate that reform, and our elected representatives are paying attention to the problems and potential solutions. Those seem like good reasons for optimism!

Aussie apartment boom: a year on

A year ago, I wrote that “Australia is currently in the middle of a major apartment boom“. Well, the boom is still going – in fact, it’s risen to even higher levels. On a ‘moving annual total’ basis, Australia has gone from approving 86,000 attached units a year to 113,000, an all-time record.* That’s helped push total dwelling approvals to 229,000, also an all-time record.

Aussie-dwelling-approvals-2015

There are concerns in some quarters that there might be a looming oversupply of apartments in some areas, as noted by the Reserve Bank of Australia. I don’t know enough about the Aussie market to comment, but it’s certainly a reshaping of the market given the amount that’s being built. Speaking of reshaping, Patrick’s post the other day showed how the apartments will change the Melbourne CBD skyline (well, showed how one part will change, I’m not sure if it’s as drastic for other areas).

Back in New Zealand, building consents continue to rise, but not to the same extent. My view is that there’s a lot more growth to come, especially for attached dwellings,** and especially in Auckland. Keep an eye out for this over the next few months.

NZ-building-consents-2015

 

Lastly for today, here’s an update on the percentage of new dwellings which are attached, for both Australia (which has reached an all-time high, of 49.5%) and New Zealand.

attached-proportions-Oz-NZ-2015

 

As per last year, I’ll follow up soon with a post looking at the trends in different cities. But I think the trends above for Australia are pretty impressive in their own right.

*Technically, the Australian approvals are for “dwellings excluding houses”. That covers apartments, terraces and so on.

** Statistics New Zealand have changed their categories since last year. I’ve combined the categories for “apartments”, “townhouses, flats, units, and other dwellings”, and “retirement village units”. Note that some of the retirement villages will actually be detached homes, but they’re not split out in the data.

Do public golf courses “crowd out” public housing?

Last month, I took a look at the costs and benefits of publicly owned golf courses (Part 1, Part 2, Part 3). A few key findings from that analysis:

  • Golf courses are different from public parks, as they can only be used by a small number of paying customers
  • The benefit of redeveloping golf courses to offer a mix of new neighbourhoods and public parks could be as much as nine times higher than the benefit of the status quo to golfers
  • Publicly owned golf courses don’t pay their fair share of rates, meaning that the rest of us have to pay higher taxes.

A key concept running through this analysis is the idea of an “opportunity cost“. We often face mutually exclusive choices – i.e. if we choose one thing, we can’t have the other. In those situations, the “cost” of getting one thing is giving up the opportunity to have the other.

Calvin and Hobbes illustrate the concept of mutually exclusive choices quite nicely:

calvin-and-hobbes-chain-reactions

In the case of publicly owned golf courses, our choices are fairly simple: If we keep them open for golf, we give up the opportunity to have public parks, other sports fields, or housing on them. And if we convert them to other uses, we give up the opportunity to golf now, and the option to choose a different set of uses at some future date.

However, there are other ways to think about the opportunity cost of publicly owned golf courses. For example, what happens when a local government wants to sell down assets, e.g. to free up capital for new investments? If they refuse to consider selling the golf course, what else do they sell instead?

(This isn’t to say that asset sales are necessarily a good idea – that’s really an issue that must be assessed on a case-by-case basis. When politicians propose to sell assets, I think that it’s essential that they are specific about (a) exactly how a sale would lead to better outcomes in the affected market, (b) exactly why they need the money – no vague promises of wish-fulfilment slush funds please! – and (c) how they will avoid losing money on the sale through poor timing.)

In 2002 the former Auckland City Council decided to sell down some of its publicly-owned assets, including some of its shares in the Auckland Airport and its entire public housing stock. The proposed sale of the public housing, most of which housed elderly Aucklanders on low incomes, stirred up opposition. As a result, central government got involved, and purchased the properties through Housing New Zealand:

The Government has offered to buy Auckland City Council’s pensioner and residential property portfolio.

On Monday, 30 September 2002 Cabinet approved an agreement negotiated between Housing New Zealand Corporation and the council.

Housing New Zealand will pay a total of $83 million for the Council’s two portfolios:

1542 pensioner rental units, on 50 sites, with a book value of $101 million. 129 residential units, with a book value of $31 million.

This reflects the full market value for residential housing and a discount for pensioner housing – which takes into account the fact that these sites will always be retained for social housing and that Housing New Zealand Corporation is committed to a fast tracked redevelopment programme.

In short, Auckland City Council earned $83 million for the sale of 1671 public housing units. The deal didn’t increase the total amount of housing in the city, as it didn’t release any land for new development or more intensive redevelopment. Furthermore, although Housing New Zealand was able to keep the units available as social housing, it probably had a bit less money to build new social housing in Auckland that year.

However, as I found when I looked at the benefits of alternative options for Chamberlain Park, the Council could retain a third of the golf course as a new public park and still earn more from selling the land for housing development. Even accounting for the fact that house prices have approximately doubled since 2002, it’s not even close – the golf course is worth about 50% more than the council housing ($240m vs ~$160m).

In 2002, when Council decided to sell some assets, the “opportunity cost” of not considering selling a golf course was having to sell the council housing instead. But the same choice also applies in reverse in the present day. If Auckland Council wanted to get back into the social housing game, to alleviate the impact of the city’s current housing affordability challenges, perhaps it could fund it with the proceeds from golf course sales?

1600 council flats or a single golf course: which do you think has a greater social value?