What, exactly, does Auckland do to pay its way?
Last year, I took a look at the geography of the New Zealand economy, finding that New Zealand’s three main cities accounted for at least 56% of GDP. Auckland alone accounted for at least 34% of economic activity – considerably more than the entirety of rural New Zealand:
(By the way, these figures are likely to under-estimate the size and productivity of the Auckland economy. Dave Maré’s 2008 paper on the Auckland productivity premium used firm micro-data to get a more accurate estimate, finding that Auckland accounts for around 40% of New Zealand’s market economy. See page 15 for figures.)
So Auckland’s economy is large. But are Aucklanders doing anything especially productive, or are we just selling houses to each other? (Or worse, to Johnny Foreigner!)
As New Zealand is a small, open economy, we have a tendency to focus on exports as a key measure of economic success. This makes sense – we can’t make everything locally, so we need to earn foreign exchange to pay for all the cars and oil and smartphones and bicycles that we want to buy.
At a national level, we export around 30% of GDP, which is low by the standard of other small open economies and worrisomely concentrated in a few undifferentiated primary commodities:
Source: World Bank
By comparison, a 2010 study commissioned by Auckland Council found that exports of goods and services accounted for around 14-16% of Auckland’s GDP:
The value of Auckland region’s exports has increased relatively steadily over recent years, with an average annual growth rate of around 2 percent recorded for both commodity and services exports for the period 2001-2008. The economic impact undertaken as part of this study suggests, however, that there has been a small decline in the relative importance of export sales to the Auckland region economy over this period. First in terms of commodities, it is estimated that the direct and indirect value added impact produced by commodity exports as a percentage of Auckland’s GDP has fallen slightly from 9 percent in 2001, to 8 percent in 2008…
Measured in value added terms, the direct and indirect contribution of service exports to the regional economy has remained fairly constant over the last decade at around 6-7 percent of GDP.
So Auckland’s not exactly an export powerhouse. What, then, are we doing to afford the food that we’re buying from rural New Zealand and the manufactured goods we’re buying from offshore?
Last year, the Productivity Commission published some new research that points towards an answer. Their report, which has the attention-grabbing title of “Trade over distance for New Zealand firms: measurement and implications“, looks at the degree to which firms in different industries are co-located with their domestic customers. They put together some nifty measures showing how likely different industries are to “trade” across New Zealand regions.
The Productivity Commission researchers concluded that:
In New Zealand, firms producing highly tradable services tend to locate in the main urban centres (Figure 8a). Wellington has the highest employment share in high and medium tradable service industries, reflecting the concentration of government in the capital. Market-based services that are tradable over distance tend to concentrate in Auckland – there is a positive and significant correlation between tradability in market-based service industries and their Auckland-based employment share (Figure 9). As such, around 40% of total employment in market-based service industries in the medium to high tradability category is Auckland-based (Figure 10). For services in the low-tradability category, the share of employment based in Auckland is 32%.
In other words, Auckland has a comparative advantage in producing services that it can “export” to other New Zealand regions. Here’s a key chart from the report, which compares tradability (y axis) with Auckland employment share (x axis) across high-level industries:
If you look at the service industries (orange dots), excluding public administration, you can see the clear correlation between tradability and Auckland share of employment. Industries that have to be very close to their customers, like retail and health, aren’t concentrated in Auckland.
On the other hand, four especially tradable service industries – finance and insurance; information, media and communications; professional, scientific, and technical services; and wholesale trade – are highly concentrated in Auckland. (Interestingly, these industries span both blue-collar and white-collar work.)
So perhaps the story is that Auckland “pays its way” by producing services that the rest of New Zealand buys. The work that Auckland does for the rest of the country isn’t always visible – we’re not trucking boxes of it south from Auckland to the Waikato – but it is very real.
Furthermore, Auckland’s “exports” of services to other New Zealand regions have implications for the national trade balance. If Auckland wasn’t doing the banking, engineering, accounting, and wholesaling, we’d probably have to purchase those services from Australian cities instead. (Jane Jacobs would observe that Auckland is following the typical path to urban success – “import-competing” economic growth.)
By way of illustration, consider where Fonterra, New Zealand’s largest exporter of dairy products, chooses to locate its headquarters. They’re not based in Hamilton or Christchurch, closest to the cows and dairy factories. No: Fonterra is in Auckland, which doesn’t produce much milk but does offer the best access to skilled labour, professional services (accounting, legal advice, advertising, etc), and international connections (i.e. the country’s main international airport). They value those services, and recognise that they can’t get as many of them outside of Auckland.
What do you make of Auckland’s role in the New Zealand economy?
I thought a commenter on a recent post about a new apartment development on Great North Road had a really great point about the state of the debate:
…the fact is the intensifiers are not winning the argument, as was noted by someone else above. I wish they were but with the tin-ear people have here for this sort of argument, it doesn’t surprise me that it is being lost. Compare the nuanced arguments made here about transport (expansive, studied proposals like the CFN) to the “developers and freemarkets will sort it out” type arguments around intensification and you’ll see what I mean.
This rings true to me. Although I would argue that a lot of thought has gone into Transportblog’s analysis of policies like the Unitary Plan or the effects of limits on density, it’s often difficult to tell the good news stories about market-led intensification.
This is challenging in part because there appear to be trade-offs. Building an apartment building in Ponsonby is obviously a good thing for new residents, as they get to live in a nice area that they might not otherwise be able to afford. But it also has some disadvantages for existing residents, who may feel like they have to put up with more traffic, less sunlight on their porches, and so on and so forth.
In short, it’s easy to fall into an “us versus them” narrative – which is what I was arguing against in the earlier post. I don’t think this is necessary. There are many positive stories about rising residential densities and a lot of benefits for existing residents. We should start telling these stories.
Basically, it boils down to this:
If more people live in a neighbourhood, more services will be available locally for all residents.
Higher population densities make it more efficient for transport agencies to run high-frequency bus routes. They make it easier for supermarkets to open up in closer proximity, competing down prices for groceries. They make it easier for councils to justify improving local parks, improving streetlighting, and upgrading streets. Density allows there to be a cafe or two on every block, so residents can easily step out for a hot drink in the morning. This is all good stuff!
Essentially, having more people around you means that there’s a bigger local market for all sorts of useful things. As densities increase, neighbourhoods will become more convenient for the people who live in them. But if they don’t, there’s never going to be a reason to run a bus every ten minutes. There’s never going to be an incentive for Countdown to open a shop one kilometre down the road from New World. The cafes and drycleaners and florists will never set up across the street.
Here are a few examples of the kinds of environments that could be enabled by intensification. Importantly, these aren’t high-density neighbourhoods – they tend to be composed of terraced houses, row houses, and 4-6 storey apartment buildings rather than massive high-rise towers.
Here’s Greenwich Village, Jane Jacob’s old hood and one of Manhattan’s medium-density neighbourhoods. Look at how many retail and dining choices the residents have:
Here’s a typical cafe in Paris, another city that’s great due to its density and mix of uses. The city’s awash in local cafe and restaurant options because it is dense enough to support lots of them.
Here’s an example from San Francisco – the Castro district, which is one of the spiritual homes of gay and lesbian culture in North America. Medium densities in the area support fantastic (if a bit off-the-wall) nightlife.
And finally, one from Auckland: this is the Elliot Street shared space, which never would have happened without the apartment boom in the city centre. I bet a lot of people around Auckland are looking at how great this is and asking, “when will my neighbourhood get something like this?” The answer is: When your neighbourhood has enough people to support it!
So, what would you like to see happening in your area? Do you think that having a few more people around would help it happen?
In the National Review, a conservative American magazine, Reihan Salam takes a look at the confused state of the American debate over intensification. His article, entitled “The Great Suburbia Debate” criticises the position taken by Joel Kotkin, a long-time campaigner for low-density suburban development. He writes:
Though I’m an admirer of Kotkin, and though I can’t speak for every conservative who has made the case for denser development, he gets a number of important things wrong…
For example, Kotkin claims that “some conservatives” (again, no names) have been “lured by their own class prejudice” into turning against market forces. “In reality,” Kotkin writes, “imposing Draconian planning is not even necessary for the growth of density.” Of course, this is exactly the argument that Edward Glaeser makes in The Triumph of the City, a manifesto for the pro-market, pro-density right. “In places that have both liberal planning regimes and economic growth, such as Houston and Dallas,” he observes, “there has been a more rapid increase in multifamily housing than in cities such as Boston, Los Angeles, San Francisco or New York.” Indeed, this is why many conservatives, myself included, have explicitly argued that cities like New York, San Francisco, and Los Angeles should look to the liberal planning regimes of Houston and Dallas as a model. (To be clear, by “liberal” planning regimes, Kotkin means less-restrictive, more market-oriented planning regimes, and so do I.)
The global cities that manage to be both highly productive and affordable, like Tokyo and Toronto, tend to have liberal planning regimes, which allow for rapid growth of housing stock, and in particular of the multifamily housing stock. These regions are characterized by rapid housing development in the suburbs and in the urban core, and their “suburbs” tend to be more urban than low-density suburbs in the U.S. governed by stringent planning regimes that tightly restrict multifamily development. When Glaeser makes the case for density, he does so not by calling for “imposing draconian planning” on cities and towns. Rather, he explicitly calls for the relaxation of land-use regulation.
Kotkin relies heavily on the work of Wendell Cox, a transportation consultant who seems to believe that denser development is necessarily a product of central planning. In desirable regions, however, less restrictive planning regimes will naturally lead to higher densities, as property owners will naturally seek to maximize the value of their investments. Restrictive land-use regulations tend to limit density, not impose it on unwilling landowners.
Salam’s article is excellent and I recommend reading it in full. I pulled out these excerpts as they highlight a few essential facts that often go missing from the debate over urban policy:
- Denser development cannot be imposed by fiat – it will happen if and only if there is market demand for it (as there often is in places that are accessible to jobs and amenities). If nobody wants to buy apartments, then no apartments will get built!
- Urban planners can’t simply require people to build at higher densities – but they can limit density to below what the market wants.
- The rising demand for higher density development isn’t a market distortion, but evidence that the market is working.
In short, we must interpret rising population densities as the result of many individual decisions rather than the whim of an urban planner. My research shows that population densities are rising rapidly in Auckland and several other large NZ cities, which suggests that we’re voting heavily for density with our feet and our wallets. This is, as Salam suggests, a natural outcome of market forces and should be accepted with equanimity. We should recognise this demand where it exists and make complementary public investments in walking and cycling facilities and public transport.
Lastly, I’d note that people from all across the political spectrum should be able to appreciate cities. As Jane Jacobs observed in The Death and Life of Great American Cities, a good urban neighbourhood demonstrates many of the virtues that conservatives celebrate, such as small business ownership, a close-knit community that watches out for itself, and independent-minded civil society (often battling against big government bureaucracy in the form of overreaching traffic engineers).
Jane Jacobs campaigned against this Pharaonic act of bureaucratic hubris (Source)
As a result, we often see centre-right mayors implementing good urban policies. Big-city mayors such as New York’s Michael Bloomberg, London’s Boris Johnson, and Buenos Aires’ Mauricio Macri have been right at the forefront of the movement for better cities. They’ve realised that better cities are more prosperous, and that it’s possible to improve a city by improving the choices available to people.
A heart is not a disembodied thing that you set down arbitrarily like choosing a shopping centre site. It has to have an anatomy that runs into the neighbourhood. – Jane Jacobs via Future Cape Town
Looking north west from the vicinity of Jervois Road, showing the Ponsonby Post Office on corner of Saint Mary’s Bay Road and College Hill (Sir George Grey Special Collections, Auckland Libraries, 1-W392)
Increasingly network theory is being explored as a way to understand urban morphology. Measuring features such as intersection density or block size has been found to be highly correlated to walkability and potential to support transit. Portland Metro and the Transportation Research Board use intersection density as one measurement of the viability of transit oriented development (TOD), and Walk Score uses it as a factor in its “Street Smarts” version.
It doesn’t take computers to understand spatial theory. Jane Jacobs devoted an entire chapter of Death and Life to it- “The need for small blocks” in which she asserted that block size was central to movement choice, shop diversity, convenience and thus urban vitality. More recently, Bill Hillier at UCL through his research department and book called Space is the Machine identifies spatial integration – the heirarchical relationship between streets in a network as the key driver of urban outcomes. This relationship between street structure leads to a “movement economy” where urban activities respond to take advantage of what is in a way elliptical, the same urban advantage of access, proximity and convenience.
Such locations will therefore tend to have higher densities of development to take advantage of this, and higher densities will in turn have a multiplier effect. This will in turn attract new buildings and uses, to take advantage of the multiplier effect. It is this positive feedback loop built on a foundation of the relation between the grid structure and movement this gives rise to the urban buzz, which we prefer to be romantic or mystical about, but which arises from the co-incidence in certain locations of large numbers of different activities involving people going about their business in different ways. -Space is the Machine
In an earlier post I identified the existing real estate premium of well-located, fine grain urbanism in the city centre. The highest value property has the advantage of a being from an era where access and proximity was not an option but the fundamental essence of urbanism. In this exercise I continue to explore local urban structure using a GIS tool called the Urban Network Analysis Toolbar. This exercise is a way to test the local relationships between neighbourhood structure and on-the-ground conditions.
Below is a look at the Point Chevalier, Grey Lynn, and Ponsonby neighbourhoods. (Un)fortunately, this neighbourhood provides a good test case since it has been divided up un-naturally into an archipelago by the motorway system. The maps calculates “Reach” which determines how many places (dots) each house can reach within 1000 meters using the street network. The red dots represents high levels of reach and the green dots represent low levels.
Calculating reach for one of Auckland’s central suburbs.
Not surprisingly, much of Ponsonby Road has the highest levels of proximity due to its neighbourhood structure: short blocks, density, and streetcar genesis. In later posts I’ll return to Ponsonby Road but for now I would like to examine a few of the other places that jump out.
One cluster standing out in a field of moderate scores is the intersection of Richmond Road and Warnock Street in West Lynn. Here there is a concentration of intersections creating a condition of convergence. This is what it looks like on the ground – a seemingly successful place with local-serving stores like a grocery store and a butchery and more boutiquey ones like Nature Baby that serve a wider retail catchment.
West Lynn shops.
Another cluster is located at a complicated Y-intersection of Lincoln, Richmond, and John Streets. Here is what it looks like on the ground. Again, there is a local collection of neighbourhood-serving shops and some specialty stores (like a niche bookstore) and restaurants.
Richmond Road shops
Returning to Jane Jacobs, here is what she says (via hearthhealth.wordpress.com) about corners which are increased by the condition of short blocks and the benfactors of a connected neighbourhood structure.
Let’s think a minute about the natural community anatomy of community hearths. Wherever they develop spontaneously, they are almost invariably consequences of two or more intersecting streets well used by pedestrians. On the most meagre level, … we have the cliché of the corner store or the corner pub that is recognized as a local hangout. In this cliche, corner is the significant adjective. “Corner” implies two streets intersecting in the shape of an X or a Y. In traditional towns, the spot recognized as the centre of things surprisingly often contains a triangular piece of ground. This is because it is where three main routes converge in the shape of a Y.
Finally, for comparison, here is a very low-scoring site that retains a historic building that seems comparable to many places along Ponsonby Road and in the busy local centres documented above.
Great North Road
Why are these places so different today? What has happened to Great North Road that makes it so low scoring in this analysis and so seemingly low value on the ground? What relevance does this sort of analysis have on spatial planning, the potential to leverage the advantanges of urbanism, or the trade-offs between designing streets for local vs long-distance movement patterns?
It’s logical that when housing supply does not meet housing demand, prices will rise. Housing affordability is a huge issue in many cities around the world – with the blame often falling on planning rules and restrictions: both in the form of restrictions on sprawl and restrictions on the level of intensification. While there’s a logical connection between a lack of housing supply and higher housing costs, it is perhaps a little more complicated if we start to take this connection and apply it through saying that if we build a lot more dwellings we will start to make a positive difference to affordability.
For a start, there are two different ways in which we might try to improve affordability by constructing more housing supply: building more houses on the urban edge and building more houses through urban intensification. As many previous posts have pointed out on this blog there are likely to be a number of ‘false economies’ if you attempt to improve affordability by allowing urban expansion. Not only are many of the housing cost savings likely to simply be eaten up in transport cost increases, but there’s an enormous hidden cost in such an approach: all the additional infrastructure that’s required. An interesting Australian research paper suggests that the infrastructure costs of servicing urban expansion rather than urban intensification are huge: There are really only two ways to pay for the additional infrastructure costs of urban expansion. The first option gets development in peripheral areas to properly ‘pay its way’ – adding huge development contributions to the cost of each dwelling and therefore significantly undermining the ability of this development to actually be affordable. The second option, which seems to be what happens in a lot of American cities that provide ‘affordable’ housing on their peripheries, is to hugely subsidise that development – largely through not requiring it to pay fully for the infrastructure necessary to service it. But then there’s a bit of a logic gap here – why is the rest of the city helping to subsidise those on the periphery who contribute most to congestion, the urbanisation of farmland, probably the greatest amount of CO2 emissions per capita and so on?
The other option is to provide a lot more housing through intensification. This is more logical in a number of ways:
- You have lower infrastructure costs on a per capita basis and therefore the existing city either doesn’t need to subsidise the new development as much, or the development contributions don’t need to be so high.
- Most demand seems to be for inner-city housing (that’s where prices are increasing so dramatically), so you provide housing where people actually want to live.
- You avoid the ‘trade-off’ between housing affordability and transport affordability. More affordable housing in inner areas really will be more affordable for its inhabitants and they won’t see the gain eaten away at the fuel pump.
Harvard economist Edward Glaeser is a big proponent of the concept that you need to build your way out of affordability problems – criticising (for example) Jane Jacobs who wanted to maintain a mix of building ages in an area – even if that came at the cost of allowing additional development. The paragraphs below come from Glaeser’s fascinating article in The Atlantic, which is an excerpt from his book “Triumph of the City”:
But then, during the 1950s and ’60s, both public and private projects ran into growing resistance from grassroots organizers like Jane Jacobs, who were becoming adept at mounting opposition to large-scale development. In 1961, Jacobs published her masterpiece, The Death and Life of Great American Cities, which investigates and celebrates the pedestrian world of mid-20th-century New York. She argued that mixed-use zoning fostered street life, the essence of city living. But Jacobs liked protecting old buildings because of a confused piece of economic reasoning. She thought that preserving older, shorter structures would somehow keep prices affordable for budding entrepreneurs. That’s not how supply and demand works. Protecting an older one-story building instead of replacing it with a 40-story building does not preserve affordability. Indeed, opposing new building is the surest way to make a popular area unaffordable. An increase in the supply of houses, or anything else, almost always drives prices down, while restricting the supply of real estate keeps prices high.
The relationship between housing supply and affordability isn’t just a matter of economic theory. A great deal of evidence links the supply of space with the cost of real estate. Simply put, the places that are expensive don’t build a lot, and the places that build a lot aren’t expensive. Perhaps a new 40-story building won’t itself house any quirky, less profitable firms, but by providing new space, the building will ease pressure on the rest of the city. Price increases in gentrifying older areas will be muted because of new construction. Growth, not height restrictions and a fixed building stock, keeps space affordable and ensures that poorer people and less profitable firms can stay and help a thriving city remain successful and diverse. Height restrictions do increase light, and preservation does protect history, but we shouldn’t pretend that these benefits come without a cost.
This is an interesting debate, because of what Glaeser hints at halfway through his second paragraph: that while the new buildings themselves may not be affordable, they should contribute to an improvement in affordability by increasing general supply. The rationale seems to be that richer people currently living in older houses/apartments will shift to the shiny new houses/apartments, and their older houses will be less valuable and therefore more affordable. I’m not entirely sure whether I follow that logic. It makes sense for office space, as companies able to afford premium space generally lease it and therefore are keen to occasionally “trade up” to the shiny new buildings – leaving their previous space more affordable and now available for a second-tier of companies to shift into. But when it comes to housing, I’m not entirely sure whether building more inner-area apartments and terraced housing is going to make existing housing in that area too much less attractive for prospective buyers. In effect, you’ll have the choice of older lower-density housing or newer higher-density housing (which will probably be constructed to a fairly flash standard). Neither of those sounds particularly affordable to me.
This interesting Glaeser/Jacobs debate was picked up on in a post on the superb City Builder Book Club blog, which is going through Jane Jacobs’s masterpiece, The Death and Life of Great American Cities, chapter by chapter:
One of the most insightful observations that she makes about old buildings is that their capital costs have been written down and therefore the landlord does not need to charge a high rent. New construction is very expensive. It takes 20 or 30 years for a developer to pay off the mortgage. It is only then that there is less pressure on the owner to charge high rents.
This simple observation has recently been questioned. Edward Glaeser (Harvard economist and author of last year’s book, Triumph of the City), for example, has completely misunderstood this chapter. Glaeser asserts that keeping old buildings leads to nothing but high rents — that it’s a simple issue of supply and demand. He tells us that the only way to go is up, up, up, and if towers were built in the place of these older, smaller buildings, districts like Greenwich Village in cities all over the world would become far more affordable. That is, more density equals lower rents.
Can you think of anywhere you’ve seen that happen? It certainly has not been my experience in the past decade of tall building construction in Toronto. Nor has it been the case anywhere in Manhattan that I am aware of. It probably isn’t the case in your city either. I cannot think of an example in an economically healthy city where an old building was torn down and replaced by a new taller/bigger structure and this new structure has cheaper rent than the building it replaced.
It is certainly quite fascinating to compare these two argument – both of which seem to make logical sense, but at the same time find themselves almost diametrically opposed. What perhaps this highlights to us is that to improve affordability, we need to be a bit more specific than simply saying “expand housing supply”. What really needs to happen is a specific expansion of affordable housing supply. Perhaps the final word on this matter should go to this recent blog post by Cap’n Transit – looking at housing affordability and New York:
Suppose that tomorrow there’s a revolution in New York City. Zoning and rent control are abolished, and every member of the City Planning Commission and the community boards is sent off to the reeducation camps. Spreading out from the Empire State Building, developers cover the New York area in parking-free high-rises until there’s enough housing for everyone, at affordable prices. Sounds great, right?
Almost. But all housing is not created equal. Some apartments are bigger, some have better views, some have are more conveniently located. Some come with relatively superficial amenities like pools and package services. Some are dangerous or bad for your health, from crime, pollution, bad construction or neglect.
Some housing differences are a matter of taste, like neighbors who play loud salsa music or cook Indian food. Some people choose their housing out of racism, moving out if a Black family moves in. Some people want to live near people like them. Some people want to live where there is ethnic diversity, with no single group dominating.
All these factors affect the price of the housing. People who can’t afford higher rents will necessarily have to put up with some undesirable features, like bad views, loud music, crime or a long commute…
…There is a more market-oriented solution, though: build more cheap housing. And cheap housing is bad housing. The next question is: bad in what way?
If the only determinant of an apartment’s price is its distance from job centers, then the poor and the young will all wind up living on the outskirts of town, paying for their poverty with long inconvenient commutes. If the only determinant of price is proximity to a hazardous waste dump, or neglected housing stock, or gang activity, then the poor and the young will wind up in substandard housing, exposed to toxins and victimized by gangs. If the only determinant of price is proximity to “the right people,” then the poor will wind up clustered together, having little contact with other social classes.
To prevent segregating the poor into inconveniently located bad housing with crime and pollution, we need to make some safe, solid housing available closer in, integrated with the rich people’s housing. that is still affordable. In order to do that, we need to allow housing that’s cheap in the non-dangerous, non-segregated ways. That means housing that’s small or ugly, with crappy views and no doormen. Maybe housing that allows loud music if it doesn’t bother anyone else.
Ironically, a good example of this in the Auckland context are the much maligned ‘sausage flats’ built in the 1960s. While they’re pretty much universally disliked from an architectural point of view, they provide quite a lot of relatively affordable housing in places where people actually want to live (Mt Eden, Epsom, Three Kings, Herne Bay etc.) Their aesthetic unattractiveness, in a somewhat bizarre way, has ensured that they remain affordable and means that the supply of relatively affordable housing in inner Auckland is significantly greater than it would otherwise be.
I guess the key point is that just as building more 5 bedroom McMansions on the urban edge won’t make a blind bit of difference to housing affordability, building super-flash inner city apartments, townhouses and terraced houses is also unlikely to help. Clearly, constrained housing supply leads to housing becoming unaffordable, but to resolve that we need to not only build more houses generally, we need to build more affordable houses. How to do that in a way that still allows developers to make a sufficient level of profit for them to bother is perhaps one of the biggest questions facing Auckland in the next few years.