Last year the Auckland Plan was released with much fanfare. Here, finally, we had a 30 year strategic document guiding the whole of Auckland – particularly in terms of guiding our approach to where, when and how Auckland should grow. Of course the Auckland Plan wasn’t perfect and had a heap of internal contradictions: supposedly being a transformational shift to public transport while proposing to spend most of the future transport budget on roads, supposedly proposing a quality compact city while actually enabling a massive amount of sprawl.
Nevertheless, the Auckland Plan came up with a development strategy for Auckland to guide where more intensive and less intensive development should occur over time. Which centres were of particular importance, which key transport projects would be built to support that growth, what the split between intensification and sprawl would be, and many other things. They all came together in this key diagram – which effectively is the Auckland Plan in a nutshell:
For areas other than the centres, which are indicated by dots, the key distinction between different parts of Auckland is between those where moderate change, some change or least change is proposed. There’s then a key to this map which outlines what moderate change, some change and least change might mean:
Moderate change. Areas identified for growth throughout the existing urban area. Includes most local centres and a range of neighbourhoods. New housing would be mostly attached; low-rise apartments and terraced houses up to 3 or 4 storeys. Up to a third of sites estimated to be redeveloped over 30- year period in these areas. Will include some small lot detached and semidetached housing.
Some change. Areas not identified as priorities for growth. Some intensified development expected to occur. May include some small lot detached and semi-detached housing. The Unitary Plan will explore innovative ways of allowing high-quality residential infill and redevelopment in these areas.
Least change. Generally areas with existing historic character zoning and the Waitakere Ranges Heritage Area. Not expected to accommodate significant numbers of new buildings although sympathetic development will occur where appropriate.
A few key observations can be quickly made from looking at the map above:
- Most of the isthmus is categorised as “Moderate Change” aside from areas clearly identified as least change due to heritage considerations. This is because the isthmus is market attractive for intensification and generally has comparatively good public transport.
- On the North Shore, Moderate Change is focused in areas with good proximity to the coast – because they’re likely to be market attractive for intensification.
- In the south and west the Moderate Change areas are generally focused around the railway stations.
Now compare the Auckland Plan development strategy with the basic zoning pattern of the Unitary Plan:
I’ve included the isthmus, west and north shore areas because they stand out the most as being extremely different to what’s in the Auckland Plan. In the isthmus there is very little that could be considered in the moderate change category with huge swathes of either single house zone or mixed housing suburban. The same is true for the North Shore, which has significantly shifted away from enabling growth in coastal areas towards, well, seemingly not enabling much growth at all except for in Northcote (where the poor people who didn’t moan live) and on a couple of blocks in Takapuna. The west does kind of follow the Auckland Plan but with a much broader brush.
We can forever argue the merits of whether it’s better for Auckland to upzone for intensification in places where people moan about it the least (clearly in the west) or in locations where upzoning might lead to a lot of redevelopment (like the isthmus), but the inescapable fact is that the Unitary Plan presents an entirely different vision for Auckland’s future urban form than what was proposed in the Auckland Plan. Did nobody pick this up during the rezoning process? Did anybody actually care that 18 months of enormous public input on the Auckland Plan was basically thrown out the window through (by the sound of it) a bunch of panicked Local Board members intent on re-election?
Of course the great weakness of the Auckland Plan was its lack of statutory weight under the RMA, which potentially makes it quite difficult to argue against the Unitary Plan’s zoning pattern on the basis that it doesn’t give effect to the Auckland Plan. But you would have thought the Councillors and Council staff who have touted the Auckland Plan as such an important document might have wanted to ensure the Unitary Plan at least had a small resemblance to the most critical part of the Auckland Plan – its development strategy.
In saying that someone remembered it just long enough to put this into the Unitary plan under Part 1, Chapter A, section 3.1
The Auckland Plan is at the top of the strategic framework. Mandated by s. 79 of the Local Government (Auckland Council) Act 2009, the Auckland Plan provides a basis for aligning the implementation plans, regulatory plans and funding programmes of the Auckland Council. The Auckland Plan describes the 30-year vision of Auckland as the world’s most liveable city and provides the strategic direction for other council plans and strategies.
The Unitary Plan is Auckland’s key resource management document prepared under the RMA, and is one of the most critical parts of the strategic framework. It plays a key role in the successful implementation of the Auckland Plan, by:
- spatially identifying opportunities and constraints for activities and development in Auckland
- identifying highly valued and regionally significant resources that the policies protect or manage
- establishing clear and consistent priorities for resource use and protection by identifying boundaries and limits based on environmental values
- establishing priorities for resource use where there are likely to be competing uses, such as competition for land between primary production and urban development
- setting rules for regulating land use, subdivision and development.
They even went to the extend of putting this chart in place to show where the Unitary Plan sits in relation to the other council plans and strategies.
On the bright side, now that we’ve seemingly thrown out the Auckland Plan’s development strategy, does that mean we can throw out its list of motorway projects too?
This is a guest post from reader Aaron Schiff
Ports of Auckland wants to expand the cargo port in the Auckland CBD, and Auckland Council will soon make a decision on this, apparently without having done a detailed study of the relative merits of the expansion plans versus alternative options. Decisions about something as significant as the port deserve in-depth analysis.
The cargo port currently occupies around 77 hectares of waterfront land in the city.
Port Land in 1989 vs 2013
A port allows New Zealand to trade with other countries and that’s a good thing, but it doesn’t come for free. Over the timeframe relevant for analysing port development (decades), the resources used by the port (land, labour, etc) could be put to alternative uses. So the right way to think about the port is as a cost. If fewer resources could be used for port activities for the same total amount of international trade, more resources will be available for other things (over time).
One of the big costs associated with the Auckland port is the opportunity cost of the land it occupies. Much of this land was reclaimed for the port, but given it exists, the relevant question is the best use of this land from now on.
Waterfront land in the central city would be more valuable in alternative uses compared to stacking containers and parking imported cars. The value of the port’s land in current use is estimated for rating purposes at around $400 per square metre. Conservatively, this is around one third of its value in alternative uses, based on the value of similar waterfront land in Auckland.
Another significant cost is land transport to and from the port. Freight travels by road or rail through the city to the port, much of it from distribution centres in south Auckland. There are high costs associated with this transport infrastructure, and trucks and freight trains generate noise and pollution in Auckland. No one knows if these costs could be reduced by diverting some freight through other ports.
We do know that Ports of Auckland is inefficient compared to international ports. The following charts derived from the NZ Productivity Commission study of international freight show that international ports use land twice as intensively as Ports of Auckland, and productivity on other measures is also relatively low. This suggests that consolidating freight volumes at other ports could reduce costs.
Intensity of land use at sea ports (2006-2008)
Index of sea port productivity measures (2010).
There are also spill-over costs associated with the port itself: noise and air pollution, and visual effects.
The closest substitute for the Auckland port is Tauranga. Northport could also be a viable alternative with an upgrade of the northern rail line. It’s important to remember that changes in freight activity at Auckland will also mean changes in activity at Tauranga and other ports. Changes in costs elsewhere, including opportunity costs and spill-over costs, therefore need to be compared to changes in costs in Auckland. The intensity of competition between ports is also relevant for the transport prices faced by exporters and importers.
Other alternatives involve building new port facilities outside the Auckland CBD. This would involve a large one-off construction cost, which should be compared to potential savings of other costs, including opportunity costs and spill-overs, over time.
Ports compete in a market, but market forces are unlikely to result in good outcomes in this case because (a) significant costs are spill-overs that affect people outside these markets, and (b) ports involve large fixed costs so there are barriers to free entry and expansion in these markets.
So some degree of government involvement in decision-making is probably needed, although it would also be interesting to consider if a good outcome could be achieved by privatising the Auckland port and allowing it to sell some land if that made commercial sense.
While a lot of the effects of expanding or shrinking Auckland’s port occur in Auckland, some effects occur outside of the Auckland region, and some involve transfers of costs between regions. Auckland Council doesn’t have a mandate to consider these effects, but better decisions might get made if analysis and decision-making is done at the national level.
The right question for such analysis is: what is the appropriate location of port activity in order to minimise the total cost of it? There are lots of trade-offs and the only way to consider these properly is a detailed cost-benefit analysis before making long-term decisions about the Auckland port’s future.
The Auckland Council have announced just how much feedback they received about the Unitary Plan.
Thousands of Aucklanders have taken the opportunity to have their say on the draft Auckland Unitary Plan.
Around 22,700 pieces of feedback have been received via forms, emails and letters, as well as an additional 6,540 comments and posts gathered from social media and the Shape Auckland website.
Deputy Mayor Penny Hulse says council chose to release the plan as a draft ‘draft’ so Aucklanders could help shape the proposed rules in the plan before it goes out for notification.
“The numbers clearly show our communities have embraced the opportunity to be involved at this early stage. Their views, comments and feedback will all be used to ensure the plan we notify for formal consultation is the best plan possible,” said Penny Hulse.
“Over the coming weeks we will be working through the feedback to identify what topics in the plan need further work and where changes need to be made to ensure that we get the balance right.”
The Auckland Unitary Plan is due to be notified later this year. This is when formal consultation will begin starting with formal submissions.
Wow, 22700 pieces of feedback and over 6500 comments gathered from social media is an absolutely massive number. I actually feel sorry for the council staff who are now having to wade through it all, although I imagine much of it will be pro forma submissions like form the likes of the opposition group Auckland 2040. Our friends from Generation Zero who made an excellent online form have said that more than 1300 people used it.
While there is still a lot of noise in the media about the plan, we have purposefully been trying to avoid covering it too much but that will obviously change as more details start emerging as to what changes might be made to the plan. It will also be interesting to see if the council sticks to its current time frame and notifies the plan before the local body elections or if they wait till after them. There are a lot of advantages and disadvantages for both options but I will leave those to discuss at a later date. To put things in perspective, the council has frequently said that they received around 15,000 pieces of feedback for the entire Auckland Plan process which covered both the first draft and the notified plan.
There has been a great deal of emphasis on the zones where higher buildings will be allowed in the media coverage of the Unitary Plan. Especially giving voice to those who see this as unwelcome. Yet the plan isn’t by any means only about Auckland ‘growing up’, it also includes the quite substantial expansion of the current city limits. So I thought it might be useful to have a look at this side of the plan, particularly in order to try to get a sense of the likely character of the future city. Will Auckland still be a place where people with the attitudes of the man in the cartoon below will still be able to fit?
Malcolm Walker Metro April 2013
Below is a chart from a doc on the Council’s UP shapeauckland.co.nz site:
This chart says there are currently 20,000 sites ready to go outside the existing MUL [Metropolitan Urban Limits] and 50,000 properly rural sites plus 90,000 new ex-urban greenfields new suburban ’sprawl’ sites adding up to 160,000 sites for new low rise detached dwellings in [potentially] leafy environments proposed under the new plan.
This is to complement an identified additional capacity for some 280,000 dwellings within the existing MUL. These of course will not by any means all be apartments, it includes for example the current conversion of the Manukau golf course into new low rise suburb of detached houses by Fletcher Building.
Auckland has around 485,000 existing dwellings most of which are detached houses. What that proportion is to apartments is hard to find, the best I could do is the following from the 2006 census. This site says that in 2006 of a toatal of 437,988 there were:
approx. 311,000 = separate houses
approx. 98,500 = two or more flats/ houses, town houses/ apartments joined together
So back in 2006 there were just under a 1/4 of dwellings of a more intensive typology. But not all apartments by any means, as this grouping includes anything that isn’t a detached single dwelling, like suburban flats, townhouses, as well as partments. It will be interesting to see how this may have changed in this year’s census. This is what they say about this ratio:
The proportion of occupied dwellings that are separate houses appears to have declined slightly during that time, while the proportion of flats, townhouses and apartments appears to have increased from 21.7 per cent in 1996 to 23.9 per cent in 2006.
The bulk of these multi-unit developments have been in the CBD, with other significant higher density housing in areas in the periphery of the CBD e.g. Newmarket, Mount Eden and Grey Lynn. Other centres in the region are also seeing higher density development such as Henderson, Papakura, Takapuna, Botany, and Albany.
Looking ahead to 2041 will 1 million more people require say 300 000 more dwellings? And even if we assume the bulk of the new dwellings are of the attached typology, say 2/3, we are only looking at shifting the balance from about 24% to 38% of the total. Auckland in 2041 under the Unitary Plan as it is now will still predominantly be a place of detached houses. Especially because as observed above the attached dwellings will remain in a small number of places and, of course, because these places will be more densely occupied by definition, they will cover a much smaller area of the city than will the detached housing. Of course it is important to note that it is those that are happy to live a more urban existence that will enable Auckland to grow yet preserve whole areas of existing low density suburbia. Somewhat ironically. And only if there are some areas where greater density and higher buildings are allowed.
Of course a great deal will no doubt change over that period so whether the population does grow this fast and how people will choose to live is, of course, uncertain. But it is pretty clear that there is nothing particularly radical in the Plan in terms of restricting the future of Auckland in any one direction. If anything it just continues the recent gentle increase of ‘city-like’ habitation in Auckland. In other words Auckland is slowly morphing from having a big town nature towards having more city like characteristics, but slowly. This seems likely and natural and not unlike what has happened in Sydney and Melbourne.
My personal view is that it would be a poor outcome if all of the land identified for possible greenfields suburbs got developed in the way we have been, but it is certainly possible under this plan and it may be. Likewise I would prefer to see more intensification in selected areas, but it is clear that this is by no means certain under the plan. It will depend mostly on people’s desires, as expressed by the market.
It will be interesting to see, as this century unfolds, whether Auckland continues the international trends already observable here and best summed up in this book.
Whichever way Auckland grows, and my guess is it’ll probably be both up and out, I just hope that we do it better with more local walkable and compact centres and much better transport options than we bothered with until recently. And it does seem that on balance the Unitary Plan goes some way towards making these improvements more likely.
Now, if we could just get a much more rational approach to transport investment by central government then this plan will go a long way towards building more successful communities of all kinds in our biggest city.
Aside from the rather depressing patronage news, the most interesting report on the March agenda of the Auckland Transport Board is the Integrated Transport Programme (ITP). We saw some snippets of this document at last month’s Board meeting, but this is the first time we’ve seen a document that seems fairly critical in filling in the details of giving effect to the transport section of the Auckland Plan. The whole document is a fairly lengthy 100+ pages, excluding the Appendices (which aren’t on the AT website anyway for some odd reason), so it might take a few posts to get our heads around it completely.
A useful place to start is what’s called the “ITP approach” – which lays out the two major strategies which sit behind the ITP, as well as a kind of “where to from here” discussion:So it seems like the document is likely to pretty much always remain “live” and a work in progress. This is probably a very good thing, as the gaps in it become increasingly obvious as we read on.
One of the key initiatives appears to be what’s referred to as the “four stage intervention process” – which really just highlights that we should do everything we can to use what we have better before we go and build new stuff. Given the Auckland Plan approach of “just build everything and do it as quickly as possible”, this is a welcome breath of sanity and – if applied properly – should lead to things like more bus lanes (to optimise the use of existing road space for people throughput) and hopefully fewer expensive and stupid motorways.
However, all this talk about optimising existing networks seems to get flung out the window when it comes to the ITP’s investment profile over the next 30 years, which lumps a huge amount of spend into the first decade:
By way of comparison, the ITP notes that since 2000 there has been around $7 billion of total spending on transport in Auckland – which means that this plan is based around the assumption that spending in the next 10 years on transport will be more than triple what we’ve spent in the last 10 (or so) years. Even given inflation that seems rather optimistic.
So what results do we get from this massive spend-up? Well, pretty rubbish to be honest if you use congestion as you key measurement of success. I can actually start to see why the government is sceptical of Auckland’s approach to transport if these really are the outcomes (although they’re solution of building more roads is just likely to make things even worse):Presumably the weird result of inter-peak congestion ending up worse than peak congestion, which theoretically means we need to come up with new names for them, is just a bizarre quirk of the transport modelling as to my knowledge there’s nowhere else in the whole entire world that finds its roads busier off-peak than during the peak. Which does call into question the validity of all the modelling results in my opinion, but let’s set that issue aside for a minute.
Another way in which Auckland’s future transport investment seems to completely fail in terms of delivering the outcomes we want is in relation to reducing greenhouse gas emissions. The table below is, quite frankly, pretty embarrassing reading:
The obvious question from all of this is “why are the results so bad when we’re spending such a massive amount of cash on transport?” This leads to further questions about whether the mix of projects is right, whether we’re measuring the right things, what hasn’t yet been looked at in terms of policy initiatives (road pricing, stronger travel demand management, less urban sprawl) and what impact on these results individual proposed projects might have. For example, the amount of increased congestion in the CBD or the growth in CO2 emissions resulting from building another harbour crossing.
Turning to the project mix, the map that was in the version of the ITP presented in February – which seemed to be riddled with errors – has now disappeared to be replaced by something much vaguer in terms of projected costs. Here’s the roading map:
While it’s possible that some of the numbers in the February version were incorrect, it’s worth refreshing our memory to highlight the vast bulk of future spending on new infrastructure over the 30 year span of the ITP is proposed to be on new roads:
The final image to highlight is where and when the ITP thinks that growth will occur over the next 30 years – which seems to be the base ‘input’ to the transport modelling and is fairly alarming to anyone other than Nick Smith:
So now that we’ve confirmed a land-use growth pattern based largely on sprawl and a transport investment plan based largely on building more roads will deliver really bad outcomes can we please get around to doing what’s supposed to be the Auckland Plan vision: a quality compact city with a vastly improved public transport system?
Because, to be frankly honest, this plan is rubbish.
Interesting news out this morning of a report, paid for by the government and Auckland into the economic competitiveness of the NZ economy. While the whole report hasn’t been released yet, information has emerged about a chapter in it relating to Auckland. The report has been put together by Hong Kong-based Professor Michael Enright and another expert, Michael Porter. It appears that the report has been fairly critical of the current state of Auckland however positively it does suggest that we are going in the right direction, just not fast enough. The report follows on from a similar one from him done in the 90′s on the same issue.
Auckland, Professor Enright said, lacked entertainment and cultural facilities, still depended on cars to get around and needed to move the container port off the most important piece of land in New Zealand for an iconic building.
“We should ask, ‘What is the value of the Sydney Opera House to Sydney, or the Eiffel Tower to Paris?’
“While foreign impressions of Auckland are positive, very few foreigners can name a single thing that is distinctive about the city,” the report said.
Some of his strongest criticism was directed at the CBD, calling the $45 million upgrade of the Aotea Centre a “concrete jungle” and bemoaning the lack of a world-class entertainment or nightlife district, like a Times Square.
“Queen St, which should be the Champs Elysees, the Fifth Ave of Auckland, is deteriorating … there is limited outdoor cafe culture near the city centre.”
Professor Enright said Auckland’s first priority should be a mass transit system, including the city rail loop, followed by revitalising the CBD – calling the $45 million upgraded Aotea Square a “concrete jungle” – and an end to urban sprawl in favour of an “overall denser Auckland”.
That would lead to a “complete change” in what Aucklanders consider the ideal lifestyle, including giving up the house in the suburbs and the car.
Many of these ideas are contained in the Auckland Plan – a 30-year blueprint for the city – but Professor Enright said the plan was not bold enough and Auckland might arrive in 2040 prepared for 2022.
Personally I’m not convinced for the need for an iconic building on the waterfront, but in general I agree with many of the sentiments. As with my post this morning, I think that many of the projects in the Auckland plan are good but do need some re prioritisation. You can also hear a report on this from Radio NZ below.
Or listen here.
But naturally a report like this, which generally supports the council in the key areas of housing and transport doesn’t sit well with the Government. Steven Joyce has already criticised the report and blamed officials for organising it.
Or listen here.
As the debate over intensification versus urban sprawl seemingly intensifies, there is one assumption that seems to underpin a lot of the discussion – from both sides of the debate actually. That assumption is that achieving most of Auckland’s future growth through intensification will be an enormous challenge, a ‘step change’ from what Auckland has done before, requiring a huge change in mindset away from living in a traditional (mythical) “quarter acre paradise” and towards living in different housing typologies like terraced housing and apartments.
The Auckland Plan’s development strategy – which generally (at least in words) supports a compact city approach – runs this “story” quite significantly:
Over time, the viability of attached and higher-density housing will improve, and provide choice for Aucklanders. Chapter 10: Urban Auckland shows examples of housing types across a wide range of densities and formats, and indicates the types of locations where we can expect them to be built. This is also explained in the following section on the Development Strategy maps. A healthy supply of high-density housing has the potential to address the challenge of housing affordability, through efficiencies in land use and infrastructure provision. The delivery of housing choices depends on many organisations, notably the private sector.
While it’s true that detached housing has typically constituted the majority of dwellings built, this doesn’t mean that Auckland’s recent growth has predominantly been through urban expansion – therefore making a “70/30 split” between intensification and expansion supposedly aspirational. Well some information we have managed to obtain from the councils research unit shows that when you look at the proportion of housing comprising either ‘intensification’ (additional dwellings within the existing urban footprint) or ‘expansion’ (additional dwellings outside the existing urban footprint) over the past 15 years a significant majority of new dwellings are ‘intensification’:
Source: Auckland Council research unit – covers April 1996-December 2011
Looking at the numbers in terms of proportions it’s clear that in every single year many more dwellings have been consented inside the current urban area than outside – with 2005 being the year with the lowest proportion of intensification at 61%:
While of course many of the ‘easier’ intensification opportunities, such as infill housing, have been used up over this time (and the decades before it – Auckland has been significantly intensifying since the 1970s), what this information clearly shows is that achieving most growth through intensification is not really a challenge. We’ve been doing it quite well for quite some time. Clearly Aucklanders seem to have preferred the choice of living somewhere within the existing urban area – even if it meant a smaller section or an apartment or some other form of housing – than the urban edge.
Given this background, the Auckland Plan aspiration of 70% of development being within the 2010 urban limits (which actually go significantly beyond the 2010 urbanised area) seems nothing but business as usual and anything below that is actually a shift away from what Auckland has been doing for the past 15 years towards a greater focus on urban expansion. A focus on most growth through intensification is not revolutionary or aspirational or ‘requiring a step-change’ at all – it’s what we’ve been doing for quite a long time.
My last two posts (here and here) considered Demographia’s recently released survey of housing affordability for 2013, which concluded that housing in NZ is increasingly unaffordable.
My first post suggested Demographia’s primary findings were not supported by independent evidence, such as alternative “rent-income” and “home affordability” indicators. My second post then outlined some issues with their “median-multiple” indicator (calculated as the median house price divided by the median household income).
This post will now refine some of these criticisms, before outlining some of my own ideas on the causes of housing affordability issues in New Zealand. First I wanted to tease out some of implicit assumptions that underpin Demographia’s “median-multiple” indicator, namely:
- Median-matching: This issue was best articulated by James H: “the median-multiple indicator carries an assumption: that the income-earners at and around the median are the same group who demand the houses priced at and around the median, and that result can be extrapolated for other price-income pairings. As mentioned in the post, that excludes measurement for a large group of earners at many income levels who are in fact happy to rent for a range of reasons. Also I doubt whether median houses are often bought by median earners for a variety of reasons including life stages, geographical differences etc.”
- Independent inputs: This issue relates to the fact that the two inputs into the median-multiple indicator (house prices are income) are actually not independent of each other. Consider a situation, for example, where most of the houses in New Zealand were being bought and sold by relatively wealthy households, and that these households subsequently experienced high income growth, while incomes for the general population remained broadly unchanged. In this situation the median house price (and median-multiple indicator) would rise simply because income growth was concentrated within the same people that were purchasing properties, rather than because housing was becoming less affordable.
The second issue is quite important, because it implies that changes in income may in fact impact on house prices. The figure below illustrates the input data used by Demographia for Australia. In this graph, we find a strong positive correlation between median household income (x-axis) and median house prices (y-axis).
This suggests that locations with high incomes have more expensive housing (surprise surprise!). More specifically, it suggests that for every $1 increase in median household income there is a corresponding $5.1 increase in median house price. While that sounds like a lot, note that income is measured p.a. whereas house prices are “total.”
My final comment is on the relevance of Demographia’s indicator. i.e. the “so what” question? It seems that the parts of New Zealand with the highest median-multiple ratios, such as Auckland, are actually attracting the fastest population growth, as illustrated below. Of course, this may reflect other factors that are at play, but it does suggest that our housing affordability (at least as measured by the median-multiple indicator) is not yet significant enough to drive people away.
Thus, population growth in these places seems to be going the other direction from what Demographia would expect – we are increasingly moving to areas that they consider to be unaffordable. Based on this evidence, I’d suggest that the median-multiple indicator used by Demographia is not a good measure of housing affordability. Instead, it seems to measure:
- The degree to which income growth is invested in housing; and
- Population growth (which will tend to push up property prices but suppress income growth).
It’s not clear to me that the median-multiple indicator measures housing affordability, and nor is it clear to me that the urban containment policies pursued by local governments are binding to the degree that they have major impacts on property prices. They may be – but Demographia’s indicator does not, and cannot, tell you that.
My personal view is that the primary impact of local government regulations is not through the constraints they place on land supply (i.e. urban containment), but actually through the barriers they create to the development of more compact and affordable housing. Here’s some examples of regulations pursued by local governments in New Zealand that seem likely to restrict the supply of affordable housing:
- Minimum lot sizes – i.e. “all ye who have less money shall be forced to purchase land you don’t want.”
- Minimum apartment sizes – i.e. “all ye who have less money shall be forced to purchase living space you don’t want.”
- Minimum parking requirements – i.e. “all ye who have less money shall be forced to pay for vehicles you don’t own”.
- Maximum height limits – i.e. “all ye who chose to live like rats are consigned to perish like rats – on the street.”
- Heritage protections – i.e. “all ye who don’t have the money to renovate a villa shall live elsewhere.”
In my experience these policies are often more binding constraints than the availability of land. So my suggestion is that housing affordability has less to do with policies that favour urban containment (as Demographia and the National Party would have you believe) than they are to do with the plethora of policies that suppress more intensive and affordable housing. I’d go as far as to say that most of our policy settings have a systematic bias against the development of compact and affordable housing.
In this light, it seems that recent political announcements have missed the mark. National are deluding themselves into thinking that the release of land on the urban periphery will deliver meaningful and sustained reductions in the cost of land, and by extension housing. Labour and the Greens, meanwhile, seem intent on using government capital to build our way out of the problem – which is not only expensive but also runs the risk (at least on the surface) of building the wrong kinds of houses in the wrong places. None of these three parties seems to yet acknowledge that some of our issues with housing affordability may be the result of policies that prevent urban intensification.
So instead of writing the foreword to next year’s (deeply flawed) Demographia report, I’d suggest that Bill English – and other National cabinet Ministers – should be writing letters in support of proposals to develop apartments, town houses, and units in places like Milford and Orakei. And more importantly, they should be making submissions on aspects of the draft Unitary Plan that support and/or prevent more compact and affordable accommodation options. Onya Bill.
Yesterday’s post considered the recently released Demographia survey on housing affordability. Thanks to everyone who commented; the discussion was useful for honing my thoughts on follow-up posts. Such as this.
But first let’s re-cap: Demographia’s key findings were 1) New Zealand has increasingly unaffordable housing and 2) this is the direct result of urban containment policies.
The main issue I took with the Demographia report in yesterday’s post was 1) the lack of strong economic justification/references supporting their housing affordability indicator of choice (namely the median-multiple ratio) and 2) the lack of discussion/investigation of potential alternative indicators.
Indeed, my quick web search threw up at least two alternative indicators of housing affordability, namely the rent-multiple ratio and the home affordability index, neither of which appeared to lend much support to Demographia’s findings. Of course, this does not prove their conclusions are incorrect, but it does suggest they are premature.
In this post I wanted to look beneath the hood of Demographia’s housing affordability indicator a little more. The reason being that when you do you start to see what they are measuring and, perhaps more importantly, what they are not measuring. In Demographia’s case, they calculated their housing affordability indicator as follows:
Median-multiple = median house price / gross median household income per annum
This then measures, in a simple sense, the cost of the median home relative to the median household income. While that may sound reasonable enough on the surface, the devil is in the detail. Two of the more obvious issues with Demographia’s indicator that spring to my mind are discussed in the following paragraphs.
Demographia’s definition of “income” excludes taxes and transfers. This is pertinent for at least two reasons:
- First, some taxes have direct impacts on property prices, e.g. local rates. These will simultaneously tend to affect property prices (higher rates = lower property prices) and post-tax income (lower), but not gross income. Somewhat perversely, this would mean that jurisdictions with higher property taxes would tend to exhibit more affordable housing, at least according to Demographia’s indicator.
- Second, most taxes directly impact on a household’s disposable income and in turn affects their ability to afford housing. In New Zealand tax rates have changed considerably over time, especially for different segments of the population. Consider for example the impact of Working for Families on demand for certain types of housing.
Such issues mean that the median-multiple housing affordability indicator, as it appears that Demographia have applied it will not pick up on relevant differences in taxes and transfers, both spatially and temporally.
The spatial differences are likely to be fairly minimal within a country like NZ – where local taxes don’t vary that much from place to place – but this is certainly not the case when making international comparisons. Many countries have much higher rates of property taxes (and even local income taxes) that will tend to impact on house prices and thereby affect their housing affordability relative compared to New Zealand.
On the other hand, the temporal differences introduced by changes in domestic tax and transfer policies are likely to be fairly large, even within a country. The potential impacts on housing affordability of recent tax changes to the top personal tax rate, ability to claim capital depreciation on properties, and commercial tax rates are hard to predict in advance. Tax impacts may well spill over national boundaries as well; NZ’s lack of capital gains tax, for example, is frequently quoted by my Australian colleagues as a primary driver of their decision to invest in New Zealand’s property market.
These issues would make me extremely cautious about drawing broad, sweeping conclusions on trends on housing affordability both within and between countries simply based on the median-multiple indicator.
“C is for cookie and that’s good enough for me” – The following (deliberately facetious) statement helps I think to highlight a dimension of the housing affordability debate that is all too frequently glossed over, namely:
You don’t measure the affordability of cookies based on the cost of buying the cookie factory.
The point is that housing is a actually a type of good, or more specifically a service, which is “produced” by a house. You can gain access to housing without necessarily buying the factory that produces it, i.e. rent a house. Obviously, some people do this already and they’re called “renters.” Like me.
Even in New Zealand many people rent by choice. And in many countries in central and northern Europe renting is even more prevalent. But the key takeaway message is that the affordability of housing, which is what Demographia sets out to investigate, is probably better measured (from an economic perspective) using rents rather than house prices. This is especially true for low income households that are more likely to rent.
And that’s why I’d place more emphasis on the graph produced by the Productivity Commission, which calculated the ratio of rents to household disposable income over time than the median-multiple indicator presented by the Demographia study. This showed the rent to income ratio in New Zealand declining since the 1990s, contrary to Demographia’s findings and casting some not inconsiderable doubt on their conclusions.
My preference for using rents is also related to the first point on the impacts of taxes on house prices: Unlike houses, which are an asset, rents measure the cost of housing services. I suspect it’s far easier to “net out” the impact of services taxes in various jurisdictions, i.e. GST, on rents than it is to adjust for changes in the myriad of other income and asset taxes that might affect house pricing.
That’s all for tonight, but tomorrow’s another day and I’m already fomenting ideas on the next Demographia post; in the meantime I’d welcome your comments/suggestions/criticisms.
The annual Demographia Housing Affordability report is out – this time with its forward written by Bill English – and just like every other Demographia study it suggests that more land needs to be opened up for urban sprawl in order to bring down housing prices. There are a number of different flaws in Demographia’s analysis (for example it’s based on pre-tax income, it ignores the infrastructure costs of servicing sprawl and it ignores the additional transport costs of living on the urban edge) but I’ll ignore those for now, instead focusing on a pretty simple question – does Auckland really have a land supply shortage?
I think it’s fairly widely agreed that an important factor in Auckland’s rising house prices is a lack of housing supply: simply not enough dwellings are being built. The Auckland Plan talks about the need to build around 13,000 houses a year, every year, over the next 30 years and the fact that we’ve only been building around 3,000 dwellings a year in recent times:What you can also see in the graph above is that Auckland was able to build its required amount of housing during the middle of last decade (the very years when housing prices increased the fastest from memory) and that the number of detached dwellings as well as the number of apartments built per year has fallen dramatically since about 2004. As large greenfield areas such as Silverdale North, Flat Bush, Hingaia, Hobsonville and parts of Takanini have become available for development over the past six or seven years, it’s interesting that we have actually seen a decline in detached structures built rather than a further increase.
Furthermore, Auckland has a lot of areas for future greenfield development working their way through the planning process at the moment or already operative. This is shown in the Auckland Plan’s development strategy map – with yellow indicating “pipeline” (which I assume means that it’s in the process of becoming operative) and “operative” (ready to go I assume) greenfield land. Operative is shown in red and pipeline land in yellow: In fact, the Auckland Plan states that the biggest chunk of growth in the first 10 years of the Plan will take place in these areas:
Personally I think it’s likely that Auckland won’t see anywhere near that amount of greenfield development over the next 10 years – not because there won’t be enough land available (as I said the process for opening up that land is underway already) but rather because there’s unlikely to be the market demand for houses in these peripheral locations.
But in any case, I don’t think that supply new houses in these areas is likely to do much about housing affordability because there’s actually not a housing affordability problem in peripheral parts of Auckland. For example searching Papakura area properties under $400,000 returns not far off half the houses for sale (224 out of 569) in that area:
Auckland’s average house prices are dragged up by the extraordinary prices paid for places in the inner suburbs because that’s seemingly where people really want to live. If there’s heaps of available greenfield land on the urban edge, a significant number of relatively affordable houses already available on the urban edge and the planning in place for a huge amount more greenfield land on the urban edge, I just can’t buy into the hypothesis of Auckland having a land supply shortage.
What we have is a housing supply shortage, particularly in the inner suburbs where people want to live. And the way to fix that is by making intensification easier through getting rid of minimum parking requirements and getting rid of density controls. It’ll be interesting to see whether the Unitary Plan tackles this real issue rather than the non-existent land supply shortage spun by property developers who want to make a pile of money by bringing their land inside the urban limits.