Archive | Urban strategies

Dickens takes aim, but the residential land fix is elusive

Rodney Dickens.

Property-focused economist Rodney Dickens took aim at the Government’s housing initiatives at the weekend.

Despite the valid criticisms, though, his harshest presentation of failure is aimed not at a single year’s performance by the present government but at 2 decades of failure by successive governments.

In doing so, Mr Dickens didn’t present a forward path.

His solution to escalating house prices is to fix section prices.

That in itself is not an answer. How do you fix? Who fixes? Where do you start?

This article comes in 3 parts:

  1. Mr Dickens’s key points in his latest Rodney’s Ravings report – which will fill you with horror although you’ve known the truth of them for a long time
  2. I will take you to some questions which I think need to be assessed, and
  3. To close, I’ll look at potential ways forward.

Now to the Dickens report:

The Government should do the obvious to fix housing affordability, says Dickens

Economist Rodney Dickens, owner & chief researcher of Strategic Risk Analysis Ltd, produced graphs at the weekend which show how far out of kilter residential section prices have gone.

Mr Dickens wanted to throw the spotlight on the role rising section prices have played in driving up new & existing house prices in Auckland and the similar story in all major urban centres except Christchurch, where the 2010-11 earthquakes set it on a different path.

KiwiBuild, one of Housing & Urban Development Minister Phil Twyford’s solutions to the slow construction rate, has experienced some teething problems: “Some people aren’t happy that it isn’t delivering new housing affordable to low income earners, while the extension of the ballot for the first 10 of the 211 KiwiBuild dwellings planned for Wanaka over 2 years may be a sign it will face indigestion problems in towns.

“More teething problems will no doubt arise. But the real criticism should be aimed at the Government’s housing initiatives more generally because they aren’t aimed enough at fixing the largest obstacle to more affordable new housing: high section prices.”

Mr Dickens’s graphs illustrate, at least in part, the role rising section prices have played in driving up prices for new & existing houses in Auckland.

Ironically, he said, the housing accord & special housing areas the National-led Government put in place in Auckland “may be belatedly starting to drive a hint of downside in sections prices. But it is far too little. Much more needs to be done to get down the cost of developing sections; it would deliver a real solution to the housing affordability problem.”

True extent of escalation much higher

Even the research he has done doesn’t show the true extent of land price escalation, because Real Estate Institute figures on section prices don’t take into account the shrinking size of sections.

Over the last 25 years, the average construction cost/m² for a new home in Auckland, based on consent data, rose 212%. The median section price rose 903% over the same period, but Mr Dickens said that because sections had been shrinking in size, the price escalation/m² for sections could well exceed 1000%.

“Obviously the cost of sections feeds directly into the cost of new dwellings, but section prices are also an implicit part of existing dwelling prices.

“A link between Auckland section & existing dwelling prices is evident in the chart below that uses the Real Estate Institute median prices. The difference between the existing dwelling price & the section price is the effective market value of the improvements, that is linked to a moderate extent to building costs.

“Between January 1993 & October 2018, the median section price increased 903% while the median dwelling price increased 514%. In the 12 months ended January 1993, the median Auckland section price was 41% of the median dwelling price, while for the 12 months ended October 2018 the median section price was 67% of the median dwelling price.

“In a country with an extremely low population density, it is madness that it costs more on average for a section than for the house built on it, even in the largest region.

“These increases, and especially the increase in section prices, look horrific when compared to the 68% increase in prices in general over the same period based on the consumers price index, the 111% increase in hourly earnings over the average employees & the 89% increase in the national average rent based on the CPI rent component.

“The causes of sky-rocketing section prices have been discussed elsewhere, including by the Productivity Commission. Relevant factors include massive increases in development contributions, council policies that effectively gave oligopolistic pricing power to landowners, and a drawn-out & expensive process for getting new subdivisions approved.”

Next, Mr Dickens compared the median section price reported by the Real Estate Institute for Auckland with the average cost of building/m² based on the new dwelling consent data: “While the median section price increased 903% between January 1993 & October 2018, the average cost/m² for new dwellings in Auckland increased 212%. Building costs have increased much more than prices in general & average hourly earnings – this is in the context of average hourly earnings most likely understating overall income growth for a range of regions not discussed here. But the increase in building costs is dwarfed by the increase in section prices.

“The increase in section prices is even worse than it looks because, since 1993, the average section size has fallen significantly. The average price/m² for Auckland sections will have increased much more than suggested by the median prices reported by the Real Estate Institute. Unfortunately, data are not available on section prices/m², but the increase will be well over 1000%.

“If Auckland section prices had increased in line with building costs, the blue line in the chart below suggests what existing dwelling prices will have done relative to what they actually did.

“If Auckland section prices had increased since 1993 in line with the average cost/m² of building new dwellings in Auckland, the median section price would be around $180,000 now rather than $575,000.

“By implication, the median existing dwelling price would be around $460,000 rather than $854,000 (ie, $394,000 or 54% lower). So why isn’t the Government (and the Auckland Council & councils in all major urban areas) doing more to get down section prices? If the problem of high section prices was fixed, the market would fix the new housing affordability problem without the need for the contentious & bureaucratic KiwiBuild ‘solution’.

“Maybe the problem lies partly with the other parties that Labour relies on for support? But the problem runs deeper than this. National had every opportunity to fix this problem when it was in government, but didn’t.

“Ironically, the minor fall in the weighted average Auckland median section price since early-2017 may be a response to the boost in supply from the 154 special housing areas approved following National introducing special housing area legislation in 2013. The 154 special housing areas were expected to add over 60,000 new dwelling sites in Auckland. But if it is, it is far too little & way too late. The special housing areas didn’t stop a massive increase in section prices since the legislation was passed in 2013 (ie, 69% based on the weighted average median price for the Auckland region).”

Links (for all 3 pages of this report):
Rodney’s Ravings, 17 November 2018: The government should do the obvious to fix housing affordability
2017, National-led Government’s urban development authorities discussion document
Solly Angel + 5 other contributors, essay 5 July 2018: The new urban peripheries: Findings for a global sample of cities, 1990-2014
Solly Angel
NYU Stern urbanisation project
Stern urban expansion initiative

Earlier stories:
16 November 2018: 3-way partnership to fund infrastructure for next big subdivision at Wainui
13 September 2018: Transport agency sets out project list
20 April 2018: Council approves quest for $300 million of government housing infrastructure money
24 July 2017: Ministers explain infrastructure funding deal
24 July 2017: New Crown entity will advance housing infrastructure
12 July 2017: Council gets $300 million infrastructure package, balance sheet-beating deal to come next
28 April 2017: Joyce lifts infrastructure intentions and talks new operating mechanisms
6 March 2017: Property Council joins call for new infrastructure funding
8 January 2017: Housing infrastructure fund call for final proposals imminent, and panellists required
26 October 2016: Goff talks up growth along with cutting congestion and revising funding
5 October 2016: Infrastructure frailty puts US financial woes in perspective
3 July 2016: 
PM talks $1 billion infrastructure fund, English talks payback frame, Smith talks grabbing more power
6 September 2007: Curtis loses fight to remove “compact” from development framework
11 April 2007: Expect 4-5 centres to be earmarked in growth strategy review

Articles on Productivity Commission:
22 August 2016: Commission sees government change as essential for urban planning
22 August 2016: Commission says everything English wanted on planning
19 August 2016: Government says it’s already implementing land for housing recommendations
 5 October 2015: Commission sends land for housing report to Government
19 June 2015: Commission looks behind high land prices
19 June 2015: Key points from land for housing report
2 June 2015: Productivity Commission draft on land for housing out in fortnight
 7 November 2014: Productivity Commission launches land supply regulation inquiry
13 April 2012: Productivity Commission misses key affordability point – again
4 April 2011: First inquiry for Productivity Commission is housing affordability

Productivity Commission releases:
11 May 2018: New inquiry into local government funding announced
2 March 2018: Why can’t Auckland build enough homes?
29 March 2017: Urban planning – moving beyond the wheel spin

Pages in this report:
1: Dickens takes aim, but the residential land fix is elusive
2: Things to keep in minds while focusing on fringe land supply
3: Cutting the margin without breaking the market…

Attribution: Rodney Dickens, Solly Angel.

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Things to keep in mind while focusing on fringe land supply

This is page 2 of a 3-page article based on economist Rodney Dickens’s weekend report, The Government should do the obvious to fix housing affordability.

In this section, I’ve raised other factors that need to be considered.

Things in the wider picture to keep in mind:

  • Keep in mind that a syndrome featuring in the Auckland & New Zealand pictures also happens to have featured worldwide: Housing prices have been escalating in many countries, not just New Zealand, which ought to raise the suspicion that there’s at least one element of common cause.

The common features internationally:

  • Unheard-of low interest rates, which lift asset values
  • Rising US public debt, now truly out of control, an influence on values exported worldwide because of the reserve status of the $US
  • Sharp & prolonged increases in immigration.

Near-term international influences which will make it harder to bring specific economic policies of countries & for sectors such as housing under control:

  • The US desire for control, seen at the moment through President Donald Trump’s trade war with China, pressure on Iran & increase in military spending
  • Likely for/against positioning regarding the South China Sea, Pacific islands (including New Zealand) support, various treaties & international agreements (particularly those involving Asia), ad African development

Those might seem like far distant influences with little likelihood of interfering in domestic issues down here, but look at them this way: When, as a country, you’re forced to take sides (and this will happen all too soon), your trade routes & relations can be seriously upset.

There’s also one issue peculiar to Australia & New Zealand, and another which both countries can start to rectify:

  • The peculiar local issue concerns the flow of migrants across the Tasman Sea, thataway when times are tougher here & expanding there, the reverse when jobs are harder to find in Australia and Kiwis come home.

New Zealand came out of the global financial crisis of 2007-12 (the years of greatest impact here) very well, courtesy of a leap in immigration. Australia has encouraged even more immigration than our previous government did, though as a lower percentage of total population, but other factors have reduced the boost there. The most notable factor is the price of mined commodities, combined with some uncertainty in the biggest market, China.

Reduced immigration by both countries would at least stabilise the pressure on housing, but would also reduce economic growth.

Auckland’s 2 key issues: land availability & price

The 2 key issues for housing in Auckland are land availability & land price. Less of an issue (although they’re still big) are construction costs & regulation. Infrastructure funding is also less of an issue than the certainty of providing it quickly in the right place.

Housing & Urban Development Minister Phil Twyford addressed infrastructure funding this week in a way which looks positive, but in reality shifts the cost burden from today’s buyer down the track as a fixed-in-place (& spreading everywhere in short time if it’s accepted) cost for all homeowners.

Why do I regard it as a “targeted” cost for all homeowners? Targeted rates have spread from a city-centre rate to local rates for services such as sewerage to a fuel tax. Development contributions paid (and factored into land pricing) by developers to local councils were seen as a short-term solution to infrastructure expense and will remain in place, but are increasing in Auckland. The new targeted rate will be an extra.

The division of rates into general & specific is turning up more specifics. At the moment, buyers in new subdivisions pay development contributions, and you will see that kind of cost spread to specific charging for replacing infrastructure in older suburbs.

In the short term, the Government’s infrastructure funding support measure, via Government-sourced loans (as a long-term depository for Accident Compensation Corp income) plus targeted rates on specified homeowners, gives more certainty to the supply of utility networks & roading. It will spread infrastructure costs from immediate into years hence – an addition to the mortgage.

Is the rural:urban boundary the real bogey?

There has been a campaign for several years for Auckland Council (& the regional council & regional growth forum before it) to abandon set rural:urban boundaries (the RUB) to free more land for subdivision and, through competitive pricing, thereby reducing land costs.

Through all that campaign, nobody has ever said how that open-slather approach would be applied. In particular, how infrastructure would be provided.

One method could be to impose regulations on urban-fringe land sales to control prices of sale & onsale – authoritarian, roughly applying the model brought in by National Prime Minister Rob Muldoon in 1982 to freeze wages, prices, interest rates & dividends, which lasted until he lost office to Labour in 1984.

Lifting of that freeze had the most telling impact on interest rates – first mortgage rates flew quickly as high as 30% – but also loosened the reins on mortgage lending.

Unitary plan changed the equation

Auckland Council’s unitary plan, mostly operative since October 2016, has done 2 things to encourage new housing. One is to make zoning through much of suburbia less restrictive, opening the way to more brownfields development through many existing suburbs, resulting in a wider spread of intensification.

The other is to ensure a supply of potential greenfield residential land is made available through rezoning, starting as land zoned initially as future urban, mainly on the fringes, and progressing to long-term zonings.

Despite the aim of the National-led Government’s special housing areas legislation to free more land for housing – pretty much anywhere – somebody had to supply infrastructure, and that was in the hands of the council, which was approaching debt ratio limits.

Through last week’s 3-way government-council-developer infrastructure funding agreement for the Wainui area west of the Hibiscus Coast in Auckland’s north-east, Government loan support in September for Auckland Council via the Housing Infrastructure Fund to get further development underway at Redhills & Whenuapai in the north-west, and the legislation to establish a national urban development authority (that’s been sitting on the rack since National introduced it in early 2017), funding uncertainty appears resolved.

Pages in this report:
1: Dickens takes aim, but the residential land fix is elusive
2: Things to keep in minds while focusing on fringe land supply
3: Cutting the margin without breaking the market…

Attribution: Rodney Dickens.

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Cutting the margin without breaking the market…

This is page 3 of a 3-page article based on economist Rodney Dickens’s weekend report, The Government should do the obvious to fix housing affordability.

In this section, I look at market answers, and ways to achieve change without destruction.

The central housing issue in Auckland, as economist Rodney Dickens presented it in his weekend Rodney’s Ravings, is the leap in house prices resulting from excessive land prices.

The market answers have been:

  • Shrink section sizes
  • Build 2-storey houses to keep their size up to expectations of 200m²-plus homes
  • Supply some smaller homes, cheaper, but still more expensive than they would have been if section prices had been held down.

Mr Dickens wrote: “If Auckland section prices had increased since 1993 in line with the average cost/m² of building new dwellings in Auckland, the median section price would be around $180,000 now rather than $575,000.

“By implication, the median existing dwelling price would be around $460,000 rather than $854,000 (ie, $394,000 or 54% lower).”

Politicians keep looking for ways to get the prices of new houses down, and KiwiBuild is part of that hope.

But is it realistic?

And if new housing does take a price cut, how does that affect existing housing?

The first requirement is to increase supply so there is no longer an acute shortage.

Small builders’ assessment of prospects a critical aspect

The Government can force the issue by using Crown land for subdivisions but, long-term, the country’s thousands of small private sector builders need assurance that prices aren’t going to plummet. That, as we know from experience, destroys small businesses, the country loses experienced tradesmen to Australia and New Zealand goes through the painful task of rebuilding expertise again.

Buyers also need assurance. Like the builders, buyers will have negative equity if prices plummet after they’ve signed up for their purchase.

Alternatively, all other costs rise to meet the already-escalated land & house prices – inflation, but somehow excluding housing. That would include rises in fixed incomes, such as pensions & income derived from interest. Interest rates would have to rise.

Oh, and the banks. They’ve just reported massive profits, but that doesn’t mean they’re ready for a house price shakeout.

For all these entrenched & vested interests, a sharp drop in prices would be destructive. A general rise in non-housing costs & prices is possible, alongside a steady housing market. But who’s going to build if house prices don’t rise along with the rest of the economy?

Take a quantum leap

One answer to that question is to do something very different.

First, infill housing – intensification of existing suburbs as townhouses replace standalones – can reduce the heat in the greenfields market. It’s starting to happen, and an increase in available land supply should curb price expectations.

Second, brownfield development can go right to the heart. Those upstairs flats above shopping strips, in recent decades turned over to storage or the occasional office? Modern apartment blocks now have shops at ground level, and you will soon see apartments being developed above shopping centres.

They will need to offer a mix of the small & the family-sized. They will also need to be accompanied by far more town centre amenities. They can come without attached parking – given enough residential development in a centre, more travel can be by public transport and rental vehicles can replace the private car.

Generally, apartment developers wouldn’t expect to build to the same height in the suburbs as they would in the city centre – and generally, stipulated maximum heights would prevent it.

At the moment, only a handful of apartment blocks have been erected in old city centres or suburban centres. I see the increasing development of standalone apartment blocks, with retail at ground, becoming acceptable in suburban centres. And if shopping centres can have housing built on them elsewhere in the world, the same can happen here.

That would lead to 2 fundamental changes in New Zealand urban living:

  • Day & night populations in those centres, bringing a different vitality, and
  • A move to larger apartments to accommodate families (which is also achieved elsewhere in the world).

It could also lead to a further decline in home ownership, the arrival of largescale residential investors, and the growth of residential ownership by small investors. That, in turn, would create new requirements for investment education, and changed pension expectations as pensioners switch from mortgage-free owners to lifelong renters.

All of that is a long way round uncontrolled escalation of fringe land values. It needs to be accompanied by less inflationary population growth; continued advances in public transport systems; and more careful relation of dormitory suburbs to suburban centres, jobs & amenities.

Urbanism expert Solly Angel presents an action plan

New York professor Solly Angel.

For an outside view, New York urbanism specialist Shlomo (Solly) Angel + contributors wrote in the concluding section of a 29-page essay on the new urban peripheries, a shortlist of takes to prepare future urban peripheries: “Emphasis on complex master plans that rely on strong compliance must give way to simpler interventions that can utilise the limited available capacities for making significant changes on the ground.

“Finally, the quality of the urban fabric in new urban peripheries can be enhanced with a simple 4-point action programme:

  1. Estimating the amount of land needed for expansion in the next 30 years, identifying the area needed for expansion, and obtaining planning jurisdiction over the entire area
  2. Preparing an arterial road grid throughout the expansion area
  3. Identifying & securing a hierarchy of public open spaces that need to be protected from development, and
  4. Improving land subdivision practices on the urban periphery.”

Shlomo (Solly) Angel is an adjunct professor at New York University & senior research scholar at the New York University Stern urbanisation project, where he leads the urban expansion initiative. Professor Angel is an expert on urban development policy, having advised the United Nations, the World Bank & and the Inter-American Development Bank.

It sounds fine, except: We are not good at predicting (or acting promptly on our predictions), which is why we have bottlenecks, congestion, land & house price escalation well beyond reasonable.

Local body infrastructure providers in New Zealand have always been wary of developing too much infrastructure ahead of time, in case the economy slumps, needs change, somewhere else becomes more popular – in short, taking away the excitement of unpredictability.

Influences not covered

Others have noted that New Zealand has no capital gains tax or stamp duty, and Auckland uses capital value to set council rates rather than land value.

Seemingly irrational buying by a surge of foreign investors appeared to have the intention of shifting money out of their homeland, mainly China, as quickly as possible rather than being a carefully priced asset investment. That door has closed.

The above is a handful of ideas on how to gradually overcome an imbalance that’s been grown over a quarter century, without sudden destructive impacts.

You may think those ideas are impractical, or you may have better ideas to share. Comments are welcomed.

Pages in this report:
1: Dickens takes aim, but the residential land fix is elusive
2: Things to keep in minds while focusing on fringe land supply
3: Cutting the margin without breaking the market…

Attribution: Rodney Dickens, Solly Angel.

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Code for smarter cities released

The Smart Cities Council, covering Australia & New Zealand, and the Green Building Council of Australia released a new practice standard last week which they said would address issues relating to telecommunications connectivity, data insights, digital planning practices & innovation districts.

The 2 organisations released the Code for Smart Communities in Sydney, as part of Smart Cities Week Australia. They said it would set a new benchmark for urban development practices across greenfield communities, urban regeneration precincts & diverse institutional campuses.

Smart Cities Council executive director Adam Beck said the release of the code was an “important milestone after deep engagement with the development industry, technology companies, city shapers & all tiers of government.

“This is the first time a smart community has been defined in a way that can be practically applied. We went back to principles to build this code from the ground up.”

Green Building Council of Australia chief executive Romilly Madew said there was a strong synergy between the sustainable development outcomes articulated in the green star – communities rating tool and the enabling opportunities from technology & data to enhance community outcomes: “This work will provide us with the opportunity to ensure smart cities principles are embedded in green star as the rating system evolves to meet industry & global trends, and continues to deliver environmental efficiencies, productivity gains and health & wellbeing outcomes in our buildings & communities.”

Chris Isles, planning executive director at Place Design Group, a technical partner in the code’s development, said it would be a single source for planners, developers, communities & governments as they shape cities & suburbs.

Mr Beck said 2 projects would be the first to embrace the code’s principles:

  • Yarrabilba, a Lendlease community in Logan City, on the Brisbane fringe, set to be home to over 40,000 residents, and
  • Sydney Olympic Park, planned to grow into a 23,000-person community with more than 30,000 jobs.

Lendlease was the code project’s lead partner. Matt Wallace, managing director of its communities business, said: “Our customers are expecting more seamless connectivity in all aspects of their lives, from high-speed broadband at home to free wi-fi in the park.

“Our smart community flagship, Yarrabilba, has provided us with a platform to test & evolve a range of technologies to optimise people’s lives to create healthier, safer & more sustainable communities.”

In addition to the new code, the Smart Cities Council’s Smart cities explorer illustrates technology options, their place-based outcomes and relationships to the metrics of the new code.

Links:
Smart communities code
Smart cities explorer

Attribution: Smart Cities Council release.

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Te Atatu South centre plan scope up for approval

The proposed scope for a Te Atatu South centre plan and the approach to implementing it go to the Henderson-Massey Local Board for approval tomorrow.

The Heart of Te Atatu South Group & its agent, the Isthmus Group Ltd, completed survey work last year, and Auckland Council’s plans & places department has been co-ordinating preparation of the 30-year vision, and will set out a 10-year action plan.

Principal council planner David Hookway said in his report for tomorrow’s meeting that community engagement in November would lead to a plan that the local board would consider in February.

The project arose out of local community concerns expressed in a submission to the council’s 10-year budget & Auckland Plan 2050 consultation in March.

The Auckland unitary plan has nearly doubled the size of the local centre business zoning of the Te Atatu South centre, ringing it with by the residential terrace housing & apartment buildings zone & the residential mixed housing urban zone. “Considerable additional development opportunities have been enabled, reflecting the intention of the Auckland Plan development area for Te Atatu South,” Mr Hookway said.

The Auckland Plan says “access to Te Atatu South will be greatly improved by the completion of the north-western rapid transit corridor. Development in Henderson & the Te Atatu Peninsula is anticipated to encourage development opportunities in this area.” Te Atatu & Edmonton Rds, which meet at the heart of the local business centre, will feed the nearby motorway & rapid transit corridor.

Other council & local board strategies & plans for the area include walkways, trails & parks under the Henderson-Massey open space network plan 2015-25, the Whau walkway plan and the community facilities network plan August 2015.

Links:
Henderson-Massey local board, Tuesday 18 September at 4pm, Henderson Civic Centre, 6 Henderson Valley Rd:
13, Investigation into North-west community provision
Recommendation
North-west community facility provision investigation summary report
14, Te Atatu South local centre plan – project scope and approach
Recommendation
Attachment A – Te Atatu South centre plan area
Attachment B – timeline

Attribution: Local board agenda.

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Urban development authority on its way

Published 3 September 2018
This government & its predecessor have both seen a need for an urban development authority, and it’s about to happen.

Never mind that Housing & Urban Development Minister Phil Twyford’s new ministry, set up in June, still doesn’t have its own home in Auckland – the city of greatest crisis.

Never mind, either, that Auckland Council’s unitary plan largely became operative in November 2016, enabling far more intensification throughout the region’s suburbs, and that development based on that potential is starting to happen.

The authority would have the power to override the provisions of the unitary plan – chiefly, the rural:urban boundaries, created through Auckland’s urban growth forum in the 1990s to ensure infrastructure could be provided for a rising population and that development would be orderly, not willy-nilly sprawl.

Provision of infrastructure still needs to be orderly – that’s what underground pipe networks do – unless Auckland moves to smaller waste & water supply systems – water tanks as a standard feature of every home, systems to dispose of sewage inside the boundary (I wrote about such a project a quarter century ago).

Phil Twyford holds both the transport and the new housing & urban development portfolios. When the new Housing & Urban Development Ministry was announced in June, it was given a 1 August start date (but, in Auckland anyway, no independent accommodation) and an official start date for its operations of 1 October.

Mr Twyford said on its setting up: “Addressing the national housing crisis is one of the biggest challenges our government faces. The new ministry will provide the focus & capability in the public service to deliver our reform agenda.”

One of its objective is to launch an urban development authority to lead largescale urban development projects, confirmed by Mr Twyford last week, when he said he’d take a proposal to Cabinet soon.

“The Ministry of Housing & Urban Development will help us deliver our bold & ambitious plan to build much-needed affordable housing, and create modern & liveable cities ready for the future,” he said.

The 2017 version

In a 126-page discussion document the Ministry of Business, Innovation & Employment (MBIE) issued under the previous government in February 2017, the powers potentially available for an urban development project would relate to:

  • Land – powers to assemble parcels of land, including existing compulsory acquisition powers under the Public Works Act
  • Planning & resource consenting – powers to override existing & proposed district plans & regional plans, and streamlined consenting processes
  • Infrastructure – powers to plan & build infrastructure such as roads, water pipes & reserves
  • Funding – powers to buy, sell & lease land & buildings; powers to borrow to fund infrastructure; and powers to levy charges to cover infrastructure costs. An urban development authority would not have building consenting powers.

Support & opposition

Auckland Business Chamber head Michael Barnett supported the launch of this authority on Friday, as “a long overdue initiative”: “For the past 5 years Auckland has needed to build 14-15,000 new houses/year to keep pace with demand, but the most it has managed was around 13,000 consents in the year to July 2018.

“We are currently around 55,000 houses short. An authority that can speed up the delivery of the new houses Auckland desperately needs has been in the pipeline since the Government came to power last year.”

Mr Barnett said the Government should put the legislation to establish the authority through Parliament under urgency to ensure it’s operating by the end of the year.

Property Institute chief executive Ashley Church, on the other hand, said the institute had rejected the establishment of such an authority in 2016, and still rejected it: “Our position has not changed since that time and our fears, articulated back in 2016, that an urban development authority would ride roughshod over public consultation and the unitary plan are now being proved correct.”

If anything, he said (in 2016, and again), “the super-city provides a stark example of why a single authority isn’t the solution for Auckland. If the creation of a single authority was the answer to the housing problem, Auckland would now be well on the way to solving its housing issues. Instead, it hadn’t gone unnoticed that this property boom – the first since the creation of the super-city – was taking much longer to resolve than any previous boom since at least the early 70s.

“To be fair – that’s not all the fault of the Auckland Council. It’s also the result of strong migration & a strong economy. But I don’t think anyone gets the sense that Auckland Council ‘has matters under control’ – so the last thing the city needs is a new ’Soviet-style’ central planning agency.”

Links:
MBIE, February 2017: Discussion document on urban development authorities
MBIE, May 2017: Proposed legislation for urban development authorities
MBIE, September 2017: Summary of submissions on urban development authority discussion document

Attribution: Ministerial, Business Chamber & Property Institute releases.

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The wheels are turning down the southern rail corridor

Published 3 September 2018
The wheels are turning and transformation down the southern corridor to Hamilton is on the way. Alternatively, transformation is on the way up that corridor, from Hamilton to Auckland.

Presumptuous? For Auckland there’s a serious adjustment: Instead of looking at Hamilton as a place to extend to, Auckland needs to see the Waikato is an active & growing part of a larger matrix, where change will occur at many stops in multiple directions.

The NZ Transport Agency has a Hamilton-Auckland corridor plan – and it has another for Hamilton-New Plymouth. Auckland, if it sees a triangle at all, sees one encompassing Tauranga/Mt Maunganui.

Image above: The corridor, running 5km each side the rail line between Hamilton & Auckland.

It’s all very hard to keep with, but consider these points of discussion & action, in the last few days and into the next week.

Tomorrow, Auckland Council’s planning committee considers the Hamilton-Auckland corridor plan & its role in this. The recommendation is to endorse participation, and the new Auckland Plan 2050 development strategy as the basis for staff input.

The corridor plan stemmed from calls from Waikato councils for investment in a commuter rail service between Hamilton & Auckland.

Urban development authority ideas also enter picture

The committee will also need to start thinking hard, and quickly, about the Government’s plans for an urban development authority – not just as a twinkle in the eye but something likely to be in place this year.

Ideas for such an authority have been around for the last 3 years, promoted by former Housing Minister Nick Smith and sent through a consultation process in 2016-17 by the Minister of Business, Innovation & Employment (MBIE), and taken up by Phil Twyford, now Minister of Transport and also of Housing & Urban Development.

Natural development will cross the Auckland-Waikato border – Pokeno as an Auckland suburban outlier on top of being a growing Waikato business & dairy production centre is an example.

Report notes interdependencies

As Auckland Council senior transport advisor Szening Ooi says in her report to tomorrow’s committee meeting: “There are significant interdependencies between Auckland & the Waikato that cross local government boundaries. However, previous spatial planning along the Auckland-Hamilton corridor has largely been confined within these administrative boundaries.”

She said the plan was initiated by the Government, aiming to investigate opportunities to unlock & shape growth along the rail corridor, unlock the potential to connect communities and provide access to jobs in Auckland & Waikato towns along the corridor.

The corridor plan went to a ministerial briefing on 25 June, aimed at getting all partners in it to agree on the project scope, purpose, objectives, deliverables, timetable & ongoing partnership. That was followed by a 3-day enquiry-by-design workshop in Tuakau on 27-29 August, where the project partners developed a draft integrated spatial plan for the corridor.

The NZ Transport Agency board is due to consider the business case for the Hamilton-Auckland start-up passenger rail service in October. That ties in with electrification of the Auckland rail line to Pukekohe, building the third main rail track along the southern line and completing the city rail link.

Maori roles & gains

Ms Ooi said Waikato Maori – Tainui, Ngati Paoa & the Hauraki Collective – were partners in the project, and it presented investment opportunities for Tamaki Makaurau iwi as well: “Additionally, Maori will benefit if the project’s aims of improving housing affordability, providing employment opportunities & enhancing the quality of the natural environments along the corridor are achieved.”

Auckland Council staff have recommended the establishment of a mana whenua–iwi steering group to sit in parallel with the project’s steering group.

Pressure on urban boundary structure

A pressure point for the Auckland council is the Government desire to see more land released for housing both inside & outside the rural:urban boundaries agreed in the brand-new Auckland unitary plan, to improve housing affordability. This is expressed in the just-released Cabinet paper, Urban growth agenda: Proposed approach (see link below).

Ms Ooi said: “Through the project, central government has indicated that it aims to provide spatial plans that are more ‘minimalist’ and allow the market to ‘fill in’ & sequence development where possible, rather than through regulation.

“There is a risk that, through this project, central government could apply a top-down approach to addressing growth management in Auckland & the Waikato that could undermine Auckland Council’s approach to urban growth and be contrary to both the Auckland Plan development strategy & the unitary plan.

“The project’s focus is also to connect communities & provide greater access to jobs in Auckland & Waikato towns along the rail corridor. The project does not aim to displace growth from Auckland to Waikato but may have this effect as it provides growth opportunities along the corridor. This is not an issue in itself, but the potential impacts & subsequent responses need to be better understood.”

The timeline now:

September: Refine the plan and further test with key stakeholders, amend as required
Late October: Governance leaders consider proposed plan
Mid-December: Governance leaders consider the partnership design & refined list of projects; formal consultation & endorsements & implementation to follow.

The Waikato lead

Future Proof, created by Waikato public bodies, says on its website: “We estimate that there will be nearly half a million people living in Hamilton and the surrounding Waikato & Waipa districts by 2061. That means we will almost double our population in the next 50 years. We want to know our future by planning today.”

The Future Proof partners have produced ‘Future proof strategy, planning for growth, November 2017’. This updates the 2009 strategy & implementation plan. The partners are now working on the second phase of the update.

Links:
Auckland Council planning committee, agenda item 4 September 2018:
11, Hamilton-Auckland corridor plan
Recommendation
Attachments
Outcomes of the Wellington ministerial briefing on 25 June  
Cabinet paper, released in August 2018: Urban growth agenda, proposed approach
Future Proof, Hamilton to Auckland corridor study, December 2012
Future Proof
Future Proof strategy 2017 – summary
Future Proof strategy 2017 
Background reports

NZ Transport Agency, transport corridor plans:
NZTA, 31 August 2018: $16.9 billion investment in the future of NZ
NZTA, 31 August 2018: National land transport programme, 2018-21
NLTP regional summaries
Auckland land transport plan summary

Attribution: Council committee agenda, Cabinet paper, Future Proof.

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Unitary plan already steering Auckland housing toward intensification, says council economist

Less than 2 years after Auckland Council’s zone-changing unitary plan started to become operative, council chief economist David Norman concludes that it’s been a major cause of housing intensification.

On the other side of the equation – which most on the council worried about as it wrote a plan encouraging more brownfield redevelopment & less new greenfield development – the urban fringes have taken a lower share of new housing.

The third important factor in the change of housing impetus is that intensification has spread through suburbia.

And the fourth is that developers have paid close attention to transport routes, especially rapid transit stops.

Image above: Auckland Council chief economist David Norman presenting to the council planning committee meeting at the Orakei marae.

The map below: The red dots represent intensification points around the Auckland region and the purple patches represent intensification along rapid transit corridors.

Mr Norman released a report on the unitary plan’s impacts on residential development at Auckland Council’s planning committee meeting yesterday – held at the Orakei marae – and spent over an hour answering questions from the committee about it.

The one councillor who would certainly have questioned Mr Norman’s view was Dick Quax, who died of cancer at the end of May, aged 70, after long advocating the removal of the rural:urban boundary and questioning intensification as a housing solution. The election for his replacement closes on 13 September.

Yesterday’s quizzing of the economist was more about the detail, not about the politics of greenfield versus intensifying use of the existing urban footprint.

The unitary plan became largely operative in November 2016, and the council now expects it could be fully operative next year, once the remaining 13 appeals are settled.

The changing market shares

Mr Norman said in his report it took about 9 months to begin to see the plan affecting what & where new dwellings were consented.

“In the 10 months since new dwelling consents began to surge in August 2017, total dwellings consented are up 27% compared to a year earlier. Almost all of the growth in consents has been in brownfield (existing urban) areas, reversing the trend toward more greenfield development over the previous 7 years.

“More intensive typologies, specifically apartments & terraced/townhouses, have grown to account for 54% of all new dwellings consented, compared to 37% 2 years ago. A disproportionate share of this denser development is around the rapid transit network.

Mr Norman said his analysis “provides an antidote to the view that relaxing development restrictions on the fringes of the urban area is necessarily the best way to reduce the housing shortage. People by & large prefer to live closer to jobs, infrastructure that works, public transport, schools, shops & other amenities. As a result, developers are showing a preference for delivering development in brownfield areas.

“Land on the fringes is significantly cheaper. But once the lack &/or value of infrastructure and proximity to amenities is accounted for, the market is displaying a strong preference for brownfield development.”

The day most of the unitary plan became operative, it up-zoned thousands of brownfield (existing urban) properties.

“Altogether, the plan provided capacity for up to one million new dwellings although, at the time, only an estimated 422,000 were deemed to be commercially feasible for development. This feasible growth was anticipated to be spread across brown & greenfield areas in a roughly 2:1 ratio.”

The chief economist’s unit at the council had estimated an upturn in new residential building consents would begin around April or May 2017, but this didn’t start until August. Since then, growth has been strong.

However, Mr Norman said little information was available about the effects of the plan on development patterns: “This report provides information to support future discussions & decisions about important issues such as whether to remove or relax the rural:urban boundary.”

How does he know there’s been a change in development emphasis?

“Building consents for new dwellings grew remarkably steadily from 2012 through to April 2016. This pattern broke, and growth plateaued, 6 months before the plan became operative in part. Anecdote suggested that many investors had bought brownfield land in advance of the plan becoming operative and were waiting to lodge consents for more intensive development once the plan was operative.

“During the period from November 2016 to July 2017, the first few months of the plan being operative, consent growth was even weaker, against the backdrop of a housing shortage approaching 40,000 in Auckland at the time. The data indicates that this was because developers were still making plans for more intensive development.

“Residential construction began to surge in August 2017. The number of new dwellings consented in the 10 months to May 2018 is up 27% over the same 10 months the year before, and annual consents were only 5% below the all-time peak in June 2004. This annual total is despite a much tighter 2005 Building Code regulatory regime & building consent authorities’ response to the leaky buildings crisis.

“There is significant evidence to suggest the sudden resurgence in consenting activity is the result of the plan beginning to work:

  1. Brownfield areas dominate consents growth: 90% of all growth in new dwellings consented in the 10 months to May 2018 (since the upturn began in August 2017) is in brownfield areas where the plan delivered the bulk of potential for greater development
  2. The trend toward green and away from brownfield growth has been reversed: The share of total new dwellings consented in brownfield areas in the 10 months since August 2017 has grown from 62% to 69%. This has reversed a trend of declining brownfield development as a share of building consents over the previous 7 years
  3. More intensive building typologies enabled by the plan are being adopted: Terraced houses & apartments were 54% of new dwellings consented in the 10 months to May 2018. In the 10 months to May 2016 (ie, the comparator 10-month period before the plan was passed), it was just 37%
  4. In the urban areas, the desired compact city is emerging: In the urban area, around 66% of new dwellings are multi-units, precisely what the plan aimed to deliver.

Further, Mr Norman said, “a disproportionately large number of dwellings are being consented in rapid transit network catchment areas – defined as living within 1500m of a train station or northern busway bus stop. This highlights that people value rapid transit access, and that development enabled by the plan is responding:

  1. The share of multi-unit dwellings consented in rapid transit network areas is 16 times higher than the catchment’s share of Auckland’s land area. The rapid transit network catchment covers only 2.6% of Auckland’s land area, but accounts for 42% of all multi-unit dwellings consented in the last 10 months
  2. 11% of standalone homes were consented in rapid transit network catchments. This is 4.3 times more than the catchment’s share of land area
  3. 81% of all dwellings consented in rapid transit network catchments in the last year were multi-unit, helping to deliver the intensification that characterises transit-oriented development
  4. Overall, 40% of all dwellings consented in the urban area were in the rapid transit network catchments, even though the catchments account for only a quarter of Auckland’s urban area.

Mr Norman said this analysis highlighted that people by & large prefer to live closer to jobs, infrastructure that works, public transport, schools, shops & other amenities. As a result, developers had revealed a preference for delivering development in brownfield areas.

“These findings provide evidence that counter the view that relaxing development restrictions on the fringes of the region, where few amenities exist, is the best way to reduce the housing shortfall. Land on the fringes is cheaper. But once the lack &/or value of infrastructure & geographic proximity to amenities is accounted for, the market is displaying a strong preference for brownfield development.”

Mr Norman said the central city was still the main target for developing apartments, but they were also becoming more common in the Albert-Eden ward and just across the harbour bridge in Takapuna & Devonport.

The exception was the Upper Harbour ward, where all 3 types of development were occurring. That ward includes Hobsonville, where all new housing is more intensive than the historical norms, including standalone homes.

Finally, there are changes in the south: “There are relatively large numbers of multi-unit dwellings being consented in the southern isthmus & southern local board areas. This suggests increased delivery of typologies in areas with larger Maori populations. Multi-unit developments are often cheaper on a per-unit basis than standalone housing, which may provide greater access to warm, dry modern housing for Maori in those areas.”

Another statistic, this one relating to the shortage of housing:

“In the period from April 2016-August 2017 we only saw 7.5% total growth in consents – 6%/year. What we’re seeing since then, in the 10 months to May 2018, is a 27% increase. Code compliance certificates are up 30% over that time period.

“We’re now generating code compliance certificates at a faster rate of increase than building consents, which means we’re catching up.”

Councillors’ questions

Cllr John Watson said intensification was one side of the equation, the other was bringing the price down: “Prices haven’t come down, they’ve probably gone up.”

Mr Norman: “A number of things colluded. We saw loan:value restrictions on investors. Investors are actually still in the market, but it’s largescale investors. Recent date shows foreign investors are still involved.”

At the same time as constraints were introduced, prices peaked in Auckland: “These 3 factors show they have played a part in decreasing prices. You also face the construction capacity constraints, which mean the cost of construction is going up 6-7%/year. About 4-5 floors, the cost is $6-7000/m² against $2500/m² for a standalone home.

“What is encouraging is house prices have not continued to accelerate, and I think the unitary plan is an important factor in that.”

Mr Norman said one factor affecting the provision of new homes – the time it takes to build – was much different because of the switch to multi-units: “Typically it was 6-9 months, a multi-unit can be 18 months.”

The value of special housing areas

Cllr Wayne Walker questioned the brief era of special housing areas introduced by former housing minister Nick Smith: “It dramatically escalated the value of land, sold & onsold by people who weren’t really interested in building on it. It’s in a situation where it’s not generating any housing and has escalated the value of neighbouring land.”

Mr Norman: “My personal view is that we probably didn’t get as much development out of special housing areas as we thought we’d see. The intent was around accelerating resource consent applications, but if I were to do it again, I’d require them to build in a certain time.

“What is different about what I’m talking about today [the widespread intensification], this is not land where you’ve had to get a private plan change request. This is a broad plan that affects the entire city, it immediately creates competition. Why should I pay this amount when I can get land cheaper 2 blocks over?

“What makes property valuable? You talk about the rural:urban boundary. I’ve seen very little evidence that accounts for land price differences inside & outside the rural:urban boundary. What we do know is that infrastructure makes it liveable [inside the boundary] and people pay for that.

“I’m far less convinced that we’ve been in a speculative bubble. We’ve had a huge increase in population and prices go up, helped by low interest rates. I think that is a factor.”

State of the construction sector

Mr Norman had some interesting observations on the calamity of the moment, the collapse of one apartment builder, Ebert Construction Ltd, into receivership and the questions being raised about the state of the vertical construction sector.

Mr Norman said he worked in the construction sector for several years, including 2 years as BRANZ (Building Research Association) senior economist, and built his own house. On the players in construction, he said: “These are businesses, like in every other sector, sometimes they make good choices, sometimes they don’t. It is not my view that it’s central government’s role to hold the hand of business.”

Taking a longer-term view, he said it shouldn’t be about keeping spending down, and the solution shouldn’t rest solely with the Government. The sector should use the spotlight on it as an opportunity to improve project management: “We are not talking about victims here.”

Nimby protests versus over-dominating structures

Cllr Chris Fletcher raised a specific issue which she suspected might be a more common anomaly in the unitary plan – the redevelopment of a former nurses’ home on Banff Avenue, Epsom, by new owner Housing NZ. She said the street had 40 bungalows, a church & a small church school. Understandably, she said, Housing NZ “are going to go for maximum yield”.

Cllr Fletcher said the neighbours would have been happy with 3-storey development, but Housing NZ intended to build to 5 storeys. Intensification was “a wonderful trend – but nor do I want to see it at any cost, and I want to see the continuing public support for the process.

“But if we have an anomaly, what is the route we take? I don’t believe it’s just nimbyism, they’re happy to see 3 storeys but not 5 storeys in a 3-storey street.”

This was a question for council plans & places general manager John Duguid, who thought the specific case was “probably long past the point where we can do anything. In other cases I certainly invite councillors & others to bring them to my notice and we can respond.”

When might prices fall?

Cllr Fa’anana Efeso Collins raised a question which is on the other side of the affordability equation from the clamour for an urgent increase in supply: “At what point – or what are the conditions – that will lead to a fall in house prices? Surely at some point there must be a fall in house prices.

Mr Norman: “Short of an economic meltdown that I am not forecasting, I do not see a reason why house prices should fall immediately or in the short term. I do think we will see 2 things. Firstly, why not a fall? The basics of supply & demand, we haven’t had the shortfall. You’ve got this floor propping up prices, that’s not going to disappear any time soon.

“The cost/m² is a lot higher in apartments. We are seeing a subtle change in typology. Over the last 5 years the average dwelling size has fallen from 210m² to 172m², a 38% reduction, and that’s because of the switch in typology.

“100m², we were able to do that before and live quite comfortably. A shortfall this size [which he estimated at about 45,000 homes], there is no incentive for anyone to build cheaper – why would you leave money on the table?”

Mr Norman’s second point was that a focus on building more expensive homes for greater profit ought to open up a market for different types of housing: “If the market would only deliver houses at $850-900,000, we’re potentially opening up a different type of housing – you don’t want a second living room, you just want to be warm & dry.”

Cllr Collins: “I accept the position but I think we have to accept there are people who will never attain that dream.”

Catering for large families

Cllr Desley Simpson asked what was being done to provide houses for large families, “given we are the biggest Polynesian city in the world.”

Mr Norman: “The way I estimate my housing shortfall is to calculate the number of residents in a household. Households are shrinking in Auckland and we’re seeing the number of people/household increasing, that’s because of our demographic input. So we’re very aware of the fact we are increasing housing and it affects some communities more than others.

“We’re also seeing it in terms of the typology. Our standalone homes are too large at an average 230m², but it is the way people are choosing to live.”

However, he had seen 5-6 bedroom houses where people were banding together to form bigger households.

Links:
Chief economist’s report to planning committee, 7 August 2018: 14, Impacts of the unitary plan on residential development   
Live stream of David Norman at planning committee, 7 August 2018

Attribution: Norman report, committee meeting.

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Twyford creates new housing & urban development ministry

Housing & Urban Development Minister Phil Twyford.

When the new Government allocated portfolios last October, Labour’s Phil Twyford won housing & urban development and the separate transport role.

On Friday, he announced that housing & urban development would get its own ministry, to be established on 1 August, operating from 1 October.

Initially, the Government will move functions from existing agencies, and will look at using funding from their existing operational budgets:

  • From the Ministry of Business, Innovation & Employment: the housing & urban policy functions, the KiwiBuild unit and the Community Housing Regulatory Authority
  • From the Ministry of Social Development: policy for emergency, transitional & public housing, and
  • From Treasury: monitoring of Housing NZ & the Tamaki Redevelopment Co Ltd.

The changes won’t affect where people go to for help with housing. The Ministry of Social Development will continue to assess people’s need for housing support and manage the public housing register.

The aim is for the new ministry to help deliver on the Government’s priorities of making housing more affordable & cities more liveable. Mr Twyford said: “Addressing the national housing crisis is one of the biggest challenges our government faces. The new ministry will provide the focus & capability in the public service to deliver our reform agenda.

“Too many New Zealanders are hurting because of their housing situation. Many are locked out of the Kiwi dream of home ownership. Others are homeless or suffering the health effects of poor quality housing.

“The new ministry will be the Government’s lead advisor on housing & urban development. It will provide across-the-board advice on housing issues, including responding to homelessness, ensuring affordable, warm, safe & dry rental housing in the private & public market, and the appropriate support for first-homebuyers.”

Mr Twyford said the new ministry would provide the Government with strong leadership & fresh thinking. It would also end the fragmented current approach caused by involving a number of agencies.

Then he rattled off 7 aims of the new government:

  • Ramping up efforts to house the homeless
  • Building affordable homes through KiwiBuild
  • Modernising & building more public housing
  • Reforming the tenancy laws to make life better for renters
  • Setting minimum standards to make rentals warm & dry
  • Adjusting the tax settings to discourage speculation, and
  • Setting up an urban development authority to lead largescale urban development projects.

In sum, he said: “The Ministry of Housing & Urban Development will help us deliver our bold & ambitious plan to build much-needed affordable housing, and create modern & liveable cities ready for the future.”

Earlier stories:
25 March 2018: Unitec land transfer kicks off KiwiBuild
23 May 2016: Is it really a faraway boundary that’s raising inner-city house prices?
8 November 2015: Twyford talks ideas which unitary plan & council funding review likely to resolve

Attribution: Ministerial release.

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Australian research attributes high proportion of housing cost to regulations

Advocates of removing urban growth boundaries have hailed a research paper on the effect of zoning on house prices, issued by the Reserve Bank of Australia last week.

The research paper, by Ross Kendall & Peter Tulip, was published in the bank’s discussion paper series “intended to make the results of the current economic research within the Reserve Bank available to other economists”.

The bank noted: “Its aim is to present preliminary results of research so as to encourage discussion & comment. Views expressed in this paper are those of the authors and not necessarily those of the Reserve Bank. Use of any results from this paper should clearly attribute the work to the authors and not to the Reserve Bank of Australia.”

The authors wrote in their abstract: “Zoning regulations provide benefits, but they also restrict housing supply and hence raise prices. This paper quantifies their importance by comparing prices to the marginal costs of supply at different points in time. For detached houses, marginal costs comprise the dwelling structure & the land that other home owners need to forego.

“Relative to our estimates of these costs, we find that, as of 2016, zoning raised detached house prices 73% above marginal costs in Sydney, 69% in Melbourne, 42% in Brisbane & 54% in Perth.

“Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney. We emphasise that this is not the amount that housing prices would fall in the absence of zoning. The effect of zoning has increased dramatically over the past 2 decades, likely due to existing restrictions binding more tightly as demand has risen.”

In their introduction, the Australian researchers wrote: “Some government policies, which we will refer to as zoning, restrict the supply of housing. Examples include minimum lot sizes, maximum building heights & planning approval processes. Although these restrictions may confer benefits, they also raise the price of housing. This paper attempts to quantify the effect of zoning on housing prices in Australia’s 4 largest cities.

“Anecdotal evidence suggests that zoning can have a huge effect on land values. For example, a 363ha site in Wyndam Vale (40km west of Melbourne) increased in value from $A120 million to $A400 million following its rezoning from rural to residential.

“Examples like this are common. Such large increases in values as a result of zoning changes are inconsistent with the view that a physical shortage of land itself is the main cause of high land values & housing prices – and instead point towards a high ‘shadow price’ of government permission to build dwellings as a likely explanation. It is difficult, however, to gauge how representative these anecdotes are, or to analyse how they change over time or place.”

3 issues – urban footprint, zoning & construction rules

3 planning issues are involved, and appear confused here. One is the allowance (& support) for expansion of the urban footprint; the second is the zoning confining property activities to specified areas. Third are the many rules on construction, such as height:boundary.

In the New Zealand context, Auckland has had an issue with the urban growth boundaries instituted by the region’s local bodies in the late 1990s, which made it nigh on impossible to expand the urban footprint.

The Auckland Regional Council was most opposed to expansion, while the Manukau & Waitemata territorial councils pressed the case for enabling development to expand.

The Auckland City Council saw the boundary constraint as an aid to intensification, which suited the council for the region’s central isthmus.

With inadequate boundary expansion & inadequate forethought given to intensification, the immigration spike of 2003-04 under the Labour government was met by an inadequate supply of new homes.

But the net inflow during that spike peaked at 35,000/year. This time round, the inflow began to surge in 2013, reached 60,000/year in August 2015 – compared to a total net inflow of 65,000 over the previous 7 years – and reached 70,000/year in October 2016.

It’s easy to see that housing supply could have caught up during that 7-year immigration slump, but that’s asking a sector which traditionally expands when the sun’s out to do so during a downpour.

The supply of money increased when the US introduced its quantitative easing programme (and other countries adopted similar measures) as a means of exiting the global financial crisis of a decade ago, but it also slashed interest rates.

This meant people could borrow more; it also meant prices would rise.

Attributing a rise in house prices to “zoning” (or, I think in the Australian examples as well as in New Zealand, inadequate expansion of the urban footprint) is irrational if these other causes are ignored, and it’s difficult to see in this Australian research what value is placed on the positives of regulation or on other economic factors such as the contribution of low interest rates.

Auckland’s unitary plan

As for zoning in the New Zealand context, Auckland’s unitary plan – the combination of both regional & district plans that preceded it, and updated – has provided a far greater capacity for intensification throughout suburbia, as well as providing for greenfield expansion. But that plan is new, and it will take time for the effects to be felt.

The next question concerns the orderly & efficient provision of infrastructure to enable intensification & expansion – one of the 2 reasons for creating the urban boundary. The other reason was to curtail urban encroachment into Auckland’s countryside, and that still hasn’t been dealt with sensibly.

Link:
Reserve Bank of Australia, March 2018: The effect of zoning on housing prices
Earlier stories:
19 January 2017:
Building consent highs still don’t match migrant demand
23 December 2016:
48% of net migrant inflow stops in Auckland
22 November 2016:
Migrant inflow tops 70,000/year
31 January 2014:
Migrant inflow strongest since 2003

Attribution: Reserve Bank of Australia research paper.

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