Guest Post – Phil Hayward on Auckland and the RMA reforms

by Phil Hayward

The Auckland Unitary Plan Submission process is underway and we should soon know whether it is a charade with outcomes pre-determined and impervious to evidence. The usual suspects are also claiming once again to be able to “debunk” the latest Demographia Report on housing affordability, and even the government is embarrassed over the dismal ineffectiveness of its trumpeted “Housing Accords”.

My previous essays on this forum could usefully be read or re-read now by anyone interested in this subject.

The prevalent mythology is that Auckland already sprawls too much at low density, already has built too many roads (and that is why it is congested), is letting the floodgates re-open too much towards more new sprawl and not enough new intensification (60% of growth to be via intensification is the plan), the ramp-up in building now is major, and intensification will provide for affordability.

In fact, Auckland is around 3 times as dense as Boston, Atlanta, Indianapolis, Nashville and dozens of other US cities; is the second densest city in the Anglo New World after Toronto (pop. 6 million); is one of the densest first world urban areas of only 1 million people; is close to Amsterdam’s density and is denser than Lyon, Marseille, the Ruhr Valley and many urban areas in France and Germany, especially those with around 1 million people or less.

We have never actually had US style low density sprawl; very little of our suburban development was ever even ¼ acre sections. That always was a “dream” for most, and now nearly every such section has already had townhouses built on what was the backyard. In the USA, suburbs are common with minimum lot size mandates of 1 acre to 4 acres.  

Michael Bassett and Luke Malpass (NZ Initiative) “Priced Out: How NZ Lost its Housing Affordability” (2012) show that NZ and Auckland were during the period from the 1960’s to the 1980’s, building as many as twice as many new dwellings as now. Most of that was greenfields suburban development, albeit at considerably higher density than US-style sprawl. We now have congestion problems because there was inadequate planning of road capacity, not because we did the roads we did.

I have estimated from TomTom Traffic index data and Google Earth imagery, that Auckland has 1/3 the highway lane miles and 1/5 the arterial lane miles of Indianapolis, which has a similar population. Indianapolis in the TomTom Traffic Index, scores a congestion delay of 15 minutes per 1 hour of driving at peak (other comparable US cities are similar) versus Auckland’s 45 minutes. Of course its house price median multiple happens to be stable at around 3 as well, in spite of being truly low density, unlike Auckland.  

A very new UN Habitat Report has a table of city road network intensities that shows Auckland to have one of the first world’s lowest: see page 54:

Tellingly, Amsterdam, one of the compact city advocates favourites, and similar overall urban density to Auckland, has a city-centre road network 2.5 times more intense than Auckland’s.

The frequently-heard argument that fringe containment is justified by the need to “better utilise existing infrastructure” is made in very bad faith, given the impositions extracted from developers of intensification and brownfields projects. Councils are probably partly motivated to pursue policies of fringe containment because they can “double dip” regarding the funding of infrastructure in existing built areas, but can’t do this for greenfields growth. Infrastructure in existing built areas, including its maintenance and renewal, is supposed to be funded by rates past and future. However, Councils are effectively shaking down developers to secure funding for what is actually maintenance and renewal costs.

Growth containment advocates claim that infrastructure costs and hence local tax/rates burdens will be lower in the long term if we pursue a policy of intensification rather than continued greenfields growth. There is no evidence to support this assertion. The NZ Productivity Commission Report on Housing Affordability included some references that were at least inconclusive. They did not mention “Population Growth, Density and the Costs of Providing Public Services” by Helen F. Ladd (1992)

From the summary:

“…The study balances the engineering and planning view that greater population density lowers the costs of providing public services by documenting a U-shaped relationship between spending and density; except in sparsely populated areas, higher density typically increases public sector spending…”

Wendell Cox and Joshua Utt (2004) “The Costs of Sprawl Reconsidered: What the Data Really Show”, reach a similar conclusion:

“…The highest density municipalities have higher than average expenditures per capita…”

A “planned from scratch” high density city might have lower infrastructure costs than a lower density city. But we are not talking about a city “planned from scratch”. We are talking about a city that already exists and is already not actually low density in its built form. Intensification, and the addition of infrastructure capacity for it, involves extremely high costs, of access, disruption, land acquisition, demolitions of existing structures, higher capital intensity per unit of floor space serviced, and so on. This is especially the case in cities where “geographic difficulties” add to the complexity of development. This is probably the major cause of the infamously low productivity of the property development sector in NZ – the forcing of so much of their activity into locations where the most severe operating difficulties are imposed on them.

The crisis that is taking place all over the world with local governments claiming they are running out of money and “cannot afford any more infrastructure for sprawl”, is almost certainly the result of wastage of ever-more money on public transport systems that enable only a fraction of the travel needed in a modern economy. The graph on page 9 in this paper, of growth in NZ public transport subsidies versus growth in ridership, speaks volumes:

Doubling down on this lunacy is only going to make things worse, not better.

Compact city advocates argue that increased public transport mode share represents a net gain worth all the other costs of our policy. The reality is that in all cities apart from outlier extremely high density cities in countries with different cultures and actual lack of land space, the subsidy cost per person km of travel on public transport is around 20 to 30 cents: in Wellington and Auckland it is around 30 cents (Booz Allen Hamilton 2005). However, the marginal cost of additional riders (if any), achieved by way of heavy investments in rolling stock, staff, and by way of increased service frequency and route coverage, is many times higher than this. This marginal public cost per person km of travel is many times higher than the cost, prior to mode shift, of the car travel that preceded it. In fact the public cost of road subsidies and externalities to driving, is less than 10 cents per person km of travel – and the (alleged) externalities, the bulk of this, are not part of the burden of taxation and public spending.

A counter-argument from compact city advocates, is that they will succeed in reducing “housing plus transport” costs. This is nonsense: the price of housing in efficient locations embodies a capitalised saving on transport costs and time. Therefore it is impossible to reduce “housing plus transport” costs with any policies that force up the cost of all housing! The same “transport cost savings due to location” are capitalised into values anyway – all that has happened is that the “housing” component of the cost is higher than before!

Time does not permit going into the failures of statistical objectivity that underlie “studies” that claim the opposite of this. I have authored critiques of several such studies.

The Auckland Council was requested by the government more than a year ago to provide evidence for the assumption that intensification provided savings in infrastructure costs. It is likely that they are concealing their findings to date and postponing publication of the expected Report indefinitely (or until it is fudged to order). One or two honest Councillors are hopefully going to get to the truth soon.

60% of new growth to be via intensification is impossible to achieve. Excellent submissions to the Council from Fraser Colegrave, Phil McDermott, Patrick Fonteyn (and probably others) all working independently of each other, reveal that the Auckland Planning Dept has made flagrant and infantile errors in its calculations of the intensification potential of most meshblocks in Auckland. But flipping an “urban sites” market into the condition of a speculative one rather than one where decisions are made according to functional requirements, will ensure that sites do NOT get developed to maximum utilisation, rather than ensure that they DO. In fact there has already been reportage of this phenomenon in Auckland:

From the McKinsey Institute’s latest Global Report on Affordable Housing: in London, 45 percent of land with permission to be developed remains idle. The reason for this is that in “created scarcity” urban land markets, site owners are thinking like speculators, not like “producers”. Why should they even bother to develop their site to maximum potential, or sell it, when its value already embodies the “rights of development” and that value is going up? Developers risk is increased; they have to pay the site vendor a value that already represents the site’s maximum potential.

Ironically, Houston, Dallas and Indianapolis are examples of cities today where impressive levels of intensification in the right places is occurring, all for good sound functional reasons, and the capital available for building “up” is higher due to the very low site acquisition costs. The means of making an income in property in urban land markets that have not been rigged by the local planners, is by providing actual floor space at a competitive price where there is a demand for it. No scope for unearned, zero-sum gains from unimproved sites.

Manhattan’s famous skyscraper boom and economic rebalancing from manufacturing to “financial services” occurred under conditions of rapid, automobile-based city spread – New York urban area spreads at some of the world’s lowest urban densities for dozens of miles East, North and West of Manhattan and the famous old inner suburbs of the municipality of NYC itself. Had New York always had London or Auckland policy this would never have happened.

It is a myth that intensification will provide the affordability lost in the process of increasing economic rent in urban land. In reality, the correlation between urban density/average housing space per household, and median/average housing cost, runs in the direction of higher density/lower average housing space = higher median/average housing cost. This is because as long as the superabundant lower-cost land in non-urban uses is denied to the urban economy, economic rent increases faster than space is traded off by households. If that superabundant land supply is available to the urban economy, the opposite occurs: real land rent falls faster than households increase their consumption of space as incomes rise.

This is why you get cities at the opposite ends of the density spectrum, where the median multiple is “15”, average housing unit floor space is 60 square metres, and density is 26,000 people per square kilometre (due to building “up”) – versus a median multiple of “3”, average housing unit floor space of 250 square metres and density of 1,100 people per square kilometre. “Site rents” in the former, are literally thousands of times higher than in the latter.

Our “Housing Accords” and the alleged ramp-up of supply of housing is possibly an outright stitch-up that presents an appearance of doing something about the problem, but does not represent a credible threat to the vested interests in maintaining high site values, rents and first home buyer mortgages. It is not remotely “liberalisation of the supply of land for housing”. It is merely a token expansion of a quota scheme where the owners of the rationed resource are still able to price-gouge as much as they ever could. It brings forward some of the development that would have happened anyway by giving the developer/site owner the incentive of a fast-track process if they “do it now”. There is no genuinely competitive effect and the property-investment and finance sectors know this. They can bank a little more profit by being able to over-ride NIMBYs (and the NIMBYs are going to lash back electorally in due time).

Spain’s housing bubble involved oversupply as well as price gouging in land for development. It is nonsense that this situation in Spain was “lasses faire gone mad”. The regulatory quota pipeline (found by academic analysts to be 7 to 10 years long) was the cause of all the chasing of gains, including by local governments chasing revenue in fees and levies on development. But NZ is nowhere near that point. All this alleged “ramped-up supply” from the Accords is still far too little, far too late, even without recognising that you need market freedom, not a quota system, period.

We are going to crash out of this one day, not manage it by Ten Year Plans for housing supply, and all the mortgage borrowers who end up in negative equity on mortgages taken out since 2008, can blame the current government. It gives me no pleasure to say that the 1999 – 2008 Clark government no longer owns this bubble. In fact in 2008 prices had peaked and were falling and could have been allowed to continue to do so under the sort of reforms advocated by (near-PM in 2005) Don Brash from as far back as the 1990’s while RBNZ Governor. Our current government has overseen significantly more obscene levels of unaffordability even in Christchurch where they have had emergency powers for more than three years, which they have exercised as if they were being run by Auckland Council’s Planning Department.

For a National Party Housing Minister to have internalised the utterly discredited ideology of Soviet Planning to the extent that he makes statements like “Councils must release more land in line with population growth estimates” shows how illusory the “triumph of neo-liberalism and faith in market freedoms” actually are and how weakly National really is attached to their own alleged political heritage.

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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

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