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.

 


THANK YOU for being a subscriber. Because of you Whaleoil is going from strength to strength. It is a little known fact that Whaleoil subscribers are better in bed, good looking and highly intelligent. Sometimes all at once! Please Click Here Now to subscribe to an ad-free Whaleoil.

  • Jimmie

    I would suggest that several reasons exist for houses being easier/quicker to build circa 1960’s.

    1 Building Consent/Code Process didn’t exist/or minimal at best.
    2 Simple building process. Many modern technologies didn’t exist/early infancy. (Think insulation/double insulated windows/modern finishes etc.)
    3 Lower expectations by owners. Fixtures and finishes were all standard and simple. Max 1 bathroom per house. Wiring fairly simple circuits.
    4 House sizes. 100m2 3 bedroom house was probably standard back then. Maybe an outside garage if you’re lucky.

    There will be other reasons like cost of materials being cheaper as well but that’s a few for starters.

    • Whafe

      Jimmy, I agree with you, points 2 – 4 are correct, times have changed, the fact these points have become larger, more complex is not the main reason, it is your point 1 along with the RMA etc is stifling forward progress….

    • chwaga

      Agree..the buiding consent/code practice was at the best minimal. One only has to ask for the Building file / property file at Council to see this. A very thin document compared to the doorstop of today. When I started as a young surveyor in the 1960’s there was no RMA just some dedicated subdivision legislation.. It was not until the RMA was introduced in the early 1990’s and planners became involved that the costs sky rocketed. Until then the work was carried out by dedicated subdivision officers that understood land subdivision

      • Cadwallader

        The RMA was heralded as an “equity-based” set of laws, i.e. good for everyone and in everyone’s best interests. The problem is that with all utopian intentions someone ends up paying. NZ as a country is paying for the “equity” created by the RMA as no matter how many $$$$ are added to a developer’s costs these costs filter through to the end consumer. The costs are in the form of levies (NB The LGA 2002) specialists reports, lawyer’s costs, etc..instead of being good for all it is an imposition and a fine on innovation. It has to go, not in a piecemeal fashion but in totality. The Common Law remedy of Private Nuisance endures to protect environmental concerns. The RMA is a superfluity NZ can ill-afford to persist with.

    • David Moore

      This is an important point when looking at the ever increase price of houses. Comparing a ‘house’ from 1960 to 2015 is highly misleading. A house in 1960 was almost certainly a very basic 100m2 3 bed/1 one affair with very little extra. Now days it’s more likely as not a 4 bed/2 bath with heat pumps, insulation, design kitchen, fiber internet, decks, with a landscape garden and double internal garage.

      The way we build houses is largely unchanged too, technology really hasn’t made anywhere near the impact on house building that it has in, say, car manufacturing, esp in NZ. This is know as baumol’s cost disease.

      • philbest

        But housing, as long as the free market process is not interfered with, does exactly what cars and TV’s and computers and appliances do: becomes bigger and better for the same or lower real cost. This was true in NZ up till 1998. It is still true in median multiple 3 cities, of which there are a few dozen in the USA.

        Even the price of urban land itself rises slower than incomes as long as there are no growth boundaries. It is a great idea to spend some time looking at Real Estate sites; don’t just keep arguing about statistical approaches and prima facie factors. Look at what you get for your money, on RE sites. Median multiple 3 cities have bigger and better quality fringe McMansions on many times larger sections, for half Auckland’s price; they have nicer townhouses near the CBD for 1/5 Auckland’s price; and they have nicer apartments downtown for 1/5 Auckland’s rent.

        Here is an RE site for Houston, filtered for results between $160,000 and $260,000:

        http://www.realtor.com/realestateandhomes-search/Houston_TX/price-160000-260000

        Here’s condos and townhouses between $60,000 and $180,000:

        http://www.realtor.com/realestateandhomes-search/Houston_TX/type-condo-townhome-row-home-co-op/price-60000-180000

        It can be a really fun game doing this. Try the French Riviera – it is not as expensive as Auckland.
        If you could find Auckland RE listings for circa 1995 it would look almost as reasonable as Houston now. This is an entirely self-inflicted problem on the part of self-deluded people.

  • Whafe

    Absolutely fantastic post, a must read for all in sundry, along with all our politicians.

    The council has the ability to run rough shod over sound thinking, because of a myriad of spin doctors and an MSM that are more or less spin doctors…

    Mediocrity is the killer of many vitally important topics…. I despise mediocrity!

  • Not Clinically Insane

    Would be all very uncomfortable reading for the Green Taliban….. Plenty of their myths being debunked right there

  • Reid

    When Key first got in I made two tentative observations about him: he’s competitive and he’s lucky. As time went by it seemed obvious to me that what Key had decided was that he wanted to best Hulun at being “the best PM NZ’s ever had” and he’d decided to do that by eschewing his duty to the NZ public of doing the correct thing vs doing the popular thing.

    By never for example discussing the real root cause of the housing issue: 40,000 new families entering NZ each and every year with money all wanting to live in Akld, Key cemented National’s hold in NZ’s largest political market. At the cost to the rest of us of a two-speed economy and to an increasing number of Aucklanders who are going to have their live plans ruined when the unsustainable level crashes leaving them in negative equity.

    As the article says, National now own this bubble, and they could have easily used the excuse of the GFC to reign it in, leaving us all in a much more secure position now had they done so in 2009.

    But they didn’t. And that’s why I’ve never rated Key and I never will. Politics is not about being popular, it’s about doing the correct thing. And frankly, Key is as much of a traitor to this country, as Hulun was.

    • Cadwallader

      1 40,000 new families entering NZ each year?
      2 Two-speed economy?

      Point 1: Please allude to the evidence of this.
      Point 2: Have you visited the regions lately? NZ unlike Australia does not have a two-speed economy. Check out Taranaki, South Canterbury and Central Otago then add them to your Auckland equation.

      Please add to your position by producing even flimsy proof of a “crash” in values. From time-to-time there are adjustments in housing values I agree, but a crash? In 2008 a “crash” (to adopt your emotive term) was predicted by numerous commentators, did it happen? I don’t think so.

      It is too heady a prospect to swallow negativity at this time. Is Key a lucky man? I think he is, not lucky about his external circumstances but lucky he was persistent, optimistic, resilient and intelligent. Luck is not an accident of birth it is an attribute which all of us can learn.

      • Donald

        As it turns out Reid slipped an extra zero in. The average net migration to NZ over the last ten years was 12,000 p.a. Subtract the 1,200 p.a. Australians who migrated here by right and we have “let in” 10,800 immigrants. Ignoring the fact that 27% were on student visas and 46% on time limited work visas (many of which are single people working Christchurch) let’s pretend they were families. 4,000 families would be closer to the mark. Only one order of magnitude out.

        This is about housing supply not immigration.

        • Cadwallader

          Thanks. It didn’t look right to even my untrained eye. I suppose his “error” is revelatory of some sort of an agenda.

          • Donald

            Doesn’t have to be. I have followed some of these arguments over the last couple of years and have found that most people find it hard to follow the arguments in favour of liberalising housing supply. The arguments aren’t that hard but the weight of the establishment is firmly against supply-side reform notwithstanding all the posing of the current government. It’s not even a left-right thing: Labour aren’t very keen on it either.

            I find most people find it easier to argue in favour of demand side reforms such as immigration control, CGT, bans of foreign buying, forcing people to live outside Auckland, raising the OCR etc

            Reid’s comment is quite typical I’m afraid.

          • philbest

            “….most people find it easier to argue in favour of demand side reforms….”
            None of which result in affordable housing while you still have the growth boundaries. Not on the evidence, anyway. My favourite illustration, is Liverpool and other UK cities that have lost population and jobs like Detroit for decades and yet still manage to have house price median multiples of 5, 6, 7 and above. Detroit’s median multiple of around 2 (and it has been lower) makes perfect sense; a stuffed local economy can recover if its land prices fall in response to its true condition. And Detroit has massive average house and section sizes compared to those UK cities. So it is incredible how many false assumptions are made by the advocates of growth containment.
            What is happening in Liverpool and other UK cities, is like an oligopoly ripping everyone off for basic necessities like food even as everyone is in poverty and deprivation. The planners should not be allowed to get away with using the language of “amenity value” (that they in their wisdom have created) when what they are actually doing is enabling a gouge of “what people can stand to pay” for a necessity.

          • Donald

            Quite.

            Should demand slacken for Auckland property then supply will slacken as well and prices will stay up (think the glory days of OPEC). Once you understand that, you realise that all the demand side reforms are essentially futile.

            Given that government and councils have created the market that works like that they can be expected to be the last ones to support meaningful change. It would require having to admit they were wrong.

      • philbest

        The crash in 2007 onwards that happened in other countries, did start to happen in NZ, in fact real house prices fell 15% 2007 to 2009. And land prices which are less than half of the cost of housing (or should be) fell a lot more, hence all the developers and finance companies backing them, falling over at that time, especially related to high-value sites in the city.
        But the difference between the crash countries, and NZ, Aussie and Canada and possibly others, is that the crash countries were taken by surprise first – our government and Reserve Bank adopted tactics like massive cuts in base interest rates before it was too late. This saved the big property and big finance sectors and averted the pain of a proper crash – but what about affordability, young Kiwis, and the potential for a bigger bubble and a bigger, unavoidable crash later? Is this rocket science?

        The Irish may end up looking lucky that they got a proper crash over and done with when their highest median multiple was Dublin’s at 6.0 (in 2007).

  • Disinfectant

    Today it is reported in the Press that Mayor Lianne Dalziel of the Christchurch City Council wants an alliance with Auckland.
    Mayor Len Brown of Auckland is reported as saying that he felt very positive about forging a closer working relationship with Christchurch.
    The new alliance is reported to include an Executive alliance as well. Really!
    Dalziel has said that working together they would have more clout with the Government.
    Will we now see a concerted Labour (along with Labour Mayors) effort to do everything to stop any reform of the RMA?
    I don’t ever recall having cast a vote for Auckland as well as Christchurch at the last Local Authority elections.
    I suspect that this attempt to form an alliance is illegal.

    • Euan Ross-Taylor

      Quite right. I expect if John Banks had have won the Auckland mayoralty originally, then I very much doubt Dalziel would be seeking an alliance with Auckland. She is playing party politics rather than local govt. for sure.

      • Cadwallader

        “Alliance” has to be one of the most tainted words in NZ politics.

    • sheppy

      You have to hand it to the lefties, they will stop at nothing to pursue their agendas no matter where the location or how flawed they are. That alliance should ensure Labour stay on the unelectable list to most voters in Christchurch and Auckland once the ever increasing rates bills for less and less services keep rolling in.

  • sheppy

    Great guest post. Sadly I suspect the dice has already been loaded and Browns compact city ghetto complete with his beloved trainset to nowhere new shrine is a foregone conclusion.

  • Donald

    Great work, Phil.

    Councils are hopelessly conflicted through wearing three hats at once:

    – their statutory role to protect the environment and natural resources (the real role they have under the RMA)

    – service provider (waters, transport and social infrastructure)

    – the non-statutory role they have awarded themselves of *making* community; to do which they implement all their non-statutory spatial planning/urban design practices sneakily via RMA processes (the fake role they blame on the RMA but which isn’t in there at all)

    I doubt any council can prove that they are implementing the wishes of their community when they set out to make community. The best they can do is show that hardly anyone complained at the time they put out the 10,000 page plan for “consultation” (not nearly good enough in my opinion).

    As you ably show the inherent paradoxes of any council setting out to create the “city of tomorrow” when it is voted in by and paid by the ratepayers of today becomes obvious instantly.

  • Xbureau

    Great analysis Phil…good to see you encouraging debate with some real examples. I get tired of the mantra that centralizing development will lead to lower public transport costs and lower house prices…….also enjoyed the earlier two articles too..
    Its hard to get people excited about this stuff but it has a real impact on everyone…..

    I am not surprised about poor policy analysis and lack of questioning by our political masters. When I was a planner I saw rules introduced at a whim (either from staff or their political masters – the later with their own political agendas). The process is too expensive to challenge. Its not helped by the fact that a lot (NOT ALL) of our political masters have very little understanding of running a business – so they have no idea of what the real impact of their policies have on people and businesses.

    I thoroughly agree with Jimmie….no surprise that subdivision is handled so badly today in plans. When the RMA was first introduced in 1991 the subdivision controls were so unworkable (it wasn’t recognized) a massive re-write had to happen in the 1993 RMA amendment…goodness knows what it cost the country in delays and unnecessary applications – it certainly didn’t help house prices! Planners get little economic training – so its good to see at least Phil McDermitt and others questioning Council rhetoric

    When RMA was introduced it encompassed widely different philosophies – land water and air…plus an underlying idea of trying to free things up and question whether rules were really necessary to achieve outcomes (the old section 32) but really it hasn’t done it well……and the writers of the act didn’t even understand how to apply it in an urban situation…that’s why I think we have the mess we have today…. so reports, analyses and plans and the whole process has got increasingly complex over the years and no one is standing back and asking – are we really getting better outcomes?

  • YEP. I look forward to the crash.

    Great stuff Phil – you are probably NZ’s No1 expert on this issue.

    And thanks WhaleOil for giving him your stage.

27%