Friday, April 29, 2016

Changing the Game in Australia: Federal Government Looks at Local Infrastructure

Commonwealth Government looks local
A report in the Sydney Morning Herald this morning raises some interesting possibilities, with Malcolm Turnbull indicating that the Commonwealth government is ready to deal direct on projects for urban development.  If they are economically sound it will consider assisting with favourable funding over a time period in keeping with their effective life.

The grounds for following our neighbours
New Zealand should take a lead from this on several grounds. 

(1)   Grandiose plans and projects that bear little heed to need, geography, or, in particular, to basic economic principles (don't spend more than you are going to get back by way of benefits!) continue to be promoted in both Christchurch and Auckland.  The Auckland heavy rail project is so bad that it would be a joke if it was not such an economic misfit.  The notion of throwing ratepayers’ money at a stadium locking away much of the waterfront is just as  silly.

(2)   The infrastructure spending of councils seems geared towards preserving a dated conception of the city as mono-centric. Modern cities aren’t.  They may have interesting and fun CBDs, but the bulk of life takes place outside the central city.  The suburbs are no longer undifferentiated swathes of housing, but include their own distinctive and often large centres, entertainment and recreation precincts, restaurants, and medical centres and specialists. Cities of scale have much more employment outside the city centre than inside.  Economic projects are those that fit the needs and capacity of their various communities, not some me-too dream of CBD grandeur.

(3)   Short-term funding of infrastructure through development charges is a sure way to push up costs and does not reflect the useful life of urban infrastructure.  If public monies are going into it, then that should only be on the basis of demonstrable economic benefits, not wonky, unrealistic and consequently defunct business cases.

The productivity impact
The Grattan Institute report on which the Australian Prime Minister was drawing confirms that many local and state government infrastructure projects are hopelessly uneconomic. 

Uneconomic infrastructure is a sure way to undermine national and local productivity. 

And, despite the New South Wales government's determination, there is scant evidence that amalgamation will solve the problem.  Just look at Auckland's experience.   

Beyond ageing urban form
Turnbull’s response sees grandstanding infrastructure and civic obsession with spending to preserve the CBD and sustain ageing urban form regardless of the economic consequences as contributing to the failure to achieve more sustainable urban form and the affordable housing that would follow.  

He espouses the vision of the 30-minute city –

one in which, "no matter where you live, you can easily access the places you need to visit on a daily basis". Mr Turnbull believes such cities will allow people to live further from the centre, making housing more affordable.
 
The plan
To help bring that about, the Prime Minister talks about commonwealth partnerships with private interests and issuing long-term, low interest government-backed bonds to fund approved projects and perhaps some form of charge on businesses that benefit.  Approved projects will be those that can demonstrate their economic worth thereby contributing to faster economic growth and a lift in tax revenue.  


Changing the game
We may or may not agree with the mechanisms proposed.  However, the Turnbull initiative confirms that central government can play a significant role in urban form and housing affordability when local government consistently gets it wrong.

That's not saying that central government consistently gets it right!  But it recognises the game changers that support decentralised urban form and the benefits that can bring. 

The Turnbull initiative may well prove a game changer in its own right.  And it highlights the question of when - or whether - central government in New Zealand will get off the sidelines and into the game.

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Tuesday, April 5, 2016

Auckland Planning: Doing Less with More

The burgeoning bureaucracy
In 2010 the eight Auckland councils were amalgamated into one.  I’m not sure why and my early prognosis gave the experiment five years before failing.  This was based on the unwieldy nature of the proposed council – multiple layers of management were bound to complicate and slow down decision-making and further remove policy-makers from the places and people for whom they are actually making policy.

More managers also means much higher wage costs, more internal meetings, and a reduced capacity to respond on the ground to the needs and wants of different communities and places. 

Talking, talking …
It was no surprise, then, to read the report in the Herald (4 April 2016) of 37 city managers attending a workshop on updating the Auckland Plan in February.  The manager of the strategic planning process for the Council justified this by saying that “input from different experts across the organisation and workshops are used as the most efficient and effective way to ensure expertise is shared across the organisation”. 

Talk about talking to ourselves!  And what have we got to show for it?

Well, most people are beginning to understand that the approach promoted in the Auckland Plan of using less land to absorb more development is pushing up prices for housing, costs for businesses, and congestion for commuters.  And these inevitable outcomes of rationing urban land can be compounded by inadequate infrastructure provision.

It’s certainly time for the council to have a rethink.  But I’m not holding my breath.  The last time planners recognised their plan for a compact city was not working, they simply argued for more regulation (in Growing Smarter, Auckland Regional Council 2007).

Getting grounded
The deficiencies of the current planning culture go further than the impacts of land rationing on property markets.   I’ve attended several hearings reviewing the Proposed Auckland Unitary Plan (the PAUP, a statutory document intended to implement the aforementioned Auckland Plan).  I’ve been struck by three things. 

(1) Private costs and commitments
First, there is the amount of time spent by the very large number of professionals drawn into the process: lawyers, independent planners, and a variety of experts (including the many consultant planners and experts commissioned by the council to advise its "different planners and experts" – go figure). 

The cost of all this to the wider community must be substantial – quite apart from the Council's $70m annual planning budget ($45 for every person living in the region).

(2) Getting grounded
Second, many private citizens are putting real time and thought into making submissions to a plan that has serious implications for them and their neighbours, their livelihoods and their lifestyles.  However, at the plan hearings in different parts of the region submitters addressing local, practical matters are up against by a centralised process and a complex and coercive set of regulations built in large part on supposition.

In fact, it is the many parties with a commitment to living and working in the region that anyone charged with thinking about the future of Auckland should be listening to, rather than talking to each other.  

Unfortunately, the groupthink taking place in Auckland Council excludes divergent views and local circumstances when they cut across the beliefs that mark the current planning culture.

Institutional myopia generally is one of the reasons we end up with dubious decisions by large organisations out of touch with their public. This has already been demonstrated in the Council’s faulty assessment of housing capacity behind the proposed Auckland Unitary Plan.

Hopefully, the Plan Review Panel will counter such narrow thinking and ground the PAUP in reality rather than theory.

(3) Push back
Third, council officers and consultants seem almost inevitably to push back against any deviation from the PAUP proposed by submitters, implying that the principles they have adopted should prevail over the knowledge, aspirations, and circumstances of households, businesses, and community groups. 

Even when council officers change their position in the face of the evidence, it seems often to be to draw back from increasing flexibility or providing for wider development opportunities, even to the extent of retreating from provisions set out in the PAUP as originally notified.  

This might be acceptable or understandable if we are confident that the Council has properly identified and prioritised the issues, objectives and policies in the first place.

House of cards?
Unfortunately, we can’t be.  Drilling down into some of the material cited in the hearings and the documented rationale for various objectives and policies in the PAUP (contained in Section 32 reports) is disquieting.  There is a plethora of material, it is difficult to access, not especially conclusive, and in many cases, hard to relate to the policies it purports to support. 

A lack of clarity or critical analysis means that much of this material appears irrelevant, dated, or contradictory.  This raises the uncomfortable thought that despite its budget, the quality of expertise bought to bear on planning in Auckland does not match the challenges associated with a region of 1.5 million people (and growing), compared with preparing plans that deal more directly with the circumstances of different areas within the region. 

Consolidating planning and plans (and truncating the process) with the aim of streamlining is beginning to look like a step in the wrong direction.

Or less charitably, it may indicate that the quality of our planning is not up to the challenges of reconciling sound environmental management with the diversity and volatility of modern urban development.  This has serious implications, including that of not providing for the housing and employment needs of a population that the planners expect to continue to grow strongly for the foreseeable future.

When is more too much?
All of this led me to revisit Auckland local government employment numbers.  I haven't dug up the numbers employed directly in planning.  But the overall Auckland figures increased 8.8% over the two years to 2015 compared with just 2.2% for the rest of New Zealand.

In fact, Auckland’s local government employment jumped by over 50% from 2010 to2015!  The rest of New Zealand experienced just 5% growth.  (This included 23% growth in Canterbury, a short-term boost attributable presumably to the response to the 2010 and 2011 earthquakes). So much for the greater efficiencies trumpeted for amalgamation.



Worringly, 50% growth in local government employment compares with an estimated 9% growth in population and less than 13% growth in other employment over the same period.  



In this case, more may be less
Auckland is clearly putting more resources into local government. It’s hard to see the benefits this is delivering to a city struggling still with expensive land, inadequate transport infrastructure, inappropriate land use, and an intrusive planning culture which appears to be promoting more rather than better regulation.

Wednesday, February 24, 2016

On the Same Track? The Auckland Transport Alignment Project

Governments getting together
It’s good to see that central government and Auckland Council seeking to align their thinking on the city’s future transport needs (New Zealand Herald,19 February 2015) with the joint objective of  “value for money”.
Here’s how the Auckland Transport Alignment Project (ATAP) is pitched:

“The challenge for transport is to identify opportunities and proactively respond to the pressures arising from growth, to deliver economic, cultural, environmental and social benefits to Auckland and New Zealand as a whole. However, this outcome cannot be achieved at any cost. Wise investment will be required to maximise the value from every dollar spent. “Auckland Transport Alignment Project Foundation Report, February 2016, p.5)

I particularly like the bit about wise investment: this suggests that no investment will be made without a sound knowledge of the demand it is designed to meet. 

Understanding the Problem
The problem requiring alignment of transport objectives is responding to growth:

The scale and location of the population and employment growth creates a challenging transport future.  Medium growth projections will see Auckland’s population increase by over 700,000 over the next 30 years (approximately half again from current levels) and the number of jobs increase by over 270,000. (ATAP, p.5)

So how sound is this as a representation of future demand? 


A Departure from the Proposed Auckland Unitary Plan?
The Future Urban Land Supply Strategy (FULSS, Auckland Council, November 2015) sets out the expectations of the Proposed Auckland Unitary Plan.  It projects Auckland’s population:

to grow by one million people over the next 30 years.  This means around 400,000 new dwellings and 277,000 additional jobs will be needed” (FULSS, p.4)

These figures project a population gain 42% higher than the figure the ATAP is using, just three months later.  I would like to know why there is such a difference, and particularly whether alignment means allows for changes to the PAUP.  It’s going to be difficult to achieve value for money if our transport investments do not align with our land use plans, even worse if those plans prove spurious. 

How many jobs?
The Auckland Plan certainly seems confused on the land use front. This has been obvious for a long time with respect to housing.
But what puzzles me now about the PAUP is that, according to the FULSS figures above, provisions for business land are based on a labour force participation rate of just 28% for the additional population, or 69 workers for every 100 new dwellings.  This compares with 41% actual participation across Auckland in 2013, and 114 workers per 100 dwellings.

Projecting a slump in participation makes no sense given that the population growth the PAUP projects depends heavily on immigration.  But without commensurate job growth, this will dry up.  Statistics New Zealand’s most recent medium projection is for 736,000 more residents.  Of this 38% are assumed to come directly from migration (52% in the first five years), and of course more come indirectly as they settle and raise families. 

Without the provision of land for their employment, though, don't expect even this much reduced population projection to be anywhere near the mark.
If nothing else, underestimating labour force growth will lead to an undersupply of land for employment.  This is a major flaw in the PAUP. The results will be higher costs and fewer options for business establishment and expansion, lower investment, lower employment and, consequently, lower population growth. 

If the PAUP projections prevail but a more realistic participation rate is achieved (the ATAP figures suggests it will be 39%) then the PAUP is heading for 30% less land than needed for employment, a sure recipe for depressing growth, boosting congestion, undermining housing affordability, and making Auckland just that much less liveable.  That surely has to be corrected.

Where will employment be?
Here’s another thing: the PAUP persists in promoting the central city as the focus of employment.  The ATAP project picks up on this:

Employment growth is highly concentrated in a few locations, particularly the city centre, the airport and other regional metropolitan centres. Over a third of employment growth is projected to occur within 5km of the city centre. The growth in service sector jobs, which tend to locate in major centres to benefit from agglomeration, is a key factor behind the projected concentration of employment growth. (ATAP, p.8)

The evaluation of the current Auckland Transport Network Plan by ATAP indicates that this is a poor starting point. It shows that aligning transport plans will not be enough to correct for an inappropriate, over-centralised land use plan.

Current Prospects Grim
Looking out in ten year steps the ATAP review of the current Auckland Transport Network Plan points to deteriorating private vehicle accessibility to employment, widespread and increasing congestion, and a slowing and uneven rate of growth in public transport use.  This raises significant equity issues:

… the central (isthmus) area benefits the most while other parts of Auckland experience a much more mixed and patchy transport future. The west and south appear to face the greatest private vehicle access challenges into the future and are also the areas where public transport improvements appear most muted.

Deprivation will increase in large areas of Auckland which will be “partly excluded from the benefits of Auckland’s expanding employment base" (ATAP p.10).

Getting to Value for Money
None of this was unpredictable, of course, but it is useful to see the current package of transport proposals tested in this way.  Whether or not the ATAP can come up with an alternative package that will provide value for money and significantly improve efficiency and equity outcomes is yet to be seen. 

However, to avoid these negative outcomes and meet Auckland Council growth expectations will require a significant revision of the prevailing package of interventions.  Ultimately, this may mean abandoning the spatial plan that gave rise to the transport externalities that requires such a programme.  Only when we begin to plan for a more sustainable city might we move towards a more sustainable transport programme.

Aligning land use and transport
So the challenge is not simply to find a package of transport interventions that will get Auckland working.   The problem -- and the challenge -- goes deeper than that.  Even before the ATAP sets about the task of evaluating alternative interventions it has confirmed in its evaluation the flawed nature of the spatial plan. 

In a constrained geographic environment the Auckland Plan and PAUP put too many eggs in the CBD basket.  They promote a monocentric, centralised city on a narrow isthmus, and rely on the assumption that the inefficiencies this will generate can be resolved simply by spending ever increasing amounts on transport. 

The ATAP foundation document raises serious doubts over that.
The real task is to align transport investment with sensible land use plans.  Its land use that will shape demand as well as accessibility.  Get the land use plan wrong and any analyses about value for transport investment will be meaningless. Only a fundamental review of the land use assumptions behind the PAUP -- particularly where people might live and work -- will deliver value for money, and avoid Auckland grinding to a fiscal as well as a physical halt. 



Friday, November 27, 2015

Planning to Fail - Wrong Assumptions, Wrong Policies


A Complex and Contested Plan

Deficiencies in the vision for a compact city promoted in the Auckland Plan are apparent in the contested nature of the statutory document intended to implement it.  The Proposed Auckland Unitary Plan (PAUP) has attracted 13,000 submissions and is subject to extensive hearings by an independent panel

The proposed Plan is complex and detailed.  It aims to manage the public domain and private behaviour mainly by regulating land use, defining in detail what can be done, how, and where. And because there will be winners and losers from applying its many rules, it is not surprising that many people are concerned at the content.

Where is the evaluation?
Given the direction underlying the Auckland Plan – a compact city focused on an intensively developed CBD and relying on a legacy of heavy rail and buses (and now, perhaps, trams) to alleviate congestion – the PAUP will inevitably impact on many people and organisations.  It is surprising, then, that the evaluation of policies did not deal with the distribution of costs and benefits. 

But then, the analysis, such as it is, is not very strong on costs and benefits at all.  Anyway, despite the long list of papers and reports assembled in support of the PAUP (the “Section 32 Report”), few appear relevant to or reflected in the land use policies adopted. 

The evaluation is focused, the S32 Report claims, on “the objectives and provisions within the proposed Auckland Unitary Plan that represent significant changes in approach from those within the current operative Auckland RMA policies and plans”.
The comparison of policy options required for evaluation appears to have relied on a bunch of like-minded people comparing four somewhat arbitrary scenarios of the future.  Curiously, all four scenarios are based on a single population projection as if how we plan has no impact on the outcomes!  That hardly matters, I guess.   I could see no recourse to any formal analysis of policies anyway, and no obvious attempt to distinguish the marginal differences among them that an evaluation of changes from “current operative policies and plans” would call for.
And what of the quality?

My concern about the quality of evaluation is heightened because the proposed Plan’s spatial policies are based on misleading analysis.  The fundamental assumption that the proposed plan needs to provide sufficient capacity for an additional 400,000 households over the next thirty or so years is demonstrably wrong.  

Having heard the level of disagreement among experts about the credibility of this number, the Hearings Panel back in April asked them to jointly produce an estimate that they could agree on. 

They couldn’t. Over several months of collaboration and analysis the best the group could come up with was an estimate of 83,420 “developable feasible” dwellings – or 26% of the Auckland Council’s Plan estimate (013 Expert Group, p5).[1] And despite acknowledging that this was much more realistic , the Group failed to reach a consensus on a final number. 

Which to my mind was just as well: to believe that we can predict both dwelling demand and supply without even seriously referencing the impact of price on demand (among other shortcomings) over 25 to 30 years is a conceit too far. The more we refine such projections, seek consensus, and treat the results as reality, the less we are prepared for the uncertainty that inevitably attends our plans, and the greater the risk that, in our ignorance, we adopt inappropriate policies.

So what happens when the policy makers get it wrong?  They keep going regardless

What is even more disturbing, though, is that the Council gives the appearance of cynically changing the Plan rules to offset its miscalculation. This has been done in haste, apparently, without reconsideration of the policies they support, without obvious analysis of the effects of these changes, and certainly no consultation with those affected.  Hence, the New Zealand Herald reported in September that by relaxing rules within the plan, council planners were able to get their capacity numbers over 150,000 (still a long way short of what the plan is supposed to deliver).  

To help achieve this, the heritage provisions of the Plan, always problematic, were effectively dumped in October. And in November, the Council’s Unitary Plan Committee accepted changes to the Single House Zone in central and western suburbs to Mixed Use to enable townhouses, studios and apartments to achieve the new number.

Now where did that come from?  I have searched the Council website for an analysis of the effects of these new policies and cannot find it.  At least the media is prepared to air the changes and their potential effects.

Dumping on the suburbs
The Plan certainly needs to address the future of Auckland’s suburbs: this has been a failing all along in a city which is no longer mono-centric and in which any expansion will be shaped by the simple fact that it is contained on a narrow isthmus.  But this sudden zone change is knee jerk reaction to what has been revealed as an ill-informed plan.  It has no apparent regard for matters of open space, transport and transit, commercial services, schools and other public services, or community and recreational amenities, all critical to the quality of suburban life. 

Simply creating new rules that can fundamentally change the character of suburbs because the planners got it wrong first time round without any obvious attempt to appraise or moderate adverse effects undermines the credibility of the proposed Plan, the process, the planners, and the politicians. And it’s cynical to the extent that it potentially circumvents the independent hearing process and suggests that the Plan is no more than an ad hoc means to an arbitrary end.

A step too far?
The uncritical foisting of a particular set of beliefs – that the way to the future is through less of what we have now -- raises fundamental questions over the practice of resource planning, not just in Auckland, either.  Whatever we call it -- urban design, place making, or resource management –an autocratic and patronising mind-set today permeates urban planning and is increasingly reflected in the diminishing capacity of elected councillors and board members to influence outcomes. [2]

Planning to fail
All this will make life that much harder for many Aucklanders to live here, especially those who do not already own a home.  While much is made of the City's growing diversity there is little evidence that the plan is sensitive to differences in places, communities, and circumstances, or that it is flexible regarding where and how different peoples might live. It looks set to sustain and even exacerbate the division between those who stand to benefit from property ownership and those to whom the Plan offers little hope of home ownership, and the social, health, schooling and employment benefits that brings. 

The proposed unitary plan looks set to accentuate divisions rather than accommodate diversity.

Time to think about connections and consequences
Unless there is a radical change in the way we plan, I see little prospect of sustaining the growth Auckland has recently experienced or of achieving the projections that the Plan is built on. For all its expertise, the Group convened by the Independent Panel failed to agree on what the Plan provides by way of capacity, or to forge the link between housing supply and demand .

A new approach is called for.  Let’s treat housing as a right, land for housing as a necessity, and prepare a plan that enables us to provide it in a cost effective and timely manner. 
The failure to provide land for sufficient dwellings so graphically illustrated in the Expert Group’s report (and in others[3]) must lead to a decline in demand as prices escalate.  We may have a liveable city on some measures if the PAUP is somehow implemented, but for whom and for how long?


[1]           Topic  013 Expert Group (July 2015) Residential Developable Capacity for Auckland Report to Auckland Unitary Plan Independent Hearing Panel
[2]           And unfortunately this is not about to be changed by the Government’s latest tinkering with the Resource Management Act,
[3]        Quite apart from the many submissions to this effect (see Hearings Topic 13 at the Independent Hearings Panel website), the Productivity Commission has published two compelling reports on this issue.

Friday, August 28, 2015

Living with Giants - Lessons from Industry Organisation

Bigger is not Necessarily Better

Management consultants McKinseys were the advisors behind the creation in 2002 of the mega-cooperative, Fonterra.  Owned by dairy farmers, the new organisation was intended to consolidate New Zealand's dairy processing, exploit its export strength, diversify its output, and move it up the value chain.  This all looked good while increasing demand in China in particular sustained increasing output and prices, especially given that  Fonterra accounts for around one third of global dairy trade.   

But price escalation was never going to be sustained in what is essentially a commodity market.  Consequently,  over-production and cyclical pressure on consumer demand have seen a rapid collapse in prices, and increasing questions over Fonterra's performance.

Commodity Trading Still

There are no surprises here. We have seen a series of collapses in New Zealand's commodity sectors over the years. Where are industry giants New Zealand Forest Products and, in the meat sector, Waitaki New Zealand Refrigerating today? Where are those former behemoths of the pastoral sector, Borthwicks and Fletchers? Dominance of a sector all too often carries the seeds of its own destruction. Even that giant of the IT sector, Google, has reset itself as a cluster of smaller, more focused entities.

Fonterra was meant to drive the innovation that would increase the value of dairy exports, to reduce its dependence on commodity sales.

Its biggest innovation appears to have been the Global Dairy Trade an auction platform it established in 2008 that has become the benchmark for world dairy prices. It is no more than an instrument of the commodity trade, though. It simply confirms the cyclical nature of the market - and leads the race to the bottom. 

In fact, dairy prices have gone nowhere over the past decade. Those that have sunk capital into the sector on the back of the promise of "white gold" have seen poor returns, insufficient in many cases to cover the costs of their capital. This is especially the case for those that purchased or extended farms in the boom years.


Global Dairy Trade Price Index
(globaldairytrade.com)

What Went Wrong?

Industry commentator, Tony Baldwin, identifies five factors behind this indifferent performance.  These are detailed in his NZ Herald piece today. In summary:
  • The organisation remains producer-driven rather than consumer-focused;
  • It misunderstands its own strengths and weaknesses and therefore where it needs to address its role (and value) in the supply chain,;
  • It has confused roles and objectives;
  • As a cooperative it is capital constrained;
  • It has effectively misdirected capital into lower value volume production capacity rather than into higher value product development.
Not everyone will agree with this diagnosis, but the outcomes speak for themselves.  Whatever the vision was for Fonterra, the architects surely were not looking for more of the same - volatile commodity trading writ large?

The Lessons for City Organisation

So what's this got to do with city matters?  Everything.  Fonterra is another example of the fallacy of thinking big when it comes to reforming organisations. 

When Auckland municipalities were amalgamated in 2010 I suggested that large organisations are slow moving and resist change as internal relationships and established ways of doing things dictate their responses to changing external conditions.  Consolidation was the wrong response to whatever was wrong with Auckland.

Nothing I have seen since leads me to change my mind. And the comparison with large industrial organisations holds.

Think about it: 

Producer Driven
The new Auckland City remains focused on shaping the city according to a particular brand of planning. No room for innovation there as  the architects of Auckland draw on precedent from elsewhere to fulfil a vision of more people in less space. Intensification was a keyword in dairying as larger herds became established but that did nothing for the consumers of dairy products or, really, for the sustainability of the New Zealand economy. Citizens in Auckland are now faced with a future closer to the crowded cities of the past than the open city that could define our future.

Role Confusion
The role of Auckland Council has become one of dictating rather than  enabling, of shaping rather than servicing, and of participating in an unwinnable auction based on contrived city indices rather than facilitating and supporting a competitive private sector or housing the community in a sustainable manner.

Capital Constrained
Ultimately councils are constrained by their population and population expectations. Whatever form city taxes take, there is a limit to the capacity of citizens to fund current and future development.

Increasing the indebtedness of future generations to fund assets through debt is an option - an option that sours if the underlying population expectations fail to materialise. On that score, it is probably worth reviewing the volatility of the global dairy trade index when thinking about just how much debt it is sensible for the Auckland Council to take on. We need to acknowledge the uncertainty around our population projections - an uncertainty exacerbated in the short-term by unsustainable increases in housing costs.

Misdirected Capital
Time will tell - but intensification of the population requires highly expensive investments in public transport if the city is to continue to function without extreme congestion.

In due course this will constrain the investment that might be made in making Auckland as a whole (and not just as a CBD-centric conurbation) a more attractive place to live in. What will define a successful city must include reliable and quality services, green spaces, and ready access to community and recreational amenities across the board. 

Where to From Here?
Can Auckland get away with its mantra-based path to intensification as a means of creating a liveable and competitive city?  I think not.

Can the current structure deliver?   Not, I don't think, without a radical overhaul. 

And if there are any immediate lessons we might take from the Fonterra and Auckland City examples - bigger is not necessarily better. Oh, and choose your advisors carefully.


Wednesday, August 12, 2015

Too little, too late: finally fronting Auckland's housing problems

Singing an old song
It’s hardly worth blogging about the Auckland housing crisis any more.  It’s an old song few people wanted to hear in the past. Now everybody’s singing it. Today’s comprehensive coverage by the New Zealand Herald neatly highlights the ultimate contradiction – how can Auckland be one of the most liveable cities in the world when it is one of the least affordable?

When the problem of where to put our growing population could have been relatively easily solved 20 or so years ago, planners were stuck in an eighties groove promoting Plan A - a city contained within strict boundaries against the clichéd chorus of “no more sprawl”.

The idea of urban sprawl was – and still is – used to raise an image of ever-expanding, continuous development of monotonous housing and crowded roads swallowing pristine bushlands and a pastoral cornucopia.  From this it was a short step to damning all and any greenfield development that might have kept the housing market functional, offered opportunities for smart urban design, and made new communities viable –and liveable.

Even though geography, economics, and preferences favour a city in which employment can disperse and urbanisation can take place on greenfields divorced, if necessary from high cost legacy infrastructure, we put up the shutters and were blind to the consequences and costs of a high density, high rise alternative.

The tide has turned 
The resulting shortage of affordable housing has finally risen to the top of the Government agenda. The Minister of Housing and even Auckland Council are starting to push the boundaries and look at options for a realistic city footprint.   Initiatives include extending the capacity of hinterland villages and towns , identifying areas well suited to urbanisation on or beyond the city edge, and tackling the thorny issue of how to re-form swathes of the existing urban area to accommodate greater density. 

It’s a sign of our past failures, though, that these initiatives necessitate bypassing the Resource Management Act and leapfrogging the fraught process of translating the Auckland Plan into a meaningful statutory planning document.

But things will get worse before they get better. 
The Council still estimates a shortfall of 25,000 dwellings in 2018 compared to 15,000 today.  The Productivity Commission estimates an even greater 32,000 shortfall and says another 13,000 homes would be needed annually just to cater for growth.    Whatever the number turns out to be, it will swamp the best we have achieved, a peak of 12,000 dwellings consented in 2005, and a long-term average of little over 7,000 a year. 

Unfortunately, it's no longer just a numbers game.  We have procrastinated to the point that we are now faced with an enduring structural problem in a housing market that will be marked by increasing reliance on offshore capital, a lift in long-term rental tenancies, and ultimately a slowdown in population growth as the city loses its appeal.

Do we have the capacity?
It’s no longer just a question of releasing land for development.. 

One problem is that we have let our investment in infrastructure fall behind.  That can be solved with time, funded by more rates increases, foreign capital, or, better perhaps, the municipal infrastructure bonds long promoted by advocate of affordable housing Hugh Pavletich. 

But don’t expect any early boost given the small size of the civil engineering sector in New Zealand, and, like new housing, don’t expect it to be achieved without a solid injection of foreign capital.

We may also lack the capacity to ramp up residential construction and in trying to do so increase the risks around the quality and cost of building houses.  The challenge for the building sector will be to achieve levels of productivity not enjoyed since 2004 while boosting building personnel, and promoting a more competitive materials sector.  Without gains in these areas, Auckland may need twice the builders it had in 2014 simply to reach an annual target of 13,000 new homes, let alone make a dent in the existing shortfall.  

Finally, and fundamentally, prices have reached the point that the traditional drivers of new demand, the first home buyers, are effectively excluded from the market.  Incomes have simply not kept pace with house prices.

The flow-on effects are insidious
The consequent shift to a housing market dependent on investors funding new stock rather than occupants raises a new set of uncertainties (including a divisive populist reaction against offshore investors, as if their presence is a cause and not a result of a housing shortfall contrived by poor planning).

For a start, we have an insufficiently developed rental sector to provide tenants the degree of security necessary to underpin education, health, and career . Without a strong institutional and regulatory framework, rental housing is a second best solution for families, undermining commitment to community and increasing mobility. While that may not worry the young and transient, it is not conducive to family formation, household stability and savings, or strong communities.

A high rental population tends to be associated with high labour turnover, lifting the cost of employment and undermining in particular businesses that employ the less skilled.  At the same time, higher salaries and wages are needed to compensate for high cost housing (and commuting) in Auckland, boosting the cost of the professional and management services to the corporate and government sectors.

Can we afford the bubble to burst?
Auckland's distorted housing market contains the seeds of its own destruction that no amount of fiddling with macro-economic settings will now resolve.  And even if some twenty years too late we take the brakes off land supply, prices are unlikely to fall quickly and quietly enough to restore order as we knew it, if only because of the costs that have become embedded in the construction sector and are likely to be amplified if demand for development outruns the capacity of the market to supply it.

And if we could drop prices sufficiently to bridge the affordability gap we risk bursting the bubble.  Highly mortgaged householders will find themselves without equity and banks without collateral. The social and economic consequences and the fiscal and political impacts would be grim.

On the other hand, we may no longer have a say.  As the rock economy encounters softening commodity prices, falling consumer confidence, and a weakening labour market, expect that pillar of economic activity – the Auckland housing market – to encounter its own rocks. A weaker economy could burst the bubble without any supply side response.  On the other hand, global deflation and a low New Zealand dollar could prop up a bubble market for a little longer, exacerbating the problem in the long run. 

Will the market simply slow down as people move out or stop moving in?

There are other scenarios that might just ease the pain and slow the market.

For example, the trickle of households exiting Auckland (which has exceeded any gains from the rest of New Zealand for over twenty years) could turn into a torrent .  Detached housing, lack of congestion, and ready access to amenities underpin the growing attraction of secondary cities and towns.  Retirees have known this for a long time, and the potential to cash up their Auckland home for two or three times the cost of a better dwelling in a smaller city or town is likely to boost the momentum as increasing numbers of baby boomers retire.

And despite loose talk of zombie towns, employment and entrepreneurial opportunities are out there to complement the lifestyle opportunities associated with small town living. 

And we can expect many more families to make the move.  A return to the regions and a slowdown in gains from international migration as excessive house prices and lagging infrastructure diminish Auckland’s liveability may be sufficient to lower the city's temperature.

Retreat of the baby boomers?
We also need to think about what will happen to the stock of baby boomer housing 10 or 20 years out. While we can incorporate the ageing of the population into naïve demographic projections, do we really know how their behaviour might shape the housing market ten or twenty years hence?

Only a minority might move out of Auckland, but that will have a significant impact on the housing market.  Many more may opt for the convenience, comfort and security of retirement villages.  That, and a little natural attrition along the way, should see the options for suburban revival increase as the large houses of the 1950s and 1960s are recycled or replaced, increasing residential capacity in existing suburbs.
 
Add to that the changing household characteristics in an increasingly diverse Auckland– including more multi-generation families occupying larger individual dwellings, more sharing among non-family members and households – and the numbers game might change substantially.

So what do we plan for now?
Of course, either of these scenarios – a bubble burst or a market moderated – creates another problem.  What do we do with all our plans and projected spending predicated on another million Aucklanders – or thereabouts – by 2041.  How should we revise the massive spend proposed for transport infrastructure that assumes that the growth of the past decade is somehow inevitable over the next?  And how do we maintains the conceit that as much as 70% of it might be contained within the existing built-up area?   And pay the debt that we are accumulating on the basis of growth assumptions that we were never ready for and are consequently unlikely to be fulfilled?

It’s time to think about Plan B; Plan A has clearly failed the city.