A region stalled - is consumption the problem?

So what makes Auckland tick?

For some time Auckland has been seen as a problem economy.

To find out why I looked at some 20 studies of Auckland’s economy prepared between 2004 and 2010.  They were pretty repetitive, some just building on what others had already said.  The following themes pretty well cover the analyses and prognoses they offered:

(1)    Too much has been invested in consumption-focused activity and not enough in export industries;

(2)    Insufficient innovation to drive productivity, create competitive advantage, and grow exports;

(3)    There is a need to keep costs low to attract investment and maintain competitiveness;

(4)    Good connectivity (transport and communications) is needed to enable firms to work together    well and to do international business effectively;

(5)    As a high density urban area Auckland should be able to make productivity gains, lower costs, and lift connectivity;

(6)    An attractive living environment will attract and keep the people needed to make things happen.

A high density city is not the answer

In previous postings I pointed out that in employment terms Auckland has lagged over the past decade, with the rest of New Zealand growing slightly faster.  Actually Auckland led the way after 2007 – but in the wrong direction.  Auckland's  employment fell by 2.8% and the rest of New Zealand by 1.6%. 

Not only that, but when we review individual sectors it appears that concentration in Auckland was more likely to be a disadvantage than an advantage.  

That finding seems to knock out theme number (5) in the list above, that there are automatically advantages in the concentration of firms and in a larger, higher density environment. Maybe there are some gains to firms in a sector clustered in the region. Perhaps the density of activity in Auckland offers “urbanisation advantages” – more opportunities to conduct exchange at lower costs.  But if so, these things do not show up in aggregate performance. 

So, theoretical agglomeration economies must be offset by actual diseconomies -- the reality of the high cost of investing and operating in Auckland.  With the government pinning its hopes for economic recovery on the performance on the region, this has got to be a worry.

We need to look again at how to explain Auckland’s performance, and how we might promote it. In this posting I make a start by considering changes in economic structure, item number (1).

The wrong structure?

If over-dependence on consumption has been the problem, this will show up in the changing mix of activities in the region.

To explore this I grouped employment into major sectors in the table below and looked at each sector's growth over the decade, in two parts.  The first seven years saw almost unparalleled growth internationally.  The last three years were sent reeling by the Global Financial Crisis (GFC). 

The numbers come from the Statistics New Zealand February employment counts. They tell an interesting story.

Production of goods on the downward slope

First, manufacturing was definitely on the soft side for the first seven years. This set it up for an outright tumble with the onset of the GFC. When we look at the detail, only the food and beverage sectors made any significant progress at all over the whole period. Machinery and equipment manufacturing just held its ground.  But the whole lot contracted – even these favoured subsectors  – from 2007 to 2009.

The other "industrial" activities – transport and storage, construction, and utilities – fared better early on, but joined the tumble in later.

Business services hit the wall

Second, the big player in the first part of the decade – business and support services, which grew by 37% in seven years – also hit the wall in the second part, giving back 15% of the job gain .  Not surprisingly, financial, administrative and real estate services took the biggest hit. Overall, this sector accounted for a third of the region’s gain between 2000 and 2007 and then a third of its loss between 2007 and 2010. 

Consumer services stall

Third, consumer-oriented services – retailing, accommodation, cafes, bars and restaurants – were certainly significant, but they still accounted for only 19% of Auckland’s total employment in 2010. And given that the region’s population grew by around 22% over the decade, a final gain of 16% in these activities (following a decline late in the piece) does not seem out of line. Cultural, recreation and personal services did grow faster than population, but are much less significant overall. They accounted for just 6% of regional employment in 2010.

Of course, a large share of employment in the industrial and business service sectors also depends on household demand but then those sectors – especially the industrial sector – grew only modestly in any case.  On the face of it, over-consumption has not been the problem - but under-production may have been. (I have not looked at the housing sector here, though.  That needs separate analysis).

Public services rumble onward and upward

Fourth, and most significantly, the public services sector – hospitals and health, education, law and order, social assistance, and government administration – had by far the most growth.  It was the only major sector to grow after 2007.  By 2010 public services accounted for over 23% of Auckland’s employment. 

It can be expected that this is related to an expanding population .  Interestingly, though, 45% growth in public services employment is over double population growth of 22%. 

Actually, on this score Auckland’s ratios do not stack up quite as badly as elsewhere. Over the rest of New Zealand public services grew by 27%, three times the rate of population at 9%.

Not surprisingly, Wellington led the way.  With 10% population growth between 2000 and 2010 it experienced 35% growth in employment in public services, including a spectacular 53% gain in public administration.

This raises some hard questions.  Has demand for public services grown by that much?  Have any productivity gains been made in public services?  And given that it was the only sector to actually grow during the GFC, where might recovery come from, other than from services funded primarily by current and, increasingly, future taxpayers?

So what is the prognosis?

Final demand – consumption – indeed dominated Auckland’s growth over the past decade, but only when we lump public servcies in with the traditional markers – retailing, catering, and entertainment.  The real issues this analysis raises are:

1.       The production of goods and services – industry – has completely underperformed.  We really do need to focus on how we can turn this around.
2.      The main growth sector, business services, is now looking shaky. Let's hope that some sound performers survive and emerge from the current shakedown of a sector that maybe just got too big for its boots.
3.      The GFC has revealed an unhealthy overdependence on public services.  THere is a need to address productivityn issues here, including the quality of decision-making and resource allocation throughout the public sector.

So crowding out of productive investment and employment by a focus on consumption my not have been the issue. Rather, a failure to grow our income earning sectors and consequent reliace on an explding public services sector is a concern, one that simply chopping the number of civil servants in local government may not resolve. 

It’s not that the expansion of public services is a bad thing if it contributes to the well-being of the community and lifts economic productivity.  But the fact that it has been the only source of significant employment growth over the last three years suggests a weakness in the private sector and signals a region still over-dependent on taking in its own washing to sustain itself – or, if we want to mix metaphors, bootstrapping without the boots.

Spatial Planning 3rd (and final!): a real alternative for Auckland

I have reviewed spatial planning for Auckland in earlier posts, and what it might or might not do for the region.  The spatial plan has to go through a deliberative process, the outcome needs to be balanced, and it needs to reflect some form of social consensus.

That doesn’t stop people from saying what they want in it or what it should look like. 

So here is my personal plan.  It needs work.  It needs analysis.  Any comparisons with alternatives, especially the mainstream option of pushing up first and out later, needs to be rigorous and systematic.  It could concentrate on differences at the margin (and not get trapped into comparing averages) to ensure a degree of economic rationality. Evaluation should also explore the capacity to encompass cultural diversity, and to provide the freedoms that a truly attractive city might offer to provide hope for growth, all without undermining the physical qualities that make Auckland – the new, greater Auckland – unique.

My alternative would promote the following:

1.       A simple map of bottom lines, the no go areas for development where we are prepared to make a real commitment (i.e., spend!) to protection and preservation.  It would focus on features and assets rather than zones.  It would be sparse and inclusive (identifying what we really want) rather than extensive and exclusive (focused on what we don’t want).

2.       A polycentric, connected city which reflects our fragmented geography and our cultural diversity and in which the rationale for centres – both those contained in the plan and those that might come into being in the future -- is clearly articulated.

3.    The evolution of the CBD first and foremost as the entertainment, creative, and educational centre, the place where Auckland’s cultures come together.  This is different from forcing it to be the commercial and employment centre of the region with a mix of high rise housing tacked on around the edges.  In the light of what is happening to CBDs worldwide and the need to consider issues of resilience and sustainability, the latter approach is a hiding to nowhere.  But we are hearing lots of good ideas about making the CBD more people friendly, more fun, and more accessible.  If we do that, the other stuff – inner city living and commerce – should follow.  We could promote the role of CBD (and harbourside) in developing a regional community of cultures rather than taking the high risk road of promoting it simply as an international centre of commerce.

4.   Promote the gateway employment zones (Mangere, Hibiscus Coast/Silverdale; Massey-Westgate, Drury) to take pressure off the land market and land prices as growth picks up, cut down on commuting and congestion, and provide good cross-regional, inter-regional, and international connectivity.

5.    Allow the evolution of distinctive villages and village centres within the urban fabric. This implies a more creative approach to city nodes than associated with the 1999 Regional Growth Strategy.  It can’t simply be done with lines on the map, rules about development, and a propensity to build out green spaces.  Urban villages need good local urban design and initiatives to encourage greater self-sufficiency.   We need to find ways to use existing building stock and not overload the capacity of local infrastructure and amenities.  It’s also important not to choke these centres off with unsustainable high density corridors between and through them.  The interstices should be transitional, perhaps with more parks, leafy suburbs, and opportunities for people to fill in the spaces with street scale activity.  The aim is to make centres attractive places to congregate and live, places of choice for residents and small businesses rather than places where people with limited choices are housed.

6.   Provision could be made for satellite centres to cater for a substantial share of growth. The possibilities include Warkworth, Wellsford; Dairy Flat, Coatesville, Beachlands-Maraetai, Whitford, Clevedon, and Pokeno. Some of these are underway already.  Let’s make sure that they are not unnecessarily constrained by poor decisions about transport links, unrealistic land use rules, or inadequate urban design.  Some of these places could end up with populations of 10,000, perhaps 20,000 or more.  Pukekohe is an example.  Warkworth is developing nicely.  These areas provide an opportunity to apply the more useful concepts of new urbanism – pedestrianisation, local work, and local services in village, town or even small city environments.  They may turn out to be more cost effective and sustainable on infrastructure grounds than trying to expand the current urban envelope.  They may even be associated with reduced car dependence.

7.   Focus on the core transport network – the main arterials between urban and ex-urban villages developed with generous corridors which contribute to land use flexibility, encourage localised intensification where appropriate, and leave a variety of transit options open.  Future transit might include implementation of “T lanes” (allowing for cars with two/three or more passengers only), heavy vehicle and bus lanes, even light rail.  Some understanding of the different demands made on corridors – commuting, freight movement, recreational travel, tourism, social mobility, and public transport; local, regional and inter-regional movement  – would lead to a more flexible and open ended approach to arterial roads, whether state or city highways.   

On the same theme, any rail development could be based on addressing and confirming positive land use opportunities such as (1) redevelopment around centres in the inner city and (2) smart growth centres on the edge.  

But I would not want any high cost transport commitment in my plan until its demand, economics, and business case had been proven, and a clear land use rationale established.

8.   Let’s extend our network of urban parks and green spaces.  Compared with many major cities, Auckland is not particularly green. It has several iconic green spaces within the urban area (the Domain, Cornwall Park, perhaps Albert Park, ...?) but that’s not the same as a green city.  Let’s cement nature into the urban area, not with rules for lot owners or obligations on developers but with a commitment to a public network of parks, perhaps even a town belt, where we can advance restoration, enhancement, and accessibility.  And let’s build it in to our bottom lines.

That’s it.  The implementation of my plan would be through the associated budget and programme commitments in the Long Term Council Community Plan and through rules – as few as possible – and some very broad and flexible zones contained in the unitary plan.

Auckland Spatial Plan – Part 2: What would I do?

A sideline view

In my previous blog I expressed a concern about over-inflating the spatial plan for Auckland – promoting it as the panacea for the region’s ills.  Equally, a deterministic an approach that seeks to enforce behavioural conformity by mapping a particular urban form onto the region is unlikely to be successful.

It’s easy to stand on the sidelines and criticise, though.  What if I had responsibility for designing a spatial plan for Auckland?  Fortunately, I don’t.  But without accountability it’s easy to offer advice.  So here goes.

Can we limit prescription?

I liked Ree Anderson’s light handed approach, one that focuses on function rather than form, and priorities rather than comprehensiveness.  That’s the approach I would like to follow, one starting with how places within the region work and recognises relationships among them. This is along the lines of the network model applied to Zurich over the years, which Shane commended to us.

In keeping with this approach, let’s limit prescription. Let’s develop a framework within which people and organisations can be creative in addressing the environmental, economic, and community issues they will face.

How?  Well, I accept there do have to be bottom lines to start with, no go areas around which the plan can be developed. Then we need to address how infrastructure and land-use might evolve to support whatever growth Auckland experiences, and, finally, think about turning the whole thing into a framework for reducing uncertainty and resolving growth issues as they arise. 

We still need bottom lines

The bottom lines are the immutable, non-debatable features the community wants preserved. They will be given weight by being defined sparingly. Beyond volcanic cones, ranges, estuaries, wetlands, and shorelines they might relate to regional parks and open spaces (a town belt would be good), cultural heritage, iconic structures, critical infrastructure, and hazard avoidance.  Many of them we know about already.  Others will emerge from listening to the community. 

We cannot afford to overdo them, though, because we should be prepared to spend what it takes to secure, enhance, and preserve our bottom lines.  Relying on regulation is an inferior option.  If we cannot afford it, it may not be a bottom line that we can justify.

Make sure our infrastructure is affordable

Infrastructure is critical to community, economy, and environment.  Network services such as electricity and gas, water supply, wastewater, and drainage need to be integrated to deliver on all three fronts.  Like the transport network, they must meet the diverse demands of business and residential communities within a constrained physical – and fiscal – environment. 

The spatial plan is the place to pin down the key trunk services and their possible extensions.  It is also the place in the spatial plan to highlight the region’s critical infrastructure lifelines.

Beyond that, though, we need not rush the detail or commit to unproven investment.  The real key with infrastructure is its efficiency.  Does a major commitment lead to a commercial return?  If not, does it generate sufficient benefit to justify public expenditure?  The alternative is monumentalism – extravagant infrastructure spending for dubious returns. 

If the demand for major investment does not materialise the outcome will be lower aggregate productivity.  Over-capacity or redundant public projects add to the fiscal deficit, create structural distortions, and undermine economic performance.  The larger a project and the more imprecise the rationale, the more suspicious we should be. 

So let’s be sparing in what new commitments are written in and ensure that ill-justified works are not imposed on Auckland simply by inclusion within the Spatial Plan. Significant initiatives should be subject to the disciplines of rigorous evaluation both in their own right and as part of an informed view of how Auckland might develop.

And how might Auckland develop?

Envisioning the future

Ree Anderson suggested differentiating between things that work for individual places and Auckland-wide themes.  The vision should be discriminatory, but founded on realistic priorities and not a vague wishlist.

I’m a technician, not a visionary.  So I go to observation and measurement as my starting point.  Let’s first map where people live and where they work, socialise, and play today.  What’s here now will dominate Auckland’s activity patterns over the next thirty years.  And what people are doing today should provide some guidance as to land use needs tomorrow. 

But we should also look hard at emerging values and behaviours. We should think about inter-generational change in needs, tastes, and attitudes. We need to look and listen to diverse views to expand insights about the future and avoid extrapolating the limits implicit in our own knowledge.

We will find that distinctive communities and settlements are already being carved out within Auckland.  The spatial plan may have to provide for an emergent localism, and avoid submerging community character with a preoccupation with densities rather than people and places.

The emergence of distinct communities raises interesting land use possibilities in terms of encouraging – and allowing – people to meet future needs in a series of urban and ex-urban villages each with its own character. 

Acknowledging the limits to our knowledge of the future

Of course, we also have to explore options for accommodating population and employment growth.  Any detailed forecast of either is bound to be wrong. That has been the recent experience. Instead, projections should be undertaken to ensure that we maintain options, rather than to fool us into closing options down because we think we know now all there is to know about the future.

Better to stick with principles and leave choices to be made by future decision-makers rather than to anticipate particular outcomes built on current behaviours and knowledge.

So where will we develop?

There is a contrast between centralised and decentralised settlement, and the current thinking presumes that the former will – or should – prevail over the latter.  But perhaps we should avoid policies that promote one over the other. We have been slow in Auckland to acknowledge the reality and challenge of simultaneous concentration and decentralisation.  We need to cater for both.

Decentralised development need not depend on expanding the urban edge, though, the option implicitly favoured by present policies.   It might occur instead through the growth of distinctive centres along major transport corridors within and beyond the current Metropolitan Urban Limit. 

The spatial plan cannot necessarily pick where ex-urban centres will be or how they will evolve over the next thirty years. It might try to signal some of the more obvious candidates – Pokeno and Drury in the south perhaps, Warkworth and Wellsford in the north, Waimauku in the west and Beachlands in the east.  Beyond that, it can simply set out the conditions under which new, efficient, and attractive settlements might emerge and be linked.  Fortunately, Auckland’s new governance structure has increased settlement options within what has become a large unitary authority.

The role of the spatial plan, then, might be to set out the conditions under which different land uses might proceed, rather than to say what can or should happen, and where. 

What sort of plan? The physical framework

Bottom lines, urban villages, outlying centres, lifeline infrastructure, and land use principles can be tied together in the spatial plan, not as an exhaustive overlay of zones but as a framework around which the city can evolve.  The plan might provide for a string of centres across a strong linear transport network, a range of villages within the existing urban fabric, separated by leafy suburbs and parks, an iconic CBD as the meeting place of Auckland’s peoples and cultures, and harbourside, and the infrastructure needed to support these diverse places.  

The keys, though, will be the linkages between functional centres, not the boundaries between zones, and the principles which might be observed in the interstices rather than rules stitched into a map.  The plan should almost certainly identify those special bits of Auckland where we are prepared to meet the cost of avoiding change.  Equally, though, it should highlight the extensive areas that remain from which the changing needs of a city of growing communities might be met in the future.  

The plan can be flexible rather than exhaustive, at least in the first instance, indicative rather than definitive, informed by principles rather than prejudice, and transparent in terms of where the costs and benefits of its elements fall.

It should leave the detail open, subject to continuing development in light of the circumstances, preferences, the means, and the views of the day.   

Opting for simplicity and structure in the spatial plan might well provide the best way for the council can meet its 2012 deadline.  And keeping the plan general but informed might be just enough to satisfy diverse interests and expectations without making commitments that prove problematic down the track.

Auckland Spatial Plan – 1: A Plan for all Seasons

Resolving issues of governance, sustainability, economic development, etc, etc, etc

Building on the suggestion of an international review panel that Auckland should have just One Plan, the Royal Commission on Auckland Governance promoted the spatial plan as a unifying and integrating element for the region’s development under a single council.  The Commission commenced with the modest aim that the spatial plan would be “the starting point for the protection of Auckland’s environment and its heritage and the development of good urban design” (p199). 

However, it then set very high expectations for what the plan might achieve.

First, it suggested that the plan would “inform Auckland’s social and economic strategies, the regional policy statement and district plan developed under the Resource Management Act 1991, and specific service delivery strategies” but then it said that it should “coordinate plans for growth, economic development, and social well-being” (347).  It recommended an ambitious 30 to 50 year time frame. 

The Commission further stated that the spatial plan should:  

“analyse population, households, employment, major social infrastructure, open space networks, city-shaping infrastructure of roads, rapid transit, transport services, active transport networks including pedestrians and cyclists, water, wastewater, and stormwater networks, and major energy lines. It should identify the green and ecological network of the region, and areas that should be protected from all development and their natural values enhanced. It should identify growth areas for the region to accommodate urban population, and household and economic development, specifying timing, priority, methods, and agencies involved. The plan would address sustainability, outstanding urban design, a more efficient energy future, climate-resilient development, and the creation of cohesive communities” (531).

It said what tools should be used to prepare the plan, and proposed that it be informed by existing plans and by the new council’s own vision for Auckland, presuming concordance among them.  

It said that the Plan should feed “into the funding plans for key infrastructure (public transport, water, wastewater, stormwater, community facilities)”.  It would inform and be reinforced by an infrastructure plan for the region and be a tool for setting and enforcing Metropolitan Urban Limits. 

The compact city option

Peter Winder, CEO of the now defunct Auckland Regional Council outlined his take on Auckland’s spatial plan in September this year. He illustrated the incremental expansion of the urban area in the past, and its relationship to increasing mobility and an expanded transport network.

Peter highlighted the role of urban limits in planning for growth.  Initially, they were a tool for managing urban expansion.  Generous limits were drawn up in the 1950s in association with a commitment to major road network expansion.  Among other things, they helped open the north of the region to urbanisation following the construction of the Harbour Bridge.

In the 1970s, with revised planning legislation and growing economic uncertainty, a new concern to protect New Zealand’s primary sectors saw a hardening of metropolitan limits in a bid to preserve agricultural land in the region.

The rationale shifted again under the Resource Management Act 1991 as under the influence of Smart Growth proselytisers from North America, the Metropolitan Urban Limits (MUL) took on a life of their own in the interests of "sustainability".  No longer were they simply a tool for protecting valued rural or natural areas, but now they were an instrument for containing and reshaping the urban community.

To some commentators, this has been the source of problems – high cost land and poor housing affordability, a disincentive to industrial investment, traffic congestion and air pollution.  While there has been little definitive analysis to establish their merits in Auckland, MULs have been widely adopted as an urban planning tool.

Peter suggested that options for Auckland's future revolve around the pace at which expansion continues. Under these circumstances, the MUL would remain the defining feature of the spatial plan, whether that is the intention or not.

It was certainly explicit in the Royal Commission’s own policy stance:

“One of the key tools to secure a sustainable future for Auckland is to identify appropriate boundaries for urban expansion. The spatial plan will identify locations within existing urban areas where “densification” is appropriate in order to make public transport viable. Increasing sprawl would have an undermining effect on the provision of public transport and could make improvement unaffordable. Dense cities use less energy per person than the more dispersed model. For these reasons, the MUL is a key policy and the consequent control of land use will require significant enforcement efforts”.

This line of argument raises a number of questions. Despite the assertion that denser cities use less energy per resident, the costs and benefits of enforcing higher densities remains contested.  In any case, promoting land use plans to sustain a public transport preference smacks of the tail wagging the dog, a dangerous posture when public transport requires significant subsidy and its long term energy advantages remain unproven.

In any case, good public transport can lift long-distance commuting, enabling more people to dwell further from the centre.  This is not necessarily conducive to higher densities.  And given that commuting is a diminishing share of total transport use – and that public transport is an inferior option for non-commuting travel – the resulting dispersal may increase total transport demand .  

Peter’s options for the spatial plan echo the Royal Commission's argument.  They suggest that the rate of sprawl across the urban edge might be dictated only by the extent to which development can be forced upwards, and that this is desirable on the grounds that the higher the density the slower the pace of urban sprawl and the greater the prospect for viable public transport. 

Other than promoting increased densities, though, and protecting the obvious no-go areas, there is no sense of real changes or choices in the way we might live and work in Peter’s alternative maps.  Those that can afford nothing better will be confined to medium-rise living in crowded centres, and the others will do what they can to secure a place in existing suburbs, force their way over the city edge, or pick up a high amenity apartment on a central ridge-line or on the harbour edge.

Defending the city ramparts (keeping the hordes in rather than out) to support public transport is promoted as the means to shape infrastructure, dictate how we work and live, and incidentally, slow down an undifferentiated and undistinguished vision of growth by overspill.  Is that really what Aucklanders want?

Getting Real

I have raised concerns about Auckland’s spatial plan in previous blogs.   If it is seen as a panacea for all Auckland’s challenges – governance, sustainability, urban design, resource management, economic growth, community development – as the Commission seemed to think, the plan is bound to disappoint. 

The expectation that spatial regulation will determine economic and social behaviour echoes a long-discredited environmental determinism paradigm.  Its inadequacies have been well illustrated in the tortuous process of defending the 1999 Regional Growth Strategy with its own map and boundaries, and the long struggle since in getting Policy Change 6 in place so that the Regional Policy Statement might more effectively enforce this somewhat confined view of the world.

From ideology to expediency

We actually have the chance now to be more realistic in terms of what might be achieved through a spatial plan (and its bedfellow, the unitary district plan) and more pragmatic in our approach. Rather than defend our past positions,we might allow for the complexities of community and economic development and for the uncertainties that surround the future of housing demand, where we work, and where we play.

The Council’s commitment to completing the spatial plan quickly reflects a pragmatism and recognition, among other things, that any significant initiatives it might raise will need to be reflected in the Long Term Council Community Plan.

But haste also has its risks if expediency rather than reason prevails.  It could amount to little more than a recycling of a dated compact city paradigm; or designed simply to deliver the silver bullet of infrastructure spending.  It could inadvertently set up a master plan for locking down land use; or simply promote a planners’ view of how people should be obliged to live, a plan locked into the here and now of conventional wisdom.  That's what we need to avoid.

A framework for moving forward

Ree Anderson, Manager, Regional, Community & Cultural Strategy recently presented her thoughts on spatial planning to the New Zealand Planning Institute. In quoting the Torremolinos Charter she potentially turned two decades of spatial determinism in Auckland on its head:

Spatial planning gives geographical expression to the economic, social, cultural and ecological policies of society.

She brings four key components to the fore: balanced socio-economic development, an improved quality of life, responsible management of the environment, including built environment and heritage, and a rational land-use plan.  In effect, the spatial plan should be a reflection of society’s aspirations as these might be translated into policy, and not imposed on them to reflect a particular ideology or normative view of development.

Rather than proffering maps as options for her audiences to consider, she has invited responses around three possible elements of a spatial plan:

(1)    Big budget priorities – what public investments are needed, and where?

(2)    Place-based priorities – what needs to be done for individual localities?

(3)    Region wide themes – what needs to be done to make the region as a whole work better?

The notion of building up the spatial plan from understanding the physical limits to development, the communities’ aspirations, and the emerging character of local places, and those matters that require a region-wide perspective seems preferable to seeking region-wide conformity in development within a map of boundaries.

Keeping an open mind rather than extrapolating past preconceptions and practice is more likely to enable the region to deal with uncertainty and change.  Identifying what needs to be done and how – and what sits beyond the bounds of reasonableness – is likely to be more efficient and effective than exhaustive and fixed – and inevitably imperfect – prescriptions of land uses .  Getting the bare bones together, the foundations for planning, rather than trying to lock-down the future in master plan makes a lot of sense.

I might just try to respond to Ree’s challenge in my next posting.

Agglomeration - diverting attention from the basics

A bit more on agglomeration economies

In my last posting I pointed out that the advantages of business concentration are not evident in the relative performance of Auckland in New Zealand or Sydney in Australia.  Even if agglomeration economies benefit individual firms or sectors, they are not being translated into superior regional growth.

Of course this could be a measurement problem.  Perhaps productivity gains in the major cities are such that they achieve superior output growth even as employment performance falls behind smaller centres. 

And of course, the gross figures used hide the "composition effect": history means cities are made up of different mixes of business.  Cities with an abundance of growth industries do better than those with too many sunset industries. In this way cities go through cycles of growth, stagnation, and decline just like products or firms.  Maybe agglomeration economies exist but Auckland happens to have an “inferior” mix of activities compared with the rest of New Zealand or metropolitan Australia.

Sounding a Warning

So I have done some more analysis, summarised below.  Because it is little dense – and most of this stuff on agglomeration is – here is a summary of my conclusions. 

There is no evidence at all that business sectors have been advantaged by being concentrated in Auckland over the past decade (whether or not individual firms are).  In fact, there may be a (weak) tendency for location here to be a disadvantage: growth prospects might be better for the less concentrated sectors and for activities located outside Auckland.

This raises questions over policies promoting business concentration in Auckland, especially policies that presume higher land use densities will generate higher productivity and therefore growth.

A focus on such policies may have deflected attention from the basics: the cost of doing business in Auckland, its attractiveness to investment, and its attractiveness to skilled people.  It means we may have underplayed the diseconomies of agglomeration, the environmental, social and economic costs associated with boosting densities on ageing infrastructure, for example.  These arise from congested and costly services prone to disruption (including but not limited to transport), inefficient labour markets (because of the commuting distances and housing costs, for example), and overpriced land. These may be he areas most in need of policy attention.

Agglomeration economies offer Auckland no silver bullet. Rather, such things as the quality of labour, the quality of services and infrastructure, the quality of investment, and the quality of life all require at once a more responsible, responsive, and perhaps light-handed approach for Auckland to prosper.

Data on individual sectors

I have explored whether agglomeration in Auckland has conferred advantages on business by examining whether individual business sectors concentrated in the region (1) do better than other sectors less concentrated there and (2) do better there than the same sectors elsewhere in New Zealand. 

For this I analysed employment data (from the Statistics New Zealand website) for sectors defined at the four digit level of the New Zealand and Australian Standard Industrial Classification. I looked at the years 2000 to 2007 (a period of sustained growth) and 2007 to 2010 (a period of employment decline).  Primary sectors (agriculture, forestry, fishing, and mining) were omitted as they are not urban activities. Sectors with fewer than 200 employees in Auckland in 2010 were also omitted.[1] 

For each of the remaining 168 sectors I calculated a score known as the “Location Quotient” (or LQ) indicating how heavily they were concentrated in Auckland in 2000, and another for 2007.  A LQ of 1.0 means that the share of a sector in Auckland is the same as the region’s share of all New Zealand’s economic activity (measured as employment).  Anything over 1.0 means the sector is concentrated in the region.  Anything less than 1.0 means it is under-represented. 

The proposition

If a sector is concentrated in Auckland relative to the rest of the country this suggests that firms in the region should reap economic benefits from shared services, skills, supplies, and information. Consequently, these sectors should outperform other sectors in Auckland that are less concentrated and, more importantly, should do better in Auckland than elsewhere in the country.

Put simply, we would expect a high LQ to be associated with faster growth rates in the city. 

The big picture

To explore this proposition the 168 sectors are plotted on two axes in the following diagram. The horizontal axis measures their concentration in 2000 (increasing from left to right).  Anything with a LQ of more than around 1.3 can be considered significantly concentrated in Auckland.  58 sectors fell into this category, and another 30 had some degree of concentration (a LQ between 1.1 and 1.3).

The vertical axis measures their employment performance relative to the rest of New Zealand.  The higher the score, the better the sector performed in Auckland compared with the same sector outside the region.

Guess what? There is no relationship evident between concentration in Auckland in 2000 and how sectors performed over the next ten years. Sure, a few were concentrated and have done well (in the upper right area of the graph), but plenty of others have were concentrated and have done badly (lower right).  Equally, a number of the sectors that are less concentrated in Auckland have nevertheless performed well (upper left). 

Concentration and growth – or decline?

But there's more. If we want to measure the strength of any relationship between sectors concentrated in Auckland and their growth, we can estimate the correlation coefficient between the two sets of scores.  The correlation coefficient would be close to 1.0 if concentration does increase the likelihood that a sector concentrated in Auckland will perform better there than elsewhere. If the score is close to zero no such relationship exists.  If it is close to -1.0, then concentration in Auckland is actually associated with under-performance, the converse of what agglomeration theory and policies would lead us to expect.

A number of coefficients have been calculated to see if the level of concentration in Auckland in 2000 and 2007 is associated with how employment changes subsequently.  They have also been calculated separately for different groups of sectors.  The results are given in the following table.

They provide no proof that agglomeration economies favoured Auckland employment at all.  If anything, employment performance in Auckland over the decade tended to be worse than the rest of New Zealand (r=-0.22) if a sector was concentrated in Auckland the city at the beginning of the decade, particularly in commercial services (r=-0.31).  Although these relationships are weak, the point is that they are in the wrong direction!   

And the post 2007 shakeup had a tendency to be more severe among Auckland businesses in the industrial and distribution sectors, shown in the second part of the table.

The Correlation between Sector Concentration in Auckland and Employment Growth, 2000-2010

	All Sectors	Industry	Distribution	All Services	Commercial Services
(1) Relationship with 2000 LQ
Auckland Growth 2000-07	-0.09	-0.07	-0.09	-0.04	0.07
Auckland Growth  2007-10	-0.16	-0.07	-0.24	-0.11	-0.11
Relative Growth 2000-07	-0.18	0.05	-0.12	-0.35	-0.35
Relative Growth 2000-10	-0.22	-0.08	-0.26	-0.27	-0.31
(2) Relationship with 2007 LQ
Auckland Growth 2000-07	-0.14	0.08	-0.22	-0.20	0.01
Relative Growth 2007-10	-0.15	-0.21	-0.33	0.06	0.06

Note: Relative growth is Auckland employment growth rate minus rest of New Zealand employment growth rate

Proving the existence of agglomeration economies has become a major past-time for academics and policy analysts.  It’s all pretty arcane stuff.  Even the simple enough analysis outlined here contains limits and qualifications. 

But the results raise serious doubts over the value of policies that rely on the benefits of agglomeration to boost growth.  Or, worse, policies that manipulate land use to increase employment densities in the belief that this will somehow advantage businesses. These results, at least, suggest that at best such policies have no effect and at worst could disadvantage the region’s economy.

It may well be time to address the fundamentals about what makes a city an attractive place to invest and live in over and above aspirations to be the best simply by being the biggest. 

[1] There were 19 sectors with less than 200 people employed in 2000, accounting for just 1,420 jobs.

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