Wednesday, April 10, 2013

More land, more jobs more incomes – addressing the other side of the affordability equation

Boosting residential land supply is a start

In my last blog I argued that boosting residential land is necessary but not sufficient to achieve affordable housing.  Industrial, institutional and investment issues also play a part, but massaging demand without freeing up supply won’t solve anything.  
In this post I look at the other side of the affordability equation: how do we increase our incomes to match our housing aspirations and needs?  Once more,my focus is on Auckland - but the point made, I think, is relevant elsewhere. 

Delivering land for employment needed to lift incomes
I address just one issue,the supply – or rather the scarcity - of business land.  This is one investment barrier that planning can influence, and needs to if the council is serious about delivering a truly liveable city.  Because most people will want to live where they can make a decent wage.

If business land is in short supply or expensive to develop, establishment costs go up, deterring investment.  If it is in the wrong place labour and transport costs go up, deterring investment.   And without continuing investment in new and existing business, jobs and incomes suffer.  And if incomes stall, housing affordability diminishes.
And we don’t have it yet
Put simply, the message about business land is that there is not enough of it in Auckland and that hurts employment and incomes.  What we do have has often been the wrong sort in the wrong place. Consequently, where good land exists it is highly priced.  Like the prevailing approach to residential planning, this approach rations land rather than utilising it to best effect. 

Planning for Business in the compact city
A key component of the compact city doctrine behind Auckland’s unitary plan has been an expectation – or requirement –that the city can cater for an expanding workforce by encouraging firms to intensify their development – to “do more with less”. To this end, the Auckland Regional Council spent a lot of time estimating how many employees could be squeezed into existing zoned areas (by increasing building height, site coverage, and the like) and how much of the residual vacant land in the region could be absorbed before having to zone the larger parcels that the market was interested in and perhaps create a large enough pool of sites to keep prices in check.

Unfortunately the business land market does not work like that.  Businesses grow and decline.  They invest in expansion, they relocate, or they enter new markets.  And in each case they have particular requirements of the sites they invest in.  If available zoned land doesn’t tick the boxes, they won’t use it. 

More numbers, growing gap
Regular reports quantifying “the gap” between estimated demand and estimated supply have not been especially helpful.  They overlooked the development and access difficulties of the “vacant” sites that they managed to identify, their small size, and the fact that many were simply unavailable. 

They also failed to recognise the mismatch between where any vacant land was compared with where it was wanted.  And by failing to address the needs of sub-regional labour catchments and dispersed investment opportunities, they perpetuated the costly cross-regional commuting and associated congestion necessary for many Aucklanders to meet both work and housing needs. 
A focus in the draft unitary plan and underlying spatial plan on consolidating employment in and around the CBD and focusing transport investment on the central city will make matters worse, given the much more rapid population growth and greater residential capacity of suburban Auckland.

Rationing land to get some sort of numerical match with projected employment growth meant that what little quality industrial land that was ready to go – where it actually existed -- was (and remains) highly priced. Rather than encouraging higher densities (and, by some obtuse logic, higher productivity) this approach is more likely to discourage investment and suppress employment growth because no suitable land is available, because the costs of entry are too high for new investors, or because under such a regime land banking becomes an attractive option for existing owners. 
How much industrial land is available?
In 2011 we estimated around 1,460ha of zoned vacant industrial land in Auckland, but only 550 ha “ready to go”, with perhaps 70% of that (400ha) suitable for development.  And that’s probably generous. 

Recently, retail analysts at CBRE in March 2012 said that:
Currently zoned industrial land classified as vacant amounts to 1,148 hectares although this headline figure is largely meaningless in a real world context. The land market is highly fragmented which means that a wide range of development barriers exist that, at any given time, prevents the take up of a significant portion of land classified as vacant. Options also reduce significantly at higher parcel size thresholds especially for heavy industrial land uses.
So what’s happening today?
A shortage of suitable industrial land was seen as one issue that the new Auckland Council might tackle.

It’s not clear that it has done so.  The Unitary Plan talks about possibilities and the need for more planning.  It suggests that there is 510 ha, of brownfields land for redevelopment, 430ha in the planning pipeline and a 1,400 target for greenfield land., and that together these sources will  provide “109ha/per year for 30 years”.  But this is subject to the “ongoing audit process” depicted in the following table:

Source: Auckland Unitary Plan Implementation Addendum

It’s not clear whether this is a ten or twenty year timetable, but it does suggest that we still don’t know a lot about what we have got at the moment, and what we might expect in the foreseeable future.  Instead, it simply specifies a planning mechanism to manage a pipeline comprising five, ten, and twenty year targets.  It seems to assume we can predict when, where, and how much land will be required.  Such an assumption ignores our past inability to forecast demand and supply with any credibility, and appears to overlook the protracted timeframe between conception and delivery.

And if this approach continues to impede a well-functioning commercial land market, the opportunities for businesses expansion, new investment, and the income growth necessary to increase access to housing will be curtailed

But there are more direct ways of addressing the problem of scarce, expensive, or overpriced business land.  Here are a couple of current success stories.
Success Story 1: Highbrook Industrial Park
Highbrook Industrial Park comprises 107ha of developable land and 40ha of parkland 18 km southeast of Auckland CBD.  This got underway in 2005, four years after approval, with over 530,000 sqm in floorspace capacity.  Just seven years after development, almost half of that capacity has been absorbed (261,000sqm) –t hat’s around 7ha a year in just this one locality during difficult economic times. 
Development continues and a 25,000sqm retail and service centre will open later this year. 

Highbrook Industrial Park - Industrial Infill in the Urban Area

Some lessons from Highbrook:

  1. The planning and development timetable was protracted, although progress since has been rapid. We need to be aware of the time from concept to delivery and do what we can to ensure we have plenty of land in the pipeline to cope with this (and do what we can to speed up the planning and development process). 
  2. Allowing for parkland, site coverage is relatively low at 35% (but 50% of developable land). We need to recognise that modern industry and commerce is not necessarily going to be attracted to high density, high cost sites, and need to reflect preferences for space and amenity in our plans.
  3. There is a real mix of occupants – from industrial, though logistics, to retail, services, and offices.  In planned and well integrated environment these work well together.   It is hard, though, to predict the future form and function of the businesses and business complexes we need to provide for.  Better to plan business estates to meet environmental (and community) performance standards, rather than prescribing what activities are allowed to locate in them. 
  4. A large scale site with large individual lots diversifies the range of organisations that can locate there and creates opportunities for lowering impacts on surrounding communities and the environment, while delivering amenity that will attract investment, even in adverse times, and employment.  We need to be generous in our land allocation to achieve satisfactory land use outcomes. 
  5. Highbrook is located close to a growing residential suburb.   If we are serious about cutting transport costs and congestion and consequently lowering the costs of employment without lowering incomes we need to ensure that we provide adequate business land close to the suburbs where the majority of the workforce dwells and to those places where we plan to locate new housing

Given the quality of the Highbrook land and scarcity of competition, occupation costs are not particularly low.  But demand has been and continues to be strong.  This shows how much demand there is for land of the right quality, scale, and right location.
Success story 2: Pokeno Village Estate
The Pokeno Village estate is a new 400ha integrated development of relatively low cost residential and business land.  It is in a rural location less than an hour from the Auckland and Hamilton CBDs to the north and south, and two hours from New Zealand’s principle export port at Tauranga.  It is on the rail system and a minute or two from State Highway 1. 

And it is getting set to grow – with the recent announcement that Chinese company Yashili International Holdings has recently got approval to invest in a $212m infant formula factory there. 

Pokeno Structure Plan - Integrated Urbanism in  a Rural Environment

Some lessons from Pokeno:

  1. It is possible to create well-planned urban areas outside the metropolitan area that can provide complementary residential and business opportunities at a single location;
  2. Location remains important – good connections to key nodes and markets can be achieved without being in the centre of any one of them;
  3. A quality residential environment and the public domain will add to the attraction of the locale;
  4. And a village environment in the right locality gives residents easy access to the rural, natural, and coastal environments that lie at the heart of Auckland’s appeal.

The Big Lesson?

We need to address the questions of where people will live and where they will work jointly. 

Let’s hope that the Mayor’s and Minister’s bureaucrats take a note of this when they get together to mull over how to solve Auckland’s housing crisis.

New opportunities for business investment can be created around Auckland, but not necessarily within the contiguous urbanised area. 
But they can allow for generous, integrated planning that will enable Aucklanders’ aspirations for housing work, living, and lifestyle to be met.  They do not mean sacrificing rural output, urban productivity, or environmental quality.  But they will require a more creative, generous and responsive approach to the needs of the city’s people and businesses than has been evident in our planning for the last 15 years.

And bit by bit we can expect such initiatives to help rationalise the markets for both business and residential land.

1 comment:

Mark said...

good points - Another issue though is as business move to design/build modern, which makes them more productive, Council has no understanding of how to deal with old industrial.