Resolving the housing affordability crisis
New Zealand’s rock star economy might just get deflated. Prices in the Auckland and Christchurch housing markets are growing at unsustainable rates. And when the bubble bursts, the implosion will be far-reaching. The solution proposed here addresses the critical issue – how to get the land market working effectively and efficiently. Without that, abstract aspirations for liveability in our main cities will, like a bubble, burst.
The solution is multi-faceted. It lies in:· acknowledging the centrality of land supply;
· changing how we think about urbanisation;
· bringing multiple sites forward for development;
· moving on six related fronts
- change traditional mindsets
- realign institutions
- regulatory reform
- rethink infrastructure
- rethink funding
- back off excessive prescription
I expand on these points below. If we can pull all this off, we might not only create a more productive, liveable city, we might also save the bubble blowers.
Sort the supply problem and the rest followsIt’s no news that that the housing affordability problem is multi-faceted. It’s tied up with fiscal and financial conditions, incomes, the size and structure of the market, inter-generational “competition”, the unpredictability of migration, the configuration of the building industry, and so on. But without resolving supply constraints, and especially land supply, forget initiatives in these other areas.
Get land supply right, though, and some of the other impediments might just melt away.The issue really is land. It is simple minded to think we can simply build our way out of a supply problem by Increasing building coverage and heights. Boosting densities within cities might help, but raises a number of other issues: the cost of replacing or extending ageing and under-capacity infrastructure, how to spend our way out of congestion, redevelopment of transport corridors, and obesity and other health and social issues associated with confined and crowded living conditions.
My suggestions focus on Auckland but with relevance, I believe, for other settings.
Changing how we think about urbanisation
Get away from the obsession with contiguity. Places aren’t urban simply because they are all joined up. Urbanisation has its roots in transactions, not simply being there. Better to think about cites as networks – a mass of corridors linking nodes across a variegated landscape. Take this approach and urbanisation and nature need no longer be in conflict.
Think outside arbitrary administrative constructs. In Auckland, we might start with a focus on the super-regional corridors, and the quality and strength – or potential strength -- of our linkages with the smaller cities of Hamilton, Tauranga, and Whangarei. Through this we can act beyond local constraints, as part of a potentially powerful and extensive crucible for New Zealand’s next round of development.
Breaking out the landA growing city is not homogeneous. Increasing land supply for urban development can and should take multiple forms.
Bring aboard multiple sites and forms of greenfield land. Within Auckland these can readily access and strengthen the region’s well-defined north-south access corridor. They can also be distributed in such a way that they extend but work within the realities of sub-regional and sub-urban housing and labour markets.
Think of townships as well connected urban nodes, without necessarily enveloping them within a creeping built landscape. In Auckland we can apply well thought through extensions to villages and townships – Wellsford, Warkworth, and Waitoki in the north, Waimauku and Helensville in the west, Whitford and Clevedon in the east, Pukekohe, Tuakau, and Pokeno in the south, all surrounded by bush and farmland, linked to each other and to the urban core by a dense network of roads and, for some, by rail.
And we can envisage of larger settlements closer to the existing built up areas, creating sub-urban communities with character as well as mass, some building on incipient development. In Auckland we have multiple opportunities that align with existing sub-regional communities but assume their own form and character: Think Dairy Flat and Riverhead in the north, Kumeu in the west, Beachlands-Maraetai in the east; Drury, Ardmore, Runciman, and Karaka in the south.
And for traditionalists still wedded to singular edges, contiguity, and sprawl, seeking to preserve the city within arbitrary limits there are still possibilities for pushing existing suburban boundaries outward beyond, say, Albany, Orewa, and Silverdale in the north; Massey and Hobsonville in the west; Wiri, Weymouth and Papakura in the south.
Suburban opportunities for selective intensification are still around. They will increase as boomers age and voluntarily or otherwise relinquish their particular legacy of modest houses on large plots. Medium density housing – perhaps by way of terrace houses and duplexes, low rise apartments, and especially residential villages (the retirement industry leads the way here) – offer the prospects of modest intensification without undermining communities or destroying the amenities which make the suburbs attractive in the first place. But the costs can be high and progress slow. Growing cities cannot wait around for successive generations to be bought or simply die off.
Brownfield development may be seen as the silver bullet at the moment, because it implies swathes of already urbanised land simply waiting for the first sod to be re-turned and deliver intensive inner city settlement. Well that’s not so easy. Issues around title consolidation, infrastructure rehabilitation, decontamination and the removal of hazardous materials, impacts on households and businesses in adjoining and proximate communities, the consequent battles for consenting, and the cost associated with often prolonged holding periods all-too-often turn brownfields into red ink or black holes. Brownfield development is no solution for a supply constrained city.
While we are at it, let’s put the CBD into perspective. It’s the leading office, visitor, and entertainment precinct in a city. But it’s not where many of the city’s population lives, works or plays. Sure, it may make sense to surround it with cheap apartments for Generation Zero to pass through, and where a very small group of the privileged may purchase a water-view, high amenity apartment. But even in our wildest dreams, that’s not a path to the affordability or the capacity that a growing city requires.
So resolving the supply and affordability housing crisis presumably requires action on all those fronts, and in a wide range of localities. One consequence of such an approach would be to reduce the capacity for speculative gains and land banking. Another might be to encourage and sustain the development of significant, medium sized developers and builders, moderating current reliance on a small number of large developers on the one hand, and a large number of very small builders on the other.
What to do?
All this is easily said. So how is it to be done? Here are some ideas.First, we have to change from the traditionalists’ mind set.
What we have today, or what we thought of yesterday, may not suit tomorrow. Tomorrow’s urbanisation may be more connected but less contiguous. Greenfield development need not raise images of never-ending suburbs or houses to the horizon, but of settled landscapes that are penetrated and defined by natural features and green corridors. Fields of green will stretch away from a diverse urbanised core interspersed with supplementary settlements – towns, villages, suburbs – connected to corridors that link a network of cities into a coherent economic and social unit across multiple administrative boundaries.But that’s getting ahead of ourselves.
More immediately, let’s throw off an outmoded mind set, and think about communities, not just housing. Urbanisation involves business and work settings, community centres, local transport and recreational networks, and houses – detached, semi-detached, multi-storeyed, high and low density. Don’t just count house sites when assessing potential; allow the land for a whole community. Then let the landscape, the designers, the developers, and the market –future residents – bring it about (subject, always, to appropriate environmental constraints). And think about how connections with other centres work rather than how to maximise densities in any one of them.Second, we need to realign our institutions. Simply moving planners from one Auckland Council office to another was never going to ramp housing supply up quickly in Auckland. Changing planning rules around Auckland’s plan may have slowed the process and dimmed the prospect for significant early movement as well.
How about setting up a government agency charged with assembling or defining the areas of land throughout Auckland and adjoining regions that might be brought to market? A development corporation might tag or even purchase, consolidate, and then on-sell land for urbanisation, or put it out for tender to develop with some clear social objectives included.A complementary approach would be to draw on development agreements reached between council on behalf of community and developer. These would spell out required (and realistic) outcomes as a condition of proceeding with the development of substantial parcels of land. This approach should give more satisfactory outcomes than relying on the long-winded consent and appeal process encouraged by the Resource Management Act which may only achieve a compromise between public and private objectives.
The proposed approach would need public input, though, so that as the agent of the community the local council would have a clear mandate regarding what provision for community amenities and infrastructure should be provided for in a development agreement.Third, we need to change the regulatory framework within which it so is comfortable for traditional minds to remain wedded incrementalism and yesterday’s answers. I have discussed elsewhere an initiative that might help, the rejigging of New Zealand’s environmental and local administrative legislation.
Fourth, rethink infrastructure supply. It may be time to get away from monopolistic suppliers wedded to old technologies and allow the innovative to seek out and apply more localised solutions to such matters as water supply, wastewater disposal, solid waste handling, and even power generation and distribution. Of course, most alternative initiatives tend to be small in scale and currently relatively expensive to implement. Costs tend to be dropping, though, and people may be prepared to pay a little more if resilience is increased and running costs are low. One way or another the door needs opening to innovation, modernisation, and increased resilience, if for no other reason than to push current suppliers down this path. (I also wonder whether localised solutions are really more expensive than gold plating the capital works applied to large scale, monopolistic services).Fifth, rethink funding. Why should future owners fund upfront the long-term infrastructure required when purchasing new homes given the value they bring to a community by playing an active role in its social and economic life as well as assuming a share of current fiscal liabilities.
The real beneficiary of development is the party that sells land into a higher value use. So a development levy on the profit realised from the sale of rural land into urban use, an underutilised brownfield site into intensification, or a large single-dwelling suburban site into apartments might be a more expeditious means of funding the works required to realise the enhanced potential.
Another possibility is to promote the commercial funding of infrastructure. Privatisation of energy companies has facilitated this. Competition has been allowed into solid waste collection. The creation of council controlled organisations for the provision of local infrastructure, however, hasn’t necessarily achieved improved funding.
Commercial entities, whether investors or operators, can be expected to define an appropriate level of service and find efficient means to achieve it. The long-term income streams may be an attractive proposition for bank lending (especially in deflationary times) or for the issue of high ranking bonds to raise finance. They might also attract private and public equity. There are plenty of examples – but we need more effective coverage of local infrastructure. Regionalised entities for basic services can reflect the particular needs and circumstances of communities and tailor development options rather than simply extend the old system to new users.
Sixth, back off prescriptive plans by local councils and instead require that spatial plans set out long-term, broad-brush land use options and a commitment to where public money will be spent on public services and amenities. This should help shape a city in ways that the community wants. It should also supply sufficient certainty for providers of infrastructure and services to plot their own investment priorities and programmes subject, of course, to their capabilities and risk management policies. And where they fall short, expect other suppliers to step in.
The role of risk: moving to “Why not”Risk and how it is treated may well lie at the heart of the problem. Rather than evaluating risk and adopting protocols which allow for it without undermining the capacity to innovate and extend, policy makers in public institutions and monopolies appear to manage it by sticking with what they know, through imitation, replication, and repetition, and by the simple expedient of saying no: “Why should we?” This is a sure recipe for constraint – of supply and of opportunity.
I wonder if the biggest risk, the one that explains this conservative attitude, is that in pricking the housing bubble we might just bring the bubble blowers down. Any significant readjustment of the housing market would hit the banking sector the hardest. The American experience shows us what the banking sector does when it gets hit. The community, economic and the political consequences of widespread mortgage foreclosures and business failures loom large over the whole housing crisis.If nothing else, an approach to managing the release of additional land supply that identifies and works through multiple sites and agencies, that helps to free up and fund the infrastructure sector, and boosts the development and construction sectors would moderate any such impact. It might even allow the banks to participate in the transformation we need in the housing market by moving some of the current funding from houses to infrastructure, .