Wisdom or Doctrine? Democracy and Planning in Auckland

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.

Living in the CBD - or Simply Passing Through?

Liveability on a pinhead
The CBD accounts for under 0.1% of Auckland’s land area.  Yet Auckland Council is boosting it as a key to its ambition of making Auckland the world’s most liveable city.  Spatial and transport planning and infrastructure investment are all geared towards this. Among other things, plans include tripling the CBD population based on promoting medium to high density apartment living.

It has to be asked who this benefits?  Sure, the notion of laid-back café culture in the CBD may work for middle class Aucklanders. It may encourage people to visit more often, and stay longer.  But who wants to live there?  And who lives there now? 

The Data
I addressed these questions with a little number crunching using the 2013 Census. I divided Auckland into four areas for illustrative purposes: the CBD itself, the surrounding inner city Census Area Units (CAU); the Rest of the Auckland Isthmus (the city’s central and longest-established suburbs); and the Rest of Auckland.  The latter takes in suburbs to the north, west, and south, and rural areas.  It encompasses diverse, growing communities also worthy of analysis if plans are to be sensitive to local circumstance.  However, they are not the focus here.

The CBD is booming (in a small way)
At 26,300 people the CBD accounted for 6.6% of Auckland’s population in 2013.  It grew at a high 5.8% a year from 2006 (albeit from a low base) and accounted for 7.5% of Auckland’s growth. The “outer central city” grew at 2.6%/year, and housed another 10,000 residents.

The Rest of Isthmus grew pretty slowly (0.7%/year), but still accounted for 18% of Auckland’s growth. 

Even at a modest 1.1%/year the Rest of Auckland, however, accounted for 73% of growth, confirming that suburban living remains the popular and practical choice for most Aucklanders.

A transient population
So, in residential terms the CBD is a bit player.  Its residents are also distinctive: Census statistics show just how unlike the rest of Auckland it is. 

The CBD may be a great place to visit, but living there appears temporary.  Only 11% of residents were at the same address five years ago. 46% were overseas and 41% elsewhere in New Zealand (Figure 1).  73% were born overseas, with 53% of 2013 residents Asian (Figure 2), compared with 23% across the city as a whole.

Figure 1: Years Living at Current (2013) Address

 

      Note: In this and following graphs percentages sum to100% within each of the four areas

 

Figure 2: Ethnicity

 

Packing them in
The CBD is densely settled with 31 dwellings/ha compared with just 15/ha in the outer parts of the Central City and 8/ha across rest of the Isthmus. 

The heart of the CBD, Central Auckland East and Central Auckland West CAUs, is the most intensively settled area in the city, with 50 dwellings/ha and between 100 and 109 residents/ha.  These compare with medians of nine dwellings and 30 people/ha across the 298 predominantly residential CAUs in Auckland (defined to exclude CAUs with under 5 houses/ha, thereby omitting predominantly rural, commercial, and industrial areas).

The dwellings
CBD housing is dominated by small units and rentals.  Only 26% of residents own the homes they occupy (in part or whole, privately or through a trust).  This compares with 58% elsewhere on the Isthmus and 67% beyond the Isthmus.

The majority of dwellings in the CBD are apartments, units, or townhouses (Figure 4). And they are generally small, with only 10% having more than two bedrooms. A high 47% have only one bedroom (Figure 3). 

Figure 3: Dwelling Type

 

Figure 4: Number of Bedrooms per Dwelling

 

The People

Not surprisingly the CBD population is dominated by young adults (Figure 5).  35% are aged 15 to 24 (the age of tertiary education) and another 35% are aged 35 to 34, the family formation/career development age group.  The all-Auckland figures are 15% and 14%.  Only 12% of CBD residents are aged over 50, compared with 29% city-wide.

Figure 5: Age Structure

 

A youthful population is distinctive in a number of ways.  32%of CBD residents study fulltime compared with 13% across Auckland.  Fewer are in long-term relationships, with 41% partnered compared with 59% city-wide. 

There are fewer family households than in other parts of the city (Figure 6), and fewer of those families include children (Figure 7).

Figure 6: Household Composition

 

Figure 7: Family Status

The list goes on

CBD residents are different. They generally fall into lower income groups; they are more likely to be unemployed; they are less likely to hold senior management or professional positions than residents of other parts of the Isthmus; they are more likely to be in sales or service occupations.

The lessons are clear
The residents of the CBD (and surrounding areas) do not represent Aucklanders.  Recent CBD growth does not indicate a switch in housing preferences.  The CBD population is transient, people passing through: migrants arriving, students studying, young people commencing their working careers, relatively few settled relationships, and so forth.  It is not a place of families and children, of people settled in their jobs and housing, or of retirees.

For those people, the preferences remain for three or four bedroom dwellings, a little space, and suburban living. 

If Auckland's plans continue to elevate the high density living options tuned to the youthful, the transient, and the less well-off, they will fail the majority of Aucklanders.

The consequences
The message is not new, but the 2013 data reinforces it.  Plans and policy must front up to who wants to live where in Auckland, rather than imposing a narrow model of urbanism based on an unrepresentative demographic profile that overrides the city’s physical and social realities. 

New housing would ideally be directed to more expansive areas throughout and beyond the city, areas that offer the best opportunities for community amenities, employment, recreation, and connection without congestion. 

An obsession with increasing densities in and around the CBD and on ageing arterials won’t deliver that.  It will instead undermine rather than lift the city’s liveability. 

Cities Don’t Consume Resources, People Do

Urban form or urban consumers?
If we want to reduce the environmental impacts of modern society let’s prioritise consumption, not city form.  The evidence suggests that large cities (and especially city centres) are associated with a bigger environmental footprint than modest cities or suburbs. 

This post looks at incomes and consumption, especially the consumption of housing and transport services, asking how far can local regulation really influence environmental impacts?

What can local governments do about the environment?

Local governments have two core roles.  One is to ensure that the infrastructure and services necessary to sustain everyday life and commerce are in place and working well.  In fulfilling this role they should aim to enhance the quality of the urban environment and limit any environmental impacts of infrastructure. 

The other role is to plan and manage development in a way that reduces conflict among land uses.  In doing that they should aim to contain or control adverse spill-over impacts. 

However, for councils to use their investment in infrastructure and land use regulation to determine in detail how and where people should live and consume pushes the boundaries of these roles, particularly when they try indirectly to reshape household behaviour by reshaping the city.

The key to understanding the environmental impacts of urbanised society is not urban form but household consumption, a function of income, not city plans.

Urbanisation and environmental impacts

In my last blog I showed how policies to increase residential densities around city and town centres assume a relationship between urban form and environmental impacts that is not supported by the evidence . In Australia, for example, residents of the New South Wales state capital, Sydney, particularly central Sydney, have by far the largest environmental impact per head.  Much lower levels are recorded in suburbs, smaller cities, and towns. (The same pattern is evident in all Australian states: have a look using the Australian Consumption Atlas).

The environmental impacts of intensive urban living outweigh any advantages of increasing scale and density. This means that policies that push agglomeration and intensification will increase rather than lower the impacts of urban living.

Household spending is the issue

The Australian study confirms that a city’s environmental impacts simply comprise the collective impacts of its residents.  Income is the driver of their consumption and thereby their demands on the environment. 

If we really believe city form can in some way over-ride income- and consumption-driven environmental impacts, then we should heed the evidence, and plan for modest, small scale, dispersed urban settlement. 

Spending on housing and transport in New Zealand

Household Expenditure Survey data for New Zealand (and elsewhere) provide an opportunity to explore the role of income in consumption generally. 

First, take a look at the distribution of spending on housing, transport, and discretionary goods (recreation and cultural services is used to represent the latter category) according to household incomes in 2010. Average spending levels have been organised by income decile for this purpose, each group containing 10% of households. Average incomes increase from decile 1 (the lowest earning 10% of households) to decile 10 (the highest earning 10%).

The pattern is pretty predictable.  Housing dominates the spending of low decile households.  It accounts for 34% in the lowest decile, falling to 22% in the ninth.  It rises again (to 24%) in the highest earning decile (10). This lift between decile 9 and 10 households no doubt reflects higher discretionary spending in the latter group by way of additional space, the quality of fit-outs, and second homes. 

Shares of Household Spending to Selected Categories, by Income Band

   

Do lower housing costs lead to higher transport spending?
Rent theory suggests that lower household spending is offset by higher transport spending.  This is because low income households can only afford cheaper, less accessible properties and so end up commuting further at a higher cost than high income households. 

It turns out that it’s not that simple.  Contrary to the theory, higher income households actually spend more of their income on transport.  That makes sense when we realise that commuting accounts for only around 25% of time spent travelling by New Zealanders.  The capacity to take discretionary trips is a bigger determinant of transport consumption than non-discretionary commuting and work-based trips.

The Relationship Between Spending on Housing and Transport

 

 

 

Lower incomes leave a lot less to spend on discretionary goods and services once housing and essential transport spending are covered.[1] Higher income households can and do travel more and consume more.  Their behaviour is unlikely to be significantly influenced by changing city form.  

Who spends how much?

Not surprisingly total consumption in New Zealand is dominated by higher income households: the 20% highest earning households (deciles 9 and 10) account for 35% of total spending on goods and services, while the lowest earning 20% (deciles 1 and 2) account for just 20%.

And decile 10 households account for 7 times more spending on transport than decile 1 households.  They spend 5.5 times more on recreation and cultural services, and 3.5 times as much on food.

 

The Contribution of Household Total Expenditure by Income Band, Selected Categories

 

The highest income households spend three times more on housing than low income households, an average of $476 per week compared with $161.

If refurbished housing in high amenity inner city living is expensive, guess which income groups will be living there?  The high consumers, obviously.  And in Auckland, at least, it seems that city planners and policy-makers are keen to deliver them the high order consumer services that will promote ever-more discretionary spending around the CBD(although much of central city resident travel may be taken up with recreational and social trip-making away from there).   

A high social cost for little environmental benefit?
The conclusion is straightforward: higher incomes mean more expenditure on additional housing, transport, and discretionary goods and services with correspondingly high environmental impacts.  If incomes are higher in cities, then their collective impacts will be high too. 

Planning policies won't change that much - except to the extent that they erode consumption by inflating the basic costs of living, something that impacts most heavily on lower income households.  

Fiddling with city form is unlikely to significantly reduce the impact of higher incomes and associated spending on the environment.  Increasing dwelling and living costs by promoting larger cities, higher residential densities, and uneconomic transit systems simply penalises low income households already committing substantial shares of their spending to housing and transport.  And this is the group that, by dint of constrained consumption, has the lowest impact on the environment. 

Better to address environment issues directly
From a policy perspective, environmental issues are better tackled directly.  This may mean promoting environmentally friendly goods and services, promoting low impact technologies (including low impact housing, fuel efficient vehicles, and the like), and encouraging responsible consumption. If we are really serious about environmental threats, we need to examine the efficiency of current pricing practices and even taxation measures, rather than leaning so heavily on clumsy, indirect, and ultimately spurious urban planning policies. 

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[1]           Overseas spending is omitted from discretionary spending here as it is included in the catch-all category “Other Expenditure", which accounts for 6% of decile 1 spending and 11% of decile 10.

Are 20th Century Models Relevant to 21st Century Urbanisation?

Urbanisation and material progress

Analysis of the state of the world’s cities 2010/2011 by UN-Habitat focused on the narrowing urban divide, with 227 million people moving out of slum conditions over the preceding decade.  While acknowledging uncertainty over cause and effect, the report notes that:

urbanization ... is associated in some places with numerous, positive outcomes such as technological innovation, forms of creativity, economic progress, higher standards of living, enhanced democratic accountability and women’s empowerment. ... the report calls for policy-makers and planners to understand that urbanization can be a positive force for economic development, leading to desirable social and political outcomes.

The North Atlantic solution

The report acknowledges the diversity of urbanisation[1], making its authors' somewhat singular approach to managing it (more density) incongruous.  Their prescription is based on resisting urban sprawl, reflecting the experience of North America.  They also suggest that sprawl is a sign of “divided cities”, translating into

an increase in the cost of transport, public infrastructure and of residential and commercial development. Moreover, sprawling metropolitan areas require more energy, metal, concrete and asphalt than do compact cities because homes, offices and utilities are set farther apart.

The report denounces sprawl in suburban zones of high and middle income groups and in extensive slums on the city edge.  On the latter, they invoke issues of governance, saying it occurs because

authorities pay little attention to slums, land, services and transport. Authorities lack the ability to predict urban growth and, as a result, fail to provide land for the urbanizing poor.

Can one size fit all?

It is difficult to accept prescription predisposed to a particular view. Urbanisation is not a single condition. Differences in the stage of urbanisation, vastly different physical, cultural and economic settings of “urban” settlement, and different institutional arrangements belie the idea of a universal response or that any particular form is best for all cities. 

Apart from anything else, “western” cities [2] don’t really feature in 21^st century urbanism.  Consider the figures.  In 1950 western cities accounted for 43% of the world’s urban population.  This was down to 23% in 1990 and 18% in 2010. UN projections have the figure down to 15% in 2030, accounting for between just 3% and 4% of all urban growth between now and then.

What Size City?
This post looks at some more numbers that help illustrate the diversity of urbanisation – the size of urban settlements. 

According to UN figures,  8% of the world’s population lives in 53 cities housing over 5 million people; 12% in 388 cities of between 1 and 5 million; and 31% in cities of under 1 million. Any prescriptions for urban governance and urban form need to reflect quite extreme divergence between the few megacities and the many smaller settlements where the majority of urbanites live.

The Urban Growth Trajectory
Urbanisation experiences vary, also.  The different national experiences of the past 60 years can be illustrated using ten quite different countries (Chart 1).  By 2010, Brazil, US, UK, Mexico, and Iran were all heavily urbanised.  But the level of urbanisation changed little for the US and the UK over thelate 20th century, while it grew rapidly in the others.

In yet another trajectory, erstwhile rapid urbanisation in Russia stalled after the mid 1980s. 

Chart 1: Urbanisation Trends, Selected Nations, 1950-2010

Urbanisation is accelerating in China, but has flattened off in Indonesia.  It has been increasing steadily in Nigeria and slowly but still steadily in India.

Most people moving into smaller cities
Chart 2 shows shares of growth by city size groups over the last twenty years. (Russia is omitted because urbanisation actually declined by 5.5%.) 

Cities of under 1 million residents dominate gains, strongly favouring developing countries.  They accounted for 90% of urban growth in Indonesia, 71% in Nigeria and 66% in Iran. 

US experienced growth more or less across all size categories, although Chicago went from the 7m-8m to the 8m plus category, reducing down the former.

Chart 2: Where Populations Grew - Cities by Size Category, 1990-2010

Brazil, China, and Indonesia saw significant growth across the most size groups.  There appears to be a contrast within these countries between the centralising influence of few large cities and dispersed urbanisation in many much smaller settlements.

(The picture for the UK reflects a gain of around 1 million people in London -- to 8.6m -- shifting it between categories.  Smaller cities actually accounted for 82% of the net UK gain in urban population, suggesting a duality between the growth of the capital and decentralisation through growth in smaller settlement). 

So where are the big cities?
The US has five urban agglomerations with a population of more than 5m, centred on New York, Los Angeles, Chicago, Philadelphia and Detroit (Chart 3).  Compare this with China, with twelve cities of over 5m, and five cities of more than 8 million people (Shanghai, Beijing, Chongqing, Shenzhen, and Guangzhou); or India, with eight over 5m and three over 8m (Mumbai, Kolkata, and Chennai).

At the same time, China has 90 cities of between 750,000 and 2m, India 44 and the US 66.  Mexico has 15, Russia 14 and Brazil 13. 

Chart 3: Number of Cities by Size Category, Ten Nations 2010

Primacy – a mixed picture
Single centres that dominate national populations are termed “primate”.  Their rise and fall may be symptomatic of national economic fortunes.  Excessive primacy may increase economic volatility because the contrast between a rich centre and poor periphery is politically destabilising. One centre dominating financial, human, and intellectual resources may also increase national vulnerability to structural decline.

The picture is mixed across our sample (Chart 4).  Mexico City and London stand out.  High levels of primacy are also evident in Iran and Indonesia, but have been easing, contrasting with Nigeria where it is increasing.  It is least pronounced in the countries with the largest urban populations – China and India -- suggesting a strong population pull from a number of state or provincial capitals, as well as a host of much smaller cities.

Chart 4: Population Share of Largest City, Ten Nations, 1990 and 2010

So what does all this mean?

The data confirms huge diversity in the sizes of cities people live in across and within nations.  It generates more questions than answers, though, the main one being whether it is relevant simply to transfer urban governance, management, or planning models from one place to another.  Apart from contrasts within and between nations, it is clear that the west is no longer the focus of urbanisation and is unlikely to hold many of the answers to today’s urban growth challenges.

The evidence also indicates a tendency for urbanisation to take place in small, dispersed settlements rather than mega-cities.  More modest scale makes different demands on infrastructure and institutions.  It may also help manage urbanisation and ensure that benefits can be better accessed by larger numbers of people.  Small cities, sub-centres in large cities, and districts of modest scale may be better suited to adaptable and innovative planning and management than large scale, extensive cities with their more centralised, remote, and inevitably bureaucratic political and administrative systems. 

Very large agglomerations do exist, even if they are not as dominant in the wider urban picture as their size and profiles might suggest.  The question they raise is whether they should continue to dominate national and international agenda for urban growth and management.  Dispersed urbanisation may better reflect the resources and capacities needed to support an exploding urban population in the 21^st century.

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[1]  The lowest level of urbanisation incorporated by the UN depends on the conventions of individual nations but may refer to settlements with as few as 2,000 people.

[2] Treated here as North America, Northern Western and Southern Europe, and Australasia