Tuesday, December 7, 2021

Auckland Cannot Afford Light Rail

 A  long and winding trail

The October report from the Auckland Light Rail team promoting tunneled light rail from the City Centre to Mangere continues a history of reports built on aspiration rather than evidence. Like its predecessors, it is long past its use-by date.

A proposal for underground rapid rail proposed by American consultants failed to get traction in 1965, a classic case of a landmark project that could not be justified.  

That has not changed. Regular rejigging of the dream since 2009 is a case of a solution looking for a problem. In an earlier post I looked for a consistent rationale for light rail.  All I found was:

considerable variation in the policy trail regarding what LRT services might be required, and in what order: long-term cross-regional commuting? linking the inner Isthmus suburbs and the CBD? lifting capacity between the outer Isthmus suburbs and the CBD? or linking other employment centres (Westgate, the airport) with the CBD?

It seems a decision has now been made.  It is not a sound one.

Who will use it?

CBD commuters? Not many. Jobs in the CBD declined by 7% last year. Over half were in the business sectors that accounted for well over 50% of CBD growth in the previous 20 years. Expect further falls: this is the sector in which the largest share of jobs can be done remotely. 

As it is, the CBD accounts for just 14% of Auckland’s jobs. Its where fewer than half the commuters rely on cars. Most arrive from the northern or the eastern suburbs. Very few will be using light rail from the south, and most have bus options.

Inbound travellers? Forget it. Mass tourism has tanked and there is no saying whether or when numbers will recover.  Anyway, it relies on coaches. Independent travellers hire vehicles at the airport, or head directly to their accommodation by taxi or shuttle.  Some outbound travellers may use rail if they live nearby and are not encumbered by cases, while inbound locals will usually head directly home with their meeters and greeters.

Mangere workers? A few, perhaps. The area employs 34,000 people, 80% on and around Auckland Airport. The majority come from across South Auckland, though, and a few from the west. Light rail running north doesn’t meet their needs. 

Non-work trips? There may be demand for Isthmus-based trips for purposes other than commuting. But given the many origins and destinations for personal, social, retail, and education trips, flexible modern buses provide a far more cost-effective option.

So, it is hard to see market support for the optimistic projections underpinning the report (p32).

 

Does it stack up economically?

Even assuming the projection of boardings is reasonable, a total benefit of $11.6bn for Tunnelled Light Rail is no more than “broadly commensurate with costs” (at $10.3bn).  Costs and benefits are summed over 60 years and discounted at 4%. These are geared to justifying projects with high upfront costs and a long payback period; in other words, high risk, low productivity projects.

It gets worse. It is not clear that the costs of business and household disruption during construction have been factored in. The cost of “enabling infrastructure for ... urban development” (touted as a benefit, pp. 34-35) has not been included.  No provision appears to have been made for the erosion of  bus patronage. And the stated accuracy of the capital cost estimates still lies between -50% and +60%!

Quite simply, the project lacks economic justification. The consequences will be a huge cost to taxpayers and ratepayers: see here for an instructive (if more modest) example in Queensland.

Tail wagging the dog

The latest report is founded on the notion that light rail will work if accompanied by intensive corridor development to sustain Auckland’s projected growth. So, we will be shaping urban land use to support an ill-conceived project.  Unfortunately, the unspecified and uncosted “integrated urban interventions” required to make light rail work will add a lot more to project costs than benefits, compounding the risk of under-specifying and under-costing that have driven the cost blow-out, ongoing disruption, and delays on the totally uneconomic Central Rail Link.

Let’s get real

The report appears to be a self-serving document assembled by a range of agencies (“central and local government working together”) driven by a ”need to develop new living patterns.” There is scant regard for the public purse, or for how residents might like to live, a severe case of groupthink.

Here are some contrary arguments:

·       People have diverse mobility and access needs – fixed route public commuter options only address a small share of them. For many households and life stages automobility remains a high priority.

·       Bus transport in Auckland is working well , despite competition with revitalised heavy passenger rail.  Buses offer flexible operations, fiscally responsible investment, and continuous technical improvement.

·       Road-based transit will adapt with shared travel options in vehicles that are becoming safer, more automated, and less prone to failure (increasing the capacity of the existing road network).

·       With rising carbon prices, the uptake of electric light vehicles and hydrogen fueled heavy vehicles well within the 60-year framework makes any argument around transport emissions redundant. (A fraction of the cost of light rail could go a long way towards accelerating that transition).

·       The decentralisation of services, retailing and employment is a land use trend that promises to reduce trip intensity and length, by meeting more  household needs locally. It should be encouraged.

An elephant in the room: the growth fixation

A fixation on endless growth codified in Auckland’s Unitary Plan may be misleading policymakers. Whether or not a city of around 2.5m by 2050 is what people want or sustainable may no longer be moot.  Even before Covid struck, the driver of the exceptional post-GFC growth mesmerising super city planners – international migration – was turning down, while the net outflow of people to other parts of New Zealand was growing.

The halt to Auckland’s growth in 2021 is not a blip, it is response to the cyclical nature of international migration, a falling rate of natural increase, the decanting of an ageing population to provincial New Zealand, slowing employment growth, and the diminishing attraction of a city of over-priced housing and increasing congestion – which light rail will do little to alleviate. 

If productivity is driven down by ill-conceived mega-projects, expect emigration to prevail over the next decade undermining the growth assumptions on which Auckland’s planning and investment is based. The city needs a Plan B.

Rapid Rail to Mangere – A Wet Feat?

And there’s a second elephant: climate change. With heavy consumption of concrete and steel in tunneling, track laying, and station development, the proposal runs headlong into New Zealand’s commitment to halving net CO2 emissions by 2030. Light rail’s embodied emissions will exceed any gains from shifting people from cars and buses for decades.

Worse - if temperatures rise by even 1.5oC above the Climate Change datum (a prospect based on more realistic assumptions than those used to support light rail) both Auckland Airport and much of the Wynyard Quarter could be beneath the tideline.

Its time halt the expensive business of surveying, consulting, and concocting cases, pack up the train set, and concentrate on developing resilience in the existing transport system. Auckland is at a crossroad.  It may be that it is time to take the path of conserving resources, not squandering them

Friday, February 26, 2021

In defence of NIMBYs

Why? Not in my backyard!  Or, why not in my backyard? 

NIMBYism is seen as a negative, the selfish not-in-my-backyard reaction of residents to any significant changes proposed for their neighbourhood. But is that always justified? It depends on who you ask. 

Certainly slamming NIMBYs makes for good press, offering developers and planners the high ground in the encounter between haves, with their commitment to the current environment, and the have-nots.  The have-nots are those (other than investors) that stand to benefit from the proposed change, be they drivers on an expanded highway, commuters on new transit connections, potential dwellers in new apartments, or workers  in new factories, warehouses, and offices.

So, it is interesting when a media commentator like Kerrie McIvor defends the NIMBYs, setting out the neighbourhood issues associated with residential intensification from the ground up.

People who know asking the questions that need to be answered

In fact, there is increasing recognition of the legitimacy of local communities’ reacting against development that threatens their established way of life.  The people most immediately impacted may be the best-placed to ask the critical questions.  They also have the right to ask them if council commitment to citizen engagement is genuine, and if developers rely on claims of consultation to legitimise their proposals.

Denigrating all local reaction under the singular label NIMBY also obscures the different motivations of opponents.  It fails to distinguish those that resist change as a matter of course from those whose insights and experience raise legitimate questions.

Protecting the right to do it badly?

Dismissing local opposition risks lowering the barrier to ill-conceived projects. If a proposal cannot meet the challenges raised, questions must be asked about its merits.  No development may be better than poor development.  Or, modification, even moderation, may lead to enhancements that make a project more acceptable to locals and more attractive to the beneficiaries. Taken seriously, local opposition can lead to better outcomes all round, leading to better standards, design, and delivery.  

Unfortunately, weak or token consultation, entrenched positions taken by advisors, and blue sky financial or fiscal expectations by promoters lead to the discounting of local concerns and expertise.  This is especially so when local issues emerge only when advanced plans, to which promoters are already committed, are revealed .

There is more to NIMBYism, then, than resistance for resistance’s sake. After all, the challenge of planning is to reconcile development with environmental and community values.

Busting down the doors – clogging up the pipes

Take the response to the failing housing market over the last two decades.  Neighbourhood resistance to intensification garners little sympathy from decision-makers and commentators who see it as pitch by those with secure housing in established neighbourhoods against the interests of those in need of similar shelter and security. This is an over-simplification.

Housing policies have relied too often on the simplistic adoption of residential intensification to boost supply.  When planners and developers choose a location for intensification because of its attractiveness the risk is that they end up creating is the antithesis of what was there.  Nobody wins.

The result is reliance on expensive land within boundaries often ill-equipped to cope . Affordable housing under these circumstances means building low cost, low quality dwellings, with high embodied and operational energy demands and all-too-often construction defects.  It may also mean a high bill from over-loaded, ageing, and capacity-constrained infrastructure: the roads, pipes, parks, and waterways needing rehabilitation and expansion which ratepayers – existing residents and new – will have to pay for.

Looking out for the beneficiaries

Simple-minded solutions to difficult problems – a shortage of dwellings in this case – can lead to outcomes that benefit no-one. Dig deeper into the aspirations of the unhoused, and it may be that the opponents of increasing density in urban areas are championing what many people want and what apartment living fails to provide.

Local communities resisting change can be seen as the champions of the values that people today see as rights: clean air, water clean enough to swim and fish in (and drink), access to sunlight and green space, limits on noise and light pollution, a degree of visual and aural privacy, reasonable access to private services and public amenities, and security.

There is no guarantee that the aspirations of future residents will be met by pockets of high-density housing. Evidence from a study of five UK cities indicates that denser neighbourhoods are still more likely to provide poor access to quality green space”, while their residents “are more likely to report to feel unsafe [and] experience less social interaction than in lower density suburbs”.

Too often, the rush to compensate long-standing failures in the housing market has led to alternatives that fail to deliver the real benefits of decent housing to the so-called beneficiaries – the occupants of the new dwellings.

Equity should not rely on lowering standards

So, when communities call for protection of their living space and the quality of the local built environment, they are not denying it for others. They are calling on those that can make a difference to do so in ways that add to the appeal of urban living, rather than destroy it. Urban plans that prioritise the destruction of organic suburban spaces to deliver sub-standard outcomes are about pursuing a form of urbanism that lowers the quality of city living and frustrates the pursuit of equity by lowering the well-being and expectations of an entire generation, not simply those that happen to make the most noise about it.

Saturday, January 23, 2021

Covid 19 - Unpacking the City

 The compact city – a crumbling consensus

The policy consensus promoting compact, centralised cities cannot be sustained in a world ravaged by Covid-19. The current pandemic is accelerating the move to dispersed urbanism. Beyond the direct impact of disrupted trade, travel, and consumption on the economic foundations of cities lies the cascading impact of changing work behaviours. This post considers what remote working might mean for urban development.

Calculating the number of jobs that can be decanted

My previous post summarised the McKinsey Global Institute (MGI) analysis of sector-specific potential for remote working, applying the resulting metrics to New Zealand.  Here, in line with other developed nations, around 30% of current jobs offer remote working potential.  

This post considers the possible impacts on urban function and form by applying the MGI approach to New Zealand’s cities and districts.

Urbanisation and Remote Working

The share of tasks that can be undertaken remotely has been calculated across 19 sectors for 67 territorial local authorities (TLA).  The results have been aggregated into: (1) the three largest cities (Auckland, Christchurch, Wellington); (2) ten provincial cities with populations between 50,000 and 175,000; (3) partly urbanised districts characterised by smaller towns and townships; and (4) mainly rural districts encompassing rural areas and small settlements (Figure 1). 

Figure 1: Urban Dimensions of Remote Working Potential, New Zealand

 

The potential for remote working appears to be a matter of scale: the large urban areas offer the greatest opportunities. 36% of Wellington’s jobs could be done remotely, 32% in Auckland and 29% in Christchurch. The potential is lower among small provincial cities (28%), partly-urbanised districts (25%), and rural areas (22%).

It appears that more urbanised areas have greater potential to substitute remote work for fixed-workplace employment.  This is confirmed when we plot potential for remote working against urbanisation across all TLAs (R2=0.47, Figure 2). 

Figure 2: Urbanisation and Remote Working Potential, New Zealand Council Areas

.. 


Examination of the variation around this relationship between urbanisation and remote working potential indicates the role of differences in local employment structure.  More production-based jobs offer lower potential for remote working, while more business and service jobs lift the potential.

Where within the city?

This section considers variation in the potential for remote working within Auckland (New Zealand’s dominant city with 1.7+m residents). Figures for 20 Local Board areas based on the MGI sector coefficients have been aggregated and organised in Figure 3 from north to south (left to right on the axis).  Reflecting the city’s linear geography, areas at each end are most distant from the CBD.  The CBD and its fringe comprise the “Central” area, sitting within the Isthmus, which contains the city’s older, inner suburbs.

Based on this example, remote working potential varies more within the city than among cities, ranging between 41% in the centre (47% in the CBD fringe) to 10% in the upper north and west and 2% in the rural south. The former reflects the high value, administrative, business, and professional jobs in the inner city and suburbs, and the latter the greater share of manufacturing and personal service (face-to-face) jobs in the suburbs and primary production on the fringe.

Figure 3 The Prospects for Remote Working within Auckland

 


Push and Pull Drivers

Much of this theoretical capacity is likely to be taken up.  On the push side, the risk of exposure to infectious diseases is reduced by limiting exposure to places where people congregate for work, education, and entertainment. One benefit is limiting the spread of other infectious illnesses, a personal and productivity bonus. Remote meetings offer another productivity gain, lowering travel costs and focusing information exchange, supervision, and negotiation.

On the pull side, remote working has been positive for many people and businesses, with reports that the practice is being adopted on an ongoing basis in New Zealand despite limited community transmission of Covid and internationally.

What about the downsides? 

A suitable work (or school) space within a dwelling is needed to maintain both productivity and satisfaction from remote working at the individual level. With housing affordability constraints impacting on younger people and families, in particular, their capacity to work effectively from home will be constrained.

Lack of face-to-face contact with colleagues limits the benefits of work based social interaction. In a Covid-free environment, however, one option is to mix remote working with workplace attendance one, two, or three days a week.

Impact at the centre

However it evolves, the urban impacts of remote working will be far-reaching. As employment in the central city stutters, policy makers and investors will have to rethink the principles of workplace location, investment, and development.

Hospitality, personal services, and discretionary retailing in the city centre will suffer from reduced commuter and work-related spending. They will also suffer from any changes in the attraction of the city centre for housing. Modest apartments in multi-storied buildings marketed for a city lifestyle will lose appeal, becoming a welfare, last resort, or first housing step rather than lifestyle choice.

Add the deskilling of high order services, displacement of predictable or repetitive transactional tasks by AI, and the prospect that the international travel industry shifts away from mass tourism, and the outlook for city centres as we know them dims.

Against this, the resurgence of suburban centres, provincial cities, satellite towns, and country life may build on the intrinsic appeal of living locally as more people decamp from intensively urbanised areas, provided, perhaps, that the policy-makers do not seek to impose the densities of inner cities on under-resourced suburbs and cling on to the notion of commuting-based city centres.

And Infrastructure?

As it stands, the compact city comes at considerable cost. The demands on ageing infrastructure from intensification were never anticipated by the city builders.  Maintaining or rebuilding energy and water supplies, the capacity and reliability of wastewater systems, boosting transport networks and retrofitting ageing transit systems all demand substantial expenditures, mortgaged in large part against expectations of growth that must now be in doubt. 

If nothing else, the impetus Covid has given to dispersal must shift attention to infrastructure challenges in existing suburbs.  While highlighting the hard questions in a policy environment beset by an unnatural aversion to greenfield development (in which the potential for sustainable settlement has suddenly become compelling); it also raises challenges for small, erstwhile sleepy settlements unprepared for the demands of a growing flow of ex-urbanites

Saturday, January 2, 2021

The long-term consequences of Covid-19 on the workforce: who – and how many – will work from home?

 Crises are transformational.

The second world war was a crisis that transformed the world.  Out of the ruins of a militaristic, fascist state, Germany emerged as the exemplar of liberal democracy. It led to the unification of Europe after centuries of conflict. And it transformed technology, precipitating a revolution in the communications and computing which drives today’s economies. 

More recently, the oil crises of the 1970s drove the search for alternative sources of hydrocarbons, boosted ongoing investment in alternative energy , and fueled the geo-political fire in the Middle East. Another: the terrorist challenges of the 21st century, highlighted by the 2001 bombing of the Twin Towers, escalated Middle Eastern conflict, promoted advances global in surveillance technology and information exchange, and initiated the undermining of US hegemony in world affairs.

 And now, Covid-19

The 2020/21 pandemic has boosted research into the virus and its mutations, has seen massive investment in vaccine development (and now global distribution ), and stretched emergency medical facilities.  It will lead to lasting gains in public health practice. It has invigorated debt-led state spending, altered the trajectory of the world’s economies, and tested the foundations of liberal democracy.

What are the impacts on employment?

The obvious impacts are on economic structure – which sectors have increased and which have lost jobs and income.  Health and IT, distribution and communication services have made big gains.  In some areas limits on trade have sustained or even increased manufacturing jobs, in others they have reduced them. Travel and hospitality are suffering, and may have changed forever. We may even see the toning down of mass consumption necessary to avert the worst of climate change.

There will be other more immediate changes.  The design of workspaces will change, with attention likely to shift from fitting as many workers as possible into a space to addressing workforce wellbeing. And the rigid timetabling of the production day is likely to fall away as more people work remotely. 

 Working Remotely

The capacity to work from home – or on the road  – has been increasing slowly for three decades building on advances in IT and Cloud-based computing. With Covid’s aggressive contagion, the case for remote working has become compelling.  

The result has been a rapid lift in the capacity, flexibility, and reliability of the necessary technology. With this infrastructure in place, there will be no going back, even in a vaccinated world. Quite apart from diminished risk of illness, people will be reluctant to relinquish the up-side of lock down: flexible work practices, more control over their working (and leisure) lives, and, perhaps, more appealing work environments.

 Who will be affected?

The answer depends on what tasks can be performed effectively outside the disciplines of a set workplace. Back-of-office jobs processing and transferring information are obvious candidates in the historic view that higher order jobs (involving negotiation, personnel management, or specialist expertise) require face-to-face contact. The success of virtual boardrooms, classrooms, offices, courtrooms, and council chambers under lock-down has put the lie to that.

Lock-down has demonstrated that traditional face-to-face tasks do not demand a continuous joint presence. Remote working will mean fewer days at the office, better organised meetings, and fewer social precursors to getting business done.

 The numbers

McKinsey Global Institute analysed jobs and tasks in different sectors across nine nations to identify “work that doesn’t require interpersonal interaction or a physical presence at a specific worksite[i]. Figure 1, reproduces the results for the United States, showing the shares of jobs in each sector that can be undertaken effectively at a distance. [ii]

It demonstrates substantial potential for remote working in high value-added sectors. For example, 76% of financial services jobs could be undertaken remotely, 68% in business management, 62% in technology, scientific and professional services, and 58% in information technology and communications 58%.

Figure 1: The potential for effective remote working in the United States


Source: McKinsey Global Institute (November 2020) 

Potential is lower in sectors where tasks demand direct contact with materials or customers . Just 8% of tasks in hospitality can be performed remotely without eroding productivity, 7% in agriculture.

The analysis was repeated for eight other countries. The results largely reflect their different economic structures.  UK has the greatest potential for remote working (33% of the total workforce). Germany, Japan, and France had levels similar to the US (29%).  Less developed countries have less potential: Mexico (18%), China (16%) and India (12%).

And in New Zealand?

Applying McKinsey's sector estimates to New Zealand[iii] suggests that here as well 29% of jobs could be undertaken remotely without reducing productivity. The two most “footloose” sectors (professional, scientific, and support services and business management and administration) account jointly for 30% of the potential (Figure 2).  Education and health sectors are also potentially major contributors given numbers they employ.

 Figure 2: The potential for remote working in New Zealand sectors

 

What Next?

The Covid-19 crisis, an event that almost nobody predicted[iv], is driving significant change to economies, migration, geopolitics, and public health.  It is also promoting rapid changes in the way we work.  There can be no expectation of reverting to the old ways. It makes sense to prepare for a  future in which a third of the workforce, more in high-value growth sectors, only occasionally attends a formal workplace.  The consequences for lifestyles and land use, especially in advanced economies, will be far reaching. The next post will consider some of those consequences for New Zealand .



[i]              McKinsey Global Institute (November 2020) What’s next for remote work: An analysis of 2,000 tasks, 80 jobs, and nine countries[ii]            The McKinsey study also estimated a greater potential for more remote working in each sector, but the marginal increase to a theoretical           maximum came at a cost to productivity. This analysis draws only on the lower, effective figure.

[iii]        Based on Statistics New Zealand Business Demography Tables

[iv]        Bill Gates’ 2015 prediction in a Ted Talk is a noteable exception: - Bill Gates: The next outbreak? We're not ready | TED Talk

Tuesday, July 7, 2020

Preparing for a Post-Covid19 Economy: capacity building or building capacity?


We seem to have the pandemic under control - what next?
Now that community transmission has been eliminated in New Zealand and some rigour brought to border control, it is timely to think about economic recovery. That’s not straightforward. As the pandemic rages globally restricted travel, limited trading opportunities, and disrupted supply chains mean that we have to make the most of an inevitably shrunken economy.

Making decisions about where to put economic resources – including spending on recovery – is made harder because we have no idea what the future holds. We can no longer predict economic conditions and the outcome of policies with any confidence if we rely on past experience.  We can, however, make decisions about how to deal with today’s crisis in a way that prepares us for tomorrow’s unknowns. 

This post suggests focusing early recovery on employment-intensive sectors that better equip the community to rise to the unknown challenges of the new normal, rather than building the infrastructures associated with the old.

The Infrastructure Capacity Consensus
To date, New Zealand’s rebuilding strategy has been defined mainly in terms of building physical infrastructure to cater for economic activity as we knew it.  Among other things, the Government has just committed $3bn to start on its list of shovel-ready projects. While it's early days, the National opposition already says we need more infrastructure. While there may be debate about how much, what projects, and in what order, there is no obvious disagreement with the notion of building our way out of the darkness.

This risks justifying spending on uneconomic infrastructure that undermines productivity and prejudices long-term growth. Promoting infrastructure to create jobs simply promotes investment that cannot otherwise be justified in sectors already facing supply chain and skill bottlenecks. When these are publicly funded they not only increase fiscal risk; they potentially starve activities that promise greater employment and a more assured long term return.

Building Capacity as an Alternative
What about another approach? What about building the capacity of people, rather than structures, to deal with a future that will not be a rerun of the past? This will emphasise more jobs more immediately, maintain better short-term domestic demand , and build the adaptability and resilience needed in the long-term.

It does not mean dismissing infrastructure, but calls for spending on it to be moderated, focusing on what we know is needed and not the nice-to-have or me-too projects, favouring instead activities that deepen the skill base, develop talent, promote creativity, and encourage entrepreneurship.

Investing in people
Today we are confronted by a deficit of demand, not a deficit of infrastructure. Investing in people will lift demand directly, hold together a fractured domestic economy, and lay the groundwork for long-term recovery and resilience. Our nation’s capacity to respond will be best served if the population is in good health, well housed, well educated, and well employed.

So, what are the best sectors for promoting employment?
Employment multipliers are used here to address this question.  The multipliers relate job numbers to output in each of the 106 sectors used to define the economy.  The jobs may be direct (within the sector in question), indirect (associated with supplying materials, components, goods, and services to that sector),and induced (from the spending of employees in the first two categories). [1]

Table 1 lists the sectors with the highest employment multipliers. Among other things, this indicates that one million dollars of additional output (or funding) in pre-school education would give the most jobs for $1,000,000 spent: around 29 in total, comprising  around 21 in the sector itself, 3 in activities supplying it, and 5 from the resulting household spending. Specialised food retailing also scores well, with a strong indirect effect reflecting how it draws on domestic suppliers.[2]   

Table 1: Sectors with Highest Output:Employment Multipliers (2017)

Table 2 compares multipliers from the most employment-intensive industry groups drawn from Table1 with those for the industry targeted by infrastructure spending, construction.

From this we see that:
·   The employment boost from spending in construction sits close to the median for all sectors, but well below education, health, and social care services.
·  Residential building is a slightly better job-booster than civil engineering (roads, bridges, and the like) and non-residential building.
·  Residential and non residential building both generate significant indirect employment, reflecting reliance on local suppliers and subcontractors.
·   Non-tertiary education sectors have a substantial direct employment impact, with a relatively high induced impact suggesting that the sector’s typically “middle incomes” sustain above-average household spending.

Table 2: Employment Contribution, Selected Industries (2017)

·   Spending on tertiary education may generate less immediate employment because of higher overheads and salaries.
·   Medical and residential care and social assistance also have significantly greater employment impacts than construction.  Some of this will come from low paid “care” jobs, an issue highlighted by the critical nature of this sector to the Covd19 response.

Promoting job-intensive sectors may seem two-edged: they tend to pay the lowest wages (Figure 10).[3] However, low income households are likely to direct most of their additional spending to food and consumables, ensuring a large share of increased earnings flow through the retail and service sectors.

Figure 1: Average Wages by Sector, Q4 2019

In addition, these are the sectors that promote well-being across the community and should increase people’s skills and their abilities to deal with change.

Creating value
The benefits of recovery driven by employment-intensive industries also depend on how much value they add to the economy. According to the 2013 National Inter-Industry Tables, the share of output that is value added in the construction sector is modest, although low margins are offset in part by the substantial purchase of intermediate goods and services by the sector. 

While gross output is substantially lower in health and education than in construction, more value is created, largely in salaries and wages.  And because health and education each generate more household income than construction, funds channeled into these industries will lead to greater downstream demand in retail, services, and hospitality.

Table 3: Value Added, Imports, and Compensation of Employees, Selected Sectors (2013)


Towards a Multi-Layered Recovery – Scaling back the Infrastructure Sell
Infrastructure still has a role to play, especially in accommodating extra capacity in the priority sectors indicated by these figures. And, to be fair, the first $2.4bn of spending outlined by the Government included a strong commitment to social and affordable housing, well distributed sanitation and community enhancement projects, and environmental initiatives (Figure 2). Just under 30% was directed towards transport. However, this omits the big promises made to Auckland transit projects and major highway developments.

Figure 2: Distribution of the First Round of Shovel-Ready Spending


Investing in Human Resources
It is time to back off spending on mega-transport projects for which demand is uncertain and, instead, to focus on building the capacity of our people to deal with a changing economy.

Already there has been a commitment to step-up health funding in the May 2020 budget. The Simpson report on reorganising health and disability delivery (by consolidating and centralising administration and “professionalising” governance) may also help with a reset, although on the face of it looks a little like an expensive rearrangement of deckchairs.

Beyond that, a step up in new and innovative educational and vocational projects and initiatives across society may be the best means of ensuring that the recovery from Covid19 can be sustained, and that the country will be even better placed to deal with such crises in the future. 

Directing funding towards a more diverse, inclusive, and flexible education sector may mean increasing funding to both the educators and the educated. A simple start could include: increasing the funding of pre-school education; lowering staff student ratios in schools; developing applied tertiary courses in technology, production and distribution, agriculture and horticulture, and resource management; and encouraging and funding applied research.

Infrastructure should serve recovery, not shape it
Without doubt, initiatives in these areas will drive demand for further infrastructure.  But this investment will be focused on the needs of the sectors that underpin social well-being and economic productivity, and that foster the capacity of people to adapt to whatever demands the new normal might make. 




[1]    The multiplier estimates are based on the national input-output tables (Statistics NZ, 2014) calculated and updated to 2017 by Insight Economics in Auckland. I gratefully acknowledge access to them, and am solely responsible for their interpretation here.
[2]    Employment in retailing largely reflects the induced effect of growth in other sectors. Spending by overseas visitors in retailing (and hospitality), though, represents additional external demand.  
[3]   Although wages in sectors like medical care span a wide range.