Urban fingers in the rural pie

Planning by cliché

It’s been said – by people with some influence in these matters – that without drawing Auckland’s city’s boundaries to include much of the surrounding rural hinterland “we would have urban development from here to the horizon”.

Talk about planning by cliché!  For various reasons – like landforms, demand, and dollars – the proposition is nonsense.  Auckland’s hinterland is just too vast, too difficult to develop over much of it, and too remote. 

But as a result of recent reforms we have ended up with a metropolitan area that in spatial terms is predominantly rural.  The urban area covers just 10% of the newly configured city!  Where is the sense in that?  How do we prepare a spatial plan that will create better urban outcomes when 90% of that plan will cover rural areas.

Has urban planning helped Auckland’s countryside in the past?

And where does the presumption that urban planning (and planners) might better preserve the natural and productive values of the countryside come from?  Because it doesn’t reconcile with what has happened around Auckland.  In fact, planning for the region over recent decades has seen the spread of insidious low density settlement take over large areas beyond the urban boundary. 

Look below at some of the results of provisions made for rural living north of Auckland.  Is this extravagant rural sprawl the best that urban planners can deliver for the countryside?

When in doubt, leave it out

A more reasoned option in the reform of Auckland’s governance would have been to incorporate land required for urbanisation over the next fifty years within the city’s boundaries, and leave the rest out.  Generous allowance could be made for green space, town belts, city parks, and future growth within such boundaries. 

The result may have been a better physical environment within the city.  At least the urban planners would have had to confront the benefits and challenge of creating and managing extensive green areas within the urban boundaries, rather than relying on simply adding in more rural land on the distant edges.  

This approach – aligning city boundaries with current and future urban land needs – makes sense in terms of both governance and planning.  Uncertainty is removed.  Long-term plans for infrastructure and land use can be made.  There is no need to rely on arbitrary urban limits unrelated to governance and decision-making structures to manage urban growth. 

And, if the boundaries for the urban area were drawn to reflect urban needs and prospects rural communities and their representatives could get on with planning and managing rural areas. 

Drawing the rural line

There are some good reasons for this approach.  Urban and rural growth issues are quite different, even between neighbours.  Their contrasting production systems make different demands on resources.  Transport needs and behaviours differ.  Settlement forms differ.  Infrastructure needs differ.  Resource management issues differ.  Even planning methods might vary, with a history of collaboration in resource management in the countryside that is rarely matched in urban areas.

Perhaps more telling, the values and aspirations of urban and rural communities differ.  They may overlap, but the choice to live in the countryside or small towns usually distinguishes people there from those who choose to live in cities and suburbs. 

Admittedly, residential preferences cannot be satisfied on all occasions.  Some that would like to live in the city – or country -- cannot. 

Also, preferences change with shifts in lifecycle and lifestyle.  Marriage and child-raising are events, for example, that alter how and where people want to live.  When adult children move out, their parents may move on as well.  Or, retirement may modify housing choices and preferences.  Such changes see increasing numbers of city folk look to the country to meet their needs and aspirations. 

The pressure on rural environments will increase, especially close to cities.  Ways have to be found to accommodate this that reflect and enhance the character of the rural environment.  Rural councils will be better placed to do this than their urban counterparts with their particular views about the role and nature of the countryside and with their priorities firmly focused on urban matters.

Governing within bounds

Effective governance reflects and responds to diverse community values, occupations, and behaviours.  Ideally -- and democratically -- it will not unduly condition my choices simply to accommodate yours.  That’s why there is continuous tension in the quest for efficiency – defined in terms of resource use – and effectiveness – defined in terms of outcomes communities want. 

And this tension is particularly evident in the debate over where boundaries between jurisdictions should lie.  In Auckland, the recent reforms saw distinctive communities rolled together within a single city, and the metropolitan influence stretched arbitrarily over a large rural hinterland.  The functional grounds for this are as shaky as the presumption that urban planning will work in rural areas, or that without it our rural hinterlands will succumb to rampant urbanisation.

The Challenge

Is the decision to incorporate large rural tracts into Auckland City going to lead to more effective planning for rural communities or the natural environment?  Or is it simply a way of reducing the number of employees in local government ?  Has effectiveness been sacrificed in the interest of a one size fits all view of efficiency because the reformers did not trust rural councils to know their own communities, community aspirations, and local needs? 

And are Auckland's governors likely to be distracted by rural matters from the challenges of effective urban development?  Did the reformers lose sight of their aim for better metropolitan performance, something that needs more not less focused governance? 

I guess time will tell.  But there may be shifts in thinking required to minimise the fallout from digging the urban fingers into the rural pie.  More on that later.

Remaking the CBD

What can we do for Auckland’s Central Business District?

In my last posting I suggested that promoting employment by investing in CBD-focused rail wouldn’t save the Auckland CBD.  Long-term structural change in the economy continues to change the CBD’s role.  I can’t see how this dynamic will change simply if we invest in an underground rail and a few stations.

But there is a widespread expectation that the CBD can be remade to spearhead Auckland’s economic revival.  If new railway stations and office buildings won’t do it, what will?

Placemaking and the CBD
The CBD is a fashionable target for “place making”.  Through this the policy, planning and design world aims to create distinctive and attractive localities using the professional tools at hand. 

The CBD is also where public and private investments intersect in a big way.  The public sector does the planning and design.  It retrofits infrastructure, creates amenities, maintains public space.  The private sector constructs and reconstructs the private spaces – offices, shops, hotels, and housing. 

There is also an expectation that the public sector will fund the loss leaders: stadiums, convention centres, arenas, and the like.  In today’s version of place-making, the public sector may also fund public transport in the hope of lifting office and retail activity in the CBD.  It carries the losses for new public amenities in the hope that they will be more than offset by private sector gains.  ^[1]

As part of CBD place-making, regulators sometimes try to limit competition by impeding investment elsewhere, in offices and retailing for example.  Whether this works or not, or is even worth trying, is a matter for a later debate.

Big ideas for the CBD
The CBD has evolved from the region’s trading centre, to a centre of commerce, through retailing, to entertainment, and education.  Remnants of previous eras add character, but what distinguishes the CBD today is different from what distinguished it yesterday.  As the regional economy shifts, so shifts the CBD.  So what will make it hum tomorrow?

Right now there are plenty of big ideas on the table.  Big investment in rail – electrification, undergrounding, new stations.  Big sports stadia.  Big events, big conventions, big concerts, big parties – and big venues.  Big cruise ships boats and big terminals. 

Underlying all this is the view that big stuff will make Auckland into New Zealand’s global face:  the place where head offices come, where international business is transacted, where New Zealand meets the world. 

But none of the big ideas out there are new or distinctive.  We want to play with the big boys.  But will these things do the trick?  Will they encourage the big boys to play with us?  What sort of a place will they make? 

International evidence calls for caution.  In particular, our current fiscal hole suggests that we should go easy on any big spending without the strong prospect of a positive return.

To be fair
There are some good ideas out there, some great initiatives, and success stories.  The Viaduct Basin stands out, despite being surrounded by a fortress of grey stone buildings.  The maritime museum highlights Auckland’s character.  The ferry terminal and building buzz.  Building the transport terminal into the Chief Post Office was inspired, and done well.  A cultural precinct between Albert Park and Aotea Centre has real potential.  Chancery, High Street, and even St Patricks Square are pleasant oases.  On the fringes, Ponsonby and Parnell are places of character.

Do you see anything in common with these winners?  

They blend the old and the new.  By and large, they operate at a human scale and cater for us – ordinary, local people.  Apart from the Britomart Station there is no super sizing among them.  Their character comes from a range of medium or small investments put in place by a variety of parties.

The CBD as a collage
So here’s an idea.  Perhaps we go forward not with a big bang, but one place at a time.  Focus our energies on the evolution of the small spaces, the gems, or potential gems, and the different ways they might be assembled.  In that way, the big picture will look after itself. 

We don’t need to remake the CBD with super projects, or go for a blanket make-over.  Instead, let's treat it as a collage or perhaps a mosaic, punctuated with local highlights and high points.  The spaces between can be left to sort themselves out – and they will.  Look at how Willis, Wakefield, and Manners streets in Wellington have evolved as the busy byways between the Lambton Quay retail precinct, quirky Cuba Mall, the Civic Centre, and the social heart of the city, Courtney Place.  Let local landlords, investors, businesses, and citizens add their colours to the canvas in a similar way around just a few strategic civic design initiatives in Auckland.

By strategic I mean initiatives that leverage existing local character, that encourage others to come to the party, and do not lock ratepayers into over-the-top commitments.

The beauty of this approach is that the CBD can continue to evolve, some parts renewing, others reverting, and others asserting a quite different character. 

This is what makes central cities enticing for visitors the world over – the capacity to move among precincts or quarters that define distinctly local character, to interact with local people, to sample local customs, art, tastes, and even pastimes, to experience the quirky, the colourful, to come across the unexpected, and not simply to parade through the planned and bland. 

Walkways or street life?
For those who know it, compare the sterility of the Vancouver waterfront and its high rises, its hotels, massive convention centre, yacht club and barricaded moorings, with the hustle, bustle and intimacy of Granville Island, just a short bus ride away.  The former is just another privatised harbour-side where a concrete walkway and a few statues make a token concession to the passing public.  The latter, with its workshops, galleries, shops, and cafes is a place for people to go and enjoy, a place to pass the time, an experience for the visitor to remember.  

If the CBD is to be a place of creativity – and I don’t think that by itself is the answer to Auckland’s need for innovation and invention – then we need our own Granville Islands.  These are places where local people, crafts, and culture thrive and in doing so provide the character that make them work for residents and visitors.  Just think what could happen down at the Beaumont Quarter in Auckland if street-level entrepreneurship were allowed to blossom, reshape, rework, and reinvent the energies, craft, and creativity of a former industrial age.

Where are the gems and how do we polish them?
There have got to be other gems in Auckland.  Where might they be?  And what’s holding them back?  

There must be plenty of ideas out there, local prospects that will enrich the mosaic that makes up our CBD.  Let’s identify them so that our city planners can do what needs to be done to release them, rather than restricting them with top-down plans, rules, and regulations. 

Finding and polishing a few small gems rather than hoping to find the next Star of Africa might be what we really need to make Auckland’s CBD sparkle.

[1]     The perils of this form of “monumentalism” have been documented; e.g., Sanders H T (2002) “Convention Myths and Markets: A Critical Review of Convention Center Feasibility Studies” Economic Development Quarterly 16 and Chapin T S (2004) “Sports Facilities as Urban Redevelopment Catalysts” Journal of the American Planning Association, 26, 2

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If the CBD is dying, will rail save it?

A common cause
A lot of energy, analysis, and ideas have gone into preserving Central Business Districts round the world.  Sometimes this involves changing traffic conditions, restoring redundant quarters, creating public amenities, and changing planning rules.  It may mean trying to turn public transport round in the hope that we can deliver more commuters to inner city businesses.  Or creating major downtown entertainment facilities – stadia, convention centres, and the like.  Or both.

The quest for former glories may result in attempts to stem growth elsewhere to keep the CBD as we know it from dying.  Of course, if that simply discourages investment, or drives it away, the result is a poorer CBD.  The reduction in the net wealth of a city means less discretionary spending on those things that might actually work in the centre.

Whatever initiatives, saving the CBD will cost.  This is an area where we need to tread carefully: to know the beast we are trying to save, and why as well as how.

The myths of urban intensification
In an earlier posting I suggested three myths that misinform urban policy. 

• Agglomeration automatically increases growth.  This doesn’t appear to be the case for Auckland.  There is no silver bullet to boost the urban economy.  Lateral thinking will help, together with creativity, and an environment that welcomes rather than restricts development.  And let’s not forget that agglomeration carries with it costs which can drive investment – and skills – away.
• Higher density enhances firm productivity.  The evidence does not support policies that effectively undersupply business land and limit investment choices.  We need to get back to basics to make this a great place to invest in, and address in particular the quality of labour, land, and capital.
• Rebuilding the CBD is a key to the compact city. Is it?  If so - and I think there may be other, better reasons -- will trying to boost white collar commuting work? This is what I look at below.

Promoting the CBD
Promoting the CBD has been an international preoccupation for over 50 years.  As automobility increased after the war, international trade grew, and baby boomers supported a prosperous suburbia, the CBD was increasingly bypassed. 

An unlikely alliance of business and regulators attempted to reverse this.  The former were interested in preserving property prices, and dragged the latter along with them. 

The planners more recently took up the case in its own right, a plank in the new urbanist and sustainability agenda.  This relies in particular on promoting public transport in compact cities.  For this to work, employment has to be concentrated.  The CBD was where employment focused in the past.  Many planners believe it’s where it should refocus today. 

So how is Auckland’s CBD faring?
Does the future of the CBD really rest on its employment performance? 

Let’s look at Auckland's employment changes over the past decade, from 2000 to 2009.  I have used Statistics NZ’s Business Directory employment counts for comparisons.  I analysed what I call Central Auckland, which includes the Inner and Outer CBD.  [1]  What does it show us?

First, total employment in Central Auckland grew by 13%, the rest of the region by 19%.  Central Auckland accounted for 16% of regional employment in 2009 (down from 17% in 2000). 

Second, employment in Central Auckland fell 2.9% between 2007 and 2010, but only by 1.9% elsewhere.

Third, service employment (the white collar stuff) grew by 20.2% in Central Auckland but by 30.8% elsewhere in the region.  Central Auckland accounted for 26.5% of regional service jobs in 2000 but was down under 24% at the end of the decade.  These activities actually declined by 1.1% in central Auckland between 2007 and 2010, but grew by 3.2% in the rest of the region.

Fourth, retailing in Central Auckland grew by 7.5% but 21.2% elsewhere.  Central Auckland accounted for just 8% of the region’s total retail employment in 2009.

Fifth, hospitality also grew by 7.5% in Central Auckland, but it grew by 26% elsewhere.  Central Auckland still accounted for 26% of the region’s hospitality jobs in 2009, however.

What do we take from all this? 
So Central Auckland is no longer the powerhouse of employment growth in Auckland.  It has some specialties, of course.  But its traditional strength in white collar services is declining.  Its retail dominance is long gone.

More than that, it may just have turned a critical corner.  The Global Financial Crisis is by no means over and even if it is, we may not see a return to the buoyancy of the service sectors that sustained the CBD over recent decades.  Even public sector growth will to be much more constrained over the coming decade than it was over the one just gone.  

With improved communications, leaner operations will be looking for more cost effective sites.  Decentralisation and decamping may be a feature of a slimmer white collar sector in the future.

Health care and social services remain biggies in the CBD. They accounted for 43% of net new jobs there over the decade.  But how much more can they continue to grow in straitened fiscal times? 

Business services started  the decade well but unsurprisingly went backwards after 2006.  Financial services continued to hang in but with much reduced growth.  Anyway, they are growing faster elsewhere.

Professional and scientific services and computer systems have done well.  Let’s hope they hang in there.  They are important to our recovery, in more ways than one.

The creative industries, much touted by Richard Florida and others, and echoed in research commissioned by the old Auckland City Council, did okay.  The arts and recreation sector added 1,275 people over the decade.  Interestingly though, gambling accounted for much of this growth – with 840 more people employed in 2009 than in 2000.

And without strong growth in discretionary incomes across the region, gymnasia, arts, movies and movie making, gambling and other amusements are unlikely to be the stuff of serious growth in the foreseeable future.

Don’t bet on the office sector
So let’s not assume that office employment, the key to CBD growth over the past forty years, will be the driver over the next forty. 

But this is what the recent business case for a CBD rail loop assumes.  Much of the potential benefit is attributed to opportunities for premium office space expansion based on better commuter transport.  The case projects 30,000 new office-based jobs in the CBD by 2041 (Appendix K, Figure 21), despite the recent slowdown and the highly uncertain outlook for the medium-term.  What will all those white-collar people be doing to sustain the projected construction of all that new high rise – and high cost – office space?  Gambling?  Exercising?  Making movies?  Administering superannuation funds?

In any case, the international evidence used in the rail loop business case is based on ... guess what? The experience of large American cities over the past forty years.  I'm not sure what this tells us about how Auckland’s CBD will evolve over the next forty. 

Where to from here?
A healthy CBD is one where people want to be.  And as the structures of cities and regions change, so the reasons that they might be there change as well.  So preserving the CBD of the past – the centre of department stores and high rise offices, the heart of white collar employment, the home of the casino and multiplex – may not be practical, or possible. 

What we might hope for is the CBD to be the cultural and spiritual if not commercial heart of a strong city and region.  We can’t just give up on it.  There are huge expectations around the CBD and its waterfront in Auckland and elsewhere, and a willingness to commit resources, ideas, and energy to keeping it pumping. 

So what exactly will we be trying to achieve.  And how best might this energy and these resources be applied? 

I’m still thinking about it.  But preserving – or restoring – the past is only likely to be justified in terms of respecting our heritage, not in terms of shaping the future. Pumping more commuters into the CBD seems to be a high risk approach to an area undergoing another interesting if still largely unpredictable transformation.

 

[1]      For those interested, the following Census Area Units make up my version of Central Auckland: Harbourside, Auckland Central East and Auckland Central West .  Freemans Bay Newton, Grafton West and Grafton East make up the Outer CBD.  There are interesting differences between the Inner and Outer CBD which I may go into another time.

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Growing a productive urban economy

Density won’t do it

Suggestions that we can grow our economy by encouraging business into the CBD in the interests of innovation do not reflect the weight of experience.  Sure, higher order professions have tended to concentrate there, and become relatively more important as manufacturing, retailing, and distribution have decamped.  And in Auckland, at least, tertiary education has become a major player in the CBD.  University employment has boosted the scientific as well as education sector.

But much as introductions might be made and ideas swapped over coffee, the real capacity to bring innovation to fruition belongs in the workshops, laboratories, production lines, and sales office of real companies. 

Obvious as it may seem, we need more – and bigger – businesses to lead the way if Auckland is to grow through innovation and the resulting productivity gains.  This blog is about why this is so and how we might help.

Firm growth and local linkages

The argument reflects a long-standing interest in industry, but the principles also apply to things like financial services, software, and design. 

My most compelling experience is dated.  In the seventies I visited 120 firms in the emergent electronics industry in inner London (the heart of creativity according to the density gurus), outer London, and central Scotland.  What I learnt then still seems relevant today.

I wanted to know how businesses in different localities grow.  I examined where they made their purchases and where their markets were.  I was particularly interested in how much they depended on the local area to sustain their growth.[1]

The results were no surprise: the more successful firms depended least on their local area.  As higher value, higher growth firms expanded, though, they did strengthen reliance on their local workforce.  Critical local skills became embedded even as businesses became international in scope.  A commitment to and dependence on an established workforce became a key to maintaining the presence of innovative or high tech firms in an area.  This experience still rings true when we think about firms like Fisher and Paykel, Glidepath, and Rakon in Auckland today.

Growth firms are nevertheless highly likely to invest away from their home base.  By itself that’s no bad thing.  It may be the beginning of the end, though, if they cannot raise the finance locally.  As the weight of their equity shifts offshore, so their local presence becomes more tenuous.

The best outcome is probably when innovative and growing firms can be supported locally, generating local jobs, deepening local skills, and building local household and business income even as their business with the rest of the world grows.

And that’s where we seem to struggle in Auckland, despite some exceptions.  As firms succeed here they often cannot find the resources they need to grow and maintain their local roots. 

Relocating to grow

The companies I analysed all those years ago more or less sorted themselves out.  In Inner London there were still a few post-war innovators beavering away.  For the most part these had not grown much.  The real inner London success stories, the firms that had prospered, were largely gone.  They may have kept an office in the city but R & D, production, and distribution had moved elsewhere.

Elsewhere was outer London, or the new towns, villages, and cities in southeast England.  This included a world-leading electronics belt centred on Reading, an hour from the City of London. 

A key step in firm growth is the ability to relocate from small start-up premises.  Consequently, localities away from congested inner cities were where the real innovation was taking place.

The new firm nurseries

Where do new companies come from in the first instance?  It’s not coffee shops in the CBD and there aren’t too many enduring ideas sketched on beer coasters in inner city pubs.  Some – the exceptions – may be born of enthusiasts working in garages. 

Most new firms I found in the UK research were outside London.  Many had spun-off established companies.  This suggested one key to innovation: knowledgeable employees leaving firms to do it their way.  Often they spied opportunities in their former employment that the established business could not exploit – new processes or materials, new products or applications, or new markets. 

In some cases, existing businesses spun off their own new enterprises to exploit new opportunities outside existing operations. 

The rise of innovative, growth firms in low density areas outside London was hardly surprising.  Space was affordable, whether a start-up factory unit or land or premises for expansion.  Firms could attract staff because the living and commuting was easy.  Compared with London, costs were favourable .  And when they relocated, firms  tried to go where key staff could easily follow.

Later – in the late eighties -- I visited the Cambridge Technology Park some 90 minutes north of London.  This was a highly successful centre of innovation and investment.  A low density environment attracted innovative light industry to easily accessed sites on the fringes of a provincial city –itself a university centre – set in an attractive living environment. 

The dynamics behind Silicon Valley near San Francisco were similar.  Leading edge firms here have continued to spin off imitators and innovators in an area with room to expand and access to great living conditions.  Again, a key university, Stanford, is a contributor to ongoing success and business vitality.

The ingredients of a dynamic economy

This, then, is another key to a dynamic economy: the capacity of larger, older firms (and other institutions) to create the seed bed from which the new ones grow and expand in a continuous process of industry evolution - birth, growth, decline, and death. 

As a variation aside, the process of firm evolution today includes the take over and reconfiguration of the old and tired.  Under-performing businesses are acquired and their assets rationalised, potentially renewing creative energy.  Leaner businesses may result, with new capital, a new sense of direction, and more vigorous management. 

(Of course, a takeover may also be a financial play, with assets stripped, pumped, and packaged for a share market float, with precious little value added).

We need the places -- and space -- where old firms can operate without incurring endlessly increasing costs, growth firms can expand, and new firms come into being.  What we cannot expect to do is conjure new enterprise out of an entrepreneurial vacuum.  And we definitely shouldn’t seek to straitjacket new firms and old within an inner city environment.

What can we do?

One reason for Auckland’s under-performance may be that our planning has acted inadvertently against sustained business renewal and growth.  Plans have may have over-focused on the inner city.  Planners have concentrated on how and where we can live and failed to plan for where we might work.  We dragged our feet in the zoning of substantial areas of affordable business land.  as a result, we have pushed up the cost and pushed down the appeal of Auckland as a place for growing firms. 

One simple thing we could do is make sure that there is plenty of industrial land available.  This should be well connected, preferably removed from the congestion of inner Auckland.  There are a few good opportunities on the books of the council at the moment.  Large parcels at Silverdale, Massey North, Drury, and Pokeno are in various stages of planning, for example.  Bringing these plans to fruition will lift the prospect of Auckland participating in a productivity-led recovery.  Tying the areas together – and to the ports and airport – through the motorway system will provide the connections they need locally and internationally. 

There are other issues to be addressed.  We could do with a focus in education on the skills, culture, and aptitude to make things happen.  Our universities must continue to connect individually and jointly with diverse vocational needs across the business board.  And let’s continue to explore how to attract capital to invest in expanding firms within the region.

I am not assuming we can compete with the cheap land and labour of Asia, or match the host of engineers that Asian universities turn out each year.  But when people with the right skills and background do come along, let’s ensure that they encounter an environment that supports entrepreneurship and growth, and not leave them doodling and dreaming in inner city coffee shops.  And let’s do what we can to make sure that leaving town is no longer the mark of a successful firm.

[1]               Sure, it was a long time ago.  But the SAME issues keep turning up.  The results were published in 1982 by Cambridge University Press in McDermott P and Taylor M Industrial Organisation and Location. 

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Are we being a bit dense about productivity?

Taking the long view

There has been a lot written about the virtues of a high density city and a thriving CBD.  I have no issues with either of these notions, but let’s at least understand the dynamics before we concoct policy to try to bring them about. 

High density does not necessarily mean a city is more productive, or wealthier, or more sustainable.  It just means more people live or work in a smaller spaces.  This may be because of a land shortage - think Japan and its cities.  (I hope this is not what planners have in mind for Auckland).  Traditionally, high density living is associated with less wealth, lesser lifestyles, and public health challenges. 

The long view of the west since the Middle Ages has been one of increasing real wealth and falling densities.  Especially since the 18^th century greater personal mobility and enhanced material standards have been implicated in healthier, longer lives and greater social equity. 

Much as I rail against conservative planners, reversing this trend is something we should be wary about, especially when crowded cities are associated with social disparity and ageing urban infrastructure with greater risk of disruption.

The transport tail wagging the density dog

Yet today’s planners and policy-makers not only try to restrict development to increase densities, but also promote transport investments in the belief that they will make it happen. 

Instead of designing a public transport system that might serve our particular form of settlement in Auckland, we are designing one which is intended to change the shape of the city.  The New Zealand Herald (3 December 2010) quotes transport expert from the University of Sydney, David Hensher, as “absolutely amazed” that we would even consider rail given Auckland’s relatively low density.  It would be far more cost effective, he thinks, working on extending our busways.  At least that way we could get public transport to where people want to live and work and we could keep it flexible to meet changing needs.

Of course, one of the interesting things about rail-based public transport is that if it works it encourages long-distance commuting, and lower densities.  This, in turn, increases the distances travelled for non-work purposes. 

And then the transfer of travellers from private to public transport increases capacity on key roads, encouraging additional travel and promoting further suburban and exurban growth.  That’s why sweeping statements that “transport investments serve to facilitate higher densities” [1] have to be taken with a grain of salt. 

The density myths

I want to challenge what I see as some of the myths about city density.  I want to deal in this blog with the proposition that actively increasing density improves aggregate (or individual) productivity.  There are a couple of myths that I will tackle subsequently.  One is that increasing density will increase the health of the urban economy.  The other is that to save the city we must preserve the CBD. 

The productivity story

I have already queried the role of city size and density in urban growth in earlier blogs, mainly because it hasn’t apparently helped Auckland over the past decade.  Being concentrated in the region is more likely to be a disadvantage than an advantage to business. 

Despite this, the policy argument goes along these lines:

·         Large cities grow faster than small cities;

·         The higher densities associated with larger cities foster higher productivity (value added per worker);

·         Therefore if we force higher employment densities by regulating land use we will boost productivity and cause the economy to grow;

·         We can also increase employment densities in certain parts of the city by delivering public transport commuters to them;

·         These transport nodes will become fast growth areas and this growth can be attributed to  both public transport investment and consequent higher employment densities.

This reasoning supports policies to: (1) limit land availability for business and the view that business would be better off redeveloping “brownfield” sites or intensifying on existing sites because that will improve productivity;  (2) subsidise otherwise uneconomic public transport.

The evidence – marginal at best

Those are big – and potentially very costly – policy calls.  Just how much confidence can we have in them?  What does the supporting analysis say?

In New Zealand we relied for some time on overseas analyses, but since the mid 2000s we have developed a local evidence base using econometric research.  David Maré’s 2008 study is the most widely cited, and suggested a substantial productivity “premium” accruing to Auckland and, within the region, the CBD.  [2] This work has been called on, for example, to support the recent business case for an underground rail loop in Auckland.[3]  But just how robust is it for policy purposes?   

At best the evidence is weak with respect to the possibility that higher densities bring about higher productivity.  At worst, while the analyses may be technically correct, the policy assumptions that follow may be plain wrong.

The complication of composition

The growth of a national, regional, or urban economy over time naturally leads to a “sorting” of businesses.  This “composition” effect means that some places have businesses within them – for all sorts of historical reasons – that produce higher value goods or services than other places.  The composition effect based simply on classifying firms to sectors explains half of the apparent productivity premium identified by Maré. 

Even this may be conservative, though.  The two digit classification of firms he used still hides considerable diversity among firms in the same sector.  These differences are likely to explain a lot more than areferring simply to the generalised sector each belongs to. 

Maré also estimated the relationship between density and productivity in Auckland. His analysis siggested that 10% higher density is associated with 0.86% higher productivity.  This is not a huge gain when we consider what might be entailed by way of public spending and regulation to bring about a 10% increase in density.  There have got to be easier ways to increase productivity.

In any case, is this really a cause and effect relationship?  Maré's estimate came from a static analysis.  Establishing a dynamic relationship, such that when one item changes another follows, is more difficult.  Maré could not estimate a “robust” positive relationship over time, and called for more work to be done. Even if he could have demonstrated a dynamic relationship, we are still stuck with chicken or egg ambiguity – does higher productivity in fact lead to higher densities?

It gets shakier

Maré and Daniel Grahams' subsequent work for NZTA is even more circumspect.  Based on comparisons across New Zealand regions, it suggested that firms at locations with 10% higher density are 1.7% more productive.  But firms in different regions tend to do different things.  Observable differences based on 15 categories to allow for industry mix actually accounted for 70% of the density “premium”, dropping the productivity gain aacross a 10% density increment rom 1.7% to 0.5%.  (Incidentally, the figure for Auckland is down from 0.86% to 0.76% in this analysis).

Making sure we are doing the right things in the region is far better, I would have thought, than increasing densities and hoping this makes companies stronger.  The harder it becomes it invest in new activity, the more likely we are to be locked into yesterday's industries.

Oops - maybe Auckland is the wrong place

Maré and Graham explored different ways of estimating productivity effects, allowing for differences among enterprises and for sector mix within regions.  I drew the following conclusions from their analysis – although I concede some of the subtleties eluded me:

(1)    The predominant impact on the productivity-densities relationship is sector mix in a region;

(2)    Within Auckland, the stronger relationships and therefore the purported potential for gains from increasing employment densities are associated with the predominantly rural, low density areas of Rodney and Franklin, followed by Manukau, not the old Auckland city;

(3)    There are diminishing returns to agglomeration: productivity gains associated with density are higher in low density areas and lower in high density areas;

The results suggest that we might better concentrate on connecting and intensifying development in areas of relatively low density rather than trying to shoehorn more into areas that are already relatively dense.  When we take into account the relative costs – public and private – of trying to lift already high density localities this makes even more sense. 

Perhaps we need to revisit the notion I advanced to the Metropolitan Auckland in 2006 - let's lift our sights and consider the economic potential of the northern North Island, and begin to think about connectivity and opportunity on a wider canvas.

And shakier

The evidence regarding “productivity premia” in some places rather than others appears just too weak to support land use policies designed to enforce higher densities or to justify lifting urban densities as a rationale for transport investment.   

Daniel Graham is quite explicit on this matter in subsequent studies:

A key conclusion is that we are unable to distinguish agglomeration effects from other potential explanations for productivity increases, most notably functional heterogeneity.  Consequently, the agglomeration effects of transport investments cannot be interpreted causally.  [4]

Digging into heterogeneity – the occupational dimension

Heterogeneity- - a fancy word for diversity – almost inevitably overwhelms any econometric attempt to measure a relationship as weak as that between density and productivity.  The analysts try to control for the sector a firm is in, but that still hides a whole heap of heterogeneity.

Sectors are not the only things that vary between places.  Occupational mix is critical, for example.  The 2006 New Zealand Census showed that 19% of employment in Auckland region fell into the category “Legislators, Administrators, and Managers” compared with only 14% in the rest of New Zealand and 21% in the CBD.  Another high value category, Professionals, made up 18% of Auckland’s employees, 25% in the CBD, but only 15% in the rest of New Zealand.  Similarly, Technicians and Associate Professionals made up 19% of employees in the CBD, 15% in the region, but only 12% in the rest of New Zealand.

Jointly these high value added occupations make up 66% of Auckland’s CBD workforce, 50% across the rest of the region, and 42% across the remainder of New Zealand.  Such pronounced labour market stratification will account for differences in value added per worker even within firms and sectors.

Conclusion –make it easier to do business to make Auckland grow

Quite simply, the higher order, management, control, and negotiation jobs tend to end up in big centres.  This facilitates a range of local, national, and international transactions that they are associated with.  The challenge for planners is to make it easier, though, and not harder for them to locate in the region.  Imposing congestion and over-the-top infrastructure costs associated with promoting a high density city might just have the opposite effect, discouraging local investment and employment.

The benefits that firms might be looking for by heading to the principal commercial centre in a region or nation can be delivered by the quality of transport and communication links for the conduct of business, and the quality and cost of living to sustain a healthy labour market.  But if we make it too hard for them to locate at a suitable site in Auckland – whether or not that is in the CBD – the continuous improvements in transport, mobility and communications that we are witnessing today might just make it easier for them to leave or bypass the region.

[1]  Maré D and Graham D (2010) Agglomeration elasticities in New Zealand, NZ Transport Agency Report 376

[2]               Maré D (2008) Labour productivity in Auckland firms Motu Research Paper 8-12

[3]               APB&B (November 2010) Business Case Auckland CBD Rail Link for KiwiRail and ARTA

[4]               Graham DJ and Ven Dender K (2009) Estimating the agglomeration benefits of transport investment: Some tests for stability Discussion Paper 2009-32, Joint Transport Research Centre, OECD

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