Wednesday, December 28, 2011

Whither white collar services?

The Sydney-Mumbai connection
My son-in-law is visiting from Sydney, back in Auckland for Christmas and New Year celebrations.  He is a middle manager in one of Australia’s biggest IT testing teams (in financial services). The group’s growth over the past seven years has been phenomenal, from less than ten people to 700.  Of these, 400 are based in Sydney and 300 in India. 
That’s a substantial investment in Indian IT by an Australian business, an investment in high tech jobs that has strengthened the Australian operation even as it has boosted the economy in Mumbai.

From what I gather, growing expertise and experience mean that the bulk of investment in expanding capacity will take place in India, not Sydney.  As they acquire greater technical expertise and better management skills, expect offshore contractors there to play an increasing role in this sector, and others, and begin displace their home-based counterparts.

A farewell to footloose services?
This got me thinking – where is white collar employment headed?  What does it mean for the future of New Zealand (and Australian) IT?  And, of interest to me, what does this mean for our cities? 
Are we looking at a repeat of what happened to manufacturing – where producers have migrated to the lower cost, increasingly skilled labour forces of China and Thailand, for example?  Sure, locally oriented production (building materials and the like) has remained in New Zealand, but little high value manufacturing other than that associated with primary production and a few exceptional entrepreneurial producers survives.  From 2000 to 2011 New Zealand manufacturing lost 25,000 jobs (down 10%).  46% of these went gone from Auckland (down 14%).

Are we now looking at something similar in the white collar sector, especially among producer services?[1]  
Take one of our biggest, Telecom New Zealand. The company retained some call centre capacity in New Zealand when it restructured in 2009, but the expansion plan favours new investment in Manila. Keeping a New Zealand presence looks like a strategic move, about the consumer interface and brand management, not about reversing the tendency to invest in services offshore. 

And it was acknowledged by Telecom that while knowledge of products and services was usefully served from New Zealand in areas “where specific, technical knowledge was particularly important, offshore staff have delivered strong results ... [and] ... the offshore operation recorded our highest ever level of customer satisfaction for broadband support in December”.
Falling behind in the IT employment stakes?
Incidentally, the bias this example in favour of greater technical knowledge offshore differs from the findings of a US study[2].  This suggested that off-shoring impacted mostly on medium and low level skill occupations, creating a higher skill bias among those remaining.

If we want to limit New Zealand’s loss overseas to lower skill jobs, extra investment will be needed in building the quantity and quality of investment in technical education and training.  But with the collapse of many financial institutions, and ownership of our major players offshore, it may be too late: perhaps we already lack the depth of IT smarts, for example, needed to hold our place in the world’s financial and producer service sectors.
Of course, off-shoring among the upper echelons of the white collar sector has been going on for a long time as New Zealand companies have been absorbed by overseas principals.  The result is generally that senior management, IT control, and high tech jobs end up elsewhere, even if some production or distribution remains here. 

In terms of economic theory, increasing trade based on specialisation and comparative advantage should increase net welfare in both exporting and importing nations as each plays to its specialisations and its strengths.  It should be no different for services. 
Unfortunately theory is not enough.  The necessary assumption that comparative advantage is static does not hold.  In fact the gains in skills and experience to the service exporting country as experience accumulates may be reinforced by selective migration depleting the skills and experience of the importing country. 

The impact on our cities – time for a rethink?
Either way, the loss of high or low skill capacity to overseas suppliers, through loss of control of our companies or outmigration, raises important questions.  The one I am interested in is how we can plan for the future of our cities if we cannot assume a strong, growing white collar sector?

Perhaps we should qualify our plans for Auckland by contemplating the impact of a ground-shift in white collar employment as a result of the migration of current and future professionals and managers to Sydney and beyond, and of mid-level skilled technical tasks to lower cost Asian suppliers.   
Ambitious plans for a burgeoning Auckland CBD, the land use transformation and infrastructure investment required to shape it do not reflect the possible impact of a white collar slow down.  Quite the opposite: business and technical services are picked as the big performers necessary to meet Draft Plan goals according to the background papers, with no discussion of where the threats to such optimistic growth forecasts are coming from. [3]

So what has been happening?
I looked at recent white collar employment growth.  According to Statistics New Zealand Auckland gained 88,000 jobs from February 2000 to February 2010 (20% growth) with 84% in white collar sectors.  The rest of New Zealand gained 211,000 jobs at the same rate (also 20% gain), but only 47% of these were in the white collar sector.

So white collar employment was the big driver in of New Zealand’s economy over the decade, and accounted almost entirely for Auckland’s job growth. 
A decade of two halves
Solid growth came to an end in 2008 (Figure 1).  Around 85% of the decade’s new jobs were in place by 2005: employment grew by 261,000 between 2000 and 2005 but by only 46,000 between 2005 and 2010.  The figures for Auckland were 81,000 and 15,000 respectively. 

There was a decline in non-white collar jobs between 2005 and 2010, reinforcing dependence on services for growth. Nationally 84,000 new white collar jobs were partly offset by a loss of 38,000 elsewhere.  Auckland gained 32,000 white collar jobs but lost 17,000 non-white collar jobs.
Figure 1: Employment Growth in Auckland and the Rest of New Zealand, 2000-2011

Clearly we cannot afford to take the future of white collar employment for granted.

Is this decade going to be different?
It got a more interesting last year, and a little more promising.  Auckland staged a recovery between February 2010 and 2011, driven by 8,600 new white collar jobs out of a 9,000 gain overall.  White collar employment stalled in the rest of New Zealand, which recorded a decline of 3,100 jobs.  

Does this represent a recovery, a turning point perhaps?  With Auckland starting to grow ahead of the rest of New Aealand, and white collar servcies resuming their pre-2008 growth trajectory? 
It’s probably too soon to say.  These are small numbers coming in the course of what could be a drawn-out downturn.  I like to think that we are looking at accelerating growth founded on a strong producer services sector.  But I fear we may not be.

So what jobs are growing and what are their prospects?
When we look closer at the composition of white collar job growth (Figure 2) we see:
  • It depended heavily on community services (education, health, and government) especially outside Auckland.  These jobs will not migrate offshore, so that’s good.  Unfortunately, economic conditions mean they will have minimal medium-term growth.
  • Personal services (arts, recreation and others) have been slow growers.  So much for economic salvation by the creative sector.  Unfortunately, these activities depend on discretionary spending; they follow rather than lead growth.   So don’t expect too much from them as incomes stall and discretionary spending falls.
  • Commercial services (finance, real estate, information and media, professional and scientific services, and administrative support to business) held up longer outside Auckland than inside, but the rate of growth fell sharply.  Herein lies the biggest long-term threat: these services are most vulnerable to offshore supply and lack of investment, especially in human resources.  On the plus side, the bulk of Auckland’s 2011 gain was in this category.
Figure 2: Employment Growth by Service Sector and Period, Auckland and the Rest of New Zealand

Thinking about the future
I wish I could feel as confident about Auckland’s growth as the authors of the city's Draft Spatial Plan.  But in light of the vulnerability of our white collar sector, I can’t, despite a better employment performance in the commercial service sector last year.  And I certainly would not be relying on strong long-term growth in that sector to underpin heroic land use assumptions and big spending commitments.

I am not sure how we might respond to the threat to white collar employment in Auckland.  I guess I would start by addressing our education and training capacities, and maybe continue to explore ways of boosting innovation and development appropriate to our capacity and our setting (and not built simply around comparisons with other post-industrial, western cities!) 
And I would certainly address the relative cost of investing in IT and other producer services here, considering issues around infrastructure and public spending, local and central government regulation, and appropriate land use strategies for modern producer services. 

As I see it, though, it will be a long time before Paul might bring his family home permanently, if at all, and enjoy the sort of challenging, high tech (and well-rewarded) job he has at the moment. 

[1]           By producer services I mean those that primarily service the needs of other businesses and perhaps government rather than households.  Of course, there is some cross-over between markets and categories.
[2]          Crin R (2009) “Service Offshoring and White Collar Employment” Institut d.Analisi Economica, CSIC, Barcelona
[3]                 Despite positioning Auckland as an innovation hub in Asia Pacific, all the international indicators considered are about relativity with cities in Europe, North America, or Australia.  See Auckland Council (2011) Background Paper: Auckland Economic Development Strategy, especially p.103


mark said...

good post.

The draft paln is far to optimistic on CBD growth - white collar CBD jobs are also the type that become more and more productive as a population and economy grow. It takes the same staff to do a 100m currecncy trade as a 200m one.

Also CBD is for firms who need to tap into city wide staff pool, and need the image of the CBD. Again that's a limited number.

In my mind the key on white collar jobs is in developing new products as in IT new software etc, or in support services to niche exporters.

Again the plan fails to support manufacturing, and in fact drives many small innovative firms out of areas like morningside/onehunga - council planers don't understand the small businesses out there - many doing great things. While we tend to see the large firms reported, I also know small 10-12 person IT firms exporting/supporting software in niche markets, that on a per head basis would be some of our most successful exporters!

Phil McDermott said...

I agree, Mark. I didn't go into the critical role of the small, innovative entrepreneurs who are out there. They are a necessary part of our innovation infrastructure, and hopefully will proliferate and expand. But they will remain a small part of the total economy. And rarely do they require (or want) central city premises. In fact, the movement to green, energy efficient buildings and a growing emphasis on lifestyle opportunities to attract and more importantly to hold good staff is not likely to be supported by more expensive high rise office blocks in the CBD. The exceptions, as you point out, are those that draw staff from a wide catchment, and they may well be the ones under threat from outsourcing.

dan carter said...

"Solid growth came to an end in 2008 (Figure 1). Around 85% of the decade’s new jobs were in place by 2005:"
That's not surprising in the face of record low unemployment around 2005 companies simply struggled to find the people they needed, until the global financial asset price pyramid scheme collapsed in 2008.

If we are going to plan our cities around the assumption that all high and medium value jobs are moving overseas, we may as well give up now, knock down the CDB and build waterfront holiday villas for the visiting Sydneysiders.

If we want to compete for those high value jobs, we need a high quality transit system that gets people to the centre and out the otherside if needs be. i.e. transport that goes through the city centre, not transport that terminates there. Those agglomeration benefits they speak so much of in the city rail link plan that mean employers have a better chance of recruiting the skills they need if they can recruit citywide instead of just from their local part of auckland. But it's not just about CDB centric work. Someone working south and living north shouldn't have to change buses in the CDB, the buses should keep going through, which will also help alleviate the bottleneck that is the streets around britomart. Likewise swanson to onehunga with a transfer at mt eden, not a long transfer at britomart.

I work in IT in London and used to be pessimistic about the future of IT in the developed world as i watched jobs drift to india. But i'm not so pessimistic now, employment has held up, india has developed and it is creating demand for services from the developed world, and we are even seeing indian firms purchase and invest in companies in the developed world creating jobs here.

Phil McDermott said...

I share your concern, Dan, about what it takes to build a viable long-term and substantial IT sector in Auckland. What would be your priorities if given the task?
You might start with what it would take to bring you back from London. Good transit might be important, but I suspect that's not enough.
Bear in mind that a recent study by the Toronto Conference Board ( London among the cities with the longest average commute time in the world, at 37 minutes one-way in 2006.
And a quick look at the chart also suggests that those cities reaping purported economic advantages from agglomeration and density may be those that suffer the highest congestion and commute times (p46). Go figure.
Recent census data put it at over 38 minutes and highlights how much longer Londoners commute compared with their counterparts outside the capital (; also//
I haven't tracked down the equivalent numbers for Auckland, although the concentration of CBD commuters in the lower North Shore and the Ixsthmus and their relatively high propensity to use public transport suggest it would not be nearly as long. A recent Auckland study suggested that the the worst average peak commute in Auckland is under 30 minutes from Takapuna to the CBD (

dan carter said...

I'm highly surprised Takapuna is a worse commute than Howick! It used to take an hour on the bus and i hear it's now more like one and a half.

London does indeed have long commute times but i think the figure are skewed by the number of older people attracted by high paying jobs, and willing to sacrifice the commute, to keep the family house in the satellite towns. One of my colleagues travels 2 hours each way from East Anglia!
Young people tend to have shorter commutes as they live in the city so they can take advantage of the night life. I cycle less than 20 mins to work, living in a basement flat with a private backyard, and working in 'the city' overlooking the thames.
If you want stop young people drifting overseas i would suggest affordable housing in the central suburbs. Give them a city they can be excited about.

As for encouraging the IT sector, i'm a libertarian at heart, so i'm not a fan of governments trying to pick winners and would say do as little as possible. Streamline rules and regulations, make it easy to start a business (NZ already does well here but you can always do better).

As i mentioned cycling i'll bang on about my other pet project, encouraging more cycling and walking would make the city a more attractive place IMHO. Barcelona, amsterdam, berlin, london all great cities where far greater proportion of people cycle than auckland. It's far nicer sitting in the outdoor table of a cafe watching bikes go past than putting up with petrol fumes. Cycling can also extend the reach of the rapid transit system. And it has heath benefits for a nation that is sitting on an obesity time bomb. I couldn't believe it when national put out their transportation strategy at the election and there wasn't a single word on walking or cycling.

Phil McDermott said...

I'm not sure about the Takapuna example - that's straight out of the newspaper report,and I haven't put my hands on an average for Auckland - although averages are not that helpful for commutes. The OD travel to work data do not suggest that there is a large share of long distancecommutes to the CBD, though, so the average could be well undetr the Takapuna peak trip The cross-Isthmus trips are the real issue in Auckland.

Your comments on the age difference of short- and long-distance commuters are highly relevant. There is strong evidence that inner city living is for people who are in transiton, or at least in early stages of career, in first.early and often non-family relationships, at the foot of the housing lader, in late education, or recent migrants. The trade-off of space for accsssibility happens as people and hosueholds age and move up the housing ladder and maybe settle into a career path.

The probem for many western cities is an age structure that places most of the growth in residential demand in the family, mature family, empty nester and early retirement categories over the next 10-15 years, and more solidly into the retirement category beyond that. The central city lifestyle is not of so much appeal for many of them.
Cycling (and other alternatives) can be made to work well in the subirbs. Retrofitting Auckland CBD for cycling (and the lightweightc mobiity vehicles that may become a bigger feature of local ransport)will not be so easy.

dantheperson said...

Re: age difference, seems like the spatial plan has it about right then, truckloads of greenfield development around the fringes for low density family homes, and higher density development in the centre for the young folk who would rather be close to the action than mowing lawns on the weekend.

Patrick R said...

I know this is an example rather than evidence but my 84 mother lives in an apartment in Queen St, it's ideal, on one level, easy to maitain, highly secure, and quite social, great accessible shopping and Art Galleries etc? Plenty to see out the window and the building has a concierge who rang me when he didn't see her for a day.... In fact the only problem has been our recent interaction with health and social services who cannot cope with any model other than a suburban street and its subsidised parking. They are not set up to use transit (her building is next to Britomart) Ha! If ever any needed an example of how auto dependent our culture is here it is. So as a result the nurse visits are free but I have to arrange parking... Nuts.
Anyway i fully expect to downsize to an apartment with walk able shopping and attractions too when the flat mates have gone

Patrick R said...

But aside from the above example [which I know is unusual, although there are all ages in her building]. Your post raises good questions and the data is very interesting, but I find the conclusion that we should give up on the centre very strange. Especially as I can remember when Auckland City nearly did die, nearly became the classic donut with a big fat hole in the middle, from memory about 20 years ago must have been the nadir for any kind of life in the CBD [as bad as any classic Rustbelt post-manufacturing city]. By comparison it is now booming, and has a far greater chance to attract that student, the entrepreneur, that cultural or IT startup now than anytime in our recent history. This gradual transformation from a bunch of poorly connected suburbs without a heart is a really important role for the council and it’s planners, and it has only just begun. And it will be a fight, a fight with other cities, and we can't afford to give up, and much of that fight is about quality of life; being somewhere exciting and satisfying to live. And that means having real city qualities AS WELL AS great beaches. And not just being the quickest place to drive a truck through. What can we do? especially if we are wary of picking winners through subsidies etc... the aim must be to improve the appeal of the whole of the place. Ak already has a great natural environment what it needs is for the quality of the built and social environment to approach that... get the settings right, and be ahead of the curve. Encouraging urbanisation to complement the existing lower density housing stock is vital, transforming land use through investment in fast modern public transit across the entire city is top of the list [a smart redesign of the bus, train, and ferry networks involving the creation of a real RTN network is urgent]. Encourage Auckland as an education centre.

Especially if you believe, as I do, that we [and the rest of the OECD] are at the beginning of a big discontinuity. Like the Great Depression this is not about recovery to where we were but rather about transforming every detail of our lives, how we live, how we move, how we work. And it’s always better to choose to change than to have it forced on you.

Phil McDermott said...

Patrick, no problem with examples of one. I have friends living in the CBD. We occasionally shout ourselves a night there and like a lot of Aucklanders enjoy visiting. We won’t live there, though, and know plenty of others who won’t.

Let’s think realistically about that; it will be a long time before many of us are independent of cars (ours or others’) and I would not want to impose a planning regime that requires people to live away from the amenities and environments that suit them. (And I am still thinking about the bigger numbers when I reach this position: see, for example,

Isn’t planning about enabling people to make choices and limiting the adverse impacts of them doing so? We can’t regulate for sustainability, or a buoyant city, or presume to know who will be living or working where in the future, and how. If we must plan, then let’s ensure that we create opportunities, rather than limiting them.

Our current planning promises very little to the housing and transport disadvantaged. They will be the ones that carry the costs of expensive plans for a centralised region. Remember the gentrification of St Marys and Herne Bays; Point Chev more recently; and soon Tamaki.

Live in Mt Wellington and work in Te Papa or Wiri? Don’t worry about the poor public transport and the growing cost of motoring across the Isthmus, chances are you won’t be able to afford to live there a lot longer anyway. But there should be a great rail service to the CBD for those who displace you.

It’s a conceit to think that we can regulate for predetermined outcomes that are akmost certainly ill-informed and biased. So let’s not risk scarce public funds on poorly justified Think Big projects that limit future choices (we’ve been there, done that – are we really destined to repeat past mistakes?). I think that’s what Andrew is saying when he discusses emerging transport options.

Creating opportunities by acknowledging both current evidence and future uncertainties has been a theme of my bogs. You’re right to cite the example of your mother - but that’s one among many. The key is to acknowledge diversity and uncertainty and adopt a somewhat more circumspect approach to future possibilities.

Funnily enough, in the early 1980s we undertook assignments for the Town and Country Planning Division of the MWD and for the ARC (subsequently presented to an OECD conference on urban development) arguing for more opportunities for people to live in the city, and the sorts of amenities that might require. I also argued with the Head of Strategic Planning for Auckland City Council at the time about the need to change the planning regulations that were limiting residential development in the CBD. When the 1986 Census suggested that people were indeed returning to the central city to live he told me that it was “just a blip”.

The CBD, as you say, has transformed itself but this is largely despite the efforts of planners. And it will continue to evolve and change. But let’s not assume that we will simply see more of the same in the future. Because that’s where we were wrong in the past.

patrick R said...

Phil who on earth is trying to ban cars or burn every detached house?
Driving won’t end, most people will continue to not live in the CBD, neither of these things are even half necessary for Auckland to become a city of real choice and dynamism. The Auckland of the last 50 years is a monoculture of low density and auto dependency so if you really believe in choice you will be interested in stimulating balance away from these as the only options. But of course this will never involve forcing anyone out of their detached house, nor will our frankly extensive and mature road network be ripped up. The idea that the proposed plan involves the rounding-up of everyone into some kind Warsaw Ghetto is a straw man. Read the thing, it merely involves the encouragement of other outcomes along with vast stretches of new ex-urbia. Actually for me it proposes the destruction of far too much extra countryside with dreary disconnected new suburbia. Places which will do absolutely nothing to aid house affordability, will only dissipate the potential vitality of Auckland and condemn scores of people into increasing transport poverty.

You distrust planning?, fair enough, but we already do regulate for predetermined outcomes, and yes they are ill-informed and biased, what on earth are minimum parking, set-backs, and site coverage regs if not attempts to form pre-determined outcomes? I am for less regulation not more. Well less dumb regulation. What we need to do is remove the subsidies for sprawl and enforcement of low density and the rebalance will take care of itself, if you can’t see that there are markets for different scales and locations of dwellings I suspect you are looking backwards far too much. And increasing the opportunities for a variety of dwelling and their locations is the very way that the council can help housing affordability.

I agree much of the improvement to the CBD has been largely despite the planners and planning regulations, and anyway the real macro planning of Auckland over the last 50 years has been undertaken defacto by traffic engineers, tragically, but it doesn’t mean we can’t change this. We have had all sorts of appalling people presiding over this town [as well as destructive meddling from Wellington] and the results are all around us. But that we have been badly let down in the past doesn’t mean we should abandon trying to shape a better city. Is this really your argument?

You also seem to be arguing that because PT is substandard this can never change and we should further commit to the only already well supported and most expensive way moving within a city- the private car. This is a chimera, the more a city tries to accommodate this mode the more it destroys itself, was the city on the picture behind your blog designed for the car? Cities do matter, and the better ones worldwide actively invest in alternatives to that mode. You rightly observe that we have a clumsy PT pattern that doesn’t serve much but the CBD well but instead of supporting the coming reform of this you seem to want to undermine these changes.

That is a sorry tale from the 80s, but no surprise, that planner, like John Roughan, may still live in some fantasy of the 1950s, but it would be a tragedy to force the rest of this growing young city to do the same.

Phil McDermott said...

Whoa, Patrick, Is Auckland really as bad as you say? Why then do so many people continue to move into the suburbs? Why does it score so well on various international quality of life rankings? Have our civic leaders really been so awful? All this because I questioned some of the demand assumptions underlying the huge fiscal commitment the city is planning to make an underground link perpetuating a heavy rail-based transit system? A commitment you present as founded more on emotion than reason.

Andrew D Atkin said...

Hello Patrick: May I say that with New Zealand being only about 1 part in 150 urbanised (the human footprint has virtually nothing to do with housing - that one is a food issue), I say let those who want to live in suburbia do so, with new satellite townships around Auckland and where ever, and let those who want to live in intensified areas do so. Planners should focus first on responding to demand - not defining what it should be (via Rural Urban Boundaries).

Patrick R said...

Andrew, thank god we haven't spread any further than that, but what a meaningless stat! Considering over 86% of us are defined as living in 'urban areas' [2006 census] you will have to try harder. I know you guys are obsessed with the MUL... but I promise you its removal would neither improve AK's vitality or economy, nor improve housing affordability, although the land bankers will certainly be richer. Your demand argument is circular, for demand to be a pure test of desire there would need to be a perfect variety of supply. Which is to say people can only buy or rent what is there, and in Auckland mostly there is only type of dwelling and area. [And the existing regs will tend to keep it this way]

But anyway you clearly read demand as a perfect reflection of your assumptions: what about the unsatisfy-able demand for inner suburb dwellings? You see this too as proof for the evils of MUL? You think more ex-urbia spread miles away on freshly ruined countryside will satisfy this demand?

Andrew read what i wrote and read the plan, there are to be no hit squads forcing people out of there houses and suburbs. The suburbs are fine, but could be better connected, of course many of the highest value and pleasantly leafy suburbs were built on the back of the tram network, which gave them much of their quality. Satellite towns are a great way to achieve the best of urban life and proximity to the country, but to not just be absorbed into a characterless sprawl they need two conditions. 1. A mandated Green Belt or some other edge definition, and efficient connection to other centres and the primary centre. therey are no argument against not spreading the city, but are a great argument for building a real rail network.

And Phil you continue to misunderstand what I am arguing for and what the CRL will achieve. I want places [including suburbs] to retain their characters, to be places, I want them to be viable economically and attractive socially. The question is how to achieve that? My answer is around transformation of our whole city into a place of greater variety, and yes more intensity in places and for those who want or need it, by encouraging the many gaps to be used, esp on transit corridors as in Melbourne [and I fail to see how this harms the existing stock of housing for those who still want and can afford that] but also to make existing and suburbs and centres better connected.

And Phil if you find me unreasonable [or is it just too passionate?] please feel free to discuss in detail. I am concerned about Auckland and not ill-informed, try me. What have said that is unsupportable? Auckland is not auto-dependant? Or this is not the most expensive way to order a city? According to American studies: ‘[Public] Transit based cities spend around 5 to 8% of their wealth on transportation but auto-dependent ones range from 12 to 19%’ [Resillient Cities 2009]. It is clear to me that how much we assign priority to the private car is the key to improving Auckland or not, and that this is principally because we have, like the rest of the Anglophone world, gone too far in one direction over the last 50 odd years. There is plenty of evidence both beginning here [five-folder rise in train ridership since rehabilitation began] and abroad; the transit revolution in Perth for example, Melbourne's changes....Here is another example an important and always overlooked one:

mark said...

Phil - Has there been any work stripping out export education component of CBD in any analysis? I get very worried that everyone talks about new vibrant CBD, and never seem to see impact (and risk) of foreign students.

Auckland market is around $1.2bn - 20,000+ students - with I'd expect around 15,000 in CBD. So 3/4's of CBD is likely to be a student hostel - which is why we see 30m2 apartments.

So we maybe have 5-7,000 residents in the CBD - which highlights its low appeal to the average Aucklander.

What we've seen is shift to new Office towers/larger floor sizes for modern open plan business styles, and a re-use of buildings for student education (both foreign and local).

We've seen the local businesses pay $120m targeted rate to redo streets / shared space projects etc - which are all great. And we've seen some increased CBD use in things like Vector Arena - but I suspect rest of CBD use is pretty static. No real demand for new theatres etc.

So vaste majority of Aucklanders don't go near the CBD, and look to live and play near home. Which is where I support your concept of planning being there to allow people to make their own lifestyle choices. This is why the current draft plan is doomed to fail, and in fact will create poor outcomes in many parts of the city - especially with its unimaginative corridor growth.

Andrew D Atkin said...

Patrick: "Ruined" countryside is subjective. You could call the countryside a ruined forest. It depends on what you value. When you look at all those poor souls paying $200,000 plus for a section that once cost a mere fraction of that, you can know that the suburbs are deeply valued by many, many people.

dantheperson said...

interesting point about your grandma in the CBD patrick.
When i was visiting sardinia i took note of all the retirees hanging out together in the street, how they just pop out of their house and sit on stools outside the shops with their friends, chatting and playing board games. Others friends and countryside a short tram/train/bus ride away.

Now sardinia is neither a rich place, nor densely populated, nor supporting a large population/economy, but yet their cities seemed so much more liveable (the Mediterranean climate helps!).
It made me question moving back to auckland because how the quality of life must be less as you get older and less mobile and more isolated in the suburbs, compared to apartment living. (not everyone can afford auckland CDB living, and even if they could, whats the point of moving if your friends aren't there? )

Will there ever be demand in akl for affordable 3-4 bedroom family low rise apartments? It seems there are student shoe boxes, or 600K CDB luxury, but nothing for the ordinary family.

Matt P said...

Re: affordable 3-4 bedroom family low rise apartments - I would suggest that is an oxymoron!
Even in a low-mid value suburb in Auckland, the cost involved in building low rise apartments (3-4 levels) is such that even a 3 bedroom, 100 square metre apartment (not particularly spacious by any stretch of the imagination) would typically need to sell on the market for circa 600K! (once you account for all the costs in the development process plus a circa 20% profit for the developer). And this, remember, in a LOW / MID VALUE location - the type of neighbourhoods where detached housing is selling for circa 450K.

Essentially, the development economics of building medium / high density housing in Auckland is shot. There may be some locations where a large comprehensive medium density development could be achieved, where economies of scale lead to viability. But smaller scale interventions will generally be difficult.

In my view, a host of factors have come together to create the perfect storm for residential development Auckland. These include:

- excessive property value escalation in the 2000s
- increases to GST
- failure of most finance companies creating a big funding gap
- significantly rising construction costs over the last 10 years
- a generally uncompetitive construction industry, with a lack of economies of scale
- development contribution regimes (a relatively minor factor in the overall scheme of things, but still part of the picture)
- the leaky building fiasco leading to more stringent (and costly) building requirements

I'm certainly pessimistic about the outlook for residential development in Auckland based on the fundamental economics at play - something radical will need to be done to start to turn this around - eg. scrapping or heavily reducing GST on new housing development


Mark said...

Good points Matt - in fact I understand the Mt wgtn quarry developer said the same thing to Council on apartment costs - basically they could build a 200m2 2 storey house for same cost as 100m2 apartment.

The loss of mezzanine finance is going to be a huge issue. I don't see banks stepping in to fund this gap. The impact might be good in that it may well just leave the big boys like flecthers.

The scary thing is that with the curent costs, it's very hard to see any quaility construction being done.

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