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