Auckland Cannot Afford Light Rail

 A  long and winding trail

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

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

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

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

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

Who will use it?

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

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

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

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

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

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

 

Does it stack up economically?

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

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

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

Tail wagging the dog

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

Let’s get real

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

Here are some contrary arguments:

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

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

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

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

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

An elephant in the room: the growth fixation

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

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

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

Rapid Rail to Mangere – A Wet Feat?

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

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

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

Auckland facing Hobson’s Choice: Expansion or Implosion?

Choosing Auckland

In 1840, the first New Zealand Governor, William Hobson, sailed into Waitemata Harbour and chose Auckland as the country’s new capital.  The harbour offered ease of embarkation and disembarkation.  Fertile coastal lands meant that settlers could grow food crops, and the local Maori tribe, Ngati Whatua, welcomed the promise of protection and trade that European settlement offered.

Auckland’s early fortunes fluctuated.  The city could only be reached easily from other early settlements in New Zealand by sea .  It was on an isthmus divided by two harbours, crossed by flood-prone creeks and peppered with swamps.  In addition, tribes to the south resisted the sale and alienation of their fertile Waikato lands, stalling expansion of European settlement until the late 1860s. 

The emergence of New Zealand’s first city

Auckland survived, though, even when New Zealand’s administrative capital was moved to Wellington, 600km south, in 1865.  Rivers were bridged, wetlands drained, waterfronts reclaimed, and a railway pushed into the fertile and now subdued Waikato region, and beyond. 

The city prospered in the 20^th Century, dominating the import and distribution of manufactured goods and exporting regional produce.  Consequently, it developed a substantial import-substitution manufacturing sector, boosted by protectionist policies introduced in the 1930s. 

When the economy was deregulated, starting in the late 1970s,  manufacturing’s role contracted.  However, its presence and the city’s trading heritage set Auckland up as the primary service centre in New Zealand, providing business, professional, trade, and financial services to production (much of it taking place beyond its boundaries), and catering to the needs of a steadily growing population.

Primacy in the 21^st century
The cumulative advantages of scale served Auckland well.  Although still a small city globally (347^th on the UN Population Division’s 2015 city size listing), it accounts for 32% of New Zealand’s population and 34% of its employment. This primacy reflects the importance of consolidating human skills and resources in a small country (population 4.8 million, less than the Sydney metropolitan area’s 5 million 2,000km across the Tasman Sea) and the low density of settlement over the rest of New Zealand.

Auckland remains New Zealand’s centre of disembarkation.  Even as increasing numbers of residents decamp for hinterland towns and smaller cities, New Zealanders returning from overseas, new migrants, and international students tend to make Auckland their first stop (Figure 1).  As a result, the city accounted for 50% of national population growth over the five years to 2016, a period of exceptional migration gains.

Figure 1: Net Long-Term Migration, Auckland and the Rest of New Zealand, 1991-2016

Reaching choke point?

Today Hobson’s site seems unsuited for a city of even 1.5million, let alone the 2+ million projected for the not-too-distant future.  Physical constraints have put the squeeze on housing and transport.  Ageing underground infrastructure struggles to cope.  The city may be approaching – or have already exceeded –Tamaki Makarau’s carrying capacity.  That, though, is not something that Auckland Council seems ready to contemplate.

Unfortunately, an obtuse planning response to the challenge of growth is set to squander the human and physical capital already invested in the city, and to mar its natural qualities.  A plan preoccupied with boosting employment and housing in a confined CBD and to promote increasingly intensive development on the Isthmus looks set to throttle growth. 

Externalities abounding

The outcome for Auckland of a strategy of consolidation and centralisation in is already apparent:

·         Under-capacity public and private transport services and a lack of redundancy in the networks lead to frequent stoppages on road and rail throughout the city, compounding already excessive congestion;

·         Restrictive land use policies create a hopeless backlog of housing demand with severe economic and social impacts (see, for example, the presentation of economic commentator Shamubeel Eaqub in Joel Cayford’s Reflections on Auckland Planning);

·         Increasing costs to business – the costs of employment, congestion, business disruption, and even space for growth raise the spectre of slowing investment, diminishing productivity, and income growth;

·         Grossly inflated land prices feed into high housing costs, distorting the supply chain and generating a new middle-underclass, defined more by frustrated housing aspirations than by educational or family shortcomings;

·         Failures in water, sewage, and stormwater systems threaten the health of the harbours and estuaries which give Auckland its character;

·         A growing likelihood that significant natural events (such as intense low pressure storms) will increasingly bring a congested city, its critical services, and its centre to a halt.

It’s the geography, Stupid

The response to the challenge of growth has been to promote increasing densities in the central city and, latterly, in the inner suburbs, a strategy that is deeply flawed for this city (something I have laboured in earlier postings: e.g., here and here). 

This strategy flies in the face of Auckland’s geography and the natural constraints it imposes.  It raises the prospect of fiscal failure for the council because it requires high cost works with limited if any productivity gains while compounding depreciation, maintenance, capital and servicing liabilities. 

The city will be hard placed to meet its financial commitments if the current crisis of growth accelerates, further lifting ratepayer costs and reducing the affordability of Auckland to business and households alike.  And any slowdown would only compound the city’s fiscal miseries.

Hobson’s choice

So now we are faced with our own Hobson’s choice (Thomas’ not William’s): the city has little option but to find ways to expand.  It is time to embrace new approaches to land and its use in the region, how and where it is developed, and how it is connected.

Given that Auckland Council seems hell-bent on promoting consolidation on a site ill-suited to it and in a culture in which it will work only for a few, this will only happen with a dramatic shift in thinking.  That might come if Government moves quickly to embrace the proposals for revamping urban planning through the rewrite of the Resource Management Act and shake up of the planning establishment proposed by the Productivity Commission.  The choices for Auckland are narrowing.

Back to Basics: Planning, Housing Markets, and the Cost of Ignoring Economics

Acknowledging the impact of planning on housing

At last, economists, commentators and the media in New Zealand are recognising what has been evident in many countries since late in the 20^th century; that plans to contain city growth in urban boundaries betray the hopes of large and growing numbers of urban dwellers and job seekers.

In Auckland, an independent panel has modified the proposed Unitary Plan to allow more dwellings.  But it is too little, too late; so Auckland remains consigned to increasing social division fashioned around a new poverty, a poverty rooted in the failure of the housing market.

This post doesn’t deal with numbers, or with evidence of why the Auckland Unitary Plan remains a pig’s ear.  Plenty of others have picked up on that.  Instead, it aims to set out the basics of housing supply – the complexity of the market itself and the economic principles that regulators need to understand if the ground lost is going to be recovered.

The Conclusion

This is quite a longish post that concentrates on the basics of housing markets and economics.  If you don’t want to read it all, here is my conclusion.

There are no options if we want to make housing affordable again.  Without adequate supply, initiatives to dampen demand will be futile at best, destructive at worst.

Arbitrary restrictions on urban land development that cannot be justified on environmental or infrastructure grounds must be removed from the city’s plan.  Attempting to force people into small, high density dwellings by rationing land for inside or outside the metropolitan boundary penalises all new housing and large sections of the community.

Prescribing when, where, and how much  greenfield development can take place means that the price of brownfield land, infill, and remaining unbuilt lots within the urban boundary is inevitably pushed up to the point that virtually any dwellings in any location – whether apartments, terrace houses, or detached homes on tiny sites – will be unaffordable (and unfundable) for a very large share of the community.  Trying to make high density housing affordable will require small dwellings, cheaply fitted out, built to minimum specifications, little suited to most market segments.  They will be unattractive to developers and to the banks, and, if they can be delivered, are  likely to concentrate rather than alleviate the health and welfare consequences of inadequate housing. 

This is basic economics: generation rent, the millennials, the homeless, and families across the board will benefit only if land speculation is taken out of the housing equation by removing arbitrary restrictions on where, when, and how much urban development can occur in and around Auckland.

If you struggle with this conclusion perhaps you could read on.

What Happens When You Limit Land for Housing?

It’s simple, really: if supply is artificially restricted in a market with growing demand, that market will be distorted.  As a result, monetary and non-monetary costs will be higher than they need to be. 
If the market is at all complex, regulations aimed at managing demand to offset a supply failure (like investment or lending thresholds for house mortgages) will lead to further distortion. Distortion will show up in unexpected and inequitable outcomes, advantaging some groups and disadvantaging others.

A complex market

In a growing city the market for housing is continuously changing, which makes it difficult to predict.  It’s also complex, which makes it difficult to regulate. 

Complexity comes from the many ways housing demand is divided up; for example:

·  Across suburbs and sectors (e.g., inner, outer, north, south, east, and west);

·  According to where individuals or households stand on the housing “ladder”, which in simple terms distinguishes among people seeking a first home, households after a subsequent family home (or homes), empty nesters aiming to downsize, and those wanting a retirement home;

·  By demography which, while associated with progress on the housing ladder, will further influence the dwellings people need according to household size and type (non-family household, solo occupant, couple without children, couple with children, solo parent with children, extended family, and so forth);

·  By different lifestyle preferences among, for example: large and small dwellings, modest and indulgent scale or design; different types of locality (in or near the city centre, coastal, suburban, urban village, rural township, countryside); and, increasingly, whether or not in a planned or managed community;

·  By ability to pay, through which a household might exercise its preferences.

Together these divisions can be used to describe many market segments, each with distinctive housing needs and expectations.  Consequently, a trade-off between medium/high density and lower density development is meaningless: a differentiated housing market needs both, and options within each.

When housing supply is suppressed by regulations that reduce the availability of land, the impact is spread unevenly over dwelling types and therefore impacts unevenly on demand segments.  This is most obvious in the way in which new entrants are excluded from home ownership, along with low income earners, single income households, and young families with a preference for space; in fact, young people generally.  Social divisions that were once defined predominantly by income and socio-economic status are now also marked by a generational divide.

Housing and employment

The adverse impacts of limiting the land available to meet housing demand – by location, type, and price – are compounded by the link between housing markets and the labour market. Like the housing market, the labour market is organised geographically.  People want employment close to where they live; and businesses want to invest close to where the sorts of workers they need are likely to reside.  

Ideally, the catchments for certain types of labour will overlap with the areas in which those people live. This makes jobs readily accessible to households.  Accessibility can be maintained as cities grow with the development of transport connections that let people move easily between residence and work.  This is straightforward when a city is small enough and the city centre and inner suburbs account for a large share of employment.  But as cities grow and employment becomes more specialised, the role of the central city changes, and jobs and houses become dispersed, increasing the time and resources committed to commuting. 

Restricting land for housing and employment increases the costs of investment in both.  It makes houses less affordable and business expansion costlier.  The increased commuting times, costs, and congestion penalise both residents and businesses.  By lowering discretionary spending, increasing staff turnover, and inflating wages, the effect is to reduce productivity and competitiveness.

Fiscal pressures also increase, through the need to fund more roads, transit, and associated facilities. 

The social costs

There are costly social consequences. The impacts of substandard housing and overcrowded living conditions are well known.  They include poor health, difficulties securing and holding down jobs, erratic school attendance, limited educational achievement, and diminished employment prospects. 
Even for those who are housed, the high costs can create financial stress, contributing to domestic violence, and welfare and charity dependence.  The absence of starter homes, high rental commitments, and excessive mortgage repayments act to delay family formation and child-bearing, reducing fertility.  Ultimately, high housing costs will also suppress any offsetting demographic or economic gains that might come from immigration by making a city unaffordable to new arrivals.  It may well fuel outward migration, particularly among those with the skills and motivation to improve their situation elsewhere, robbing a city of some of its most socially mobile citizens.

The consequences of declining ownership

That fact that lower affordability reduces the opportunity to own a house is now well documented.  A prolonged period of renting becomes the only viable option for many if not most new households.  

This brings its own problems, especially in New Zealand where the institutional arrangements that might bring stability to renting are absent.  Lack of secure tenure is reflected in negative measures of school attendance, job retention, income growth, and social networking.  In contrast, home ownership has been a traditional path for saving and building equity, with the benefits of home improvement and appreciation accruing to the owner-occupiers.  Ownership provides households the stability required to underpin educational and career progression, savings, health, and social stability.

The opportunities to profit

The upsides of a housing shortage are confined to particular groups.  Home owners with significant equity may purchase one or more investment properties for rental purposes, boosting their incomes while bidding upprices. This favours older groups at the end of their careers and heading towards retirement, further highlighting the contrast in fortunes between retiring baby-boomers and the millennial generation

Then there are the speculators.  They may be small investors on-selling their rental properties for the capital gain.  Or, they may simply be owner-occupants who buy and sell regularly, sometimes improving their houses, but always seeking to exploit rapid price escalation by on-selling.

Large scale institutional investors, development companies and investment trusts, may accumulate green or brownfield land for development, and simply hold it in undeveloped form to farm the long-term gains from appreciation, writing holding costs off against investments elsewhere.  This slows the market – with less properties on sale than might otherwise be the case – and entrenches the shortage, compounding the distortion initiated by planning restrictions. 

Fixing it

Increasing housing supply alone will not solve the problem once the distortions initiated by inappropriate plans have become embedded in the behaviour of market participants, as is the case in Auckland with 15 years of compact city plans.  While boosting the supply of land for development is an essential first step on the path to normalcy in the housing market, reform to taxation laws will also be necessarily to remove the market manipulation evident in land banking and speculative investment. Imposing a modest capital gains tax across the board is the most obvious such measure, which would bring New Zealand into line with the rest of the world.

On the land use front, there are no options if we really do want to make housing affordable again.  Any attempt to force people into small, high density dwellings by limiting how much land will be made available for new housing penalises all categories. By prescribing when and where greenfield development can take place, the price of brownfield land, infill, and remaining unbuilt lots within the urban boundary is pushed up to the point that any dwellings built on it – whether apartments, terrace houses, or detached homes on tiny sites – will be highly priced and remain unaffordable to a very large share of the community.  Making high density housing affordable means small dwellings, cheaply fitted out, and built to a minimum specification, little suited to most market segments and difficult to finance. 

This is basic economics: generation rent, the millennials, the homeless, and families across the board will benefit from access to housing in whatever form they might seek only if land speculation is taken out of the equation.  This means removing arbitrary restrictions on where, when, and how much urban development can occur.  Until then, the Auckland Plan, even in its revised form, will remain the major impediment to creating a livable city which works for the majority of its residents. 

Beyond constraint - urban form and housing affordablity

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

• change traditional mindsets
•  realign institutions
•   regulatory reform
•   rethink infrastructure
•   rethink funding
•   back off excessive prescription

·     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, .

Trans-Tasman Blues – the Housing Crisis and Our Future

Boxed in thinking

While filling in time in the Auckland International Airport waiting hall last Thursday I read about a Property Council discussion of what accommodating  an extra 1.2 million people over the next 30 years might entail. Martin Udale, the development expert heading Essentia Consulting Group, talked about having to push the envelope to meet the challenge posed by the Council’s population growth expectation and its commitment to housing three quarters of that  growth over the next thirty years within the city's boundaries: that's 10,000 new dwellings a year (not counting any catch up from the current  shortfall ).

This is going to need as much as 15% of the current stock to first be demolished, to be replaced with infill housing – apartments and townhouses -- at a ratio of perhaps three or four new for every one knocked down . But for this to happen, Martin said,  Aucklanders -- and that includes planners -- have to first "get over their phobia about height".

Affordable living, Auckland City

Now that’s a challenge. Building medium density housing to a standard and in localities that Aucklanders might like at a price they might afford has so far proven well nigh impossible. New apartments are generally over-priced relative to detached houses because of land prices in preferred locations, consenting and development challenges, and construction costs.  The result has often been cost cutting and poor construction. Consequently, most apartments built over the last 15 years cater for transient populations – students, recent immigrants, solos, non-family groups –often in tight accommodation. 

Outside the box

There are other options for increasing densities – in greenfields, satellite towns, and through selective suburban infill and brownfield redevelopment (including developments modelled on retirement communities and suburban villages).  Going down this path – of decentralised intensification --- would take a serious re-think by the city fathers, though, and their planning advisors. 

But if we take on the challenge  of demolishing 50,000 to 85,000 of our existing housing to build apartments and townhouses, we might inadvertently solve the problem another way: by  stalling population growth. 

Or outside the country
The slowdown is already here.  And intensification along the proposed lines with the congestion and loss of amenity that goes with it will make Auckland that much less liveable and Australia that much more attractive.

Affordable living, Sunshine Coast

Which brings me back to why I was waiting at the airport.  My wife was returning from visiting our three Australian-based children and their families. She’s beginning to think we should move there.  Some of our friends have done just that.  Even though they are not far off retirement age, their skills and experience are transportable if they want to work in Australia and be closer to their families.  

And they are in good company. According to Statistics New Zealand (SNZ) there was a net national loss (an excess of long-term departures over arrivals) to Australia of 486,000 people over the past 30 years, 212,000 of those in the last ten years alone (September years).  The trend has been accelerating (Chart 1).  Add that to the cyclical nature of movements from other countries and we can anticipate more, and more prolonged, net migration losses from all sources in the future.

Chart 1: Net Migration Movements, New Zealand 1991-2012 (September Years)

So how will Auckland fare?

The latest population projections from SNZ suggest that there could be another 480,000 people living in Auckland in 20 years time under a “medium scenario”,  a figure which  more or less lines up with 10,000 new dwellings a year.  Over a third of this  growth is based on assumed migration gains .  Of course, some of the natural increase projected also depends on migration : fewer migrants = fewer babies.

Going down

So I took a look at the assumptions behind the projections. According to SNZ sources, there was a net gain of 66,600 international migrants (arrivals less departures) in the five years ending 2006, but that dropped 56% to 37,700 between 2006 and 2011 (September years).

And the net loss from Auckland to other parts of New Zealand from internal migration has been growing –18,000 estimated between 2001 and 2006.  So, international and internal migration over those boom years contributed around 48,000 new citizens, 9,600 a year.  

Without a 2011 Census subsequent internal movements cannot be calculated.  But since 2005 gains from  international migration  have continued to fall, down to an average  7,000 a year. The trend continued in 2012 with a gain of just 4,100 (Chart 2). 

Chart 2: Net International Migration Gains, Auckland 2002-2012 (September Years)

More hope than history?

The SNZ medium assumptions in fact assume an average 6,000 gain in migration through to 2016 (actually, that’s now closer to 6,500 following the overshoot in 2012), before it is assumed to jump back to boom-time figures of 9,000 a year for the next 15 years.  But the conditions experienced ten years ago are unlikely to be repeated in the foreseeable future.  And our longer history certainly doesn't support a view of such prolonged gains.  And even a modest 6,000 a year through to 2016  looks  out of reach if real house prices cannot be brought down to where they were a decade ago.

So who are we losing?

So what does this mean?  Well, over the past twenty years, more than half of the people who have left Auckland have been aged between 15 and 34 (again, based on SNZ data), mostly educated young adults at the start of their work career and entering the housing chain.  Lose them, and we can trim our housing demand figures. More than that, though, we can reduce our aggregate fertility expectations and lower forecasts of workforce growth 

Some of these young adults  are embarking on the traditional New Zealand passage of rite, the Overseas Experience trip  – rather like my daughter and her partner did ten years ago.  But they are now well settled north of Sydney with an affordable home, pool and yard for the children, great amenities, good friends,  good schools and jobs.  I don’t see them – or many others like them – heading back this way in my lifetime.

In any case, Chart 3 shows a shift over time towards more  family groups leaving, older adults and children. This is worrying because they don't  make such a significant move without  good reason.  Could it be tied up with housing affordability?  Is it associated with the challenges facing the intermediate housing sector – people with good jobs and dual incomes still unable to afford a house in Auckland ? And not wanting to live in ever-more crowded suburbs?  

Chart 3: Age Distribution of People Leaving Auckland for the Long-Term

Of course, there is always the prospect of resurgence in immigration from Asian origins offseting the  loss of young New Zealanders.  Even that is not  assured, though.  The prolonged GFC  and economic uncertainty here changes New Zealand's appeal  relative to other options opening up to them. We cannot count on New Zealand always being a destination of choice, especially if we are busy recreating the sorts of urban densities that many potential immigrants are moving from.

Maybe exporting some of our housing problem to Australia  is positive move – but we are also exporting our future and accelerating the ageing of our city as a result.  It would be a shame if by going along with the urban design consequences of consolidation that the advocates of a compact city are bestowing on us  the Property Council somehow legitimises the dogma that risks the undoing of our city.

It is time, instead, to begin to think about quality not quantity in our urban planning.  And that means really thinking outside the compact city box.