By Geoff Simmons*
As Auckland housing reaches a crisis point and homelessness rears its ugly head, our politicians seem to be slipping into silly season. Having refused to deal with investor demand for housing, they are forced to flog the dead horse of increased supply even harder.
Yesterday Labour’s Phil Twyford came out with a surprise announcement calling for the Government to abolish Auckland’s urban growth boundary. This boundary is essentially the line between the suburbs and lifestyle blocks/ farms and the details are covered well here.
Buoyed by the new political consensus, Finance Minister Bill English repeated his calls for Auckland Council to open up more land for development (or else). All this politicking is taking place despite Auckland Council being in the midst of developing a unitary plan, as it is required to do by the Government.
Mr Twyford’s argument is that the Government should manage growth on the city fringes through “properly integrating land use with transport and infrastructure planning” and “more intensive spatial planning of Auckland’s growth areas in the north, north-west and south.”
On one hand, Labour’s new position is understandable. Having an urban growth boundary hasn’t stopped sprawl – it’s been chipped away at through ad hoc adjustments like “special housing areas”, which merely creates a windfall for the land owners who strike it lucky.
But by ditching the boundary is he just signing up to the Government’s recipe for unmitigated urban sprawl? Mr Twyford claims it isn’t – under his plans the sprawl will just be better managed. Here are three big questions Labour needs to answer.
Who will pay the costs of sprawl?
As we have pointed out before, Auckland’s sprawl is a false economy, the cheaper house prices are offset by higher infrastructure costs. Mr Twyford has addressed the issue of ratepayers subsidising new developments on the urban fringe:
“It is also essential to reform the way infrastructure is financed. The cost of new infrastructure must rest with the property owners of new developments to prevent the ratepayer carrying the can for expensive infrastructure investment in places where it’s too expensive to build. Labour proposes using bond financing paid back by targeted rates over the life of the asset. This can range up to 50 years in some of the jurisdictions using this mechanism.”
Ok, so if the people living in the new suburb are paying for the new roads, water supply, sewage system, etc., that’s a start. The bond approach he is backing is a nifty system picked up from Houston and pushed here by the New Zealand Initiative.
It all sounds logical on the surface, but there is a dirty little secret: these bonds don’t contain all the costs to the area.
Transport is a prime example, because the residents of this new suburb aren’t going to drive only on those new local roads – they will put more stress on the transport network at large and add to Auckland’s already chronic congestion problems. The inescapable reality is that more spread out development leads to more car dependence, which means more congestion that everyone ends up paying for.
Take Houston where this bond idea hails from – transport costs there are double those in more compact, European style cities. The costs don’t end there – car dependence is linked to obesity and air pollution, all of which makes people sick – another bill for the taxpayer. If all these costs are included, sprawl generally ends up being more expensive overall than building more densely in town.
What about public transport, can that solve it? Integrating mass transit with the new developments might help reduce the congestion burden, but providing those services to far flung suburbs is much more expensive than to inner suburbs. That means either taxpayers and ratepayers or other public transport users have to pay more in subsidies every year. How will Mr Twyford’s financing proposal address this?
One way to charge for the true costs of sprawl and make some money for infrastructure would be via congestion charging, which Auckland Council has previously requested the power to implement. Up until now both Labour and National have been cold on the idea, which means that the true costs of sprawl will not be internalized, and so we will see more sprawl than is optimal.
How will he overcome the NIMBYs?
Without taking care of the inner city NIMBYs that are blocking denser building in Auckland, abandoning the city limits will see developers taking the easy option – more sprawl.
Mr Twyford does mention freeing up density rules to allow more flats and apartments in existing areas. But in the context of the announcement, this feels a bit like lip service. Until Labour produces a plan for silencing the NIMBYs and allowing denser building in Auckland, his policy sounds more hopeful than plausible.
What will he specifically do to overcome the rowdy and powerful NIMBY brigade – especially once the urban boundary has gone? What will stop politicians from taking the path of least political resistance and opting to let Auckland just sprawl out and out?
What about the environment, Phil?
Lastly, as Gary Taylor of EDS has pointed out – what about the environment?
The first big factor is carbon emissions – a sprawling, car dependent city chugs through more fossil fuels. New Zealand is already struggling to reduce our emissions as we have pledged, and a sprawling Auckland won’t help. Electric vehicles may be an answer long term, but that doesn’t solve your congestion or cost problems.
There are many parts of Auckland’s city limits that are environmentally sensitive. The market gardens of the Bombay hills are crucial for feeding Auckland – will they soon be a suburb? Will the Waitakere ranges and other areas of precious rainforest disappear? Mr Twyford assures us special areas can be set aside, but how is that different from the current approach?
More importantly, how will he take care of cumulative environmental effects? The Kaipara Harbour is the nursery of most West Coast snapper – will it be dusted with the sediment from subdivisions? And all those new lawns and gardens will mean even more water piped up from the Waikato river. When will the people of the Waikato be compensated for having their resource appropriated?
The current approach is far from perfect but it is at least acting to contain sprawl. We know National wants to see the city sprawl – particularly if someone else is paying for the infrastructure, but is that really what Mr Twyford is after too? If not, his plans need more thought to assure us otherwise.
If we really want more affordable housing, truly affordable rather than shunting the costs onto someone else, then we have to remove the barriers to greater density in Auckland.
Geoff Simmons is a senior economist at the Morgan Foundation. This article was first published on the Morgan Foundation blog and is re-published here with permission.
34 Comments
Politics has nothing to do with solving problems or making improvements: politics is all about making predicaments WORSE, but pretending that solutions and improvements are being provided whilst at the same time orchestrating the depletion of energy and resources, and degrading the overall environment.
Phil Twyford's so-called plan meets all of the above criteria.
If it were to be adopted, the result would be: consumption of a vast amount of energy and resources, further degradation of the local environment and the global environment, and an unsolved housing problem.
As long as the idiotic notion of infinite growth on a finite planet is held in esteem (and there is no indication of that idiotic notion being dropped by politicians any time soon) everything will continue be made worse. Indeed, since all our predicaments are of an exponential nature, we can say that everything will be made worse at an ever faster pace.....until the system destroys itself and destroys the habitability of the Earth.
First Law of Sustainability: "You cannot sustain population growth and / or growth in the rates of consumption of resources. "
http://www.albartlett.org/presentations/arithmetic_population_energy.ht…
Just being looking online at real estate in Houston,where I believe they have no rules regarding urban sprawl.
The house prices for a 4 bedroom house in a low crime area are far below what you would pay in Auckland.I know that there are other things to consider but if Houston is any indication then I say open the gates.
Good spotting, here is more on houston from bloomberg
http://www.bloomberg.com/view/articles/2016-05-17/the-benefits-of-zonin…
I lived in Dallas a number of years ago. Not sure what the rules are there about urban sprawl but regardless house prices there are ridiculously cheap compared to dorkland. The average house price here would buy an absolute mansion over there. And from ZS perspective, its much more a 'global super-city' than Auckland - and yet their house prices aren't traversing towards insanity and beyond...Maybe they're just a bit smarter over there after their property bubble burst and aren't so greedy...but could well be mistaken.
Yes i had wondered if the cost relative to AK is their construction costs but the article says cheap relative to other american cities.
Also that sprawl and gas guzzling is the same as other american cities.
Market forces are as good as city planners...wouldnt be too hard..
#1 So all a them thousands of Life Sentence blocks just outside the RUB, don't already constitute 'sprawl', Geoff?
#2 Costing and allocating externalities is the life's work of many economists. The figures just aren't there for NZ.
#3 Try calculating the carbon footprint of rail, because all a that Steel gotta come from somewhere.
#3 - Sure, back of the envelope just for the rails...
Setting aside the cost of raw mineral extraction and transport, but also assuming you aren't recycling the steel, it takes 1.5 tons of coking coal to make 1 ton of steel.
Its about 100 tons of steel per km of railway. So, 150 tons of coal per km of railway built. Lets double track it, so 300 tons.
A hundred kilometers of track... 30,000 tons of coal.
For comparison, the Huntly power station burns three million tons of coal a year at full capacity. So yeah, about 3-4 days worth of Huntly for the steel for the tracks. (The concrete for the sleepers probably has a higher carbon footprint).
30k tons of coal is a drop in the ocean compared to the petrol consumption a rail line would offset.
A very quick calculation that underestimates the carbon footprint predicament:
Typically there is half a tonne of steel per motor vehicle, with a typical life of 10 to 20 years before replacement is required. An influx of over a 1,000 people a week equates to something like 300 extra vehicles a week, equating to something like 45 more every DAY equates to something like 20 tonnes of steel a day.
Vehicle emissions are typically 0.1 to 0.3 kg CO2 per kilometre (tend to be on the high side for congested traffic) ,so for a 40 km commute that's 4kg to 12kg per vehicle day. Multiplying by 300,000 (just for Auckland) we get between 1,200 tonnes and 3,600 tonnes CO2 per day. Middle figure of say 2,000 tonnes x 365 = 750,000 tonnes CO2 a year.
Same exercise done globally = global catastrophe.
No wonder atmospheric CO2 is doing this:
http://www.esrl.noaa.gov/gmd/ccgg/trends/global.html#global_growth
and Arctic ice is doing this:
http://nsidc.org/arcticseaicenews/charctic-interactive-sea-ice-graph/
and 'nobody' wants to talk about it.
Great to see Labour and National acting together for once. They have far more in common than separate them CHCH had an earthquake, but has largely addressed housing needs, through rezoning and commercial activity. The Auckland council will never address their issues, so just get on with it and put in a commissioner, to take over land zoning and redevelopment. Otherwise you'll have to double the size of the southern motorway as all the development will be in theWaikato.
Brisbane is also a city similar to Auckland but without the overheated house prices - there are multiple greenfield housing developments on the periphery of the city. Brisbane also has a single council structure similar to Auckland, but minus the greenie communists that pervade Auckland. We lived in Brisbane back in 2004 and could buy a new 4bdrm home for well under $400k. Looking at "Northlakes" in Brizzy today there are still new houses available for under $400k, Possibly not the best ROFE, but interest rates are very low in Aussie too
Open up the limits and I bet this will stabilize the housing inflation
I suspect that by opening up the urban limits that a lot of banked land inside the city boundary may suddenly be developed as the greedy land bankers rush to market before their land values drop. Removing the incentive to land bank has to be the prime objective because as the Council has pointed out there is an awful lot of land inside the city that has not been developed. If that happens it answers most of the questions.
......all this angst when the answer is blindingly obvious. Get the word growth out of population. Stable it at a net zero and demand stabilises, carbon increases ends etc. Somehow we think that by allowing an eternal increasing population in Auckland that one day we will wake up in nirvana. For those that promote growth, please tell me at what number you see nirvana achieved and how did you calculate that number......or do you intend increasing population forever?
About a decade ago I deduced that all government policy is process-driven not goal-driven. The only goal is to keep the processes going for as long as possible.
The processes that are 'required' to be maintained include (by far not a complete list):
1. increasing the population
2. converting fossil fuels into carbon dioxide
3, constructing roads, bridges, houses, shopping malls. art galleries, sewage works, marinas, casinos etc.
4. covering agricultural land with concrete and asphalt; in other words converting sustainable or semi-sustainable use to totally unsustainable use.
So the standard answer to your question: 'what population will achieve nirvana?' is 'more than we have now'. The goal posts would keep moving forever if it were not for real-world factors.
It's all driven by the international bankers' Ponzi scheme, of course.
The fact that none of it is sustainable and that all of it causes planetary meltdown does not enter into the discussion, of course. What would Phil Twyford say with respect to accelerating planetary meltdown or finite nature of resources? Nothing, of course. He will just keep promoting more of the same or a slight tweaking of more of the same. That's his job.
'Anthropogenic climate change (human caused) is the physical result of economic activity (growth). Every nation on Earth continues to pursue economic growth......
Virtually all economic activity generates C02 and consumes energy.
Not many people seem to realize yet that we are not going to somehow reduce C02 in the atmosphere or oceans, affecting climate change. C02 is only going to continue to go up. This will result in even more devastating effects of climate change.'
All institutions are goal driven and the goal is power and control. Control over life and all it's uncertainties, control over people and their behavior. Economics, religion, politics are all systems used to achieve this. Man made constructs that ravages the Earth and humanity. People are afraid of uncertainty, afraid of the future. Institutions, structures and ideologies are all tools to create some sense of certainty and security and what we have now are the unintended consequences of this fear.
I agree about the power and control aspects you mentioned but they are not goals; government institutions already have power and control; just step slightly out of line and you will be jumped on by officialdom.
I was referring to policies being process-driven.
I suppose it could be argued that certain sectors have the goal of even greater power and control over other people; hence the number of rules and regulations always increases and the general level of freedom decreases.
There is considerable discussion about further restrictions and controls being imposed on Internet.
In many countries it is a criminal offence to criticise the government, punishable by a long jail term. I am sure there are elements of NZ society who would advocate the same for this country.
Geoff, I'll respond to your three questions, but two of your assertions need a reply first.
a. Labour hasn't ignored the demand side. Property speculation needs to be dealt with. I have said consistently we'll address the range of tax policies that cause the massive flows of investment into real estate speculation. And for a start we'll ban non-resident foreign buyers from buying existing homes and if they want to invest in housing here they can build new ones.
b. You seem to suggest the Special Housing Areas have encouraged windfall gains for speculators. They certainly have, which is why so few houses are being built in them. But that is not confined to the SHAs. It is a feature of the entire urban land market, and especially on the fringes.
Your questions:
1. Who will pay for sprawl?
You acknowledge we've argued costs of a new development, including connections to the networks, must be fully internalised. And you say our proposed model of bond-financing and targeted rates doesn't include transport costs. But logically there is no reason a fair share of the required road or transit capital costs, and possibly ongoing subsidy, couldn't be included in the infrastructure package. On the other hand if government (central or local) wants to develop a certain area then they could finance the transit out of taxes or rates, for example electric rail to Pukekohe or a rapid transit busway into Auckland's north west. I agree network charging looks increasingly like an important part of making this new approach work, and I think we are going to have to look at it. David Lupton's post at interest.co.nz makes some good points on this. http://bit.ly/1WHCiaA
2. How will he overcome the NIMBYs?
We've made it clear our policy is to use a National Policy Statement to direct Auckland Council to free up controls on height and density to allow more medium density, particularly around town centres and transport routes, so the city can grow up in a sensible and equitable way (not just in West and South Auckland).
3. What about the environment?
a. You assume there will be lots of sprawl (and thus more carbon emissons) under our plan, but if we free up density controls, properly internalise costs of new developments, and promote at-scale urban renewal projects in the city as we intend to do, and invest more in transit, those changes will tip the scales in favour of intensification.
b. We will build the Congestion Free Network, with rail in the south, and busways in the north and north-west, so those growth corridors are served by rapid transit. Better PT in the city, more intensification, uber and ongoing demographic trends are all taking us in the direction of a city where people will no longer have to own a car to live.
c. We've advocated for protection of special areas and cited the Pukekohe soils, areas of ecological value like the Waitakere Ranges and the coastal strips, and I would have thought protecting catchments that feed the Kaipara Harbour a no brainer.
Two final points. You say the current system is containing sprawl. But it is not doing it very well. Look at Pokeno. Second, you say that more density will deliver more affordable housing. I want density done well, and hopefully it will deliver more affordable options like apartments and terraces in places where people want to live. But more density, as desirable as it is, won't fix the underlying problem of massive land price inflation which is at the heart of the problems we have. Which is why we need a better way of managing urban growth on the fringes.
Great headline, but I haven't joined ACT. Labour has always been about fighting privilege. I don't think there is anything progressive about supporting restrictive land use rules that entrench privilege and allow speculators to get fat while families live in caravan parks.
..while your at it how about levelling the playing field between home owners and speculators/landlords. I am already seeing the inevitable consequence of not doing so. Structuring so that you 'own" your mates house and he 'owns' yours (insert anyone for a variation of the theme) and thus get the tax losses. Unfairness in tax leads to avoidance and the inherent unfair advantage a speculator landlord has over FHB's needs to be dealt with. Get a move on.
No one is interested until it hits Armageddon. Most people are already trying to just survive on a daily basis, what makes you think they have time to worry about any of this ? The rest of the population who are rich don't care either, they are just enjoying the status quo for as long as it lasts. Sad but true, we are not going to be able to change the path we are on, it simply takes too much of a radical change. It will all inevitably change when it all hits the fan and that's anyone's guess, about the year 2050 is my prediction.
Phil, this is just what we look for in a Labour govt in waiting. Solid, practical policy providing ordinary people opportunity to progress, and a safety net, not a trampoline for the bottom of the heap. I am all for "market" solutions, but when I see decent working people unable to house themselves and extensive speculative gains, there needs to be action to make the market work.
We have a decent economy because of labour in the 80s, overcoming extensive vested interests. Well done!
Going by the quality of the comments on this thread, this forum has collapsed into irrelevance. Even the politicians have sources of information that leave this forum for dead, which is a disgrace to a forum that is meant to be focused on the intellectual end of things like economics and finance. Even the political process is now light-years ahead of this forum's "consensus", on this issue.
Commenters who used to contribute helpfully here, seem to have given up in disgust, and for good reason.
If I may make one last attempt at constructive, intelligent debate on this issue for the benefit of economists like this Simmons guy who is utterly out of touch with the consensus emerging on urban economics realities - planning for "supply" by means of intensification - by upzoning - without anchoring the urban land rent curve into classic Alonso form at the fringe - results in site values increasing with ALLOWED density without even any actual supply of housing necessarily being achieved. This boost to site value inflation is an added incentive to the site owners to "hold" rather than sell or redevelop.
The evidence is all there is decades of experimentation in the UK.
If you are incapable of understanding this or recognising the evidence, then stay out of the laboratory, you are not going to help the real scientists.
Reading the comments people are referring to the Houston solution as though it is unique. No-it is common. After 43 years in New Zealand I am continually frustrated by how little understanding the NZ Press (and therefore the public) have of the vast differences in how the USA works.
US$3.7 Trillion dollars of Municipal Bonds are in circulation in the US right now. From small villages ( like Russell or Kaikora ) to New York City Municipal Bonds have been used "forever" to build infrastructure. Cities are tasked to invest forward for not only for growth but for any infrastructure upgrades. For example:Say my street needs an upgrade -like widening it to carry more traffic safely. Rarely is it paid out of current years rates, instead it is usual for that capital cost including new foot paths, sewer and water pipes, curbing etc to be summed up in total and the project cost is borne not by the city rate payers, but by the property owners along the street by means of targeted assessments. While an individual may pay the multiple $1000 dollar bill in the year it is assessed few do, or are capable of doing so. Instead via a Municipal bond the bill runs for 20 to 30 years and annually with your rates bill the cost is applied to the properties that gained the improvement. Schools in America are built and financed in the same way. Furthermore the "Bond Issues" are voted on by the populace and these "bond approval elections" are quite often stand alone elections.
Now the other aspect of these $3.7 Trillion dollars of Municipal Bonds that I have not seen in print here is that the interest earned on Municipal Bonds is "tax free". Because it is tax free Municipalities raise money at lower interest rates. Thus the pool of buyers for "Munis" as they are called are the same pool of people who in this country are currently buying investment houses for "yield'.
Let me break it down further with this example. North of Albany all the way up to Dairy Flats land is trading at a price of about $8000 per 600m2 (I reviewed multiple Lifestyle Block sales). Thus thousands of residential sections can be carved out of land as it incredibly low land cost per new section (if one could be created). What is holding back the release of this low cost land for residential sections is infrastructure cost. If that cost is spread over 50 years and assessed to the new titles created as well as to land owners who land adjoins the new roads 5000 new 600m2 titles could easily bear $250,000,000 in infrastructure bonds that are targeted to those unique titles. Costs when spread over 50 years at a starting basis for the land is: $8000.+$50,000 assessed against it for infrastructure ($250,000,000/5000) and thus you end up with loads of affordable land outside the current urban boundary. That in essence is the "Houston" way-which in total is the American way, Affordable homes, delivered timely, that the Middle Class can afford is the result.
Rogernomics was the last revolution in New Zealand-time for another one. Constraining residential growth as Auckland has done for far too long has a cost and as a result Auckland is now one of the most expensive cities in the Western World for single family dwellings. That is legacy of constrained growth and using inefficient government financing models. The young are paying the price. Its not fair-and no longer the Egalitarian country I came to long ago.
I too have tried to point out frequently that there are dozens of cities in the USA with highly elastic supply of land for urban growth and hence stable land prices. Furthermore, many of them have considerably higher growth rates than Auckland. Houston is just a particularly outstanding example, much larger than Auckland and much faster growing. But Auckland could learn from Nashville, Indianapolis, Jacksonville, Salt Lake City, Raleigh, Oklahoma City and dozens of others. Not to mention every city in Texas, not just Houston.
I can't think of any problem we have in New Zealand that a muni bond market would solve although I like the idea of the "bond approval elections".
The reality is that we have a different system here. Our councils use sophisticated accounting methods that conform with international standards. They manage opex and capex very differently from how they did 30 years ago and how US councils may still do today.
Had a quick look at the local council's Ten Year Plan. Sure enough here is how much rates they are spending on Roading capital works: $0. They did get money from government subsidies, financial and development contributions and by raising debt.
You see, our councils, contrary to public opinion, manage money professionally. Their banks understand this and fall over themselves to supply credit at very competitive rates because, in the New Zealand legal system, it is almost impossible for a bank to not get its money back.
If you want to know more about how we manage money in local government I suggest you thoroughly read the Long Term Plan of your local council. You will need to read large chunks of the Local Government Act to understand the rules of what they can and can't do. It will help to read the relevant provisions of the Resource Management Act to understand the mechanisms by which councils raise money to pay for growth related expenditure.
Once you have done all that I would still be interested to hear how a muni bond market would make a difference.
No 1. Change the LGA.
No 2 With $3.7 Trillion of Municipal Bonds in circulation doesn't that tell you that the American municipalities must have some understanding of debt finance-or the size would never have grown to that magnitude. Remember each title is making an annual payment on the bonds-in addition to their rates.Affordable to the "End User" land owner because their land was purchased so much less expensively compared to buying in a market that rations supply.
I would say its workable, when you consider that in Papakura the market is offering 500m2 to 600m2 sections in the mid $400k range, when just down the road you can buy rural land at $17k per 600m2. Thus at a starting basis of $17k per 600m2 it is workable for the developer, and more importantly -affordable for the end user.
I am pleased to see Geoff's comments regarding NIMBYs and the environment. We simply have to accept that far too much highly productive cropping land is being taken up with urban sprawl. This is true not only around Auckland, but particularly around Auckland. It is absolutely true that if we use up much more of the good land around the Bombay Hills we will have to begin importing vegetables. Higher density housing is essential for our future.
hi Phil. I like that you said Labor will stop non residents buying NZ property.
Why does Labor hold on to Nationals policy of letting in so many migrants? If the population growth stopped the housing supply would catch up, prices would come back down to fair value and all the current problems would fix themselves without taxing NZers and without further degrading our quality of life. What is hard about that to understand? What am I missing? If you want to punish property investors/landlords with extra taxes be prepared to supply 100,000 or so rental houses because if private enterprise doesn't supply the rental accommodation the Government will have to. As for speculation, that will surely collapse in on itself once the non resident purchasers are removed if we have a stable population.
In the last 3 years our population has gone up by 3 Whangarei cities. The NZ taxpayer has to provide these people with the infrastructure to live the NZ lifestyle. Yes it creates jobs and creates a temporary boom but you don't need to study economics to realize the boom is not backed up by extra productivity so all it means is that what NZ produces is now shared out with another 200.000 people so there is now less to go around for each Kiwi plus the taxpayer has to pay the cost.
So Phil, I'm a floating voter and will vote for the party that stops population growth. At the moment thats Winstin.
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