The Unitary Plan has protected Auckland families from significantly higher rents, according to Auckland University's Ryan Greenaway-McGrevy

Auckland families are paying up to a third less in rent than they might’ve done if the city hadn’t substantially up-zoned in 2016, according to new research. 

A working paper published this week by Ryan Greenaway-McGrevy, an associate professor of economics at the University of Auckland, found zoning reforms had improved affordability for family-sized rentals.

The paper compared rents in Auckland to a weighted average of rents from other urban areas that were similar to the city prior to zoning reform in 2016, better known as the Unitary Plan. 

“Six years after the policy was fully implemented, rents for three bedroom dwellings in Auckland are between 22% and 35% less than those of the synthetic control, depending on model specification,” he wrote. 

The impact on two bedroom dwellings was less significant, with rents between 14% and 22% less than those in the comparison group. 

“These findings suggest that large-scale zoning reforms in Auckland enhanced affordability of family-sized housing when evaluated by rents,” Greenaway-McGrevy wrote. 

No-grow zone

Housing costs in New Zealand are among the most expensive in the developed world. In 2021, the median person spent 22% of their disposable income on housing, either in rent or on a mortgage.

That number was even higher for renters who spent a median 28% of their disposable income on housing. About two-fifths of Auckland households rent.

Greenaway-McGrevy said a wide range of economists and urban planners attribute high house costs, at least in part, to restrictive zoning.

“However, up until very recently, few cities have pursued large-scale zoning reforms to enable affordability meaning there is little empirical evidence to support the purported effects of zoning reforms”. 

This changed in 2016 when Auckland up-zoned approximately three-quarters of its residential land with The Unitary Plan and triggered a construction boom in the city.

The plan introduced a standardized set of planning zones across the city, including four residential zones intended to encourage medium density housing.

“Consents for new dwellings significantly increased year-on-year from 2016 onwards, with all of the new construction occurring in up-zoned areas,” Greenaway-McGrevy said.

Developers have built large quantities of medium-density houses in the years since, which appears to have prevented significant increases in rents. 

The working paper found the cost of renting a three bedroom home would have been 28% to 54% higher in 2022, if Auckland had not implemented the zoning reforms.

A back of the envelope calculation suggests that the median Auckland rent could have been over $800 per week, instead of $595 in the fourth quarter of 2022. 

Greenaway-McGrevy found there was a smaller effect on two bedroom dwellings, for which rental costs would have been between 16% and 28% higher. 

His conclusion from the research was that large-scale zoning reform, such as the Auckland Unitary Plan, enhanced housing affordability — at least as measured by rents. 

The logic behind looking at rental costs, rather than purchase prices, was that the former was not directly affected by enhanced redevelopment rights from zoning reform.

Allowing more dense development is likely to lift the value of large residential lots such as detached single family dwellings, which could distort price data in the short term.  

The most expensive part of a home is the cost of the land it sits on, and so more affordable housing only emerges when a piece of land is actually divided up into more dwellings. 

Everything comes back to interest rates 

Greenaway-McGrevy also chose to focus on rental prices as it had potential to capture housing costs across a wider socioeconomic demographic, given that low income households are more likely to be tenants.

There is room for debate as to whether the research translates into the homebuyer market, as house prices are influenced by a wider range of factors. 

In a speech last year, Dominick Stephens, the chief economic advisor at the Treasury, said rising house prices were not due to a shortage of dwellings alone. 

As evidence, he pointed out that rent increases had risen broadly in line with incomes while house prices had far exceeded them. 

“In the Waikato region, over the 20 years to mid-2021 incomes rose 98%, rents rose 114% and house prices rose 372%.”

“If the dwelling shortage was the key underlying driver, both rents and prices should have risen in closer to equal measure,” he said. 

Runaway house prices could be attributed to a combination of falling interest rates and a highly inflexible market for land in NZ. 

“Specifically, if land markets had been more flexible, and urban land supply had been more responsive to demand, then house prices and rents would have risen by less when interest rates fell,” Stephens said.  

Because the supply of land was so highly restricted, the global decline in interest rates was “capitalised into the price of scarce urban land” rather than causing a construction boom. 

An urban-rural divide

This is what Chris Bishop, the National Party housing spokesperson, means when he says New Zealand needs to “smash the urban limits which have held our cities back”. 

National’s revised housing policy would encourage councils to relax their city boundaries and provide funding tools to help developers essentially create more urban land.

It would also require councils to do more upzoning on transport corridors and encourage—but not force—them to adopt the widespread medium density standards that are currently taking effect. 

The National Party voted in favour of the Medium Density Residential Standards (MDRS) 18-months ago, but have since withdrawn its support after receiving too much pushback from voters in their electorates.

New Zealand’s Infrastructure Commission, Te Waihanga, said in a recent urban land price progress report urban-zoned land was valued at a premium of nearly $1,300 per square metre relative to nearby rural-zoned land.

This was up from a premium of less than $200 per square metre a decade earlier and suggested that demand for urban housing was increasing faster than planning and infrastructure supply was responding.

Price differences between urban and rural land have increased dramatically in all of NZ’s major cities except Christchurch. 

Labour and National’s bipartisan MDRS legislation was supposed to help tackle this issue by allowing three-story townhouses to be built almost anywhere in the largest cities.

But National’s revised policy would attempt to open up more farmland to be developed and hopefully avoid too much dense construction occurring in suburbs where its voters live.