Auckland embraces unaffordable housing

Here’s one of the dumbest proposals that I have read in a while. The Auckland Council has released a Draft Plan proposing to change the existing urban growth boundary (called the “Metropolitan Urban Limit” or MUL) into an even tighter “Rural Urban Boundary” that would effectively ban development outside of the rural-urban line and limit the area in which development can take place. The Draft Plan also sets a target that 75% of all development over the next 30 years will take place within the existing built-up area (i.e. “brownfield development”), meaning that Auckland would need to build up rather than out.

It is hard to understand why the Auckland Council would even consider implementing tighter planning controls than those that exist currently. Auckland’s existing MUL has already driven urban land prices to obscene levels – according to research by respected economist Arthur Grimes, now the chairman of the Reserve Bank,  this limit has made land immediately inside the MUL between eight and 13 times more expensive than land immediately outside. In the process, the MUL has helped make Auckland’s housing amongst the most expensive in the English-speaking world (see below chart) and made Auckland more densely populated than Vancouver, Melbourne, Portland, Adelaide, Perth or Brisbane.

Perhaps the most galling aspect of the Draft Plan is that it directly contradicts the Auckland Council’s own submission to the New Zealand Productivity Commissions Inquiry into Housing Affordability, which highlight’s concerns about the potential pernicious impacts of the existing MUL:

Council recently commissioned Ian Mitchell, an independent consultant, to prepare a report which synthesised existing research and analysis of the critical elements in housing affordability with a particular focus on land supply. This work was peer reviewed by Arthur Grimes (MOTU reports attached). Mitchell concluded that:

  • There did appear to be a significant boundary effect which was likely to influence land values within the MUL. Consequently, this was likely to have impacted on house prices and housing affordability across the region. Thus, the MUL was likely to have limited land supply during the mid 2000s resulting in higher house prices.
  • There may also be benefits associated with this that at least partly offset some of the costs associated with higher land prices; however, these have never been quantified. Lack of significant opportunity to intensify existing urban area outside the CBD may have also meant that some of the accrued from the MUL could have been lost.

In peer reviewing Mitchell’s report, Grimes also noted that scale and competition were also important considerations in releasing land:

  • One issue of constrained land supply that needs to be considered by planners is the need for scale when developing land. Interviews with developers indicate that it is cheaper (per lot) to develop at a large scale than on a small scale. Thus simple figures of XX years of available land supply can be quite misleading if much of this supply is based on small developable areas rather than a range of potential large-scale developments. In addition, planners must be careful not to assume that just because sections can be subdivided that they will be. These are private choices and for a whole host of reasons, it will be sub-optimal for many people to choose to subdivide their section. Estimates of available land will therefore be over-stated where assumptions are made that subdividable land will be subdivided.
  • A related point is that it is important to ensure that developers are competing with each other for the right to develop, so as to ensure that the land is offered at the most affordable price. Where competition amongst developers is limited by land availability constraints, the resulting prices will incorporate monopolistic rents (leading to high land and house prices).

The last point on competition raised in the Auckland Council’s submission is an important one. The Productivity Commission’s own issues paper noted claims of undesirable ‘land banking’ in Auckland, whereby owners of land within the MUL have deliberately restricted land release in  anticipation of future price increases.

However, the presence of land banking is unique to situations where land supply is constrained. This is because land banking is only profitable where the value of land is rising faster than the cost of capital. And in the absence of physical barriers to land supply, land price increases above the level of inflation are driven by policies and regulations that artificially restrict the supply of land.

There is little point land banking in open land markets, like those that exist in ‘middle America’, because land prices typically rise no faster than the general rate of inflation and interest payments are likely to exceed the potential capital gain. Moreover, the existence of high levels of competition in open land markets makes land banking particularly risky, as another nearby owner always has the opportunity to move to the market ahead of you.

Put simply, land banking is a symptom of regulatory (or other) restrictions on land supply.

To be fair to Auckland, urban growth boundaries and other restrictive land-use policies have been prevalent in all of New Zealand’s major housing markets since the 1990s. And these policies have led to a combination of highly unaffordable housing:

As well as falling rates of new dwelling construction:

And the costs of such policies have extended well beyond housing affordability to the macroeconomy. As noted recently by the Reserve Bank of New Zealand (RBNZ):

Supply constraints matter a lot for determining housing market outcomes… This is particularly so for countries or regions with fast growing populations, like New Zealand. In the long‐run, evidence suggests that significant supply constraints lead both to bigger house price booms and eventually to nastier house price corrections…

Large swings in house prices over the cycle matter primarily to the extent that they change consumption behaviour, by easing collateral constraints or leading households to think that their real wealth has increased. The associated wealth effects can bring forward consumption…, residential investment decisions and drive up inflation (as firms increase their output price in response to stronger demand)…

House prices swings can often be costly. They can distort the allocation of resources, detract from economic efficiency and, at times, threaten financial stability…

Policy should focus on the first‐best solution – providing a regulatory environment that gets the underlying supply conditions right. New Zealand needs to ensure that land use can change relatively readily towards the most valuable use for that land, especially if its population is to continue to grow relatively rapidly. New Zealand also needs a regulatory environment that enables a highly productive residential construction sector. In combination, such changes to the supply conditions would help limit the risk of large future swings in house prices when demand shifts occur. House price swings of the sort that we have seen recently are damaging to New Zealand’s overall economic performance. At times, house price cycles can also unnecessarily complicate macroeconomic policy and pose avoidable risks for individual and system‐wide financial stability.

In a similar vein, former RBNZ Governor, Don Brash, also recently questioned the efficacy of New Zealand’s planning system and the adverse impacts on the macroeconomy:

We borrow money offshore to bid against each other for overpriced houses, paying interest on those loans, then attempt to compete against those who have lent us the money. As another former Reserve Bank economist, Rodney Dickens, has put it: “How can a small, export oriented country facing huge disadvantages because it is half a world away from some of its major markets be competitive when housing costs 30-43% more than in the U.S.?”

There’s absolutely no shortage of land, but the myriad of constraints placed on its use has strangled the supply of land available for people to build their lives and homes…

I hope for New Zealand’s sake that sanity prevails and the Auckland Council’s Draft Plan is thrown out and replaced with a more responsive market-oriented planning system. Otherwise, the cycle of unaffordable housing and boom/bust cycles will become entrenched.

Better still, planners, politicians and industry practitioners early next year will have the opportunity to fly directly from Auckland to Houston, Texas to learn how to build houses properly and efficiently. Let’s hope they exercise this option.

unconventionaleconomist@hotmail.com

www.twitter.com/Leithvo

45 Responses to “ “Auckland embraces unaffordable housing”

  1. janet says:

    You’re talking about it; hopefully ‘the masses’ and the MSM in NZ will now as well( the small blogging community generally already has sympathy with the views you express above). Sometimes it takes the presentation of an absurd idea to the populace, to make them embrace the sensible alternative. ( I hope, anyway :) ) Besdies; it’s national elections in a few weeks time..all good debating stuff…

    • PhilBest says:

      Hear, hear, Janet.
      If the MSM in NZ doesn’t get some honesty very soon and report this issue fairly, it is very responsible for the ongoing damage that these policies are doing to NZ. It is long overdue to take down the loony Greens in the public sphere – “paving over paradise”, yadda, yadda, yadda – this in the day and age of Google Earth. We think we’re “enlightened” because we no longer bow and scrape to a papal clerical heierarchy like our ancestors might have a few hundred years ago – but there is NOTHING “enlightened”, rational, or reasonable about “Greenie” myths about the environment.

  2. PhilBest says:

    Leith, you are an international treasure. It could hardly be better for Auckland, or for any other local market you have analysed, if the locals just take on board what you have written about them.
    I think it is evidence of loss of reason in the decadent phase of our civilisation, that people vote in a mayor and administration like Len Brown’s, and meekly let them screw up the city’s (and the nations) future. The MSM is very responsible, they give the most irrational Green politicians a free ride.
    There was already a show segment on TVNZ 2 years ago, called “Shoebox Living and What You Get For Your Rent”. It is well worth finding in the TVNZ archives, and watching. Politicians like Len Brown and Mike Lee are living in cloud cuckoo land if they think the kind of rental prices that already apply to apartment living in Auckland, represent “opportunity” for future thousands of households who are “going to be accomodated within Auckland’s existing urban footprint”.

  3. indo says:

    Thanks for this,
    If you could maybe one day blog why construction costs are higher in Australia and there input into high house prices.

  4. Draco T Bastard says:

    The most expensive way to build a city is outwards as it massively increases the need for services – roads, water reticulation, sewers etc etc. Basically, what your “analysis” proves is that you’re an idiot with no connection to reality.

    • PhilBest says:

      But the choice REALLY is, for “society” to pay a modest extra sum for services and infrastructure, or pay DOZENS OF TIMES AS MUCH, inequitably loaded onto the younger generation, in house prices/mortgages – for NOTHING.
      The amount of extra debt taken on by first home buyers in Akl since about 2002, due to inflated house prices, can be easily estimated to be around $20 billion. That would have paid for a LOT of infrastructure. As it is, the money has BEEN PAID, not for infrastructure, but for NOTHING.
      And we haven’t even started to calculate the excess cost that will be lumbered onto the oncoming generations – also for NOTHING.
      Apart from this, it is not a foregone conclusion at all, that infrastructure upgrades in existing built out areas is cheaper to do than “greenfields” infrastructure. In fact, it is the fastest-expanding cities in the USA that currently have the LEAST problems with their fiscal budgets, and it is all the “Smart Growth” cities that are crying poor.
      WHO are the idiots in this scenario?

      • hamish says:

        Draco, I think Phil has a point here. Retrofitting infrastructure to established areas to cope with higher densities can be incredibly expensive, if what’s in place is only sized to cope with the existing low density. Think of the differences in cost between laying rail above ground, and building an underground metro. There could even be a feedback effect there, if bubble land values due to growth boundaries make it more expensive to re-fit higher capacity infastructure now needed due to those very boundaries.

        If we want more compact ‘euro’ style cities, there’s got to be better ways of achieving this.

      • PhilBest says:

        Australasia’s cities already ARE far more similar to Europe’s cities than to the lowest-density cities of the USA.
        Europe’s cities start with an extremely old, high density core predating the automobile. They were never “renewed” to the same extent as US cities cores. Following WW2, most cities in Europe had a similar phase of “automobile dependent development”, to what Australia and the USA had. Their very high petrol taxes are the main contributor to any seeming advantage they have gained in the last 20 years.
        We are talking about very low % differences between cities in the US, Europe, and Australasia. However, Australasia already is far closer to Europe in urban densities or public transport use percentages. LA is the only city in the USA with similarly high densities to Europe and Australasia, and for the same reason – a lower % of “large lot” suburbs and a higher % of quite dense suburbs and lots of “infill” development. Even New York has so much “large lot” suburbia that its overall density drops to well below LA or Sydney or Auckland, and its public transport use drops to well below Sydney.
        The big irony in all this, is that there is NO correlation discernible between “urban form” and actual outcomes re resource use and emissions. LA is wrongly criticised as the ultimate bad example of “sprawl” when in fact it is the ultimate bad example of rising density without attending to the road capacity to handle it.
        INRIX data on traffic congestion shows European cities – and LA – to be the worst, and WHO pollution data shows European cities – and LA – to be the worst. The LOWEST density US cities tend to be BETTER performing on these measures. Australasia’s cities tend to be “as bad as”, or nearly, as Europe and LA, with Auckland the worst of the lot, already.

      • PhilBest says:

        INRIX Data on traffic congestion:

        http://www.deplacementspros.com/Paris-dans-le-top-3-mondial-des-bouchons-routiers_a9205.html

        It is necessary to find the link to the Excel Spreadsheet half way down the French language web page.

        WHO data on air pollution:

        http://www.who.int/phe/health_topics/outdoorair/databases/en/index.html

        Download the spreadsheet via the link under “related links” on the RH side of the page.

      • PhilBest says:

        The basic maths of this, is like the following hypothetical example:
        Status quo car use: 75%
        Car use when density doubled: 70%
        The gain to public transport will be considerable, and trumpeted as a “success story”. HOWEVER, the outright numbers of cars on the road network in the same area, is now 140/75 times what it was. This means exponentially worse traffic congestion, unless BIIG money has been spent on capacity increases and flow improvement measures. But this was never part of the plan in the first place.
        There seems to be an extremely irrational assumption at work in many people’s minds, that increases in density lead to LINEAR DECREASES in numbers of cars on the road. This is nonsense. The numbers of cars added per unit of population increase, merely decreases at the margin as population is added.
        Even in Manhattan, with public transport use over 50%, the ACTUAL NUMBER OF CARS per square km is 2.5 TIMES AS GREAT as the next highest city. To sustain density increases that will lead to significant public transport MODE SHARE, it is necessary to allow for MASSIVE NUMERICAL INCREASES in road space and flow capacity too. Manhattan would probably never have attained its results without the planners of the 1800′s laying out that grid of huge avenues.

      • ASX3K says:

        The War on Terror has cost Australia $60 billion so far. I’d rather that money have been used on something constructive in Australia. Australia has no truck with Afghanistan nor did we have any with Iraq

        http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10751494

    • JPK says:

      How are you going to provide new dwellings if you do not have much land left for high density construction since your existing land is occupied by small houses? Restricting land supply would only make sense if it was associated by Land Value Tax. This would not only prevent land hoarding but also force better land utilisation through multi dwelling development. With LVT there would probably be no need for any administrative restrictions anyway.

      • PhilBest says:

        While I am dead against these lunatic UGB’s, I am entirely convinced by THIS:

        http://www.masongaffney.org/publications/E3Containment_policies.CV.pdf

        The fact that environmentalists have not run with land taxes as the solution to their problems, means that either they are economically illiterate (probably true), or in cahoots with the property owning class that stands to gain from inflation in urban land values, especially in the city centre. Perhaps they are less in cahoots, than being played for suckers. Have Green movements never worked out why some of the world’s biggest property magnates fund their activism so lavishly?

    • Rumplestatskin says:

      This, as a general rule, this is true. I used to be involved in calculating costs of trunk infrastructure in QLD towns. Each council would be able to map infrastructure zones within their area and apply a charge comensurate with the costs of supplying trunk road, water, sewer, parks and stormwater infrastructure.

      This is trunk only, and doesn’t include infrastructure costs within subdivisions.

      Typically the charge was higher for fringe areas.

      However, it is also true that on a per kilometre basis these infrastructure assets are much more expensive to install in existing developed areas.

      The saving comes from having much fewer kilometres of pipes and roads per new dwelling or new person, even at the higher cost per kilometre.

      With underground rail etc, the cost can be very high, but on a per person trip basis, they can be justified.

      It is definitely not as simple as Phil makes out. For example, road space limits traffic volumes, not matter how dense the habitation of the city.

      Density creates economic value for investing in alternative trasnport options – rail (aboveground, underground or light), busways, bikeways etc.

      • PhilBest says:

        I do not believe it is possible to “create economic value for investing in alternative transport options – rail (aboveground, underground or light), busways, bikeways etc…..” with increased density AND such limited road space that increased traffic volumes are going to be an impossibility.
        Look at Moscow just 20 years after communism – everyone HAD to use commuter rail just 20 years ago, NOW almost everybody uses cars and roads even though the network is inadequate and traffic jams are legendary.
        If you read Alain Bertaud on Moscow’s urban form, it looks likely that the communist era urban form (apartments) and transport (commuter rail only – no private cars) was one of the main reasons for the inefficiency of the Communist economy – NOT an “advantage” that was overwhelmed by “other inefficiencies” as shallow modern Green assumptions would suggest.

    • SCM says:

      Malinvest trillions of dollars into the same properties without improving infrastructure, or spend billions of dollars on more properties with new infrastructure.

      Hmmmmm…

    • Auckland Observer says:

      Thats actually not true. In NZ the Councils collect depreciation in cash through rates. Theoretically it is meant to be set aside (sinking fund) for the improvement and replacement of infrastructure.
      Developers pay for all infrastructure in new outward spreading greenfield developments as well as mitigating the effect on that infrastructure(sewer, storm water and roads) by paying for the improvements directly to ‘enable’ the development. This is a requirement of the RMA (Resource Management Act) which is a prescriptive effects based land management legislation.
      As well as that Councils collect Development and Financial Contributions from developers for those new developments to effectively add to the kitty for improvements to down stream infrastructure.
      Thus there is no actual cost on Councils in NZ for spreading cities.
      The problem in NZ is that Council’s don’t save the deprection for CAPEX and it goes into the general kitty and is spent as part of the OPEX of the council rather than as intended. Ths they create shortfalls when it comes to replacement.
      Because they have already collected financial and developmetn contributions from the developers of greenfield developments, and because those developers have also paid for (through cosntruction) the infrastructure that is built into those developments plus have paid for (through mitigation) the effects on the wider network – then Councils effectively have a shortfall in CAPEX funding.
      In Auckland the real reason for intensification is that they hope redevelopment of metro Auckland will generate development and financial contributions to pay for the infrastructure that is needed (or needs replacement) and for pet projects like rail.
      Economically it is unviable.
      Also Councils like to use arbitrary arguments such as defining costs on a city of things like the cost of travel, petrol, etc which are not actual costs on a city but costs that the civilians absorb themselves.
      It is a false argument to claim that it costs more for a city to expand because the actual physical costs are met by the developer, the ongoing improvement costs are supposed to be met by depreciation and there is no cost on the city in terms of matters such as what a resident pays to drive their car accross the town.
      And if that argument is upheld then the same argument can be implied to say that intensificatin is too expensive.
      Small apartments cost as much as a house to buy – thus psqm they are grossly inefficient in terms of developed cost which affects the resident’s pocket.
      Apartments have Body Corporate fees which are not present in the cost of owning a stand alone house.
      Land within the MUL is much more expensive and this effect is exacerbated around centres where development is perceived for intensification. That means more is paid for land than in a greenfield location.
      Apartment residents often have to pay for car parking which is not a cost that is associated with owning a house.
      Apartment residents often have to pay for storage costs.
      Apartment residents don’t typically work where they live meaning they are still travelling to work. Not everyone in Auckland works in the CBD, in fact only a small portion of people do. Most travel to extensive commercial areas in and around the wider city meaning that the justification for reduced travel costs are balony.
      The Auckland Council plan is utopian and is a planner’s theoretical wet dream. It won’t occur because it can’t occur.
      The plan is subject to full notification through a unitary plan process and will be attacked by the property industry who have failed year in and year out to get close to making intensification work in the city.
      People are not keen to see their suburbs rezoned and redefined and rebuilt as intensified form. Watch them thwart it.
      Variation 110 to the District Plan at North Auckland (Orewa) was a Council plan to intensify through rezoning the waterfront to 10 levels. That was appealed to the Environment Court by the residents of Orewa, and then that decision upheld in the Court of Appeal. It was overturned and therefore Council’s plan change was not successful.
      Such is tha nature of Auckland that this will occur everywhere.
      the plan can’t happen and won’t happen and is being pursued for all the wrong reasons – not lest of all the fatally flawed argument that it is too expensive to let a city grow outward. What nonsense!

  5. Ronin8317 says:

    Auckland Council wants a city whic has a higher density, which makes public transport more viable, and improves the efficiency of the city. They reason that if they limit the release of land, then density will increase. The problem, and I hope someone can point out to them, is that while density is increased, house prices increases even more.

    Their aim can be achieved much cheaper by putting an annual levy on car parking spaces.

    • PhilBest says:

      EXACTLY; there are numerous academic papers with titles like “Are Urban Growth Boundaries a Second Best Option”….to road pricing, petrol taxes, parking charges, whatever. The conclusion is always, “NO”. “Not a second best option” actually means, in academic-ese, “a lemon”.
      One paper by Cheshire and Sheppard, estimated the socio-economic costs of the Urban Growth Boundary to be 20 TIMES the cost of achieving the same outcomes with road pricing. Another paper, by Anas and Rhee, estimated this cost to be “50 TIMES”.

  6. ceteris paribus says:

    Sorry, UE, but I can’t help being put off by the narrow framework in which you discuss the home affordability-land planning nexus. Your focus is too limited and your analysis unidimensional. You have got the tiger by the tail.

    There are a whole swathe of economic demand issues related to exhorbitant house prices that need consideration and intervention before attacking socially and environmentally protective land planning.

    We can no longer (economically or morally) continue to consume the environment by untramelled development and externalize/ignore the true costs.

    Excessive house prices are a disgrace. But let’s assess the problem holistically and choose our intervention points in ways that serve the community and protect the environment we share with other species.

    • Does the truth hurt CP? Explain to me how excessive densification, urban growth boundaries and the like are better for the environment and more sustainable? Your comments are particularly laughable when you consider the fact that only 0.7% of New Zealand is urbanised.

  7. ceteris paribus says:

    UE, I am talking about man-made habitat destruction, fauna and flora extinction rates, vehicle commuting miles, isolated, outlying ghetto development without social infrastructure or other forms of access, economic costs of population dispersal etc etc etc. Land tax, abolition of negative gearing, increase in Government-subsidized social rental housing and social purchasing schemes- these are the paths foreward. Have a look at the advocacy proposals of the affordable housing lobbies to Government. Not much talk among them about throwing out the planning handbook.

    • CP. I have written more on negative gearing and the like than just about any other commentator (Saul Eslake excluded). So you can hardly argue that I am one dimensional in my analysis.

      Second, you still have not explained how urban desification policies are more sustainable and better for the environment and liveability than more spacious urban structures. Have you ever considered that the high house prices caused by regulatory constraints on land supply are socially and economically destructive? Have you even considered that urban growth constraints can actually increase sprawl and vehicle kilometres travelled by forcing development to far flung exurban areas and towns? Have you ever considered that the building of large houses on tiny blocks, with narrow footpaths and roads (because of the excessive land prices), allows little room to plant trees or veggie gardens? It also means that homes are so close together that many do not contain roof eves or verandas and have poor air flow, thereby requiring greater air conditioning in the summer? Or that the lack of backyards and open space discourages exercise and encourages children to remain inside playing video games and watching TV, which of course uses more energy?

      I always back-up my arguments with evidence. Can you?

      • ceteris paribus says:

        UE, you are not providing evidence. You are telling me your arguments or hypotheses.

        In terms of real evidence, there is quite a bit of social evidence about the rural fringe and smaller rural communities. Have a look at the geographical mapping of the burden of disease reports- death and disability outcomes- in rural communities It paints a very different health picture from your picture of rural kids running in the fresh air while city kids sit at computers. On every health indicator from heart disease to cancer rates to mental health -(the big ones)-, rural people rate more poorly.

        Then have a look at the evidence-based outcomes on education, unemployment and income.

        Increasingly vocal “rural lobbies”, people who love living in the country, understand only too well the damage of exclusion and lack of access to essential services in respect of their health, welfare and well-being.

        As for the environment degradation, Australia rates at the nadir (Jared Diamond Collapse). If man has wreaked this damage with a highly urbanized population, just wait to see what we do when we get out of the cities in numbers.

        That is why I say your arguments are unidimensionally “economic:. You show no interest in the social and environmental impacts of sprawl, no interest in the triple bottom line.

      • PhilBest says:

        You are arguing past what both Leith and I are saying. We are not saying that “rural living is good”, we are saying that YOUR policies that force up the price of URBAN living, force MORE people into the very rural situation you criticise.
        Leith and I are not talking about affordable RURAL living, we are talking about affordable SUBURBAN living, which is quite a different thing. i personally don’t give a stuff for vocal rural lobbies – you like living in the country, you put up with some inconvenience in health and education and communications and so on. End of story. But suburban living and employment is an efficient paradigm, as well as being far superior for children, schooling, health outcomes, etc.
        You can’t possibly be seriously suggesting that HIGH DENSITY URBAN living is best for children, schooling, health outcomes, etc? This is “hiding to nothing” stuff – I have seldom heard anyone bother to suggest this. The outcomes for children, schooling, health etc are just “collateral damage” to “saving the planet”.

    • PhilBest says:

      “….man-made habitat destruction, fauna and flora extinction rates……”

      Buh-buh-buh-buh-BUUUUHH….
      Everybody wants Uluru and Mount Cook and Milford Sound preserved. But every little hill and hollow and plant and creepy crawly…..? Like I said above, you guys are worse than the medieval papal hierarchy for “unreason”.
      Guess which phase of mankind’s existence was the most destructive of the environment? Hunter-gatherers burning forests to drive prey into the open, then moving on to the next forest. Mankind rules nature, always has done. You want to make it otherwise, you are not a lot morally different to anti-human totalitarians and theocracies of the past.

      “…..isolated, outlying ghetto development without social infrastructure or other forms of access…..”
      Won’t happen if affordable homes are provided closer in to cities. Simple fact: ultra long commutes from rural areas are INCREASED by the kind of unaffordable housing in cities that YOUR policies result in. There is NO EQUIVALENT in Texas, to all those “sand suburbs” in California with people commuting 100 miles to LA.
      “…..vehicle commuting miles…..” Check out “Decentralization and the Stability of Travel Time” by Alex Anas et al, or “As Jobs Disperse, Whither the Commute”? by Randal Crane et al.

    • PhilBest says:

      “……Have a look at the advocacy proposals of the affordable housing lobbies to Government. Not much talk among them about throwing out the planning handbook……”

      No, turkeys don’t usually advocate for Christmas. Planning that drives up the price of housing, creates work for these guys.

      “…..increase in Government-subsidized social rental housing and social purchasing schemes- these are the paths foreward…..”

      Yeah, the paths forward for increases in size of government and bureaucratic empires and “dependency” and voting constituencies. Funny how your kind love to layer interference apon interference in the economy, like a doctor prescribing medication after medication to counter the side-effects; when all the patient needed to do, was get a hanky and learn to blow his nose.

      “…..Land tax…..”

      HEEYYYYYY…..what is a rational proposal like that doing in the middle of all the other rubbish?

      http://www.masongaffney.org/publications/E3Containment_policies.CV.pdf

      The fact that environmentalists have not run with land taxes as the sole solution to their problems, means that either they are economically illiterate (probably true), or in cahoots with the property owning class that stands to gain from inflation in urban land values, especially in the city centre. Perhaps they are less in cahoots, than being played for suckers. Have Green movements never worked out why some of the world’s biggest property magnates fund their activism so lavishly?
      They may also be in cahoots with the bureaucratic empire builders who stand to gain from unaffordability in housing.

    • Ronin8317 says:

      Pretty much all the government-subsidized housing plans in the West ends up creating a ghetto, because only the poor and destitute have access to them. What is needed are affordable housing directed toward the middle class.

      Higher population density makes it easier to provide for public transport, and makes service delivery more efficient. However, you’re looking at Asian level of density : a family of 4 living in 50 meter square of space, housing estate composing of 20,000 households in blocks 30 floor high, 8 units per floor. I don’t think the average Australians and New Zealanders are ready for this kind of living.

      • ceteris paribus says:

        So the poor, those in chronically substandard housing, the homeless and those at risk of homelessness don’t need the priority of attention?

        Very strange.

        And poor people are themselves the cause of their “ghetto-ization”? I am all for social mix in housing, but this suggestion seems even stranger.

      • PhilBest says:

        “…..the poor, those in chronically substandard housing, the homeless and those at risk of homelessness….”

        The numbers of such people will be MINIMISED if the housing market is “affordable” and MAXIMISED if it is not. Under what set of values, would minimising this problem be regarded as desirable, and under what set of values would maximising it be regarded as desirable?

    • The Prince says:

      Not trying to sound flippant, but wouldn’t a lot of this discussion and debate be clearer if we actually just reduced and then stabilised population growth?

      Hasn’t hurt Germany (yet?)

      • Jarrod says:

        I think that is the most important point when it comes to house prices Prince and everyone seems to be ignoring it. If the population is stable then there is little need to build more houses. Most importantly stabilising the population would I think help most in the rental market as Australia’s massive immigration rate puts alot of strain on rental availability in the capital cities.

      • I am no fan of population growth for growth’s sake. But Australia coped with high rates of immigration in the post war era without escalating house prices and shortages (whether real or perceived). There is no reason why we cannot do so again by reverting to the pre-1990s planning system (or something better) whereby the government funds infrastructure via long-term bond issuance and recoups the cost across generations via rates, etc. Population growth is a scapegoat for ineffectual governance.

      • hamish says:

        True, but I think we could accommodate a growing population as well. It shouldn’t be a problem. It can’t grow forever, but it can grow some more.

        It’s the ones who want to stop sprawl who should be campaigning for zero population growth, which means dramatically cutting back migration as that is where the sprawl originates from. More people wanting to live in a particualr place.

      • PhilBest says:

        There are consequences to population shrinkage that very few people have thought through. The famous economist Colin Clark did devote a chapter or so of analysis to this in one of his books.

        http://www.macrobusiness.com.au/2011/05/the-century-of-old-age/#comment-26664

    • Quantity controls have price effects: I fail to understand how this is difficult.

      Driving up land prices (as Matt Yglesias points out, houses are large decaying physical objects, it is land prices that move around) undermines provision of infrastructure by driving up the land cost and driving down the revenue incentive to provide it (since driving up land prices drives up property tax revenue much more cheaply than providing infrastructure).

      The effect of urban growth on habitat is minimal: it is mostly expanding into paddocks which are as much human creations as any suburb and typically have less biodiversity. Public housing is an inefficient way to provide housing assistance and tends to be rife with petty (and not so petty) corruption.

      As has been pointed out, driving up the price of land “requiring” purchasing said expensive land to provide affordable housing is a massive waste of resources.

  8. Owen McShane says:

    Re: Infrastructure.
    The way Houston frees up the relationship between land and infrastructure is to allow the developers to provide their own infrastructure using interest free long term bonds.

    That is why they can put a section on the market for $40,000.
    Go here: http://houstonstrategies.blogspot.com/2011/09/houston-housing-model-attracting.html

  9. PhilBest says:

    Owen Mcshane has been fighting this stuff for years, including in the NZ “National Business Review”.
    In the 16 Sept issue, Dr Roger Blakeley, “Chief Planning Officer” of Auckland Council, had a “response” published.
    I have seldom seem such a load of hubristic tripe since the fall of Communism.
    Blakely claims that “boosting economic growth” is “central” to Auckland’s grand plan. “……The draft plan has set bold targets: it aims to lift GDP growth from 2-3% a year over the past decade to more than 5% for the next 30 years. That will lift Auckland 20 places in 20 years, from its current position of 69th on the OECD table of cities for GDP per capita….”
    Yeah, and USSR President Kruschev said in 1955, “we are going to bury capitalism”.
    What is that famous definition of insanity – doing the same thing and expecting different results this time? Did ANY CREDIBLE economist vet the Auckland Plan’s hubristic, utopian claims for economic growth? Where is the real life example that proves that urban growth containment, rather than fringe growth and low, stable urban land prices, is compatible with sustained high economic growth? Where are the studies of correlation?
    Blakely and colleagues could have asked the academics at the “Spatial Economics Research Centre” at the London School of Economics, who have several decades of consequences of urban growth constraints on the UK economy, as their data to analyse. In one paper, they liken the effect to a 4% tax on incomes. Sounds pretty pro-GDP growth, huh?

  10. PhilBest says:

    Dr Roger Blakeley, grand planner, writing in the NBR, goes on:
    “……The required transformation will need structural change in Auckland’s economy, from being import-led to export-driven, and growth of ‘new economy’ sectors. It will require long-term sustainable growth in our internationally competitive sectors…….It will also require significant improvements in our labour and capital productivity…..”
    Urban growth constraints are inimical to ALL these stated aims. Again, the Spatial Economics experts at the LSE could tell Auckland this; or Prof Alan Evans of the University of Reading, or the Global McKinsey Institute, or the OECD’s economic report-writing team, or Dr William Fruth of Policom Corporation.
    Urban growth constraints have been said more than once, by the above authors, to be “the reason that Silicon Valley could NEVER happen in Britain”. Stringent planning and inflated urban land prices reduce productivity in both labour and capital. They have an anti-competitive effect. They reduce business start-ups and reduce participation in agglomeration efficiencies.
    Blakeley goes on to extol what the Plans for a Rail network will do for Auckland. “Reducing travel times”….compared to what? If lower travel times are economically desirable – and they are – that is a justification for ROADS, not rails….! This is reason number one why roads have supplanted rails as the primary transport mode since about 1920.
    “….It will help increase the public transport mode share into the city centre for the morning peak from 47% to 69% by 2040…..” Blakeley does not admit just how essential expanded BUS services are to this target, if indeed the target is even practicable under conditions where international economic competitiveness DEPENDS on low, stable urban land prices and increased, not decreased flexibility of travel patterns.
    “….It will reduce congestion on roads and free up movements for freight and motorists….”. Impossible, if the planners own “induced traffic” argument is remotely true. How come increased road capacity “induces” traffic and yet mode shift does not, leaving the roads less congested? How can an INFERIOR mode, in travel times and convenience and “reach”, sustain mode shift in the face of its own stated success – “falling road congestion”?

  11. PhilBest says:

    Blakeley goes on:
    “…..there will be an extra 1 million people living in Auckland by 2040, requiring an extra 400,000 dwellings. Of these, 300,000 can be accomodated within the 2010 Metropolitan Urban Limit through intensification….”
    At what PRICE, you elitist bully? TVNZ already ran a segment on “Close Up” entitled “Shoebox Living and What You Get For Your Rent”. Oh, GREAT, Auckland’s young households in the future are going to pay through the nose to have 100 square feet of space per household member, in a high rise building.
    “….The release of greenfields lands will be staged to meet market demand. It will be supported by policies to ensure that there is always five years “ready to go” land…..and a further 15 years capacity in the planning pipeline….”
    Yes, and experience with a new UGB in cities in the past, has shown that somewhere between when “supply” falls from 20 years worth to 15 years worth, prices start to inflate.
    “….The Council will be pro-active to ensure adequate supply…..It will significantly up-zone land in development areas to allow greater densities. It will enable intensification through the unitary plan and the area spatial plans…..”
    Will it forcibly acquire the land at a low price and “set aside” NIMBY objections, to ensure that the resulting developments might actually be “AFFORDABLE”?
    Watch the storm of opposition if any council actually suggested ideas like this, or land taxes, that would actually DELIVER more compact urban form AND “affordability”. The stink of corruption is plain – the support there is for these “plans” rests on the fat capital gains that will be created for a well placed minority. This is not “property rights”, this is the creation of a new, non-pre-existing wealth transfer by corrupt officials, and as such deserves no constitutional protection from the removal of this “gain”.

  12. PhilBest says:

    Lastly, the hubristic Chief Planner Blakeley finishes with a homily about McShane’s preferred cities “not being in the top 10 internationally most livable cities”, whereas “….Vancouver, Melbourne, Sydney and Auckland consistently rate in the top 10….”
    Blakeley then has the sheer GALL to say in his last para:
    “……The draft plan is a carefully designed proposition to achieve transformational economic growth, high quality of life, quality affordable housing, opportunity for all Aucklanders…..” etc.
    I already dealt with the “economic growth” assumption. But “affordable housing”……? With Vancouver, Melbourne, Sydney and Auckland as the status quo exemplars? Insane by any definition.
    And “opportunity for all Aucklanders”? This is just a sick joke for everyone priced out of marriage and family, priced out of acquisition of a first business premises, priced out of efficient locations by property price gradients that any RE agent could tell us about, and people forced into lengthy commutes from wherever they can afford to buy, wasting their money and family time.
    This is verging on Eugenics. We should have seen the last of this stuff 6 decades ago. It is anti-human per se, in contrast to fascism being anti SOME humans on racial grounds, and Communism being anti SOME humans on “class” grounds. It is Darwinism on steroids – as if life was not already unfair enough in the “inequalities” it creates – something these Watermelon Green/Red politicians and bureaucrats would pretend to care about, deceiving voters en mass.

  13. jh says:

    The Savings Working Group
    http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup

    notes that house prices have increased after waves of immigration and not gone down.
    New Zealand has the 2nd highest inflow of migrants in the OECD and its population increased 21% bewteen 1994 and 2004.
    They say that combined with land supply restraints this drives prices up.

    “Immigration and tax breaks for investment in residential property are being cited as the underlying causes of steep increases in the cost of housing over the past decade.

    New Zealand now boasts one of the highest rates of home unaffordability in the world as a result of prices rising far faster than incomes, and the government’s Savings Working Group blames that squarely on the policies of successive governments.

    Although “the favourable tax treatment of property investment” accounted for about 50% of house price increases between 2001 and 2007, the working group said, there was also strong evidence that rapid swings in immigration brought about price-rise “shocks”.

    There was a sharp spike in immigration in 2001, 2002 and 2003 and, said working group committee member Dr Andrew Coleman, it appeared that property prices did not fall anywhere near as greatly when immigration fell again.
    The report added that there was little evidence that immigration boosted local incomes. In fact, the need to build roads and schools meant that net migration contributed to the national deficit. ”
    http://www.stuff.co.nz/business/4622459/Government-policies-blamed-for-house-prices

    New Zealand’s terra firma is marketed world wide. At the Shangahi Symposium a Harcourts agent boasted of $600m worth of “product”

  14. Leith – thank you for an excellent article regarding the planning fiasco that is Auckland. It is a national disgrace – but not unexpected, after the recent forced amalgamation of the Local Authorities there.

    The most galling thing is that ACTs Leader and Local Government Minister Rodney Hide allowed that to happen.

    One would have thought they would have learnt a thing or twenty from the failed amalgamation of the Christchurch Local Authorities some 20 years ago. Following the earthquakes, this bloated bureaucracy is going to have to be unraveled to a “One City – Many Communities” approach.

    Lets hope the NZ Productivity Commissions Housing Affordability Inquiry breaks out the detailed costs of fringe housing in Texas, comparing it with comparable fringe urban New Zealand examples, to illustrate clearly to Kiwis, just how much they are being taken to the cleaners.

    Following the National Election late November, it would appear the new Government needs to urgently sort out Local Government – otherwise this country is in very serious trouble.

  15. The Claw says:

    Instead of restricting development on the fringe, why doesn’t the govt just build the highrise paradise itself and sell the units for enormous profit. The huge savings it makes on copper pipes and wires it can plough into a superb railway to serve the highrise.
    Why would anyone live on the city fringe in a horrid hard-to-clean McMansion house with awful mower-needing yard when the charm of a compact unit and the vibrancy of street life awaits?
    Surely by offering a better life to people at lower cost, the govt would no longer need to ban building anywhere else. Smart New Zealanders would queue to snap-up the better option direct from the central-planner’s carefully chosen unit supplier. They could even choose the colour of the melamine. Fringe housing would shrivel-up and die like a gas-guzzling Ford GTHO. No one would want one anymore!