New Zealand’s Finance Minister, Bill English, has today firmly argued against urban containment policies that are contributing to the current blowoff in the Auckland house price bubble. From Interest.co.nz:
Finance Minister Bill English has spoken out against “compact cities” saying that they drive up house prices.
In a speech to the Trans Tasman Business Circle in Wellington today English said the Government was “addressing inequities” caused by the effect of planning rules in the housing market…
English said today that “compact cities” can drive up house prices – both by restricting the spread of cities and setting expensive standards for urban design inside cities.
“Both measures make housing more expensive. This favours existing owners of houses and can lock young and low-income families out of house ownership.
“The same price rises that make home owners better off also increase inequality. By any international standard, housing in New Zealand is expensive relative to income.
“Therefore, anyone concerned with unequal wealth should support more flexible supply of new housing.”
English’s speech touches on two simple truths when it comes to strict urban containment policies.
The first is that landholders within an area permitted for development (e.g. within a tight urban growth boundary) are granted quasi-monopoly rights as they no longer face competition from land holders outside of the permitted area. This increase in market power arising from regulation creates artificial scarcity, and provides those lucky landholders within the permitted area with the ability to demand higher prices from prospective buyers (e.g. developers) or withhold land from the market (i.e. land bank) in a bid to further raise prices (see here for a classic example of these types of outcomes in Auckland).
The second outcome from planners’ attempts to create a “more compact city” via regulatory constraints on land supply is that such intensification efforts tend to face stiff NIMBY opposition, which thwarts in-fill development and pushes-up its cost. Moreover, the sheer high cost of pre-existing housing (due in part to higher land prices caused by the regulations themselves) means that buying it, demolishing the buildings already on it, and buildings new ones, cannot be done economically, preventing affordable in-fill homes (e.g. apartments and townhouses) from being built.
As noted previously, there should be no urgency to restrict the urban footprint of Auckland given that it is such a small city by global standards. Sydney, for instance, is nearly 1,700 square kilometres in size – three times larger than Auckland, which is only 530 square kilometres. Melbourne, which is nearly 2,100 square kilometres in size is nearly four times as large as Auckland, whereas Los Angeles at 4,300 square kilometres is nearly eight times the size of Auckland (see below google maps images). At 2,900 people per square kilometre, Auckland’s population density is also already significantly higher that Sydney’s (2,100/km) or Melbourne’s (1,600/km).
Further, nearly all of all Auckland’s regional rural land is unproductive as it is held as lifestyle blocks which are in effect super low density urban residential lots appropriate for subdivision (but banned from development through regulation). In fact, the number of lifestyle blocks has exploded across New Zealand, increasing by around 75,000 to 175,000 over the past 13 years, and now consumes roughly 873,000 hectares (8,730 sq km) of land, compared with only around 180,000 hectares (1,800 sq km) of land used for urban uses.
I hope for New Zealand’s sake that sanity prevails and the Auckland Council’s restrictive urban planning policies are thrown out and replaced with a more responsive market-oriented planning system. Otherwise, the cycle of unaffordable housing will continue, locking generations of New Zealanders into expensive sub-standard living arrangements and depriving them of economic opportunity.
