So what does Auckland Council’s Chief Economist say?
Note: Pressers placed in Talking Auckland are to be taken at the value you attach to them. I just pass the information on. Commentary does not always follow.
Trade-offs unavoidable in solving housing crisis, says Chief Economist
Aucklanders need to understand the nationally significant risks involved in not allowing intensification of areas close to the city centre, according to Auckland Council’s new Chief Economist, Chris Parker.
In his first quarterly newsletter, Mr Parker reports on Auckland’s strong economic growth, and explores the economic risks created by Auckland’s housing crisis.
“The region’s strong growth is reflected in its housing market, fuelled by a mix of increasing economic activity and migration from both within New Zealand and from abroad,” he says.
“Two of the most significant features of the Auckland housing market are the high cost of land, which drives house prices higher, and the comparatively affordable rents,” he says.
“The disconnect between land price and rents cannot last. The housing market is signalling the need to use existing land differently, to allow intensification. If land use regulations prevent this, then land will become less valuable and the risk of a major price correction becomes more real.
“Intensification allows land owners to enjoy a greater yield by having more dwellings on a site. Allowing land to generate more cashflow closes the disconnect between land prices and rents,” he comments.
“More dwellings per site in the central area will ease the housing supply and house price issues because more dwellings share the cost of land. This helps keep the dream of home ownership alive for younger generations.
“Reducing the risk of land price collapse also reduces the risks to the national economy and the financial sector.”
According to Mr Parker, the chances of big rent increases are slight, as rents are dependent upon income and Auckland competes for loose-footed people who could move to Australia or elsewhere in New Zealand for a better deal.
While acknowledging his comments don’t necessarily reflect what the council’s evidence may be at the Proposed Auckland Unitary Plan hearings, he believes that the proposed rules as set out in the plan “don’t appear to allow for enough opportunities to intensify areas close to the city centre.”
“The proposed unitary plan allows for more intensification than the legacy district plans. It gives greater ability for practical reuse of land within existing urban areas and for development beyond the Metropolitan Urban Limit. But one could have expected higher densities and more height in areas near the city centre, and the market seems to be signalling this demand too. This has not been achieved consistently in the proposed plan,” he said.
“Intensification doesn’t have to be a dirty word. By being a design-led city, Auckland can build value into intensification, and look and feel like a truly global city.
“Whatever our planning response is, it has to be informed by sound economic reasoning. The purpose of the Chief Economist Unit is to highlight key trade-offs for critical Auckland issues. Aucklanders need to understand and debate how land use protections escalate these nationally important risks.” he said.
The Auckland Economic Quarterly Newsletter is available at aucklandcouncil.govt.nz/chiefeconomist
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The Latest Report
As productivity to GDP slipped 0.25% according to the last Auckland Plan Implementation Annual Update, and the Auckland Plan due for a review this year I am going to reference the first post of my Auckland Plan mini series on what needs to be done: THE AUCKLAND PLAN AND THE SYDNEY PLAN
Talking Southern Auckland 
I have often posed the question and no-one has been able to give me an answer: where is the examples of housing markets with growth boundaries, where upzoning and building “up” has resulted in improved affordability?
The evidence all looks to me as if site rents rise even faster than you cram households in. Hong Kong with 66,000 people per square km has a median multiple of 17; most of the cities that still have a median multiple of 3, have less than 2,000 people per square km.
The data distribution between these two extremes, seems to fall into the pattern that higher density = higher prices of housing units – even if these are stacked vertically, and very small.
The problem is that economists are still working to assumptions that applied back before the overall land supply for the city was rationed by a boundary. Under that condition, urban site rents are set by rural land values plus differentials. Remove the anchor of the rural land values, and the urban land market flips into a condition of “economic rent extractive”, with people being forced to pay as much as they can stand regardless of the standard of the “housing”.
Low density zoning and minimum standards of the kinds hated by utopian urban planners who think they can create affordability within a growth boundary by upzoning and lowering standards, actually reduce the rent that site owners can hold out for. Boston, for example, has housing as large and sprawly as Houston, and it is twice the price because Boston is growth-contained – however the minimum section size mandates and height restrictions and so on, do not result in Boston having more expensive housing than cities 5 times denser, like Liverpool. Obviously the sale price / economic rent of sites per square foot is kept down in Boston by the forced low rate of utilisation of land.
The basic reason for cramming of population leading to MORE expensive housing regardless of increased tightness, explained by the LSE’s expert urban economists like Paul Cheshire, is that people DO try to “bid their way out of the rationing system”. On the basis of income levels, some proportion succeeds in obtaining more space for themselves at considerable cost. However, the “more space” they obtain for themselves, imposes a greater still sacrifice of space upon those at the bottom of the income distribution, who not only cannot buy their way out of their distress, but are generally forced to pay absolutely as much as they can stand out of their meagre incomes – 50% plus – for even the most pitiful minimum of space.
THIS item is apropos:
https://theconversation.com/not-a-lot-of-people-read-the-stuff-how-planning-defies-good-theory-38234?utm
‘Not a lot of people read the stuff’: how planning defies good theory
This seems to apply even to some of the economists who should be giving a big red “X” to their Council Planning Department’s exercises in ignorance and fatal conceits.