Refused committee chair
Yesterday The NBR reported on a letter Councillor Dick Quax sent to Mayor-elect Phil Goff on his interpretations of the Auckland economy.
I have managed to get a hold of the letter and for your Labour Weekend reading here it is:
Open Letter to Mayor Phil Goff
Wednesday, 19 October 2016
His Worship the Mayor of Auckland Phil Goff
Congratulations on winning the Auckland mayoralty. It’s a massive job and there are plenty of challenges ahead for you and the new council.
Amongst the most pressing challenges is the need for the Auckland Council to free up enough land to bring the out of control housing inflation under control. Coincidently, it is your former colleague, Phil Twyford who has been leading the charge on this in Parliament. He has declared that it is the restriction on land supply through the urban growth boundary that has created the rampant house price inflation. Numerous reports by New Zealand and overseas planners and economists have arrived at the same conclusion. Bureaucrats at the council have chosen to ignore that evidence and continue to follow their own misguided agenda that has seen the price of housing rise from 6 times the median Auckland household income when Len Brown took office in 2010 to close to 12 times the median household income today.
There will be many seemingly plausible reasons as to why this has occurred, low interest rates, high immigration, high building costs, and land banking and so on. All are true to some extent but it is undeniable that land makes up the majority of the cost of building a house and that portion continues to grow. The council has no control over interest charged by banks or immigration or building costs. However, you can make land speculation less attractive by the simple act of providing a competitive market for land. The Independent Hearings Panel which sat in judgement of the Unitary Plan has addressed this but not to the extent that is needed to make a meaningful difference. Phil McDermott’s blog, “Cities Matter” states; “But it is too little, too late; so Auckland remains consigned to increasing social division fashioned around a new poverty, a poverty rooted in the failure of the housing market.” Your officials will argue that the redevelopment of existing built locations with higher density housing will enable supply to meet the shortfall. The evidence is however, that the assumed supply always falls short. Former Reserve Bank chairman, Arthur Grimes and Andrew Aitken (2010) “Housing Supply, Land Costs and Price Adjustment”, concludes “all the profit potential from redevelopment is impounded in rising site values”.
When you address the housing affordability crisis you will be able to make a real difference to the lives of Aucklanders. High housing costs are responsible for a number of socials ills you are confronted with on a daily basis. Homelessness was almost non-existent when the amalgamation of Auckland occurred six years ago. Today, people walking up Queen Street run a gauntlet of homeless beggars. Household overcrowding in South Auckland was considered a problem in 2013 when some local board areas such as Mangere-Otahuhu and Otara-Papatotetoe had more than four people per dwelling. Today it is likely that the overcrowding is much worse given the population increase and lack of housing construction. Poverty and high housing costs are closely related as are poor health and education outcomes. If you want to do something about poverty Mr Mayor, start with housing. And while you’re fixing housing let’s tackle traffic congestion. It’s hardly surprising that daily commutes take more and more of our precious time. Since 2000 the population of Auckland has increased from 1 million to 1.5 million or 50 per cent while the urban area has increased by just 8 per cent. Unsurprisingly, this has created the congestion which comes at the estimated cost of about $1 billion a year in lost productivity.
When Auckland was first amalgamated 13,000 new dwellings a year were required to maintain pace with population growth. At that time Auckland already had a housing shortage. Estimates varied but the Reserve Bank put the shortfall at about 15,000. Some commentators put the figure much higher. Whatever it was at the time pales into insignificance on what it is today. According to figures from Statistics NZ the annual average number of new dwellings consented in Auckland since 2011 is just 6,300. We have fallen short on average by 7,000 dwellings a year. That would make a short fall today of about 35,000 dwellings. This is bad enough! But the required build since 2013, given the strong inward migration into Auckland, means that the required build since then is more like 20,000 dwelling per year not 13,000. This would mean that the shortfall is about 55 – 60,000 dwellings. (Ellis, 2016) This is probably the most conservative figure; some industry insiders have cited numbers significantly higher. Let’s assume that the shortfall is 60,000 that would mean that the Auckland Council is foregoing about $210m a year in rates.
That raises another issue for you to face (I’m sure you knew the job would not be easy) financing infrastructure. You’ll be aware there a tsunami of infrastructure costs heading our way. Council has borrowed about as much as it can; you’ve promised to hold rate increases at 2.5 per cent. The government has already stated that a fuel tax, or any other tax it seems, is off the table. You really need to consider a new way to raise the necessary funding.
I am aware that council officials are looking at infrastructure bonds as a mechanism for funding. Clearly, for bonds to be different from borrowing it will need to be serviced from a completely new source of revenue. In my view you should be considering Texas style municipal utilities districts (MUD) which have been in existence there and elsewhere where there has been rapid population growth. The purpose of a MUD is to fund infrastructure such as water, wastewater, storm water and other essential infrastructure. In Texas MUDs are created under Texas law and require the majority of the property owners in the proposed district to petition the Texas Commission for Environmental Quality (TCEQ) which evaluates and consults the public on the petition. A key requirement is for the developer to pay for at least 30 per cent of the development cost. This provides greater assurance to future residents that the development will be completed.
Once the MUD receives approval a Board of Directors consisting of land owners within the district is elected. Developers are not permitted to be board members. Elections are held periodically to elect or to re-elect board members. The board has authority to authorise bonds, set rates and levy taxes to pay off debt.
I realise this will require government legislation to set up but it seems that there will be greater appetite for this than a fuel tax.
Auckland should spread to the south, that’s where the jobs are, that’s where our power comes from and so does the rock needed to build infrastructure. You need to move away from the CBD centric vision of your predecessor. This centralisation/compact city model will fail. It guarantees congestion, older infrastructure is at risk of failure, focus on rail transit commits us to developing unattractive brown-field sites, the market does not favour high density living unless it is well located in a high amenity community and is well appointed and therefore will be priced out of reach for most. (Back to Basics: Planning, Housing Markets, and the Cost of Ignoring Economics, 2016)
You are in a great position to be remembered as the mayor who brought affordability back to Auckland housing and the mayor who made a difference in the lives of working poor.
Dick Quax – Councillor
The letter original:
The part I have put into bold is one I am more interested in watching. Quax is right on one aspect in that the South is growing the fastest in terms of population and employment while also containing most of the heavy industrial base (including extraction, power generation or transmission and agri/horticulture). However, the City Centre is also growing fast in terms of population and employment demonstrating the two areas (South and City Centre) are knuckling down into their specialisations which both are of high benefit to the Auckland economy.
However, where Quax is wrong is on how rail works (heavy or light) and its effects on amenity.
Auckland has two City Centres, nine Metropolitan Centres (I’ve placed Manukau in the City Centre box for this exercise) and five industrial complexes. Both City Centres and five of the Metropolitan Centres are connected to the rail network while Albany is connected to the Northern Busway. The idea would be to connect all the Metropolitan Centres up with the two City Centres to either the heavy rail or light rail system (with Westgate connected by the North West Bus way).
Typically development will follow rail connections between two points whether it be residential or industry before following something like a motorway or expressway. Why? Despite what some might think about driverless cars, trucks and busses (we already have driverless trains as a technology) rail is still and will always be the most efficient form of moving the most amount of people and goods over land in medium to long distance runs (coastal shipping is the most efficient form of moving goods overall so should not be forgotten). The rail efficiency applies even more as populations grow and the road space is incapable of handling the increased loads from cars and trucks (you can not build your way out of congestion by just building roads).
So with that $125b and five million people coming I would be seriously looking at where is Point A and Point B, link them up with rail (or upgrade the rail links), build intermediary points long the rail link as development follows that link and away we go without getting stuck on a highway.
Oh and Councillor Quax refused to Chair the Procurement Committee with those honours going to Mike Lee.