The MUL and housing affordability

An article in today’s NZ Herald notes that new councillor Dick Quax, who replaced Jami-Lee Ross as the representative for the Howick Ward, argued against the council’s generally agreed position of preferring a ‘compact city’ in his maiden speech. I’ve discussed the metropolitan urban limits (MUL) in many previous posts, including reference to a pretty detailed study undertaken for the ARC that showed an expansionary model of urban development generally delivered the worst outcomes for the highest cost. However, Cr Quax raises an interesting issue related to the MUL that does need further consideration:

Mr Quax, on the Citizens & Ratepayers ticket, told the council last week that the city faced huge challenges over the next 30 years when the population would increase by about 650,000.

That meant about 300,000 new houses had to be built.

“However, there is a projected shortfall of 90,000 homes. More land and supporting infrastructure will be needed if the goal to unleash Auckland is to be realised.”

He said too many Aucklanders had no stake in the region or their community, were shut out of the housing market and would be renters for the rest of their lives.

He goes on to talk about other issues that he thinks will result from urban intensification – like pressure on infrastructure, crime, pollution and so forth. Generally I think those other issues don’t have much merit: the ARC study showed quite clearly that the cheapest option infrastructure wise is to focus on intensification, more compact cities are typically more sustainable and therefore less polluting, while the crime issue is probably neither here nor there (highest crime levels are generally not in the densest parts of the city).

I think the issue of housing affordability is more valid though. The MUL clearly limits the supply of land for urban development, so naturally that’s likely to increase the price of urban land. A more in-depth study by Motu Research into the issue seems to generally confirm this, in particular noting the big difference in price of land just in and just out of the MUL. Generally I think that applying the MUL in Auckland has probably contributed – to an extent – to the reduction in housing affordability.

However, I still get annoyed by people such as Dick Quax thinking that getting rid of the MUL is both the only way to improve housing affordability significantly, and that it’s supposedly the magic bullet for achieving this. There are a number of reasons why I think this, which leads to why I reckon getting rid of the MUL (and not replacing it with some sort of sprawl tax) will have costs that aren’t worth the benefits.

For a start, I think there’s a need to separate out land costs and housing costs. While it’s obvious that and urban limit would increase the price of land inside the limit (because of the constrained supply), that doesn’t necessarily need to carry through to higher housing costs – one could simply allow higher densities to make more efficient use of the land. I used to live on a 600 square metre section in Sandringham that had a pretty standard zoning for Auckland City, allowing one unit per 375 square metres as its maximum density level. The main other controls on development intensity were a two storey (eight metres) height limit and a 35% site coverage limit. This means that theoretically one could build a house with 400 square metres of floor area (freaking massive), but not ever more than one unit, because two units requires a site area of at least 750 square metres. If you were designing residential development controls to undermine housing affordability, you’d struggle to do better than the controls we currently have.

So a tweaking of the general development controls on residential land within urban Auckland could make it possible for more housing units to be built on our urban land – thereby improving affordability as land costs would reduce as a percentage of a house’s total cost. There’s a reason why central parts of large cities in Europe and older North American and Australian cities tend to be full of apartments, terraced houses and townhouses: they make the best economic use of the land. Many of our current planning rules prevent this, and I would argue contribute more to housing unaffordability than the MUL does.

Secondly, I must say that it just doesn’t seem to me as though we’ve tried very hard with our planning regulations to promote housing affordability (in fact, as I noted above they generally do the opposite). In many overseas cities there are floorspace or development bonuses set aside for developments that incorporate a level of affordable housing. There might be specific planning rules that allow “granny-flats” to be built on sites not really large enough for two full houses (some councils in Auckland have this). Development contributions could be raised or lowered depending upon the level to which affordable housing was provided as part of the development. The key point to make is that there are some obvious planning tools out there that could be used to provide affordable housing – we just haven’t used them yet.

Finally, even if allowing much more sprawl did improve housing affordability, I do wonder whether much of the improvement would actually be a false economy. What people save on housing costs they may need to spend on transport costs – travelling far greater distances than they would in more central areas. The affordability of new housing on the periphery is also likely to depend upon the extent to which the real costs of developing that land are subsidised by the rest of the city. Over the past decade it’s clear that many parts of Manukau City have had to go without in order to stump up the money necessary to construct Flat Bush, while the money that the Ministry of Education has spent on all the new schools out there is simply mind-boggling. If these costs were actually put into the cost of greenfield properties, I doubt they would be particularly affordable.

So really, when people like Dick Quax (or Owen McShane) reckon that removing the Metropolitan Urban Limit and allowing Auckland to sprawl will solve the housing affordability issue, I think they’re grossly over-simplifying the issue. That’s not to say that we shouldn’t be concerned about the impact of our planning system on house prices: it’s pretty clear that the policies of the last decade, which have chopped development off at the sides and made intensification difficult, have contributed to affordability problems. But let’s be smart in how we approach this issue, to ensure that efforts to make housing more affordable don’t come at the cost of increased transport costs or require massive sprawl subsidies from the rest of the city.

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