The urban limits debate rages on

The comments thread on my post about housing affordability, put up nearly a week ago, has raged on over the past few days to reach well over 130 comments – many of them extremely interesting. Inevitably, one of the big areas of debate has been around urban limits and they role they potentially play in driving up house prices. As I noted in my original post (to an extent), the argument against urban limits generally revolves around the following:

• They restrict land supply so therefore drive up the cost of land and therefore the cost of housing
• They protect land uses which are of less value to society than the uses the land could be put to
• They restrict our freedom to live the way we want to live
• Because they drive up the cost of land inside the limits so much, it’s not economic for much of the current “available” greenfield land to actually be built on

Going against this argument are a number of points in favour of urban limits, which include:

• They compensate for the fact that development doesn’t properly “pay its way”
• They protect important rural land, which produces a lot of food in a location very close to consumers
• In the absence of road pricing, they are a way to limit congestion and the “need” to build more roads
• They are a counter-balance to all the restrictions put on urban intensification
• They are a recognition of the durability of urban development, in that once land becomes urbanised it’s very difficult and expensive to make it rural again – even if economic indicators suggest it should be ‘re-ruralised’

The debate is an interesting one, although the economic purism of some of the arguments puts forward frustrates me at times. I am a firm believer that complex issues are complex, and generally can’t be reduced down to some simple economic graph or formula. But that aside, it’s a worthy debate to have.

One key discussion that comes through is the issue of allowing growth to occur more easily within the current urban limits, if we are to properly “level the playing field” between intensification and sprawl. This is something Harvard Professor of Economics, Edward Glaeser, picks up on in a talk he gave at a Vancouver Urban Forum discussion recently – the importance of allowing cities to “grow up” if we want to avoid them “growing out”. The big problem in Auckland is that we’ve made it so difficult to intensify – due to planning rules which typically promote urban sprawl through density controls, height limits, yard requirements and so on – that greenfield growth is by far the “easier” option for a prospective developer. Even though we supposedly want to limit sprawl.

Here’s his talk:

I look forward to sprawl advocates such as Councillor Dick Quax, who wants to get rid of the urban limits because of their market distortions, being at the forefront of pushing to loosen development restrictions within the currently urbanised area – as they’re clearly working against the market and stopping people from living where they want to.

This point is reinforced by what’s been happening to section prices in Auckland, picked up on by this excellent article:

Auckland’s median section price has increased by 8.8 per cent over the same period, from $285,000 in 2007 to $310,000 this year. And that increase has come during a period of subdued building activity, lending weight to the argument that there is a supply problem.

But a closer look reveals that most of the price pressure has come from the region’s more desirable suburbs. People who can afford to live in these are prepared to pay ever higher prices to get the home of their dreams.

But if you go out to the region’s fringes, near to where most of the new supply would come from if rural land was opened up for housing, section prices have been declining.

In Franklin on Auckland’s southern rump, the median section price has declined from $253,000 for the three months to June 2007 to $235,000 for the three months to June 2012, a drop of 7.1 per cent.

In Rodney to the north, section prices have fallen even more sharply, dropping by 28.2 per cent over the same period.

The divide between section prices in the posh suburbs and those in less desirable areas is most noticeable on the North Shore, where the median section price in the affluent East Coast Bays has increased by 3.6 per cent over the last five years, while just over the hill in less desirable Albany, the median section price has dropped by 10 per cent.

That suggests an aspect to the housing market which is often overlooked by those who advocate increasing urban sprawl. You could develop subdivisions for Africa in the back of beyond but it wouldn’t mean people want to live there.

While some greenfield development is probably necessary, to simply increase the total supply of housing (which is important because, as Glaeser notes, we are talking about the market as a whole here so everyone who does want to live out the back of beyond is one less person competing for an inner area), if there is little demand for these outer areas then providing even more land isn’t going to make much difference.

I often suspect that those opposing urban limits are still stuck in the past, when there wasn’t much desire for inner city living and when everyone really did want to live on a big piece of land in the middle of nowhere. They see urban limits as an affront on that lifestyle. Problem is that times have changed, people now do want to live centrally and that’s really where we need to provide more housing. In places where people actually want to live.

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