Last week Auckland Council announced that it would be combining two of its council-controlled organisations, Waterfront Auckland and Auckland Council Properties Limited, into a new urban development agency:

The new entity, called Development Auckland, will have a key role in helping deliver the council priority of quality urban living and will have the mandate to deal with the challenge of Auckland’s rapid growth through regeneration and investment. The agency will have the capability to deliver public and private development and infrastructure, including housing, across the region.

[…]

Development Auckland will see the merger of two CCOs: Auckland Council Property Limited and Waterfront Auckland. It will allow the council to play a much stronger role in urban development through greater economies of scale, enhanced commercial capability and the ability to partner with others.

Deputy Mayor Penny Hulse, who chairs the CCO Review committee, said Development Auckland will utilise the existing scale of the Auckland Council Group to provide a total urban redevelopment package.

The Auckland Council’s Governing Body accepted recommendations that will see the concept of a new urban regeneration CCO go out for public consultation through the council’s Long-term Plan.

The Long-term Plan will be finalised in June 2015. If approved, Development Auckland could be established by 1 September 2015.

It will be interesting to see how this plays out – there are definitely reasons to be optimistic. Waterfront Auckland is, in my view, one of the world’s best waterfront development agencies. In its brief existence it’s galvanised the redevelopment of Wynyard Quarter with a mix of public and private investment. There are the occasional misfires – the tram loop, the design of the new waterfront hotel – but all in all they’re delivering an interesting precinct with good design, reasonable density, and a good mix of uses and public spaces.

Daldy St before and after
Waterfront Auckland has brought people – and businesses – to Wynyard in increasing numbers (source)

So we should get some good urban outcomes by extending the Waterfront Auckland model to a broader property portfolio. But could Development Auckland also help to solve some of the broader challenges facing Auckland?

One of the biggest questions we’ve got is this: How can we build houses and infrastructure for a growing population? This is one of those questions that sounds simple at first – surely we can just get some nails and wood and concrete and slap it all down in a paddock in Pukekohe? However, it’s quite a lot more complicated than that.

It’s not enough to just construct houses in some random field – before the studs start going up, they need to be serviced with transport and water infrastructure. This can be expensive, especially in greenfield areas, and Auckland Council’s not got a lot of money to throw around wildly.

Recent decisions on the Long Term Plan budget and the work done on alternative funding for transport investment make it clear that there’s a bit of a funding squeeze on. While there are opportunities to manage Auckland Transport’s and NZTA’s budgets more efficiently by prioritising high-value public transport and walking and cycling projects, this can only go so far.

Development Auckland could, in principle, ease some of these funding constraints by using land development profits to pay for new infrastructure. US engineer Charles Marohn explains how this system worked in the past:

Once they had the land, private railroad companies then built the railroad lines. They paid the enormous capital costs by issuing bonds – borrowing the money – and then paid back those loans through a value capture mechanism. When the railroad stopped somewhere, that somewhere became a town, and the land in the vicinity of that stop became vastly more valuable. The railroad companies owned, or acquired, the land at each stop before it was built. Thus, by selling that land once the railroad line was constructed, the railroad company captured the increase in value their investment had created.

So in addition to operating the railroads, these private companies were also land developers. Without developing the land and capturing the value their investment created, few railroad lines would have ever been built.

Once the railroad was built and the capital costs recouped through sale of the appreciated land, then the private railroad company could switch to operating the line. They charged fares to move freight and people along the railroads they had built. While some borrowing costs were retired through the fare box, most of the money collected went to covering operations, maintenance and profit.

Marohn goes on to point out that “in the automobile era, the risk taking is reversed. For all but the most local of transportation improvements, governments front the investment capital and take the risk.” Private developers, on the other hand, reap the profits from land development that is facilitated by massive public investments in roads. Building expensive roads to serve low-density areas can be really bad for ratepayers and taxpayers, as Kent has previously highlighted.

Due to New Zealand’s small scale, there aren’t any developers who have balance sheets large enough to fund major infrastructure development and then build houses on the new land that’s been opened up. When land development and transport investment have been integrated, it’s been done by the government. That’s how the Hutt Valley was developed – central government built the railways and then built houses on publicly owned land.

Development Auckland could fill that gap in the market. It would require Auckland Council and other CCOs to give up a little – e.g. by allowing Development Auckland to change planning rules to allow it to intensify its land or by prioritising the construction of supporting infrastructure – but the payoff could be large. If it succeeds, it could mean a win-win for ratepayers (who wouldn’t need to pay for every bit of new infrastructure) and future residents (who would benefit from more housing choices).

What do you think about Auckland Council getting into the development game?

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28 comments

  1. Will need some serious funding up front but by on-selling development opportunities (with caveats and controls to ensure that the right things get built in the right places) the money can be continuously recycled. Some of this have been advocating this approach for yonks so very pleasing to see progress at last.

  2. I would go further and include ATEED, that would make it easier to make them all redundant and get meaningful control of spending. They could all be replaced with three property officers employed directly by the Council.

  3. The development company would not need to sell all the properties. Long term leases would also service the debt on the capital infrastructure investment. Leasing has the advantage of if intensification is possible later on as owners the development company can do that and receive that capital gain too.

  4. There are huge economic gains to be made by development (retail, community facility and residential) above, adjacent to or underneath rail stations and bus interchanges in Auckland. Development Auckland should take the lead on this and be the CCO that works with AT to fund and build these mixed use ‘assets’.

      1. Such economically effective and successful land use would go a long way to maintaining the raison d’etre for both CCOs.

  5. How traffic engineering standards can break our cities
    I can’t seem to find that in here and I would like to ask a couple of questions on that subject. Is the post working ok?

  6. I’ve never understood why Councils sell surplus land off to developers then cross their fingers and hope that the developers build what they promised, when they promised and its as good looking as the artists impressions said it will be.

    When the council can control the entire process from start to finish by having a build, own and if needed, operate the development.
    For commercial premises there is no reason why council can’t be a landlord. For apartments that are rented out the same can apply.

    Its a win win win win.

    I guess there is a “dislike” by private developers (and right wing councillors) of Councils getting into “their” game by seemingly being able to control the process (consents and the like).
    But providing the development agency is an arms length CCO and is not just used as a convenient cash cow to keep rates down by councillors (the usual result of such agencies in the past), then the CCO can become self-funding and can deliver good outcomes for the city so its a no brainer really.

    Come to think of it, why is the same not applied to the PT system and have council own the bus and ferry networks too as well as the trains so it can really integrate them?
    Oh thats right, previous Governments forced the sell off the council owned/operated buses all over the country to private enterprise to fix a non existent problem of “lack of competition” and made it illegal for them to buy them back once the private operators ran them into the ground.

    1. You do realise Council via ACPL is selling off “surplus” land at Lot 59 in Manukau City Centre – a Metropolitan Centre where the bus interchange is meant to go?
      However, it seems at the moment the Manukau Interchange has been stalled owing to budget cuts unless we get the full funding in the Long Term Plan

      So that leaves the question of where has the proceeds from the sale gone or will be going and why does Council not hang on to the land at Lot 59 to do a nice big Transit Orientated Development at Lot 59 – Manukau – a Metropolitan Centre.

      The answer lies in the Area Plan and Council abandoning the TOD and stalling the interchange out entirely. So how useful will this CCO be if the Governing Body can’t get itself together first

      1. I guess this is due to the siloed thinking and set up of Auckland Council and Auckland Transport and other CCOs – one branch will sell land that will help its balance sheet even if it would make better overall sense to hand that land over to another branch for their projects.

        Related to development, what are the rules? I was under the impression the council itself is banned from property development? Is this however, avoided by having a CCO doing the development rather than the council directly?

    2. I think the main reason Council’s prefer to sell off surplus land is that even Councillors know that if you want something stuffed up you ask local government to do it.

      1. Having worked for private industry developers I call bullshit on that claim – Councils have no monopoly on stuffing things up, and vice versa, private developers have no monopoly on getting things right. Plus, you are arguing that Council hates and disrespects itself. What are you, a Tea Party Senator claiming to get into government to abolish government?

        1. At least when private companies stuff up that face the economic consequences of Schumpters ‘creative destruction’. Local government managers know they just have to increase rates and no one can avoid paying. (ie Mangawhai waste water). The idea that a Council will develop property is fine so long as efficiency isn’t one of your objectives or return on capital or any of those mundane ideas. If it is wealth transfer you are after then I am sure your plan will work very well indeed.

          1. Yeah, the wealth transfer from public to private has worked very well the last 50 years. So much that society owned in common once is now in the hands of the Top 10%. I agree, that plan worked well.

            Claiming that Council should get out of everything because it is bad at everything is certainly good propaganda as they prepare to sell off the last state- and Council-owned assets.

            Then we can finally see the invisible hand of the market give us great service at low prices. Hah!

          2. Agreed, in part. Your comments about councils building “speculative” infrastructure aimed at stimulating growth definitely ring true.

            What I was aiming to point out in this post is that Development Auckland could represent an alternative, more market-based approach to funding infrastructure. The new CCO could act as both an infrastructure provider and a land developer, using the profits from development to fund the infrastructure needed to serve its properties.

            There would definitely be risk in doing this, but Waterfront Auckland seems to have shown a bit of nous on the commercial side. Definitely wouldn’t be positive about this proposal if WA’s work to date wasn’t up to par!

          3. I haven’t argued that Councils should get out of everything. My own view is a public monopoly is always better than a private monopoly as at least a public one is accountable (but never efficient). I have argued that Council stuff things up. Having worked in both sectors I think one reason is the way they deal with risk. The private sector factors it in as a cost or as a reduction in benefits. If they get it wrong they lose money or their jobs. Managers in the public sector ignore it and figure it wont cost them anything. That is how we got David Beckham at Mt Smart or the Aotea Centre over run & every other cock up. But some things are better run by the inept than by private sector gougers.

          4. In my experience negotiating with Council’s, when it comes to legal risk, as opposed to commercial, loss making risk, they are ridiculously conservative. Which actually holds them back from commercial success sometimes.

            I agree on commercial risk but entertainment events are fickle things. You can never be sure what will sell and what won’t. I have been involved in some boxing promotions recently that are wholly private and didn’t do too well. Nothing to do with badly managed risk – punters just didn’t front.

            If anything, Councils need to be more risk taking to succeed commercially.

    3. The problem with Council owning residential buildings is that politics get in the way of sound commercial management. Rent increases get delayed and bad tenants are tolerated when they should be ejected or never accepted. Maintenance is often delayed because of Council budget problems in some other portfolio.

      1. Thats is why you do it at arms length with a new CCO, so that there is no nest feathering going on and no special rules for the council development agency versus private developers.

        Its a flat playing field for all.

        Council chooses who to sell the land to CCO chooses who to use for development for the best longer term outcomes.
        And its just not “sell it off now for a quick buck” type thinking either.

        How it works overseas so why won’t it work here?

  7. What if the council pushed through density zones around every train station?
    Say a 500m, 750m and 1km zone; high – low.
    Residents inside these zones are notified that due to RTN proximity their neighbourhood is subject to intensification.

    Any residents unhappy about this can apply to be bought out at GV / fair value by Development Auckland.
    Residents can then buy further away from PT outside the zones and Development Auckland now has property that they can either modify or rebuild on. They can even just sit on it if necessary and resell later to buyers aware of / happy about the intensification of the area.

    That way Development Auckland take control of the rail corridors by either owning the property around it and intensifying it to on sell and those that remain inside the zones by not selling are confirming their support for TOD.

  8. Council doesn’t need to own the land, all they need to do is set up stringent rules developers have to adhere to.
    If I remember correctly from what Brent Todorian told me, in Vancouver they had certain rules regarding density, height and size of apartments. New developments had to have a range of apartment sizes, not just 1 bedrooms, but 2 and 3’s as well. If they wanted high buildings they had to supply amenities as well.

  9. I think TOD of the rail network should be done by the council or at least majority lead in a consortium by the council.
    They need to take leadership in the important areas around the stations – this is for the good of Auckland and also allows for more public feedback / ownership / scrutiny.
    It would also give them a simple mission statement – to develop the urban areas of the RTN.
    They don’t have to do that exclusively of course but it could be an indicator of where to focus energy and resources.

    If they don’t want to be active and instead want to be passive and rely / HOPE that the private sector will do as they’d like then change the name from Development Agency to Office.
    It might be semantics but… An agency of change or an office of detached possibility…

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