An urban development agency for Auckland

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.

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?

Share this