Every week we read more than we can write about on the blog. To avoid letting good commentary and research fall by the wayside, we’re going to publish weekly excerpts from what we’ve been reading.
Bob Dey, “UP1: The PAUP, the MUL, the RUB, the RPS & the LRP – the what-the?“:
The theory put in place in 2013 was the 70:40 model – the council would aim to get 70% of new development inside the metropolitan limits as they were in 2010, plus areas rezoned since then, but would have the flexibility for up to 40% to be in greenfields outside the old limits. The council would set a 30-year goal for all urban development to be inside these fences, though plan changes & consents for external development would still be possible.
The hearing panel won’t have the economic analysis before it to justify doing away with the concept in its entirety, though there’s been plenty of time to do that job properly since the Productivity Commission had a shot in 2012 at analysing what it deemed a flawed concept.
Critics of the rigid boundary concept had thought the council’s own capacity for growth studies would provide answers, but that source of information has kept changing, been redefined, and information from the newest version is not only still on the way but won’t give the definitive answers showing how the existing boundary has affected costs.
This is the first entry in Dey’s coverage of the Unitary Plan hearings, which is well worth reading. Articles in the series (thus far):
Articles in the series:
UP1: The PAUP, the MUL, the RUB, the RPS & the LRP – the what-the?
UP2: Council tells panel the evidence backs compact city, and new urban boundary will work
UP3: Paper on preferred form an important backgrounder
UP4: Fairgray doesn’t fix on the far horizon, but says million new Aucklanders will fit in
UP5: Rule changes would shorten land supply and discourage new villages
UP6: McDermott argues for better ways than compact city to accommodate growth
Emily Badger, The American decline in driving actually began way earlier than you think, Washington Post:
I mentioned last week that car travel in America appears to have peaked backed in 2004. Since then, “vehicle miles traveled” per person in the U.S. have been falling or flat-lining, prompting a fascinating debate over whether we’re witnessing some fundamental shift in the American relationship to the car, or some economic blip instead.
Timothy J. Garceau, a Ph.D. candidate in geography at the University of Connecticut, and professors Carol Atkinson-Palombo and Norman Garrick offer a different way to think about the answer. In research they presented this week at the annual meeting of the Transportation Research Board, they looked at travel data not at the national level, but by state instead.
Their results further challenge the argument that Americans have merely been driving less of late because of the bad economy: Washington state experienced “peak car travel” all the way back in 1992, and Nevada, Idaho, Kentucky, Oregon, Rhode Island and Virginia all did before the new millennium. By this measure, peak car happened in D.C. in 1996.
Hamish Campbell, “Popular New Zealand Road Names“:
| Rank | Name | Frequency | Length (m) |
|---|---|---|---|
| 1 | Accessway | 2414 | 220,876 |
| 2 | Service Lane | 492 | 54,500 |
| 3 | Roadway | 452 | 335,172 |
| 4 | State Highway 1 | 125 | 2,168,214 |
| 5 | George Street | 74 | 38,105 |
| 6 | Queen Street | 69 | 50,181 |
| 7 | Beach Road | 69 | 103,280 |
| 8 | High Street | 68 | 68,671 |
| 9 | King Street | 66 | 42,302 |
| 10 | Station Road | 66 | 80,138 |
Anna Maria Barry-Jester, “Why the rules of the road aren’t enough to keep people from dying“, Fivethirtyeight:
“The engineer will usually calculate the load a beam must bear and then design it to hold some percentage of higher load, for safety. When building roads, the 85th percentile calculates the speed the engineers hope or intend people will travel, but then it’s used to design a road to meet that speed at a minimum, with a factor of safety allowing for faster travel,” he told me.
In other words, by adding additional “safety” to the road, it is designed to make people comfortable going faster than the engineers’ intended speed. This is known as the interpreted design speed (the speed people actually feel safe traveling), which is often significantly higher than the intended design speed. Think of a subdivision with wide, flat roads. The speed limit may be 25 mph, but you feel utterly comfortable doing 40.
Anne Gibson, “Housing warning: It’s an Ireland repeat“, NZ Herald:
Precisely the same factors that plunged Ireland into its housing crisis last decade are now in play in New Zealand and could spark a big correction, says a leading Auckland fund manager.
Milford Asset Management executive director Brian Gaynor said house prices might come down “10, 15, 20 or even 25 per cent” and he cited the former Celtic Tiger as a warning.
Westpac’s chief economist, Dominick Stephens, shares Gaynor’s concerns, and said the outlook was for a possible 5 per cent adjustment by 2018.
“Our forecast has been for declines of 2 per cent per annum in 2017 and 3 per cent in 2018, so 5 per cent overall,” Stephens said.
“But there’s a wide range of possibilities and a sharper decline is certainly a possibility.”
Ireland’s house prices stabilised in 2007, then started falling until the second quarter of 2010, by which time they had dropped 35 per cent.
Andrew Price, “The Negative Consequences of Car Dependency“, StrongTowns:
I’ve lived in both cities (taking transit and walking everywhere) and suburbs (working in a suburban office campus and driving everywhere.) When I lived in the city, I used to have random encounters with strangers, often daily. These were usually nothing more than simple interruptions. The elderly lady that asks for help at the train station. Overhearing the couple’s conversation behind me on a bus. The homeless man asking for my spare change. These people were rich and poor, old and young. Even though the idea of being forced to interact with strangers sounds undesirable, there’s something very human about feeling that you are part of a living world. I was never the most sociable child, so these random encounters played an important part in developing my social skills and feeling comfortable around strangers.
Living in the suburbs, I have eliminated most of these random encounters.
Jason Burgess, “Mighty Mouse“, Renovate Magazine:
Being domiciled in a space the size of a hotel room might not be everybody’s idea of living, yet with property prices soaring, traffic jams stalling and downtime getting shorter, there are some compelling reasons why astute buyers seeking the convenience of an urban lifestyle are now looking to apodments as their choice of future living.
Think about it – a bigger life does not necessarily mean a bigger house. Technology coupled with transformable furniture makes it possible to trick out a modest sized pad with all the bells and whistles of a manse thrice the size, for a fraction of the price.
Processing...
Bob’s Unitary Plan series goes right up to 8 at the moment with the UP7 talking about Auckland 2040. THAT proved to be an interesting read in itself.
#6 is a good one if you are interested in seeing Bob being not too happy with McDermott and for that matter nor the Unitary Plan Panel being impressed with him either 😛
Phil H if you are reading these then I would highly recommend reading all of Bob’s posts on the Unitary Plan so far. While Bob wrote them before your Whale Oil guest post he does rebut what you wrote over there. Also picking up on the language from the UP Hearings Panel, the members were not expressing much “time” for McDermott style type arguments.
However, the Panel and even Council were taking notes when Burton from Auckland 2040 spoke (UP7 post) was speaking. Taking notes is a good thing by the way
Thanks for the update, Ben – I’ve been slowly getting up to speed on Bob Dey’s reports but obviously still a bit behind.
I took a look at Phil McDermott’s arguments about intensification and congestion last December and found them severely lacking.
See here:
http://greaterakl.wpengine.com/2014/12/16/arguing-for-sprawl-with-strategic-misrepresentations/
http://greaterakl.wpengine.com/2014/12/18/does-intensification-increase-traffic-congestion/
Your welcome Peter 😀
I havent got to Bob’s UP8 Land Release one yet as the Long Term Plan has me snowed under
Will take a look at the links you provided later on when it is not so hot – not that I mind for the Long Weekend
If we’re going to have super-tiny apartments then they need super tiny prices – there needs to be a strategy to stop them just coming in at what is current current ‘entry level’ and then pushing the value of everything else up even further.
Don’t worry Mr ButtWizzard that is not how supply and demand works. Increasing the supply will (pretty much) always reduce the price.
Just imagine what would happen to home prices if 50,000 home appeared in Auckland overnight. Wouldn’t matter if they were 10 bedroom mansions or 50 square-metre micro-apparantments. The price of all other home would fall to compensate for the increased supply.
Depends *where* those 50,000 homes appeared.
If they appeared on the outskirts of Pukekohe, with limited or no transport links.
They’d have no effect, or in fact, may make the existing housing stock much closer, actually go up in price a bit as people see the real value of all those “existing” homes much closer to town.
“or in fact, may make the existing housing stock much closer, actually go up in price a bit as people see the real value of all those “existing” homes much closer to town.”
That’s not how supply and demand works either. How could extra supply on the fringe make houses in town go up more than they would have otherwise? The fringe houses may have little impact on central prices but they can’t cause them to go up.
Oh yes they can Frank,
Simple logic of how real estate values are set will tell you that.
Example:
New 4 bedroom McMansion houses on edge of Puke get built on 600 m2 sections, they sell for $750K each, land cost being a small fraction of that price.
So QV [and others] takes note of the sale price for all those 4 Bedroom McMansions, then applies a upward price on those similar places closer to town with a higher value because they are more proximate but have the same features. Then because the McMansions have gone up in an area they in turn apply upward pressure to all the non-Mcansions nearby.
ergo: close in houses get a bump thanks to those far flung McMansions selling for more than they should.
Then oil drops in price, and those McMansions get a price bump as the transport costs to travel to/from them each to work is now lower, so they are considered more “valuable”.
And so the cycle repeats.
The housing market right now is not normal “supply and demand”, as demand exceeds supply and the market is not meeting the demand – so prices go up and up for any and all reasons.
Any economists care to explain what is wrong with everything Greg N just said?
Hi Greg, Frank
Interesting debate you’re having! Having thought about it (but not for very long) I think you’re both making reasonable, but partial, points.
Frank’s point is pretty straightforward Econ 101 – all else being equal, increasing supply will tend to reduce prices. In the long run, my feeling is that supply-side factors will tend to drive price trends, as big shortfalls (or surpluses) will force people to bid prices up (or allow them to bid low). As an aside, the historical record seems to indicate that markets only deliver a surplus of housing either (a) after a housing bubble collapses or (b) when a city is in long-term decline. Governments, on the other hand, are much more capable of sustaining high rates of building across the economic cycle. But I digress.
Greg’s point focuses more on the demand side – he is, essentially, pointing out that buyers are not fully rational. In economics terms, home buyers base their price expectations on “adaptive expectations” – i.e. they look around at what everyone else is paying and bid accordingly. These “animal spirits” are surprisingly common in complex markets, but they tend to influence prices over the shorter term. In this context, Greg is correct that the construction of McMansions at the fringe can coincide with generally increasing house prices. But he’s incorrect to say that the McMansion construction _causes_ higher prices, as the underlying cause is a bubble mentality on the part of buyers.
Some hobby economists I email have debated the nature of property, here is my take.
It is a positive feedback loop of an increase in demand from some endogenous event combined with restricted supply leading to an increase in price. Which then attracts speculators leading to more demand. Causing prices to rise further and so on. Eventually something will happen and the speculators mood will turn from greed to fear and there will be a big sell off, as speculators desperately try to keep some capital gains. This is the story of countless bubbles from the Tulip craze on.
It is also interesting to change the degree of supply elasticity for this feedback loop.
•Perfectly elastic supply means the response to increased demand is increased quantity supplied and no increase in price. There cannot be a speculative bubble because there is no price rise. Quantity supplied (construction for housing markets) only varies in response to normal economic cycles, there is no secondary positive feedback loop.
•Perfectly inelastic supply means the response to increased demand is no increased in quantity supplied and a big increase in price. This will cause a big speculative bubble. But in the housing market it has no influence on construction because there can be no change.
•Moderately inelastic supply means some increase in quantity supplied but a bigger increase in price.
What happens in the third option for the property market? There might be enough price rises to get a speculative bubble started but there is also an increase in quantity supplied -construction. In later stages of the bubble some of that construction will be related to speculative demand. Not real economic demand – so not Bertaud ‘City as Labour Market’ economic players making the best locational/space choice for their needs. Rather it would be speculators building unneeded apartments on the Cost del Sol or weird estates in the wop wops of Ireland and such like.
In a full scale boom, demand may have risen to such high levels that not only have prices escalated massively but there is also a significant increase in construction unrelated to real economic need. Of course when the bubble bursts those construction levels collapse. There is all sorts of secondary effects -finance companies fail, there is a domino effect on otherwise healthy construction firms. These secondary effects could be so large it actually causes a nationwide economic down turn. So for a while the positive feedback loop is switched to a negative feedback one.
It is the fear of the effect of this on the financial system that means the Reserve Bank has instituted the LVRs and should the property crash still happen there will be huge pressure on the Reserve Bank to save distressed/failing banks because the alternative is a deeper downturn. But that means the finance system has this moral hazard situation where it gets to behave badly by promoting booms so they capitalise greater profits and in the consequent bust they get to socialise the losses.
I think this moderately inelastic model could explain the paradoxical evidence that shows greater variability in construction rates for some supply constrained property markets compared to unconstrained markets. Although despite this variability overall construction rates are always higher in unconstrained property markets.
Also note the other interesting evidence about the UK market is each bust never returns the market to true affordability. It is something like prices boom 100% then bust 30% followed by further boom bust cycles. So creating an upward sloping saw tooth effect.
The only gotcha as far as apartments in NZ go is that banks have stricter criteria on lending. Even if freehold, an apartments land asset is less and therefore the banks will demand a greater deposit than they would on a unit, townhouse or house.
This puts even moderately priced apartments (less than $400k) out of reach of many first home buyers.
This is something my partner and I discovered early on when first home hunting (albeit 12 months ago now). A couple of banks we talked to required (depending on the floor level) between 25 and 40 percent deposit when it came to apartments in the Auckland CBD.
It’s something I am surprised hasn’t been picked up on in the media wrt house pricing. It’s great we’re building more apartments but if the lending criteria means they’ll be unaffordable for the vast majority of younger first home buyers, we’re just creating another property investors wet dream and all the residents of these apartments will be renting.
That apartment is truly beautiful
Great apartment. But it does need at least some furniture. A sofa, chairs and a table in wheels and they would be set.