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.
Chris Parker, “Auckland Economic Quarterly March 2015“, Auckland Council Chief Economist Unit:
The price of land is driving high house prices
As Figure 1 shows, it is the price of land that has ballooned relative to incomes, not rents, nor construction costs. Rents as a fraction of income has been largely unchanged, whereas the ratio of section prices to income has doubled since 1998.
As Figure 2 shows, the price of land is highest on the isthmus and south-eastern parts of the North Shore.
High prices are not evidence of the failure of markets or public policy
Very generally, even well-functioning competitive markets can experience extreme price spikes. It can be a market’s ‘call to arms’ for people to invest, innovate, and repurpose resources (in this case land) to meet unanticipated or emerging needs. The economic issue is whether or not there are barriers that prevent a market from making the adaptions that it needs to make to moderate prices.
Joseph Stromberg, “‘Roads were not built for cars’: How cyclists, not drivers, first fought to pave US roads“, Vox:
From our vantage point in 2015, it seems like the dominance of cars was the natural, inevitable way transportation would evolve. But there are some good reasons to believe that may not be the case, Reid says.
One is that private, powered road vehicles came along and failed several times before they finally took off in the early 20th century. In the 1830s and 1860s, in particular, inventors in Britain, the US, and Canada came out with steam-powered carriages, based largely off the technology developed for railroads, as well as electric vehicles.
But these early cars failed for a few different reasons. There were few roads that were smooth or hard enough for them. But more important, Reid says, “There was no push for them. There was no group of people interested in popularizing them.”
Graeme Birkhead, “The New Auckland: A radical rethink“, ArchitectureNow:
Housing crises are cyclical yet there is very little planning, vision or innovation evident from leaders in this field. Successive governments and indeed many developers have responded only when we’re in a crisis, leading to higher costs, fire-fighting and inadequate planning. In short, we’re always playing catch-up.
[…]
We shouldn’t be building state houses or mixed private-public housing developments in the boom time. It is far too expensive for everyone involved. We should be building in the lulls, like in the seven-year lull we’ve just experienced. Planning smoothes out the bumps in the building industry’s cycles, doing away with housing crises and helping to make what we build a little more affordable.
The Australian Government is particularly good at this. In the quiet part of the building cycle they ramp up residential building subsidies to stimulate housing construction so not only are there houses being built, the prices are cheaper and the boom-bust impact is mitigated a little.
Dita De Boni, “Kiwis hoodwinked over state housing“, NZ Herald:
A more honest response would be the Government isn’t worried yet – it needs to find a convenient non-profit cover for the inevitable transfer of public housing stock to private concerns.
If that sounds harsh, consider how Bill English and John Key have described the performance of Housing New Zealand over successive years. As far back as 2013, Mr English was describing it as performing poorly, and saying the nationalised housing industry was a “disgrace”.
Shortly thereafter, Housing New Zealand beat six Australian social housing providers to scoop a major prize for “leading innovation”. No matter. What was said could not be unsaid, and changes were afoot.
@BicycleAdiago, “Not a parody but an actual @VicRoads advert for the introduction of Victoria’s helmet laws in 1990. HT @AusCycle”:
John Lavey, “Street trees, and streets without trees“, Community Builders:
Dan Burden eloquently described the value of street trees this way:
“Indeed, street trees so well establish natural and comfortable urban life it is unlikely we will ever see any advertisement for any marketed urban product, including cars, to be featured without street trees making the ultimate dominant, bold visual statement about place.”
[…]
What if our street trees WERE gone? What a better way to see the framing of public streets than to remove the very objects – trees – that enhance the space. So I put together a few GIFs that illustrate the before & after. Seeing them, I hope, will help you renew your appreciation for our arboreal friends.
Paul Krugman, “Charlatans, cranks and cooling“, New York Times: A nice discussion of how omitted variable bias can lead to failures in policy analysis:
The rise of the US sunbelt can be understood largely as a response to the emergence of widespread air conditioning, which made places that are warm in the winter attractive despite humid, muggy summers. […]
Now, these states have several things in common besides high temperatures. They’re all very conservative. And all of them that were states before the Civil War were slave states. These commonalities are, of course, all interrelated. Hot states had slaves because they were suitable for planation agriculture; and today’s red states are, pretty much, the slave states of 150 years ago.
Now, all of this raises some interesting problems for the assessment of economic policy. Because they’re politically conservative, hot states tend to have low minimum wages and low taxes on rich people. And someone who is careless, cynical, or both, could easily take the faster growth of these states as evidence that conservative economic policies work. That is, charlatans and cranks can, all too easily, end up claiming credit for economic and demographic trends that are actually the result of air conditioning.
Nine to Noon, “Why some of our cities and towns are so ugly“, Radio New Zealand National:
Many New Zealand cities and towns are spartan, ugly and makeshift – designed with little regard to the natural world around them, urban designer Garth Falconer says. […]
Mr Falconer said Europeans came with ideas of how to design towns and cities based on what they already knew. This included the Protestant colonies of 16th century Northern Ireland and penal settlements of 18th century Australia.
But New Zealand’s terrain, ecology and climate conspired to frustrate the end results…
New Zealand Herald, “Editorial: Tunnel vision ignores real traffic needs“:
The truth is, the existing harbour bridge is not a bottleneck. Traffic generally flows over the bridge more smoothly than it does on the motorways north and south. The moveable barrier installed on the bridge some time ago has added a lane for commuter traffic at peak hours, the construction of the northern busway has removed some cars from the road, and the Victoria Park tunnel has doubled the capacity of the motorway at its previous worst choking point. All these developments have taken pressure off the bridge, as will the Waterview tunnel in a year or two.
Meanwhile, the Government remains unconvinced that a rail tunnel under the central city would be worth the cost when compared with the roading projects competing for the funds it is allocating for Auckland transport.
The article about government building in the slow times rather than the boom times is spot on. If building during 2007-2013 had been 10,000 homes/apartments per year in Auckland rather than the piddly rate that actually occurred we would a) not have half the housing shortage that we currently have, and b) a lot of construction jobs etc would not have been lost to Australia etc meaning our current rate of building and potentially building costs would be higher and lower respectfully.
The last downturn in house building was caused by a lack of loans and access to capital funds by private developers from second and third tier lenders – not by the government.
But you can’t work around the fact that this sort of policy requires the Governments (local or central) to be donkey deep in the building and owning of these homes/apartments, until at least the next market upturn.
Considering *THIS* governments expressed desire is to get 100% out of the house owning or building market as soon as it can find a willing taker, the chance of this happening is zero.
Chris Parker puts his finger on the real problem with property in Auckland – it is the rising price of land, not building costs, not rents. Yet highlighted is the statement that “this is not evidence of failure of markets or public policy”. Well I would agree with the first – the market is working fine. Whether it is a public policy failure is a point of view. He goes on to say that high prices can lead people to invest (yes but in this case it exacerbates rather than mitigates the problem) and to innovate or repurpose – by which I suppose he means to infill or build up. So I think what he is saying is that the public policy that is driving high prices in land is not a public policy failure but is justified because it is driving “innovation” in the use of existing land. In other words very high property prices are justified by the realisation of a more compact city. I would disagree. I believe there are better ways of encouraging efficient cities than artificially raising land prices. However I can understand that the current owners of the land may see a greater benefit from the current policy.
I would expect land prices to be relatively high near the city centre under any policy regime. (Except, perhaps, one that prohibited operating businesses there.) Under those conditions, there will always be an incentive and a need to develop that land more intensively. If you read the entire article, Parker makes that point pretty clearly.
And as far as the “land prices are too high” point, does anyone believe that we’d be better off if Auckland land prices actually fell? A 20-30% drop in Auckland land prices would wipe out the assets of many Auckland households and potentially collapse the NZ finance sector. A bit of intensification to get rents per hectare up to a sustainable level seems like a much more reasonable option.
Peter, of course your first point is correct. That is the market working as it should. As for the second point, it reminds me of the story of the Yorkshire farmer who was asked by a traveller “how do you get from here to London” to which he is supposed to have replied “E if I wert goin to Lundn, I wouldn start from ere”. (there are many variations) The policy of constraining land availability has driven up prices, and you are quite right that any attempt to now rectify the situation is going to cause pain. That is, however, not a sufficient reason to support the policy. But it is a reason to take care in dismantling it. Realising what the problem is, is the first step. If we can get agreement on that, we can start a more useful dialogue.
Demand for greenfield land is artificially inflated by a range of other policies. Two in particular: (1) we regulate to make it difficult to develop land more intensively within desirable parts of the city, and (2) we keep building and expanding roads without charging the true cost on to users / developers. The first policy means that many people can’t find housing in their “first-best” location and must look further out instead. The second policy provides a subsidy for greenfield subdivisions – people buying on the fringe aren’t paying the full cost of the roads (and water mains, etc) they’re using.
The MUL gets a lot of attention because it’s a simple policy to understand – a line on a map. Given the serious issues we’ve got with other urban policies, I think that attention has been misplaced.
If the MUL is primarily responsible for inflated land prices, and you seem to be agreeing that it is, then I think the attention is warranted. What I think you are saying is that without them, there would be pressure to develop rural land that is artificially under-priced because of a range of other policies. I don’t disagree with that, but which is worse? I suggest that we look at these ‘other policies’. Of the two you quote, I agree regulations limiting what you can do with land within the city are just as bad as regulations that prevent you developing outside the MUL – both restrict supply and drive up prices. You and I agree, so lets get rid of both. Subsidies for infrastructure are often quoted as a justification for an MUL, but there are better ways of addressing them. The best way would be to charge properly for roads and other infrastructure, but there are other ‘second best’ options that would give better outcomes than an MUL, as well as compromise options such as allowing satellite developments outside the MUL provided the developer pays for the infrastructure – this may be a way of gradually easing the effect of the limit so that land prices do not crash (your concern expressed earlier).
“does anyone believe that we’d be better off if Auckland land prices actually fell?”
Anyone who doesn’t own property, I’d have thought.
+1
Everyone in Generation Rent too.
Why is “cooling the price rises by cooling demand” never considered here? (eg no sales to foreigners)
Too many home owners trying to keep their rapidly appreciating assets rapidly appreciating?
“Too many home owners trying to keep their rapidly appreciating assets rapidly appreciating?”
How do they do that?
Keeping demand high by selling to foreigners would seem to be the easiest wouldn’t it?
What I’ve observed is that many people confuse luck (i.e. owning a house in the right place at the right time) with skill.
As the always on point Rem Koolhaas said: ‘Architecture has died and been replaced by air conditioning.’
GenZ: I didn’t see anything on the Q&A item that would change the minds of complacent nimbys. We need a horror story – a city that first stagnated and then declined, primarily due to misguided planning regulations, in spite of a multitude of advantages.
Interesting question! Serious urban failure (e.g. in the US rust belt and the north of England) has generally happened a result of broader economic trends. Containerisation, deindustrialisation, etc. Policy has played a role, but not necessarily a major one.
The main cost of poor planning policies seems to be to constrain the economic and demographic growth of successful cities. These cities still grow, but they could do much better. I’ve highlighted this previously on the blog: http://greaterakl.wpengine.com/2014/09/09/better-cities-mean-a-wealthier-new-zealand/
Unfortunately, most people have a hard time grasping opportunity costs…
You might add artificially high wages to your list of causes. One of the causes of industrial decline was that wages in those areas were kept above market levels by union action that served the interests of incumbent members (until their factory closed). Few new businesses opened in those areas and the existing ones had a strong incentive to move jobs to a different jurisdiction. The move back to the old industrial areas shows they would have been viable at a lower real wage. But instead they had a generation of unemployment.
That’s not what looks likes is happening, what we’re getting now is Vancouverism; a highrise city centre, then a ring of low rise insanely expensive and exorbitantly renovated dormitory burbs, and at the end of the ever wider motorways; edge city ticky-tacky lower value mall focused sprawl.
So a 3-layered cake rather than the mullet city I’ve described previously, or perhaps 4 if the lifestyle blocks on the outer fringe are able to resist invasion by infill.
A vibrant city centre with a new thing for NZ; a lot of people living in apartments, as that’s the only available space for additional and affordable dwellings for those looking for city life… The NIMBY’s kids are not going to get the lifestyle their parents like to believe they’re are fighting for.
So long commutes and permanent traffic congestion for the Flat Bushers and Millwaterites, and none for the city dwellers, something in between for the new Transit connected Metro Centres of Albany, New Lynn, and Manukau City. Maybe GI, Panmure, Onehunga, even too if we get the zoning and development funding right….something for everyone, maybe?
After all: ‘form follows funding’.
The truth is, “the existing harbour bridge” (is there a non-existing one?) is a bottleneck. That’s why traffic backs up on the approaches to it. Sure, the traffic *on* the bridge runs smoothly but that’s because the back-ups meter traffic to the capacity of the bridge. Back-ups start where capacity is reduced. The bridge itself may have the same capacity as the highways approaching it (though entrance ramps also degrade capacity), but even it there are the same number of lanes there is a *perceived* reduction because drivers become more cautious when entering a bridge or tunnel. It’s reflex reaction. The solution may be to have one more lane each way on the bridge than the approaching roads. But that volume of traffic will eventually hit a capacity constraint, however minor, and start backing up again.
It is kind of stupid when people argue the bridge isn’t the bottleneck. The capacity of the roads either side have always been designed to have slightly lower capacity than the bridge on purpose. But if the bridge had more lanes the roads either side would have more as well. That would have been the design condition. The bridge is the expensive bit an the rest was designed to support what was available there. As for the crap about the moveable barrier adding capacity WTF? We had tidal lanes before the barrier went in. Must have been written by someone new to Auckland.
So the last census had the City Centre pop at 28,000, http://greaterakl.wpengine.com/2014/12/11/the-real-surprise-from-the-census-data-part-2/
How high is it likely to go? There are a lot of apartments being build again now but the land area is seriously restricted; can it be 100k? if so in a city of 2mil that’ll only be 5%
Auckland’s form seems destined to be forever defined by the motorway noose: http://greaterakl.wpengine.com/2012/08/06/severance-city/
I disagree. The crl and especially the trams will see Newton / Mount Eden become an extension of the city centre. All else that is needed is some humanisation of upper queen and symonds sts. The gentrification of krd and the construction in the top half of the golden mile are a testament to the expansive forces at work in the top (southern end) of the city centre.
It will be interesting to see whether the Manukau road trams and the university’s Newmarket campus can bring Grafton and Newmarket kicking and screaming into the city centre’s fold.
Not sure what you disagree with but if you are saying that the inner suburbs will grow population then yes that’s true, well at least in as much as the planning regs allow them to. That’s the point of the issue.
I think he is disagreeing that the motorway is a noose. I’m inclined to agree, I think the right transport and street treatments can overcome a lot of the barrier. Personally I already think of the true city centre as being roughly inside St Marys Bay, Arch Hill, Eden Terrace, Newmarket and St Georges Bay Rd.
And of course if land prices keep creeping up in the centre eventually we’ll see building over the motorway corridor itself.
“eventually we’ll see building over the motorway corridor itself”
Does anyone know how practical/expensive that would be?
Yes that’s true except where the motorway noose also marks the landuse boundary, like in Freemans Bay. Those little pensioner flats on the western side of the m’way [Howe St] should be able to build up too with proper apartment buuldings, like at the top of the street, but the Freemans Bay NIMBYs attacked that idea in the UP consultation process. Whinged about parking and driving.
Won’t the CRL push the CBD out of the “noose” anyway? That is the direction the CBD is being incentivised to expand right? Newton, Eden terrace…
CRL is now much more positive for the Mt Eden fringe than Newton: http://greaterakl.wpengine.com/2014/08/01/at-dumps-newton-station-from-the-crl/
But Light Rail has two routes through Newton and there are opportunities for up zoning there, although the Volcanic Cone viewshafts quite literally keep a lid on it. See here for likely routes:
http://greaterakl.wpengine.com/2015/02/24/new-details-on-ats-light-rail-plans/
Does anyway have stats in what the speed is for cars, or buses, or trucks accross the Harbour bridge?
All should be quite easy to capture with GPS and Cameras. Would help with debates about how much of the hold up is on the bridge versus on the other sides
I found out a couple of years ago that property taxes in the Canadian province of Ontario (big city or small town) are roughly four times higher than rates in Auckland.
The simplest example was my sister’s house in Ottawa. The rates she pays are double what I pay in Auckland. The price of her house is half the price of mine. This is despite mortgage interest rates of 2.6% / annum. As this pattern was fairly consistent everywhere I looked, I began to see that these property taxes soaked up income that could otherwise feed bank mortgages…. Driving up house prices.
Thinking along that line, it seemed to me I would far rather pay much higher rates (funding infrastructure and services) than post the same money to a bank… and receive essentially nothing in return.
I should not that priory taxes there are used to pay for public schools, with municipalities feeding a share of the money up to the provincial government who, in turn, fund and operate the schools. Whereas we in NZ fund schools through income tax. Note also that Ontario parents don’t pay school fees and the $850+ for a school uniform for college doesn’t exist in public schools. No one wears uniforms there other than a handful of private schools.
This is all relucent to disposable incomes.
On the face of it, if we want lower land and house prices, increasing rates hugely would certainly do the trick. Plus we would actually have money to build stuff we need.
Politically acceptable? No… But that would be because it would actually work.