Last week I started taking a look at publicly-owned golf courses. I argued that they are different from public parks in several important respects. While public parks are freely available to all Aucklanders, golf courses are only open to paying golfers. As a result, we need to treat golf courses differently – not as a tax-funded public good, but as a business that must pay its way.
This week, I will take a look at some of the “opportunity costs” associated with using land for golf courses rather than alternative uses, such as public parks or housing. My central question is this: Do the benefits of using land for golf outweigh the benefits of developing the land for housing? Or is it the other way around?
Let’s start with a look at some broad trends. First, here’s what’s happened to the price of housing over the last two decades: it’s gone up significantly. This is a strong indication that demand for housing (and more intensive urban land uses) is increasing. While predicting the future is difficult, most people expect housing demand (and prices) to continue rising in the future.
Second, here’s a short-term forecast of revenues for Auckland’s 39 golf clubs from a 2013 report on future prospects for golf facilities. According to the report, golf club membership has been declining by around 1.6% a year. Unless something major changes, this trend will continue and put many golf courses under financial pressure:
Effectively, rising demand for housing and falling demand for golf mean that using large amounts of publicly-owned land for golf courses will become increasingly inefficient. Here’s one way of thinking about the benefits of the status quo (to golfers) versus the benefits of redevelopment (to people who otherwise wouldn’t be able to buy or rent homes in the area).
I’m going use Chamberlain Park as a case study, but the same approach could be generalised to other publicly-owned golf courses. Here’s a picture of the course, which occupies 32 hectares in Mount Albert:
According to the local board, Chamberlain Park currently hosts over 50,000 rounds of golf a year. Let’s be generous and call it 55,000 rounds. According to the club’s website, green fees are $30 on weekends. This means that the total annual value of golf rounds played at Chamberlain Park is $1.65 million. In present value terms (i.e. extending this forward 40 years into the future and applying a 6% discount rate), this equates to $26.2 million.
Now, let’s consider alternative uses for the land. Let’s assume that we would develop it for housing and commercial uses, with a substantial amount of land reserved for public parks. We don’t have to look too far to find a good example of this kind of development. It’s exactly what’s happening at Wynyard Quarter, which will have a mix of medium-density residential and commercial buildings, a substantial waterfront park, and a linear park running the length of Daldy St:
The important thing is that if development is master-planned appropriately, it can lead to more housing and better public spaces. That’s certainly happening at Wynyard, but it could also happen in Chamberlain Park if redevelopment enabled better connections between new public parks, the Northwestern cycleway, Western Springs, and Mount Albert in general.
So let’s start by assuming that we would reserve one third of Chamberlain Park – 10 hectares – for new parks and playing fields. That’s the same size as Grey Lynn Park, which attracts 100,000 people to the Grey Lynn Festival on a single Sunday – i.e. twice as many people as Chamberlain Park sees in a year.
The remainder – around 22 hectares – could be developed as new neighbourhoods, possibly along the mid-rise, mixed-use lines of Wynyard Quarter. I’m going to assume, further, that around 25% of that space would be devoted to streets, which is pretty typical of new developments. That means that after providing some sizeable public parks and laying out all the streets, we’d have around 16 hectares that could be built on.
Now, current land values in the Mount Albert area are in the range of $1500 per square metre, or possibly higher. That’s a reasonable estimate of the value that people place on the opportunity to live in the area. That means that the total benefit of redeveloping Chamberlain Park for housing is around $240 million (i.e. $1500/m2*16 ha*10,000m2/ha). These benefits would accrue primarily to the people who end up living in the area, but it could also keep housing prices from rising as rapidly and thus have wider benefits.
In short, the benefits of redeveloping Chamberlain Park – even after leaving aside a substantial area for public parks – are nine times larger than the benefits of the status quo for golfers (i.e. $240m/$26.2m = 9.2). Because demand for housing is rising at the same time that demand for golfing is falling, this figure is likely to increase, not fall.
This doesn’t necessarily mean that we have to redevelop Auckland’s publicly-owned golf courses, but it does raise some questions. First, given the fact that redevelopment is likely to be vastly more beneficial than the status quo, why isn’t it being put forward as an option in the Chamberlain Park consultation?
Second, why isn’t the opportunity cost of using lots of land for golf being recognised the prices charged by golf courses? As we’ve seen, people would place a quite high value on being able to live or work on the land occupied by some golf courses. In principle, that should be factored in to green fees, but in practice it isn’t. In the next instalment, I’ll explore this question further – it turns out that publicly-owned golf courses enjoy a large subsidy from ratepayers.
What do you think about the benefits of alternative options for using golf course land?