Arthur Grimes, the former chair of the Reserve Bank board, caused a stir with his proposal to crash Auckland house prices by 40% by building lots more housing:

My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house…

Research at Motu (accessible from www.motu.org.nz, and published in international scholarly journals) shows that (given current interest rates and incomes) a 1% increase in the number of dwellings relative to the population leads to a reduction in house prices of around 2.2%. Thus a 40% fall in house prices means that the number of dwellings in Auckland would have to expand by around 18% relative to the current dwelling stock. On top of that, the stock has to increase to reflect population growth. So with, 2% population growth per annum, the stock of dwellings in Auckland would have to increase by roughly 30% if prices were to fall by 40% over the next 6 years.

There are currently around 500,000 dwellings in Auckland. A 30% increase in dwelling numbers over 6 years translates into an extra 150,000 houses over that time – i.e. 25,000 extra houses per year for each of the next 6 years. This estimate contrasts with much smaller (and nonsensical) estimates of housing shortages that are often quoted. The reason is that those smaller estimates (e.g. 10,000 extra houses) would just leave prices where they are!

Now, I’m not quite as confident that the spillovers from a large drop in housing prices could be contained without significant effects on financial stability or the real economy. And there are definitely many challenges to technical feasibility, including zoning, infrastructure capacity, and availability of builders. But I fully agree with Arthur’s framework for thinking through supply and price dynamics.

It’s a welcome break from much of the usual commentary about the supply and demand balance in Auckland’s housing market. For example, it’s common to hear statements like, “Auckland’s population grew 22% between the 2001 and 2013 Censuses, while the number of dwellings in the city increased by 19%. Therefore we’re only 3% short.”

I’d describe this as the “quantity surveying” approach to market analysis – i.e. count up the number of people, count up the number of homes, and compare the difference. It’s not good economics, as it completely fails to consider:

  1. Desired outcomes from the housing market: As Arthur observes, an appropriate goal is for young people and low-income families to be able to access the housing market. We’re trying to achieve lower prices, not a certain ratio of dwellings to people.
  2. Underlying relationships between supply, demand, and prices: As Arthur points out, in order for prices to fall, the housing stock must be rising faster than population. Exactly how much faster depends upon the degree to which there is pent-up demand for housing that hasn’t been met in the past.

With that in mind, let’s take a closer look at Arthur’s figures. He argues that:

the stock of dwellings in Auckland would have to increase by roughly 30% if prices were to fall by 40% over the next 6 years… [which] translates into an extra 150,000 houses over that time – i.e. 25,000 extra houses per year for each of the next 6 years.

Why is an additional 30% increase in dwellings needed when Auckland’s population has only grown by around 30% over the last 15 years? Doesn’t that seem a bit too large?

From a quantity surveying perspective it does, but from an economic perspective, it’s totally sensible. To see why, we need to think about what rising housing prices mean. If the supply of a good – housing in this case – is constrained, prices must rise until some potential buyers give up and go elsewhere. In the Auckland housing market, that could mean:

  • Moving elsewhere in New Zealand – surely a factor behind recent price rises in Hamilton, Tauranga, and beyond
  • Moving overseas – a total loss of that person’s capabilities to the NZ economy
  • Staying in Auckland and living in overcrowded or unsafe housing – which disadvantages them and costs the public health system and social agencies
  • Living in a car or on the streets – it’s frankly appalling that I even have to mention this.

The fact that Auckland’s prices have been rising more rapidly than prices in the rest of the country (which are affected by the same bank lending conditions and macroeconomic trends as Auckland) is an indication that price-driven rationing is probably occurring. There is likely to be a significant amount of pent-up demand for Auckland housing – and if we figured out how to meet it, the city would get bigger. (Leading to, among other things, increased agglomeration economies.)

Finally, it’s worth discussing Arthur’s thoughts about where new housing should be constructed. He takes the SFBARF view: build absolutely everything everywhere:

So how can we get these extra houses and where can they go? Some people favour intensification and some favour expansion of the city’s footprint. The size of the task means that both are required.

Auckland is lucky that it has plenty of farmland around it and – contrary to popular myth – farmland is almost worthless in farming uses compared with residential use. Expansion is therefore required, but with a proviso. A change in the zoning of rural land to residential gives the existing landowner a massive uplift in value – i.e. a multi-million dollar gift from the community. To my mind, this value should accrue to the community that grants the zoning change. The Public Works Act could conceivably be used (or changed) to enable Council to buy rural land at a premium (say 50%) above the rural land value and then all extra value uplift would accrue to the Council to be used for infrastructure and services for the enlarged community.

Auckland also has plenty of opportunities for intensification in areas where developers would wish to intensify and where people wish to live. For instance, Tamaki Drive is ready made for high-rise apartments where tens of thousands of people would no doubt wish to purchase apartments. Of course climate change may make development on Tamaki Drive a risk, but a few blocks back from the sea – on the ridges overlooking the harbour – would work just as well. Lift the restrictions on the heights of new developments, and I expect that we would see an utter transformation in the intensity of housing from Orakei through to Glendowie.

Why can’t we do it with sprawl alone? There are two answers. The technical answer, which we’ve extensively covered on the blog in the past, is that new infrastructure to greenfield areas is expensive and time-consuming to develop. The time lag to intensify sites that are already served with infrastructure can be smaller, provided that consenting is straightforward.

However, the economic answer is, to my mind, even more important. Research into the determinants of property prices in Auckland consistently finds that proximity to the coast and proximity to the centre are two of the most important attributes for buyers. People value the amenities that come with coastal living – that’s a significant part of the attraction of being in Auckland – and they value the consumer amenities and employment accessibility that are concentrated in the centre.

A sprawl-only plan may work from a quantity surveying perspective – it would raise the ratio of dwellings to people – but it would mean growing away from the coast and away from the centre. The next swathes of farmland to be developed – east of Flat Bush, west of Orewa, and north of Kumeu – are all a long way inland.

This will work for some people, but for many it will miss the point of living in Auckland. If we are to meet growing demand, we will also have to think hard about how new residents will access to the city’s man-made and natural amenities.

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86 comments

  1. Would the development market ever deliver such a supply shock? It seems so much not in their best interests to do so.

    1. I wouldn’t think so Brian. In fact I’d question their ability to supply stock at a price 40% below current levels given the cost to build?

      1. Not necessary to supply new a rate 40% below current prices. Second hand things always tend to cost less than new.

          1. Except where you are talking property in a constrained market. But I am talking about liberalising the market. In Venezuela cars appreciate in value, apparently.

    2. Because people don’t act in the best interests of themselves as a group in market situations.

      Providing there’s enough players in the market (ie not an oligopoly), they will undercut each other to gain market share, bringing down prices. If you don’t, you’ll get undercut and loose market share.

      It’s the same rational behind global warming. No one wants sea level rise, but they also know that reducing their own footprint is such a meager effort and doing so would provide no benefit to them (as everyone else would still pollute).

  2. “f the supply of a good – housing in this case – is constrained, prices must rise until some potential buyers give up and go elsewhere. ” – this is not an absolute truth. It only applies when there are no price controls (and if there are, you see queuing instead)

    I’d like to add another point – rent to house price ratios. Auckland still has relatively affordable rents on a global sense. Our housing is insanely expensive. As such, the “living in a car or on streets” outcome needs to be carefully examined. These people likely rented in the past, and still rent today; house prices (given our odd ratios) are likely irrelevant.

    An example – I know 2 people who are landlords. Since 2011, both have increased their rents by approximately 20-25%. Their house prices, however, have probably doubled in that time.

    So, perhaps the solution isn’t JUST to reduce house prices, but to somehow enhance renting – it’s already cheap, let’s add in things like pets and long term stability

    1. I took a lease on a place in Devonport three months ago and I’ve been told their selling now. I move out on the weekend with nowhere to go except back to my Mum’s place. I dispute that renting is cheap. I’m prepared to pay between a quarter and a third of my income on housing at this point and I seem unable to find a suitable place. I really don’t see a way out of this problem at the moment.

      1. If you have a fixed term tenancy they can’t kick you out. Periodic tenancy they can in line with the terms of the lease.

        When working on conveyancing files, landlords often just tell tenants they have to move because the house is being sold. But the Residential Tenancies Act is clear that the house has to be sold subject to the fixed term lease – just like commercial property.

        The law isn’t being followed here and it is putting tenants in a bad situation. There needs to be more information out about tenant rights. The law is actually not too bad at protecting tenants with fixed term tenancies.

  3. “Now, I’m not quite as confident that the spillovers from a large drop in housing prices could be contained without significant effects on financial stability or the real economy.”

    Regarding financial stability – that has been checked by the RB but is a debatable point that I suppose.

    Perhaps you are assuming effects on the real economy via financial instability, but in case you arent – is there any evidence that a positive supply shock can cause a recession (assuming the monetary authorities do their job and keep inflation on target)?

    I think people (e.g. the PM) have been looking at the proposed price change without looking at the proposed cause of the price change (in this case a supply response). Sure a reduction in housing demand leading to 40% price drops could cause a recession (well actually the recession cause would probably be something else in such a case and the price drop would only be correlated with, and augment the recessionary effects). But a positive supply shock leading to a recession? Did the US go into recession after one of the biggest positive supply shocks we have seen in recent times – that of oil? No.

    Regarding the rest of your post of course we need to build up and out. Unfortunately the UP does not go any where near far enough, but it will be interesting to see how far it does go.

  4. Nothing will change overnight. All the will in the world will not suddenly make houses appear. If anyone is seriously interested in at least plateauing Auckland prices then two things must happen immediately. No passport = no buy. Second is to have the IRD openly share information with the Chinese government. If these two things happened prices would at least level out immediately. Also the number of empty homes would fall quickly meaning more rental or purchasable stock available. And before anyone gets excited, they need to have a good look at cause and effect, and disgard government contrived ‘stats’, which do not tell the true picture.

    1. Houses wont suddenly appear, but if market expectations changed to the expectation of a positive supply shock, that would be reflected in prices immediately.

  5. 33000+ ghost houses in Auckland according to this mornings Herald. On top of all the other problems in housing something is very wrong with that picture.

    And in the short term thinking, corner cutting rush to whack up any kind of dwelling up anywhere to save this governments bacon, short term that is, I strongly fear slums will arise!

    1. That’s around 6 – 7 % of the housing stock, which is nothing unusual, this is pretty standard across the country and also across previous censuses in Auckland. The census data includes any house that is unoccupied on the night of the census including people who are away on holiday, if there was a census in early March this year it would have been empty as we were away on holiday.

      1. Nothing to see here is straight out if the Nick Smith Big Boys Christmas Edition Excuse Book. http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11676319, there is more going on than holidays and in between tenants as Chris Darby points out! And given NZs population is about equivalent to Sydneys our ghost houses in this country are more than double that one city. Of course maybe twice the number were simply out for dinner that night in Hanoi!

        1. There may well have been a ghost house crisis develop since 2013, but this article certainly doesn’t show any proof of this, unless anecdotal evidence from councilors is now considered proof. All it does is quote an alarming sounding figure from the 2013 census that matches up with what it was like in Auckland in the 2001 and 2006 censuses, before the current housing crisis, and also with similar percentages to other urban areas in NZ.

          Your comparison between Sydney (an urban area) and NZ (a country) is ridiculous. There is likely to be a much higher proportion on baches in NZ than there are in Sydney.

          1. Simply because you are not home on census night does not mean you cease to exist. Your address is revisited until they gather your information otherwise census information would be very inaccurate and pointless. Therefore simply because a person is absent does not mean that home is automatically deemed a ghost house.

          2. Waspman – the definition of an unoccupied dwelling includes houses where the residents are away:

            http://www.stats.govt.nz/methods/classifications-and-standards/classification-related-stats-standards/dwelling-occupancy-status/definition.aspx

            While the herald uses the term empty and vacant in the text in the summary table they clearly state that the 33,360 are unoccupied. This lines up with the percentages used by John, who was quoted in this article, in this post from last year, in this post he uses unoccupied dwellings.

            http://greaterakl.wpengine.com/2015/05/28/are-vacant-homes-adding-to-aucklands-housing-shortage/

          1. No, but I can imagine what it would be like! These comparisons can be heavily impacted by the drawing of the urban boundaries, for example Auckland includes areas that are very popular for holiday homes, I’m not sure whether Sydney and Melbourne’s Omaha equivalents would be inside or outside the boundary used for these calculations.

        2. One would expect Auckland to have more ‘ghost houses’ than Sydney or Melbourne as many of our holiday home suburbs are within the city limits. According to stats NZ the percentage of unoccupied Auckland dwellings dropped between last two censuses.

          Don’t believe anything in the Herald when the same ‘reporter’ states “…81 Sarsfield St, which is thought to be worth about $15 million.” less than two weeks after stating that 81 Sarsfield “…is probably worth at least $6 million now.”

  6. Funny how nobody focuses on the causes of the housing crisis. A regional Council that stopped sprawl (as far as I can tell it is the only thing the ARC ever achieved) and a central government that is happy to have 70,000 immigrants each year (presumably as most will vote National).

          1. Patrick I don’t think I have ever said I like the current density limits. But I am pragmatic and the realpolitik is you are not going to change densities anytime soon. The choice we have had is urban limits with density restrictions or no urban limits with density restrictions. Removal of densities has never made it past a few bloggers comments. So the choice is sprawl or high prices- take your pick.

          2. Patrick perhaps the sprawl model has worked so well we could use it to get a intensification. I propose a new rule that as soon as your house is 100 years old you should be allowed to knock it down and build 12m high with no yard requirements or daylight controls. That would allow intensification to spread the same way the city originally grew.

        1. Yes that is the smoking gun, but the thing is the TAs were supposed to update their plans to allow for proper intensification. Didnt happen.

      1. This council is adding 33% more sprawl than ever before, but has halved the sprawl of Auckland City. It plans to increase overall regional sprawl rate and inhibit urban growth.

        Consequently we have people living in cars and massive sprawl.

  7. Peter, I imagine you and Arthur have a much better grasp of economics that my 6th form level! However, I would have thought that house prices wouldn’t necessarily have to be tied just to housing supply and population growth. I would have thought it would just be simply the number of people wanting to buy a house and the availability.

    While population growth will certainly assist, I think the rapidly rising prices in the last few years have further fueled demand and investors and speculators see a way of making quick money and first home buyers panic, this in my mind has pushed prices much further than just population growth. Therefore I can see prices falling simply as a result of it simply becoming too un-affordable for first home buyers, with speculators then loosing interest and trying to cash in on their capital gains as the market turns. A wise investor would have already sold their rental by now while the demand is still hot and it’s easy to sell.

    1. Although you addressed your comment to Peter will offer my 2 cents. Part of the problem investors face is a lack of alternative places to put their savings. Property enjoys a favourable status where you can get gains that are tax free so long as you keep it a while. By contrast term deposits are taxed on the nominal return so if you are getting 3% return but losing 1% in real terms to inflation you still get taxed on the 3%. Shares require a leap of faith that the insiders wont rip you off and you will be able to sell them. Housing holds real value even if the price crashes. It is still one house and you can put a family member into it regardless of what someone else is prepared to pay for it.

      1. Agree regarding the issue with bank deposits being taxed on the nominal return, it’s not such a big issue at the moment as inflation is very low, but it has been even in the recent past. Also you are right regarding a property always having a real value even in times of significant economic turmoil. I do think however current prices are being held up by speculation and panic and I can see if either of those legs from the stool are removed it could easily fall over.

  8. It would be interesting to interrogate the comment “farmland is almost worthless”. While i can understand the statement at a certain level, it does scare me a bit that we should treat farmland in such a dismissive way. It strikes me as the kind of approach we might regret in a few decades time for reasons to do with food security and environmental well-being.

    In the AKL Conversation where Arthur initially made his headline grabbing comments, there were some other interesting points made by the other speakers that have not received as much attention. Helen O’Sullivan of Ockham Residential made the point that the best thing about allowing for increased density is that you protect the land value of existing properties while enabling a reduction in the average house prices through more people living on the same amount of land. Another point made by Carlos Chambers of Generation Zero is that the rights of renters needs to be enhanced to the point where renting is an option not just for those who can’t afford to buy but rather choose not to, instead investing their wealth in more entrepreneurial endeavours.

    On the topic of government or council helping things along with respect to higher-density living… It could be interesting to see the government come up with some open sourced designs for townhouses and apartments of varying (higher) densities. They could focus on affordability, power efficiency, healthy living, with enough combinations to ensure some variability. Councils could pre-approve the fundamental designs, streamlining consenting and reducing the burden on Council authorities. Housing New Zealand could build the first examples to prove the concept and also to the public that affordable higher-density living is an attractive option. From there hopefully third-parties would run with the designs in privately run developments. HNZ could even bulk buy building materials (like a Pharmac for building materials) which construction companies could on-purchase at a better rate otherwise achieved had they bought piecemeal as developments came and went.

    1. Matthew, good comment. All farmland is not by any means equal. And prime horticultural land close to market (ie the nation’s biggest city) is immensely valueable and largely irreplaceable. A value that will not be expressed in land price when that neighbouring city is unable to densify through restrictive regulation. This is a market failure with many unfortunate consequences.

      It would be a huge tradegy to lose the great food basket of southern AKL to sprawl. Clearly the best corrective to wonky land values is to open urban land to higher value use, which will help correct bare land value to reflect its true output, and not price it to windfall speculative rates.

    2. “farmland is almost worthless in farming uses compared with residential use” was the quote (not that farmland is worthless), and it is valid. Typically a factor of 10 applies. If the returns from farming/horticulture were to massively increase you may be justified in claiming that farmland is valuable but I am guessing that most people don’t want a massive increase in their basic food prices. They want rock-bottom prices but state that farmland is very valuable. Cognitive dissonance.

    3. The topic of open source designs is an interesting one, but comes with issues. Auckland has variable geology with variable topography, and once you move away from simple structures (eg two storey houses built to NZS 3604) there is a level of engineering design required to make sure that it will perform suitably due to all anticipated loading. There are issues around having a standard design which could be a combination of over design and under design (both can exist for the same structure even though it is counter intuitive). Really an open source design may help to reduce the architectural component, but site specific design will still be required.

  9. “Auckland is lucky that it has plenty of farmland around it and – contrary to popular myth – farmland is almost worthless in farming uses compared with residential use. Expansion is therefore required, but with a proviso. A change in the zoning of rural land to residential gives the existing landowner a massive uplift in value – i.e. a multi-million dollar gift from the community. To my mind, this value should accrue to the community that grants the zoning change. The Public Works Act could conceivably be used (or changed) to enable Council to buy rural land at a premium (say 50%) above the rural land value and then all extra value uplift would accrue to the Council to be used for infrastructure and services for the enlarged community.”
    THIS.

    If the council can gain (as often occurs overseas) from rezoning then that would go a long way towards paying for infrastructure (and would discourage land-banking). At the moment all the gain goes to the land-banker. They still wouldn’t lose out as such but they wouldn’t get ridiculous levels of profit out of it either.

    1. Generally agree, although I think if we are going down the line of socialising the gain from ‘stroke of the pen’ enhancements to value, we should also be compensating for loss of value in these sorts of situations, such as building a motorway nearby.

      1. Slightly different as a motorway built nearby doesn’t change the zoning for a specific property so all in all that property would remain the same value (it might actually increase in value if access to the motorway is close by/it reduces congestion on local roads in the area)

        1. Agree, its certainly not an apples with apples comparison. It was more a general point that if we are going to socialise gains we should really socialise losses as well, otherwise the market would be distorted.

    2. If you dont restrict supply then there wont be a gain. That should be the target. Price increases due to zone changes implies zoning restrictions are binding.

    3. I don’t understand why land banking can’t be dealt with through rates. Simple set a timetable for development to start, and if not meet then rates will be set at the highest possible configuration of that land if it was fully developed. It has the benefit encouraging developments to begin, reduce land banking, and where land banking does occur increase the income that the council has to use.

      1. Firstly, rates already apply to land value. Secondly how are you going to determine what land is being banked? There are many residential sections across Auckland that could be sub-divided. Do you propose to tax the ‘land banked’ back yard of all of these properties? What about the suitability of the land to be built on eg access and slope?

        1. The council opens up areas that may be developed as part of their planning. At that stage the land should be given a time frame for development, after which whatever would be its highest value is then applied for rating purposes, until proven otherwise assume the maximum density that is possible under the current planning rules (the purpose is to push owners to develop or sell to someone who will develop).
          If there are reasons that the land cannot be developed in the set timeframe, say insufficient contractors available to carry out the subdivision infrastructure work, then the owner should be able to request a delay in increasing the rates. This prevents unfairly persecuting those that are trying to make the system work.

          1. One of Arthur Grimes points is that rates should be based on Land value rather than improved value. A LV rating system would be cheaper to administer; no valuation required just zoning and land area.It would also incentivise development.

  10. Why can’t we do it with sprawl alone? There are two answers. The technical answer, which we’ve extensively covered on the blog in the past, is that new infrastructure to greenfield areas is expensive and time-consuming to develop.

    It needs to be mentioned, the reason homes are being constructed so slowly in Auckland is that we are doing it by sprawl alone.

    The PAUP is set to create an oversupply of sprawl. This sprawl is mostly to be built no where near Auckland. Len Brown has created an environment where sprawl is the only option and, as shown in the latest development update, we are sprawling at obscene rates.

    1. The time lag to intensify sites that are already served with infrastructure can be smaller, provided that consenting is straightforward.

      Unfortunately not in Auckland, because we can observe market data to find the cost variable that constricts building construction rates: land cost.

      The fact that Auckland’s prices have been rising more rapidly than prices in the rest of the country (which are affected by the same bank lending conditions and macroeconomic trends as Auckland) is an indication that price-driven rationing is probably occurring.

      If we continue to restrict the land supply to Auckland city, we will not be able to intensify. Instead we will continue to carry out our massive exurban sprawl project.

  11. Why can’t we do it with sprawl alone?

    What a silly question. When you lower costs, you get faster rates of constructions. When you increase costs, you get slower rates of construction. Pretty obviously. If we add more land to Auckland, we will get faster rates of apartment construction and as we restrict land supply to Auckland we get slower rates of apartment construction. Adding sprawl to Auckland will not create sprawl alone, just as restricting sprawl around Auckland has not restrained merely sprawl.

    The next swathes of farmland to be developed [under the PAUP – north of Warkworth], west of Orewa, and north of Kumeu – are all a long way inland.

    This is why the PAUP is so dangerous, it adds land miles away from Auckland where only sprawl can occur. We should be adding land – east of Flatbush, north of Albany, west of Swanson – at the edge of Auckland. If land costs in Auckland become competitive, we will get apartments.

    1. Except it’s based on fundamental flaws.
      1. Auckland’s economy is actually *underperforming* relative to the regions (Croaking Cassandra often discusses this)
      2. Many regions are seeing rapid job growth (http://www.scoop.co.nz/stories/BU1607/S00452/jobs-growth-in-new-zealands-regions.htm)
      3. Since 1999, Auckland jobs have grown by 42%. (http://www.stats.govt.nz/infoshare/ViewTable.aspx?pxID=905f1a47-dc8f-4fbf-a48e-8057ba0b8044) Even Northland has grown by 36%.
      4. If we take Auckland median earnings as 1, using LEED data the lowest paid you’d be in NZ is in Tasman (0.82). In Southland you’d earn 0.93. In the Waikato, 0.91. So you lose 10-20% of income… but your house is definitely more than 10-20% cheaper.

      So, there are plenty of well-paying jobs in the regions.

      1. Auckland has a much greater diversity of jobs than other regions – I’m sure a lot of people would be happy to locate elsewhere, but they can’t find a job in their particular area of specialisation. This is a bit difficult to measure of course, but it’s very real.

        Out of interest, I was looking at job listings and house listings in Nelson a while back – plenty of nice houses in my price range, and a whopping *zero* jobs in my field.

        1. If you define your field narrowly, sure
          But the fact is the median income is about 90%. Those jobs aren’t crappy manual jobs. They are skilled jobs.

      2. “So, there are plenty of well-paying jobs in the regions” – Then why are so many people moving to Auckland from the regions? Why is almost no one I meet here actually from Auckland and instead from elsewhere in NZ?

        Have you actually tried to get a job in the regions? I did in Nelson when I first got back from overseas and there was nothing available for a senior lawyer. I had three interviews and not a sausage. Firms said they had jobs in Chch and Auckland and that was it.

        Go on Seek or TradeMe and try to find a skilled job outside of the major cities – almost nothing available.

        People in the regions may be relatively well paid (at least compared to house prices) but there is very little opportunity. Plus the type of work is very narrow and not as interesting as in a big city.

        1. Anecdotes, anecdotes.
          If we divide jobs created by population we get a good indication of how many job opportunities per person there are…
          Auckland 2011 0.114 2012 0.112 2013 0.106 2014 0.112
          Waikato 2011 0.113 2012 0.109 2013 0.105 2014 0.109
          Bay of Plenty 0.144 0.144 0.131 0.136

          Yep, no opportunities there. Data ain’t lie.

    1. And? The NIMBYs need to be confronted. The country shouldn’t be held hostage by a narrow group of rent seekers.

        1. Amazing how you people (see also the Act party, Matthew Hooton, Rodney Hide) come in to defend restrictive planning regulations when there’s a chance their liberalisation could threaten endless capital gains.

          1. No, just pointing out how courageous this proposal is and how there is another option where a win is more likely.

            This option is put up because of an ideological blindness about urban sprawl and a secret knowledge that they will never happen and therefore threaten their own home values

          2. Jim, I think *you’re* over-optimistic about the willingness of people to vote for lots of sprawl. Releasing lots more land for development means building infrastructure to service it, which in turn means putting up rates. And in return for paying higher rates, people’s property values decline!

            According to Auckland Council’s 10-year budget, it’s planning on spending around $60bn over the next decade, roughly 1/3 for capex and the remainder for opex. Meanwhile, the estimated total cost of bulk infrastructure to service the next 110,000 or so dwellings in greenfields is around $17bn. AC’s currently planning on staging that over a 30-year period.

            Let’s say that it wanted to service enough fringe land to enable a 30% increase in the city’s housing stock over – let’s be generous – a 10-year period. In that case, you’re looking at *adding* another $17bn or so in infrastructure costs to that ten-year budget. That means increasing total council expenditure by around 28%.

            Some of this will be recouped from user charges or development contributions, but a lot will go right back on to the rates bill. So if you think sprawl funded by double digit rates increases is a political winner, fill your boots!

          3. Jim – if you’re really concerned with political viability (rather than just projecting your own preferences) growing by sprawl alone is no easy option. The best case for addressing affordability through sprawl is that releasing sufficient land can collapse land prices. As most housing wealth is held in high land prices I can’t see this being politically popular. Intensification, by contrast, allows supply of more affordable dwellings without collapsing land values and hence people’s equity.

            Also the measures required to truly internalise the infrastructure costs of sprawl are not politically popular. David Lupton outlined the measures required to internalise costs in the case of removing urban limits. These include utility districts, road pricing, and a land value based rating system to capture the higher costs of sprawled out infrastructure. The last two are notoriously difficult politically. http://www.interest.co.nz/opinion/81705/david-lupton-says-we-need-appropriate-charges-infrastructure-and-services-so-choices.

            Lastly there is no terra nullius, or unclaimed empty land waiting to be developed. NIMBYs exist everywhere including on the city’s fringes. These areas have already been subdivided into lifestyle blocks, the inhabitants of which won’t all be thrilled about the prospect of being swallowed by suburbia.

            I’ve read your blog and its full of ideologically pure yet politically impractical ideas. Funny that housing intensification is the thing that converts you to political pragmatism. But growing by sprawl alone doesn’t offer a politically easy solution to this crisis.

    2. Jim,

      A significant amount of current planning rules that prevent intensification do not even relate to externalities. For example the rules include a maximum number of dwellings per unit area of a site. This has nothing to do with the size and shape of the actual structure that can built, only how its internal space can be subdivided, so nothing to do with externalities / NIMBYISM (or any NIMBYISM that has a basis in reality). For example in the single housing zone if you have a 1000m2 site you can build something like 600m2 of floor area in a residential structure. However it can only be used for one dwelling. If you got rid of idiotic rules like this you could have 6 or 10 dwellings in exactly the same structure. This is repeated for most other zones to varying degrees.

  12. The more I think about this topic, the more I think that the reducing value of dwellings by 40% doesn’t really make sense in the way it is described. In adding lots more dwellings you may have more lower priced dwellings, either through densification or sprawl, that people can buy. This only really works if as suggested by Arthur Grimes this happens very quickly. Assuming that it does happen very quickly, it will have a small impact on existing dwellings as people don’t like to lose money and tend to be fixated on what their property has been valued at. So the reduction of the average cost of a dwelling will really be based on these new, lower priced, dwellings being included in the new average. So to reduce the average cost by 40% the newly built dwellings must be considerably less than the current average value to significantly lower the average. This then leads me to question if this can be done without having either very small spaces (like some CBD apartments from the early to mid 2000’s that are 12m² to 14m²) or built with very poor materials/workmanship. Note that when there is a building boom contractors prices tend to go up, as when you’re booking jobs six months ahead you don’t need to worry about price competition, so this makes it hard to have a large quantity of decent quality structures built in a fairly rapid time. I’m not sure this is what is being aiming for with Auckland. What am I misunderstanding here?

  13. If the supply of a good – [land] in this case – is constrained, prices must rise until some potential buyers give up and go elsewhere.

    Apartment prices aren’t rising faster in Auckland than other places, meaning that housing isn’t the constrained good. Apartment prices are rising much slower than the general housing market, which proves land is the constrained good. Land, not housing.

    In Auckland the numpties have constricted land supply so the costs have risen faster than value. What happens when the cost rises faster than the value of a product, is that you get less of it built.

    1. That’s actually not true. Apartment prices in Auckland have risen at almost exactly the same pace as prices for standalone dwellings. In the city centre, apartment prices are up about 55% between 2011 and 2015, and up over 130% since 2000.

      Pre-existing restrictions on building height and density have become progressively more binding over this period, as the city centre gets closer to being built out and the market for apartments matures.

      1. The average sale price of Auckland housing has 70% in the past 5 years. Apartments have risen by less than 60%.

        http://www.trademe.co.nz/property/price-index/for-sale/

        The return on constructing apartments has become non-viable as costs spiral upwards much faster than saleable value. Our rate of construction for apartments has been appallingly slow and our CBD remains nowhere near to being built out.

        The numptie vision of forcing prices upwards has been a complete unmitigated failure and people are living in cars.

        1. That suggests that price growth is driven by land value, as land is a smaller portion of property value for apartments that makes complete sense.

          1. In places where housing values rise quicker than land values, people build apartments to maximise overall value. If we free up land availability, we will build a lot more apartments.

            In places where land values rise quicker than housing prices, to maximise value people will often not build at all.

          2. Land is very cheap in Ngaruawahia, why isn’t it full of apartments.

            People build apartments when land and dwellings are expensive, because apartments use expensive land more efficiently.

          3. Because dwelling prices aren’t rising faster than land prices in Ngaruawahia. Our numpties have been busy recreating these Ngaruawahia style growth conditions in Auckland. Killed apartment construction rates and expanded the role of sprawl.

            People build apartments when dwellings are expensive. Apartments use capital efficiently if land is cheap where dwellings are expensive, then you will make a sweet profit building apartments.

            But if these conditions don’t exist there is a world of better investment opportunities available.

          4. Meanwhile, the median-multiple 3 cities in the Demographia Reports, happen to have city apartments just as much cheaper than Auckland’s ones, as their separate family homes in suburbs are cheaper than Auckland’s. Rationing the overall land supply does funny things to the way land values are derived. In median multiple 3 cities, the land value is derived from the true value of rural land (which is allowed to be converted to urban use), plus transport savings and capitalised local amenity values. This process is called “differential rent”.

            Destroying the “differential” process with a regulatory quota scheme in the conversion of rural land to urban use, results in land values being derived by a process known variously as “monopolistic competition” or “extractive rent”. Nothing ends up cheaper – even the cheapest option ends up more expensive than the average for a differentially derived city even if the latter has far larger housing units and sections.

    1. The council was committed to freeing up the rules to make it more attractive for developers, such as building a four or five-storey apartment block, [Deputy Mayor Kevin Clout] said. “In terms of Tauranga’s growth, we need to go up as well as out…we have definitely made a commitment to increase the level of intensification.”

      It is pleasing to see a council in tune with a modern efficient planning structure and committed to letting urbanism succeed. The City of Tauranga, which is 1/12th the size of Auckland, already has an apartment build rate more than 100% faster per capita.

      1. User guideline 6. Stop making up your own facts.

        Building consent data shows that, between January 2011 and May 2016, Tauranga consented a total of 794 apartments, townhouses, and units, with a total area of 89,700 square metres. Over the same period, Auckland consented 11,942 apartments/townhouses/units with a total area of 1.41 million square metres.

        As a matter of fact, according to the building consents data, there were only eight (!) apartments consented in Tauranga over this period – the rest were all townhouses or units.

        Auckland’s consenting slightly more than 15 times as many attached dwellings as Tauranga, and a lot more apartments. As Auckland has about 12 times as many residents as Tauranga, it’s actually consenting attached dwellings at a faster rate.

          1. So you knew it wasn’t true, but said that it was because you believed that will change?

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