Will Auckland Council amalgamation be good for housing supply in the long run?
In the short term, amalgamation will probably have a positive effect, because it enabled a comprehensive rewrite of the city’s urban planning rulebook to increase the amount of homes that are allowed to be built in Auckland.
This worked in part because a council that must write a single urban plan for the entire city has to make hard choices about where new homes should be allowed, rather than assuming that it can just say no and push off growth to its neighbours.
The hope is that Auckland Council will continue to act in the interests of the region as a whole, rather than responding to parochial demands to limit housing. But that’s not only possible outcome. In the long run, though, it’s possible that amalgamation could hurt rather than help.
An alternative theory is that Auckland Council could end up as a regulatory ‘monopolist’: freed from the constraint of having to compete with neighbours for new businesses and new properties to tax, it could end up restricting development in the long run.
But we don’t have to speculate about this: We can look at what’s happened in other countries and cities with different local government setups to understand what trade-offs we might face.
California presents an interesting test case, as it’s large, with lots of local governments. It’s also famously restrictive on housing development. As Kim-Mai Cutler pointed out,since the 1980s California has been running a structural deficit in new housing, as planning restrictions have cut the legs out from underneath higher-density (“multifamily”) development:
— Kim-Mai Cutler (@kimmaicutler) January 4, 2017
That chart is the consequence of thousands of local government decisions to turn down or discourage new housing development. Here’s a recent example reported in the Los Angeles Times:
Just beyond San Francisco’s city limits lies 640 acres of land that could help solve some of California’s biggest problems.
A developer wants to build 4,400 new homes there — one of the largest projects recently proposed in one of the country’s most unaffordable regions. The development would overlook a railway that drops riders into the heart of San Francisco in 15 minutes, reducing the need for cars and cutting the greenhouse gas emissions that come from them.
State and regional leaders have endorsed the project. But its fate rests with Brisbane, a city of 4,700 people that annexed the property 55 years ago. And no one, not even the developer, thinks Brisbane’s residents will approve all 4,400 homes.
“Unfortunately, we believe that their ceiling is going to be below that,” said Jonathan Scharfman, the general manager for the developer, Universal Paragon Corp.
The residents of Brisbane – who are right in the middle of one of the most economically dynamic urban areas in the world – think of themselves as small-town residents. And as a result they’re unwilling to say yes to a project that would significantly benefit the urban area that they’re a part of:
“We’re a small town,” City Councilman W. Clarke Conway said at a meeting on the project last fall, “and we’re a small town by choice.”
As it turns out, Brisbane isn’t an outlier: Virtually all local governments in California have similar incentives to say ‘no’ to development, in spite of the fact that they tend to be small and surrounded by other local governments.
Several recent empirical studies of the causes and consequences of land use regulation in California demonstrate that when local governments compete, they generally compete to develop tighter restrictions on home buildings.
The first study, by economist Kip Jackson, uses a detailed dataset on the date that planning restrictions were introduced to identify what happens after they are put in place. From his summary:
California cities’ use of land-use regulation (including various zoning rules, residential density restrictions, and limitations on growth) increased precipitously from the mid-1980s to the early 1990s (see figure below). In a state known for making extensive use of voter initiatives, this increasing level of regulation was the result of rising anti-growth sentiment following periods of rapid population growth. Unsurprisingly, the most highly regulated communities back then—in the southern coastal region and in the San Francisco Bay area—still top the list today.
Figure 1 – Residential permitting rate and additional regulations adopted over time, California
Source: Land-use regulation data from survey responses of local land-use authorities in 402 California cities. Permit and housing stock data from the California Housing Foundation’s Construction Industry Review Board and US Census Bureau, respectively.
Comparing the rate of construction in cities that implement more land-use regulations to the rate in cities that implement less of it, I find that each additional regulation reduces a city’s housing supply by about 0.2 percent per year. The average California city used in my analysis has a population of roughly 55,140 with 21,740 homes. For such a city, adding a new land-use regulation reduces the housing stock by about 40 units per year. Reductions in a city’s housing stock are the result of significant declines in the rate of new-home building. The number of new homes built each year is reduced by an average of 4 percent per restriction. These reductions in new construction (and the overall housing stock) come through fewer single- and multifamily housing units, but the effect on the latter is much stronger, with an average of 6 percent fewer permits issued per regulation.
Importantly, Jackson finds that new planning restrictions ‘spill over’ to neighbouring areas. This contradicts the theory that lots of small councils will face incentives to compete to attract development:
In addition to the direct effects of regulation on a city’s housing supply just described, local regulatory regimes also affect housing market outcomes in neighboring communities through regulatory spillover. In California, city and unincorporated county governments are given a significant amount of autonomy in how they manage land-use, which leads to regulatory competition among nearby cities. Rather than the kind of tax-rate “race to the bottom” that often occurs when localities compete for businesses or residents, this form of competition leads to increasing levels of regulation as residents and city officials attempt to stifle growth in their communities. Although land-use regulation is generally implemented at the city (or county) level, growth is a regional phenomenon. So, like a tube of toothpaste, when regulatory pressure is put on development in one city, it typically spills over into less-regulated neighboring cities. Thus, in order to avoid taking on all of the region’s new development, cities tend to adopt similar regulatory patterns as their neighbors, both in terms of the level of regulatory stringency and the actual policies adopted.
A second study, by urban planning professors Michael Lens and Paavo Monkkonen, takes a look at the impact of planning regulations on income-based segregation within cities. They find that certain types of planning regulations – particularly restrictions on higher-density development – result in more segregated urban areas. And, again, they find that more localised planning systems exacerbate these effects. From a summary in The Atlantic:
Importantly, the study shows that greater involvement at the state level can help temper some of the most damaging effects of exclusionary zoning. The authors write:
Greater pressure from multiple local-interest groups regarding residential development exacerbates the tendency to segregate by income. At the same time, income segregation is ameliorated by a higher level of involvement from state institutions. Taken together, these findings suggest that land use decisions cannot be concentrated in the hands of local actors.
In short, the evidence from the US suggests that smaller, more fragmented local governments are not good for home building or levelling out socio-economic disparities in the housing market. This doesn’t mean that the Auckland Council amalgamation will lead to a perfect outcome, but it seems like it can help us avoid some important pitfalls.
What do you think about the right size for local government?