Flashback Saturday – Housing affordability and sprawl

Every weekend we dig into the archives. This post was originally published in December 2011.

The good old ‘compact city’ versus ‘urban sprawl’ debate has been reignited – with a Productivity Commission report on Housing Affordability pointing the finger at land-use regulation as a major cause for reduced housing affordability over the past decade: particularly in Auckland. The full report thinks about the facts in quite a bit of detail, assessing interesting things like the relationship between the number of properties/sections sold with the price of each section. It also spends a few pages looking at urban planning regulations generally, although doesn’t go into enough detail on this matter in my opinion.

The report’s summary version briefly discusses the relationship between planning regulations and housing affordability:I think it’s obvious and logical that reducing the supply of land available for urban development will drive up the cost of land where such development can take place. That’s about the most fundamental rule of economics: increase something’s scarcity and its price will go up. You can see this when comparing the number of sections & dwellings sold in Auckland over the past 20 years with the price of them. There’s a ‘de-coupling’ of price with the number sold, which suggests that it’s scarcity of supply that is driving up prices, but for some reason those high prices aren’t then stimulating more supply: Looking at the data a bit closer, we can also see that most of the “new builds” constructed in recent times are at the very top end of the market – something quite different to what was the case 30 or so years ago: The report makes the (correct in my opinion) conclusion on this particular matter that, because land has become so expensive, developers need to build huge places in order to get a return on that land. This is pretty obvious, as you simply don’t make money by putting a $150,000 house on a $400,000 piece of land.

So, to cut things short, I think the report is correct in saying that a scarcity of land (created by planning tools such as the Metropolitan Urban Limits) has driven up land prices, which has generally meant that only expensive new housing has been built, and has also meant that nowhere near enough housing has been built. However, where I differ is in the proposed remedy. The report seems to think that the solution is to allow a lot more urban sprawl (even more than what the Auckland Plan proposes, which is A LOT).

There are many arguments against allowing too much sprawl. One increasingly valid argument is that sprawl is actually not what the market wants – in many US cities the outer suburbs are being abandoned as demographic change and rising fuel prices encourage inner-city living. Along with environmental arguments against sprawl, perhaps the most compelling is simply that of efficiency and infrastructure cost. One of the background papers supporting the Auckland Plan noted the following:The cost of providing urban sprawl with infrastructure is not limited to roads, pipes and parks – but also things like building new schools and hospitals and adding to the operating costs of many services that have to cover a wider area than before. It is not exaggerating things to say that many cities in the USA (Detroit, Buffalo and Cleveland come to mind) are bankrupting themselves because over the past 30-40 years they have grown hugely in physical size, but not in populations, and can no longer support such an inefficient urban form.

So there are many compelling arguments against urban sprawl. But at the same time, if housing is becoming impossibly unaffordable in Auckland we can’t just do nothing about that either. Especially if it’s a lack of housing supply which has played such a key role in the affordability crisis. Here’s where the commission’s position annoys me somewhat – did they even bother to read the Draft Auckland Plan? Do they realise that it provides 100,000 new units on the urban periphery over the next 30 years (around as many households as there were in all of Manukau City in 2006)? Do they realise that the Plan will lead to significant intensification through upzoning? While they seem to understand the difficulty in getting consents for ‘brownfield’ development (probably one of the biggest problems in making intensification happen), they don’t seem to realise that solving this problem might mean that we don’t need to build as much sprawl as you might think. Planning somehow gets the blame once again for focusing too much on preventing sprawl when in actual fact – as I have explained so many times before – around 95% of our planning rules actively promote sprawl and prohibit anything else.

But perhaps the most fundamental question we may wish to ask ourselves is this: “where do we want our affordable housing to be located?” If we are to improving affordability by allowing a lot more urban sprawl, then we will end up pushing the city’s poor to the periphery, trapping them in a cycle of spending more and more of their income on transport, and as petrol becomes more expensive it seems likely they’ll end up worse than before. Or should we be looking to a balanced approach that focuses much more on intensification – so we can provide affordable housing in parts of the city where people actually want to live? Where are the recommendations that development bonuses be given to developers who provide a number of affordable housing units? Where are the recommendations that District Plan rules be updated so they’re consistent with regional planning documents and actually make intensification happen?

The fact that we don’t see these recommendations (too much) makes me pretty sceptical of the whole exercise. There are some good things in the report, highlighting that we do need to boost supply and highlighting to some extent what the flaws of our planning system are when it comes to actually making stuff happen. But the huge focus on more sprawl is an overly simplistic answer to a pretty complex question – and is an answer with unintended consequences that I think far outweigh its supposed benefits.

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