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Goff talks up growth along with cutting congestion and revising funding

As Statistics NZ published its latest migration figures last Friday – a net inflow just 46 short of 70,000, and a net 32,700 into Auckland – new mayor Phil Goff was talking up growth while proposing faster measures to cut congestion, and telling the Government it needs to shift at least some of the financial burden from ratepayer to taxpayer.

The Government has been running a programme to encourage regional economic growth, but not in the concerted way needed to reduce imbalances. And it has done none of the exercise needed to restructure the funding of infrastructure.

The Auckland transport alignment project, between the Government & Auckland Council, is a very tentative step towards part of this necessary revision. But it’s predicated on Auckland continuing to grow apace, it’s a tally of tasks & setting of a priority order.

Transport alignment, and what it’s not about

It’s not about examining Auckland’s apparent needs from a wider perspective – looking at housing not just as a centre-outward programme but as part of the creation of communities & new economic centres, looking at local business as an integral feature of growth instead of being a chance occurrence, looking at access as an efficient way to move between economic centres and between those centres & homes.

Carpeting an overpriced landscape with homes is not the answer to a problem but an escalation of the problem. Growth for its own sake has rightly been characterised as a Ponzi scheme.

Silverdale, in the north of the region, is an example of how improvements to local government can send progress astray. Under the old Rodney District Council, which needed more sources of rates, some of the land now being gobbled up by an expanding Millwater housing subdivision was intended for a business innovation park. A tertiary education relationship would have followed, naturally.

The jobs in Silverdale & Millwater are in shops. The strength of the greater perspective has been defeated.

“Growth is good”

New Auckland mayor Phil Goff.

New Auckland mayor Phil Goff.

Mr Goff told the Council for Infrastructure Development (renamed yesterday, now Infrastructure NZ) about his travails on the campaign trail of guessing when he might turn up, because of congestion.

But his central themes were that “Auckland is a great city – that’s why so many people want to live here”, “New Zealand needs a city of international scale”, and “New Zealand needs a major city which can retain the best & brightest of its own new generation and can attract talent from abroad”.

“Growth is good,” he told his infrastructure-oriented audience. Where have you heard a similar phrase, the first word changed?

Mr Goff has 3 central answers. First, the economic imperative founded on growth & skill; second, overcoming the housing price spiral and providing the infrastructure to support it; third, changing funding structures. They all need a lot more work.

“Auckland has to be a centre of learning & innovation,” he said. “It is our best prospect for building a diversified & high technology economy. To attract & retain the talent we need, the city has to provide high paid jobs in high value-add enterprises and also needs to be a good place to live.”

He said local & central government had to work together to address the infrastructure deficit underlying housing unaffordability & traffic congestion: “For housing, there are some issues of demand management which are largely within the scope of central government which could take some of the pressure off. Longer term, it is about increasing supply.

“Around 60% of housing costs are the land, and increasing the supply & better utilisation of land is vital. The new unitary plan, when it is fully implemented, is a big step towards tackling the problem of land supply and therefore cost.”

At that point Mr Goff raised the catch-cry: “We need to go up & out.”

“Up & out” inherently a conflict

Sounds great, but it’s inherently a conflict where pricing is integral. Old Auckland City wanted intensification because it had nowhere to expand, while the rest of the region’s old territorial councils wanted expansion in their areas to improve their economies by boosting their populations.

Without those old boundaries, the reasons for those numbers games change. Suburban intensification can be justified where there is amenity and where work is available at a range of skill levels, so concentration in centres well away from the cbd will then work. Carpeting the landscape without adequate activity centres – jobs, education, sports facilities, entertainment, not just shops – means the dominance of the car will continue.

Mr Goff said reviewing Auckland’s consenting process would be a priority. From the council’s perspective, “we need to have a resource consenting system that is fast, efficient & responsive to the needs of our city while maintaining the integrity of the process”.

Infrastructure funding

But, he said, the bigger problem was the cost of providing infrastructure so land zoned for housing can be developed: “I am pleased that central government recognises the cost of providing infrastructure cannot be funded from the narrow revenue base of rates. Nor can infrastructure needs be funded in local government as they are in central government by simply borrowing & increasing debt.

“Auckland is constrained in its infrastructure investment by the need to maintain prudent levels of debt, in particular in its debt to revenue ratio. Currently, the maximum ratio set by Standards & Poor’s is 270% and Auckland’s current ratio is approaching 250%. Our debt currently stands at $8 billion and will grow by another $2 billion over the next 3 years, and this is within the prudential limit by our credit rating agencies.

“With the need to meet half the cost of the city rail link – some $1.5-1.7 billion over the next few years – Auckland’s ability to take on new debt is constrained.

“Breaking the debt:revenue ratio would put at risk our AA credit rating and potentially add millions to the council’s interest costs. Treasury & central government agencies understand the scale of Auckland’s infrastructure needs, which come from unprecedented growth and the revenue constraints on the city to meet that growth.

“We can look overseas for better models, such as in Sydney, where infrastructure needs are met not just by local government but in large part by the state government, which has broader sources of revenue.

“I welcomed the Government’s announcement of its Infrastructure Fund a couple of months ago. It was an acknowledgement that high growth areas need additional assistance. However, that $1 billion spread over 5 growth areas won’t accelerate housing construction in Auckland to the levels needed to meet housing demand. I also acknowledge that the onus is on Auckland Council to demonstrate to the Government that we have our house in order for extra capital to be made available.”

Failure to solve funding hugely expensive

None of that spiel on infrastructure needs & funding matches what the “out” part of “up & out” will do to infrastructure demand. Auckland needs closer attention given to a mix of public & private infrastructure provision, and particularly to how it’s managed. Management needs to be non-partisan and, while the public sector theoretically has no favourites, it can be extremely partisan & jaundiced.

Funding by the taxpayer is no different from funding by the ratepayer: same pants, different pocket. Upfront funding by the developer adds hugely to cost, as does the uncertainty of how long getting consent will take. Plenty in the public sector continue to regard “the developer” as a greedy parasite, ignoring the cost of uncertainty and the value of that gift of upfront funding.

Those costs feed into land prices and into all inputs of housing. And they feed into the costs of business, and especially into transport.

Mr Goff said congestion was costing Auckland an estimated $1.5-2 billion/year in productivity losses: “Technology such as Uber car sharing & driverless vehicles will help, but we shouldn’t sit back and expect that to be the only solution when our population will grow by another million. Motorway investment can help, but no great city has built its way out of congestion with roads. Cycleways to allow kids to get safely to school could take up to 10% of traffic off the roads during rush hour. Increasing our public transport, heavy & light rail and busways is critical to relieving pressure on our roads, as it is in almost all international cities.

New transport priorities

“The developments we need here are, in many cases, not even within the next 10-year plan, 2018-28. As mayor, I will prioritise the development & signing off of a business case for rapid light rail in the isthmus to bring it into the long-term plan.

“Auckland must also plan for rail from the city centre to the airport, given we have 3.5 million tourists/year, growing to 5 million, and the airport region and cbd are our fastest-growing areas of employment.”

Mr Goff said funding was critical to bringing transport developments forward, but there was a national funding imbalance: “Many Auckland roads, which carry much heavier vehicle loads than roads elsewhere that are classified as roads of national significance, get half the funding of other regions. The city rail link, likewise, gets only 50% funding with the rationale not obvious for this.”

He said Auckland needed a regional petrol tax now and congestion charging later.

It might be unreasonably selective to focus on one speech out of hundreds made over an election campaign and into the start of a mayoralty, but this is when the speeches actually count, and this is when the detail needs to be provided.

Attribution: Goff speech, Statistics NZ.

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Infrastructure frailty puts US financial woes in perspective

Economist & financial commentator John Mauldin put a lot of US financial woes in perspective this week in his column, Thoughts from the frontline, where he highlighted the frailty of the country’s infrastructure and the likelihood that funding will prevent it being maintained or upgraded adequately.

Those infrastructure woes pitch the US into a role of coming from behind. One issue has been recognised but not resolved: funding of its road network has not kept up, the rising proportion of pensioners leaves fewer motorists to pay for it, and improved vehicles reduce the fuel use that taxes are levied on.

Other issues are arising, much the same as in New Zealand, except that more complicated governance structures make resolution harder. After 70 years of suburban development, water supply & waste removal are 2 areas of concern.

From afar, we see a streamlined country that knows how to run its affairs (apart from the temporary question of finding a president). What Mr Mauldin sees – backed up by a report from the independent analysts at the Congressional Budget Office in a report in August on the national budget & economic outlook for the next 10 years – are the likelihood of early recession and rising deficits which won’t go anywhere near covering infrastructure requirements.

Mr Mauldin summarised what is a quite long opinion piece, and I’ve reduced the summary further:

  1. The next president is likely to face a recession early in their term; current monetary & fiscal policy will ensure it’s fairly serious, and the recovery even slower than last time
  2. The fiscal deficit will swell to at least $US1.3 trillion and likely more. That will leave little room for fiscal spending & stimulus, and certainly not much for the usual infrastructure spending that is called for
  3. The state of US infrastructure is appalling. It needs at least $US3.6 trillion worth of repairs, and that does not even include what we need to do to prepare us for the 21st century. We have dug ourselves a very deep hole of massive failures on infrastructure upkeep, and we are continuing to dig
  4. His solution on where to find the money
  5. Necessary tax & regulatory reforms, and then he notes: “If we do none of the above but stumble along doing what we have been doing, the investment environment is going to be exceedingly stressful; and pension funds & insurance companies are going to have massive difficulties staying in business, not to mention meeting the needs of tens of millions of retirees”.

Same issues apply to Auckland

Some of that warning could equally be applied to Auckland, which is still spending less on infrastructure upgrades than it should, although the advent of the super-city has streamlined the ability to make that provision.

Auckland is also going down a new route of escalating suburban housing development, led by a government that wasn’t awake soon enough to the bottlenecks being created by insufficient land supply around the region. Those bottlenecks occurred as the regional council was responsible for monitoring land use and contested urban conversions while having no power to implement alternatives – such as the present move to intensification.

Changing land use was primarily in the hands of territorial councils until the super-city took over in 2010, and those councils had very different – and competing – intentions. As residential development is promoted ahead of all other uses, some of those pre-merger intentions should be kept in place, such as providing more local jobs and encouraging business clusters outside the centre.

At the moment, the helter-skelter rush to lay out new suburbs requires infrastructure to be in place, at greater cost/residence than more intensive development, and with long-term maintenance costs that are likely to be much higher.

Just as Auckland Council has worked out the costs & requirements of a steady growth in infrastructure, it is being pressured to meet hasty new demands based on an old model that the US is demonstrating has high risks when demography & funding systems militate against the “forever onward” approach.

US economy “running at stall speed”

Back to the US, where Mr Mauldin argues that the economy “is running at stall speed, and any shock that comes from outside the US – from Europe or Japan or China – or from an actual honest-to-God initiation of interest rate hikes by the Fed, which would force a repricing of bonds & equities, could set off a recession that would become self-reinforcing”.

One of those potential external disrupters is Deutsche Bank – in trouble, at the heart of the international financial system, not to be bailed out according to German president Angela Merkel, requiring a rescue according to Mr Mauldin.

“Pay attention to Deutsche Bank,” he wrote. “The bank is deeply connected with the entire global banking market, and just as Lehman Brothers triggered a rolling wave of panic, Deutsche Bank has a similar potential. Even though Merkel swears she is not going to bail out Deutsche Bank, she will have no choice. They will probably have to wipe out shareholders and maybe even some subordinated debt, but they cannot let the bank itself go under, because it is at the centre of a massive financial spiderweb. Which means that the German central bank will have to be at the centre of the rescue, and it gets its capital from the ECB (European Central Bank). Watch how quickly Italy, Spain & the rest of Europe demand that the ECB bail out their banks, too. So the last thing Germany will want to do is bail out Deutsche Bank.”

Projections are for escalating debt, no answers

The Congressional Budget Office, in its report on the state of US public finances, said: “The deficit under current law is projected to be larger this year, but smaller over the 2017–26 period, than the office projected in March. Since January, the office has reduced its projections of gdp growth & interest rates over the coming decade.”

It stated the obvious, that growing deficits projected through the next 10 years would drive up public debt, and it’s projecting the federal deficit will reach 4.6% of gdp by 2026, pushed upward by the continued growth in spending on social security, Medicare & net interest. It said these costs would outstrip growth in revenues, resulting in larger deficits & increasing debt.

In the Congressional Budget Office’s projections, federal outlays rise by $US2.4 trillion/year (or about 60% percent) from 2016-26: “Relative to the size of the economy, outlays remain near 21% of gdp for the next few years – higher than their average of 20.2% over the past 50 years. Later in the coming decade, the growth in outlays would exceed growth in the economy and, by 2026, outlays would rise to 23.1% of gdp. That increase reflects significant growth in mandatory spending & interest payments, offset somewhat by a decline, in relation to the size of the economy, in discretionary spending.”

The office said that, if current laws generally remained unchanged, revenues would gradually rise – by $US1.7 trillion, or about 50%, from 2016-26 – increasing from 17.8% of gdp in 2016 to 18.5% by 2026. They’ve averaged 17.4% of gdp over the last 50 years.

“As deficits accumulate in the office’s baseline, debt held by the public rises from 77% of gdp ($US14 trillion) at the end of 2016 to 86% of gdp ($US23 trillion) by 2026. At that level, debt held by the public, measured as a percentage of gdp, would be more than twice the average over the past 5 decades.”

In sum

In short, the rising infrastructure debt is not matched by an ability to pay, and the US Government is not producing ways to resolve what will become a critical failure at the heart of the international financial system.

Its effects will be widespread, right down to the number of wars the US can fight. A symptom at the moment is the level of interest rates, seen mostly from the perspective of a financial system struggling to get traction. The finance world has been promoting ever-lower interest rates, which support higher asset prices.

There is another side to this, not mentioned by Mr Mauldin or in the Congressional Budget Office report, and that’s the preference of governments to get interest rates down – and exchange rates rebalanced in their favour – when their repayments are high.

New Zealand’s Reserve Bank has been bleating that our exchange rate is too high, but it’s not going to beat the requirements of more powerful nations on that score.

Links:
John Mauldin, Thoughts from the frontline, 2 October 2016: Start moving some dirt
Congressional Budget Office
Congressional Budget Office, 23 August 2016: An update to the budget & economic outlook: 2016-26

Attribution: John Mauldin, Congressional Budget Office.

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Net migrant inflow tops 69,000/year, Auckland up 5000

New Zealand’s net migration inflow climbed 22% in June from a year ago to 3672 (3014 last June), taking the rolling annual figure to a net 69,090 (58,251).

The flow across the Tasman in June was a net inward 61 (outward 133), and 1983 for the year, compared a net outflow of 1185 a year ago.

The net inflow into Auckland rose by 155 for the month to 1726 (1571), and by nearly 5000 for the year to 31,788 (26,834 the previous year, 17,779 in 2014).

June figures for the last 3 years show how the migration flows are affecting Auckland. In June 2014, the inflow was 3141, outflow 1839; in 2015, inflow 3363, outflow 1792; in 2016, inflow 3423, outflow 1697.

Over the 3 years to June, the inflows have been 41,308, rising to 48,488 and then to 52,934. The outflows have been 23,529, then 21,654, then another fall to 21,156.

Permanent & long-term migrant arrivals totalled 8206 in June (7979 a year earlier), while the exit number fell to 4534 (4965). For the June year, arrivals were 125,055 (115,655), exits 55,965 (57,396).

Australia continues to grow as a source of migrants – 1682 in June (1669), 25,703 for the year (24,061) – and a declining target for exiting migrants – 1621 in June (1802), 23,770 for the year (25,246).

The net results are that, for the month, an outflow of 133 has turned round to an inflow of 61, and for the year an outflow of 1185 has turned round to an inflow of 1933.

NZ & Australian citizens made up 29% of long-term arrivals (36,428 out of 125,055), up from 34,871 for the previous year. Holders of student visas accounted for 18,120 arrivals 2 years ago, 25,785 last year and 27,518 in the latest 12 months.

Attribution: Statistics NZ tables.

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Government sets up funding support for emergency housing and council talks about beggars

Budget announcements have been trickling out of the Beehive since 13 April, and today it was the turn of the suddenly homeless to get a serving: 3000 emergency housing places/year, $41.1 million over 4 years for emergency housing & grants to non-government organisations.

Social Housing Minister Paula Bennett said today the bulk of the $41.1 million of new operating funding would be used in 2 ways:

  • The Ministry of Social Development will contract non-government organisations to provide about 3000 emergency housing places/year, and
  • A new emergency housing special needs grant to support individuals & families with the cost of emergency housing for up to 7 days if they are unable to access a contracted place.

The new places will be available to anyone who can demonstrate they have a genuine need for emergency housing.

Mrs Bennett expected the first contracts with providers to be in place by September.

On my count, at $10.275 million/year, the 3000 places/year will average $3425 each – in Auckland, a snip compared to Quotable Value Ltd’s latest average house price valuation of $942,760 (up 16.5% in a year and up 72.5% since 2007), the Real Estate Institute’s median house sale price in March of $820,000 (up 14% in a year & 9.3% in the last month), and the Government’s Tenancy Services figures on rents charged by tenancy bondholders in the last 6 months. In the first suburb on the Tenancy Services list in Auckland, Avondale, the latest rental figures start with a median $480/week, $262/week for a one-bedroom flat, $200/week for a room.

Mrs Bennett said: “Our government made a commitment to provide better access to emergency housing for our most vulnerable citizens. Emergency housing providers told us accessing funding to provide these places was difficult so now, for the first time, emergency housing will have ongoing, dedicated funding.”

Begging pushes long-term homelessness in your face

Emergency housing support is distinctly different from long-term homelessness, which has raised its head as a mainstreet issue as the number of beggars increases on Queen St, in particular.

Homelessness is on the agenda of Auckland Council’s regulatory & bylaws committee this Tuesday morning, primarily to get a review of the public safety & nuisance bylaw underway.

It was also on the agenda of the council’s community development & safety committee agenda on 30 March, when update reports on council efforts & its homelessness budget were presented, and it was on the agenda of the council’s city centre advisory board last year, when the debate veered between “cleaning up” & “helping”.

New York lifts multi-faceted support for homeless

The Auckland approach has been disjointed, quite different from the approach in New York by campaign group Breaking Ground (which changed its name from Common Ground last year). In January, New York Governor Andrew Cuomo announced a $US20 billion plan for affordable housing, supportive units, emergency shelter beds & other homeless services, and Breaking Ground reacted positively: “We see supportive housing transform lives every single day. We thank Governor Cuomo for his leadership & dedication to helping the most vulnerable & at-risk New Yorkers who will now have safe, stable, affordable homes and access to the critical support services they need to succeed.”

In April, Breaking Ground president & chief executive Brenda Rosen gave details of the group’s role in advancing the city council’s HOME-STAT initiative, first by expanding its street outreach programmes: “One of the aims of HOME-STAT is to assist not only those who have been living the longest time on our city’s streets (the chronically homeless) but also the episodically homeless, who are more likely to have lost their housing due to economic factors like a layoff or unaffordable rent. Breaking Ground’s partnership with the city is adding over 140 dedicated staff to help us serve all homeless New Yorkers.

“We’ve been actively engaged in hiring & training these new outreach staff over the last several months, preparing teams for the incredibly challenging but incredibly important & rewarding work of helping New York’s street homeless.

“Second, we’re adding new transitional housing resources. These new units will offer lifesaving shelter along with services for some of our community’s most entrenched homeless. Third, we will open & operate two 24-hour drop-in centres, one in Brooklyn & one in Queens, where street homeless individuals can seek help, whether temporary (showers, meals, respite from heat or cold) or more substantive assistance (meeting with case managers to apply for permanent housing, for example.)

Breaking Ground’s Manhattan director of its Street to Home programme, Bill Hughes, said the organisation had helped over 12,000 New Yorkers escape & avoid homelessness over the last 25 years. We’re confident that the investment in HOME-STAT and in our programmatic expansion will help us serve even more homeless individuals.

The NZ way: Stand back

In New Zealand, there is an inclination to expect both the Government & the council to “do something” when an issue arises, less of an expectation for anyone else to lead, or act at all. Non-government organisations have been hampered by financial strictures and the uncertainty over what course the public bodies might follow, and it is those who have nothing who’ve filled the void by holding out their hand for help and posing the question: What kind of city is this?

Links:
Regulatory & bylaws committee agenda 10 May 2016
Agenda item 11, Update on begging behaviour in the central city
13 Update on bylaws development and information on the 2016/17 work programme
Auckland Council community development & safety committee agenda 30 March 2016
13, Update on Auckland Council’s activity to address homelessness
Update on social & affordable housing activities
14, Update on long-term plan homelessness budget activity
New York homeless support group Breaking Ground (ex-Common Ground)
Budget 2016 announcements

Earlier stories:
29 November 2006: Initiative opens to reduced cbd rough sleeper numbers
13 November 2005: Council adopts new role to lead change for city’s rough sleepers
1 March 2005: Better homeless economics
28 February 2005: Forum sets path to improve lot of homeless
11 December 2004: New forum on homeless

Attribution: Ministerial release, council documents, Breaking Ground.

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Net migrant inflow tops 67,000/year

The net inflow of migrants rose 20.8% in February and the annual figure hit a new high of 67,391 – 22.3% ahead of the previous 12 months and up 2.25% from January on a 12-month rolling basis.

Statistics NZ said:

  • 30,700 (a quarter) of migrant arrivals in the February year were NZ citizens
  • 13,800 were from India, almost three-quarters on student visas
  • 13,500 were from the UK, almost half on work visas.

For 8 years, migrant numbers arriving in February ranged between 8500-9800. In the last 3 years, the immigrant number in February has from 10,900 to 12,000 to 13,267. In 8 out of 9 years from 2006, February emigrant numbers ranged from 5100-7400, rising to 8050 once. But last year & this year that emigration number dropped below 5000 – 4884, then 4686.

From net February inflows in the range of 1200-3600 over 8 years, the net inflow exploded in 2014 to 5777, then to 7101 & 8581.

On an annual basis, immigrant numbers were in a range of 79-89,000 for 8 years, then jumped to 96,852 in 2014, then 112,614 & 124,245. Emigrant numbers jumped around more, in a range of 63-88,000, before dropping more than 10,000 2 years ago to 57,493, and then to 56,854.

The net figures, both monthly & annually, are thus a combination of rising arrivals & falling exits, and trans-Tasman long-term migration has a lot to do with it. From a net outflow to Australia of 15,000/year 2 years ago down to 2560 one year ago, the flow is now inward by 1606/year.

The net February figure is still outward, but not by much – down from 776 2 years ago to 450, and this year to 99. Arrivals from Australia rose to 25,810 in the latest 12 months, while exits have fallen from 35,665 2 years ago to 24,204.

The country would have emptied out long ago without immigrants, but the exit rate of NZ citizens has slowed. It was down from a net 4125 in February 2012 to a net 1015 3 years ago, then fell to 774 & 439.

On an annual basis, the rush of NZ citizens to the exit gate was just short of 39,000 net (61,600 gross) in 2012, but has since declined to net figures of 6649 last year & 3893 in the latest 12 months.

Non-citizen February arrivals were below 8000 before starting to climb 2 years ago, first to 8476, then to 9618, then to 10,735. And non-citizens come to stay – the February exit rate has exceeded 2000 only once in 11 years.

On an annual basis, non-citizen arrivals were in a range of 55-70,000 until 2 years ago, while exits got down to 20,400 and exceeded 26,000 once. In the last 2 years, however, arrivals jumped by 13,500 to 83,391, and then another 10,000 to 93,498 while exits stayed around 22,000.

The net inflow of non-citizens has more than doubled in 4 years, from 34,701 to 71,284. That low point in 2012 saw a net overall outflow of 4068/year as NZ citizen flight hit 38,679.

Impacts on Auckland & housing

Auckland, as the region that participates most in flows both ways, has received just over 42% of immigrants over the last year, and farewelled just under 38%. Those Auckland exits were up over 25,000/year 2 years ago, dropping to 21,673 & 21,372 in the last 2 years.

Incoming traffic, though has been rising – 39,343/year 2 years ago, to 46,954 and then to 52,407. The net inflow for the region has risen from 13,709 to 25,281 to 31,035.

The key to housing equilibrium in Auckland in all of this is to ship pensioners off to retirement villages or other provinces at a fast clip, to make way for incoming families. The next monthly building consent figures will be out after Easter, on Wednesday 30 March, but the figures to January showed consents for retirement village units were down at 1908/year, suburban townhouses up at 3522/year, but steady momentum in overall construction of new homes in Auckland, up 21% for the year to 9275.

At an occupancy ratio of 3/dwelling, that would have left Auckland about 1000 homes short of accommodating all the new immigrants for the year, ignoring natural growth. However, if single pensioners & couples have sold to families, equilibrium might have been maintained.

Statistics NZ’s population estimates for the year to June 2015 show sharp increases from a low point of a 24,100 gain in 2012, rising by 34,000, then 67,600 and last by 86,900, and the immigration rate has since sped up.

Attribution: Statistics NZ tables & release.

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Propbd on Q F5Feb16 – Cruise trade, Lyttelton wharf reopens

Cruise ship based in Auckland for 5 months
Lyttelton port rebuild opens

Cruise ship based in Auckland for 5 months

P&O Cruises, a division of international cruise operator Carnival Corp & plc, will base the 1800-passenger Pacific Pearl in Auckland through to 23 June.

The liner arrived yesterday with nearly 1000 Australians on board, many of them signed up for a special cruise package which included 4 nights in Auckland and access to the rugby league Nines at Eden Park.

Carnival Australia & NZ executive chair Ann Sherry, said the Pacific Pearl would go on an unparalleled 20 cruises over the next 5 months – double the number last year – generating up to $20 million in economic value for New Zealand.

The Pacific Pearl’s schedule includes 2 voyages between Auckland & Sydney. Its 18 round-trip cruises will take it to 11 New Zealand ports.

Ateed (Auckland Tourism, Events & Economic Development) chief executive Brett O’Riley said Auckland’s record cruise season was estimated to deliver $251.7 million to the region.

Lyttelton port rebuild opens

Deputy Prime Minister Bill English and Earthquake Recovery Minister Gerry Brownlee missed the excitement of shaking hands with dignitaries signing the Trans Pacific Partnership Agreement at SkyCity in Auckland yesterday, and an insight helped by TPPA protesters into what a completely pedestrianised central area might look like.

Instead, the 2 southern ministers headed to Lyttelton to open an $85 million port expansion, the Cashin Quay 2 Wharf. The rebuild of a wharf destroyed in the 2011 earthquake turned into a 10ha reclamation, using over a million tonnes of rubble from central Christchurch.

Mr Brownlee said the port lost 30% of its operational space in the 2010-11 quakes and had to repair 14ha of container terminal.

Attribution: Company & ministerial releases.

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Propbd on Q W16Dec15 – economy: Economists study Auckland housing, dairy

Bank economists delve in Auckland’s living spaces
Reserve Bank examines severity of dairy decline

Bank economists delve in Auckland’s living spaces

ASB Bank’s economists drilled into housing statistics in a report they released yesterday, highlighting the intensity to which Auckland’s housing stock is being used, and the region’s different preferences & circumstances.

The Home economics report was prepared by bank economist Kim Mundy: “In this paper we have drilled into the detailed composition of Auckland’s households. We have made some observations and discussed some of the potential reasons for the differences we have noticed. At the very least, we can conclude that Auckland’s housing stock has been used with a greater intensity than elsewhere, and that this utilisation has increased over time. The next step will be to see if we can econometrically account for some of the differences and, in doing so, gain some insights into the extent of Auckland’s housing shortage.”
First observations were that, in 2013, relative to the rest of the New Zealand Auckland had:

  • fewer empty/unoccupied houses
  • more people living in each house
  • more households with 2 or more families in one house (over half of the country’s total)
  • faster growth in the number of households with 3 or more people (especially households with more than 6 people), and
  • within Auckland, wards with lower median household income tend to have more people/house.

Link: Home economics report

Reserve Bank examines severity of dairy decline

A paper jointly published yesterday by the Reserve Bank & DairyNZ elaborates on the state of indebtedness of the dairy sector.

The paper’s authors – Ashley Dunstan, Hayden Skilling from the bank, Matthew Newman & Zach Mounsey from Dairy NZ – said: “Dairy sector debt increased from $11.3 billion to $29 billion between 2003-09 due to rapid increases in land prices, a flurry of dairy conversions and significant on-farm investment. This rise in debt left highly leveraged farmers exposed when milk & land prices fell sharply in 2009. A swift recovery in global milk prices subsequently helped to limit the degree of financial stress, although nonperforming loans increased to a peak of around 4% of sectoral debt.

“This experience has resulted in increased caution among dairy farmers and a slower rate of debt accumulation. However, debt levels remain at elevated levels of more than 300% of trend milk income. As at June 2015, dairy debt reached $37.9 billion, representing around 10% of total bank lending. Developments in the dairy sector are therefore an important consideration in assessing financial system risks.”

The authors said global dairy prices fell by more than 65% in $US terms between February 2014 & August 2015, due to increased global supply, sanctions on Russian imports and reduced Chinese demand following a build-up of inventories during the 2013-14 season. Over this period, the exchange rate depreciated, dampening the fall in $NZ terms. Dairy prices have since increased from August lows, but recent outturns have not been favourable and prices remain well below their long-term average.

“As a result of sustained lower milk prices, dairy farmers are currently facing significant cashflow pressures. Following a record 2013-14 season, Fonterra’s payout fell considerably and farmers are now expected to face consecutive sub-$5/kg of milk solids payouts. The impact of the low payouts is amplified by an increase in average break-even payouts since the 2006-07 season, reflecting increases in debt levels and a shift to more cost-intensive operating structures.

“The worst cashflow pressures are expected to emerge in the current season (2015-16), compounded by low retrospective payments from the 2014-15 season. The cashflow shortfall for the average dairy farmer is estimated to be more than $1/kgMS (based on DairyNZ forecasts of $4.15 for effective milk revenue, taking into account the latest Fonterra forecast for the headline payout).”

Despite the cashflow pressures, the authors said dairy farm land values had been supported by low interest rates and a largely positive long-term outlook for the payout. The Real Estate Institute’s dairy price index continued to grow at about 10%/year throughout the summer of 2014-15. However, land values had recently shown signs of weakening, on limited sales volumes.

“There is a risk that land values could fall if cashflow pressures persist, especially if confidence in the longer-term milk price outlook deteriorates. Downward price movements could be amplified by reduced liquidity in the farm market, if demand to purchase farms falls alongside the increased risk of rising stressed sales. The extent of financial system losses in this scenario hinges critically on how debt is distributed within the dairy sector.”

Link: Reserve Bank Bulletin

Attribution: Bank releases.

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Move to expand Wiri BID up for funding

The Wiri Business Association will seek Manurewa Local Board approval on Thursday to expand its business improvement district to include the wider Wiri industrial area. The association is also seeking $40,000 of funding over 2 years to support its $57,900 expansion campaign.

The association said the boundary expansion would increase the targeted rate it collects from $199,650/year (excluding gst) to $450,000. It said the added value for business & property owners in the proposed expansion area would include specialist crime prevention support, business support, events, networking & advocacy.

The present business improvement district is bound by Druces Rd, Kerrs Rd, Ash Rd, Lambie Drive & State Highway 20 (coloured pink on the map; the proposed expansion is coloured blue).

Business improvement district partnership advisor Jeremy Pellow says in his report to the board the proposed new boundary would run close to proposed expansion by the Manukau Central Business Association, and they were working to resolve any overlaps.

Image above: The present BID area is marked in pink, the proposed expansion area in blue.

Manurewa Local Board, Thursday 19 November at 6.30pm, Manurewa, local board office, 7 Hill St:
23, Wiri business improvement district, proposed expansion

Attribution: Board agenda.

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Howick prepares new tourism & business precinct plans

A proposal before the Howick Local Board tonight will introduce tourism & business precinct plans to the area.

The board’s 2015-26 Howick economic development programme, up for approval tonight, includes developing a tourism plan promoting the ward’s identity & key attractions.

Under the programme, the board would work with council-controlled Ateed (Auckland Tourism, Events & Economic Development Ltd) on an audit of economic & business precinct plans and to co-ordinate the approach to economic development in the area. It will include reviewing the East Tamaki business precinct plan and integrated industrial business plan.

The council’s local economic development advisor, Luo Lei, said in a report for tonight’s meeting Ateed staff had spoken to the key members of Howick Tourism Group & other tourism operators, including Howick Historical Village, Howick Village, Uxbridge Gallery, Fo Guang Shan Buddhist Temple & Pakuranga Golf Club for initial engagement on developing a Howick tourism plan.

Link: Howick Local Board, Monday 16 November at 6pm, Pakuranga, 7 Aylesbury St, Pakuranga Library complex:
22, Economic development programme, for adoption
25, Flat Bush aquatic/leisure centre location, Ormiston town centre site as preferred location

Attribution: Board agenda.

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Council economist lists potential housing price solutions

Critics of rising Auckland land costs for housing have long pointed to the line between allowed development and the no-go greenfield territory beyond (the hated & despised metropolitan urban limits) as the lead factor in forcing prices up – not just for peripheral land but throughout the region, and flowing into overall housing costs.

Secondly, where the development & construction sectors haven’t been heavily regulated they have shown an abysmal ability to perform well. You can criticise administrators for over-zealously creating more regulation, but those rules have been a response to failure.

The first of these is a cost which can – and will soon – be remanipulated. The second is mostly a cost which begins with ensuring quality in construction, and can end there if the industry demonstrates that self-regulation works.

The most expensive factor in skyrocketing house costs is the land value, but the difficulty in acquiring peripheral greenfields hasn’t been the main problem. Builders go to the periphery when something more accessible isn’t available.

What’s more important is the ability to revisit areas built on in earlier eras, to intensify land use in the inner suburbs. Making it possible to remould existing suburbs through site aggregation & consequent intensification – which Housing NZ has experienced great frustration in trying to achieve for well over a decade – would already have forced widespread land revaluation years ago, and that’s without considering the function of heritage protection.

It’s within the power of the independent panel hearing submissions on Auckland’s unitary plan – and, next year, delivering its recommendations to the council – to propose zoning which will allow more widespread redevelopment. That doesn’t mean highrises will spring up along every suburban street, but it would offer developers & builders a far wider choice of properties, and that greater competition among potential suppliers would change the price.

This prospect is alluded to in a paper released on Wednesday by Auckland Council chief economist Chris Parker, Housing supply, choice & affordability: Trends, economic drivers & possible policy interventions.

Including 2 summary lists in the executive summary at the front, the paper runs to 101 pages. But a quick glance through those 2 lists alone will give you an idea of the many potential courses that can be followed – some conflicting with each other, but the purpose wasn’t to deliver a single comprehensive solution.

Down in the depths of the paper, Mr Parker (and the many high-level contributors to his work) gets into questions on barriers to intensification of the inner suburbs such as viewshafts. The Mt Eden viewshaft alone is estimated to have a net cost as high as $440 million.

In his summary of priorities to attack, he starts with increasing greenfield land supply, followed by permitting more intensification via the unitary plan.

He has listed 34 tools to address Auckland house prices – marking them with hammers & megaphones and colour-coding with greens, blues, yellows & reds. Among the reds is giving a gst exemption to owner-occupiers who commission new homes: “Do nothing,” he says, “any exemption is equivalent to awarding a government subsidy of the same amount, which would likely not be the best use of funds.”

Another red megaphone is awarded to restricting immigration. Mr Parker points out that immigration supports growth & economic development, restricting it could exacerbate a shortage of construction skills, and it could fall quickly anyway.

In his paper, Mr Parker says a reduction in Auckland’s median house price to median household income multiple, from the current 9-10 down to 5, might be achieved over the next 15 years if a concerted effort was made to follow recommended strategies – primarily by reducing costs of housing delivery and increasing the scale & breadth of housing options for the bottom half of the market.

An important point he makes concerns the house price median. It’s been rising as more $1 million-plus houses are built and new stock in the bottom price bracket has declined. Without preventing expensive new housing, the median can be cut simply by building more cheaper homes. A key to that is land price, and a vital accompanying factor is holding other household costs down, such as commuting.

Mr Parker was asked by mayor Len Brown & deputy mayor Penny Hulse to analyse Auckland’s housing affordability problem, identify causes and give preliminary advice on a long list of possible solutions.

“The scope of solutions considered is wider than just the council – it includes the Government, industry & the community. This is to give a more holistic understanding of the issue & solutions, and scope for collaboration & influence.”

Leading the root causes of unaffordability was the market signalling the need to transform the housing stock to accommodate as many as one million more people over the next 30 years. Demand drivers included natural population growth, strong migration, low interest rates, investor confidence & tax incentives.

Planning constraints were at to the top of the list of supply issues, followed by design requirements (as you can see above, I think this one is an excuse rather than a real cause), low construction productivity, fragmented land ownership & infrastructure needs.

Mr Parker has recommended the council work with the Government to jointly adopt an aspirational housing affordability target: “This would help to guide the development of policies, plans, regulations etc that may relate to housing supply, either directly or indirectly.”

But there are plenty of people in the property sector who will point to policies, plans & regulations as a root cause of cost rises, and they’ll be highly averse to a new round of them. Better, you might think, for a change in land pricing to flow from the tick of a zoning recommendation, reducing the need for intervention and heightening the chance of prices finding a natural level.

Links: Chief economist’s paper
Chief economist delves into Auckland housing
Action on price-to-income ratio the key issue for housing affordability, says chief economist
In depth: What’s fuelling Auckland’s house prices?

Attribution: Council paper, briefing.

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