Nice to go into booklet publishing, but where do these hefty documents get Auckland Council?
Mayor Phil Goff presented the 47-page work of his taskforce on housing on Monday, just 18 months after former council chief economist Chris Parker wrote his 86-page tome that put Auckland’s housing issues into an economic context and proposed policy interventions.
One feature of the taskforce report is an intention to investigate capturing value uplift. Mr Parker wrote in his December 2015 report: “Upzoning itself is not value-adding; rather, it is the cessation of value restriction.” He believed the council should, instead, focus on using targeted rates to capture the benefits of improvements to fund infrastructure.
Along with development contributions (based on cost of infrastructure), targeted rates are a consideration in the taskforce report – except that the reference is generally to “targeted ‘value capture’ rates”, which is a combination of 2 different concepts. The council sets some targeted rates now for an area seen to be benefiting from specific work.
Value capture is a tax on the windfall from rezoning or development – such as rezoning large swathes of suburban Auckland to enable more intensive residential development, and the new unitary plan has done that, or construction of a railway station, around which other parties will see the potential to make gains from consequent development, and that was happening down on Albert St, below the mayor’s window as he presented the taskforce report on Monday.
I asked Mr Goff why the council would investigate a concept it had steadfastly refused to implement in its first 6 years of existence (before his term began), and he gave a long response but didn’t answer the question.
A baffling failure
This failure to not just investigate how to extract a return from others’ windfall gains from the council’s work but to get on with extracting it baffles me, because in Auckland Council & Auckland Transport’s cost:benefit analysis of the city rail link, it was the value of development around these new stations that would make the whole project viable.
The Ministry of Transport, on the other hand, ignored these obviously beneficial consequences of the $3 billion-or-so rail project, and thereby produced a much more marginal benefit analysis.
Equally, there has been scope to extract a share of the windfall from changing suburban zones to enable intensification. Go to any auction since the unitary plan’s approval (and most of it is now approved), and you will see what “the market” thinks of the upzoning: a windfall to be shared between vendor & investor, where the investor looks at perhaps building 4 units on a section where a solitary house now stands.
The fact that this change is already well underway – you will see change occurring in every suburb if the Reserve Bank & the out-of-step Australian banks don’t block investors from transforming properties – was missing from the taskforce report, as far as I could see.
Industry players – private & public sector – were focused on stated overall shortfalls of housing, how to fill in a big picture of required infrastructure if a lot of new development is on greenfields, how to encourage big builders and advantage them, and how to speed up (which doesn’t necessarily mean improve) the bureaucratic processes.
I’ll address one other point in the taskforce report in today’s story: transport infrastructure funding & congestion pricing.
Traffic congestion has been building steadily since New Zealanders started importing second-hand cars from Japan in the early 1980s, so we’ve had nearly 4 decades to work out how to deal with an obvious problem.
Most people who work go to one place for the day to do it and don’t need their own car. They (I) use it for convenience, but incur large costs in doing so: fuel, car wear, parking. In property transaction items, I keep citing parking provision in North Shore business areas as an example of a disparity which encourages single-occupant private car use – a cost of perhaps $10-20/week to park in an area like Rosedale, against $80-100/week to park for the day in a city centre parking building. Many of those parking building charges will be met by an employer, again encouraging private car use – and congestion.
The wrong answer
The taskforce report stumbled on the problem and went to the wrong answer: “Transport infrastructure is the primary challenge. According to the Auckland transport alignment project, Auckland needs to spend $23.7 billion on transport over the next decade, against an expected $19.8 billion from existing funding sources. This amounts to a deficit of $400 million/year.
“Transport funding is constrained in significant part because it is difficult to recoup the full cost of new infrastructure from users.
“Development contributions recover some transport infrastructure costs, but it is difficult to determine which parts of the network new residents will actually use.
“Similarly, toll roads rarely make enough money to cover their full costs as users often have the option to take untolled alternative routes.
“Congestion pricing has been identified by the Auckland transport alignment project as a potential opportunity to overcome this issue, as it will better manage peak transport demands and provide an automatic funding source for upgrading busy routes.”
From this answer, you can see the thinking goes like this: We need more roads, more lanes, tolls priced to peaks & troughs will force commuters to vary their work hours but that’s their problem…
Options to progress
Instead? Encourage more business operations outside the city centre, provide more varied communal transport (it needn’t be ‘public’ as in the provider) and particularly at start points, carry on improving the rail network, provide more amenities in those transport options, price travel to shift people out of cars (even at a loss on the fare, that kind of change would save millions of dollars in congestion, road construction, car ownership & maintenance in a short time).
Those are all options the taskforce might have considered.
- You will see from individuals picking up opportunities to build in suburbia that more housing will be built by a multitude of builders and the housing deficit will shrink
- As the windfall from section sales reduces through competition, residential development costs can be shrunk (as the whole cost is based on the initial land value) but construction will continue because there is still scope for profit from the reduced input
- You will see, if the right encouragement is given, more business conducted in suburbia, more communal transport, less congestion, an economy spread more widely
- And when windfall taxes are judiciously applied, development will still occur at hotspots while at least some of the new infrastructure is paid for by new levies.
The $400 million/year shortfall should be regarded as a myth and the focus should go on alternative solutions (but not on the alternative solutions under the Building Code, mentioned in the taskforce report and a topic that needs discussing at a later date).
12 June 2017: Mayoral housing taskforce report
30 September 2015, Council chief economist Chris Parker, Housing supply, choice & affordability:
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?
2 October 2015: Council economist lists potential housing price solutions
Attribution: Taskforce report & presentation, Parker report & interview.