Tag Archives | infrastructure

Council agrees to reprioritise land supply schedule

Auckland Council’s planning committee skipped the most pressing part of its business yesterday – decisions on refreshing the overarching Auckland Plan – but did spend time on its future urban land supply strategy.

Committee chair Chris Darby said the Auckland Plan refresh and how the council would consult on it had been deferred until Tuesday 28 March because more preparation was needed.

But the committee discussed in detail the future land supply strategy and agreed to a number of changes to sequencing.

Staff recommended advancing work on some areas and deferring it elsewhere because of infrastructure constraints. The estimate to install bulk infrastructure over the next 30 years is $19.7 billion.

Areas to be brought forward: Warkworth North, Wainui East, Silverdale (business), Red Hills, Puhinui (business), Wesley (Paerata), Opaheke Drury, Drury South.

Areas to be pushed back: Kumeu-Huapai-Riverhead, Whenuapai stage 2, Drury West stage 2, Puhinui (business), Red Hills North, Warkworth North-east & Takanini.

Public consultation on the Auckland Plan is scheduled for the period 29 March-18 April.

East-West link

The planning committee also identified a number of concerns about the East-West link project intended to run through Onehunga.

The Government identified the project as a road of national significance and referred it to a board of inquiry. The NZ Transport Agency’s applications were publicly notified on 22 February and submissions close on 22 March.

  • This is an overly short version of events at yesterday’s committee meeting – being in 2 places at once doesn’t always work. I’ll come back with more detail on the land issues and the East-West link.

Link: 
Committee agenda

Attribution: Council release, agenda.

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Leading banker takes Australian politicians to task on governance, finance, infrastructure, urban prospects

Australian politicians’ ears must have been burning when bank chief Ken Henry addressed the country’s Committee for Economic Development in Canberra on Thursday, because he wasted no words in portraying the destruction – instead of construction – of a sound future they continued to guarantee.

The Unconventional economist on MacroBusiness, Leith van Onselen, wrote: “Dr Henry pulled no punches in admonishing the Government’s negligence in managing Australia’s mass immigration programme.”

Mr van Onselen also raised questions arising from Australian Productivity Commission reports, including An ageing Australia: Preparing for the future.

But migration & age were just 2 of the questions raised by Dr Henry, who chairs the National Australia Bank. He talked about the notion that endless growth was a practical proposition for Sydney & Melbourne, how every proposal for major infrastructure was drowned in political wrangling and – in the sector he knows best – how every tax reform proposal of the last decade had failed.

Below are some excerpts from his speech:

Business at odds with community

“According to our research, Australian businesses see our strong rate of population growth as a positive. …. In the broader community, there is considerably less support for a larger population. People are concerned about the impact of a growing population on traffic congestion, urban amenity, environmental sustainability & housing affordability. And they worry about our ability to sustain Australian norms of social & economic inclusion. These concerns are understandable.

“Australia’s business leaders have to accept responsibility for ensuring that strong population growth, and the investment opportunities that go with it, lift economic & social opportunity for all, without damaging the quality of the environment we pass to future generations. That means that we have to take an interest in traffic congestion, housing affordability, urban amenity & environmental amenity, including climate change mitigation & adaptation….

“If we want better access to skilled domestic workers, then we are going to have to offer those workers the prospect of better lives. If we want modern & efficient infrastructure, then we are going to have to take an interest in the design of our cities; we are going to have to take an interest in regional development; and we are going to have to take an interest in the planning of new urban centres.

“If we want less red tape & less regulation, then we are going to have to demonstrate that regulation is not necessary….

“Meanwhile, our politicians have dug themselves into deep trenches from which they fire insults designed merely to cause political embarrassment. Populism supplies the munitions. And the whole spectacle is broadcast live via multimedia, 24/7. The country that Australians want cannot even be imagined from these trenches….

“Almost every major infrastructure project announced in every Australian jurisdiction in the past 10 years has been the subject of political wrangling. In the most recent federal election campaign, no project anywhere in the nation – not one – had the shared support of the Coalition, Labor & the Greens.

“Every government proposal of the last 10 years to reform the tax system has failed.

“And the long-term fiscal, economic growth & environmental challenges identified in 4 intergenerational reports over the past 15 years?  The opportunities identified in the White paper on Australia in the Asian century? Simply ignored.

“The reform narrative of an earlier period has been buried by the language of fear & anger. It doesn’t seek to explain; rather, it seeks to confuse & frighten.

“Meanwhile, the platform burns.”

Growing Sydney & Melbourne

Dr Henry also spoke about the Australian budget & tax system, a strongly growing but aging population, climate change & energy security, and making the most of the Asian century.

“How will we fund the biggest infrastructure build in our history? And what about infrastructure planning?” he asked, before questioning the sense in adding 7 million people to the populations of Sydney & Melbourne:

“On the basis of official projections of Australia’s population growth, our governments could be calling tenders for the design of a brand new city for 2 million people every 5 years; or a brand new city the size of Sydney or Melbourne every decade; or a brand new city the size of Newcastle or Canberra every year. Every year.

“But that’s not what they are doing. Instead, they have decided that another 3 million people will be tacked onto Sydney and another 4 million onto Melbourne over the next 40 years.

“Already, both cities stand out in global assessments of housing affordability & traffic congestion.

“And even if we do manage to stuff an additional 7 million people into those cities, what are we going to do with the other 9 million who will be added to the Australian population in that same period of time? Have you ever heard a political leader addressing that question? Do you think anybody has a clue?

“At the very least, we are going to have to find radical new approaches for infrastructure planning, funding & construction. And that includes energy infrastructure, critical to our economic performance and our quality of life.

“The biggest challenge confronting the energy sector is that climate change policy in Australia is a shambles. At least 14 years ago, our political leaders were told that there was an urgent need to address the crisis in business confidence, in the energy & energy-intensive manufacturing sectors, due to the absence of credible long-term policies to address carbon abatement. It is quite extraordinary, but nevertheless true, that things are very much worse today.”

  • Dr Henry was Secretary of Australia’s Treasury Department from 2001-11, and was appointed a director of the National Australia Bank in November 2011 and chair in December 2015. From June 2011-November 2012, he was special advisor to the prime minister with responsibility for leading the development of the white paper on Australia in the Asian century. He’s a former member of the board of the Reserve Bank of Australia, the Board of Taxation, the Council of Financial Regulators, the Council of Infrastructure Australia and chaired both the Howard government’s tax taskforce in 1997-98 and the Rudd government’s review of the tax system in 2008-09, and he’s governor of the organisation he was addressing above, CEDA.

Links:
23 February 2017: NAB chair Ken Henry’s full speech at CEDA
Unconventional economist on MacroBusiness, 24 February 2017: Australia can’t build its way out of population ponzi
Unconventional economist, 24 February 2017: Bigger cities are engines for inequality
Australian Productivity Commission, November 2013: An ageing Australia: Preparing for the future
Committee for Economic Development of Australia

Attribution: NAB, CEDA, MacroBusiness.

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Propbd economic update Sun20Nov16 – Trump the upheavalist, the Onion view, beyond the rentier, Fed encourages Asian deficits

Trump the upheavalist
Onion highlighted US infrastructure decline in 2014
Beyond the rentier economy
Fed governor encourages switch to deficits for Asian economies

Trump the upheavalist

The Trump impact is everywhere, before he takes office as US president, with only a few of his executive named. Slowly, US mainstream media are realising they, and those they represent after nominating themselves as partisan commentators, won’t influence the direction of government, or the economy, or a multitude of other factors in daily life.

In Quartz, I read an interview today with a social scientist espousing the rise of urban radicals as an antidote to a rampant President Trump. He saw numerous ways around authoritarian decrees, but ignored the most important factor: He who holds the purse strings dictates.

Mr Trump might not be in charge of cities or states, but those who are will reach surprising degrees of flexibility as they lose out on federal funding because of their stands against change on perhaps completely unrelated issues.

Link:
Quartz, 15 November 2016: “Cities will be a powerful antidote to Donald Trump”: Social scientist Benjamin Barber on the emergence of a new urban radicalism

Onion highlighted US infrastructure decline in 2014

The Onion ran a semi-satirical article 2½ years ago highlighting the decline of the US economy and of its infrastructure. Semi-satirical, because the announcement of president-elect Donald Trump to pour $US100 billion/year into infrastructure over 10 years illustrates how real the predicament is.

The Onion story’s intro: “Putting the nation on alert against what it has described as a ‘highly credible terrorist threat,’ the FBI announced today that it has uncovered a plot by members of al-Qaeda to sit back and enjoy themselves while the United States collapses of its own accord.”

Link:
The Onion, 15 April 2014: FBI uncovers Al-Qaeda plot to just sit back and enjoy collapse of United States

Beyond the rentier economy

Neither of those pieces above directly affects us in New Zealand. But one matter which is international, but led from the US, has had decades-long direct effects here, and the way Donald Trump goes about the business of presidency may ring many changes to this factor: the rentier economy.

Mr Trump, in business, is very much a member of the rentier society, but he also opposes the hold of Wall St & closely related officialdom, while also wanting to lift productive businesses in former manufacturing centres that have declined.

As in so many of his pronouncements, his aims conflict with each other, and those that hit his hip pocket are likely to be discarded first. But Mr Trump will ring in changes, in the same way that John Banks did when he became Auckland mayor in 2001.

“We won, you lost,” was Mr Banks’s riposte when he appointed Citizens & Ratepayers councillors to head all committees, sparking a walkout by Labour & City Vision councillors, who’d found themselves in a minority.

Mr Banks’s stance is worth repeating on a couple of other aspects of council business 15 years ago, because Mr Trump has adopted a similar line. Mr Banks in 2001: “It’s not business as usual, it’s not an extension of the old government, this is a new government. The people of Auckland don’t want to continue down the street to nowhere.”

Cllr Glenda Fryer (City Vision) had acknowledged the CitRats had won 9 seats, “but that shouldn’t mean winner take all.” Wrong, said Mr Banks: “I support the fact that the winner will take all, and the winner will be the people of this city & this country. The reality of life is about votes in a democracy. The votes have been cast and the game has changed.”

Mr Banks took a lead on roading infrastructure, championing the eastern corridor motorway between the eastern suburbs & the cbd and criticising the pre-election decision of his opponents to approve the Britomart railway station. His motorway support helped him get ousted 3 years later.

Distinguishing between value & rent

The Evonomics website ran a long article today – repeating one that originally appeared in a US academic journal in September, by economics professors Dirk Bezemer (Groningen in the Netherlands) & Michael Hudson (Missouri & Peking) – which goes to the heart of arguments on how to fund growth or change: the basis of economic growth (productivity); how finance, and particularly collecting rent from assets, slid into being considered at the economic heart and how it should be distinguished; how the “great moderation” was anything of the sort; and the role of the debt-leveraged rise in asset prices.

They wrote: “Economic growth does require credit to the real sector, to be sure. But most credit today is extended against collateral, and hence is based on the ownership of assets…. Our aim is to revive the distinction between value & rent, which is all but lost in contemporary analysis. Only then can we understand how the bubble economy’s pseudo-prosperity was fuelled by credit flows — debt pyramiding — to inflate asset markets in the process of transferring ownership rights to whomever was willing to take on the largest debt.”

Unfortunately, this article dwells on what’s gone, leaving just a list of questions at the end on how the next stage might unfold. Those questions are the most important part of the article, but are only about what might be needed in the immediate future. The good thing about them is that they should lead to further inquiry focused on how to set a new course without causing total upheaval.

The Trump focus, at least for the moment, has a heavy focus on upheaval, and he will have the votes to follow the courses he wants to take. The next task for enlightened economists is to look at the ‘how’ of change.

Links:
Evonomics, 20 November 2016: Finance is not the economy
Journal of Economic Issues, September 2016: Finance is not the economy: reviving the conceptual distinction

Fed governor encourages switch to deficits for Asian economies

US Fed governor Jerome Powell.

US Fed governor Jerome Powell.

US Federal Reserve governor Jerome “Jay” Powell told a research conference at the Federal Reserve Bank of San Francisco’s Centre for Pacific Basin Studies on Friday it would be “advantageous” for Asian nations to shift towards external deficits seeing that financing costs were so low.

That’s despite an antipathy towards deficits among leading Asian economies, the likely gradual rise in the Fed’s funds rate as it tries to boost inflation, and the more likely escalation of rates in the US & probably internationally if Donald Trump goes ahead quickly with a number of his policies, including ramping up infrastructure spending.

In a speech entitled The global trade slowdown and its implications for emerging Asia, Mr Powell said: “Encouraging domestic demand and allowing for downward adjustment of these surpluses in emerging Asia, with more balances turning into deficits, would provide a much-needed injection of demand into the global economy and also support economic growth in the region by providing another source of growth in place of the lessened impetus from external demand.

“A shift toward external deficits in Asia would be advantageous, considering the low level of external financing costs at present. Many observers are raising the possibility of a ‘new normal’ for the global economy, in which moderate global demand, low productivity growth and slow trade may persist for some time, keeping interest rates in the advanced economies ‘low for long.’

“To be sure, bond yields have moved up recently, but they remain quite low by historical standards. Accordingly, the cost of external finance to Asian economies has fallen, which should support strong private capital flows to emerging markets. Normally, we would worry about volatility of these flows and how they might exacerbate risks of financial instability, particularly as US monetary policy normalises. But we should also bear in mind that many emerging market economies, particularly in Asia, have improved their macro-economic fundamentals over the past 2 decades; that they have built an adequate war chest of reserves, with no pending need to further reserve accumulation for precautionary purposes; and that their currencies are much more flexible, which acts as an adjustment mechanism to shocks and also lessens the possibility of fluctuations in reserves due to currency intervention. These factors have made the emerging Asian economies much less vulnerable.

“Given all this, dare we imagine a world in which private capital inflows to emerging market economies could prove self-sustaining, are not offset by reverse flows of official capital and would finance long-term profitable investment that would help support growth in these economies while also supporting global growth?

“In essence, these capital inflows would finance the shift from export-led growth to domestic-led growth required by the slowdown in global trade. And, with little or no official outflows, emerging market economies would have total capital net inflows as well, consistent with running current account deficits instead of current account surpluses. As pointed out recently by former Fed chair Ben Bernanke, the availability of profitable capital investments in one part of the world can help defeat secular stagnation in another part.”

Mr Powell was appointed to the US Federal Reserve board in 2012 and reappointed in 2014 for a term scheduled to run until January 2028, a few days before his 75th birthday. He was a New York lawyer & investment banker, a partner for 8 years at global alternative asset manager the Carlyle Group, and became an assistant secretary & undersecretary of the Treasury under President George HW Bush, with responsibility for policy on financial institutions & the treasury debt market.

Link:
Fed governor Jerome Powell speech, 18 November 2016: The global trade slowdown and its implications for emerging Asia

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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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Capital intentions plan up $15 billion in year

Finance Minister Bill English released the Government’s 10-year capital intentions plan on Friday – a pipeline of $100.9 billion of infrastructure projects over the next decade.

The Government launched the plan in 2014 and has updated it twice. It includes intentions of both central & local government and, to a lesser extent, the private sector.

Of the 3823 projects in the 2016-25 pipeline, 219 belong to central government and are valued at $40.5 billion, 3559 belong to local government and are valued at $51.1 billion, and 45 projects belong to the private sector at a value of $9.2 billion.

This year’s plan gives a greater year-by-year breakdown of actuals & intentions. Mr English said it showed the total actual & estimated spend out to 2025 had increased by nearly $15 billion since last year.

“Ensuring that the right frameworks are in place to support sound infrastructure investment decisions that meet the needs of a changing New Zealand is an important focus for this government. “Central & local government are increasingly working together to improve infrastructure investment & the management of existing infrastructure necessary to underpin economic growth,” he said.

The Government’s National Infrastructure Unit said the full evidence base comprised:

  • an overview document, including methodology & key sector messages
  • sector-specific narratives, including an assessment of the current state of infrastructure and potential future pressures on it
  • an analysis of potential future demand pressures on infrastructure, based on sector-specific scenario & trend information
  • a resilience assessment, and
  • a 10-year capital intentions plan.

Link:
Capital intentions plan

Attribution: Ministerial release, plan website.

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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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Tracking ideas Sun27Sep16 – sprawl v compact, inclusionary housing, infrastructure funding, related pieces, Making NZ

Sprawl v compact research stops short
Inclusionary housing another debate that’s international
Infrastructure funding options
Related pieces
Making NZ a home for planning thinkpieces

Tracking ideas is a Bob Dey Property Report section devoted to ideas on property questions such as urban strategies & design, many from overseas but with relevance to Auckland.

This page today flits between foreign, mostly American, information and Auckland. I’ve listed a large number of links to work through – it’s a library piece, not a quick read. And I’ve mentioned a couple of points which may be true in the US but don’t apply in Auckland because circumstances here have changed.

Sprawl v compact research stops short

In another round of the sprawl v compact argument, US analyst Issi Romem produced an article a fortnight ago that’s already been taken by some notable news outlets as something approaching gospel.

Some of what I’ve read among the many links below leaves me mystified about the writer’s point, some of the complicated analysis requires more digestion, here & there I’ve spotted contributions worth taking further.

The first mystery, for me, is how Dr Romem’s figures (down to 2 percentage points) on housing development over the last 3 decades can point to a sensible way forward in times which have started to change very quickly.

An inappropriate template

The US – and New Zealand followed, though to a less extravagant extent – launched into suburban development in the 1950s, pushed along by the availability of cars for general consumption. That doesn’t mean the development of those suburbs was a perfect mechanism for housing fast-growing populations, or that in an isthmus-centred place like Auckland the carpetlaying grid template would be appropriate.

One side of the argument now is that central intensification should be used to provide a larger proportion of housing, that this will be cheaper than sprawl on the fringes of the region. On the other side, proponents of extending the urban footprint say this will provide cheaper land and thereby cheaper housing.

How you count the numbers, and which numbers, makes a big difference. Do you include a travel component, or not? Does it measure cbd to wherever, or some to more local workplaces? How many cars does a household have?

Housing comparisons undefined

All the research, and all the comments, refers to housing, houses, apartments…. You, the reader, can only guess at what kind of economic units are being referred to. At the start of the 1980s, the standard New Zealand house (used in Master Builders statistics) was 93m² (1000ft²). Standard houses now are more likely to be over 200m², perhaps over 300m² including garage, with indoor-outdoor flow to make it hard to assess actual, practical size.

Old sausage-block flats were small, commonly under 80m², and a high proportion of apartments built in the last 20 years will also measure less than that. But, in recent times, terraces, townhouses, cross-leases, standalones on small sections and a smattering of apartments will exceed 200m².

Section sizes have been shrinking for 20 years. From 809m² (one-5th of an acre, far more common than the ‘quarter-acre paradise’, 1012m²), sections now can be down at 200m².

In Auckland, now, the Government is a key participant in redeveloping at Hobsonville Point, in the Glen Innes-Tamaki area and at Northcote. The Government-owned Housing NZ is still contesting unitary plan decisions limiting what it can do on many other sites where it’s aggregated land, wants to reposition old housing or wants to do a mix of upgrade & new.

In most of the American research, apartments or other intensified housing in the city centre are compared to development on the distant suburban fringe, with no indication of how close they are to being alternative options, and no calculation of commute costs.

Commuting from Faraway

In Auckland, we have a 20km stretch through Dairy Flat, between the ridge above the Albany basin & Silverdale, and very large areas between Karaka, Pukekohe and west to the coast likely to be developed for housing. You can bet it won’t be turned over to housing at the US standard of 4 houses/acre gross (10/ha) – more likely a mix of standalones on sub-400m² sections, terraces and, a novelty, suburban apartment blocks.

Where will these residents work? Shop? How will they get there? Do we create new communities – or faraway dormitory suburbs? Will the commute be made easy first, or wait for an economic number of travellers to buy at Faraway?

What kind of local jobs will be there? Rodney District Council, in its last years before the super-city was created in 2010, envisaged an innovation zone of business & education as well as housing north-west of Silverdale, a strategy that would increase jobs & education and reduce the commute. That kind of thinking needs to be revived.

Completion of the Auckland unitary plan enables the course of infrastructure provision to be more clearly defined (the appeals still to be determined shouldn’t drastically alter this), but there will still be questionmarks over how much more intensive development might be put in train in the inner suburbs.

Back to Dr Romem

Today’s Ideas page traverses ideas on infrastructure funding, inclusionary zoning as a way of introducing some more affordable housing, and city shape (focusing on Auckland being linear, having satellites, or concentrated around nodes).

This journey over the weekend has taken me to a wide range of views on transport, land use, access – starting with American, returning to New Zealand via international links (Wendell Cox, co-author of the Demographia studies with Hugh Pavletich of Christchurch; and housing & urban development thinker Phil Hayward of Lower Hutt, whose comments appear in a couple of the international & local threads).

At my first stop, Dr Issi Romem’s Can US cities compensate for curbing sprawl by growing denser? offered 4 central points:

  • The link between housing production and outward expansion is unmistakable: cities that expand more produce proportionally more new housing
  • Throughout the country, housing production is skewed towards low density areas
  • Densification has slowed down across the board, and especially in expensive cities, undermining their ability to compensate for less outward expansion
  • Unless they enact fundamental changes that allow for substantially more densification, cities confronting growth pressure face a tradeoff between accommodating growth through outward expansion, or accepting the social implications of failing to build enough new housing.

While Dr Romem’s research shows his first point appears true historically in the US, in Auckland at least that may be much less so in the last 5 years. On his second point, land price & ease of development are the crucial factors. Auckland has a short history of apartment building (though a long history of much less intensive sausage-block flats), and it’s come in bursts. Building consents are now approaching the 2004 level, but the price range is limited – almost entirely above what’s deemed “affordable”.

Romem says less outward means less overall

Dr Romem is the chief economist at BuildZoom, a San Francisco website aimed at matching clients to construction contractors. He was previously an economist at OnPoint Analytics, earned his PhD in economics at Berkeley, and consulted for the Bay Area Council Economic Institute on matters involving transport, real estate & the regional economy.

In this report, he found that, when cities change their pace of outward expansion, their rate of housing production tends to change accordingly.

“Both expensive & expansive cities are economically vibrant and face pressure to grow, but whereas expansive cities like Atlanta, Houston & Phoenix continually provide ample new housing at affordable prices, expensive cities like San Francisco, New York & San Diego do not. Since the 1970s, expensive cities have failed to produce enough new homes to keep real housing costs steady, and as a result they have curbed their population growth and sent real housing prices on a long-run upward spiral.”

He saw 2 key reasons for housing production to correspond so closely with outward expansion:

  • Undeveloped & low density areas produce a disproportionately large share of cities’ new housing. Restricting the flow of undeveloped land “into” a city chokes off subsequent rounds of densification, because low density areas add new housing more readily than denser ones, and
  • Cities which curb their outward expansion are also likely to curb densification within the existing footprint, eg, through more restrictive land use policy.

“Housing production’s skew towards low density areas is important, because it is consistent with the notion that a greater inflow of undeveloped land helps cities produce more housing, through both initial development & subsequent rounds of densification. For reasons explained earlier, eg, with respect to vacant lots, such densification is easier in low density areas. Crucially, expansive cities’ namesake outward expansion keeps low density areas more plentiful there than in expensive cities. In contrast, expensive cities have limited their inflow of undeveloped land by curbing their outward expansion, thereby choking off the initial development of new areas as well as subsequent rounds of densification.”

Densification has slowed down across the board, but much more so in expensive cities

Dr Romem said an important development of recent decades was the increasing paucity of densification: “During the first post-war decades, it was fairly common for areas to grow more dense through construction on vacant lots, and in particular through the replacement of older structures with new ones containing more dwellings. The data show that densification has grown far less common over time, especially in the expensive cities.”

He said the results were similar for areas first developed before World War II.

“Aside from the slowdown in densification, the numbers also tell us that in the US today, substantial densification is the exception. Just 3.8% of areas adding over 1 home/acre (4/ha) and just 0.95% adding over 2 homes/acre over the span of a decade is not very much, and the fraction of areas that cross the 4- & 10-home/acre (16- & 40/ha) thresholds each decade is also exceedingly small. In fact, the vast majority of the developed area of US cities maintains a fixed level of density that doesn’t usually change much over time….

“By curbing their outward expansion, expensive cities have stemmed their subsequent supply of low density areas that are flush with opportunities for further development. A sizable share of densification occurs through infill – not the kind of infill for which planners reserve the term, but simply construction on vacant land scattered within developed areas. The best land is used first, and as densification progresses the remaining lots are fewer and increasingly more challenging to build on, until redevelopment ultimately becomes the only alternative.

“Expansive cities maintain a robust supply of fresh land that is in the early phases of the progression. In contrast, expensive cities’ reduced rate of outward expansion means that most of their land is farther along in the progression, and as a result it is getting harder for them to densify. It is no coincidence that builders today report an unprecedented shortage of vacant lots that is most pronounced in the West & the North-east, where expensive cities cluster.”

Dr Romem’s assessments may also have been true in New Zealand, Auckland in particular, but the intensification trend is strong at the moment. Building consent figures over the last 2 years show intensive housing (apartments, retirement village units, townhouses & suburban units) showed 29.4% of consents nationally were for such intensive development in the July 2015 year, falling to 28.5% of a bigger total (up from 7600 of 25,700 to 8300 of 29,000) in the July 2016 year. I don’t have the breakdown for each market segment for Auckland alone.

Auckland apartment pricing has risen since the market bottomed in 2011. The market in standalone homes has skyrocketed in that period, but the 2 markets differ in their foreign input. Overseas investors have strongly influenced recent house prices, but have had a much longer association with the apartment market, which has relied on marketing overseas in this boom & the last one to get projects started.

The path forward

Dr Romem saw 3 paths forward in the US:

  • Cities that expand with gusto will maintain housing at more affordable levels, but this will further entrench the ills associated with sprawl; today’s expansive cities are already on this path
  • Avoiding expansion, and maintaining the status quo with respect to densification, will divert population growth towards more accommodating cities and render housing increasingly unaffordable for a growing share of the population; it will unequivocally change the social character of these cities, while keeping their physical facade intact, and
  • Enacting fundamental changes to land use policy that prompt far more substantial densification than any US city has undergone to date; expensive cities would have to embrace redevelopment; if new transport infrastructure connects undeveloped areas to the city, or functionally tethers existing nearby cities to it, then such infrastructure amounts to a catalyst for expansion.

Cox says research supports stance against ‘forced density’

Wendell Cox, principal of Demographia, wrote the book War on the dream: How anti-sprawl policy threatens the quality of life 10 years ago. In an article on the New Geography website on Wednesday, The incompatibility of forced density & housing affordability, he said Dr Romem’s research “supports the conclusion that anti-sprawl policy (urban containment policy) is incompatible with housing affordability. He quoted Dr Romem’s finding: “Cities that have curbed their expansion have – with limited exception – failed to compensate with densification. As a result they have produced far less housing than they would otherwise, with severe national implications for housing affordability, geographic mobility & access to opportunity, all of which are keenly felt today as we approach the top of housing cycle.”

Journal accepts the sprawl argument

In the Wall Street Journal, Laura Kusisto wrote: “Building sprawling suburbs is better at making cities affordable than building tall towers, according to research released Wednesday. Environmentalists, urban planners & economists are pushing cities such as New York & San Francisco to build more housing to help combat rapidly rising rents and home prices that are crowding out the middle class.”

At CityLab, Richard Florida noted the expansive versus expensive comparison and said if most development was low density it would amount to sprawl even if the overall urban footprint didn’t increase, and asked: “Do we continue to try to sprawl our way to the American dream, or do we add the density that powers innovation & economic growth?”

A Planetizen report said Dr Romem’s research “shows that housing affordability increases with a region’s ability to build outwards, as opposed to upwards. Densification largely has not accompanied efforts to curb sprawl.”

The Planetizen take was that the research found “sprawl may be bad for the environment & liveability, increasing dependence on the automobile and making transit less practical, but in terms of housing affordability, it’s a winner”.

In comments on the Romem report, Phil Hayward of Lower Hutt wrote (in a much longer comment): “I believe that everywhere that intensification & redevelopment have been adopted as significant proportions of planned housing supply, the results have been the opposite of the anticipated ‘affordability’. Site values increase to incorporate ‘development potential’ as soon as any rezoning occurs, which increases the costs that developers need to sustain while at the same time reducing their margins. All the gain falls to the incumbent owners of sites. In many cases, the expected ‘supply’ does not materialise.”

Hard boundaries go as immigration spike continues

Auckland, as a region with urban boundaries for 20 years – and “hard” boundaries for most of that time, in that they weren’t easily changed without going through protracted litigation – has been the main host for 2 immigration spikes, in 2003-04 and the present one that began with the turnaround from net outflow to net inflow in January 2013.

The latest annual net inflow was 69,000, of whom 32,200 were destined for Auckland. Neither inflow has been matched by an adequate rise in housebuilding. Consents for new homes issued in the last 12 months, 29,000 nationally, 9600 in Auckland, would barely house the national inflow while the Auckland consents would be inadequate to house all the new migrants, let alone internal migration & natural increase.

That can be turned into an excuse, aided by slow consent processes. Auckland was also behind during the 2003-04 immigration spike, but builders worked to catch up

For the first of those migration spikes, Auckland’s policy statement on land use was in the hands of the now-gone regional council. For the second, it’s in the hands of the successor unitary council, and the spike has coincided with the 3 years it’s taken to get the council’s unitary plan from start to almost finished. The housing accord with the Government through that period has enabled a lift in consents, though still well short of demand, and a finalised unitary plan will make intensification easier in many areas.

The “forced density” Mr Cox writes of is not what we have in Auckland, although the Government is leading rebuilds & newbuilds in 3 suburbs – Hobsonville Point, Glen Innes-Tamaki & Northcote. 2 of those projects involve rejuvenating Housing NZ properties, with additional intensive housing, while Hobsonville Point is all new (except for repositioning of a couple of handfuls of former Defence Force houses) and is being built by private contractors.

Current consents for apartments are no longer just in the central city, and include a number of high-price projects – upward of $10,000/m² for some consented 2 years ago, higher than that for more recent projects.

Occupants of those, and of new retirement villages, will free up existing housing, much of it in city fringe suburbs. The question, then, is: Where is the supply for lower market levels?

The answer is that it’s not going to appear until land prices ease, interest rates rise, speculation diminishes and developers & designers adjust their sights.

Links:
Issi Romem, BuildZoom, 14 September 2016: Can US cities compensate for curbing sprawl by growing denser?
Wendell Cox, New Geography 21 September 2016: The incompatibility of forced density & housing affordability
Planetizen, 16 September 2016: If housing affordability is top concern, let metro regions sprawl
Wall Street Journal, 14 September 2016: What if urban sprawl is the only realistic way to create affordable cities?
Richard Florida, CityLab, 14 September 2016: The difficulties of density
Phil Hayward comment, 18 September 2016

Inclusionary housing another debate that’s international

Debates over housing affordability, inclusionary zoning, sprawl & urban boundaries are international and can often relate to what happens in Auckland.

Jamues Brasuell wrote on the Planetizen website this week that Portland, Oregon, was considering a new inclusionary zoning policy – ending a statewide ban – but some believed it would have the opposite effect to that intended.

The inclusionary zoning policy is up for debate following a decision by the state to repeal a statewide ban on inclusionary housing requirements. City Observatory columnist Joe Cortright, a panellist at an Urban Land Institute forum on it, suggested ending parking requirements instead, saying inclusionary zoning & weakened urban growth boundaries weren’t effective tools for reducing the price of housing.

Mr Cortright focused on the consequences of “bursting” Portland’s urban growth boundary, saying that possibility, combined with new inclusionary zoning, could make Portland’s affordability worse.

He argued 7 points:

  1. Affordability is about growing up, not out
  2. The market demand/affordability problem is in the urban core
  3. Adding more supply in the core is the key to addressing affordability
  4. Inclusionary zoning increases market prices
  5. Inclusionary zoning creates only token numbers of affordable units
  6. Inclusionary zoning requirements would encourage further sprawl. (Because inclusionary zoning is likely to apply only to housing built in Portland, but not in suburban jurisdictions, it will effectively be a way of penalising & disincentivising dense development in the city relative to housing on the periphery)
  7. If we want to make housing more affordable, let’s get rid of parking requirements. (Oregon actually does allow inclusionary zoning – for cars, in the form of parking requirements. Requiring parking reduces the amount of land that can be used to house people, and directly drives up the price of new homes & apartments. These costs get passed on to homebuyers & renters. Studies show that in urban centres, parking requirements drive up rents by something in the order of about $US200/month. If we want to increase affordability we ought to be getting rid of this kind of hidden housing tax).

Links:
Planetizen, 19 September 2016: Inclusionary zoning & unintended consequences
Planetizen, 4 February 2016: Cortright: Oregon legislation would make housing affordability worse
City Observatory, 3 February 2016: Bursting Portland’s urban growth boundary won’t make housing more affordable (and a number of counter points in the comments)

Infrastructure funding options

Only when it doesn’t work does anybody think about infrastructure, says Just Economics LLC director Rick Rybeck.

In an article for Revitalization News, Funding infrastructure to rebuild equitable, green prosperity, said divorcing payment from infrastructure from payment for it made it harder to understand how the money was spent.

People also didn’t understand that, when infrastructure was designed & implemented well, it often inflated the price of well-served land. Where does that lead? “The infrastructure we create to facilitate development pushes development away and is partly responsible for sprawl,” he said. User charges, including road user charges, could help focus the mind on cost.

Just Economics says on its website it helps communities harmonise economic incentives with public policy objectives to:

  • reduce blight by putting vacant & boarded-up properties back into use
  • enhance business & employment opportunities
  • fund transit & other public infrastructure
  • reduce parking & traffic congestion
  • enhance housing affordability
  • enhance the environment, and
  • reduce sprawl.

The company says it accomplishes these goals by helping communities re-engineer taxes, fees & regulations so:

  • incentives embedded in taxes, fees & regulations encourage the private sector to create jobs, affordable housing, transport efficiency & sustainable economic development
  • needed public revenues are obtained, and
  • government sustainability, efficiency & competitiveness are enhanced.

Related pieces

These articles led me to several related articles on various websites. Check them out:

Charles Marohn, Strong Towns, 19 September 2016: Infrastructure spending for dummies
Revitalization News, 15 July 2015: Funding infrastructure to rebuild equitable, green prosperity
Rick Rybeck, report for Washington DC Tax Revision Commission, 2013: Funding long-term infrastructure needs for growth, sustainability & equity
Just Economics LLC (Rick Rybeck)

Making NZ a home for planning thinkpieces

A group of professionals who want to raise the level of public debate & understanding about housing, infrastructure, cities & planning launched the Making NZ blogsite in July.

I’ve quoted some of them below about the launch & their reasoning, but Making NZ cracks a mention today because of links to a number of its contributors who’ve commented recently on topics above – notably intensification & affordability.

Blog editor Matthew Webster said the group of contributors saw affordable housing, economics, infrastructure & design as important components.

Phil Hayward, an independent researcher, writer & lobbyist on urban policy issues, said: “A lot of urban policy is based on plausible assumptions that actually are not supported by real-life experience anywhere. For example, changing zoning to allow more intense development is always forecasted to unleash far more supply of housing units than what actually ends up being built. This is mostly because these zoning changes cause land values to increase even faster than otherwise and, as Arthur Grimes pointed out in a 2010 paper, all the profit potential is captured in land values rather than in newly constructed buildings.

“We should learn from the decades of over-estimated housing supply by urban planners in the UK, and avoid a replay of their costly & now-irreversible blundering.”

Development planning consultant Phil McDermott said: “Transport policy in our largest & most troubled market aims to focus investment in already intensively developed urban areas, raising environmental & financial risks. It’s a double whammy for unaffordability. Existing urban areas with limited capacity for growth receive expensive improvements. While that will increase the desirability of living there for some of those that can afford the higher costs & inflated property values, it leaves many more stranded without access either to traditional suburban housing or to multi-unit dwellings of any quality.

“One key, in the case of Auckland, is to free up for development sufficient greenfields land so the land value/rent curve is at least stabilised from the fringe back into the inner city, allowing more affordable & better quality housing to be developed citywide.”

Links:
Andrew Atkin blog, Building Utopia, 12 June 2013: Auckland versus Los Angeles
Making NZ, for urban planning that works
Phil Hayward, Making NZ, 1 September 2016: The myth of affordable intensification
NZ Herald, 29 February 2016: Dushko Bogunovich & Matthew Bradbury: Curing Auckland’s growing pains
Peter Nunns, Transport Blog, 7 March 2016 (and a long line of comments): The linear city and other science fictions

Attribution: BuildZoom, New Geography, Planetizen, Wall St Journal, CityLab, City Observatory, Strong Towns, Revitalization News, Just Economics, Making NZ, Andrew Atkin, Phil Hayward, NZ Herald, Transport Blog

Regular leads: Planetizen.

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Brown leaves mayoralty with 2 huge transport wins

Len Brown finishes his 2 terms as the Auckland super-city’s first mayor on a high note – an agreement signed with the Government on Wednesday on funding the city rail link, and a second agreement yesterday on the Auckland transport alignment project.

The alignment project’s 48-page recommended strategic approach is comprehensive on the approach, but still left questions open on how to implement it.

A number of stakeholders given a presentation yesterday were impatient for more. Employers & Manufacturers Association Northern chief executive Kim Campbell called it unambitious: “The timetable I think is really lazy, given what’s coming at us. The rate of change here is so slow it’s almost hard to characterise it as incremental.”

But the man who has driven the process for the last year, Barry Mein, said the list of priorities was deliberately not over-ambitious, and he said it would change as more detail was investigated. But, he added, it was up to Aucklanders to push for a faster programme, which would entail decisions on funding and an acceptance of higher rates as the ultimate source of revenue.

Simon Bridges.

Simon Bridges.

Transport Minister Simon Bridges said at yesterday’s presentation: “We have put side politics, what is “supposed facts”, and we’ve come together to provide adult answers on what are incredibly complex issues.”

The project had required staffs of 6 agencies – frequently, for decades, working against each other – in this project “not to negotiate but to analyse & agree without any political interference. And that, I think, is a fantastic achievement. It’s hard to state the importance to the country of transport in Auckland.

“This report recognises there is no silver bullet [but] we have a serious long-term view here. Atap [the project] recognises we can’t just build our way out in the long run, we can’t just keep adding lanes to the motorways.”

Mr Brown, who suggested the project early last year, said the agreement would end “100 years of divisiveness & disagreement”. Auckland’s population had grown by the size of Hamilton in the last 3 years, 670 new vehicles were coming on to its roads every day, and the region’s inhabitants were sick of the congestion.

He said the council & government were “looking to establish a forum that sits permanently to provide the political leadership & oversight”.

The biggest barrier at the moment is an estimated $4 billion gap in the $24 billion of funding required over the next decade. Mr Brown said he favoured motorway tolling to fill that gap, “but” – in the spirit of the agreement – “I’m not wedded to that”.

The document’s priorities

The project prioritises a programme of transport investments including the North-western Busway, mass transit on the isthmus, improved access to the airport, another Waitemata Harbour crossing & Penlink to the Whangaparaoa Peninsula.

It also includes broad categories of investment such as transport for future residential development, improvements to major arterials and better traffic management on them, and better commuter transport options, particularly in the south & west.

Cllr Bill Cashmore, who represented Auckland Council on the project alongside the mayor, said the council & government would now consider options to address the $4 billion gap ahead of the next round of statutory funding decisions in 2018, with agreement required by the middle of next year.

ATAP has allocated the following indicative projects & timeframe:

2018-2028

  • North-western Busway (Westgate to Te Atatu)
  • Address bottlenecks on Western Ring Route (State Highway 20, Dominion Rd to Queenstown Rd) & Southern Motorway (Papakura to Drury)
  • New or upgraded arterial roads to enable greenfield growth in priority areas
  • Protect routes & acquire land for greenfield networks
  • Complete State Highway 16 to State Highway 18 connection
  • Early rail development plan priorities including electrification to Pukekohe
  • Upgraded eastern airport access (State Highway 20B)
  • Investments to enable smarter pricing
  • Increased investment in intelligent network management

2028-2038

  • Continued investment to enable greenfield growth
  • New strategic roads to Kumeu & Pukekohe
  • Implementation of mass transit on isthmus and then to the airport
  • Bus improvements Airport–Manukau–Botany
  • Improved access to Port/Grafton Gully
  • North-western busway extensions
  • Improve connection between East-West link & East Tamaki
  • Penlink
  • Medium-term rail development plan priorities

2038-2048

  • Continued investment to enable greenfield growth
  • Southern Motorway improvements south of Manukau
  • South-west motorway (State Highway 20) improvements and improved northern airport access
  • Northern motorway widening
  • Waitemata harbour crossing improvements, including mass transit upgrade of Northern busway
  • Longer-term rail development plan priorities

Links:
Ministry of Transport, Recommended strategic approach for transport in Auckland
Recommended strategic approach [PDF, 2.2 MB]
Supporting information [PDF, 3.5 MB]
Questions & answers
Interim report, 21 June [PDF, 2.1 MB]

Earlier stories:
15 September 2016: City rail link funding agreement signed
22 June 2016: Government & council start lining up on tolls but transport report still has big failings
23 February 2016: Transport alignment starts off-track
19 February 2016: Auckland & government working together – but still some basic “facts” to align

Attribution: Presentation, mayoral release, documents.

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No ticks yet for mayoral candidates though Goff makes start on fiscal policy

2 candidates for Auckland’s mayoralty have committed to a “ratepayer protection pledge” guaranteeing they won’t vote for any rate or levy hikes exceeding 2%/year in the next council term, and a third candidate has written a policy to cap the residential average rise at 2%. But the candidate most likely to win if the right of politics vote is split 3 ways, Phil Goff, released a fiscal policy yesterday designed to restrict rate rises to an average of 2.5%.

The call for a ratepayer protection pledge was made last week by the Auckland Ratepayers’ Alliance, created by the NZ Taxpayers’ Union, and won support from mayoral candidates John Palino & Mark Thomas. Victoria Crone had already written her own policy with the 2% cap.

Mr Goff’s version of crimping the always-up thinking includes requiring every council department to make savings that would contribute to a new efficiency target of at least 3% of overall spending.

All these percentage thinkers have it wrong.

Picking a number to cut rates by is a great way of ensuring the arms & legs will be cut off, leaving a corpulent policy and no ability to implement it. Auckland City Council did that several years ago.

When the new super-city council was created in 2010, it should have looked at what it needed to do and stuck with it. But the council, in that first year, had an almighty project on its hands to bring consistency across a region that previously had 7 territorial councils & one regional council and, at budget time, it did the usual exercise of seeing what could be left out.

Starting at “what to do” instead of “what not to do” sets the parameters, which can be reviewed.

An example of how to do things badly is in consent processing, an area of the council where customers pay for the service. A predetermined percentage cut would mean that, as the need for inspections rises, fewer people would be available. But, by investigating efficiencies – in this case, including policies set by both government & council – a leaner yet better performance might be possible.

The net result for me is a cross against all those candidates – no ticks.

The Hide ploy

When Act MP Rodney Hide set up the super-city council, a central ploy was to ensure politicians couldn’t get their hands on the commercial businesses of the council, which were semi-quarantined in “council-controlled” organisations.

Thus Auckland Transport, Watercare Services & a few other arms of the council were almost, but not quite, autonomous. But their budgets are, in the end, up for approval by the council, and the council needs to know what justifies the figures, so the semi-autonomy concept could never work satisfactorily.

Mr Goff’s fiscal policy shows a determination to turn those organisations, effectively, back into departments: “A particular focus will be on combining council & council-controlled organisations’ procurement systems and progressively moving towards shared services for the group in terms of back office functions such as finance & human resources.”

Are council departments the way to go? They could be, but New Zealand experience tells you that politicians never fund services & infrastructure adequately when they have direct control – and direct exposure to the reactive votes – which was a big part of isolating them from this risk.

Tax allocation & infrastructure funding

Mr Goff – former housing minister & leader of the opposition – set out brief policy yesterday on 2 issues which deserve far more consideration than politicians have given them: allocation of tax income and financing of infrastructure.

If you allocate tax income according to geographic population, Auckland may well be receiving less than its due. On the same basis, would cycleways – or new housing subdivisions – get any funding? Few people are riding bikes because it’s dangerous or impractical, and nobody lives in these unbuilt subdivisions yet, but logic tells you that funding is required if change is to occur.

Extending that logic, you could argue that these subdivisions should be built somewhere else that’s cheaper, where the land is available, and therefore that the focus should be on shifting jobs to centres outside Auckland.

He advocated replacing the interim transport levy on rates with a petrol tax, as was previously proposed by the council & rejected by the Government, and later switching to a congestion charge or toll. In all cases you can argue that someone is benefiting without paying, and someone is paying without benefiting. Mr Goff’s view on roads was that those who benefit from reduced congestion should pay.

His views on tax & funding: “Working with central government to expand its infrastructure fund and investigate infrastructure bonds: While more than half of New Zealand’s growth is in Auckland, the extra gst & income tax collected goes to central government. I will advocate for Auckland to get its fair share of that extra revenue to pay for servicing that growth.

“To reduce the risk of even greater gridlock & a worsening housing crisis, we need an additional $17-20 billion for core infrastructure to support future urban land areas. It is inappropriate & unfair to fund that solely through the blunt tool of raising rates. We need to find alternative innovative funding sources such as sharing more Government revenue with council, public-private partnerships or raising infrastructure bonds.

“I will also advocate for the removal of the flat levy on rates to pay for a shortfall in transport infrastructure funding in favour of a road charge. This could be in the form of a petrol tax that is later replaced by a congestion charge or toll. It is only fair that those who benefit most from using the roads contribute to the cost of reducing congestion.

“Implementing this fiscal policy will be an important step towards restoring ratepayer & Government confidence in Auckland Council by ensuring that in future it works effectively & efficiently in the best interests of the people of this city.”

Mr Goff is getting somewhere, but should be far further advanced on these policies. I think Orakei board member Mark Thomas has done far better in advocating detailed policies, with assessments of how they would work & their impacts.

Candidate websites:
Crone
Goff
Palino
Thomas

Attribution: Candidate policies.

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Tracking ideas M20June16 – Sprawl & infrastructure, tiny house rules

Sprawl not the problem, infrastructure is
Affordability versus rules

Tracking ideas is a Bob Dey Property Report section devoted to ideas on property questions such as urban strategies & design, many from overseas but with relevance to Auckland.

Sprawl not the problem, infrastructure is

Charles Marohn, founder of the Strong Towns organisation in the US, writes about ever-topical subjects such as sprawl & intensification without the dogmatic approach of many American protagonists.

He wrote about the term ‘sprawl’ a couple of months ago, got drawn into a debate on definitions and came out the other side still saying sprawl wasn’t the problem he was trying to solve.

The problem is the development of infrastructure which can’t be sustained long-term. It will be fine for a couple of decades, and then the repairs come due – at great cost. One of those is roads, another is underground pipework.

We have the same issues here, and the stentorian monologues of recent weeks – of politicians saying ‘This is what you will do, or else’ – ensure that we will suffer those problems. In small towns we already do. With an ageing population, a proportionately shrinking workforce, changing imperatives.

Will the newcomers – the next generation, immigrants – want to pay to dig up & replace old pipes if they can get new ones more cheaply without the dig?

‘Inter-generational equity’ is a term I became acutely aware of as it was bandied about a decade or so ago, and I cringed. Now it’s in the handbook. It supposedly meant passing some of the cost of developing infrastructure on to future generations who would benefit from it.

What it really meant was handing large debt & tired or obsolete assets to your grandchildren.

Back to Mr Marohn: “I’ve repeatedly made the claim that Texas 2016 is essentially California 1986. Texans pride themselves on having a high growth, dynamic economy, free of legacy costs & burdensome regulations….just like California did a generation ago.

“California got started on the suburban experiment 3 decades ahead of Texas (thanks to a more forgiving climate) and has arrived at the logical destination 3 decades earlier. The Lone Star state need only look west for a preview of coming attractions.”

Detroit the story of America

Detroit is the town where they made the cars that enabled suburbs everywhere to sprawl into the sunset, and it’s now hit hard times. Mr Marohn again: “The auto-centric style of development undermined the resiliency of the city, tearing down social, political & financial strength that had made Detroit one of the world’s greatest cities. Once this strength was undermined, once Detroit became a fragile city, it was only a matter of time.

Detroit is the story of America: hard won, incremental gains replaced with an illusion of wealth ultimately sustained by a mountain of debt.

Dallas story familiar

On Dallas, Mr Marohn’s sub-headings will tell you a familiar story:

  1. Rising revenues
  2. High debt levels
  3. Persistent structural deficits
  4. Dissatisfied population

Auckland Council & the entities it controls have an abundance of critics of their performance. We all have our gripes, and a council survey out this week shows we’re very much at the ‘dissatisfied population’ stage.

The question, for Mr Marohn, was this: “How can Dallas be growing robustly, have relatively high tax rates and yet have persistent & large budget deficits? It’s not wasteful government. It’s not incompetence. It’s not right-wing crazies starving the government beast. The problem is that growth on the top line is not turning into growth of the bottom line. For each dollar of revenue the city is receiving, it is taking on far more than a dollar of liability & expense. In the second life cycle of the growth Ponzi scheme, that can be covered up with debt (done that) but, ultimately, the lack of financial productivity starts to produce recurring, structural deficits that have no obvious cause and no apparent solution.”

Links:
Strong Towns, 15 June 2016: Dallas, a budget soap opera
Strong Towns, 7 June 2016: We are all Detroit
Strong Towns, 20 April 2016: The sprawl conversation
Strong Towns, 18 April 2016: Sprawl is not the problem
Strong Towns, tag: The suburban experiment
Charlie LeDuff: Detroit, an American autopsy (published 2013)
Strong Towns, 10 December 2015: America’s suburban experiment

Affordability versus rules

Housing affordability is an issue around the world. This San Francisco take on it, by Johnny Sanphillippo, sets out many of the barriers you might face here:

“Many years ago when I was infinitely younger & a lot poorer I rented a little 9ft x 18ft (about 3m x 6m, so 18m²) backyard cottage behind an old Victorian in San Francisco. Today you might call it a Tiny House or Micro Flat. But back then it was just a 1930s potting shed that had been fitted with a toilet, shower & kitchenette. I was incredibly happy there.

“The space was exactly what I needed, the rent was low, and I didn’t need roommates to make ends meet. The landlord was also happy to have rental income to augment his pension as he aged. This was ‘affordable housing’ that was entirely supplied by the private sector without government subsidies. Yet every aspect of this little backyard cottage is completely illegal under today’s zoning & building codes.”

Link:
Johnny Sanphillippo, Strong Towns, 16 June 2016: Affordable housing that might have been

Attribution: Strong Towns

Regular leads: Planetizen

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