A scary economic report from accountancy firm PricewaterhouseCoopers’ Cities Institute, out on Monday, points to a marked divergence in performance by Auckland compared to 5 other New Zealand growth cities, and a worse performance by New Zealand compared to Australia.
But the report ignores the changes in rules brought about by adoption of the bulk of Auckland’s unitary plan at the end of 2016, providing 2 factors in favour of more housing production:
- Vastly increasing fringe land zoned for urban growth, and
- Enabling far more, and easier, suburban intensification.
The unitary plan may have arrived too recently for the PWC authors to have spotted changes in land use – except that PWC director Geoff Cooper’s successor as Auckland Council chief economist, David Norman, highlighted an almost immediate change in a report he published last August.
Incorporating an update on the unitary plan’s impact would have provided valuable content to a report which falls well short of explaining reasons for change in one city versus another.
The report is introduced with a grand statement: “At the PwC Cities Institute, we believe that a relentless focus on data, together with modern economic thinking & evidence-based policymaking, is the fastest way to build cities that are inclusive, sustainable & internationally competitive.”
This report, Competitive cities: A decade of shifting fortunes, examines New Zealand cities from the perspectives of income & cost of living. It compares 6 New Zealand cities (Auckland, Hamilton, Tauranga, Wellington, Christchurch & Queenstown) to the 5 Australian mainland state capitals (Sydney, Melbourne, Brisbane, Perth & Adelaide) and describes the challenges ahead.
The report’s authors concluded: “To attract talent and fulfil our urban ambitions, New Zealand cities must do more to compete. Our report outlines recent trends in urban competitiveness and discusses options for raising the profile & trajectory of urban policymaking in New Zealand.”
Among points in the report:
“Auckland is losing its income advantage. Outside of Wellington, Auckland has traditionally had a wage premium over other urban areas. However, median household income growth has been sluggish in Auckland for many years. Auckland’s median household earnings have grown at the lowest rate of all growth cities since 2000, averaging just 0.8%/year (in real terms), compared to 1.4% in Christchurch.”
“Basic expenditure has grown faster in regions with large cities. In 2008, health, education, food & transport expenditure differences were relatively small. By 2018, large differences had emerged. Auckland’s real basic expenditure increased by $151/week over the period, compared to $104 in Canterbury & $97 in Wellington. Basic expenditure could be increasing faster than general prices (a price effect), or because household consumption is increasing (a quantity effect).”
“Transport & food have increased most in the large regions. Real expenditure on food increased by $60/week in Auckland, compared to $26 in Wellington & $12 in Canterbury. Expenditure on fresh produce grew almost twice as fast in Auckland than New Zealand as a whole. Transport expenditure grew fastest in Christchurch, increasing by $83/week.”
Auckland & Queenstown experienced the largest median house price increases, up 96% & 64% since 2008: “While the rise in house prices coincides with a period of low interest rates, differences in the magnitude & timing of price increases across cities suggest regional factors have played an important part.”
“House prices have eroded the competitive advantage of Sydney & Melbourne since 2012. Australia’s 2 global cities experienced some of the fastest house price growth in the world, rising by 113% & 95% respectively between 2008-18. In stark contrast, Brisbane, Perth & Adelaide rose by just 27%, 17% & 29% respectively – well below all of New Zealand’s growth cities.
“Figure 15 shows the impact of this on mortgage payments (in real terms) in Brisbane, Perth, Adelaide & Auckland. Benchmarking against the median house price, a mortgage repayment for a new resident to Auckland (who meets deposit requirements) would face payments 15% higher than in 2008. In contrast, a new resident to Perth would pay 40% less, 34% less in Brisbane and 33% less in Adelaide. Part of this is attributable to lower interest rates in Australia compared to New Zealand, but house price differentials loom largest.”
The report’s authors make 3 recommendations, 2 generally and one for Auckland:
- Appoint a Minister for Cities
- Urban statistics rollout – New Zealand needs better urban statistics to understand the dynamic nature of city competitiveness, and
- For Auckland, an economic competitiveness agenda: “Auckland needs an all-of-government economic competitiveness agenda that positions it as a modern economic powerhouse of the South Pacific. This should address a variety of issues such as sustainability, infrastructure & quality of life, but also include concrete steps to lower the cost curve of urban living, generating momentum for wage growth & capital accumulation, and overcoming the labour shortage.”
Selwood picks on housing, traffic & planning failures
Infrastructure NZ chief executive Stephen Selwood found the report “underlines the urgent need for the Government to deliver affordable housing & efficient transport systems in our growing cities.”
Citing the margins growing between Australia’s cities & New Zealand’s, particularly Auckland, Mr Selwood focused on traffic congestion and said New Zealand’s planning, governance & funding system needed urgent repair.
“PwC compared the performance of 11 Australasian growth cities over the last decade and found that households in successfully growing Australian cities have enjoyed significant improvements in discretionary income, relative to New Zealand.
“Discretionary income is the money left over after tax and spending on housing, transport and other essentials. It provides an insight into the quality of life in each city.
“Perth, Brisbane & Adelaide households each saw increases of between $300 & $400/week over the 10 years from 2008-18.
“New Zealand’s top performing city, Wellington, saw median household discretionary income increase by $137/week, or around one-third that of Perth. Discretionary incomes in Hamilton, Tauranga & Queenstown increased by around $60-$70/week, or one-fifth that of Australia’s more successful cities. Even Christchurch, which experienced a devastating series of earthquakes in the assessed period, saw discretionary income increase by $124/week.
Less in Aucklanders’ pockets, but explanation falls short
“But Auckland’s performance is of serious concern. Unlike the other 10 cities analysed, discretionary incomes in Auckland actually fell. The median Auckland household now has $96 less in their pocket at the end of each week than they did 10 years ago. An additional $5000/year would make an enormous difference for thousands of households who are struggling to make ends meet.
“Auckland was the only city to experience both increasing costs & flat income growth. Sydney’s equivalent growth in the cost of living was offset by rising real incomes. Weaker income growth in Tauranga, Queenstown, Hamilton & Melbourne, on the other hand, was ameliorated by smaller growth in the cost of living.”
Mr Selwood said the reason for New Zealand’s weaker performance wasn’t explained by Australia’s higher economic, & therefore income, growth: “It is in the cost of living that we have struggled. High urban land prices have increased the amount households & businesses must spend on accommodation & rent. In addition, increasing congestion combined with higher transport taxes & fares have pushed up travel costs, not only for households, but for the producers & sellers of goods & services, thereby making our economy less competitive.
“New Zealand’s failure to manage growth is seeing the standard of living fall further & further behind Australia’s attractive second tier cities.
Clarity on serviced land supply would have added impetus
“The Government’s well-being budget, urban growth agenda & plans for fundamental review of our planning laws & local government structure & funding have the potential to address systemic problems across New Zealand.
“Bipartisan political support will be needed to enact major reform of our deficient planning, governance & funding system, which is the root cause of the problems we are facing.
“Meanwhile, decisive action is now required to address immediate growth pressures. Increasing the supply of land is one critical response. Urban land must be made more affordable in sufficient quantities to attract investment & enable scale.
“The other critical element is servicing that land with infrastructure so that homes & businesses can be delivered. Plans to enable private financing of infrastructure for housing development need to be accelerated.
“A step change in the supply of serviced land is urgently needed. With the construction sector operating at close to capacity, productivity improvements are the only real option to deliver the infrastructure & homes New Zealand needs.
“Clarity of the project pipeline, policy certainty & development at scale are the 3 essential elements to lifting construction sector productivity and encouraging investment in capital, skills & expertise in New Zealand & from overseas.
“There really is no time to waste. New Zealand households are already paying $200/week more than households in Perth to cover the inflated cost of housing. Without urgent action, we risk another brain drain simply because our housing markets do not function.
“New Zealand can materially & significantly lift real incomes, reduce the need for Government transfers and enhance liveability by resolving the growth crisis. This is the Budget where things must start to happen.”
8 August 2018: Unitary plan already steering Auckland housing toward intensification, says council economist
Attribution: PWC report.