Labour's Phil Twyford is pushing out the boundaries of Labour’s stance on housing infrastructure, eyeing a govt unit to access finance for developers

By Alex Tarrant

Labour housing spokesman Phil Twyford is set to take his ‘targeted rate’ idea for financing new housing infrastructure a step further – by considering whether a central government unit within Treasury could borrow on behalf of developers, through bonds backed by the government’s credit rating and serviced through those targeted rates.

It’s part of an effort to take debt pressure off local councils already at their borrowing ceilings. It would also trump the government’s $1 billion housing infrastructure fund, which Twyford attacks as an ironic line of credit to debt-ridden councils – ironic because of previous government attacks on council debt levels.

Twyford in 2015 raised the idea of paying for new housing infrastructure via targeted rates on properties within a given development, paid over an asset’s lifetime. A proposal to allow local councils to issue specific infrastructure bonds gained traction last year.

Further work on the stance led to consideration of a government infrastructure bank, which has morphed into this latest thinking – central government stepping in to effectively replace developers, who at times have struggled to access finance, as financing middlemen.

Developers would have to approach the Treasury unit with comprehensive and integrated infrastructure plans for housing developments, Twyford told me. These would not only include plans for horizontal infrastructure like water, fibre and electricity, but also consider impacts on existing infrastructure, like roads and other transport, he says.

Plans would need to showcase how developers would connect to existing infrastructure and be consistent with existing urban or district plans. If the Treasury unit approves of an application, it can then go out and seek the financing on the international and local government bond markets for it.

Knocking a chunk off house prices

The rationale is that, because development costs flow through to the price of a development’s dwellings, using the government’s lower cost of borrowing to what developers are charged should knock a significant chunk off dwelling prices.

So rather than a home owner paying for the development costs via their mortgage repayments at bank interest rates, they are faced with a lower acquisition price and smaller mortgage, alongside a targeted rate. The theory is that the cost of the targeted rate plus lower mortgage payments, would be less than the status quo.

Twyford’s not just looking at infrastructure within a given development’s boundaries. Transport costs will also be a crucial element of any proposal for the infrastructure unit to consider.

He uses the example of a new greenfields development, say in Auckland’s Dairy Flats region, where residents would most likely rely on existing roads for transport. The new residents would effectively be subsidised for transport costs by tax-and-ratepayers by using roads already paid for.

But, find a way to model the true costs of a new development on the existing transport network, and part of the targeted rate can be used for payments to whoever paid for the road in the first place.

Pushing the boundaries

The policy is not yet finalised, and who knows what will happen between now and the 23 September election. I know that Twyford has been reading up on municipal utility districts (MUDs), although it would be tough for Labour to go the whole hog here and follow the full Houston, Texas example. But the party's thinking is somewhere on the spectrum.

One can tell Twyford is very much enjoying pushing out the boundaries (pun intended) of Labour’s stance on the housing infrastructure issue. Having put the targeted rate idea out into the discussion, and driving Labour to change its view on Auckland’s urban limits, he has shown a willingness and keenness to look from all angles at how to tackle the problem of financing Auckland’s housing infrastructure. It should be applauded.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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142 Comments

Yes the Chinese are queuing up to provide finance. The major issue is the supply of building materials and labour. That is where the bottleneck is and there is no obvious quick fix. Admittedly there are short term funding issues but they should sort themselves out in the coming months.
We need more larger scale home builders in the market to focus on larger projects. The approach on one here, a couple there, approach isn't go to fix things.

You are correct. i.e the approach on one here, a couple there, approach isn't going to fix things. Right now its going to be fierce competition for voters and that will be at the forefront. House prices did shoot through the roof under previous governments as well. National overall under Key has done the country well. This is election year and we will get a lot more of these proposals to solve problems at a click of a button.

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National is destroying NZ how does equate to "well"

"well" they got us thru the GFC.

Wait on - that was done by multiplying debt many fold and selling the family silver.

I guess all we are left with is JK putting us on the world map by pulling a young girls ponytail.

You can fool some people some of the time but you can fool Kiwis all the time.

They got us through the GFC by flooding the country with immigrants and it wont stop under National or Labour. We have sacrificed our quality of life, if that is worth it.

Bill English said on Q&A yesterday that the unaffordable housing crisis is a result of our success and growth.( caused by massive immigration)
I does not matter that NZers are now tenants in their own country with landlords residing in Beijing.

I am retired and get very angry at what is happening in this country with the size of the inequality under this Government.

They haven't got us through the GFC. All they've done is lie to us and try to hide it while it turns into a bigger one for later.

Immigration is one issue that I do not think Labour has properly addressed, I find it very concerning

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Oh and on the subject of previous govts and house prices, one of Key's main policies back in 2008 was dealing with house prices and making sure that kiwis could buy their own homes, he did exactly the opposite. He has been a shallow, cardboard cut out of a man and has done about as much as you could expect of a cardboard cut out.

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This is incorrect, a cardboard cut out can't have daily brain fades.

Looks to me like they can.

"National overall under Key has done the country well" - said like a true Boomer believer

This is all been brought about by the commitment to building the hugely uneconomic central rail link plus throwing away money on the Auckland council computer system, salaries, staff numbers, Ateed etc.

Will the recent rains and the flooding in and around Auckland give any lessons to building houses on farmlands, lakes, etc ?

When I moved into my house, down the road was a boggy bit of land with horses on it. Now there are infill houses on it. Right now, to drive there you need to drive through about 30cm of water. And its not even high tide.

This policy potentially could be very helpful. One of the blockages of supply is the $10s of billions needed in infrastructure costs for Auckland's fast growing population -Which last year was something like 40,000 people.Auckland's challenge with current immigration settings is how to build a Wanganui every year.

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Well, yes, the immigration settings need to change - regardless of how good a housing policy might be.

I too think there is merit in this idea, as development finance is going to become harder and harder to get in future.

But, and it's a big but - one of the most important things that any government financed development must exclude is any covenants on the sections created with the subdivisions it finances.

To my mind - $500-600,000 first homes are NOT affordable homes - by a large margin. New subdivisions if financed by government need to allow prospective homeowners to have their own choice of design and build - which would also include relocating an existing dwelling to a new site.

Covenants prevent innovation. Simple as that.

Yes that is something I have been thinking about Kate. I think the problem we have is the planning system and real estate market as it is configured currently at the systemic level gives monopolistic pricing and quantity/quality supplied power to landowners and developers. This means they stick to very conservative models of housing supply -which they drip feed onto the market at maximum price -basically they only service the very top rich end of the market.

I think what Phil is proposing here combined with his previous commitment to remove the rural urban boundary is to encourage out of sequence development that will access cheaper land. The question now is how to stop the developer capturing this lower cost of development and making super profits -which is essentially what you are asking Kate? I have some ideas in my next post.

I've got no problem with developers and builders receiving healthy profit margins. My problem is that many of the covenants I've read simply serve to over-size and over-complicate house design - and to "cluster" house price brackets within separate "enclaves" or neighbourhoods within a structure plan.

The best neighbourhoods to live in to my mind have grown more organically over time and offer visual diversity and interest. Where Auckland is concerned in particular, as the intensification happens at the centre it is likely that the supply of relocatables will increase - and so new land supply at the periphery needs to be able to take advantage of these resources. It is to me just plain common sense to re-use surplus products of regeneration elsewhere in the city. And your example of Mike Greer homes in another post - why shouldn't a new build aspirant be able to take advantage of his innovation everywhere and anywhere in any government financed land development?

It's all about choice, competition and innovation. Covenants restrict, as opposed to grow, options. They stifle innovation and they reduce competition. They only serve landowners of vacant land, to my mind.

Kate I have done a lot of work on intensification. I think it is great and we should allow more of it. But realistically intensification in Auckland cannot provide a "Whanganui" every year. Because of this lack of abundant supply options -inner city land owners have monopolistic pricing power. Which is what we are seeing with house and land prices rising much faster wages -with all the awful social outcomes for those priced/rationed out of the market -intergenerational conflict, difficulty finding good young employees, homelessness....

If there was more competition giving abundant supply options -which is what this municipal bond proposal combined with removing urban limits does -this would break the monopolistic stranglehold on the market. Land banking and excessive capital gains would be stopped. Developers who use a business model of excessive covenants to drip feed the market at maximum price would be uncompetitive. Because other developers would come into the market and undercut them -provide the market with an abundance of lower price product with less restrictive covenants...

Intensification will not provide a Whanganui every year - neither will development on the periphery. With respect to that problem, immigration settings need to change.

But with the new AKL Plan - land value for those re-zoned for intensification will increase, and I suspect we will see a lot of folks selling up for just that reason - and that will just snowball to the degree that those who fought so hard not to be intensified will want to be re-zoned in future. I commented on this in another blog:

.I don’t think that all speculative opportunities are made possible by land scarcity. Sure, on the periphery that is very much the case… i.e., re-designate all land in Drury from rural/rural residential to residential for example, and the land value in Papakura plummets.

But I suspect it will make little difference to the price of land in Remuera. What might lower land value on a m2 basis in Remuera is intensification in the general vicinity. Initially those re-zoned for intensification will benefit land-value wise and with time everyone will want to be re-zoned in order to capture that benefit. What is needed in Drury is vacant land with no covenants attached – so that there is a secondary market for the renovated bungalows in Remuera that will need to go to accommodate intensification.

But, these are just my ‘in a perfect world’ aspirations. Vested interests both at the centre and the periphery will fight such a scenario all the way. And of course, with intensification at the centre – stormwater infrastructure will I suspect, need to be significantly upgraded – not to mention wastewater capacity issues.

Re: "Intensification will not provide a Whanganui every year - neither will development on the periphery. With respect to that problem, immigration settings need to change."

I agree. In my ideal world. Intensification rules would be massively relaxed. Greenfield developments would be allowed to be priced at their truer values something like what Phil Twyford proposes. And immigration rates would drop.

I would suggest NZ drops its non-NZ citizen rate significantly to reflect the fact that kiwis are not leaving to Australia at the rate they once were -it is roughly in balance -when once we had 35,000 to 40,000 kiwis heading to Aussie mines etc. Given the state of the Australian and world economy I think we can assume that will not change quickly.

As Keynes may or may not have said.
"When the facts change, I change my mind. What do you do, sir?"
https://en.wikiquote.org/wiki/Talk:John_Maynard_Keynes

To me this proposed scheme by Phil has a lot of merit -a Treasury Unit will be able to assess if the developer is fitting in with the overall spatial plan of the city, if they are being fiscal responsible, if they are complying with environmental standards etc.

Some of the success of that 'auditing' process and Kate's question of how to stop excessive covenanting will come down to the details of how and when the municipal bonds are issued.

For instance if the municipal bonds are issued when the development is completed and all the sections are sold to the end householders then this encourages developers to do schemes where they can get in, build it and get out quickly. It would minimise covenants use because developers would want to meet the needs of the market quickly. The downside of this approach is the developer would still need interim financing. So does this really help?

The alternative is that the developer can get the municipal bond financing at the beginning of the development process. The lower financing costs of this system might encourage developers to take more risks -they might overestimate demand and build too big a development/infrastructure -such as the Mangawhai scheme. http://www.radionz.co.nz/news/national/253204/legal-action-over-mangawha...

What I would suggest is the Treasury Infrastructure Unit issue higher interest rate bonds at the start of the process to reflect higher risks at the beginning of the development process and that lower interest rate long term bonds are issued on a pro-rata basis as the development sections are sold to the end households (not land/house builders). This would give developers access to the necessary financing and better reflect the changing risks of the development process and encourage suppliers to get in, supply the market and get out quickly. Thus addressing the excessive covenant question.

I think the big advantage is to provide the low finance costs only with respect to the development of the land (i.e., to cover the cost of subdivision). The vacant sections are then put on the market all at once and open to anyone to purchase - be it a spec builder, a homeowner commissioning a design/build, or someone relocating an existing dwelling to the site.

Kate in the UK the major building firms are also developers. They are also the biggest land bankers. What we want is a system where there is a lot of competition (including from intensification) to provide households with housing.

Yes, that's what we want - and frankly - it isn't that hard. The current government simply hasn't wanted that - they see GDP growth as reliant on house price growth.

... I was under the impression that the current government saw the immigration of tens of thousands of Indians and Filippinos into NZ to provide minimum wage workers for the dairy farmers and retirement village operators as the only way to prop up the GDP figure ...

I still don't get it. Why should new homes be "affordable"???? Surely only old run down places should be the "affordable" ones. To own a brand new home is something that I would have thought would be so desirable that it would have a premium attached to it. Logically, the only exception would be if it was a shoebox in a remote inland site.
Old run down places may not be affordable at the moment, but that should be the thing that is targeted in my view. Removing the incentives to buy these up as rental houses.

New homes were the affordable home of yesteryear;

http://www.teara.govt.nz/en/building-and-construction-industry/page-3

Problem today is most vacant sections require more elaborate/complicated, larger designs. It seems ludicrous given family sizes are going the other way,
.

Quite right Kate the biggest growth in household numbers are one and two person households, yet because of our dysfunctional housing market the majority of supply is large (and expensive) 4 bedroom family homes.

A wise government would make sure some land is earmarked for the tiny house movement.

Kate: we need a minister of Emmigration. Yes thats Emmigration with an "E". Will Labour do this or will they baulk?

LOL. I'm not Labour :-) so I have no idea. But neither am I sure what you mean by the question. Do you want some ministry responsible for shooing NZers out of their own country?

Kate: You are a smart woman but thats a stupid response. Lets try harderr. You above question mmigration "setting" . Dont you think the ministers title - and presumed job description - is lopsided - being an " I" only and no "E".
Yes we do need to identify a desirable population target. Yes we can achieve it without shooing citizens out.

Right - I get it - you mean internal migration with respect to your use of the word: emigration (it only has one "m").

So your question is, should we have a Regional Development Minister/Ministry? I don't know, personally. At the present time, local authorities do spend a lot of time and money on regional development programs - and I think those closer to the desired change (be it re-population or de-population) should be driving the programs and the lobbying at central government level for whatever CG assistance is necessary.

Local government have looked at population distribution a bit in this document here;

http://www.lgnz.co.nz/home/our-work/publications/the-2050-challenge-futu...

The distribution of LG funding does need addressing. The National government proposed to remedy this somewhat with its push toward amalgamation - but the local public everywhere it was put to the vote - voted it down. What that said is the majority of communities wanted greater control and independence closer to home.

No Kate you missed it. Minister for Emigration. With an 'e' and single 'm' ie. Over the border. Overseas. Outside New Zealand. We need to shift to policy debate beyond 'incoming'.
What is the desired target population for New Zealand ?
My vote is two million. I would settle for five million.

In other words, you want a population policy for outgoing. Might work for cows, not sure about people. I think realistically we can only limit 'incoming' non-citizens - our 1 million or so ex-pats can't suddenly be denied re-entry.

Think about it. We have no explicit population target figure. A idea a bit new for most. But we need to have tbe discussion.

Being a modern society where people can choose to marry or not, breed or not, where women are educated etc, the tendency becomes for a population to begin to decline. That was happening to NZ but seeing as we have not managed to figure out how we prosper without growth (basically meaning population growth) we have done the old tried and true and bolstered the population with immigration, but for it to be "effective" it has had to be well above a normal rise due to a higher birth rate.
We are now on the verge of being able (with the will) to solve the issue of how to prosper without growth and it is technology and robotics, believe it or not, the big discussion there will be who owns them so that the benefit from them can be fairly distributed.
Immigration, the way we are doing it, is one great ponzi, with no forethought in it whatsoever, we really are reaching crunchtime in Auckland especially, where services go and those problematic tentacles spread.

... last Wednesday , March 8 , was the International Day of Women ...

Are they allowed to be smart on other days too ?

... tisk tisk ... where will it all end !

Smart women have been around for quite some time gummy. You hadn't noticed ??

... true ... there was that scientist lady who invented radioactively hot stuff ...

Ummmm ? .... Madam Curry !

What was that stuff again, Vindaloovium or something

Nah, wasn't that a Roman military outpost in Gaul?

Wasn't that Asterixalonia?

... and then there was Helen Keller ... she invented being both deaf and blind at the same time ...

"Cos , us men can't multi-task .... only a woman could be clever enough to do both deaf & blind successfully ...

... so ... that's two smart women .... ummmmmmmmmmm ?

Some of Phil Twyford's bond financing/targeted rate/Treasury infrastructure unit proposal may have come from talking to industry players like Mike Greer. This is what Bernard Hickey had to say about the Mike Greer take on the housing situation last September.

Mike Greer calls for major Govt-funded house building plan
Mike Greer, the founder and majority owner of Mike Greer Homes, was also forthright with his calls for a substantial increase in Government involvement in funding the building of tens of thousands of new homes in Auckland to deal with supply shortages and improve affordability.

Greer's views are closely watched in and around the Government and industry, given his success in growing the Christchurch-based company into the biggest home builder in the country, and its major role in the Canterbury residential rebuild. Greer is also pioneering the creation of more modular and factory-built homes. He built a NZ$15 million house-building factory in Rolleston and is producing 40 modular bathrooms a month at a facility in Belfast in Christchurch.

Greer said he expected Mike Greer Homes to build 1,400 homes this year and was building 300 more homes a year more than anyone else with construction costs of less than NZ$300,000 per home. Mike Greer Homes acts as both a builder and developer. It supplies 80% of its homes as home-and-land packages, with the other 20% being building work for Government.

"We're really focused on delivering as affordable a house as we possibly can in an environment that's becoming much more difficult to do that," he said.

Greer said the scale of the house-building needed in Auckland was greater than people understood, and the over-pricing of land was a major factor. He said Auckland needed to be building 20,000 homes per annum within the next five years, up from less than 10,000 per year now.

"Land is what's driving this crisis in Auckland," he said.

"We just need to knuckle down and build lots more houses to try create a bit of an oversupply, to bring down the house price across the board in Auckland," he said.

"The cat's out of the bag with the price of land. There's not much hope to pull it back. I believe the Government has to step in and build a lot of houses. That's the only way that we're going to get some kind of affordable product on the ground en-masse that more Kiwis can afford to own and live in."

He called on New Zealand to consider the use of Metropolitan Urban Municipal Utility District (MUDs) style entities to fund the infrastructure for new developments that brought land to market much cheaper and faster. He called for Councils to help ensure developments were done where the horizontal infrastructure of roads, water and sewage (the "civils") were done in tandem with the house building. (Corrected to make clear MUDs refer to Municipal Utility Districts, which are privately-run vehicles used in Texas and other US states as ways to fund infrastructure in a particular new district that is usually paid for by Councils through rates imposed across all ratepayers.)

"It brings houses to the market a lot quicker and there's less cost associated with putting civils in the ground and leaving them there until people turn up and build," he said.

He also called for more investment by the industry and Government in new technology and innovation around modular and factory house building, and that the current boom was the right time to do it.

"This boom time we're going through is the time that we need to be doing this kind of thing. There's extra profits available we can pump into some kind of innovation. No one is going to spend any money in a downturn on a NZ$15 million factory in Rolleston," he said.

He said his factory there had halved the onsite building time to 10 weeks and produced much less waste. It was particularly appropriate for Auckland where wet weather often delayed onsite builds. Factories also allowed for the creation of multiple shifts per day, rather than the single 8.5 hour shifts on building sites.

"Innovation needs a bit of government help as well...maybe a lot of Government help," he said.

https://pro.newsroom.co.nz/articles/1411-hive-news-friday-housing-nz-eye...

It is not hard on google to find extremely large infrastructure investments funded by municipal bonds and targeted rates. In the US this is called MUD's and MUD financing.
http://www.mudomaha.com/news/mud-completes-189-million-bond-issuance

So let me get this straight, targeted rates pays for the development? So houses cheaper but rates 20 times higher? I'm I missing something...

I read it as targeted rates pay for the infrastructure outside the subdivision/development - the network infrastructure (i.e., pipes and roads/transport connections) needed to bring the subdivision/new land online, so to speak.

The second part of the idea is to offer developer's of the new land a low cost finance option to complete the work inside the subdivision - as a means to bring new sections/land more quickly to the market.

But Brendon might read it differently - he seems to be more on top of their thinking.

I think the idea is that developers and therefore the end using households pay the full infrastructure cost of greenfield development -both within the development and connecting the development to wider infrastructure networks -roads, public transport, 3 waters etc. But not to add extra costs onto the developers by restricting land supply. This will allow new housing to move towards a truer level of pricing which would eventually be reflected in all house prices. I suspect that to make this work better you would need congestion road pricing.

I am not sure how trunk infrastructure is financed under this model. For instance upgrading and speeding up the passenger rail network between Auckland and Hamilton would make multiple transit orientated developments possible with short bus feeder services to this fast transport spine. Developers could be expected to pay for their part of the infrastructure costs for the bus feeder services but none of them would accept in their individual municipal bond schemes being responsible for the whole upgrade of the train network.

Trunk infrastructure should not be financed via a targeted rate on new development - that just creates greater inter-generational inequity.

I'm all for targeted rates being applied at the centre however - as these land holdings enjoy the most benefit and convenience of public and private investment at the centre... that's why land value at the centre is higher (transport costs are lower, distance to amenities closer, distance to employment better - in general making for a better lifestyle). Targeted rates based on distance to the centre (the closer land is, the higher the rate) would also further encourage intensification at the centre where density offsets the impact of the targeted rate on individuals occupying that space.

In other words, if there was a good mass transit system between Hamilton and Auckland - Auckland's city centre is the place that gets the most benefit - as both private and public investment will migrate toward that centre if it is serviced by a larger population..

Good points Kate -it is hard to re-orientate systemic problems. My take would be to allow much, much more intensification so that those inner city suburbs in Auckland's isthmus do not gain so much pricing power and we do not sprawl quite so much.

Yes, the National government made a mess and is still making a bigger mess of planning in having refused to address the systemic problems that only a re-write of statute is going to fix. It is laughable that they spent all that time and effort on SHAs, changes to the purpose of the LGA, changes to the RMA, etc. etc. when:

THIS is the wider "system" that planning has to operate within:

http://www.qualityplanning.org.nz/index.php/component/content/article/10...

And THIS is the lower level "system" for the RMA on its own;

http://www.qualityplanning.org.nz/index.php/plan-steps/writing-plans/lin...

And just add to that, case law. It's all so complex - the Executive simply hasn't got a clue - and each bandaid or "fix" it attempts to apply just further complicates things.

Time for a bold initiative - a complete re-set and re-write. Many planning educators have been calling for this for quite some time.

None of this is true Kate - a CBD lifestyle is no better or worse a lifestyle than elsewhere. It's all up to what you individually want.

It's not closer to all employment, less than 20% of the employment is in the CBD.

This infrastructure funding or targeted rates will fail simply because by the time the bureaucrats have finished tinkering with it (like your suggesting), it will never be the Texas type vehicle they are quoting.

It needs to be kept simply like in Texas. Minimal zoning restrictions across the board. Funding open to all with a simple set of well managed rules, and let them get onto it. Noting that councils in Texas generally stay out of development as the private sector can do it better, and it is also the most risky part of the building on which they should not be empire playing with ratepayers money.

Dale, I think what you are saying is that you don't agree with a targeted rate based on proximity to main centres of employment - which is what I'm advocating in that post.

I've been wanting to model this in GIS for the Auckland area (i.e., the area of land in the Auckland City Council catchment) - and am wondering where you got the 20% of employment in that area being in the Auckland CBD figure?

A link would be most appreciated. Sounds low to me.

New Zealand has become delusional, seemingly grasping at straws, with weekly pie in the sky schemes to resolve an issue that , when the onion is stripped back , reveals more onion ,an economy that could no longer cope with a 2 percent rise in the OCR. The numbers are all lining up and its not pretty, and New Zealand/ Auckland will have no one to blame but themselves.

... yes ... the horse has well and truly bolted ... it is only a matter of when , not if , the property bubble in NZ implodes ...

And then there'll be years and years of pain to follow ...for the overleveraged , the flippers , the off-shore non-resident non-citizen infestors ....

.... but .... if you're a young couple , first home buyers , actual citizens who are resident in this country ... then it's game on for them ...... ahhhh , bless the FHB's ... their day will come ... $ 300 000 homes will be abundant once more ... affordable prices on an average Kiwi family income ...

Confirmation bias.

Same comments made in Ireland 2006 .

... their collapse saw house prices across Ireland fall by 35 % on average ... but a far more heftier 56 % collapse in Dublin itself ...

A similar correction here would bring Auckland houses back to around the $ 400 000 mark ... and around $ 300 000 in Wellington and Christchurch ...

... affordable dwellings for Kiwi residents & citizens once again ...

Gummy , how many years do you think the correction will take.?

2 years and 10 months .

This is not Dream World guys. House prices will keep going up...something will have to give, no two ways about it.

Double GZ .Your spending far too much time in those meth houses . Not a great weekend for agents.

Vomit.

Yes, but the question is, will finance be freely available to FHBs when prices are more affordable? TA's cautionary comments in that regard are of interest.

Experience in the major US correction suggests that in the main it was the vulture capitalists and hedge funds that had the finance available to them to take advantage of the misery inflicted on the foreclosed homeowners;

https://en.wikipedia.org/wiki/The_Blackstone_Group

Our household debt to GDP ratio will blow out to 130 percent in the coming years. Buying a house will be the least of our concerns.

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For Any new idea or policies one has to wait till for change of government as current government with three terms......................surely NZ cannot afford to have national for the 4th Term.

Nothing will change

Should National be returned to power at this coming election it will be regarded as a mandate to hold the line and continue will current policies - nothing will change - steady as she goes

Yeah nothing will change till September but after 22 Sep things will change of government is a foregone conclusion.

The underlying issue is not at all solved by this: the pricing of land in the first place. Getting cheaper credit lines for what comes later is cart-before-horse political double-speak.

Land pricing is almost entirely a Zonerista side-effect: after all, (let's give the ol' 78 another spin, it's getting fairly scratched...) at hort prices of $50K/ha, and allowing for 1/3rd land for roads, reserves and utilities, the raw cost for a 600 squares section is $4,600.

The rest of any land price is Planning Gain, neatly captured by the erstwhile owner, untaxed if the right structures are in place, and Guess Who Pays.

Hugh P (much missed on this 'ere blawg) used to say 'if the land price is wrong, so is everything on top'.

I see nada in Labour's latest that even comprehends this....

Planning Gain - yippie - glad you mentioned it. And the way to make that Planning Gain work for the rest of the population is to charge a betterment for that gain. Then the gain does not go untaxed (per se, regardless of the structures put in place) and Guess Who Pays is off the hook.

Respectfully Waymad I have to disagree on both your points about Labour's today's infrastructure proposal not helping and what Hugh Pavletich used to say.

Labour's proposal needs to be seen in the context of them already announcing they will remove urban growth boundaries to address the land banking/excessive land price problem. What they needed is a policy addressing how they would fund infrastructure for this activity. Phil Twyford's announcement today is much credible on the infrastructure front than what the government is offering. All the National government have got is their $1 billion dollar infrastructure fund -which is also a debt instrument -but the size of it means they are bringing a very small knife to a big gunfight.

Hugh has also said in his opinion the housing crisis can be fixed by addressing land supply and infrastructure financing.

... yes , we miss old Hughie Pavletich aroundabouts here on the interest.co.nz blawg ...

.... we're Pava lovers when it comes to straight talking about the reasons why we have a housing affordability crisis , and what the cures are ...

And it all begins at the beginning , at the insanely sky-high price of sections ... nothing that follows can remedy the situation , until the ridiculous land prices are addressed first up ...

No one disagrees, but how then to bring land prices down? As Brendon points out, Labour intend to get rid of the artificial boundary. Aside from putting price controls in place once there is no longer a barrier to entry (i.e., an artificial boundary) - what other suggestions are there?

Hugh is in the Sunday Star Times today

"… One grandfather who feels that way is Hugh Pavletich, who had been campaigning for sweeping reform of housing policy for more than a decade as he's watched house prices spiral up and up.

"People are now actually hostile to housing inflation," he says. "It was all fun in the beginning, and for the first few years, until the kids came knocking on the door wanting $100,000 or $200,000 for the deposit on a home."

Pavletich calls housing wealth "illusory" except for a small proportion of society including property speculators and investors, real estate agents, banks, and retirees able to sell up in Auckland and relocate to the provinces.

For everyone else, he says: "I refer to it as a poverty creation programme."

The young are either trapped into lifelong renting, or forced to take on gigantic mortgages, and simple things like moving house become costly and difficult in a "high multiple" housing market, Pavletich says......"

The article also has information about Labour's polling on housing -showing that almost everyone agrees NZ has a housing crisis. They also detail what people think the solutions are.
http://www.stuff.co.nz/business/money/90244287/the-nz-homeowners-who-hat...

NZ has a housing Crisis. Everyone does agree except the people who created this crisis.

"Pavletich calls housing wealth "illusory" except for a small proportion of society including property speculators and investors, real estate agents, banks, and retirees ..."

The crux of it is this the way the financial system works - He who sells DEBT wins. You can reword this as He who sells out the future wins. because its all an escalation / ponzi bet on whether the future can actually pay for this ever increasing debt. Productive enterprise is a mugs game.

Too late to unwind now - the consumption against this debt has been and gone ... & we can no longer outgrow our debt burden. Is that a light I see at the end of tunnel?

Nicely put Waymad.

Without getting zoning and the 'real' price of land sorted, any benefit that infrastructure funding might give in the way of making housing more affordable, will simply get capitalized into the land price.

All that will really happen with this type of Govt. bureaucratic scheme, is it is simply shifting who gets the 'planning gain.' Hint it won't be passed on as savings to make housing more affordable.

But Labour are also proposing that the Metropolitan Urban Limit is removed.

In fact, they called for a vote on that in Parliament already - and National voted against it!

So, yes, vote Labour to remove it. Simple.

Then when all those rural and/or rural residential zoned landholders want to re-zone to residential, we apply a betterment fee (based on a standard formula - a minor amendment to the RMA) associated with their private plan change application and away we go - lots of land comes onto the market voluntarily.

Is that what you are looking for with respect to zoning?

I love the term 'Betterment fee', for the betterment of whom?

A betterment fee is supposed to pay for extra external capital costs associated with changing the zoning and the development of.

Therefore if a new development can take care of most of its own external capital costs like waste water and storm water control etc. then they should get a reduction on any betterment levy.

Also if a betterment levy is applicable to new fringe developments, then they would also be applicable to any rezoned existing city land, as redevelopment is just as costly, if not more so in many cases than green fields development.

But it is not really about that. What councils have realized is that in a monopoly system, when they change the zoning they create a rentier value that is captured by the landowner. In their minds, since they created this artificial value, then they want this gain for themselves. After all who doesn't want free money.

This money grab has really nothing to do with getting money to pay for new services. It's about getting the money on offering, and then of course they will easily find things to spend it on, some legit, but much of it in empire building.

So you can be assured that any council system will keep the monopoly intact, to keep the rentier free money in place, but going to them rather than the landowner, ie not going to the homeowner.

Also, why should councils get access to this money, when private developers can do development cheaper and since much of the increase in land value is rentier based anyway, once that disappears as it would if you opened up zoning and let all others have access to funding, then the savings could be passed onto homeowner as more affordable housing.

They don't have betterment levies in Texas.

Remember, we are not just talking building more unaffordable house, we need more truly affordable housing (ie housing that does not need subsidized, as what councils also like to do with free money).

Making houses more affordable is easy.

Less restrictive zoning ie a presumptive right to build unless certain minimal rules say otherwise for environmental reasons etc., minimal council involvement in new developments ie their only role is to support and administer the basic rules , infrastructure funding to ALL that meet the criteria, and user pays for services.

You might misunderstand the concept in respect of the treatment of property rights within a planning regime, which addresses both planning gains and planning losses - to summarise:

"Land value largely depends on location advantages and decisions concerning the use of neighbouring sites. This interdependent quality of urban land is referred to by economists in terms of externalities: those impacts (positive or negative) that are not reflected in the pricing system of land (Loughlin, 1988). Betterment and worsenment are typically derived from externalities: betterment is a positive externality generated neither by the capital investment nor by the decisions of land users themselves; worsenment is a negative externality in the same way. In dealing with the externality issue, the Pigovian argument and the Coase theorem are most influential. The Pigovian approach to internalizing an externality is through taxation and regulation (Pigou, [1920] 1929). For instance, a factory emits smoke that pollutes the environment, thereby incurring damage to the community. The costs of polluting, however, are not incorporated into the production costs of the factory. Thus a divergence between ‘marginal social net product and marginal private net product’ emerges.".

One of the problems with the RMA as I see it, is that it does not recognise property rights - it is an environmental effects-based legislation. But of course individual property right holders do recognise property rights - and hence we have NIMBYs on the one hand and speculators/land bankers on the other.

An urban planning regime that recognised both betterment (planning gains) and worsement (planning losses) would be a regime that would address this problem you correctly identify above;

"So you can be assured that any council system will keep the monopoly intact, to keep the rentier free money in place, but going to them rather than the landowner, ie not going to the homeowner."

Given that, homeowners whose land value was negatively affected by a planning decision would be compensated, just as those positively affected by a planning decision would be charged.

At least that's the theory :-).

I think to properly explore and apply it would require a new act for urban planning which was firmly based on a property rights approach to planning. Betterment and worsenment under such a regime would ideally be applied to all land titles - and charges or compensation applied as appropriate with each planning decision that has a positive or negative impact on property rights. Like a land value rate, that would be calculated at the commencement of a financial year and then reviewed quarterly and adjusted accordingly for each quarterly payment period. Any excess funds collected for betterment (where compensation of those negatively affected does not equal or exceed the amount collected) would be used toward capital projects necessary to implement the planning decision/change.

But, I have no idea how this would work in practice - I'm just theorising based on what I've read about the concepts.

That's the problem Kate -betterment and worsenment -sound nice in theory but there is no evidence from the real world that they work -for fairness or efficiency reasons.

What we know that works to keep housing affordable over the long term is decreasing the restrictions on building affordable housing. For fairness reasons we should do that.

The next question is infrastructure needs to be available as part of a decreasing building restrictions package -how should that be provided? I am not convinced a difficult to assess betterment tax/worsenment grant would be the most efficient method of paying for infrastructure.

I think for infrastructure funding Phil Twyford targeted rate is a good idea, MUDs would be fine. Congestion charging is a good idea -because it manages road-use demand better. There are lots of possibilities. I don't see why we need to try something that only seems to work in theory. In Germany they keep it simple -local governments receive a grant from the Federal government per head of population. So someone moves to a district -that district gets more money -done -simple.

That's the problem Kate -betterment and worsenment -sound nice in theory but there is no evidence from the real world that they work -for fairness or efficiency reasons.

No evidence? Are you certain about that? I recall discussion on jurisdictions including Singapore, Hong Kong, Germany and the UK - I'd have to review the literature for context (i.e., whether the discussions were current or historical accounts) but the concept (betterment / worsenment) is well explored and understood in law/property rights academic literature;

http://www.spains.com.au/Detailed%20Essays/David%20Spain/SR%20&%20Town%2...

But I'm no expert on the topic - just an interested reader.

In a roundabout way - I think that Development Contributions when introduced in the LGA were a recognition of the interface between our planning and our our property rights regimes - i.e., attempting to charge new residential developments for the costs of urban growth, so that those costs "fell" as close as possible to those directly benefiting from such growth. But, that has proven inadequate in terms of our wider infrastructure problems.

NZ was certainly pushing the boundaries of environmental planning when introducing the RMA back in 1991. In the 26 years since its implementation we know what works and what doesn't - and (to my mind) one of its failures is to address issues of property rights head on, particularly where urban planning is concerned.

To my mind, we shouldn't discount any possibilities going forward.

Kate of the 4 countries you mentioned -UK and Hong Kong are disasters for housing affordability and Singapore although having good outcomes -land supply is all govt owned leasehold land -a choice we rejected over a 100 years ago and I would imagine almost impossible to backtrack on. I have never read of betterment tax been used in the context of Germany although I am a bit of ameuter at this - I have read widely.

I have often heard betterment tax been promoted -but I am unsure why it would be better than other sources of taxes or means of infrastructure funding. I don't think it is unreasonable to ask exactly what betterment taxes efficiency and equity claims are and why they would be better than alternatives.

My thought from a planning regime perspective is not that a betterment / worsenment regime would resolve, or indeed have a great deal of effect on, the issue of affordability. I am more interested in it as a more equitable tool to fund growth/infrastructure (as opposed to general taxation and/or rates) - whilst also being a source of compensation for those negatively affected by planning decisions (something we presently provide for out of general taxation for takings - and we do not recognise for the NIMBY problem (i.e., locating a road or a prison over someone's back fence).

But, again, I'd need to read more.

My point is - we are dealing with a 'wicked problem' in the sense that it seems to be never resolved (and all the while LA are reaching the limits of reasonable debt) - hence outside-the-box funding possibilities (i.e., radical change) has to be explored.

Who knows whether it is an answer - I sure don't. But then neither have I seen anything else that looks remotely like a solution to all our ills (well all Auckland's ills, that is).

I think the solution would be to look to those jurisdictions that have affordable housing and do what they do - as crazy as it must sound.

Different issue.

As I said above, I think there is merit in looking at a betterment/worsenment planning regime, not to address affordability, but the funding of infrastructure costs. The MUD model as per what I understand operates in the US - seems to place all of the burden of infrastructure costs on new development. If I understand it properly, such homeowners would have both a rates bill and what I would liken to a body corporate fee. So purchase price might go down but outgoings would be higher than that for existing homeowners in non-MUDs. Right?

Kate imagine if the Railway between Auckland and Hamilton was upgrade to to a 170kmh high speed train like they have in Queensland http://www.railway-technology.com/projects/queensland/

If NZ had MUDs or Phil Twyford's municipal bonds issued by a Treasury unit and freedom to build. Then any developer could use that funding to construct a new township anywhere on rural priced land with a bus feeder service to a train station plus paying for feeder roads to SH1 and other local arterial roads.

The developer would pay all those costs and instead of using banking system finance (which is drying up according to Bernard http://newsroom.co.nz/2017/03/12/8513/aussies-torpedo-auckland-housing-plan) and putting those costs onto the purchase price -which the householder pays with short term fixed and variable interest mortgages, the developer uses bonds (long term fixed, probably lower interest rate) and householders pay back a targeted rate on their new properties.

Theoretically then bond financing and targeted property rates (which are in addition to regular rates -you are correct in your assumption Kae) doesn't make much difference to the status quo -although I think it streamlines the development process a bit and gives a few small cost savings in lower longer terms interest rates. If Treasury properly configured the system also the developers would take on the risk wrt infrastructure not the council -think Mangawhai sewerage scheme debacle.

But the big difference to the status quo is access to rural price land -that's where big gains in affordability could come from.

Now let's assume there is a decision to fund this railway project with betterment taxes. So the entire corridor of land on either side of the railway has a betterment tax on it -another property tax. Many people assume land supply is fixed -so land taxes do not change behaviour. This thinking dates back 200 years to a misreading of Riccardo. That assumption is incorrect. Land can change form -it can be put to many different uses and a tax on those changes will like all taxes affect choices. For instance a high betterment tax rate would at the margin discourage developers from building in the corridor -which might affect the customer base and therefore the economics of the railway line. It would also affect housing affordability -because houses will not be made cheaper if it is more difficult to build houses. Betterment taxes would be another element of difficulty.

There may be better forms of funding for this infrastructure project. Funding could come from the consolidated fund like Steven Joyce's RoNS road projects. It could come from a regional petrol tax or a congestion charge -which would also balance up the playing field between cars and trains. It could come from fare recovery. It could come from ACT's redirecting construction GST to regional development infrastructure projects.....

An assessment needs to be made on what is the best form of funding.

I really appreciate that you are engaging with the idea. It's not like I've thought it through all that much - but in response to the example you raise - one would not fund the railway through betterment on land in the corridor - as that land isn't "bettered" until such time as the line is operational. However, in the preceding years, many other planning projects/decisions are going ahead - generating betterment - new cycle ways, playground upgrades, new schools opening up, the Auckland port expansion, etc. Most don't have a great deal of worsenment associated with them - and so the assumption would be that this land-value improvement fund, or betterment receipts, would exceed compensation paid. It generates a capital projects fund over time (and similarly Hamilton would be getting receipts as well) - such that the high speed rail project can be funded via both equity and debt at some such time in the future.

That said though - I'm probably talking through a hole in my head - as I realise way of thinking this is a complete paradigm shift - and well beyond my pay grade :-). And we're talking major, major legislative overhaul - so very pie in the sky as well.

Also, I think, MUDs and freedom to build could co-exist in betterment/worsenment urban planning regime.

Since the cost of infrastructure, or should I say the way infrastructure is costed, is built into the cost of housing it has a significant bearing on housing affordability.

And the burden of infrastructure is not such a burden to bear under the Texas model as it allows land to be developed at less than 1/4 the price of NZ land.

The average price of house and land in Houston is only slightly higher than the average price of a section in Australian capital cities (which we have data for), and it will be about the same if compared to NZ vs Houston.

Yes you are right about price going down but outgoings are usually no more than what we pay due to council inefficiency, plus even if they were higher it is the same easy choice to make as saying would you sooner pay 1980's house prices at 1980's interest rates, or 2017 house prices at 2017 interest rates. Given the cyclic nature of pricing and finance and time frame to pay a mortgage off, the former is far more preferable over time.

Auckland Council is planning on opening up development for 120,000 homes but it will cost $20 billion and that doesn't seem to account for any public transport provision. So there will be a significant increase in car-dependency and therefore congestion on Auckland's roads. Further Auckland Council does not have $20 billion so where is the funding going to come from?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1181...

Meanwhile what the government is planning with the gutting of the RMA has many thinkers behind the scenes fearing a return of Muldoonism. This is discussed here.
http://politik.co.nz/en/content/politics/1047/Muldoon's-ghost-in-resource-legislation-Resource-Legislation-Ammendment.htm

The government by no stretch of the imagination has unsheathed a sword to cut through the gordian knot of our housing crisis. In my opinion the sword is 'political will' and the solution is doing what it takes to unleash both the private and public sector capability to build affordable housing. I think Labour's set of proposals is the closest to being a sword -although it may need a bit more sharpening between now and the election.

A further problem is if the current model of car dependency sprawl if continued without modification will very quickly Auckland eat through the Pukekohe elite soils. Which could be considered rather short sighted.

The horticulture industry are complaining that the government is not listening to its concerns about this issue.
http://www.newshub.co.nz/home/politics/2017/03/government-ignores-hortic...

Peter Nunns on transportblog argues with empirical evidence from overseas that their is a cheaper, more space efficient and more sustainable alternative to car-dependency sprawl that is also compatible with affordable housing.
http://transportblog.co.nz/2017/03/10/car-dependency-is-a-bad-deal/

What about Nick Smith's reply, basically the owner of the land can sell to whoever he wants for whatever the buyer wants to do with it. How many ways can we come up with to describe "stupid"

Sorry Brendon, but I have little time for the cry baby farmers as were interviewed on TV the other night.

Who do you think is selling the land that ends up being developed? It's the very same farmers.

They don't have to wait for the Govt. to step in to solve the problem. They would easy put covenants on their own land they would forever protect it as farmland, no matter who owned it. Of course this would forever make the land worth only its rural value.

Hypocrites.

Dale I would be ok if an area of truly elite soils (and those areas are not actually that big) decided to take itself off the market for housing forever -and that would include for lifestyle blocks. Auckland could plan around that -the right to build housing areas could be elsewhere. Urban infrastructure -roads, public transport, pipelines for the 3 waters could be elsewhere. We do the same with National parks, regional reserves......

What I get annoyed about is this drip feeding of land for development opportunities for housing -first by the Councils (because they are debt/infrastructure constrained) and then by the private sector. It is so obviously a jack-up -it maximises revenues and minimise costs -for Councils and favoured landowners -it provides no benefits for FHB -it perpetuates the property ponzi......

Exactly,
For example if it was water rather than elite soils then they would simply by pass it to build on the next available land, but of course when it is land they want to use the next available piece because it is cheaper for council to connect that land to its contiguous last developed piece of infrastructure.

And in their minds to go further out only encourages sprawl and also they could loose administrative control, God forbid a new town started up that they had no control over.

I went to the public meeting in Christchurch's Cardboard Cathedral on the state housing sell off in Christchurch which if the government gets re-elected means they will have a mandate to do through the whole country. This is particularly relevant in Auckland as there are tens of thousands of state homes which the Unitary plan has given the opportunity to be intensified to bring tens of thousands of more houses on stream. The question is who does this and who benefits. HNZ and future state house tenants? FHB looking for affordable housing? Private providers who hope to sell for top dollar to gentrification clients?

Alan Johnson an economist from the Salvation Army gave a good economic history of state housing in the context of the NZ housing story. The pdf file of the presentation can be accessed here. https://drive.google.com/file/d/0B9rybwhCv5R7enVoZ0lwaUl2RXc/view

Alan's brief economic housing history is we had the state housing period in the 1930s and 40s with a large state house building programme. From the 1950s a democratic home ownership period -with a wealth of supports for increasing home ownership -infrastructure -especially motorways built by the MoW, State Advance Loans, capitalising the child benefit payments, state house tenants could buy the home they were renting.... This period ended in 1991. Home ownership peaked and has declined every year since.

A big part of the the loss of 'political will' housing story is a moral demonisation of state home tenants. A process dating back into the 1950s, but occurring right up to the current day with the false accusations of P contamination of state housing. These moral demonisation process also extends to those who are poor and on low wages -Bill English's infamous attacks on NZ's work-shy druggie young workers.

An opposing moral outrage/challenge of people living in cars, sheds and garages has also developed countering this thinking. It will be interesting to see what comes out on top with the public -moral outrage or moral demonisation? One is essentially an inclusive -we are all in this together approach, while the other is a exclusive -victim blaming approach..... What we choose will define who we are as a people in my opinion.....

What we choose will define who we are as a people in my opinion....

This seems like quite an outdated opinion. I don't think the concept of "a people" means much to a Westerner anymore. We are universal men, individuals, unconstrained by the suffocating narrow mindedness or restrictive obligations of belonging to a people. Each of us is free to forge his own destiny. We have moved on from a home being a castle to a home being a state.

Zachary did you miss what happened with Brexit and Trump? These were not universal man movements. They were very much concerned about national identity.

This is what's galling to young people - when older Kiwis claim to have done it all by their own two feet and say "young Kiwis should stop saying the government has to do something". Because for someone to be born at the time to benefit from these programs, then claim later that policies shouldn't be a focus for the young...it's too historically ignorant.

I dinnae see many common taters with actual ideas about how to tackle the underlying issue of land prices.

  • If Labour is thinking aboot compulsory acquisition, at say ruling rural-land-best-use prices, then they can kiss goodbye to Electability. Because that affects property rights as currently understood, everywhere. The leakage would be impossible to confine to a few Awkland 'burbs.
  • If anyone is thinking aboot 'taxing away unearned CG' which is a prima facie reasonable response, then unless every cent of that tax goes directly back to the buyers (who have just paid raw land + CG) or the developers trouser pocket (because they will otherwise charge what the market will bear unless their arm is right up behind their back) there is no benefit to the ultimate purchaser.
  • If Labour thinks that Nationalising the infrastructure development industry would assist matters, they are simply delusional: them days are gone, and Venezuelan-style central planning does not have a glorious history

For my money, trailer parks behind the nearest hill or cruise ships (like the old Wanganella in Doubtful Sound), behind Rangitoto, or all-concrete banlieues (mentioned here https://www.city-journal.org/html/barbarians-gates-paris-12378.html in the last paragraphs) seem the immediate way out. At the direct expense of perpetuating the all-too-obvious housing inequalities that exist now.

But trade-offs have to be made. Somewhere. With a benefitting and a paying segment of Godzone. All of whom can Vote.

You'll know the expression TINA?

I do wonder whether you are a closet neoliberal, waymad (a TINA) - who can see that argument is lost and hence you have shifted toward TINS.

Plenty of good suggestions from Twyford and others in this thread. Land prices will come down - this is a problem of market/globalist capitalism of our own making - and we can un-make it - easily.

I note you didn't take me up on betterment in a planning system - and I have a good idea you understand it. If not it is the opposite of compensation where a property rights regime is concerned..

Does TINS = There is no solution? If it does -well done I hadn't heard that before.

TIASBIPEFUTOIATFOWTNGEI

..." there is a solution but it's politically expedient for us to overlook it and to focus on winning the next general election instead " ...

Betcha hadn't heard that one before , either !

Yup.

To me the key issue is that constraining Auckland by defining the urban/rural boundary has given a scarcity value to land. Rapidly increasing land values, land banking and speculation are an inevitable consequence. If new developments didn’t have to pay exorbitant prices for the land, paying the cost of infrastructure wouldn’t be so much of a problem.
In fact the cost of infrastructure is not contributing to the price of new houses. The price of a new house is set by the housing market. What the land owner gets for the land is the market value of the completed house minus the development costs, council levies, etc. In the current situation, if the development and construction costs came down, all that would happen is that the land owners would receive more for their land.
So the key is to free up a competitive supply of land for development. As soon as you do that, the cost of building a new house on bare land would set the price in the housing market so that the construction costs, infrastructure costs etc, would determine the final price. Once that happens, competitive pressure on costs would come back into play.
Why have we got into this mess in the first place? Partly it’s psychological - rising house prices are considered a sign of success. To some extent it’s a reaction against the expansion of our cities into surrounding farmland as Brendon mentions. Partly the urban limits are a reaction to the cost to councils of building roads and other infrastructure to service housing on the outer fringes. Proper pricing of the infrastructure itself – including road pricing for Auckland commuters – would go a long way towards encouraging a more efficient urban form and reducing the need for special funds of the sort Phil is advocating.

Land near the centre will always be scarce and always the most highly sought after place to live. To then suggest that those unable to afford to live near the centre have to bear the greatest cost associated with the need to commute in to that centre seems inequitable to me - that is what road pricing does - it places the greatest burden on those needing to travel the furthest on those roads.

I agree with David Kate. If there are abundant choices of where to build from the centre of a city to all the way out to out-of-sequence developments on rural priced land. Then inner city housing costs will eventually track down to the cost of peripheral development plus the capitalised benefits of not paying transport costs from the periphery. Congestion charging means those transport costs are truly accounted for -commuters going long distances over congested roads are not being subsidised.

If housing costs in the inner city rise above that capitalised amount then that will encourage peripheral urban development. If existing or new housing in the inner city fall below that amount then it will encourage people to build in inner city areas.

This sort of city house price curves can be seen in most markets -even in supply constrained ones like Greater Wellington.

Probably the best example of an affordable city is Tokyo which has an abundance of transport and building options from the inner city suburbs out to the periphery that provides affordable housing with fast commuting times. https://medium.com/@brendon_harre/what-is-the-secret-to-tokyos-affordable-housing-266283531012#.jy7d12gke

I don't think inner city land value on a per m2 basis will ever track down - and most certainly not to anywhere near a level that would see it reach an equilibrium with land value on the periphery. Not unless employment opportunities increase greatly on the periphery and/or the city environment degrades/deteriorates considerably. Surely, no one chooses to commute if they can afford not to (unless they want to live on a lifestyle block).

But I'll have a read of the Tokyo piece, thanks.

Kate I never said land prices would track down to being the same on a per m2 basis. What I meant was a a dwelling in the city suitable for a family or a couple or an individual will be priced at a similar amount to the equivalent in the periphery once you account for the capitalisation of transport costs. Also it may be that the inner city house is on a much smaller plot of land. In Tokyo's case because it is so massive -ten or twenty times the size of Auckland this means the plots of land are truly tiny.

We're getting closer to agreement in our understandings, I think :-). But the differential I suspect will be somewhat greater than you imagine - as it is not just the capitalisation of transport costs that matter, but the additional premium associated with time to commute. The opportunity cost of commute time is for many (particularly those with young families), far more precious/valuable than the additional cost of transport.

Sure agree with your other benefits -time savings etc comment Kate. But not to account for transport costs properly would over the long term mean subsidising sprawl which would lead to greater costs to society.

Maybe I don't understand what you mean by capitalising for transport costs? Are you suggesting the folks who do not incur those costs (because they live closer to the centre) should have to share equally in those costs as those at the periphery? If so, I agree, and more - as they have the benefit of being closer to much of the public infrastructure (AKL library, the university and other publicly funded amenities).

Kate I am not arguing for how to fund roads or transport infrastructure or other amenities. I was challenging your idea of inner city prices always being higher than peripheral prices -just because. I was trying to explain why because -and explain there are limits to how high these prices can go -and in large part that is defined by the price of land/housing elsewhere.

My explanation was based on the idea that the variation of prices for land, houses etc in a city is to do with transport costs. So for instance if it costs $100 a week or $5000 a year to commute from a cheap rural area to the city above what it costs to commute from within the city, then those city houses you could pay up to $100 a week or $5000 a year in mortgage costs and still be no worse off. So obviously inner city dwellers with access to the bulk of the employment market for little transport cost would be willing to have a bigger mortgage and pay more for inner city land and housing.

It would be not hard to add some amenity value benefits to the transport calculation -say assuming that an inner city suburb dweller gets further benefits in time savings, access to city amenities -shops, restaurants, plays -and this might be worth a further $100 a week.

The next question is then how to fund that infrastructure -I am not convinced some variation on property rates/ betterment taxes is the best/only way to do that, especially for trunk infrastructure that has whole network effects..... although it is probably a good way for greenfield developments .......but that is another argument.

Right - I agree with the article - as it argues that planning restrictions on intensification also need to be removed. Sounds good to me.

Brilliant thread.... many thks to all...

David C.... Bernard Hickey
I think this comment stream deserves a wider audience.... Would be great if it could be condensed and shared with a wider audience..??

... does the hickeysterical Bernard still leave articles here at interest.co.nz ?

Seen neither hide nor hair of the lad for some time now ...

... pity , 'cos we had a heaping lot of fun poking the bariatric surgery at old " Chicken Little " Bernard ... he was a good sport , to be sure ...

I hear on the grapevine Bernard is trying to set up a new newsroom.

I miss him too -I hope he finds his place somewhere.

... is that a new newsroom , not the old new news and politics site he was working on when he abandoned us ...and left us high dry and alone , chastoned ...

This conversation is still stuck in a 20th century paradigm I am afraid.
The big issue with Trunk infrastructure goes away if one switches one's thinking to the notion of ex-urban cluster housing communities provided for within 8 broad areas of regional Auckland, all reliant on on site infrastructure.

Do you mean 8 satellite mini-cities all with enough employment within them such that there isn't the need for trunk infrastructure into the existing centre?

Developing more new regional nodes is a good idea regardless, but we need to understand that dispersion of employment is normal anyway. It is not even necessary for it to be concentrated in several different nodes, to gain efficiencies from co-location decisions between households and jobs. The greater the dispersion, the greater this opportunity; one reason being that the price premium paid for more central location, is weakened when employment is less centralised. (The same applies for amenities, period).

Peter Gordon and co-authors have done quite a few papers over the decades, with titles like "Decentralisation of Employment and the Stability of Urban Travel Time". Alain Bertaud has authored several papers that include a basic discussion of these dynamics. Slide 9 in this presentation is one he uses everywhere he goes. if you missed him in NZ, you missed a true educational experience.

http://alainbertaud.com/wp-content/uploads/2013/07/Metropolitan_Structur...

The "composite" model is the norm observable everywhere. He makes this point when he is giving his talks, even if it is not in the text of the slide itself.

Auckland in 2003 had 13% of regional employment in its CBD. Sydney had 14%. ("Central Business District Demographic and Employment Data Comparisons", Market Economics). This is entirely typical of modern cities.

http://demographia.com/db-intlcbd.htm

Outliers on the high side all have some unique explanation. Like centuries as a national capital, and strong "global" institutional presence (London, Paris, Brussels). There are plenty of cities with VERY low CBD shares of regional employment (eg below 10%) and generally this correlates with healthy average commute times. Greater centralisation of employment tends to correlate with higher average commute times.

It is a pity this thread has run so long without a mention of these realities. It is an excellent thread otherwise.

Fair point Phil. Although I am not entirely convinced of the extreme dispersal argument. But it is certainly true that cities normally develop secondary centres and become more polycentric as they get larger. Also it is true that many workers do not even work in any of these centres. But there always will be a geographic centre of a city -a point where all other points within the city have the shortest travelling distance. This geographic centre point and those areas close to this point will have natural advantages by just being the centre or near the centre.

But this location advantage is reflected in land prices. This seems to, on average, "price out" the employers of around 85% of the workforce, from the CBD, in a typical modern city.

But the cities with freedom to sprawl manage to maintain the flattest urban land price curve anyway, which means that more sectors should be able to afford the most central land prices, than otherwise. Yet something close to "15% of regional employment" seems to hold constant regardless either way.

I think the evidence is clear that unusually higher proportions of regional employment, in the main central CBD, are always due to the uniqueness of the city concerned - its history, its type of economy, its "primary" income source. Obviously a city with a primary income source related to being a hub for a rural region, is going to have a totally different urban form to cities like London and Brussels, where the "primary income" is transfers of cash from taxpayers and borrowers of money - no actual messy consumption of resources and volumes of land needed. This is "nice work if you can get it", that's all.

Urban planning today is riddled with assumptions that are literally cargo-cultism.

Phil you misrepresent my argument. Geographic central locations by the laws of geometry will be the closest to all other points in the city. This means they have the best access to all possible places of employment -even the ones on the periphery. People living in the central suburbs (not necessarily just the CBD) can access the maximum number of places of employment. This is an advantage -which is independent of the proportion of people who work in the CBD. Phil it is just a geographic fact.

I don't see what I misrepresented - I merely pointed out that this location advantage - access advantage - is reflected in land prices, and some of the consequences. Your comment wasn't clearly talking about "residential location". I see your point on that now.

Yes, this includes that living "nearer the centre" if not actually at the centre, means you are closer to "more" than someone who lives at the periphery. But that is also reflected in prices, if not as high as the centre itself.

Location decisions by households depend on a lot of things, and one thing is certain, and I am sure we agree on this: when the entire urban land market is inflated like Auckland, those who are not well and truly "on the property ladder" and buying and selling in the same market, have severely limited choices of all kinds. Ironically, the consequences of growth boundaries that were intended to "reduce commuting distances", creates a whole new category of forced bad location choices, and the net effect is negative.

According to the Panglossian planners viewpoint, the fact that Hong Kong is so dense - 30 times as dense as Auckland - must mean that a significant portion of the residents are catching a lift down to the ground floor, strolling down the street a short distance, and catching another lift up to their job. Nothing is further from the truth. Hong Kong is outlier-high in average commute time data, and anecdotes of arduous monster commutes abound.

It is important to be clear about which assumptions don't hold in real life. I would add to the complexity of the situation with "job access", that the layout of the road network, congestion and choke points, will make a major difference to access. I would bet that almost anyone living almost anywhere in Indianapolis or Nashville, could get to most of the jobs faster than someone living in a "central suburb" in Auckland. Good ringroads and grade-separated cross-directional flow major intersections, make a major difference. The prevalent speed of travel matters. Not only do cities like these have maximum opportunity for co-location efficiencies, because land prices are so low and flat and employment is dispersed, the closeness of co-location doesn't matter so much!

People have multiple criteria for housing choices - often there are two income earners with two different sectors in which they are likely to be employed. Schools, amenities, relations, the type of housing preferred. There is no getting away from the end reality that the city with random travel patterns and a road network that best serves random travel patterns, will have a demonstrable efficiency advantage. Trying to work towards some other ideal is going to be thwarted by the "land prices" thing even if everyone wanted to do what the planners expect them to.

Another way of looking at what you call "the extreme dispersal argument" and I call "the norm of the last few decades": since WW2, productivity in western economies skyrocketed, and a significant reason for this, was that whole sectors became liberated from the pre-automobile cram and extortionate land rent, to put "space" to work as a productivity booster.

I also suggest that national economies that do not as effectively enable their own entrepreneurs to do the same, will forever remain at a lower overall level of economic development. Maybe this is why things like jet airliner manufacturing and earthmoving machinery manufacturing in the USA haven't been challenged like in the manufacturing of smaller stuff that needs less space. And even then, things have found their balance at a level where a lot of it is going back onshore to the US - and the low-land-costs, dispersed cities are where it is disproportionately going.

The trouble with arbitrary planning versus letting market signals work, is that we never understand what was foregone. At least it is a common saying among urban economists in the UK now, that "Silicon Valley could never happen here". They are ahead of most of the rest of the world in understanding things like this because they have had the misguided planning fads for the longest.

Phil I definitely agree NZ needs to get a lot more serious about removing building restrictions. Cities should have a super abundance of upwards and outwards building options. This would give affordability and as you say let people make their own decisions on where to live -they can decide what best fits their and their families needs. Given a few conditions -such as congestion pricing and greenfields paying the full infrastructure of their expansion (but not expansions to the trunk networks which have wider benefits) and some basic spatial planning. That sort of thinking.

Kate: no, very different to what you suggest - a lot more decentralised.
8 broad areas, loosely held together with a broad structure plan (which addresses some basic things like road upgrades), where rural cluster housing is enabled.
No more than 30% of the site area can be developed, design guidelines would mandate that the housing is developed in harmony with the landscape. Ecological restoration (on site or off site) would be mandated.
Size of each cluster could range from 10 houses, to 300 houses.
For each cluster, stormwater, water and wastewater is addressed on site, with on site systems - so no need for trunk infrastructure. They are doing some really cool stuff in this space in Denmark, for example.
My preliminary work suggests that upwards of 30, 000 houses could be enabled across the 8 areas.
I know of 2 decent developers who would do this tomorrow if they could.

Agreed Fritz.

This is almost what a Texas MUD does, council are not involved, and don`t want to be involved, until the development is running at a break even basis, and then they might be interested in taking over the ongoing long term maintenance.

Got it. What prevents such cluster development being approved based on today's planning laws?

What prevents it, is the boundary policy and inflated land prices, and the reality that the site size for such a development means that the cost of acquiring the parcel of land is prohibitive before anyone even starts putting in the infrastructure and amenities for a proper "node".

In free-growing US urban areas, such "nodes", that we can't seem to think of as anything other than top-down, centrally planned, are usually done by private sector developers, often calling them "master planned communities". Pundits with poor instincts about how free markets work, dismiss the potential outcomes of a "no growth boundary" policy, as meaning rapacious developers running up gimcrack McMansions en mass, from which the residents will have to drive 50km to "their CBD job". The reality is the opposite to this. Developers in competition to each other try to outdo each other in reasons for customers to buy in their particular development - as well as trying to keep the value for money as high as possible. As long as zoning does not disallow it, business sectors are also buyers of newly developed greenfields locations. Some sectors in particular, need the attributes of non-central locations, low land cost being first and foremost (because they need more of it). But often proximity to the highway out of town, is important; sometimes proximity to the airport is important. "Medical and health" is possibly the sector most associated with dispersion, simply following the "clients". "Retail" is highly dispersed. Many sectors do not exist at all in the centre - eg distribution centres, manufacturing, heavy engineering, primary and secondary education.

We don't have a policy that all primary and secondary schools must be in the CBD so that all the children can catch trains and save the planet; and it is just as ridiculous to think this way about employment.

There is a perfect working example of Phil's assertion in Rolleston.

Originally centrally 'picked' for a satellite city to Christchurch, by the Kirk government of the early '70's, it sat, undeveloped and growing at glacial pace for the best part of 30 years. A common fate for 'we know best' policies which ignore economic realities.

But three factors have coincided and its growth now is simply spectacular - a true 'satellite city':

  • Selwyn DC, very early in its history (formed from amalgamation of 'old' Ellesmere and Malvern plus chunks of Paparoa Councils in '89) saw the chance and bought, at extensive-grazing-farm per/ha prices, a few hundred hectares to the immediate north of the town. They then developed this into iZone (http://www.izone.org.nz/) and promptly proceeded to eat Christchurch's industrial lunch.
  • A prime reason for this is siting: at the junction of West Coast and South Island Main Trunk lines. So no-brainer logistics considerations have led to two inland ports (Lyttelton plus Timaru/Tauranga), dairy related industry (Westland Milk drier), and a plethora of ag support and distribution-centre business. Their workforce is right across the road (literally) and rail/container transport is within a K or so.
  • The Darfield earthquake sequence, which has propelled a good chunk of Christchurch westwards and southwards onto good glacial gravels, away from the squeezy silts which characterise much of Christchurch and which caused most of the wreckage we all saw. The area around Rolleston was low-productivity extensive grazing - the general area was always a corner of the Malvern County (I was Treasurer back in the '80's pre-amalgamations) hardest to extract 100% rates take from - because it grew only stones and straggly sheep in them pre-irrigated days. But it is great building foundations territory.

But that original greenfield (usually burnt brown, actually) purchase was engineered by stolid rural Councillors who plan, really plan, for a long term, and well before the days of LTP's which would have alerted all competitors to the deal and thus foobarred it. Nothing to do with the Plannerista.....or the Kirk Gubmint.

And. mais naturellement, workers and their Hooses have followed the employment on offer just across the road, which leads to more industry, needing more workers, and so on. A sample of developments - read them prices and weep, Awklanders: http://faringdon.co.nz/building/house-and-land-packages/

So getting rid of the MUL solves the problem - in the main. Right?

I have this book on my bookshelf... the author lives in NZ.....
http://wiki.p2pfoundation.net/How_to_Build_a_Village

video https://www.youtube.com/watch?v=NiS7nJ7hS00

I like many of his ideas.... village = community

Now you are talking Roelof, that book piggy backs on the work of Christopher Alexander. My urban design paper was useful and talked about a lot of these issues. It is why I tire of the supply siders, they know about building houses but know nothing of building communities.

on thinking about this, labour have reinforced why they are not an alternative.
the core issue is amount of people,
will they slow down people growth NO
will they entice people and businesses to move to the provinces and regenerate our country areas NO
they are the same as national in they think the immigration Ponzi scheme is a winner, and this measure is about accommodating that level of inflows

I tend to agree Sharetrader. They seem to be National-lite

Lovely website!!

There is a lot to be said for returning to Feudalism. I was advocating this last year.
Feudalism with fast fibre.

Safe for children to play in the streets
Cut your cost of living.

a complete not elite community Serfs we used to call them!