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Auckland City economists find three things people value as reflected in house prices: development options, short supply, and being near jobs. Trees don't count

Auckland City economists find three things people value as reflected in house prices: development options, short supply, and being near jobs. Trees don't count

• Our work into what Aucklanders value having in their neighbourhood and homes continues. Recent analysis has unearthed three things people value as reflected in house prices.

• People value development options, and there is now clear data to evidence this. Almost three years since the Unitary Plan was implemented, clear patterns are emerging of how much more value different types of zoning add to properties.

• People value things in short supply. Supply of leafy green suburbs is plentiful (which is a good thing), and thus don’t command a price premium. Suburbs we think of as wealthy, leafy green suburbs, are wealthy for reasons other than their big beautiful trees.

• People value living near jobs. This is yet another reason that the leafy green suburbs around Auckland’s CBD are among the most expensive in the country.

In recent years, the Chief Economist Unit has often focused on what’s driving housing prices in Auckland. We’ve looked at how upzoning and amenities improve property values. We’ve researched the value of special character areas, and the rapid transit network to people living in Auckland.

You don’t need an economist to tell you that big houses on big pieces of land in desirable school zones are expensive. But it is important to quantify how much different amenities affect property values. These findings allow us to examine various Council policies and measure their impacts on Auckland – so we get good value for ratepayer money.

Captain Obvious strikes again

Two years ago, the Chief Economist Unit found that properties that were upzoned – those that have more development potential under the Auckland Unitary Plan (AUP) than legacy plans – had higher values relative to those that were not upzoned. This was not surprising. What was noteworthy was how the upzoning premium varied around the city.

Now that the AUP has been operative for nearly three years, we ask whether properties with more permissive zoning have clearly higher values. The short answer is “yes”. We looked at the sale of residential properties with between 200 and 1,200 square metres of land inside brownfields1 areas of Auckland. We compare the price premium by size of land and zoning to a theoretical standard dwelling with no land.

Post-AUP, sections up to about 650m2 in size, regardless of type of residential zoning, have about the same value. With sections of this size, there is not a lot of development opportunity, regardless of how it’s zoned.

Above 650m2, Single House zoned land has the lowest premium once other factors associated with the zone, such as special character status, are removed as there is not much development potential.

We also see that the value of Mixed Housing Urban and Mixed Housing Suburban land starts to become differentiated, with the more permissive zoning having slightly more value.

Terrace Housing and Apartment Building (THAB) zoning allows for the greatest height and scale of development of all the residential zones – and thus, the most development opportunity. At 1,200 m2, it has a massive premium above and beyond Single House zoned land.

Finally, at any section size, sales of houses that are in Business zones have the largest land premium. These have maximum flexibility and can be used for both housing or business activities.

Money doesn’t grow on (or because of) trees

Our most surprising finding is that the amount of tree canopy in an area is not reflected in house prices, once other factors are accounted for. The wealthiest areas of Auckland have a lot of leafy, green suburbs, but even areas that have lots of industry like Rosebank, Penrose, and Mt. Wellington, have almost 10% of canopy cover.

In more modestly priced areas of Auckland, especially out west in places like Glen Eden, Sunnyvale, and Ranui, the canopy coverage is 20–25%, which is the same as in the “leafy-green” suburbs of Remuera, Parnell, Herne Bay, and Epsom.

We are privileged to live in a city that has a lot of green and as a result property values do not incorporate a premium for this. The “leafy-green” neighbourhoods are expensive because of the other amenities available there. These areas have desirable schools (the doublegrammar zone has a house price premium of around 13%) and are close to jobs, for example.

A short trip to bring home the bacon

Which brings us neatly to the question of how being close to jobs is valued by Aucklanders. In the past, we’ve shown that people pay to live near the CBD. Of course, being near the CBD is only desirable because of what is in it. Almost 25% of Auckland’s jobs are in the 0.1% of Auckland’s land area made up of the CBD and its surrounding inner-ring neighbourhoods.

After accounting for job density, we find that distance to the CBD is no longer the best determinant of house prices as the explanatory power is taken up by job access. For every 1% increase in jobs within a two kilometre radius of a neighbourhood, house prices go up by 0.03%. This sounds small, but when we consider that neighbourhoods around the CBD have access to so many jobs, the premium in these places is 25% or more above where properties have average job access.

We’ve just shown that people place a lot of value on living near jobs. We also know that, so far, not enough houses are being built near where the jobs are. Going forward, we need to constantly reassess if enough housing is being developed near jobs and, if necessary, act to encourage this to happen. We also need to ensure that we continue to develop better public transport options for those moving to the areas where there are massive numbers of houses being built, but few job opportunities to avoid just adding these workers to our already busy roadways.

The more we know, the more we know

For every Auckland property sold, Council collects a range of data, including the location and size of the property, as well as the condition, age and other attributes of the dwelling. What’s not included are neighbourhood amenities, any special restrictions or neighbourhood characteristics, and so on. The Chief Economist Unit (along with RIMU) has developed these additional datasets so we can better understand what people value (often reflected in house prices) and what that means for Auckland Council policy.

Recently, we’ve added two additional years of sales data as well as information about neighbourhoods, including the amount of tree canopy cover and employment options in neighbourhoods across Auckland.

As with our previous models, the estimates presented here are from a log-price hedonic model with time and location fixed effects, and robust clustered standard errors at the Census Area Unit and individual house level. Data on house sales from 2013-2018 was used and outliers were removed. To be included, the sale must have been an arms-length sale of a freehold property including land and a dwelling of at least 30 square metres.


*Shane Martin is an economist in the chief economist unit at the Auckland Council. This article was first published here.

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16 Comments

Of course these 3 simple things are valued by Aucklanders. Money is the centre of attention because people are cutting their budgets too fine (out of necessity). Although the traffic has been so bad it's changed behaviour dramatically.

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So we can at least partly blame the unitary plan for our sky high prices.

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For certain properties, yep.
Grandma's quarter acre section in Ellerslie with a dilapidated 80sqm cottage definitely got a good juicing from AUP upzoning.
Uncle's 300sqm McMansion on 500sqm of land next door didn't, though.

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Not really.

Land will only command a density premium if someone buys it to develop and make use of the zoning potential. When it's developed it may have 10 dwellings on it instead of 1. So it may increase certain land prices, to lower overall dwelling prices.

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Location x3. If you can now build town houses or appartments it is now worth more. Always has and always will be the case. Smart money has been door knocking and buying upzone property from the unaware since the new plan was released.

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If people are kept in the dark about the future, they will want stuff that is future-inappropriate.

Look for the culprits who kept them in the dark, and 'economists' heads the list.

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when an area gets rezoned any increase in land value should be levied as a target rate against the property over the next 25 years so the windfall doesn't go to the land owner, then the money raised can be used to pay for infrastructure and will encourage councils to free up more land.

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Free up more land?

We need to ask what it was doing. Globally, all that farmland is feeding people, and we are below the level of biodiversity-stock we should be preserving. Welcome to the Limits to Growth, but please identify what you're displacing (from within a finite arena) when you make such statements. The human ecological footprint now exceeds the usable global surface area (the overshoot was carried by temporary draw-down of under-surface resources). This need to be considered in any advocacy for more coverage, pretty obviously one would have thought.

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OK. So we're not building out any more then. You now have record land prices, vested interests holding back development in key areas and massive house price, rental inflation and the social consequences that flow from those things. Add to that a construction industry that can't/won't deliver good density. Those things can't be ignored either.

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If you're going to go the whole gamut, add in immigration. And have a discussion about population. Then address this:
http://limits2growth.org.uk/publications/

I'd chuck in the style of houses recently constructed, vs the size of family post-collapse (two, one or no kids) and ask if the current square-metreage cannot be re-configured?

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A large part of the problem comes from the fact that redeveloping density in existing areas is a project that will take 40 - 50 years. You can't just pave over Grey Lynn and redo it in Hobsonville Pt-style terraces and apartments, even if that's a really great example of density done right. It's far easier to engineer a decent greenfield development than a similar-scale brownfield one. The bit we're missing at the moment is the land underneath the far out bits is still hugely expensive, and they're not connected by rapid transit. There's no incentive, price or otherwise, for people to abandon the inner-city suburbs, and they resist any meaningful change while they're there. The answer can't be people spending top dollar for 40sqm apartments 20 miles from the CBD.

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The Council restricts land-use and, therefore, the price of land that allows for greater economic returns go up in value. The research is valuable, but it proves again the "supply and demand" law. If we want land prices to come down then we need to allow for unrestricted land-use.

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Too right. More actual libertarianism in zoning and less nominal libertarianism (e.g. ACT in Epsom).

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Funny how everyone cites Epsom and ACT as the prime offenders in terms of density when Epsom is retatively dense. Wonder why no one ever brings up the density of, say, Mt Albert? I can't readily find stats for either but anecdotally Epsom is acknowledged as being high, if not highest of all.

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That is not why they cite them as hypocritical.

They cite them for being nominally libertarian whilst also being NIMBYs about who is about to live in their neighbourhood. Choose one - libertarian or NIMBY.

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I live in the very close to the CBD, and I'm surrounded by retired people. There are by in large the only ones that can afford to live here, and typically have for an extended period.

From first hand experience, these retired people don't like trees (even though they were there when they moved in) because the now spend most of their time in a shaded house in winter. The forget the benefits of shade in the summer, not too mention the bird life that attract. Their classic approach to facilitating tree remove of Council land is its a health and safety hazard. We had a beautiful 40 year tree cut down for that reason, with the retiree moving away 18 months after that. No wider consultation from the Council on this one either, which should be policy. Thank goodness some are protected.

I accept some trees get too big for their position, however I believe the findings by these economists should a bias to those who currently live there. What about consulting future owners of multi unit developments which are likely to replace current owners when they drop out?

Not unlike general elections, local body policy has been dictated by what retirees demand. Politicians for decades are too afraid to challenge this mind set because they might lose their seat. Most wouldn't get an equivalent paying job. These politicians have bankrupted the system, and its time things changed so we have some balance to society.

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