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Brendon Harre asks if Wellington is perpetually stuck being a sleepy government town that is incapable of being entrepreneurial in its public policy making

Brendon Harre asks if Wellington is perpetually stuck being a sleepy government town that is incapable of being entrepreneurial in its public policy making

In January 2018 there was a story about a young female government employee titled - I’m a civil servant and I can no longer afford to rent in Wellington.

This story was the equivalent of a canary dying in a coal mine. But the politicians, civil servants and powers that be of Wellington chose to ignore it.

Wellington has spent years dithering and arguing over the plan to better connect the city to the airport.

If the Wellington politicians had been observing the canary they would have realised they should have been working on an integrated housing and transport plan.

Part One: A Rent Busting Economic Plan

The current coalition government was elected into power based in large part on the promise to transform housing in New Zealand. Wellington is New Zealand’s capital city so obviously central government is based there. The Wellington region also has progressive local government Councilors and Mayors broadly supportive of progressive initiatives like affordable housing.

Given Wellington has this double dose of government, in theory the city should be speedily progressing towards warm, dry affordable housing. Yet the facts on the ground prove otherwise.

In my opinion transforming Wellington’s housing is an ambitious yet achievable goal. This paper outlines an economic plan that could deliver affordable housing to the capital city. The economics is doable, the difficulty is unlocking the political constraints.

There is a risk that the affordable housing goal could experience the same fate as Stats NZ online digital census goal. The various types of Government in Wellington being naively optimistic, with an insular ‘yes minister’ attitude whilst ignoring facts on ground, meaning timely decisions are not made which jeopardises the housing reform agenda.

The biggest fact on the ground which the city seems to be ignoring is its rapidly escalating rents. A two-bedroom unit costs $75/week more a week than two years ago during the election when Labour campaigned on affordable housing.

Since 2015 the median rent for a two-bedroom Wellington flat has increased from $350 to over $470 a week. That means over $6000 has been taken out of the renter’s yearly budgets in 2019 compared to 2016. On average two-bedroom rents have gone up $1500 a year for the last four years.

This is a real fact on the ground which the government promised to do something about but haven’t.

Some rental databases are showing that Wellington’s rents in 2019 overtook Auckland’s with the overall median rent being $658 in Wellington and $627 in Auckland.

Wellington’s rent increases have cut households budgets more than the government’s free tuition fees policy, winter energy payments and the Families Package. The rent increases are also larger than the previous government’s 2009 tax cuts.

Wellington appears to be pricing itself out of the market for skilled workers, it is even struggling to recruit bus drivers. Its low-income earners are becoming increasingly impoverished. Landlords are the only group benefiting.

Bus drivers are being offered a wage of $22/hour, which works out at about $740/week in the hand for a 40 hour week. The wage is not too bad, it is above what is considered a living wage. But compared to Wellington rents the wage is measly so it is not hard to see why Wellington is chronically short of more than 50 full-time bus drivers.

The obvious thought is employers should increase wages, but public and private employers cannot afford to increase wages by $1500 every year.

Something must be done about the cost of living in Wellington.

My suggested economic plan for Wellington is that large numbers of affordable homes are built, especially rental and public housing. This would require the following intermediate steps;

  • Congestion charge Wellington’s motorways to keep them free flowing at speeds of greater than 80km/hour. Congestion charging is something that the new Wellington Mayor Andy Foster has stated he will seek legislative capability to adopt as an alternative funding tool (to rates).
  • Congestion charging motorways at peak times increases the marginal cost for users of single occupant vehicles (cars) relative to multiple occupant vehicles (buses and trains). Sensibly this encourages the more spatially efficient transport modes be used to access the most congested road spaces. This plan is therefore consistent with the Lets Get Wellington Moving transport package, which has the same goal.

Congestion charging fixes the problem that buses have with variable journey times

  • Congestion charging effectively turns Wellington’s regional motorway network into another grade separated rapid transit system at minimal infrastructure cost.

Lincolnshire Farm is the largest block of greenfield land close to Wellington. It is owned by Rodney Callender. A road from Petone to Grenada to reduce traveling time between Porirua and Lower Hutt and reduce congestion on the Wellington end of SH 1 & 2 has long been suggested.

  • That means greenfields close to motorways and urban centres, like Lincolnshire Farm could be developed into medium density transit-oriented developments, where thousands of affordable homes could be built. Lincolnshire farm is much closer to the urban and employment markets of Wellington, Lower Hutt and Porirua than the planned regeneration of Eastern Porirua which is only close to Porirua.

Lincolnshire Farm (marked in blue) has a strategic location within Greater Wellington between Porirua City (north), Lower and Upper Hutt Cities (north-east) and Wellington City (south-west).

  • Master planning and building thousands of affordable homes with all the supporting infrastructure that entails will require the Ministry of Housing and Urban Development to be a modern version of the Ministry of Works.
  • This Ministry could take a development corporation approach to funding its housing projects so that real estate development pays for the infrastructure provided. Targeted rates and access to independent bond financing could be allowed. There are lots of successful development corporation models to follow, the Hobsonville Land Company (HLC) for instance. Best international practice is that development corporations have an independent board. A mix of state housing, affordable rental and affordable owner-occupied housing could be a required condition for each project. Central government could assist this process by providing capital grants for affordable rental housing and building energy efficient and earthquake proof homes.
  • Wellington could also allocate land-use more productively. For instance by turning unwanted industrial land into residential development. It could allow neighbours to cooperate with each other to better use their desirable land close to amenities. It could encourage local governments to switch to land value rating regimes. It could have independent hearing panels doing cost benefit analysis on planning restrictions to determine what is a reasonable versus unreasonable planning restriction.

These sort of ideas help fix Wellington, by pricing in workers, by providing affordable housing for the poor and by improving the environment (by encouraging a transport mode shift).

Will Wellington make these urbanisation reforms? I have my doubts, not for economic reasons but because of politics, which I will discuss in Part Two.

Part Two: Political Doubts

You can’t beat Wellington on a good day. Is this true?

In Part One I showed it is possible to devise an economic plan that can transform Wellington into a city with more affordable housing located close to urban centres.

A plan that helps fix Wellington, by pricing in workers, by providing affordable housing for the poor and by improving the environment.

But I am doubtful Wellington will implement this economic plan or any similar urbanisation reforms because Wellington doesn’t like to take political risks.

Not wanting to lay all the blame on any one person because risk aversion is a characteristic of the whole ‘Wellington’ governance ecosystem, but here is some examples of Wellington taking a risk averse approach to promoting affordable housing reform.

  • Grant Robertson is a fourth term Wellington Central MP and current Minister of Finance. He is the head of Treasury, which itself is an incredibly well-resourced group of Wellington based civil servants. Yet despite these advantages (or perhaps because of them) Grant Robertson’s contribution to fixing Wellington’s housing crisis has been, to go from supporting a vacant land tax as a ‘high priority’ to it being ‘not feasible’.
  • Justin Lester was Wellington’s left-wing Mayor. Two months before losing his mayoralty he publicly announced he wants “Mum-and-Dad” property investors to lease their houses to the city council so they can be turned into affordable rentals. Economists advised Justin Lester this policy would not work because it does not increase the supply of rental housing.

These examples point to the big restriction on Wellington preventing transformational change to improve the city is its interlocked nature. Decision makers need to be aligned and there is no evidence that they are.

Clearly there is no plan. Which is unfortunate because a lot of cooperation is required to provide affordable housing. For instance, quality medium density housing requires quality public transport. The Ministry of Housing and Urban Development needs to cooperate with the Ministry of Transport. Central government needs to cooperate with local government. Landowners with strategically located land that could be used for housing need to cooperate with an urban development authority to masterplan that space. And so on.

All the stakeholders need to be on the same page to progress transformational change.

No one entity can transform Wellington’s housing by itself. It requires leadership and cooperation. Given this isn’t happening. Results on ground, like rents, are getting worse. This raises the point. What are all those civil servants, the Members of Parliament, the Cabinet Ministers, the local government fiefdoms good for? What is the point of Wellington?

What is the point of New Zealand having an organisation on the scale of the ‘government’ if it isn’t used to solve the country’s biggest issues? What’s the point of being organised to that scale at all?

You can’t beat Wellington (on a good day!) is the narrative used to promote the city

Wellington has potential, but currently it is not living up to its - you can’t beat Wellington - hype.

This two-part paper was first written in response to the Greater Auckland blog post - Notes on a New Zealand City: Wellington, which is a post about a 1971 film by that name. Talk Wellington readers back in April saw this film in Part One of my Can an Eco-City Solve Wellington’s Housing Crisis series.

A quote in the film by John Roberts, Professor of Public Administration and later a founder of Victoria University’s Institute of Policy Studies presciently explains why reforming New Zealand’s system of urbanisation is difficult, if not impossible to do.

“People are not progressive and they don’t like to disturb the status quo, because there’s too many interlocking agreements in it.”

Housing reforms will disturb many agreements and given New Zealanders ‘knocking’ tendencies it is easy to understand why a sub-optimal status quo lasts for so long.

A more optimistic view of urbanisation reforms is a ten minute video interview of Edward Glaeser, one of the world’s leading urbanist economists, where he describes the big picture advantages of reforming cities.

The interview covers most of the issues I propose in Part One; cities being attractive and affordable to new residents, housing type choice, affordable housing, congestion charging, bus rapid transit, real estate development paying for mass transit.

Glaeser discusses the benefits of land value tax, which in the New Zealand context would be rates on land value not land plus capital value. Land value taxes increase the holding costs for land bankers whilst decreasing the marginal cost of construction for building upwards.

It is my belief that Wellington in the institutional government sense, including but obviously not limited to the two individuals mentioned above, are aware of urbanisation reforms that would improve the city. The problem is that Wellington lacks the political will to reform itself. The interlocking agreements tightly lock down the city. This is bad for Wellington and bad for New Zealand.

I hope I am proved wrong about Wellington being locked down and incapable of reform. I hope that pessimists like the prescient Professor John Roberts are wrong and city optimists like Edward Glaeser are right.

This is a repost of an article here. It is here with permission.

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Interesting article.
Politics is basically a numbers and demographic game.
Over the last 30 years, a large proportion of the population have benefited from rising house prices.
In the last 5-10 years, that balance has started to change. And that's why Labour were voted in.
But it didn't change enough, and that's why there are in power with NZ First, who have stymied reform.

I'd say give it another 5-10 years. Our housing and economy will be so bad by then, that the reform that has been so obviously needed for so long will just HAVE to be implemented.

The problem is definitely political and the next political response will be critical. Will it be a populist spasm against immigration and population growth or will NZ find a successful political path to providing the needed investment in city-building?

Economically metered car parking (that varies depending on demand i.e. it could be cheaper in the weekends) is similar to congestion road pricing, so could be another option.
Wellington or other NZ cities could use a car parking levy to pay for new public transport infrastructure. This has been very successfully overseas.
It wouldn't turn a motorway network into a grade separated rapid transit BRT network as described in the main article but it could help encourage the transition of more spatially efficient vehicles being the mode of transport to use the most congested parts of the city.

There are also lots of people making the connection between reducing the space required for parking cars, which can be 4 to 20 times the number of cars owned by city residents, to free up space for affordable housing.

So 22nzd an hour is good money for a bus driver. Have you put in your application, Brendon?
Bus drivers in Sydney make double that.
Working strange hours, putting up with the drunks, the low life, the people who can't even say thank you at the end of their trip.
Offer 30 an hour and then maybe there won't be a shortage.

Sure pay and conditions could be improved. I think split shifts are a particular bone of contention for Wellington bus drivers. But for this to be a long term solution something has to be done about Wellington's cost of living -especially its massive rent increases. Otherwise disposable income just gets whittled away by cost of living increases. If that happens staff recruitment becomes a problem again...
P.S I work in Christchurch as a registered nurse in a hospital with recruitment difficulties. If Christchurch was a more vibrant place with better and cheaper housing + transport provision then I am sure that would help with staff recruitment.

The PWC Cities Institute report highlights how uncompetitive NZ cities are in comparison to Aussie cities because of our low pay and high cost of living. For most of NZ increases in pay over the last decade have been negated by increasing housing costs. For Christchurch it is the increases in transport costs which make it uncompetitive. You can read the report here

The issue I see with rail infrastructure in Wellington is that most of it dates back to the mid-1950s, its already overcrowded and prone to service outages. The bus service is in an even worse state. If you start congestion charging, we’ll just put more pressure on an already inadequate and fragile transportation systems.

As a Wellingtonian I’ve come to the conclusion that decentralising government departments from the central city to satellite areas (Wairarapa, Manawatu, Wanganui etc.) would actually have the most immediate impact on relieving pressure on housing and infrastructure not to mention ensure the continuity of government services in the event of earthquake or tsunami.

Even just moving some of this further out into Hutt Valley commercial premises would make a huge difference - from the transport point of view.

One of the issues Wellington faces is the heightened earthquake risk, which accounts for at least some of the paralysis you note, Brendon. The 1855 quake knocked most brick buildings flat, raised the foreshore 1.5m ish (look under the Old Bank building's glass floor to see the ship still there, part of the then foreshore). The 1940's quake series shuttered some of the CBD for months, and the next temblor will do much the same except with more effect and more disruption. This cannot be hand-waved away or realistically mitigated against: the next Big 'Un could be tomorrow or in 300 years. Science certainly cannot tell. Perhaps the suggestion from the thread - shift large chunks of core Gubmint departments out of harm's way (relatively speaking) to somewhere in the provinces - might be useful, but then the agglomeration benefits get frittered away too. All of the above is a good recipe for stasis/conservatism: or perhaps what you ascribe to these, is just actually an absolute refusal to come to grips with the tectonic facts.....

Waymad and Squishy. Maybe if transport modes paid there full congestion spatial cost (externalities) the alternative transport modes quality of service would improve?
That has certainly been the experience of Japan.
And Japan has earthquakes and has managed to achieve agglomeration benefits from intensification.

The earthquake question is a legitimate question though. The insurance industry is putting a lot of strain on housing supply in Wellington because it is moving to 'risk based pricing'. This is causing havoc in the apartment/multi-unit dwelling part of the housing supply -which is one of Wellington's best options for addressing rising demand.
I do wonder if NZ has been too reliant on insurance as the policy tool for dealing with earthquakes. Perhaps we should be making a move so that our buildings not only allow its inhabitants to survive but so that the building itself is more likely to survive.
I discuss this in the second half of this paper.

If by 'alternative transport modes' you mean Rail of any sort, then there's the awful examples of the Kaikoura quake sequence which foobarred that sole rail link for over a year, and that of the Wellington early-morning freight derailment which took out a key set of points (a classic systempunkt) and foobarred commmuter transport for a week. Rail is unfortunately one of the least resilient transport modes in a crisis: a metre of rail missing or deranged and everything stops....and most of NZ is single-tracked....

Wrong Waymad. Rail can be quick to repair. The Kaikoura rail line was repaired before the road was and KiwiRail was insured unlike SH1 (another unfair subsidy roads have).
In an urban environment the alternative transport modes should have grid network (like roads) charistics so that if one part is knocked out then there are alternative routes.
Spatially efficent modes do not have to be transport modes that require rails it could be bus rapid transit, it could be bikes or electric micro-mobility devices, it could be walking. Each different mode has advantages and disadvantages. People should be free to choose the best option for them, without one choice being unfairly subsidised. The big advantage other transport modes have over the motor-vehicle is they require less space.

Wellington has an issue of leadership. Sadly mostly poor leadership. Wellington's problem is NZ's problem. 50 years of PC education has undermined the teaching of leadership. This is not great. In Wellington (as in other cities in this land) there are so many layers of leadership that it's a wonder anything gets done. Good leaders are generally brave people. People that stand up & say something... mostly sensible. However, the age of common sense has gone. Our current crop of leaders are basically still students, learning on the job. This too, is not ideal. Leaders are people who lead need to know things, lots of things, need to be mature of mind & experienced in doing stuff, all sorts of stuff. Like life. Like raising great families, running businesses, be community & neighbourly focused. They need to care about everyone! The current batch of scones are under done.
Hopefully Mr Jackson's man might be a breath of fresh air, although having said that, I'm not holding my breath. There's a lot of hot air in Wellington (inside) & a lot of cold air (outside). Is there a will to progress? Is there a way forward to get better at doing cities? I hope so. I really hope so.
In turn it might actually help NZ Inc compete on the world stage, instead of just growing beneficiaries, victims & other dead heads.
Good leadership is the key believe me. Although I'm afraid we might have to start again.

I have more hopeful days than others LJM re NZ Inc's leadership. Some days I think we couldn't organise a piss up in a brewery. Other days I think of the amazing stuff NZ has done that at the time was world leading -often NZ is a global test case. The rest of the world is not doing so well either (Trump, Brexit, Euro-fails, China/US trade war, Climate Change Emergency etc), so it might need some positive 'test-tube' examples.

Historically NZ has tended to alternate from short periods of frenetic change to longer periods of mind-numbing status quo-ism. In my opinion due to our history of colonisation NZ became a much more centrally controlled country than is norm around the world. This has given NZ a rather odd leadership style.

The leadership in Wellington is so weak that the Council thought doing a few projects would be enough to score some political points. A few projects that will result in additional housing does nothing when thousands of new houses are needed not dozens. I don't think that Lester could wrap his mind around the scale of the problem and what is needed to correct it.

I've spent 20 years adding more housing and apartments to Wellington and it's not been enough. Even if the political leadership was there the council actively fights against adding more housing. I think it is clear that local government is unable to act in the interests of the nation or local needs.

Yes I have talked to a number of Councillors and they are often ignorant of the scale of the problem. They often don't know basic housing facts about their city -like how many houses are built a year.

Yeah and it's why more and more central government direction and action will be required.
Local government usually gets hijacked by very narrow interests. The 'bigger picture'
is often lost sight of (or not even seen). Hopefully the stronger stuff in the NPS-UD goes through without getting watered down

Central government politicians and the civil service in particular can be just as ignorant. I think they have no idea about how much infrastructure costs for new housing areas. Especially transport infrastructure. Treasury and successive Finance Ministers for many years have effectively hamstrung local government by failing to build infrastructure and depriving local government of funding so they can do it themselves.

Central government politicians can be just as ignorant of how cities function. Gerry Brownlee for instance made a huge number of mistakes rebuilding Christchurch's CBD. The large East Frame development for instance should have been tendered out block by block rather than all seven blocks given to Fletchers who not surprisingly have produced housing that is over priced, poor quality that consequently has not sold well.

"...incapable of being entrepreneurial in its public policy making." You're asking something of a town that none other has achieved. Public policy making is the anathema of entrepreneurship.

The public sector evolves just as much as the private sector. The public sector needs successful new initiatives to keep ahead of the game.

But its key differences are that there's zero consequence for incompetence, no notion of time=money, and no cashflow problems. Whereas the private sector always faces the triad of outright bankruptcy/liquidation/Schumpeter-style creative destruction, the 'carry', and simply not being able to make payroll next week....

Sure business exist in that sort of commercial environment.

But good businesses also require good laws, good policing, good education, good public assets and so on. These need to be provided in the most effective and enterprising way by the public sector. Countries and societies which do this well are the successful ones.

Despite the propaganda that it often expresses, business and markets do not exist in isolation from public entities and public leadership.

The people deciding what "good" can kill any off entrepreneurial enterprises and watch as private business moves to another town.

The focus of this paper is about implementing 'good' public policies so that rents do not continue to escalate because that helps public and private firms recruit and retain staff.
Having a clear focus helps ensure the enterprising public policies do 'good' not 'bad'.

We might get some action on national housing reform now that it has started to actually affect Wellingtonians.

Frankly they deserve it. The public sector has a total disinterest in major issues that don't directly affect them. They get to collect their pay cheques (which inflate at a much higher rate than they do for the private sector and other parts of the country) no matter what and face zero consequences for holding back the progress of other regions.

Wellington's principal export is fellatio and whatever businesses are there are either leeching off the public teat as high-margin suppliers to Government departments, and the ones that aren't are succeeding in spite of government, not because of it.