Auckland Council Chief Economist David Norman says developing greenfield land is 'eye-wateringly expensive' and requires a staged approach to ensure adequate funding

Auckland Council Chief Economist David Norman says developing greenfield land is 'eye-wateringly expensive' and requires a staged approach to ensure adequate funding

By David Norman*

Auckland has a housing shortfall and despite the Unitary Plan zoning allowing for more than one million new dwellings in existing (brownfield) urban residential areas, pressure to develop previously undeveloped (greenfield) land is strong.

However, there are huge infrastructure costs in opening up greenfield land, which are routinely ignored by many proponents of large-scale greenfield development.

Auckland’s housing shortfall is at least 46,000 dwellings as a result of exceptional population growth and few new dwellings being built in the wake of the Global Financial Crisis. Only in late 2018 did annual new dwelling consents begin to balance with population growth, and it has yet to eat into the shortfall.

The Unitary Plan, which became largely operative in November 2016, rezoned the city to allow for one million additional dwellings - almost twice as many dwellings as currently exist in Auckland.

Yet critics argue that this is a planning response from an ideological council opposed to greenfield growth. This ignores pragmatic reasons for favouring a compact city, not least of which is that developing greenfield land is eye-wateringly expensive and requires a staged approach to ensure adequate funding.

The separate Future Urban Land Supply Strategy allows for the staged development of around 140,000 greenfield dwellings over 30 years, with an estimated cost of council-provided infrastructure and central government-funded transport infrastructure at $21 billion (or about $140,000 per dwelling). Developers typically contribute less than one third of this cost through development contributions and infrastructure growth charges, with the rest subsidised by the ratepayer and the taxpayer.

There is also little discussion of the negative consequences of expansive growth, including reduced financial viability of public transport relative to compact development (which means higher transport costs for everyone), increased congestion (and more carbon emissions), and sub-optimal use of existing infrastructure.

In reality, the more housing we can get close to jobs, existing public transport and other amenities, the better, as travel times are reduced and existing infrastructure is better utilised.

Yet central and local government face constant pressure to accelerate the delivery of infrastructure in greenfield areas, with big subsidies to land owners. The rationale is that this infrastructure will help ‘live-zone’ more land and thus speed up the delivery of housing. When the council expresses concern at this approach that would require much larger rates increases, this is usually labelled as ‘anti-growth’ ideology. In reality, it is the absence of funding, and an acknowledgement that it is unreasonable for existing ratepayers to pay for windfall gains to land owners.

Simply zoning for more development (upzoning) with the promise of coming infrastructure, yields significant relative land value gains to the owners of upzoned land, without necessarily delivering much more housing.

Where is the win for Auckland in this? There must be some requirement on developers to actually deliver the land to the retail market if they are benefiting from accelerated infrastructure provision. If central and local government commit to accelerate greenfield infrastructure at a developer’s request, the developer agreement should require the land to be sold on the retail market within a set time of the infrastructure being provided.

Towards a better model

An exciting improvement on the status-quo is the new Milldale development, where central government and Auckland Council have stumped up more than $80 million to deliver infrastructure sooner than would otherwise be the case. It will enable more than 8,000 new homes, with infrastructure expedited by a targeted rate-like infrastructure levy.

Targeted rates have many advantages over development contributions. They can be levied immediately, provide certainty over when the costs for infrastructure will be recouped, and provide some incentive to the landowner to bring land to market sooner.

In short, infrastructure is expensive, and the staging of greenfield growth is inescapable. If we want more actual housing delivered, a requirement to deliver land to the retail market within a strict timeframe must be applied to developer agreements. Only then can central and local government confidently provide infrastructure knowing that it will be used to support real housing growth in the short to medium-term.


*David Norman is Auckland Council's Chief Economist. This is taken from his Economic Quarterly for February, which can be read here.

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"developing greenfield land is 'eye-wateringly expensive'" - that's not what demographia keep telling us. According to them you should be able to buy the land and build a house and pay for the infrastructure for 3x average wage. So about $180k.

That doesn't include the vast cost of the infrastructure required to transport new fringe residents to the main centers of employment.

But we live in bizarro world of Auckland. So whilst that is a high cost, it is also cheaper than the costs we operate on today.

Auckland Council economists have decided to block the building of new houses on the fringe and instead enforce the building of new houses 5-15 km further away than the fringe. They then write pieces like this where they decry the expense of infrastructure and try blame developers for the ridiculously high costs they have created.

Auckland Council economists did not block the building of new houses on the fringe. Nor do they justify the huge increases of density on the fringe or further out from the respective economic hub. This piece should be evidence of that.

I suggest you investigate what the AC Chief economist department's actual mandate is.

I think the mandate has something to do with costs and benefits. And it is on this sort of basis that land is selected for future development. So if the benefits of building West of Kumeu outweigh those of building East from Kumeu, we ban development East of Kumeu (which we have done). Here he has written this piece to stating that more land should not be opened up beyond the existing Unitary Plan, because of what he defines of the benefits of compactness and the high costs of development. Everything he says is based on us adhering to a plan of high compactness. So therefore the only additional info we need already is published in the Unitary Plan, which we can all see.

He is somehow justifying nil construction at Ardmore and believes building at Clevedon is more "compact" (totally bizarre). He is justifying the banning of construction at Whitford and that building at Beachlands is more compact (wow). He thinks building East of Kumeu must be prevented and building West of Kumeu is preferred (because further away is more compact?). His piece is saying that a compact city is preferred, and that the existing Unitary Plan spreading development far apart Auckland is justified. I have difficulty reconciling the plan and his justification for the plan.

"I think the mandate has something to do with costs and benefits."
Correct. But they have no decision making ability on policy. So no, these economists did not block the fringe building.

You are having issues reconciling because you are completely misrepresenting the article to further your intrinsic bias that Auckland is a sprawling mess.
He isn't justifying redeveloping exurban areas in this piece, he is outlining the costs of greenfield development and mentioning a model that has worked in order to advance greenfield development without the reliance on socialising key infrastructure costs.

So blame Phil Goff then? Fine by me.

He is justifying in building of a compact city and not an expansive one. He mentions it a lot in the piece. Here is a partial excerpt:

"There is also little discussion of the negative consequences of expansive growth, including reduced financial viability of public transport relative to compact development (which means higher transport costs for everyone), increased congestion (and more carbon emissions), and sub-optimal use of existing infrastructure. In reality, the more housing we can get close to jobs, existing public transport and other amenities, the better, as travel times are reduced and existing infrastructure is better utilised."

This is justifying building a compact city, he says so several times - key to his reasoning. He implies the critics are opposed to a compact city. It seems pretty clear that the Chief Economist of Auckland believes we are building a compact city - in Wainui apparently.

But you critics are opposed to a compact city.
You want to get rid of the RUB and build out areas on the fringe that cannot currently handle higher levels of density - The very cause of urban sprawl.
You also get ahead of yourself by instantly regarding increased land supply around economic centers (Kumeu, Puke, Warkworth, etc) as evidence of 'sprawl'. Which it necessarily is not.

"It seems pretty clear that the Chief Economist of Auckland believes we are building a compact city."
Again. Stop misrepresenting what the article is about. It is comparing the cost of development and discussing the economic benefits of density (something that doesn't come from free for all development). Nowhere does it say whether he believes Auckland is 'compact' or not.

I want a compact city, but I have slightly given up on the planners of Auckland. We should open up more land to Auckland, extending its future urban land supply from the current 15% expansion to 30% so we could build apartments and density similar to the rest of the planet. And in 2016 the political forces were aligned forcing Auckland to open up more land.

Unfortunately in 2016 Auckland opened up more land around every town in the region apart from Auckland. They got rid of the RUB around every small town - Kaukapakapa, Helensville, Clevedon and so on - the very cause of sprawl indeed. At Auckland city the planners actually cut land supply by removing development at Takanini, just to make sure Auckland remained too costly to build apartments in.

Faced with that level of sheer commitment to expansive multi-nodal growth (which is I believe the preferred term for ever expanding exurbia), it becomes marginally preferable to remove the RUB. In my ideal world Auckland planners would raise themselves to the level of utter mediocrity, but that seems to be asking way too much,

"We should open up more land to Auckland, extending its future urban land supply from the current 15% expansion to 30% so we could build apartments and density similar to the rest of the planet."

Why on earth do you build apartments / high density on the fringe?
If you want high density, you need infrastructure. Thus, the expansion you suggest is crazy - Auckland doesn't have scalable capacity anywhere. Not Takanini, Not Swanson.
The cost to provide such infrastructure is exorbitant, hence the high cost of developing greenfields areas.

Ironically the solution to this may be what DN gives as an example (Milldale) and you misconstrued as some advocacy for the location of the development.

If you have an ounce of intuition you will note that the suggested expansion sites are near existing infrastructure such as water, sewerage etc. e.g. West of Kumeu has had new services built, these are not in east Kumeu due to difficult terrain. The same will be true for all outlying areas where first use is made of existing standalone infrastructure that is of sufficient size to cope. When Watercare get their new trunk West Tunnel completed (10 years) for water and sewerage, then you will see West Auckland, all the way up to Helensville explode. E.G. Clevedon has capacity now, but Whitford is too hilly for cost-effective bulk services to be built yet.

1) Neither does the present cost of housing, and 2) the only reason the cost is vast is because council have a bureaucratic monopoly on it and to them it is not a cost but revenue, and as with most businesses they want revenue to grow.

"There must be some requirement on developers to actually deliver the land to the retail market if they are benefiting from accelerated infrastructure provision."

Just in the same way you'd think there'd be an onus on a Council to ensure an area has a rapid transit connection before you go and add thousands of new houses, but North West Auckland seems to suggest that isn't the case.

Norman is probably one of Council's best assets , but is he an influencer ?

We all know that land availability in Auckland is a major contraint to affordable development , and Norman could do much to help by outlining what steps council could take to address this .

He could do this by running economic models of variuos scenarios and these could include things like :-

1) Incentivize the freeing -up of land for development by waiving DC levies , submission fees and connection fees for just 24 months for new subdivisions
2) Removing all rates charges for 2 years on those subdivisions on condition you build on them within 3 years and if it is not developed , then the rates are added back and backcharged
3) From 2020 make all unused sections within the city limits, that have not been developed for 5 years or more subject to triple rates and taxes

Two words; land banking. The more valuable the land the less likely it is that it's developed.

Developing dense housing works properly with large sites otherwise you end up with a lot of driveway and shade. What chance does a developer have in merging 4 adjacent titles. What about 10 titles? Let's assume a 50% chance each neighbour sells up. Chance of merging 4 titles = 12.5%. Chance of 6 titles just 3%. And all this has to be inconspicuously executed; one neighbour figures out the plan and the can extort all the profit away.

So of course plan B is to build just on the city perimeter. No titles to merge, roads already in place. But why would a greedy land banker pay subdivision costs when he can just sit on it? Certainly more likely to happen than brownfield but there is little incentive.

So plan C is to build far away out by the cows. The land bankers have more competition as the donut expands so they're more willing to sell.

The system (tax and monetary) rewards the least productive agents (lank bankers) for taking the least productive actions (i.e. nothing).

The 1 million number in the unitary plan is such a con/lie. Where I live has been upzoned to one house per 250sq m (or whatever the exact number is) making pretty much every 1 house section in theory able to take 2 or 3 homes. But given the hills, driveways, age of homes, etc., only about 1 in 10 houses is actually appropriate for removal and redevelopment. Yet the unitary plan imagines all of these sites as "available." Not to mention that the upzoning has made a decent size section unaffordable for young families. And we're not even on any decent public transport routes. Yes, Auckland needs density - but build apartments and rowhouses close to public transport hubs. Not this super inefficient process of removing 1 house and building 2 McMansions instead.

Quite right Avatar99. I'm not sure if Norman doesn't understand that, or whether he's conveniently ignoring those realities in terms of on the ground impediments to development. But the 'one million' is a nice soundbite, isn't it?
The 'one million' line is theoretical. And it's theoretically correct. But it's also rather disingenuous.
There are actually around 300,000 'commercially feasible' homes possible under the Unitary Plan, according to the council's own analysis. But factoring in the ability of potential buyers to pay, on the ground impediments and the reality that many property owners have no interest or no ability to develop, and it's probably more like 50,000 - 100,000. Which isn't enough.

Correct me if I'm wrong, but didn't that involve zoning things like sports fields and green spaces as being able to be developed?

Sure did. And Schools.
Luckily they didn't go all out crazy and rezone the central suburbs, though.

To be fair, with Glendowie they slipped that change in after the initial consultation was done, and then couldn't figure out why people were so pissed off on what was essentially an unconsulted escalation in density; it smacked of trying to pull a fast one and getting caught with your hand in the cookie jar.

What's worse is outlets like The Spinoff then tried to make it about race and class and so on, while forgetting that land prices in Glendowie means precisely 0 affordable homes would be built; that there's no more room at the local schools and no room for new ones and that the central suburbs like Ponsonby and Grey Lynn, who already have the ten minute frequency buses and access to motorways and the CBD were protected.

It also ignored that the area is pretty hilly in most places and the high land prices mean that the land that can be subdivided easily generally already has been. Anyone who dared point this out was labeled entitled, out of touch, hated young/ethnic people, etc. But that's what happens when snark masquerades as informed analysis.

Then, in a follow-up display of goodwill, AT axed the bus that runs around Glendowie off-peak when they introduced their 'superior' new network so it has even less transport than it did before, which was bugger all to begin with. I can't imagine why the residents weren't thrilled with suddenly jamming more and more people in there, not for a second.

Efffing certifiable madness if these "green" fields are actually fields that is currently growing food. The human race is off its collective rocker, And please don't tell me the land is still there under the developments, it isn't, it gets scraped off down to clay and replaced with something else.. Madness, madness, madness

PocketAces,

You are right. Not once in the article does he(an economist!) mention what exits on these greenfield sites. They are green because valuable crops are grown on many of them-some of the most productive land NZ has. If Auckland council won't protect them,then we need a government that will.
It would be sheer insanity to lose them to housing.

If the topsoil is so valuable it can and will be moved. The going rate is $50/m3 in Canterbury. I'm sure the best soils will be worth more. If a 400m2 section has 120m3 of magic soil worth $100/m3 that's $12,000 minus earth moving costs.

Developers are well known for stealing top soil anyway so unless it's going to China I don't see what the concern is.

bilbo,

And just who would pay and where do you suggest that it be moved to? In viticulture,there is a word terroir. which means not just the soil,but the entire eco-system;what lies under the topsoil,the rainfall,hours of sunshine and what lives in the soil.
You sound as though you know the price of everything and the value of nothing.

Bilbo - here in Pukekohe one Development is on market gardening land that has been there for 100 years. Now figure out what chemicals and pesticides have been used and are still in the soil to ? depth. On local recently posted that there is a codicil on their title (not sure which development) that they are not allowed to plant directly into the ground (presuming vegetable and fruit trees) but with the size of these sections there wouldn't be room anyway. As regards infrastructure - most have roads so narrow that when two vehicles park opposite each other on the road, no way in hell would Ambulance or Fire Service get through. Nothing to defend here

Hear, hear. We can't eat houses. NZ's main economic advantage is we can grow food because we can feed ourselves and eventually others too. South Korea grows TVs, cars, phones and tech. Economies like that need NZ to grow food, and that is why we are first off the blocks after every global recession, because advanced economies need to buy food, and that is still valuable even when there is a crash.

And this is what NZ concentric sprawl promotes, ie the next piece of land to the last piece that was developed irrespective of whether that land should be developed or not. It doesn't matter whether this land is ecological wetland (swamp) or high quality soils, because it is contiguous it gets zoned.

However, it is not compulsory acquired so the farmer has on face value the choice to sell it at drug money prices, or continue farming.

However according to many farmers who should like to see it stay as farm land, with council rezoning the land as either future residential or residential, their rates go up and make it uneconomical to keep farming, (in reality of course many of them are quite happy to take the money and couldn't care less that the land is lost to development).

So the crux of the matter is it is present council restrictive zoning policies that cause the wrong type of land to be zoned for green fields development.

What the best overseas jurisdictions do is zone out the land from development that needs protection, ie for future roading corridors, parks, wetlands, high quality soils etc, but leave all other land available to be developed as the market sees fit.

This does two things, gives a presumptive right to built rather than a presumptive right not to built on certain land (ie removes bureaucracy and time to market constraints), and 2) makes available far more land for immediate NOW development than is present.

Then market supply and demand is left to determine how much of that NOW land is developed NOW. Some years this will be a lot, and other years not much. But until it is developed it can remain in its secondary rural use, and not taxed by council on a future use that it may or may not be used for.

This whole 'we have x years supply zoned for the future' is just laughable. Research has shown that if you want the land market to be truly competitive you need a system that allows developers free access to approx. 30,000 sections worth of land at anyone time that can be brought to market NOW (6 to 9 months in developer real time). Of course they don't bring this to market all at once, but need this amount as a supply vent to keep the land competitively priced.

The best way to do this is with the presumptive rights way as described above, because as soon as you try to 'zone' it into creation you introduce all the council bureaucracy and vested interests and ideological thinking that ends up like the article written by the council economist above, and at the coal face this means expensive poor quality housing.

'm confused. He starts off by saying Greenfield Infrastructures true cost is $140,000 per house. Then later in the article its $80,000,000/8000 houses=$10,000 per house--what accounts for the huge differential?

And to answer this question: "If central and local government commit to accelerate greenfield infrastructure at a developer’s request, the developer agreement should require the land to be sold on the retail market within a set time of the infrastructure being provided." there is a way to do it. The American Metropolitan cities grow Greenfiled sites quite routinely by simply charging the full infrastructure on a per road frontage basis as the infrastructure is sunk into the ground. In that manner a Lifestyle Block lets say in Dairy Flat that's 20 Ha in area that could support 400 future house sites would get hit with a $3,000,000 assessment. It's never out of the blue its been long signaled its coming by the equivalent of the old Auckland Regional Council. The land gets quickly sold to a developer if the existing owner can't wear the $195,000 per annum rates bill (Council willl sell a Municipal Bond to fund the infrastructure allowing ratepayer payment over 20 years at 3% interest).
Not only that but on Brownfield areas in existing cities anytime the Council renews the capital infrastructure along a road the rate payer is billed directly by the road frontage metre and charged in the same way. Thus in addition to your regular rates bill there will be a surcharge for the annual payment on the infrastructure renewal along your street which could be: curbing, footpaths, roadway, or water, sewage or storm sewers. All funded by Municipal Bonds. Mom and Pop investors provide the money for the Municipal Bonds because interest earned in not taxed. In fact Auckland badly needs another Hospital. In the US a county hospital would be quickly financed with a Municipal Bonds.
Auckland has changed a lot in 50 years-its needs to change a lot more and adopt more non British conventions. New Zealand should incentive residents to fund their own infrastructure rather than relying on the Rogernomics approach which was to sell off the capital intensive and capital raising corporations to overseas investors. Municipal Bonds tax benefits only pass to investors within a prescribed tax jurisdiction. I think Kiwis would opt for "Munis" over leaving their money in Aussie Banks.

Hi Tommy Yank , exactly, and this Municipal Utility Development (MUD) approach has already been explained in depth on this site by myself and others over the years.

In fact both National and Labour have both said they agree with the MUD approach but in true NZ fashion they cherry picked it and still think they are doing what happens in the States, ending up with a pigs ear from a silver purse.

They are doing it wrong, and think that by doing the wrong thing even more, or quicker, then somehow it will become right.

Everything solution put forward by this council economist highlights the very reason why we have unaffordable poor quality housing - and his solution is to double down on it.

Auckland Council is excited by the development of Milldale as forming part of a "compact city"? Milldale is an exurb that is separated from Auckland by 15 km of nothingness. Compact cities typically do not incorporate 15 km gaps. But this is one of the special people at Auckland Council, who thinks that enforcing a 15 km gap into our infrastructure distribution creates compactness. And he then moans how expensive the infrastructure costs are - just a hint if we weren't being forced by Auckland Council to have a 15 km long infrastructure extension the costs would decrease.

Need fewer people,more green or forested fields not more leaky buildings.

Mr Norman, when you go to visit Milldale, do you drive with your eyes shut?

Auckland is not building a compact city. Compact cities are compact in nature. Auckland enforces gaps of 3, 5 10, 15, 20 and 35 km between greenfield construction. Auckland is building more sprawl than traditional unregulated Houston style growth would create. In Auckland sprawl is king.

He is not arguing that Millwater is part of the compact city model, he uses that as a footnote to explain how we can gap the funding for the extreme costs of greenfield development that is socialised - the point that is central to this piece.

And FYI - have you driven to Milldale with your eyes closed?
If greenfields development is expensive on flat land, it is going to be astronomical on the terrain that separates Albany and Redvale.
I'm not saying Milldale is a good area to develop. But arguing that the development should buttress the existing Albany line is a silly position given the topography.

Also I'll take your comparison of Auckland and Houston sprawl is nothing more than hyperbole.

Slightly hyperbole, but Houston builds more apartments per capita than Auckland. Has done for a number of years.

Houston is a mess
Easy to use as a comparison from here in NZ - not a place I would live - with an expensive house, and a massage parlour one side and a 5 story apartment block on the other side

And on Auckland's North Shore you can have the poo ponds on one side and the motorway on the other, sounds similar to Auckland but houses are a third of the price, even the expensive one you mention.

not to mention plenty of suburban brothels in Auckland

And the school is opposite.

I recall a couple of years ago, someone mentioned "the Auckland suburb of Millwater".

And I thought, hmm, never heard of it, that's strange. So I googled it. My reaction was OMG, are they kidding?

In reality, Auckland is governed poorly.

In reality, the more housing we can get close to jobs, existing public transport and other amenities, the better, as travel times are reduced and existing infrastructure is better utilised.

There is flat land directly adjacent to the Swanson railway station that is classed as a hill in the Unitary Plan and blocked from development. There is land at Takanini that is blocked from development. And at Okura, And at Whitford.

And in each case there is massive council spending being directed to land which is further away.

So you are against sprawl but want to enable, effectively, exurban development at Swanson.
Have you seen the infrastructure links that Swanson has? Sure it has a train station, but that's it.

And that terrain is classed as hill, because it actually is. One look at a DEM will highlight that to you.

Infrastructure at Kaukapakapa, Clevedon, Clarks Beach - all places the Unitary plan positions exurban development. How do these compare these to Swanson? Of these 4 places which is best served, closer and banned?

Tram Valley Rd might run along a valley.

Hmm. It appears you don't really understand the purpose for the zoning in these areas.
It's hardly the large scale commuter town stuff that you make it out to be. Very different to a development on the suburban fringe.

You think Tram Valley Rd is a prime candidate for development?
So how do all these people get to their jobs?
What's the capacity of Tram Valley, Swanson, and Pooks roads?
What abut the shade profiles of the protected bush that is elevated around the very small perimeter of Tram Valley Road that isn't on sloping terrain?
There's a lot more to consider than just "there's some bare land, let's build it."

So because one place is closer to jobs, has direct access to existing power, water and transport infrastructure - it should be treated differently and restricted. Completely differently from a village that has none of these things, where if "there's some bare land, let's build it." applies.

You're correct in thinking I do not understand the purpose of this zoning.