The Auckland Unitary Plan has kick-started more apartment development after a decade of lost opportunities, a response to the inefficient use of land, high infrastructure costs and externalities of sprawl

The Auckland Unitary Plan has kick-started more apartment development after a decade of lost opportunities, a response to the inefficient use of land, high infrastructure costs and externalities of sprawl

By Shyamal Maharaj and David Norman*

The debate over greenfield expansion versus brownfield intensification has long occupied the minds of planners, urban designers, economists, and governments.

Intensification is the redevelopment of existing urban areas to accommodate more housing, usually through terraced housing, apartments or smaller sections. An advantage of intensification is that it can accommodate growth in existing urban areas, overcoming challenges that greenfield development tends to face.

These greenfield challenges include proximity to work and amenities, and the eye-watering cost of new infrastructure for development in new areas.

Infrastructure is not only very expensive; it is also incredibly difficult to fund. And funding issues aside, the actual construction of infrastructure is constrained by time and capacity. Moreover, the negative externalities that arise from added congestion, pollution and environmental degradation add further costs to sub-optimal greenfield development.

Why the UP increased density options

As a result of these concerns about the ability to develop expansively without unmanageable financial and external costs, Auckland’s Unitary Plan (UP) allowed for up to two million new dwellings in existing urban areas, in addition to capacity for greenfield expansion. This brownfield development capacity would effectively allow the number of dwellings in Auckland to more than quadruple.

And the focus of new development opportunities is around town centres and rapid transit nodes, so as to prioritise access to jobs and amenities.

Since these changes, Auckland has since seen a dramatic shift in the number of terraced houses and even more dramatically, apartments consented. Multi-unit dwellings consented now represent around 52% of total dwellings consented.

Mistakes of the past

But it hasn’t always been this way.

The appetite for apartment building and living in Auckland has been tough to satisfy. One major reason for this is a boom in apartment building for a transient population (overseas students) in the early 2000s. This led to a considerable stock of undesirable “shoe box” dwellings being built in the city centre. When New Zealand’s export education sector experienced a downturn and the size of the overseas student population plummeted, the value of these shoe boxes plunged commensurately, burning banks and investors.

Worse than that, from the city’s perspective, this bad experience and the common view that the shoe boxes were ugly and poor quality turned Aucklanders away from apartment construction for a decade of missed opportunities to get more apartments built closer to where jobs and study options are downtown. You could argue that the Global Financial Crisis also played a role, but the figures show the apartment ship had sailed long before that hit.

The problem was that we were building the type of apartments only attractive for a certain type of transient investment, rather than for a long-term resident population.

But that wasn’t even the first time, or the worst example of how our city lost an opportunity to build more intensively close to jobs and amenities. As we pointed out in this paper, when cars became more popular, we chose to rip out Auckland’s comprehensive tram network and under-invest in public transport infrastructure.

In many ways, the Unitary Plan is trying to undo decades of those kinds of decisions by encouraging more intensification around town centres and public transport nodes. And only now, with a more regulated approach to apartment building that is preventing the construction of more of those poor quality early 2000s-style shoe boxes, and with surging demand, are we seeing more widespread apartment construction again.

The typology shift we have seen in recent years, however, is evidence that the market is coming to terms with the necessity to build up more than out.

Intensification’s link to a stronger economy

Intensification is not without its challenges. But it does offer many benefits. Chief amongst them is the better use and allocation of resources. As a city intensifies, it opens the door to greater economic activity through higher productivity, better mobility and more diversity of goods and services as a larger resident population can be housed.

Intensification also allows more efficient use of assets, such as retail space. Many Auckland retailers close shop at the end of the business day, whereas city centres around the world continue to provide goods and services beyond for longer hours, using their expensive city properties more efficiently, allowing the same retail footprint to service more people across the day.

Population, priorities and preferences

Auckland is a unique place; it attracts a diverse range of people with diverse preferences that influence preferences for housing types and locations. In recent years, migration has surged, and the source of migrants has changed from our “traditional” source countries toward China, the Philippines, India and South Africa.

Demand for housing continues to surge, on the back of this strong population growth. But this population is different, ethnically and demographically. Not only is Auckland’s changing face culturally different, with different views on housing, but a greater number of the millennial generation, for instance, are beginning to make housing choices. Yet the current housing stock mostly serves markedly different priorities. Many younger people feel locked out because of a mismatch between preferences and housing. The quarter acre dream is unattainable as land prices have surged.

Although serviceability is better than it has been for over five years, it is well off where it was even eight years ago. This is not to say that first home buyers aren’t in the market and sacrificing the proverbial avocado on toast to save every penny for a deposit. Rather, the ability to save a 20% deposit on a median priced house is around $170K (and around $130K for a lower quartile priced house).

The lack of suitable housing choices that is only now beginning to be addressed is having a considerable impact on the priorities of younger generations.

The median age for marriage continues to rise, more women are building careers in professional services (up 70% in nine years) and other higher-paying industries, and people are delaying starting families. This creates more interim demand for smaller dwellings such as apartments.

But the changing of the guard in terms of culture and age means changing preferences too. More people who want to live, work and play in a central location. Backyard maintenance and long commutes are traded for smaller properties near recreation, retail and hospitality options.

The intensification we are seeing now is beginning to provide for these different preferences. Unlike the build of the early 2000s, we’re now building multi-units including apartments for people who actually live here permanently, who have different priorities and preferences. There is a way to go yet. 


* Shyamal Maharaj is an economist, David Norman is chief economist, both at the Auckland Council. This article was first published here.

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"The [] dream is unattainable as land prices have surged."

Land prices surged, because Auckland Council caused them to surge. As a result we build significantly lower numbers of apartments than 10 years ago. Costs are too high for developers to make a good profit in Auckland.

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I think you'll find its not the unitary plan that kick started wholesale development of unaffordable apartments - it was developers looking to sell those apartments to overseas buyers.

Its amazing these Auckland council guys come up with this rubbish. It must be nice to live inside such a perfect vaccum where real information doesn't penetrate the lala land they live in.

'This led to a considerable stock of undesirable “shoe box” dwellings being built in the city centre.'

Were they undesirable? There was a demand for them, and the market responded.
The proliferation of apartments has given the CBD a huge lift in vitality, and an economist should be recognising this.

I think he was reasonably clear he meant undesirable to the local, non-transient population to choose as long-term housing.

The economist perhaps didnt elaborate fully there...
I guess they were so similar and customized to the market demand of the time, that when the market turned those apartments were all grouped together with the label 'undesirable' and that label has stuck.
Since then, banks are heavily biased against apartments of a similar style. That bias has been shared with property buyers - if its a challenge for me to finance it then my resale value is going to be stuffed as well.
More recently the benefit of the apartments and that period has become clear, the CBD has some vitality for sure. But the hangover of that market twist is still with us.

Meanwhile in wellington the hangover of buildings that cannot be affordably brought up to earthquake standard will be with us for some time.

How about putting up an effective argument with pros and cons?

You talk of infrastructure costs of greenfields development but neglect to mention the huge cost of upgrading existing infrastructure to cope with intensification.

This include roading, public transport, sewerage and stormwater. Intensification means loss of green space and natural areas to absorb runoff. Auckland has become a nightmare to get around in, every street can be clogged full at just about any time of day. Where was the planning there?

And where is this easy commute you talk of? Long commutes used to mean 30 minutes now it's 90 minutes. So of course people look for alternatives

I would argue that preferences aren't changing as such rather are being forced.

Greenfields development has it's problems too of course but also benefits which you might mention? Like local industries springing up, short commutes better outlook and less crowding?

But then of course you forget to mention the elephant in the room. Hundreds of thousands of extra people in Auckland (and NZ). And no I'm not being Xenophobic, if you picked up half the population of Christchurch and dumped them in Auckland there would be the same outcry.

There has been no voter mandate at all. Indeed it could be argued that part of the reason this government is in power is because of promises of reduced immigration by both Labour and NZ First.

Norman talks a good talk, like many economists.
Let's see what he says when the looming apartment building slump arrives.

Exactly, look what its costing to put the rail under Auckland because of the cost of what's above.

And the commute times in dense cities are no shorter than because of that, in fact, longer in many cases as the 'real' workers are lower paid, have to live out of the CBD due to cost, and have to commute in.

And the total direct cost of Greenfields development is cheaper than brownfield. It is only dearer if you let a compact city avocate development it.

Yeah pros and cons would be nice to see. (If an author cannot acknowledge the cons of the idea, then why should I consider them smart enough to have clear reasoning behind the pros).

I cannot imagine what greenfield scenario leads to shorter commutes. ???. Unless you mean starting a new city between Auckland and Hamilton "Auckilton" and insisting residents there only take jobs based in that new city. Of course their commutes improve and elsewhere stays in check too.

Brownfield scenarios are absolutely a way to keep commute length in check. It is very costly but we rely on the economies of scale upfront and for lifelong maintenance of that infrastructure. We clump people together so public transport becomes feasible, and by having it not purely added to the outside of the network we are increasing the network quality for other parts of the city at the same time. We don't expect many jobs to sprout up at the edge of a city that always expands, but new jobs added in existing job-dense areas is a natural process.

The current Auckland UP is to have 80,000 people living in Pukekohe and surrounds. Waikato is trying to get 30,000+ living in Tuakau/Pokeno area. And Auckland is developing a greenfield business park south of Drury.

There is no congestion externalities with greenfield growth if it includes a decent amount of density around new rapid transit stations.

In fact it could be a positive for the city. Housing in these locations could pay for more rapid transit infrastructure. This investment could improve rapid transit so it is faster, more frequent and more reliable (no traffic delays) which would benefit all of Auckland.

The author somewhat contradicts himself.
He suggests small apartments are only 'good' for transient people (which = 'overseas students').
But then he also says changing societal norms like later marriage 'creates more interim demand for smaller dwellings such as apartments.'
I know quite a few young people - kiwis - who live in small apartments in the cbd. They won't live there forever.
But for now, it's a great option.
they are transient in the sense that they won't live in these places for ever. But isn't that a good thing? Providing a whole range of choices at different life stages?
If developers can only build larger apartments then that limits choice, because the apartments will be expensive to buy or rent.
Get out of your ivory tower, David!

I think his point is that building *only* those shoebox apartments was a big mistake, not that building them at all was a mistake. Obviously we should build a mix of all sorts of apartments, including the very small ones.

I just got off the phone with someone who runs a property marketing business, mainly to first home buyers. New builds, in Auckland. He was bemoaning the fact that they're a bit quiet right now because they've only got attached townhouses and appartments to sell at the moment, they've sold all the detached units and that's what just about all their clients want.
Sort of puts the lie to "changed preferences"

I wonder how much of that is the difficulty with getting lending for apartments. I can only speak to my personal experience, but it looks like every bank is happy to lend me $X to buy a house and yet won't even enter into the conversation about lending me that same amount to buy an apartment.

It's a form of window guidance. To defend property prices. It's purposeful.

I think there is demand for *quality* apartments at a *fair* price. One thing the article gets right is that the 90s apartments are basically shitty--too small, poorly designed with crap materials, and I think they did put off a whole generation of potential apartment-dwellers.

We're starting to see some better apartments go up--the Tuatahi ones for instance look attractive and carefully-built--but they're at a price that's still too close to houses and units. Presumably because the developers had to buy the land and labour at inflated 2016ish prices. I think it would be a big mistake to think that no one wants them, it's just that they're still too expensive.

I also think that good apartments will do better in the long run than 'townhouses'. The apartments are mostly built in genuine urban areas, and some are well-constructed, while the townhouses sprout in bizarre, remote areas like Whenuapai. The perfect combination of restricted living space and a lengthy commute! Some tiny pebbled patio so you can say you have a 'garden', and mushroom-grey Shadowclad as far as the eye can see. Hideous.

I believe it, absolutely.
But to me it is time to find ways to change those preferences. Which means convincing several generations of NZers that an attached property can be modern/private/quiet, have a carpark because you need a car to explore NZ, have a patio or a green space within 50m so that life isn't just grey, and that this resulting density allows the nearby bus stop to have services every 20 mins instead of 40, and the convenience store nearby to survive too.

What is good for younger people, before they settle down, or even know where they want to settle, is the flexibility that being able to be transient gives them.

Ideally this would be renting as it is in a Euro type renting situation, ie there is no financial benefit to own any earlier than you need to. And when you do buy it's your forever home and you buy more for the emotional reasons of homeownership, rather than the financial ones.

To buy a smaller apartment and then have to sell and upgrade or because you move due to opportunity, generally only works when you have high non-value added capital growth, which of course is counter to both renting and homeownership being affordable in the first place. Also this Churn of buying and selling is a dead cost to the homeowner, but revenue for real estate agents and lawyers.

To own too early, locking yourself into a place you will more likely grow out of, reduces your opportunities and is one of the reasons why NZ's productivity is lower than more 'flexible' and affordable housing countries.

DP

Shoebox vs. 80-100 sqm.

An 80-100sqm apartment is plenty for a young family, but apartments of that size are completely unaffordable. And compared to 200sqm+ McMansions, they're still smaller dwellings.

I have a young family (2 adults 1 toddler), our house is 80sqm on 1/4 acre. Big enough for our needs, sure a bigger house would be nice but it's not detrimental.

Great article Shaymal, David, it explains clearly why densification is more desirable and better for the city. I hope many will read your piece and better understand the benefits of densification over urban sprawl

Why didn't the huge Ak Council PR spin doctor Goff supporting dept get a credit at the end of this piece?

I am fascinated how the same ideas flow around the country. Great article but pretty well the same could be said for many other smaller cities. Down here in Nelson Tasman the same ideas are being promulgated by council officials as part of their long term plan. I suggested the same ideas to a similar planning group around 10 years ago. I had hundreds of tenants looking for apartments with no land to worry about. I suggested some residential areas be treated like commercial and be permitted to have 100% coverage. They all thought I was made. Clearly a prophet before his time.

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Too many agencies, no overview. Also, market for whom for what?
Apartments in Auckland are too expensive for families.
Children make couples less able to earn enough to pay mortgages, and require more space.
So much, so obvious.
Children are not mentioned in the article but are building blocks of society.
Say you increase pop of Auckland by 200,000.
You need to say where they are going to go to live.
If it is North of bridge then you need light rail.
This costs about $30 billion.
No plan to put it in. Endless delay. Consultation yawn etc.
No money to build it because ACC cannot borrow that much and government has no contribution and nothing to say on that matter.
No plan to limit inward immigration to reduce pressure on housing stock.
No plan to build enough affordable 3 bed housing for rent.
Inadequate tax base for public infrastructure needed.
Round and round we go, denying things and refusing to do what is needed.

Just received my voting paper for Auckland Council election. Gosh, what a choice of (useless) mayor candidates! None of them has any credibility as a leader, and Goof is included.
My voting process this time will be eena, meena, mina, mo, catch a mayor by the toe;

7m 2019 compared to 7m 2018 sales, Auckland:

total sales down 16%
apartment sales down 31%

Looks like Mr Norman is not getting much interest in his broad proposition.
Still keep building them, get a great big stock overhang and force developers to fire sell to get revenue for loan payments. That will get prices down.

People are still worried about construction quality, from the sound of comments I hear commonly. It's a big risk to buy an expensive apartment of unknown quality.

The boxy single room apartments built for students would be considered "undesirable" if a desired apartment is like the ones on The Block NZ: Firehouse. Floor-to-ceiling windows, massive living spaces for entertainment, walk-in-wardrobes, spa baths... Where do they think they're living? Miami?