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Auckland’s housing and infrastructure issues illustrate central failures of NZ’s urban planning system, Productivity Commission says

Auckland’s housing and infrastructure issues illustrate central failures of NZ’s urban planning system, Productivity Commission says

By Alex Tarrant

Auckland’s well-documented housing and infrastructure issues are front and centre of the Productivity Commission’s documentation of New Zealand’s urban planning system failures.

New Zealand’s largest city is mentioned 723 times in the 516-page report calling for widespread reform of the system, including a scrapping of the Resource Management Act in favour of new less restrictive legislation, and greater central government guidance on urban planning.

The Commission puts it bluntly, suggesting problems faced in Auckland are like a cancer that has spread to other parts of the country:

“The example of Auckland illustrates some central failures of the current system.”

“Auckland, home to a third of New Zealand’s people, has been and is still experiencing extremely fast population growth. Aucklanders, armed with the system’s planning tools, have struggled to respond to this pressure either by providing greater density in central parts or by expanding outwards at the city’s boundaries,” it says.

“While some specific interests have benefited, the resulting scarcity has driven a protracted land and house price spiral that has been socially and economically harmful. It has now adversely affected many parts of New Zealand and many New Zealanders.”

Restrictive land-use regulation including policies preventing intensification of historic suburbs surrounding the city centre, poor transport links, and, most of all, funding constraints, have all played a part.

Auckland’s population is unique in that it is larger, denser, faster growing and more ethnically diverse than most other New Zealand cities, the Commission notes.

Strong natural population increase and international migration have driven its growth. And with one of the youngest regional populations in New Zealand meaning larger numbers of Aucklanders at a reproductive age, this will contribute to further population growth, it notes.

The burden of a significant deterioration in housing affordability over the past 25 years has fallen most heavily on low-income households which are much more likely to be spending more than 30% of their income on housing than high-income households. “On this important criterion, New Zealand cities, particularly Auckland, have not performed well,” the Commission says.

“[A]s the Reserve Bank [has] noted, the underlying driver of higher prices is restrictive land-use regulation that prevents housing supply from responding efficiently to demand. Addressing this issue in Auckland is important for the health of the national economy.”

City-shaping projects tend to be very expensive, and arguably beyond the reach of most urban local authorities, the Commission says. But they may also have wider spill-over benefits, such as the faster movement of people, goods and services through and to urban areas.

“For Auckland, the lack of clear mechanisms within the planning system to identify such projects and fund them has led to several years of jockeying between local and central government over the size, nature and funding responsibilities of large-scale land transport packages,” the Commission says.

“Developers of new greenfield or infill sites usually provide local infrastructure within a subdivision, while councils provide extensions to trunk infrastructure. The costs that councils incur to provide trunk infrastructure can be large,” it says.

For example, recently published research into the cost of infrastructure in Auckland show that, on average, the marginal cost to Auckland Council of providing new infrastructure for housing in high-density or infill areas is close to $30,000 for each dwelling. For low-density or greenfield areas, the cost is closer to $45,000.

Funding constraints

The key constraint in Auckland comes from the threat of a credit downgrade that would be triggered by Auckland Council’s debt-to-revenue ratio going over 270%, the Commission says.

It suggest some possible solutions:

  • generate additional revenue that in turn will allow more debt without breaching the 270% ratio;
  • find sources of finance that will not require Auckland Council’s debt to rise; and
  • relax the debt limits and/or regulations.

To finance more infrastructure through borrowing without breaching a strict debt-to-revenue ratio, Auckland Council could generate more revenue, it suggests.

The most obvious source is higher rates and/or user charges. Higher user charges could raise both efficiency and revenue (“Greater use of road pricing is likely to have benefits, especially in Auckland”).

Otherwise, the higher revenue would come at an efficiency cost, it says. This approach also runs the risk of political opposition since it would impose the cost of growth on current residents (given that investment needs to precede the revenue streams arising from new residents and new businesses).

“For example, Auckland Mayor Phil Goff’s stated intention is to limit rate rises to no greater than 2.5% a year will not allow Auckland to solve its problem by this means,” the Commission says.

Another solution would be reassurance to investors by means of some form of central-government guarantee of the additional debt, it says.

“While such guarantees are generally undesirable, it might well in Auckland’s case be the least-worst solution to the serious problem of the Council being unable to borrow enough to finance essential infrastructure to keep pace with demand for development.”

Central government needs to help

It isn’t all bad though:

“The Auckland Transport Alignment Project was an effective institutional innovation to enable the council of a major city and central government to work together and consider a central funding contribution for a major programme of urban infrastructure with national spill-over benefits,” the Commission says.

The message: Central government needs to be much more involved in the development of our largest city. Not only will it help Auckland, but the health of the country as a whole.

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48 Comments

Just charge much higher rates.

Why should existing property owners get to weasel out of the consequences of mass immigration while renters suffer?

Zero thought here.

If rates went up, what do you think would happen to rents?

12
up

They wouldn't move.

Rents are dictated by the market, not by input costs.

Indeed. Rent is set at the maximum the landlords can get away with already.

Partly true. The market forces do not matter when your landlord happens to be a rich investor with significant cash reserves who would rather leave the house vacant than accept low rental tenancy.
Something similar can be seen in Sydney and Melbourne which has prompted the government to tax vacant houses in order to increase rental market supply.

Oh yes, rents would certainly go up if rates increase

Way too simplistic I'm afraid old chap. No-one escapes higher rates. Eventually at least part of this flows through to renters.

No, it doesn't. Rents move up or down depending on supply and demand in the rental market. Sometimes rents rise as costs fall and rents fall as costs rise.

Really?
Given that this is an across the board tax (for relevant regions), the renters will definitely pay for it relative to the elasticity of the market.
They will either pay for it (in part) in the relevant areas or effectively in other areas due to increased demand.

The only costs that don't burden the renter (substantially) are non market uniform costs - i.e individual cost of capital, maintenance, etc.

Renters don't bear any costs.

They pay a market rate for rentals, based on what they are willing to pay (highly correlated to their income) and the supply/demand or rental properties in that city/suburb/price range/house size.

Costs for the landlord can fall or rise and it doesn't impact what they can charge for rent. They take all of the risk of rising rates, mortages, insurance etc and get all of the benefit if those things falls.

Anyone who disagrees simply needs to look at what happened in the rental market when mortgage rates (largest cost for most landlords) fell significantly over the last few years. If renters bear costs that are pass-thru then rents should fall as interest rates fell.

Did rents anywhere in NZ fall over the last few years as these costs fell??

Thought not.

mmm, a very simplistic perspective.
But, I can't be bothered.

"They pay a market rate for rentals"

Costs are an input to this rate you speak of.

"what happened in the rental market when mortgage rates .. fell"

To use a one way measure like this is like defining the top speed of a car by how fast it can go in its reverse gear.

The Wikipedia article on land tax lays this out succinctly.

"Most taxes distort economic decisions and suppress beneficial economic activity. LVT is payable regardless of how well or poorly land is actually used. Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses, preventing landlords from passing LVT to tenants" - https://en.wikipedia.org/wiki/Land_value_tax#Efficiency

Lets not forget that in 1990 there was no one living in the CBD. Now there are over 50,000 people. 7 years ago there were Auckland, Manaukau, North Shore, Waitakere and Rodney Councils - now there is ONE council. It is not just all about the RMA.

It is not Friday, but I have a possible solution for Awkland from Centuries past. I forecast a bright Future for you, if you follow my drift. And it is not and never was John Key.

It is a similar solution though.

Once upon a time things were different as we know, we never had issues like Awkland.

(many a true word spoken wisely, begins this way...once upon a time.)

Here is the parable applicable to how you fix a right Royal Problem.

.Once upon a time a king called on the royal weather forecaster and inquired as to the weather forecast for the next few hours. The royal weatherman assured him that there was no chance of rain for at least 4 days.

. So the king went fishing with his wife, the queen. On the way he met a farmer on his donkey. Upon seeing the king the farmer said, "Your Majesty, you should return to the palace! In just a short time I expect a huge amount of rain to fall in this area."

. The king was polite and considerate, he replied: "Thanks for your concern, but don't worry. It's not going to rain today. I hold the palace meteorologist in high regard. He is an extensively educated and experienced professional. And besides, I pay him very high wages. He gave me a very different forecast. I trust him."

. So the king continued on his way. However, a short time later a torrential rain fell from the sky. The King and Queen were totally soaked and their entourage chuckled upon seeing them in such a shameful condition.

. Furious, the king returned to the palace and gave the order to fire the professional. Then he summoned the farmer and offered him the prestigious and high paying role of royal forecaster.

. The farmer said, "Your Majesty, I do not know anything about forecasting. I obtained the information about rain today from my donkey. If I see my donkey's ears drooping, it means with certainty that it will rain very soon." So the king hired the donkey instead.

(Not John Key..I hasten to assure you Kings and Queens of Awkland).

. And thus began the practice of hiring dumb asses to work in the government and occupy its highest and most influential positions.

. The practice is unbroken to this day...Especially in Awkland and dare I say...the whole of New
Zealand..

No Names, no pack drill....ya gotta laugh...or you might...cry....and it is off, repeat OFF course..Wednesday.

Haha.
Just for interests sake, are the donkeys ears up or down today?

It never rains, but it pours...is all I am willing to say....on the subject of why we have issues...with Don-Keys bolting, being wet behind the ears, not knowing what a right Royal Mess, nor how to fix it..., flooding torrents of immigrants in Awkland, Miserable in Mangare due to reality rains multiple times over, tax-e-dermist Pollies...(Stuff you I am OK...I am just spending your Rates/taxes...fees etc...get with the program)...and I could elaborate.......even more...but my sense of humour has diminished...until Friday.

good read that if you could humour me. Am I someway right with my charaters and alternative understaning of the story?

## characters
king.queen -- is the government
king.queen entourage -- is the voters
weather forecaster -- is the consultant
farmer -- is another consultant/specialist
donkey -- is another consultant specialist

## what is the alternative
The king goes out at his own risk, sometimes get wet sometimes does not. But he always lives for another day.
but the entourage don't have a say/vote
and the consultants don't have any jobs

“Developers of new greenfield or infill sites usually provide local infrastructure within a subdivision, while councils provide extensions to trunk infrastructure. The costs that councils incur to provide trunk infrastructure can be large,” it says.

Or in Auckland's case more gargantuan, because Auckland wastes money. NZ taxpayers have gifted all the free infrastructure to Auckland it could possibly need. But Auckland has wants to spend more money, so it does by duplicating and complicating its infrastructure costs.

It suggest some possible solutions:

Those aren't solutions, those are crutches. The "Productivity" Commission discusses ways to waste more money in Auckland. Taxpayers, ratepayers, future generations - will all need to dig deep and pay for this crap.

The obvious solution is to cut costs. Currently Auckland bans development on land adjacent to most all of the infrastructure NZ taxpayers have built.

What do you mean by NZ taxpayers gifting free infrastructure to Auckland? Are you implying that Aucklander's don't pay tax? Or that Aucklander's receive more than their fair share or infrastructure spending? Any proof of that? My understanding is that Auckland has received much less than its fair share, especially in the 1980's and 90's.

I am implying that Auckland Council wastes money. There are vast areas next to Auckland city with all the infrastructure in place and the council prefers to build expensively miles away

And yes, Aucklanders do pay more tax and I am currently wondering why the "Productivity Commission" thinks we have to pay even more.

We have paid $billions building infrastructure next to Auckland, can the council please use it? Can they use it before they ask us to pay more tax?

where is this infrastructure? Are you just on about intensification/build up?

Motorway from Albany to Dairy Flat - the council has banned development south of Dairy Flat and yet is paying for development north of Dairy Flat. Big expensive sprawl far away - good; small proximate inexpensive development - ban?

Railway electrification, the CRL and widening the motorway from Auckland to Papakura - this all means that trains and buses can most easily commute from Ardmore area. The council has banned development on Ardmore plains (apart from a small corner which is scheduled for 2037); however Auckland will pay for big sprawling development of Pukekohe (non-electrified, no motorway, kilometres away).

Then there are the restrictions on development at Upper Harbour Highway, Swanson Railway Station, East of Kumeu - all of which are serviced or soon to be serviced with taxpayer funded roads or rail.

The council spends its money on creating sprawls in Warkworth, Wellsford, Clarks Beach and obviously West of Kumeu.

So the logic goes that because of strong population growth, we need to dilute our management of our resources ... because it looks like there might be less resources per person ...mathematically speaking. Hard to fault that logic.

Central govt have sure made some "productivity progress" on those canterbury rivers ... im just not convinced the resource is what is was ... The problems facing Auckland are a cancer .. its called global population overshoot.

You can plan, innovate and generally phaff about. But try as you might to avoid it Auckland has to put it's hands in it's pocket and pay the cost of living there. Quadruple the rates, and get some decent infrastructure, and at the same time set Auckland up for future centuries.
You don't like the idea of quadrupled rates and decent infrastructure, then keep living in the favela and start liking it.

I don't think Aucklanders would mind increases if the council was more effecient with it. I think it more efficiency with what they do with it. It would be interesting to know how much they get from central govt also.

Aucklanders do want to pay for it, but not via rates. There is massive support for local fuel taxes for example.
Also Aucklanders would like to have more input on where government money is spent in Auckland. Why should Aucklanders have to fund massive public transport projects just because the government has a roads only mantra?

Fuel taxes aren't a great option as they unfairly exempt NIMBYs in inner suburbs while penalising those who bear the brunt of their NIMBYism through being forced to live further out. A combination would be idea.

Too much reliance on fuel taxes just becomes landowners wanting others to subsidise the infrastructure that makes their land valuable.

Keep the fuel taxes and introduce NIMBYism Tax for those who can be identified as NIMBYs i.e. those who say no to Auckland Unitary Plan.

The Auckland Unitary Plan is the nimbyist, nimbyvism of Nimbyville.

The Auckland Unitary Plan is to make land really expensive. And as any NIMBY knows, if you want to prevent something from happening you just need to make it really expensive to try.

Rates against the value of the land only is the best way to pay for it. - https://en.wikipedia.org/wiki/Land_value_tax

Heres a 2 bedroom house in Dannevirke, GV $92,000 Rates $2029

http://www.tararuadc.govt.nz/Services/Rates

Aucklanders need to start paying up like the rest of us.

I got that off trade me

Yep everyone in the country pays rates. What's your point?

Aucklanders need to pay a lot more. The rest of the country doesn't want to subsidise you.

What's that got to do with Danniverke?

The average wage in Dannevirke is very low, yet they re paying %2 of the house value in rates.
I'm int he country and pay more rates than most people in Auckland, 8k a year and I get no services.

My rates bill in Auckland is a lot higher than that, and we have to pay for water too about $600 a year.
The highway through Danneverke is paid for by the government. How much do you think rates would be if it wasn't? Why should Aucklander's have to pay for their infrastructure out of rates while the rest of the country has it paid for by government?

Your rates bill in Auckland is less than 0.5%. This is the problem.

Thank you for stating the obvious to most outside of Auckland

And Danneverke residents pay lots of road user charges, including a huge amount of hill country roading which at present is being destroyed by offshore owned corporate forestry. They also don't get to dump their shit at sea.

Your rates don't pay for Auckland's highways either.

Take a regular $1.9M Auckland Grey Lynn property, rates $4,775.84, less than 0.25% of the property value. The government fund the road through Dannevirke for the benefit of business/haulage to Hawkes Bay, Palmerston North and Wellington, not the people of Dannevirke. Local council pays for local roads, the local infrastructure for Aucklanders should be funded by rates, just as it is in Dannevirke.

That is half what I pay on a similar value farm, with no services.

Population of Dannevirke 5000 odd; population of Auckland 1 million odd. Dannevirke expects similar services to Auckland. The cost of those services is relatively cheaper to a greater number of population, hence the differential in rates between Auckland and Dannevirke.
However you live in a pristine part of the country - no pollution, no peak hour traffic which lasts for 2 hours, no humidity (Auckland currently 90%, has been 100% recently) a number of good cafes when I was last there, I could go on, but you get my drift. Those benefits have to be paid for somehow!~(I jest a little bit)
You could have a look at your council costs - a Mayor, Councillors, CEO, admin staff etc - it all adds up.
Failing that, move to Auckland and halve your rates cost!
I think I know where I would rather be.

Which is why your shouldn't expect people outside AKL to fund your infrastructure spend.

I guess if the population of Dannevirke was 50,000 I/O 5000, your rates would be much lower.

Broke you're onto it !
Where I live the property tax on that 1.9million house would be at least 3X more and when sold a 1.5% land transfer tax paid by the purchaser !

apologies for my very childish comment

"they are all Muppets!"

Auckland has failed to collect the necessary taxes to run a city of its size for decades.
The fragmented tin pot local borough councils paradigm unable to charge what was required and then the slap dash amalgamation of these boroughs under the label "SuperCity" proved equally incapable through its disastrous lack of leadership focused primarily on sexual exploits not running a city.
Overseas it is common to charge a land transfer tax of 1.5% and yearly property tax of 1% of the assessed value of the property. This results in serious thought before diving in buying any property and provides the city with the funds it requires to clear the roads of snow and all the other necessities expected of a city in the 21st century.

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See Party Policies here. Party Lists here.