Motu working paper argues high rise apartment developers could be forced to pay for blocking neighbouring homes' sunlight

Motu working paper argues high rise apartment developers could be forced to pay for blocking neighbouring homes' sunlight

By Gareth Vaughan

The Motu economic and public policy research institute has done a study into the impact of sunshine hours on house prices and suggests it could be used to help price the impact of new apartment developments on neighbouring homes.

The Motu working paper Valuing Sunshine argues each extra hour of sunlight received per day by a house, on average through the year, leads to a 2.4% increase in that house's price.

"This estimate remains virtually constant when we test sunlight across seasons and suburb types, and interact its value with elevation and viewspan," the authors David Fleming, Arthur Grimes, Laurent Lebreton, David Mare and Peter Nunns says.

They note that the intensification of cities can lead to "urban canyons" or other types of overshadowing by neighbouring buildings, thus reducing sunlight exposure for existing homes. At a local government policy level, therefore, the Motu team suggests their estimates could be used to facilitate price-based instruments rather than regulatory restrictions to deal with overshadowing caused by new developments.

"For instance, consider a new multi-storey development that will block three hours of direct sunlight exposure per day, on average across the year, on two houses, each valued at $1,000,000. The resulting loss in value to the house owners is in the order of $144,000. Instead of regulating building heights or the site envelope for the new development, the developer could be required to reimburse each house owner $72,000."

"In return, the developer would be otherwise unrestricted, for sunlight purposes, in the nature of development. If the development cannot bear the $144,000, then the efficient outcome is that the development does not proceed. Conversely, if the development can bear that sum, then the socially optimal outcome is for the development to occur and, from an equity perspective, the neighbours are compensated for their loss of sunlight exposure," the Motu paper suggests.

"Developers themselves could also make use of this new information. In deciding how much to bid for land on which to develop, a developer must estimate the sale price of the ultimate property. Knowing whether the dwelling on a site will receive full-day sun or only limited sun exposure will assist the process for the developer of bidding for the underlying land."

The Motu authors say no previous study they're aware of in "urban economics literature" estimates the value house buyers place on sunlight when buying a property. The paper is based on more than 5,000 observations on house sales in Wellington, where the authors note neighbouring houses demonstrate "considerable variation" in direct sunlight hours due to hills and valleys and man-made features such as buildings. Data was provided by the Real Estate Institute of New Zealand covering sales between January 2008 and December 2014.

Sunlight data in the housing sample used by Motu showed the average house received 8.7 hours of sunlight per day, on average, over a year. However, some houses received as little as 3.7 hours of sunlight on average, and some received more than 11 hours.

Results, Motu says, showed that regardless of the suburbs where buyers choose to locate, after controlling for neighbourhood characteristics and house attributes, people are "still willing to pay a premium of around 2.4% of the total house value, on average, for an extra daily hour of sunlight across the year."

The authors note their 2.4% estimate of value is context-specific.

"Elsewhere, the value may be higher or lower depending on factors such as climate, topography, city size and incomes. Nevertheless, our approach can be replicated in studies for other cities to help price the value of sunlight in those settings."

"It is not just our valuation estimates and techniques that may be of use to regulatory authorities and other agents. We show that it is a straightforward task to calculate accurate sunshine exposures for individual dwellings across a city. Information is required only on the building envelope and on natural features. With the ability to calculate sunshine exposures, and the value placed on those exposures, the policy apparatus for dealing with sunlight issues in an urban setting can henceforth be shifted from a regulatory to a price-based approach," Motu says.

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77 Comments

The 2.4% per sunlight hour is more likely caused by buyers being more active in summer because that is when many jobs are changed and also so much nicer patrolling suburbs in warm weather not wet.
However the idea that new properties should compensate existing properties by the extent that they impact on them makes sense. A sunlight formula seems about right.

This seems a silly idea to me. Auckland needs intensification to accommodate National's bright new future of 70,000 new people a year, and this won't help. And it doesn't seem they're necessarily controlling for benefits the intensification brings (i.e. the house is worth $1 million because it's in the city, not because it's out in the middle of nowhere). Seems ripe for being abused by the NIMBYs Auckland has a massive problem with.

I would say that in summer it doesn't matter one iota. but in winter it makes a huge difference. For example there are houses in the Aro Valley which I would never ever buy. Even if they were half price.

Oh, the other thing I just thought about is that it is hard to separate out this "daylight" aspect from the "view" aspect. For example, the big monolithic beast that is being built on the TV program "the block". Apt description by the way. That may not reduce daylight hours by much but it sure affects the views and ambiance of the neighborhood.

Have a read of the methodology in the paper.
It is quite interesting how they did it.

It will never be put in place. Caveat emptor is a better strategy. We learned the hard way in earlier home ownerships. No more cross leased sections, shared driveways, houses with Southerly aspect, potential to have sun/view built out or planted out, living in rental neighbourhoods, lack of off street parking etc.

Good advice although such properties in Auckland are few and far between. We need to get rid of cross leased properties. Something that could be done with a stroke of a pen and maybe generate a lot of money for the council.

We MUST get rid of cross-leased bs, but how do you 'share' the driveway?

I think many freehold properties share driveways already by having right of ways. A flat I own is on a section with six others and the land is divided up like a patchwork quilt with some places having shared ownership of tiny strips of land. My own house has its own driveway and exclusive access around all four sides so wouldn't be a problem at all. Maybe start with these ones first? Of course it would significantly boost its value :)

Easement

I suspect some people like cross leases as it gives them control over their neighbours. Our issues were attempted defacto land grabs and blackmail over signing off minor improvements on our site.

The only advantage with cross-leases I see is that when my wife suggests adding on a new room above the garage I can dismiss it out of hand by saying that the neighbours would never agree.
I do think that cross-leases are inhibiting the beautification and development of the city in a significant way. Making it easier to improve properties would also provide work for a lot of people and boost the regional economy.

As for 'NIMBY', like the 'Boomer' moniker it's become a favoured pejorative term, it seems particularly amongst the younger generation. Having seen what people will do when self interest is involved I'll chose to be the pigeon and avoid being the 'statue' every day of the week.

Don't forget "lazy millenials" and "smashed avocado" for favoured terms of rant.

Yes, equally unhelpful monikers, albeit not terms I use. At some stage we Boomers will pop our clogs and the property (just one) will pass on to our own millenials. It's highly likely that neither will be able to able to buy the other out but we have changed our plans nevertheless to maintain that foot hold in Auckland as long as possible to give them a fighting chance of an Auckland home. That said, we're encouraging them to work outside NZ and they may never want to live in Auckland. They don't seem obsessed by ownership, much as I wasn't until my 40s. I really don't understand the obsession over Auckland ownership. Rent in Auckland while the career is there and buy elsewhere for the long term lifestyle.

I see the Motu NIMBY department is at work again. They want to promote urban sprawl and stop developers from building higher density dwellings. This is all just to pump up property prices for baby boomers.

The key problem with the daylight model is that it assumes that the neighbouring property has ownership rights on the adjacent property. The simple method to gain those rights is to buy the adjacent property, place restrictions on the title and then sell it again. The mechanism has been been in use for a long time and those "wealthy" NIMBYs should do that.

Motu just seem to be whingers that want to harm everyday people by locking them out of the housing market.

I think you are confusing MOTU with NZ Initiative?
Also I don't think you understand the point of academic papers, if this is your perspective.

Did you read the author list?
Maybe do that and then look up AG's publications and citations list. That should dispel any notion that there is bias in his research towards NIMBYs.

AG was the one bemoaning the lack of gold coast like towers in the Eastern Bays. Definitely not a NIMBY in that respect, however I'd wager he protects his own property like a NIMBY.

While at this point Motu overlap with NZI I am not confused at who they are. I'm no fan of think tanks especially when they are operating contrary to their stated objectives.

Why are they pushing for economic harm instead of helping to provide insightful debate. Why would people expect compensation that is likely to be contrary to the district plan?

If you want to take the academic angle then this paper is lacking peer review. The author list is meaningless when they are pushing an agenda. Also if they believe in the scientific method then they should be able to endure criticism.

You have contributed nothing to counter my belief that this work is biased.

Nymad's appeals to authority are legendary.

How are they operating contrary to their stated objectives?

In no way are they pushing economic harm - all they have simply done is estimate the MWTP of access to sunshine in properties. They have identified where harm is occuring on the private landowner's part when their access to this element of the asset pricing formula is impeded upon with no recompense. That's economic equity, not harm.

It's a working paper.
The point is for peer review.
I think they would be fine taking your criticism. You aren't singling out errors in their methodology or propositions, so they wouldn't even take any notice of what you said. If you have ever had an article peer reviewed, you would know that you blindly saying that the authors have an agenda without pointing out specific errors in methodology/specification is to be ignored.
As for econometric methodology, in my opinion it could be better. There will be bias in their results due to the spatial specification and some assumptions they make. However, nothing to suggest that that or their data has been tailored to suit a specific rhetoric.

Is the paper balanced? No. Are there other options or solutions? No. Is it so specific as to appear biased? Yes.

My recommendation would be to throw the paper in the bin and target producing a useful result instead of trying to create a sunlight market for houses. They are trying to attribute a right that doesn't exist, and the only result will be to make densification prohibitively expensive.

Nymad my comments are not as a peer reviewer but I am pointing out that the conclusion that they have started with (not arrived at) is obviously biased. It should be subject to peer review and subject to contrary papers being published. I'm hardly going to write a research paper in the comment section of a web site.

Again your argument is completely unconvincing. There are mechanisms to already address this issue and if the home owner gets the opportunity to sell their property to a developer instead of enduring a loss that's certainly more fair than some arbitrary figure determined by some biased propeller heads.

"Is the paper balanced? No. Are there other options or solutions? No. Is it so specific as to appear biased? Yes."

Again, this is a research paper. They have a specific question to answer and they address it.
The purpose is not to provide a myriad of concepts and possible solutions.
It is evident that you have not read very many scientific articles from your comments.

"My recommendation would be to throw the paper in the bin and target producing a useful result instead of trying to create a sunlight market for houses."
That just shows how little you know of the importance of understanding MWTP in markets.

You commentators and your righteous self confidence in your intelligence just makes me laugh sometimes.

You seem determined to insult anyone with contrary opinions. Perhaps you should consider how your own comments apply to yourself. Especially given your inability to discuss any of the issues raised. In the future you should put reasoned arguments forward rather than insulting people because you want to defend low quality research.

Your point was that there was no ownership of sunlight.
The paper doesn't contend that there is. It simply estimates what it is worth on a specific property.
It then states that given the price of the property was constituted from that, any public policy that removes that attribute from the property needs to compensate the property owner for the loss in value.

It's not advocating NIMBYism. It's simply stating that any economic benefit taken away needs to be compensated.

Step outside the economic ring for a second.

The paper is advocating a monetary value for sunlight.
Should we also allocate a value for air, water, food...

If you have the money, you could then override any of these. You no longer have access to breathable air, but hey I gave you $20/$200/$2,000 so that is equitable.

Do you actually want the rich/poor divide to get bigger?

This is where the paper is heading. Often we are reading about someone attributing a value or making a market for things that are there for the common good. Once you allocate rights over a river the community as a whole has had their part ownership taken away.

More specifically they are trying to associate a market value with the sunlight on the property. Does the person who owns the property also own access to the sunlight? I don't think that's the case. In the current system we have the district plan controls what you can build in a certain area. This provides for sunlight and views etc. That seems to attribute some ownership but when the controls are removed the local Council doesn't compensate anyone for the previous rights that they've lost. Maybe this heads in the direction of not being able to change the district plan for the common good without compensating people for their former right. Are Councils (and by proxy ratepayers) going to compensate these property owners?

Creating markets that destroy common good always lead to negative impacts on the majority to benefit a minority. As you say this adds to greater inequality.

Economics is the firm belief that everything must have a monetary value, and therefore money solves every problem.

We cut down the forest, but gave you money.
We ate all the fish, but gave you money.
We stole your land, but gave you money.
We poisoned the water, but gave you money.
We killed your family, but gave you money.

That works fine until everything is gone. Doesn't matter how much money you have then, you are still stuffed.

The trick here is not just assigning everything a monetary value, but assigning it in a skewed manner that hands land owners value that they never purchased. The fundamental flaw in this "research" essay is that they are basing it on property values that are distorted and do not truly incorporate sunlight rights (or the window tax on those rights).

Economics is a belief system, it's not a science.

"Economics is a belief system, it's not a science."

Sounds like a religion, I guess that explains all the fanatics.

"The trick here is not just assigning everything a monetary value, but assigning it in a skewed manner that hands land owners value that they never purchased. The fundamental flaw in this "research" essay is that they are basing it on property values that are distorted and do not truly incorporate sunlight rights"

Again, you obviously completely misunderstand the purpose and methodology of this paper.

Your post presents no content to discuss. I have to assume you do not understand what is being discussed on this basis.

It was a hint that you read the paper and understand it.
Normally ya only have to read the abstract to understand what it's about - start there.

Again, you say things because they sound good in your head.
"Economics is the firm belief that everything must have a monetary value, and therefore money solves every problem."

Economics is fundamentally about utility not money.

Utility is subjective. I may derive utility from something you do not. For economics to quantify that utility it attaches a monetary value.

So although it may fundamentally be about utility, the reality is, it is about money.

The utility discussion also assumes that people have invested money in infrastructure, in this case the Sun.

They did. Look at all those 1900s villas with south facing windows to take advantage of the NH sun :-)

Maybe we should bill God/Allah/whatever for making hills, trees, or even the clouds. The clouds deplete my utility most days - including right now. Who will compensate me?

Again, you talk about stuff you don't understand.

Utility means anything that derives some sense of usefulness.
Seeing as you still don't get it, I'll put it simply.
Ceterus Paribus, all things controlled for, no idiosyncratic differences between two houses, except hours of sunlight.
It doesn't matter if the land has infrastructure or not.
If you have direct sunlight and the market value of your house is higher than your neighbour's who receives less sunlight, you associate some amount of utility with that characteristic.

Okay, but that still doesn't mean anything.
The common method of exchange could be apples or plutonium. It doesn't matter what it is, so long as it has a utility of exchange.

When you say money is the issue, you say any form of exchange is the issue. So I don't know what the hell you mean when you, essentially, say "the neighbour blocked my sunlight due to the rezoning of his property, which has dropped the market value for my house by some given factor. But the problem is because we think of everything in terms of money".

It doesn't matter what the common method of exchange is. The point is there will always be someone with more apples/gold/pencils than others. Which means they can afford to deprive me of my utility.

I am not saying "the neighbour blocked my sunlight due to the rezoning of his property, which has dropped the market value for my house by some given factor. But the problem is because we think of everything in terms of money".

I am saying "the neighbour blocked my sunlight due to the rezoning of his property, which has dropped the quality of my life by x amount (Although economists have decided this value is actually an x amount off my property value which bares no relation to the actual utility I derive from enjoying reading my book in the afternoon sun, yet this is now all the compensation I am allowed) and no matter how much you give me it does not give me the sun back.

No, it's really simple. You tell the market what it's worth.
If you paid $1000 for the property and a completely identical property (except sunlight hours) is $900. You imply that the utility you derive from that characteristic is $100.

Lets take your hypothetical situation.

Scenario 1
What if I was willing and able to pay an extra $100k more? It's just no one else was.

Scenario 2
What if I was the losing bid on that house, I was willing, but not able to pay $1mil more for the sun?

In both cases, the Utility lost to the developer is significantly more.

Like I said, Economics is about money. The theory is that everything must be optimised for maximum utility. But this is distorted as who ever has the most money, in theory must derive the most utility from it, as they can always pay more.

Surely you understand that linking Utility of a thing, to a medium of exchange, completely distorts the "utility" of that thing?

Okay so you really don't understand markets, do you..Or utility...
Either that or you are distorting the issue. Completely.
Everyone's marginal utility doesn't need to be the same. That's why we exchange things between ourselves for a non constant price.

Scenario 1
- That doesn't matter. The fact you overvalue the utility is not the market's issue. It just means that you (comparatively) undervalue other things in your life, given constrained resources.

Scenario 2
- You have to have resource to be willing to pay. It's not the market's fault that you don't have enough resource. In this case, you would sacrifice other forms of utility to afford the characteristic you place the highest level of utility on.

"In both cases, the Utility lost to the developer is significantly more" - only if your utility is changing.
But that doesn't matter, because how do you profit from your own utility given a constrained amount of resource?

You are missing the point, which is the person with the money determines the utility.

If economics is indeed about maximising utility then this wouldn't be the case.

"You are missing the point, which is the person with the money determines the utility.

If economics is indeed about maximising utility then this wouldn't be the case."

Okay, I'm done discussing this.
Obviously you are arguing over something you have no idea about.
Perhaps read up on some elementary microeconomics and then read the paper. Things might become clear then.

Think about it.

It is the medium of exchange that determines the utility. That goes against the fundamental principles of economics.

Well done guys. I've never seen such a long and skinny post before!

Now you are misunderstanding the paper.
They estimate a MWTP for a good; an elasticity for utility, essentially.
They are saying that given a certain amount of sunlight, we can observe the impact that this will have on price due to the associated utility. So, within the pricing mechanism, a certain amount of money has been outlaid for that utility. If the utility associated is to disappear due to some public policy, the person should be compensated for that utility.

What you are saying is that it is perfectly fine for the public institution to reduce the utility of private citizens with no repercussion. Just think about that for a second.

"Should we also allocate a value for air, water, food..."
We do, daily.

Motu No-NIMBYs is what this article is all about.

At the moment, in cases when discretionary approval is required, the council would grant approval for developments reducing sunlight hours of neighbouring properties without even blinking. Less than minor impacts as far as it is concerned.

I got the impression most Kiwis these days just want to build higher, fortress like fencing all around their homes to try pretend their neighbours don't exist. Or minimise any social (face to face) interaction at least.

If I was offered $24,000 would I give up 1 hours sun per day? Not a show. The figure would have to be closer to 10 times that amount. The most fair solution is that the developer should also buy the affected property then sell it after the development. But then I bang on about affordable homes - not easy is it?

2.4%. Nuts. I'm with Chris M. 50% maybe, and even then I probably would not do the deal and live in a house with less sun.

Caveat emptor, surely. Who buys a house in a city expecting the city never to change and expecting to be compensated for inconvenience of the city changing around them?

It's like saying if your house is 100 metres closer to ABGS and EGGS, it will lead to a 4.2% increase in your house's price.

This is a good example of caveat emptor too.

Next paper from Motu. "Pricing air and ensuring appropriate resource utilisation - a simple method of putting a meter on everybody's face."

If you were familiar with the literature, you'd know that pricing air quality in a housing context has already been done (not by Motu).

But hey, let's continue the witch hunt on intellect.
You know best about these things, anyway.

Witch hunt on intellect? A very emotive response. You seem determined to defend a low quality ill-considered draft paper.

By your standards.
Which are evidently, very uninformed. That, you cannot hide.

I see you are using more personal attacks against me. Do you have anything to add to the discussion or are insults all you are going to do?

You make me laugh.
Completely misunderstand something and hide it behind 'poor quality'.

You seem to be crying with your emotive post. I see that you are unable to provide any supporting discussion for your statement and are just attempting to troll. It is clearly a waste of time responding to you any further.

Nymad is familiar with the literature on pricing air quality. Isn't that amazing. Probably angling for an ignoble award.

Has anyone ever noticed how clever the developers are ? If the building site permits, they build the southern apartments first, sell them then build the next one on the north side that blocks the light and your view to the first one they built ? One of the most important things about buying an apartment is to look around outside and consider how you could get built out and not only loose your view, you also loose the light. See that single story abandoned warehouse next door ? imagine if that got purchased, leveled and another high rise went in. Intensification really doesn't work well, apartment complexes should be built on green fields and designed properly from the get go. There is no way multi level apartments should be put up in existing suburbs.

Exactly re developer behaviour maximising returns e.g. look at Stonefields where they put in houses first and are now putting in the high density housing, even trying to supersize the quarry wall apartments. As said above, caveat emptor.

Most people buying have a hard time visualising what the end result will look like. People also have a hard time understanding how future changes on the same or adjacent properties will affect them. I've seen people buy property not realising that being in the CBD buildings can and will be built up to the property boundary. Buyer beware? Absolutely.

A lot of developments are cleared and are planted in grass for the marketing phase!
Look: nice rural surrounds.....

Realistically, we'll likely need apartments in existing suburbs to accommodate National's "brighter future". Disclaimer: brighter future does not> include existing sunlight hours for preexisting houses.

No we don't. Yep I'm a NIMBY but I think you will find that suddenly everyone is a NIMBY if you want to build a multistory hi rise next door that's north of your property and hence thats not going to happen. There is plenty of greenfields north of Millwater to start building apartment high rise buildings. What we need to do however is learn from the mistakes the UK made and not build high rise ghettos that 30 years later sit abandoned with all their windows smashed out and need demolishing.

The UK example is basically the problem with building highrise council flats with all the poor pushed in together, rather than NZ's model (to date) of putting state houses around various suburbs to reduce societal disconnection. Not withstanding some NIMBY's now trying to get rid of poor people from their suburbs.

It'll likely have to happen anyway. The city will need change to accommodate National's brighter future of importing as many people from the Third World as fast as possible. It's just the price you might have to pay to enable National's core economic policy.

So we finally have the solution to Auckland. A giant wall, big enough to block sunlight to all houses 24/7. By my calcs that is a 25% drop in house prices by the end of the day.

To those not sensing the sarcasm, I look forward to your comments.

But seriously, to those that do agree with this paper. You are saying that any homeowner should be compensated for anything that decreases their house's value. Think about that for a second....

You would get a greater improvement (decrease in property prices) if you put a lid on the wall as well.

Nah, that will keep the rain off. Can't have that, you know watercare's issues and all ;-)

I'm surprised no-one from the Jetson generation has raised the prospect of monetizing the space above existing real estate titles. A whole new resource grab. You could park your geostationary house over Paratai drive properties and hold them to ransom for their sun and privacy. Mind you that would only work if someone couldn't park above you.

Interesting thought.

Made me think why not just use drones carrying little mirrors. Reflect the sun around things and add value to your property.

Use enough of them and it would add new meaning to the word "Hot property"