Jason Krupp: We need more flexible attitudes to urban development

Concerns of property owners includes what impact urban intensification will have on the value of their properties. Photo / Paul Estcourt
Concerns of property owners includes what impact urban intensification will have on the value of their properties. Photo / Paul Estcourt

If you have been living under a rock, you may not have realised there is a war going on in Auckland. There are no guns and bombs involved (at least not yet) but, based on the headlines, the tensions seem to be equivalent to those of a real conflict.

On one side are Auckland Council, central government and first-home buyers, who want to see more housing developed within the city's existing footprint to cope with a rapidly growing population and the affordability issues.


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On the other side are property owners, who oppose any attempt to lift height restrictions in the inner city suburbs.

Who is right? That is a difficult question to answer. Research by the Grattan Institute clearly shows that locking young people out of the housing market saps productive capacity.

That is because it restricts their access to the inner city services nexus, which is vital to increasing human capital.

But it is also important to recognise that the concerns of property owners are not just grumbles against change, but valid apprehension about what impact urban intensification will have on the value of their properties.

After all, a house is a major financial investment that most people will use to fund their retirement and building an apartment complex next door will have a near-term impact on its value.

Seen from this perspective, it is rational to oppose changes to urban policy, especially when the costs seem to be borne by other people. Hence the term Nimby (not in my back yard).

This still leaves us with a wicked problem in Auckland. Making it even more wicked is that you have to solve the Nimby problem before you can increase the supply of inner-city housing, and Nimbys tend to have significant influence over local planning and political matters.

This was made abundantly clear when a number of National Party-aligned councillors opposed Auckland Council's intensification proposals.

This is in direct opposition to the strategy the National-led central government and the Reserve Bank are pursuing. With local elections on the cards this year, it is clear that local politicos know how to count votes.

We at The New Zealand Initiative have proposed a number of policy tools to free up housing supply. These include introducing new local government financing mechanisms to pay for infrastructure costs, reforming the Resource Management Act to strengthen property rights, and we are looking at ways to incentivise councils and residents to be more open to economic growth.

Unfortunately, these solutions face an uphill battle when the electorate tends to be dominated by older property owning types. In a democratic society, even the soundest of policies count for little if they cannot win popular support.

What is needed is a means of shifting attitudes. Since "do it for the next generation" appears to have had little effect, perhaps "do it for your bank balance" is the next best option.

Research shows lifting density constraints tends to decrease capital value but increase land value and residents are better off on a net basis.

Another study examined the housing market in the San Francisco metropolitan area in the late 1980s and early 1990s, which was characterised by artificially restricted supply and high house prices. As a result, demand for housing was weak and home ownership rates low - a situation strikingly similar to Auckland today.

When the US economy contracted in 1990 the most restrictive property markets were hit hardest. In California, San Francisco and Marin County saw prices fall by 3 per cent and 5.3 per cent in a year, while less supply-constrained areas further north saw only a 0.4 per cent dip.

Similarly, in the fast growing Atlanta region, where supply of housing was more robust, home ownership rates were higher and prices showed more resilience to the effects of the economic downturn.

The authors explain this by noting that buyers partly purchase housing for a capital gain. Where prices have risen so fast and high that there is little scope for capital appreciation, demand tends to be weak. And it remains so even when there is correction and sellers rush for the exit.

Although there is scope for more research in this area, the initial implications suggest more flexible attitudes to urban development and housing affordability are needed to shore up the Auckland housing market.

Of course a robust set of regulatory and policy tools help too. And if Nimbys need a strong incentive to swallow this seemingly bitter pill it is simply this: do it to preserve your wealth.

- NZ Herald

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