Bernard Hickey 's Opinion

Bernard is an economics columnist for the NZ Herald

Bernard Hickey: City too thin for comfort

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The geographic layout of Auckland means commuting times to the CBD are long. Photo / Brett Phibbs
The geographic layout of Auckland means commuting times to the CBD are long. Photo / Brett Phibbs

If only "skinny" Auckland could fatten up, New Zealand would be much better off. I'm talking about Auckland's population and how it organises itself.

The rocketing cost of housing in Auckland is a major economic problem contributing to higher interest rates, a higher NZ dollar and mortgage restrictions that are being felt from Kaitaia to Bluff.

That's why this week's NZIER "Big City Life" report — on the challenges posed by an expected rise in Auckland's population to two million by 2031 — is important. The research, commissioned by the Treasury, the Ministry of Transport and the Reserve Bank, looks at ways of improving housing and commuting costs but also points out something obvious to consider.

Auckland's geography is "skinny": the Manukau and Waitemata Harbours effectively make it a long, narrow city instead of a blob of land with a CBD surrounded by a concentric circle of suburbs, as is the case with Melbourne and Christchurch. This means commuting times to Auckland CBD are long, and the city is broken up into a series of centres and straggly corridors that increase the cost of land close to the centre and make it even more difficult to grow to the two million mark without some big policy changes.

The NZIER suggests options that might improve the welfare of Aucklanders and the rest of New Zealand through cheaper mortgages and a more fairly valued currency. It suggests a 1 per cent increase in income taxes for Auckland families to pay for the transport infrastructure needed to reduce commuting costs by 2 per cent a year. It does not specify whether this money should be used to build motorways or train lines or pay for extra buses, but better infrastructure makes it easier and cheaper for people to travel and reduces housing and land costs, particularly close to the city.

Each extra kilometre away from the centre of the city costs a homeowner about an extra $738 a year.

NZIER also estimates a 15 per cent improvement in productivity for house-building, making families 1.4 per cent better off each year. A duopoly on building materials and a splintered building sector full of one-man bands who can't take advantage of economies of scale is a major drag on construction productivity.

The report's headline-making suggestion is for a 22 per cent increase in the size of Auckland's Metropolitan Urban Limit, saying this will make each family $860-a-year better off.

The combination of all three suggestions will reduce housing costs by an estimated 16 per cent. That would be a massive prize for young Aucklanders shut out of the market and for those elsewhere who are resentful of paying higher interest rates and receiving lower export incomes because of Auckland's failure to organise itself.

So it was disappointing to see the suggestions slapped down. Auckland Mayor Len Brown dismissed the idea of extending the urban limit as "old school" and a tax increase for Aucklanders was rejected by the Government quicker than you could smell a cup of cold sick.

That's a pity. Auckland's skinny city needs to find ways to "fatten up" to take the pressure off house prices and make everyone better off.

Debate on this article is now closed.

- Herald on Sunday

Bernard Hickey

Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

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