Auckland Council's plans for higher density housing cannot succeed unless the city also expands further into the countryside, says the council's chief economist.

Chris Parker said the only way to contain Auckland's runaway house inflation - up $70,000 last month to $820,000 on a median price house - was to open up more rural land to relieve price pressure on a "dysfunctional" urban land market.

The council's flagship compact city plan, based on more people living in apartments, terraced houses and townhouses within city limits, was necessary but unable to work by itself.

"Intensification won't do it - not alone, it's got to be part of a package," Mr Parker told the Herald in an interview for the Home Truths series.


"Intensification increases the opportunities for what can be done on each piece of land and it increases the value of land underneath. The hope is that you can spread more houses on top of it, but the problem is we're in a race we can't win.

"The rate of increase in land [prices] is always faster than the rate at which we can build houses on top."

Mr Parker said public opposition to intensification made the process more difficult, as this further delayed the introduction of high density homes while land prices kept rising.

He described Auckland land prices as a vicious cycle: speculation caused land owners to hold off selling, which pushed demand "through the roof", increasing prices and creating further speculation.

The only way to break the cycle was "good old-fashioned, school kid level economics, which is simply to increase the supply of rural land into the urban land market".

Mr Parker also suggested that private companies - or even home owners - should be allowed to provide roads and water services for new subdivisions to bring down costs.

The cost and organisation of infrastructure by council-run bodies is one of the big obstacles holding up the provision of new housing, partly because councils are only allowed to take on low levels of debt.

However, Mr Parker said it was already accepted that private companies provided electricity and telecommunications. "Why don't we change our headspace to think the same way about roads and water? No one's had that discussion," he said.


There were many ways of providing the service, including body corporates, which were already used for shared buildings, or Municipal Utility Districts, which were used in the US to provide such services.

Some communities might want to take on the project themselves, rather than wait for the council to find the money. "You've got tribes with big sums of money wishing to invest in long-lived infrastructure for the benefit of their communities. We provide very little opportunity for that ... so pretty much all the money floods into real estate instead."

Water, roads and sewerage projects would also appeal to fund managers looking to invest client savings, as they were tangible assets lasting many decades with a relatively low-risk stream of revenue.

Deputy Prime Minister Bill English has expressed similar concerns about the way Auckland Council currently organises infrastructure for new housing developments.

"When we put in a subdivision we have no trouble getting electricity and no trouble getting broadband," he said. "But it is quite difficult to sort out the issues related to water and in some cases roading.

"It would be better if everyone could see how the system worked and could anticipate what decisions could be made. But if you have developers doing things and suddenly someone turns up and says here's a big water charge you weren't expecting or actually we are not putting water here, we're putting it over there ... we need a lot more transparency around it."