Tim Hazledine: Auckland needs to think hard about port land

The costs of claiming new land from the sea are considerable, and reversible only at great expense.

Opinion

'Economists make forecasts," said the late, great, economist John Kenneth Galbraith, "not because they know, but because they are asked."

Well, Auckland Council has asked the economists at the Institute of Economic Research to answer a particularly tricky question, which is to forecast when the capacity of Auckland's port will hit the limits of the land it currently sits on, assuming - as they were told to - that the port itself will not be largely moved elsewhere before this time. That is, NZIER was asked to forecast when further chunks of our compact little harbour might need to be "reclaimed" - actually, claimed - for use as wharves and parking lots for cars and containers.

The folk at NZIER are not fools, of course, and they recognise just how foggy the future looks for just about all the important factors determining the use of the port - technology, trade, world economic growth, New Zealand's and Auckland's population, environmental constraints and more. Accordingly, they present their forecasts in wide bands rather than precise targets: ranging, for example, from the years 2028 to 2078 for likely dates when full capacity of the Fergusson Container Terminal might be reached.

That's fair enough, though not all that useful, except perhaps in reassuring us that there is no need to panic. However, NZIER cannot resist putting a gloss on the numbers. Because of the inevitable uncertainty, it recommends as "sensible" a "least regrets" approach, meaning planning for expanding capacity sooner rather than later. It is like, in a household, planning when to replace the batteries in your smoke alarms when you are uncertain about how long batteries last for.

Batteries are cheap, and the consequences of a house fire horrific, so it is indeed sensible to act sooner rather than later.

But the port is quite different. The costs of claiming new land from the sea are considerable, and reversible only at great expense. In such situations, the prudent course of action is to hold back from acting - to preserve the "option value", as economists call it - until the future does become clearer, such that the need, or not, for the investment becomes evident. As for what will happen - well, there is no burning-down-the-house scenario here. At worst, a cramped port would be inconvenient, not catastrophic.

Our city now holds all the cards it is going to have - we can play out any of the available options, including moving the container port out of town. The council should be freely considering all these options, not allowing themselves to be blinkered by the port company, as in their majority decision last week to ease reclamation rules.

When you think about it, there is no logical reason why the interests of the port company should have any special standing over the interests of other commercial and non-commercial entities in the town.

If the council was to decide it was okay to create some more super-prime waterfront real estate in Auckland, then the fiscally responsible thing to do would be to sell the use of this land to the highest acceptable bidder - no Chinese land-bankers or wretched gambling casinos, perhaps, but business, retail and residential developments could all be profitable and socially useful. Given the rather low rate of return that Ports of Auckland currently generates from the land it uses, it seems unlikely that it would be the highest bidder.

And this logic should be applied to the current land-use of the port, in particular the Fergusson Container Terminal, which would be a wonderful city asset if it were redeveloped imaginatively.

It is indeed true that "forecasting is very difficult, especially about the future", but if you reasonably believe that Auckland's population is going to increase, then you don't need to be a genius economist to figure out that this will further increase the market value of prime CBD land, and strengthen the case for a full and open evaluation of the future of the port that monopolises a big chunk of this at the moment.

Tim Hazledine is a professor of economics at the University of Auckland Business School.