Tim Hazledine: Urban limit helps make region a liveable place

We in Auckland are in a bit of a panic these days about the property price boom and housing affordability. Photo / Brett Phibbs

• Tim Hazledine is a professor of economics at the University of Auckland business school

Sometimes, a really effective policy simply doesn't get the appreciation it deserves. It is widely but quietly popular, never turns up as an election issue, and so never needs to be publicly defended.

The policy known now as the Auckland metropolitan urban limit is an example. The limit is a line separating Auckland city from Auckland country. Inside the line, urban development is permitted; outside the line, it isn't.

A metropolitan urban limit has been around for more than half a century and has done a great job with little fuss. It is scary to think what a shambolic monster our city would have become without it. The 'MUL' has coped with a threefold increase in population and has easily encompassed the evolution of urban planning.

Originally, in the 1950s, the drive was for efficient density in the provision of the infrastructure - roads, sewers, water, schools - needed for post-war suburban development. In the 1970s and 80s the "new urbanism" gave us a fresh appreciation of the positive virtues of a compact urban form for peoples' wellbeing. More recently, concerns have extended to the other side of the line, to preserve a cohesive countryside as the "lungs" of the growing city.

All these factors remain as solid justifications for urban limits. With continued population growth, the limits do need to be extended from time to time and such is appropriately provided for in the new Auckland Unitary Plan.

Yet, at last, the MUL itself has become a hot issue. Stray politicians of various parties have demanded its abolition, as have other commentators, most recently Gordon Copeland on this page, who rage at the "extraordinary folly" of extending rather than abolishing the limit.

Why the fuss all of a sudden? Actually, the source of discontent can be traced to a 2009 paper by the respected economist Arthur Grimes. With his co-author, Yun Liang, Grimes studied the "gradient" of land values in the city. As is the case for most large cities, there is a striking decline in market prices for land the further you go from the central business district.

For example, good flat buildable land in the CBD - say, the port land presently empty or covered with containers and used car imports - might be worth $20,000-$30,000 a square metre. Just 2km away, in our inner suburbs, current valuations are around $3000sq m. Beyond the urban limit, agricultural land and bush will be worth just a few dollars a metre.

Grimes and Liang found, approximately, a 10-fold difference in per hectare land values just inside and just outside the MUL, and it is this figure that has been simplistically misinterpreted to imply that, without the limit, housing land prices would drop by a factor of 10. But that truly is to compare apples and oranges, or coconuts and peanuts, to get the magnitudes realistic.

Urban land is surveyed, subdivided and serviced. It is close to roads, shops, public transport, schools. For the price that you pay for a house building lot, you get thrown in for free a comparable quantity of well-maintained public land - parks, reserves, footpaths, verges, schoolyards and indeed the roads themselves. Housing land costs more than farmland because it has had a heap of value added to it.

When I was assisting the Canterbury Regional Council with their plan for a Christchurch urban limit, I came across subdivisions on the edge of rural villages near the city in which serviced house building sections were being sold for around $200,000 - about 100 times the price the developer had paid for the farm land in the first place. Nobody was getting cheated here, and there wasn't an MUL in sight. It's just what things cost.

We in Auckland are in a bit of a panic these days about the property price boom and housing affordability. This boom has a number of causes, some of which we might want to do something about, such as the land-banking within the urban limit that also worries Copeland, and some of which we should be thankful for - in particular that high Auckland housing prices probably reflect the fact our city is a great place to live in. The MUL is a contributor to this, not part of the problem.