Trends toward 'zombie towns' not set in concrete

Aaron Drew.

New Zealand is a country of two halves. The "golden triangle" between Auckland, Hamilton and Tauranga is set to be an ever increasing share of New Zealand's population and economic activity, whilst much of the rest of New Zealand is set for relative decline.

Or so the narrative goes. Demographics are treated as destiny. It is taken as a matter of certainty that regional populations are going to age and decline. The adjoining chart by Statistic New Zealand (SNZ) illustrates this trend. In most parts of regional New Zealand, including the Hawke's Bay, SNZ predicts there is a high chance population levels will decline. My old NZIER colleague Shamubeel Eaqub coined the term "zombie towns" in recognition of these projected trends.

Local council planners, transport authorities, and utility companies will usually take SNZ numbers as given when projecting future infrastructure and housing needs - from roads, schools and hospitals to sewerage systems, electricity networks and new residential subdivisions. For example, Hawkes Bay Regional Council's Long Term Plan and related Infrastructure Strategy takes as given that the Bay's 2013 population of 158,000 will increase by 6000 people (or only 200 per annum) during the life of its 30-year strategy. Land zoning policies in the Bay also reflect this assumption.

But how certain are these projected trends? SNZ itself cautions against taking their numbers too literally because of the number of assumptions that go into them (fertility rates, external and internal migration rates, and life expectancy.)

To compound the uncertainty, in smaller population centres it takes a relatively small change in numbers to change the demographic picture. SNZ projects the Bay will lose 1300 people per annum to net migration from the mid-2020s. If instead the Bay had a gain of 1000 people per annum, which is what SNZ projects for Northland, Nelson and Tasman, the ageing trend would likely be less than Auckland's and the region's population would reach around 200,000 people in 2040. We don't have the numbers yet, but it wouldn't at all be surprising if we are running well ahead of 1000 new arrivals since the last Census, let alone the 200 people per annum assumed in the planning exercises. Booming school rolls to point of over-crowding, increases in childcare facilities, queuing to buy sections in the Parklands subdivision section release late last year, and rapidly rising land and house prices more generally, are prime indicators.

The main lifestyle advantages that the Bay offers to recent arrivals are its lower cost housing, space and lack of congestion. This cannot be taken for granted - it requires the ability to manage the supply-side pressures that new people bring. Unfortunately, it is not clear that all is well in this regard. One valuation expert I spoke to believed that current land zoning and infrastructure policies are massively constraining the ability of developers and large land owners to respond to market demand for new housing, especially where it is wanted, rather than where it is permitted. Local real estate agents assure me it is a good time to buy a house because councils are not releasing a lot of land. As with the golden triangle, a much more flexible and dynamic approach to planning that responds to market signals, rather than periodic population updates and crude assumptions, is required in the Bay.

- Aaron Drew is chief investment officer with Hastings-based wealth management company Stewart Financial Group.