Sunday, 10 February 2019

Order by a bit of design?

Alain Bertaud in his book ‘Order without design - how markets shape cities’ makes the case for land values to more strongly shape city density and zoning than planning-led principles relating to compact cities or transit-oriented development.

Bertaud (along with others) contends that if land values and their associated price signals played the key role in determining density and height of development in a city, then there would be better outcomes for all. Development markets would be more efficient; more quickly responding to different demands and pressures, households and businesses would benefit from more choice.

Much of what he says has merit. The basic notion is that urban land values reflect demand to live or work in a particular area. High land values mean high demand, perhaps because of good amenities or proximity to main centres.   In areas of high land values, density and building height should be high, as developers respond to the demand and increase supply of housing and business floorspace. In areas of lower land value, building density will be lower, and pressure for further development less strong. In general, there is a land value gradient across a city, with  the highest value in the centre of the city and lowest on the edges. How high or how low land values and building density and height might be doesn’t really matter to the story. What does matter is that land values are constantly changing as population growth occurs, waves of demographic and economic changes pass through the city and infrastructure, especially transport infrastructure is developed. The city needs to adjust constantly to these changes if it is to deliver the housing and workplaces needed.

The theme of the book is in part encapsulated in the NPS on Urban Development Capacity and its notions of feasible development capacity. However the NPS is a ‘lite’ version of the concept. All the NPS wants is sufficient capacity - this could be in the form of lots of low density capacity in areas of low to moderate land values, it does not have to be more concentrated capacity in areas of high land values.

In Bertaud’s view, the planner’s role is to anticipate and feed the markets response to changing land values - inform the community about likely changes and help co-ordinate infrastructure and market responses; provide the necessary infrastructure; improve accessibility for growing areas; develop the appropriate controls to manage the externalities that arise.

In the book, planning is cast as the polar opposite to the market - socialism versus capitalism. There is no third way.

The questions I have, and which the book skirts around are:

  1. What if much of the area of higher land values is an area of recognised special character that can’t easily be redeveloped?
  2. What if parts of the city with higher land values have got ageing infrastructure which cant cope with extra density, resources are limited and the infrastructure cant be replaced in the short term?
  3. How do you anticipate land values and associated density patterns 30 or 50 years out when you are spending billions of dollars re configuring a city’s transport infrastructure, like shifting from a motorway-based to transit-based transport system?
  4. What about equity of access to and equity of supply of public infrastructure.

There are usually some simple answers to the above:

1. Save some of the heritage, but not all.

2. Prioritise and stage the renewal of infrastructure and perhaps put up with a few ‘overflows’ (exceed the capacity of infrastructure) in the interim.

3. Don’t worry about trying to anticipate market  responses too much, stick in the new transport infrastructure and ensure that there are the opportunities for the market to respond. Even better, price the use of transport infrastructure correctly.

4. Worry about equity after improving efficiency, improved efficiency should flow through to better opportunities for all - more development (and infrastructure) in areas of high value will trickle or filter down to other areas.  Once the city is operating efficiently, then there will be enough surplus to spread around to satisfy equity.

These simple answers don’t really help:

Saving some heritage but not all implies - given a rising population and other pressures in the urban system - a reassessment every 20 years or so, with the likelihood that the heritage resource will get whittled away each time there is a reassessment.

Who should get upgraded infrastructure  and who pays is complex in a city with a range of legacy issues, as well as new growth on the edge to support. User pays may help, but will not iron out all of the choices to be made about how to fix historical problems.

These days, big transport infrastructure is likely to require some form of public private partnership - the private sector part of the deal will be looking for certainty over demand and future revenue growth.  In other words, they will want a more fixed land use pattern.

Equity is getting more and more important as the pace of change in urban areas heats up and there is a starker boundary between winners and losers.

Equally the other simple answer of slowing population growth so it would be much easier to accommodate all that growth and build all those infrastructure renewals and expansions, is not very helpful.

Bertaud  does identify the heritage issue. He  says that protecting the character of central Paris may be OK, so long as people understand the costs. Otherwise you get the feeling that unless the city has a UNESCO world heritage area, then heritage protection is troublesome.

What he doesn't tackle is how to compensate for an inner city being protected, where that protection is justified. If the area of highest land values cannot increase in density, then that density needs to be shifted to somewhere else. That shifting implies more growth elsewhere than might otherwise be the case, and more growth than land values might suggest. That extra density needs infrastructure to support and enable it, with more investment ahead of growth.

The importance of pricing infrastructure features in the book. Correctly pricing the use of transport infrastructure is important, and there is an argument that until pricing is sorted out, then planning has a role in shaping land use patterns. Even with correct pricing, shifting transport modes usually involves shifting growth from one corridor to another (motorway corridors to transit corridors) over a long period of time. There needs to be some certainty over the scale and pace of growth in the new corridor to justify the expenditure, and not too much growth along the ‘old’ corridor in the interim.   

Perhaps an even bigger issue lurking in the book which is kind of acknowledged but not addressed is the extent of change implied. Bertaud refers to  changing exogenous forces which are constantly modifying urban land uses. He says these forces (he doesn't mention them but they could be sudden surges in migration, economic shocks, financialization of urban land markets and financial booms and busts) are getting more numerous and their effects more volatile. These shocks raise the issue of ‘everlasting uncertainty and agitation’. He says that changes to land use and the spatial concentration of employment can be alarming for workers and residents. However rather than resist change (which will delay the benefits of change), urban dwellers should embrace it.  

For the city, the economic shifts in the 1980s from protected industries to an ‘open’ economy could be said to be a similar transition to changes needed in the city. Zoning should not protect areas from change (like import tariffs protected industry sectors), rather zoning should enable change. That sounds OK, but the analogy misses the point that there are a range of tools used to help workers deal with changing work patterns that arise from an open economy:

Employment contracts can provide some restraint to knee jerk reactions. There is often redundancy to be paid out, as well as a notice period

There is, in theory at least, publicly funded re education to help workers learn new skills

Support for a long transition period (unemployment benefit)

Long term needs like the costs of retirement are covered by the state, taking some of the pressure off when jobs change.

Perhaps a bit more tangential, but in theory at least, a state run education and health system should mean that there is no 'penalty' to people moving within or between cities in search of better jobs. At a macro level, there is the Reserve Bank to help dampen changes in inflation rates and if need be, use tools like quantitative easing in times of recession.

All up, you may say that there is some support to ease the transition process. This is the third way - not protectionism, not exposure to the full force of free markets, but rather the path of preparing people for change, managing risks and giving a helping hand.

Is there an urban planning equivalent to the third way? First up, while workers may put up with changing workplaces, change in the neighbourhood raises a whole bunch of different, value driven issues. Second, change usually means a step up the density and value ladder.

What typically ‘gives’ in a process of change and transition in an existing urban area?

  • Prices can go up (or down) quickly
  • Loss of heritage / local landmarks
  • Reduction in the rental stock
  • Displacement of lower income households
  • Loss of older, cheaper workplaces.
  • Loss of diversity of activities.

There can be some pluses, like more convenience shops and the setting up of the beloved neighbourhood cafe of urban designers. If there are other places in an urban area for displaced business and households can go to, then change might not be such a problem. But increasingly, market processes seem to see a closing down of choice and diversity rather than an opening up. Market processes also seem to be much more volatile. How to respond to these pressures needs more of a look than a simple dichotomy between more market and less planning.

Sunday, 13 January 2019

Round three: On site parking and RMA decision making

Back to on-site car parking and a housing development in an inner city, 'character' suburb.

This is as an exercise in decision making,  but I must admit I'm beginning to wonder why I ever started the exercise.  I'm trying to work out what the 'effects' are of a largish housing development in an inner city area that will provide limited on-site car parking. The site is located in an area of special character housing, where on-street parking spaces are scarce.

I'm trying to run off first principles in decision making.

So far (see blog 11 November 2018) I have tried to identify what car parking effects (consequences) are being generated by the development. Effects identified are:
  1. Number of extra cars in the neighbourhood = 22
  2. Number of extra cars looking for kerb side parking = 13
  3. Reduction in cars in the region due to inner city location compared to if dwellings were located on the edge of the region = 4
  4. Higher rates of public transport use (around a 15 percentage point increase) and lower vehicle kilometres travelled (perhaps 20% less) compared to if dwellings were located elsewhere
  5. Increased pressure on existing residents in the area to find street parking spaces and hence more pressure to accommodate cars on site, possibly affecting special character values of the environment. 
  6. There may be increased demand for car sharing type services, if parking gets harder to find and so people decide to get by with fewer cars.
  7. Additional number of houses accommodated on the development site due to less on-site parking = 2. 
In my last blog on the subject, I added the last effect (relating to housing supply), but now I'm not too sure if this is a 'car parking' effect. But I think I will keep it in for now.

The local receiving environment for these effects could be said to be 'sensitive to pressures' - there are heritage buildings, while there is not much on-street parking available.

As previously noted, these are the absolute effects of the development, not effects relative to what might otherwise happen on the site. There is no 'counterfactual' as such; no alternative option against which to consider the effects against. All I have done is said 'what is likely to occur'?  This may be a bit short sighted as something will happen on the site.

Decision making always involves trade offs and choices to be made. Ideally consequences (effects) are weighted in terms of importance to help make these trade offs.  So now its time to try to work out the significance of the effects, with significance to be identified by looking at the Auckland Unitary Plan. Does the plan say some effects are not relevant, for example? For relevant effects, does the plan say that some effects are more important than others? Does the plan provide any kind of weighting?

But quite how to assess the significance of a car parking ‘shortfall’ is not straightforward. The Auckland Unitary Plan is a bit ambivalent about why on-site car parking needs to be managed. Is it a transport issue or an urban form issue? And if a transport issue, is it about supporting walking and cycling, public transport and reducing congestion; or is it about who gets to enjoy some free on-street parking? The plan kinds of swings between the different issues without being terribly helpful as to which is more important.

Note: the following is not a full analysis of the Unitary Plan's provisions. No responsibility taken if I have missed something important.

First up, I have decided to avoid the front part of the plan and the higher level regional policies. They are relevant to any assessment, but I want to start at the detailed level (and then work up, if possible).

Chapter E27 of the Unitary Plan deals with transport infrastructure and is most relevant to assessing the effects of a parking shortfall.

The most two relevant objectives against which proposals relating to on-site parking should be tested against appear to be as follows:

E27.2 (3) Parking and loading supports urban growth and the quality compact urban form. 

E27.2 (4) The provision of safe and efficient parking, loading and access is commensurate with the character, scale and intensity of the zone.

You might take it from the above that parking needs to be tied back to urban form, amenity and character, rather than who gets first dibs on any on-street parking spaces, or worries about congestion.

This makes sense in the context of this specific case. Residential special character areas are environments where there is often limited on-site parking. The villas and bungalows in the character areas were built when cars did not exist, or car ownership rates were very low.  It is a feature of these areas that streets are not dominated by large garages or extensive on-site open parking and turning areas. And neither should they be.

Does the reference to character and intensity of the zone in Objective 4 mean that if the site in question was developed as 4 or 5 mock villas (rather than the 19 unit development proposed), then no on-site parks would be ok, as that is the character of the area? Develop the site more intensively, then on-site parking is needed to mitigate the effects on the public street parking resource of that extra density? On the other side of the coin of areas not having much on-site parking is that the street parking resource is well used. If villa and bungalow owners cant park on the street close to their home, will that create pressure for them to shoe horn some parking onto their site, with adverse consequences for character and amenity? Quite possibly.

So does the plan acknowledge that minimum car parking  should or should not be pushed in special character areas?

We need to work our way through the relevant policies. First up, policy E27.3.(3). This says:

(3) Manage the number, location and type of parking and loading spaces, including bicycle parking and associated end-of-trip facilities to support all of the following: 
(a) the safe, efficient and effective operation of the transport network; 
(b) the use of more sustainable transport options including public transport, cycling and walking;
 (c) the functional and operational requirements of activities; 
(d) the efficient use of land; 
(e) the recognition of different activities having different trip characteristics; and 
(f) the efficient use of on-street parking. 

Not much about special character areas here. Perhaps urban design and urban form issues come under the term 'functional requirements of activities'? Having said that, the policy feels like it is a transport-related policy: on-site parking is needed to keep the roads flowing, or perhaps there should be no or limited parking to promote public transport.

But is the function of on-site parking requirements to lessen demands on the street parking resource in an area?  This is what existing residents tend to get most worried about. The efficient use of on-street parking is stated as a reason, but what is efficient? Is it really trying to say the equitable use of on-street parking spaces?

Perhaps more importantly, the policy says that you need to to do all of (a) to (f). It is not just a matter of picking out (f). So one summary might be that impacts on street parking is only one, relatively minor matter to take into account when thinking about impacts of on-site parking. When you think about, this is reasonable.

Let's move on. Next up is Policy E27.3.(7). This looks a bit more promising as it refers to ‘flexible’ on-site parking:

(7) Provide for flexible on-site parking by not limiting or requiring parking for subdivision, use and development (excluding office) in the Centre Fringe Office Control area, Residential – Terrace Housing and Apartment Buildings Zone and Residential – Mixed Housing Urban Zone (studio and one bedroom dwellings). 

The site I am using in my case study kind of fits with the intention of this policy. It is an inner city site.  However the site does not exactly match the areas listed: the site is not in the city fringe office control area, nor the Residential Terrace Housing and Apartment Building zone (although there is some of that zoning across the road, nearby). Interestingly in the Mixed Housing Urban zone small units (studios, one bedroom units) do not need any on-site parking.

This policy seems to say that it is up to the activities in these areas to sort out their street parking issues - don't ask Auckland Transport to try to work out who gets what on-street park. If activities don’t want to provide on-site parking, that is up to them, and if that means lots of competition for on-road spaces between existing residents, businesses,  commuter, and visitors, well they will just have to work through it themselves. Its an  ‘your-on-your-own’ type policy.

Then there is Policy E27.3(8):

(8) Require all other subdivision, use and development to provide a minimum level of on-site parking in recognition of the more limited alternatives to private vehicle travel unless it can be demonstrated that a lesser amount of on-site parking is needed for a particular site or proposal or the provision of on-site parking would be inconsistent with the protection of Historic Heritage or Special Character overlays. 

I think the site falls under this policy as it is not covered by the areas listed in Policy 7. But here there is a bit of  a mix up of outcomes. The policy says that a minimum level of parking is required in recognition of the more limited alternatives to private vehicle travel. But that is a bit odd, given that the site is close to two busy bus routes and close to shops and activities. It is just across the road from Terrace Housing and Apartment Building zone which enjoys the same level of public transport accessibility as the subject site and where no on-site parking is needed.

Anyway, maybe that doesn’t matter so much, as the policy goes on to say that having on-site parking could be inconsistent with the protection of special character overlays. Back to the urban form issue, not the transport issue. So that is helpful, but then you do need to ‘demonstrate’ that a lesser amount of on-site car parking would not be inconsistent with special character. It is not a given that you can get by with fewer car parks. Nevertheless, the policy opens a door to character and amenity.

Now, time to turn to the rules.

Two rules apply, as far as I can tell.

First up, Table E27.6.2.4 Parking rates - area 2, activity T44. This rule says for sites in special character areas that are less than 500 sqm in area, then no on-site car parking is required.

Perfect, This rule recognises that requiring on-site parking can harm amenity and character of the special character areas. It recognises the existing environment of these areas as being one where there never was on-site parking to start with. Overtime people have added parking pads and garages, but they are a ‘fit in where you can’ type exercise.

But the site in the case study is greater than 500 sqm in area, so the rule does not apply. Instead the rules of the underlying zoning apply - in this case the Single House zone which requires 1 site per dwelling, not matter what the size of the dwelling (studio or 5 bedrooms).

Why on larger sites in the special character area do you need to provide one park per dwelling, but on smaller sites you don't need to worry?

I guess the idea is that on larger sites there are usually some options to add in car parking in a way that does not completely stuff up special character. But perhaps not. If new buildings are two or three storeys to fit in with surrounding character, then basement parking is unlikely. Surface parking areas could be grouped into ‘courts’ but large areas of asphalt are not really 'special character'. Neither are rows of garages.

If we go back to the development of the Unitary Plan, is there any evidence as to why there is a rule allowing small sites to not have on-site parking, but bigger sites to provide one car parking space per dwelling? This is from the Council's evidence:

A submission has been received outlining the effects that garages and car-parking can have on special character areas. The Special Character (heritage) case team is proposing to amend the underlying zone minimum car parking requirements to help retain or enhance special/historic character values. The approach that has been discussed with the Special Character team is to not have a parking requirement (i.e. no minimum) for Special Character sites less than a certain site area to support the outcome of maintaining and enhancing the coherency and special streetscape character of the historic parts of Auckland. From a transport planning perspective, much of the special character overlay is located in areas around centres and therefore this approach is unlikely to result in any significant concern.

The above para kind of explains how the plan provisions were developed. It doesn't really say why larger sites in the special character areas should have on-site parking. The point about most special character areas being located around centres applies to big and small sites. I think what happened was at some point the urban form objective got overtaken by a transport objective (or perhaps more correctly a transport worry that the street parking might get quite well used and Auckland Transport might get asked to try to sort out the problem).

This not the end of the story. It is possible to apply for a reduction of on-site parking requirements for larger sites. But what matters are assessed when considering such applications? Are they urban form issues or transport issues?

The Unitary Plan has to state what matters the Council will take into account when considering applications to reduce parking (as in this case, a reduction is a restricted discretionary activity). The plan says the following are the matters to be considered:

The Council will restrict its discretion to the following matters when assessing a restricted discretionary resource consent application.

(6) any activity or development which provides fewer than the required minimum number of parking spaces under Standard E27.6.2(1): 
(a) adequacy for the site and the proposal; 
(b) effects on adjacent activities, on urban form outcomes as identified in the relevant Business Zone and on the adjoining transport network; and 
(c) availability and suitability of alternative parking supply and management arrangements.

This is a very confusing list. It is not clear at all where special character issue fit in, if at all.  The list seems to mostly be about transport effects, not urban form effects. There is reference in (b) to urban form effects in relation to Business areas. It may be possible to refer to another section of the plan (general rules) to drag in special character issues, but this is not clear.

Neither is it clear if demands on kerb side parking is a relevant matter.  Effects on the adjoining transport network can be considered, whatever that is. The word ‘network’ implies traffic generation being the worry, rather than parking. I presume 'alternative parking arrangements'  means arrangements to lease other parking spaces in the wider area.

Oddly, when you look further on into what assessment criteria are used to assess applications to reduce on-site parking,  then special character issues do pop up, as follows:

E27.8.2. Assessment criteria 5 (f):
if a character overlay applies to the site, the extent to which the provision of a minimum car parking requirement would detrimentally affect the character and features of the area or site identified by the overlay.

Taking on board all of the above, is it reasonable to make the following assumptions about the relevance and importance of the effects previously identified?

Relevance of effect – is the effect relevant to the assessment of effects?
Importance of effect / weight to be applied to the assessment of the effect
Number of extra cars in the neighbourhood = 22

Some relevance– the plan is  concerned with the overall  busyness of an area, and does seek to promote alternatives. However there is no cap on car use, for example.
Not much weight to be given to this effect. There does not seem to be strong link between less on-site parking and fewer cars in a residential area, compared to car parking in retail areas, for example
Number of extra cars looking for kerb side parking spaces = 13

Moderate – the plan does refer to efficient use of kerb side parking spaces
Some importance to be given to this effect. That is, the scale and magnitude of the effect could be considered as being ‘significant”?  
Reduction in number of cars in the region due to inner city location compared to if dwellings were located on the edge of the region = 4

Limited – the plan refers to compact urban growth, so maybe there is a connection with regional growth issues, but the link in tenuous.
Not much weight to be given to this effect
Higher rates of public transport use (around a 15 percentage point increase) and lower vehicle kilometres travelled (perhaps 20% less) compared to if dwellings were located elsewhere

Some relevance. The plan does identify density near public transport as being beneficial, while parking should be managed to promote public transport use
Some weight to be given, but the assessment would probably be not too much weight. The plan is kind of neutral on the actual outcome of more use of public transport
Increased pressure on existing residents in the area to find street parking spaces and hence more pressure to accommodate cars on site, possibly affecting special character values of the environment. 

Moderate relevance
Reasonable weight to be given to this effect. The plan seeks to maintain the amenities of heritage areas and reduce pressure for the unsympathetic redevelopment of sites to incorporate car parking
There may be increased demand for car sharing type services, if parking gets harder to find and so people decide to get by with fewer cars. 

Limited – the plan is not big on mode splits, car ownership and rates of use of cars
Low significance
More houses built due to less space taken up on site by surface parking = 2
Moderate relevance. The plan does refer to compact urban growth and perhaps the National Policy Statement on Urban Capacity is important
Little weight. The plan does not identify special character areas as an appropriate place  for lots more dwellings (despite being inner city and there being high demand)

So what is the summary assessment? Not too sure myself. A couple of things stand out:

1. Considering whether an effect is appropriate in the circumstances, is sufficiently mitigated or needs further mitigation is not straight forward. The above seems a long way away from some sort of negative spillover to be controlled by a simple standard. The process quickly develops into a cost/benefit type analysis. But causal links between effects and consequences (costs and benefits) are not easy to determine. Will more on-street parking really see the loss of special character?

2. The Plan kind of reinforces some effects but not others. In this case, it seems like impacts on special character is important, as well as demands on kerb side parking. Put another way, the plan tends to reinforce the most obvious effects, it does not really emphasize wider effects and benefits like housing supply, traffic generation, public transport and the like, although these are noted. Perhaps in this case, this is the right way to go, but in other situations, is there a trap in plans reinforcing the obvious, immediate effects, and not the systemic effects (when part of the purpose of planning is to lessen the the focus on short term effects and emphasis the long term effects?)

Tuesday, 20 November 2018

Time for more height (2): but what if there is a constraint?

In my blog of  21 October 2018  I developed a thought experiment of how the city redeveloped in a series of steps as buildings aged and land values rose. The result is a ‘southern alps’ type  profile of building density / height (as they respond to increased land value). The tallest buildings are not necessarily in the middle of the city, and the profile of height (or density) is not a smooth curve from the centre to the fringe.

In short, while land values may present a smooth curve from centre to edge, with some ups and downs around sub regional hubs, the city skyline is jagged.

A question prompted by the exercise was what if one area of the imaginary city had a constraint placed on it? What if a height limit, density control or similar meant that buildings could not be built to a height that is reflective of the land values present? The height profile will be different in the area affected by the constraint.

Often when considering a planning constraint  we get presented with a figure similar to the one below. Rather than a smooth curve of reducing land value as distance increases, there is a disruption created by a planning constraint. In this case the constraint is represented by the grey bar. The constraint creates a ‘cliff’ along the curve.

An urban boundary control may be one example of a constraint: land on the inside of the urban fence is worth much more than land on the outside. A similar difference might come about by the constraint being a viewshaft that limits height or perhaps a special character area that limits new buildings.

The difference in land values at the constraint boundary is often taken to be the ‘cost’ of the constraint. In my made up example, on one side of the constraint, land is worth 200 units per square metre, while on the other side, land is 450 units, more than a halfing of ‘value’. If the constraint did not apply would land be worth $400 units where the two lines join?

But is it that straight forward?

Let’s start with some basic demand and supply graphs, the types that economists use. (Warning: Not being an economist, I may get some things wrong). First up is a standard demand and supply graph in an unconstrained situation, with, in this case, the quantity of floor space along the bottom (horizontal) axis and price on the vertical  axis.

The red demand line intersects with the black supply line. Q1 quantity of floorspace is provided at P1 prices. All good.

Now we introduce a (valid, well justified) constraint on supply. The black supply line is vertical (fixed) rather than sloping.

The price of the floorspace increases from p1 to p2, while the quantity supplied reduces from Q1 to Q2.

But this might be called a closed or static city model. Supply is fixed, there are no compensating actions; development cannot shift location within the city due to the constraint, for example.

What happens when we have a more dynamic city where things can shift and adjust?
We need to start with two different types of floorspace: Class A central city and Class B fringe office space, for example.

Then we assume the following two demand ‘curves’. They have  different slopes. Class A office space is more willing to pay higher prices to be closer to the centre, so the demand curve is steeper than the Class B demand line. Where the two demand lines cross over is the edge of the CBD.

What happens if the supply of Class B floorspace is constrained? First we have to assume what the non constrained supply curves for Class B space may look like. In the following graph I have ‘grayed out’ the Class A office space demand and supply curves, and left in the (assumed) Class B office space demand and supply curve.

So quantity Q of Class B space at price p.

Then we add in the vertical constraint. The quantity of Class B space goes down from Q1 to Q2 (as a movement to the left means less space), and price of Class B space increases from p1 to p2.

What happens to the unmet Class B office space demand? There is demand for Q1, but supply is limited to Q2. What happens if that supply gets transferred to the central area, to the Class A floorspace area? The Class A area has only one constraint on the supply of office space. No height limits apply, so the Class A area can go higher. However the Class A area cannot expand out any further.  

We also need to assume that the unmet Class B space demand cannot go the ‘other way’; that is, shift to being further away from the centre, into the next ring out. For example, let’s assume that the next ring out is residential zoning. It may also be possible that the unmet Class B demand shifts to a different city altogether (like Hamilton).

The following graph shows the shift in demand for Class A space (the two red lines) in response to some displaced demand from Class B office space area.

In this case the demand for Class A space shifts outwards, so the quantity supplied increases from Q1 to Q2, but price goes up from p1 to p2.

But if the Class A space supply can increase (more height for example), then the supply curve may shift, and prices might not change that much. In this case the supply line shifts to the right a bit. Prices may go up a bit, depending upon the slope, but maybe not as much if the supply curve stays static.

So overall, the constraint has three effects:
  1. The supply of Class B space is less than what is demanded and a bit more expensive for all those offices space consumers in the Class B space area;
  2. Class A space expands to accommodate the office space that can’t get into the Class B area. This extra demand may increase prices, less so if supply can also expand easily;
  3. The displaced Class B space consumers who occupy Class A space end up paying more for their office space than might otherwise have been the case, or perhaps the Class B office space users need to consume less Class A office space than they might otherwise do, to keep their costs down.   
Now time to turn to my imaginary city and its land values and building heights.

In my imaginary city, presumably there are some land value changes as a result of the suppression of demand in the second ring out, but also changes from some of its relocation to the central ring.

If we start with the land values for the first two rings of my made up city, then we get the following graph. The graph has time periods on the horizontal axis. As time goes by and the city grows, then land values steadily rise.

I then turned those land values into building heights (using a basic assumption of $100 of land value units supports 1 storey of floorspace). Taking into account that buildings last for 3 time periods before they can redeveloped, then I get the following building height profile.

Now the question is what may happen should the 2km ring of development be constrained in some way.

The following diagram has a building height constraint of 8 storeys applied to the 2km ring; a constraint that has effect at time period 8. Rather than be 11 storeys in the unconstrained model, in this case buildings are 3 storeys less in height.

The next graph returns to land values. It suggests a ‘flattening’ out of the 2km land value curve, in response to the 8 storey constraint. Perhaps land values continue to rise, but to a lesser extent than the unconstrained model.

Over time, there is quite a wedge between what the 2km curve might have looked like without the constraint (the dashed 2km line) and the constrained line.

Now let’s assume that most of the 2km floorspace demand is displaced to the 1km floorspace area. The value of land goes up as demand increases.

This is not a one-for-one shift, as land values in the 1km ring are higher than the 2km ring (in my case about 20% more). So demand for 3 storeys in the 2km ring might translate into demand for 2.5 storeys in the 1km ring, if the amount that tenants pay in rent stays the same. 

Land values in the 1km ring increase as supply of floorspace responds to demand rises. Overtime the wedge gets bigger. 

Back to the opening diagram, part of the difference in land values between the inside and outside of the constraint could therefore be from displaced demand.  Not all of the difference is a cost from suppressed supply. The reduced land value from the constraint is probably not off-set by an equal amount from increase in land values on the other side of the constraint, but there is likely to be a bit of a shift. 

So with the constraint in place and some transfer of floorspace demand, we can make the following comments:

Area (ring)
Amount of
Land values
1km - unconstrained (Class A area)
Higher, depending upon supply
2km - constrained (Class B area)

Landowners in the unconstrained area are likely to see a benefit, but landowners in the constrained area will see lower values than might otherwise be the case.
Building occupiers are likely to see increases in prices/rents in both areas, and as mentioned, Class B office space occupiers are likely to have to accept higher prices or smaller premises if they have to shift to Class A office space areas.

The above are the 'costs', not the 'benefits'. Working out the benefits of the constraint is beyond me. There is the direct benefit, but there may be other, off-setting benefits from more floorspace in the Class A area:

  • Public transport services may be better. Big investments like the Central Rail Link in Auckland may be made sooner if there is more floorspace . This investment in transport accessibility benefits all landowners and tenants. 
  • Some redevelopment of sites may be brought forward if there is more demand
  • The Class B occupiers may fill up ‘hard to rent’ areas in the central area. 
  • The unconstrained area may be a busier and more lively place with more cafes and lunch bars, helping to generate more vitality. 
On the other side of the coin, less floorspace in the constrained area may reduce the vitality of that area.

Perhaps the short answer to the initial question of what are the implications of a constraint is that it is hard to unravel all of the changes that go on. The other point is that for every constraint imposed, does there need to be some sort of alternative location provided? That alternative may not be perfect, but at least there is some form of 'compensating' action. 

However, overtime, as the wedge between what might otherwise happen and what does happen in the constrained area gets bigger, it may be harder to put in place these compensating actions.