The draft National Policy Statement on Urban Development Capacity notes:
Urban growth provides an opportunity to improve social and economic outcomes for people and communities.
One of the key methods of improving economic performance is supposed to be agglomeration benefits:
Agglomeration economies describe the productive advantages that arise from the spatial concentration of economic activity. When firms locate in close proximity to each other a number of tangible benefits are thought to emerge, for instance, in the form of increased opportunities for labour market pooling, in the sharing of ‘knowledge’ or technology, in process specialisation within the industry, or in the efficiency of input-output sharing (1).
A number of folk have pointed out that Auckland's recent growth has not seen a significant rise in per capita GDP, which suggests limited or no productivity gains, which in turn may imply not much agglomeration going on. See for example:
https://croakingcassandra.com/2016/04/12/big-agglomeration-gains-in-a-growing-auckland-or-not/
Figure 1 shows the change in per capita GDP by region, between 2000 and 2015, based on Statistics NZ data.
Figure 1: Change in GDP per Capita, 2000 to 2015
Based on the Statistics NZ data, between 2000 and 2015, Auckland has recorded per capita GDP growth the same as the national average. This means that if anything, Auckland has gone backwards. In 2000, Auckland's per capita GDP was $33,958, compared to a national average of $29,421. Thus Auckland was about 16% ahead of the national figure. Move more people to Auckland, and their income should go up and the country's GDP should go up too!
By 2015, the Auckland figure has increased to $56,997, a 68% increase. But per capita GDP for NZ as a whole has increased by 80%, to $52,953. The Auckland premium is now just 8%, hardly enough to justify the higher house prices.
Figure 2 shows the relationship between Auckland's per capita GDP and NZ's per captia GDP. There is quite a distinct shift in the relationship post the 2008/09 global financial crises.
Figure 2: Auckland's GDP per capita as proportion of NZ per capita GDP, 2000 to 2015
Given that since 2000 Auckland region's population has grown from 1.2 million to close to 1.6 million (a 400,000 increase) while between 2001 and 2015, regional employment has also grown by 33%, or 175,000 jobs, then there must be question mark as to whether any agglomeration benefits are being experienced.
Are there any urban form reasons for this limited response? Agglomeration is an 'urban thing' . During the period in question, the compact city policy was in vogue (well apparently according to most commentators). Not much urban land got added to the pie. In theory at least, some form of employment intensification should have helped agglomeration along, since agglomeration benefits come from some types of employment (such as business and finance) being proximate. But maybe Auckland just got bigger, rather than more 'agglomerated'.
Certainly the evidence is that the central Isthmus area, where agglomeration benefits are likely to be the strongest, saw some of the employment growth, but far from all. The following table lists growth in jobs by Ward, between 2001 and 2015. I have highlighted the Wards that have recorded the most growth. There are three distinct 'nodes' - Albany; the central area; and the Penrose to Manukau corridor.
| Ward | Employment growth 2001 to 2015 (people employed) |
| Rodney | 3,350 |
| Albany | 26,180 |
| Waitakere | 7,650 |
| North Shore | 6,550 |
| Whau | 2,790 |
| Waitemata & gulf | 39,990 |
| Albert Eden Roskill | 7,030 |
| Orakei | 3,020 |
| Maungakiekie-Tamaki | 18,510 |
| Howick | 18,960 |
| Manukau | 20,850 |
| Manurewa-Papakura | 10,340 |
| Franklin | 3,050 |
These nodes tend to reflect the geography of the region and the strong north-south axis established by State Highway 1 running through the middle of the region. They also reflect a degree of sub regional sorting.
Some questions arise.
At a national level, does it make sense to continue to reinforce Auckland as a 'growth pole' when it looks like the per capita GDP of people residing in Auckland hasn't grown as much as hoped? But then maybe without the growth, per capita GDP may have go down? Perhaps. Something for Stephen Joyce to contemplate.
Or is Auckland GDP growth being held back in some way? Would per capita GDP have been higher if more businesses had been able to clump together if the regional land use and transport system enabled this? Possibly. The central rail link and continuing upgrades of the rail system should help reinforce the centre. Maybe earlier central government support for the rail link may have helped. Maybe more liberal zonings around the fringe of the CBD.
Or is Auckland just a bit different? More than likely. If anything, the GDP figures suggest to me that Auckland needs careful planning. It is not a rich city, so we need to think carefully about changes and choices. It is a geographically diverse city, so we need to think of the sub regions. It is city where just 'adding things' doesn't seem to help improve the overall situation. If anything the GDP figures suggest a slip towards a service-based economy away from a productive, export focused economy. Is liveability more important than agglomeration?
Others have pointed out that rather than rely upon hoped for agglomeration processes, we need to look more at clusters and the like. Philip McCann in his often quoted report: Geography, Trade and Growth: Problems and Possibilities for the New Zealand Economy(2) noted that while traditional urban agglomeration theories may not hold, there may be ability "to generate some local agglomeration economies in a small number of specific specialist sectors, usually described as ‘localisation’ economies".
He goes on to say that rather than promote agglomeration, we need to promote social networks and interaction:
"New Zealand has both a highly educated labour force and low population level. Potentially, this combination provides for a much higher level of inter-personal connectedness than is possible in high population societies where individuals are largely anonymous. This can allow local economic growth to be fostered via slightly different mechanisms than orthodox agglomeration arguments would imply. In particular, as an analytical and policy framework, we have argued here that the social network model is more applicable to New Zealand’s growth potential than is the agglomeration model".
What role should planning play?
Interestingly, when it comes to economic growth and business land, the Independent Hearings Panel that considered the Proposed Auckland Unitary Plan took quite a different tack to that of its work on housing. The Panel organised for a report on business land needs to be prepared. In its overview report the Panel notes that "while the (business land) report indicates there is sufficient commercial and industrial capacity in the region for the next seven years (and the Panel’s recommendations add to that capacity), the Panel is cautious about drawing definitive conclusions from this report for the longer term". So for housing the Panel looks out 30 years using a wide angle, high definition pair of binoculars (base the plan on a high growth projection and get very picky about capacity having to be commercially feasible), but for business and employment, it says "lets see how things go and adjust if need be".
In a review for the Ministry of the Environment, of planning for business activities (2) the economic consultancy BERL noted that across the country:
"The conclusion reached is that the overall supply of business land is generally sufficient, and in some areas it is likely that there is an oversupply. In these areas, an oversupply of some types of business land is contributing to a “hollowing out” of the town centre and/or an under-utilisation of infrastructure as development has not eventuated".
For Auckland the review indicated the need for more space for land extensive business activities, a view shared by the council and most others. But further on, the report cautions against addressing this through adopting a simple approach of 'more business land'
"Again, it is pertinent to note that this market-driven change in land use may be appropriate in assisting urban transformation. However, there may be cases where a narrow range of economic activity becoming established results in an unsustainable economic profile in an area".
So, in a round about way, the question of Auckland's per capita growth brings me back to the issues raised in my last blog about the rationale for planning. Is planning just good house keeping, or are there bigger benefits?
Setting aside the issue of GDP not really capturing all the good things about living in Auckland (with planning helping to secure many of these 'non-GDP' good things that help sustain social networks) would more or less planning aid Auckland's per capita GDP growth? Just focus on the spill-overs, or take a wider look?
(1) Agglomeration elasticities in New Zealand. David C. Maré Motu Economic and Public Policy Research Trust Daniel J. Graham Centre for Transport Studies, Imperial College, London
(2) Geography, Trade and Growth: Problems and Possibilities for the New Zealand Economy. New Zealand Treasury Working Paper 03/03. Author: Philip McCann.
(3) Business land: Problems and causes. Research to support a proposed NPS on urban planning. April 2016. www.berl.co.nz
