Sunday 25 August 2019

The revised national policy statement on urban development

Some early thoughts on the proposed National Policy Statement on Urban Development.

More or less planning? 


It is good to see the consultation document start to take a more comprehensive look at urban environments, rather than the previous Statement's focus on capacity. But it is a bit hard to tell if the NPS is asking for more or less urban planning. According to the consultation document cities are under preforming. Rising urban land prices, unaffordable housing, homelessness, rising household debt, traffic congestion and flat lining productivity all seem to be blamed on poor urban planning. This is quite a list. I'm surprised that climate change isn't added to the mix. 

Of course, consistent with the narrative of the past few years, the problem is seen to be that urban land markets are being held back from preforming their 'duty' to efficiently tackle these problems.  How so many problems have been shifted from being their own problem to being an urban planning problem is a bit of a mystery, but I guess its not unexpected when so many of the underlying problems  are so complex and seemingly difficult to rectify. Easier in this case to blame something else for the lack of progress.

For example, is lack of affordable housing really an urban planning problem? Isn't it, at root, a 'housing' problem (as it was back in the 30s and 50s and 70s) that needs its own set of tools, some of which can be planning related. A lack of affordable housing is a market failure, not a planning failure. The State pulled back its interventions that supported affordable (not social) housing supply in the 1980s, so it really needs to find a new set of tools, rather than hope for some sort of market fix. The Kainga Ora Homes and Communities bill hints at some tools. Inclusionary zoning may be one such tool that shapes market behaviour through the planning system.



Where is the monitoring?

Any evidence of monitoring and analysis informing the revised  NPS? For example have all the efforts made to provide more land for housing over the past five or so years (think Special Housing Areas) really made that much difference to house prices? Maybe the steep rises have been pulled back, one possible road block to supply may have been removed etc etc. But where is the analysis? One research paper (see note 1) suggests that Special Housing Areas increased land prices, not reduced them. "The results indicate that the creation of the SHA generated an average price increase of approximately 5%, and more generally that affordability did not improve, but rather worsen". In short, landowners banked the speedier consenting benefits of being a Special Housing Area, rather than passing these onto homeowners. Should we be surprised? Perhaps the faster supply of lots and houses helped, but even then, this is hard to see.  I know SHAs are history, but they are emblematic of the depth of analysis sitting behind so much of the NPS-UD.

Poor policies around housing, transport and productivity are all going to manifest themselves in sub optimal urban environments. Fixing the sub optimal urban environment is not going to be easy if you have to push up hill against a bunch of forces pushing the other way.  It would be helpful if the document could spell out the imperfections and inconsistencies within and between housing, transport and productivity policies in their own right and then line these up with urban planning to better sort out the causal relationships.  This should lead to better targeted policies.

The only feedback loop seems to be some form of self-confirmation that planning continues to be too slow and cant work out necessary trade offs and choices.

Having said all that, I am happy to make  the obligatory admission that better urban planning is a good thing. In some cases, this may mean 'less' planning, in other cases 'more' planning.  The NPS-UD helps a bit with some aspects of better urban planning. 

Up versus out?

At least the NPS-UD makes a positive lean towards going up (intensification) rather than out. Previous versions always left the choice up to local councils.  It is good to see that the proposed policies on intensification are much more formed than those about leap frog urban expansion. This suggests a subtle but important re focusing of effort by central government (and I presume, input of the Greens). But this is a case where to get less planning in place, it probably is necessary to do more planning. The proposed policies on intensification are fairly blunt and unsophisticated. They may well generate a backlash that is much larger than what they were designed to overcome.

Somethings come to mind:
  • P6A provides no definition of high density, yet this is the mandatory policy
  • The definition of what is high density in P6C are fairly open ended
  • Why stop at 'high density'?
  • Does high density mean high rise?  
  • Not much about quality urban design?
  • What about heritage areas, special character, volcanic viewshafts and all those other pesky constraints. Do they still stand or does the NPS override these due to it being a national policy?
  • Are high density residential developments going to be open to submissions and appeals?  
  • The areas listed in P6A where high density should be enabled cover most of the city - for example areas with a 'high-demand for housing" . This would apply to all of Auckland, I would have thought. 
The national planning standards provide for medium density and high density residential zones. Should these terms be referenced (wasn't that the point of the National Standards?).

Medium density residential zone means areas used predominantly for residential activities with moderate concentration and bulk of buildings, such as detached, semi-detached and terraced housing, low-rise apartments, and other compatible activities.

High density residential zone means areas used predominantly for residential activities with high concentration and bulk of buildings, such as apartments, and other compatible activities.

I would have thought for much of urban New Zealand, it is the 'medium' category that needs the push along - two and three storey town houses and flats. Apartments are really more like 4 to 6 storeys in height.

I know that there is a good intention sitting behind the intensification policies, but you do wonder.

The odd thing is the tie back to capacity, feasibility and affordability. If capacity and feasibility was the issue, then most intensification would occur in areas of high land values (think the eastern sea board of Auckland), but even then feasibility is often 'marginal' as most landowners are canny enough to know what houses will sell for and therefore what their land is worth.  But nevertheless I'm sure plenty of intensification would occur in areas with high amenity. But these areas are often not well served by public transport, so congestion would probably get worse. The process of redevelopment is likely to see social mix reduce as older and cheaper housing gets replaced by new, more expensive housing.

Most communities seek to spread intensification around, but in a clustered way; often into places were it is not 'feasible', at least in the short to medium term. The intensification policies of the revised NPS seem to be a tacit  recognition that planning is not all about commercial feasibility. Urban planning, coupled with infrastructure investment, can swing the market. But swinging the market takes time: critical mass around transport nodes needs to build, coupled with large investments on public transport. All doable, but it needs the right planning environment.

Is the capacity provided by the intensification polices going to count towards the capacity bottom lines, or is it some sort of over and above?

If affordability was the aim, then the Policy Statement should have talked about intensification in more general terms, such as across the board 'infill' rather than high density redevelopment around transport nodes. Affordability is greatest in far flung suburbs where transport costs are highest and it is easy to plonk a new unit on the back of an existing section. Not flash, but affordable.

Getting the balance right between today's and tomorrow's feasibility, affordability and public investment in infrastructure is not easy and requires a decent dose of spatial planning. I wonder if that is where the policy should have focused more. A more proactive, higher level push for plans to promote intensification first may yield more benefits.


Quality and quantity 

It is also pleasing to see a reference to quality urban environments. But there is no definition as such of what quality urban environments mean. There is a list of qualities in Objective O2, but these read more like functionalities, rather than qualities. The associated policies are silent on what quality means. They appear to lapse back into making the urban land market work more efficiently. More housing choices seems to what quality boils down to. Cant see the NIMBYs being placated by these provisions.

The two policies on amenity are equally perplexing. It is helpful to talk about changing amenity, but like existing amenity, future amenity needs to be defined and spelled out, otherwise any thing may add or detract from 'future' amenity, just as it may add to or detract from 'current' amenity.

In fact you could say that quality has taken a backward step under the NPS-UD. The current NPS UDC at least had words like the following (PA3):

When making planning decisions that affect the way and the rate at which development
capacity is provided, decision-makers shall provide for the social, economic, cultural
and environmental wellbeing of people and communities and future generations, whilst
having particular regard to:

This has been trimmed back to P2A:

When making planning decisions that affect urban development and the way and rate at which development capacity is provided, local authorities must have particular regard to: 

If the NPS-UD is serious about intensification, then it seriously needs to tackle quality urban design.  The Statement's once over lightly treatment of 'urban quality' is a major weakness.


Car parking (and urban trees)

Car parking appears to have joined urban trees as something we should not (and now can't) worry about. I think on-site car parking requirements have largely had their time, but somehow I don't think this will get passed the suburbanites, while the big commercial players will still offer heaps of car parking.


http://www.knowledgeauckland.org.nz/assets/publications/Price-effects-voluntary-affordable-housing-program-Bucaram-Fernandez-Sanchez-May-2018.pdf

Monday 12 August 2019

Auckland's housing market

A while back I wrote about whether Auckland has a big and growing housing shortage. I looked at building consent numbers and estimates of population growth. I thought there was a plausible explanation for the slow supply of housing that did not rely on the normal calls that poor planning had created the lack of supply. Two factors in this were questions over the make-up of population growth and the responsiveness of the house building industry to sudden surges in population growth.

On the number of building consents issued (supply of dwellings), I thought it was important to take into account a lag between population growth occurring and when a house is actually built. I thought it may take up a year for population growth to result in a house being built, for example. On the demand side, I questioned some of the migration data that feeds into the population growth estimates and in particular how many people staying for more than a year actually create demand for a house.

Since then a couple of sets of numbers have come through that shed some light on the points I was trying to make.

First up is the lag issue - the length of time taken between population growth occurring and houses being built. It is often noted that housing markets cannot react quickly to population shocks. It takes time to find sites, draw up plans and get a builder on board; more so as cities intensify and there is a shift from stand alone houses to terraces and apartments.

The Interest.co.nz website (see note 1) ran an interesting set of numbers recently, comparing building permits for new dwellings and code of compliance certificates (CCCs) issued by the Auckland Council.

CCCs are issued when a building is completed. Comparing the numbers of building permits issued with the number of code of compliance issued suggests that  there is a significant time delay between a new building consent being issued and the building receiving a CCC when it is completed.

The data suggests that the lag is about 2 years, based on the numbers in the table below, which are for the Auckland Region.



Code compliance certificates issued

Building permits for residential units 
Apr-14
4,106
4,077
Apr-12
Apr-15
5,269
4,835
Apr-13
Apr-16
6,131
6,796
Apr-14
Apr-17
7,412
8,155
Apr-15
Apr-18
9,030
9,353
Apr-16
Apr-19
10195
10,226
Apr-17




11,629
Apr-18
13,754
Apr-19

The data suggests that in 2021, up to 14,000 dwellings may be built in the region. 

Note, the 2 year lag is between the building permit being issued and the building being finished. For the building permit to be issued, a site needs to have been found, if needed resource consents obtained and building plans prepared, checked and consented. This adds further time. So the number of building consents issued in any year is likely to reflect the planning and design work undertaken during the previous year or two. But by the time the building consent is issued, these planning related issues have been addressed. The two year lag between building consent being issued and completion must be because of factors like labour shortages and possibly the growing number of multi-unit developments which take longer to build (where all units are completed at the same time). 

During the period between population growth occurring and a new dwelling being finished - perhaps 3 years at least - then there can be extra demands on the housing stock. These are short term pressures. What is important is the housing market response over the medium term. Many commentators seem to latch onto the short term pressure and use this as support for the view that planning restrictions are creating a structural housing shortfall. But what the data, and most texts on housing markets note, is that there is always a delay between demand and supply. That delay is not necessarily the result of planning. 

Next bit of information relates to whether the (delayed) supply response is sufficient to meet demands.  The question has always been, what is a reasonable estimate of demand?

Here the other interesting bit of information is the revision to the net migration numbers by Stats NZ. Stats NZ have been busy revising how they count inwards and outwards migration. As a result of these revisions the number of long term migrants (people staying for more than 12 months over a 16 month period) is lower than previously estimated. Inward migration has been the biggest source of population growth over the past 5 years or so, so a revision is important. 

The table below lists the old and new net international migration estimates, for NZ as a whole.  



Old
New
Difference
2014
38,300
32,718
-5,582
2015
58,300
53,079
-5,221
2016
69,100
63,145
-5,955
2017
72,300
59,159
-13,141
2018
65,000
49,903
-15,097


The difference is large in the 2017 and 2018 periods. 

Apart from the obvious point that revisions of this scale drive home the point that it is very hard for the building sector to estimate demand if the numbers keep on moving; the other question is over the make up of these numbers. The numbers are for all types of migrants. A migrant is an overseas resident who arrives in New Zealand and cumulatively spends 12 out of the next 16 months in New Zealand. Migrants may be NZ'ers returning, people who come to work, visit for a long period of time or for study, or to shift permanently. For example, an international student who spends the term-time in New Zealand and holiday time overseas, over successive years, will be counted as a migrant arrival at the time of their initial border crossing if they satisfy the 12/16 month criterion.

Net international migration took off in 2014 and peaked last year. Below is the ‘old’ measure of net migration, and while the numbers have been revised downward, the pattern remains. 


Migration was slowing down or negative in the period 2009 to 2012.  Based on the above data on building consents and completions, the number of house completions in 2015 most likely reflected the conditions prevailing in 2012 (ie a much more bleak picture). 

As for the causes of the lift after 2014, in June 2016 the NZ Herald ran a story that international student numbers from new migrant source countries, like India and the Philippines, are contributing to net migration numbers hitting record highs, according to analysis into arrival and departure card data.

To further complicate things, the revised net migration numbers are national figures, not for the Auckland Region. To work out what they may mean for the Auckland Region, we need to make a few adjustments. 

But before we do that, we need to understand that at the regional level migration is the difference between the number of people who have moved to, and departed from, a given area. Sub national net migration includes both international migration and internal migration gains and losses. 

There is no reliable evidence as to the number of NZ residents leaving Auckland for other regions (ie internal migrants) for the period from 2014. Between 2001 and 2006, Auckland ‘lost’ about 18,000 people to other regions. For the period 2006 to 2013, the census records a net loss of 4,650 people. So this number bounces around a lot. From 2014 to 2019, internal migration out of Auckland could have been very high. Until the census data comes out, we dont really know.  

Then there is the number of international migrants who stay in Auckland. 

Stats NZ, for their yearly population estimates, make a stab at working out how many international migrants head to Auckland, versus how many head to other regions.  Their estimate covers both internal and international migrants for the regions, but at the national level, the migration total must only be for international migrants (for internal migration, a loss from one region is made up by a gain in another region).

The following figures are Stats NZ estimates of migration gain for Auckland and NZ, and Auckland’s share.



Auckland 
NZ
Ak Share
2014
19,600
38,300
51%
2015
29,100
58,300
50%
2016
30,800
69,100
45%
2017
28,900
72,300
40%
2018
25,700
65,000
40%


The Auckland share of total migration gain for the country has dropped. This may be because of more local residents leaving Auckland, or fewer international migrants heading to Auckland. We don’t know.   

If we take the above Auckland region shares and apply them to the revised national migration figures, then we get the following:



New NZ
Ak Share
New AK
32718
51%
16,743
53079
50%
26,494
63145
45%
28,146
59159
40%
23,647
49903
40%
19,731



The revised migration gain can then be added to the estimate of natural increase to get total population growth for the Auckland region. 






Old
New
Difference
2014
33,800
30,943
-2,857
2015
43,000
40,394
-2,606
2016
44,600
41,946
-2,654
2017
42,700
37,447
-5,253
2018
38,700
32,731
-5,969



Does 6,000 fewer people make that much of a difference? At 3 people per house, this is 2,000 fewer houses. Whether the dwelling demand is 3 people per house is debatable. Many migrants are younger people - the median age of Auckland is dropping. At  2013, the average number of people per occupied dwelling in the Auckland Region was 3, but a younger age profile suggests a higher number of people per dwelling. 

If we stick with 3 people per dwelling, then the revised population estimates result in the following dwelling demand.




Pop change
Dwelling demand
2014
30,943
10,314
2015
40,394
13,465
2016
41,946
13,982
2017
37,447
12,482
2018
32,731
10,910



We can then compare the dwelling demand with dwelling supply, but with a 2 year lag built in between building consents being issued and houses being built. The table below has the dwelling  'supply' lagged by 2 years. For example dwelling demand from population growth in 2014 is matched to building consents issued in 2012. 



Demand Year
Dwelling demand
Dwelling supply
Based on consents issued in Year
2014
  10,314
4,197
2012
2015
  13,465
5,343
2013
2016
  13,982
6,873
2014
2017
  12,482
8,300
2015
2018
  10,910
9,651
2016


So there is a demand and supply imbalance, but that imbalance is because of the lag between demand becoming apparent and supply cranking up.  

If we ask “did the rising demand result in a signal that building consents needed to be ramped up”, then we can say yes, but it is not a fast process. If we add a year into the supply chain between population growth and a house being completed, so the whole process takes three years, then we can see the housing market responding in the graph below.  

Taking 2010 as a starting point, the figure below shows three things: 

1. Demand as estimated by population growth (adjusted down based on the revised migration data)
2. Building consents for new dwellings, based on a years gap between demand and the consent being issued. So the 2011 consents are probably based on population demand in the previous year, being,  2010.
3. Completions are delayed by 2 years from the year the building consent was issued, so completions are based on estimated demand three years previous.  


What is apparent is the large step up in population growth between 2013 and 2014. Consents started to rise in response, but completions were low because they were based on what was consented two years previous. By 2018, with population growth dropping back a bit, completions have almost caught up. 

There will still be a shortage of houses built up over the period 2010 to 2018, and the above suggests that the shortfall will take a while to work its way out of the system, unless population growth takes off again, or falls back quickly. 

This analysis reinforces the need for there to be sufficient zone capacity to meet housing demand, but provides some caution as to the presumed role of a lack of capacity due to zoning, and the slow pace of adding more capacity, in fueling land  and house price rises. In particular, the AUP (OP) was made operative in late 2016. By 2016, the housing market was responding to the increase in population growth from a few years back, based on the capacity available in 2013. The AUP (OP) has helpfully added capacity (as any plan review should and would have), but this is capacity for future growth. If a lack of zoned capacity was not the cause of house price growth (or only a small cause), then what is the main driver?


Notes: https://www.interest.co.nz/property/100382/number-new-homes-being-completed-auckland-could-increase-about-third-over-next-two