Auckland Unitary Plan, intensification and open space

In this blog I want to look at the spatial allocation of commercially feasible intensive development and access to open space. When planning for apartments (intensification), rather than worry too much about access to public transport and proximity to services in town centres, should planning look more closely at access to open space in terms of determining where it may be appropriate to locate apartment developments?

In previous blogs I've discussed the policy shift implicit in the latest version of the Proposed Auckland Unitary Plan (PAUP) away from intensification associated with centres and transport routes to intensification based around amenity. This shift is being driven partly from considerations of commercial feasibility. But it is also partly an attempt to widen the base demand for intensification.  Proximity to open space has to be a key part of this.

The PAUP as notified included the concept of intensification around open spaces. The following is policy 2.1.2 in the notified version. I've highlighted the relevant bit:

Enable higher residential densities and the efficient use of land in neighbourhoods:

a.within and around centres and within moderate walking distances from the city, metropolitan, town and local centres

b.in areas close to the frequent public transport routes and facilities

c.in close proximity to existing or proposed large open spaces, community facilities, education and healthcare facilities

d.adequately serviced by existing physical infrastructure or where infrastructure can be efficiently upgraded.

It could reasonably be argued that in terms of actual zonings,  the PAUP as notified did not take forward (c) above in any meaningful way. Most intensification seemed to be driven by (a) and (b), although later moves by council to free up zonings started to bring in more (c) areas. 

The revised version of the policy following the hearing of submission dropped (d) - don't worry about infrastructure constraints, they can be fixed; and added in 'corridors' and expanded out (c) to include employment. Here it is:

(5) Enable higher residential intensification:

(a) in and around centres;

(b) along identified corridors; and

(c) close to public transport, social facilities (including open space) and employment opportunities.

You might say that not much of the urban area is left out of the policy by the time you add (a) + (b) +(c). Of course what the policy doesn't tell you is how much intensification might occur in these different areas.  That comes later on in the Plan.  

 As previously identified, most commercially feasible redevelopment in the existing urban area is in the form of apartment developments. An interesting relationship exists between apartments and open space. Apartments near open spaces sell for more than apartments away from open space. This relationship does not hold for stand alone houses. The relationship for apartments reflects the trade offs involved in apartment living. People accept smaller internal living spaces and less private outdoor space if close to a park. Parks and open spaces also provide secure outlook from apartments. When you are beside a park, there are no concerns  that views may be built out, or sunlight and daylight reduced, by next door development. 

An Auckland Council report[1] has confirmed this relationship:

We find evidence that proximity to parks and public open spaces has a positive impact on apartment prices.2 That is, if we compare two apartments that were equivalent in all respects except distance to the nearest park, we would expect the apartment that was closer to the park to command a higher price. Higher prices in turn reflect the higher level of amenity that apartment owners (or occupants) receive from proximity to a park. Proximity to both regional parks and to local / neighbourhood parks has a positive impact, which suggests that parks of varying significance and size are valued by apartment-buyers.

No surprises there. The higher prices for apartments near open spaces suggest higher demand, which is a good thing. 

The report did not assess access to beaches and coastal areas. My pick would that the price gradient (if that is the right word) for apartments would be even stronger for coastal access and views. 

We can't add much more coastline to the region (unless we go much further north and east), but we can add more open spaces. So to help support and enable more apartment developments:

1. Do we need more opportunities for apartments close to open spaces and
2. Do we need more open spaces?

Equally, will the lack of open space actually hold back apartment development from occurring in some areas? The analysis of commercially feasible development is just a mechanical exercise of costs and returns. It doesn't take into account the many factors that will influence buyers.

I have obtained the following figures on the area zoned open space under the PAUP (decisions version).

Open Space Type	Area (ha)
Open Space - Conservation	34,655.54
Open Space - Informal Recreation	8,410.70
Open Space - Sport and Active Recreation	3,084.03
Open Space - Community	90.96
Open Space - Civic Spaces	3.31

The largest category of open space - Conservation - includes the Hunua and Waitakere Ranges, as well as the large regional parks in outer lying areas of the region.

It is useful to organise the above data by Local Board area. If we drop out the rural Local Boards of Waitakere, Rodney and Franklin, then a lot of that Conservation land is taken out of the picture. 

When open space zoned land is organised by the remaining 'urban' Local Boards we get the following data (see Figure 1).

Figure 1: Open Space zoned land (ha), by urban Local Board

If we then relate that open space area to the number of dwellings in the Local Boards, as of 2013, then we get the following figures on open space zoned area per dwelling (Figure 2). This data is converted to square metres of open space per dwelling. The urban area 'average' is identified. The urban area average is about 230m² of open space per dwelling.  This sounds quite generous.

Figure 2: Square metres of open space zoned land per dwelling, 2013, by Local Board

There is no set standard as such in terms of how much open space should be available per dwelling (or per 1000 people). Access to open space (e.g. walking distance) may be more important than gross area. 

But lets set aside those details. What I'm looking at here is the broad picture.

Notice how some of the inner city Board areas have relatively low levels of open space. The quality of that space may be quite high (think of the Domain), but in quantity terms, there is below average provision.

If we then arrange the Local Boards by the number of commercially feasible apartments provided for by the PAUP and compare that to the open space available, we get the following figures.

Local Board	Open space (ha)	Number of possible apartments	M2 of open space per apartment
Maungakeikei Tamaki	512.2	31,192	164
Howick	818.0	22,615	362
Waitemata	250.9	19,318	130
Devonport Takapuna	231.7	18,801	123
Upper Harbour	885.8	17,720	500
Whau	285.3	13,745	208
Hibiscus&Bays	1720.4	11,300	1,522
Albert Eden	268.9	10,170	264
Kaipatiki	644.8	7,793	827
Orakei	533.9	7,674	696
Puketapapa	329.0	6,691	492
Henderson Massey	583.6	2,270	25,71
Mangere Otahuhu	604.8	1,649	36,68
Papakura	265.1	1,339	19,80
Otara Papatoetoe	585.0	666	87,83
Maurewa	779.7	12	649,767

Of course each new apartment does not get exclusive access to this area of open space land. New apartment dwellers will have to share that space with others - existing residents in the area and visitors.

The number of possible apartments could be added to the number of existing dwellings to get a feel for total demand, but total demand also needs to take into account other use of space (like sportfields used by a variety of codes who draw players from across the region).

To keep it simple, I've just looked at the growth side of the equation.  

The data suggests some areas where more open space may help, or where more intensification could be accommodated, given the stock of open space land.

Devonport - Takapuna Local Board has a low level of existing provision of open space and substantial growth in apartments, which doesn't sound good. But it is a Board that enjoys access to good beaches, so probably the lack of open space will not hold back apartment development. On the other hand Orakei Local Board is coastal and has a relatively high rate of open space provision. Could it take more apartment development?  Howick and Hibiscus and Bays might be in the same category.

Away from the East Coast beaches, Mungakeikei-Tamaki, Albert Eden and Whau Local Boards all have relatively high rates of possible apartment development. In these areas, access to open space is likely to be important. But they have relatively low levels of provision of open space.  Will this be a break on achieving the amount of intensification proposed?

At the other end of the scale, places like Manurewa probably will not benefit from more open space in terms of enabling apartment development.  

In my blog of the 12 October 2016, I talked about the role of the middle ring suburbs - how they are expected to take a substantial proportion of growth, but are areas where often there is the largest gap between plan enabled growth and commercially feasible development. Closing that gap could perhaps involve a much more targeted approach to apartments and open spaces in these areas. 

In short: more and better quality open spaces in middle ring suburbs may be more likely to drive apartment development than other forms of intervention. 

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[1] How Do Aucklanders Value Their Parks? A hedonic analysis of the impact of proximity to open space on residential property values  August 2016 Technical Report 2016/031

The search for competitive land markets

I have written a couple of blogs on the concept of commercially feasible development and what it might mean for planning. In this blog I want to discuss whether the concept of commercially feasible development capacity is really a search for a means to foster competitive land markets. Is the real target of the National Policy Statement on Urban Development Capacity enabling a more competitive development market, rather than just having enough capacity to meet demand, plus some? And if this is the target, what are the implications?

Under a competitive market, in theory at least, companies earn just enough profit to stay in business and no more, because if they were to earn excess profits, other companies would enter the market and drive profits back down to the bare minimum.

As the theory goes, what is going to drive down house prices over time is more competitive land markets. House prices should reflect the cost of constructing the house, financing and profit margins for the developer and the land value. The costs of construction are known, and industry practice sets parameters around financing and profit. The wild card is land values. 

Presently, land values are said to be out of whack. Land values for urban activities should not be more than competing uses, after accounting for any 'improvements'. In a greenfields situation, raw urban land values should not be much more than the value of the land for farming, for example. There will always be value added to urban land through infrastructure, earthworks, road links and the like. But if these costs are set aside, then the raw land value shouldn't be much more than what another farmer may pay for the land. If the raw value of urban land is much higher, then lots of farmers should be motivated to sell to a developer, and so prices should drop back to be closer to alternative use value through competition.

In a brownfields situation, alternative uses are a bit more complex to work out, as density can vary considerably, and there may be alternative uses such as for industry or retail.  But the same idea holds true - if one piece of land is too expensive, then there should be the ability to look elsewhere.

Planning interrupts this process of competition. By zoning some land for housing and related urban  activities, but not other land, it concentrates purchase options into smaller areas. Landowners in these areas get handed a 'free gift'. By being more flexible about how cities grow out and up, then there should be more competition and hence less ability to mark up land values.

Having enough capacity is a back door way of trying to create more competition. Lots of capacity should equal lots of development options, which should mean lots of competition between landowners to sell to a developer. Perhaps the draft urban development capacity National Policy Statement talks about 'capacity' rather than competitive land markets because capacity is the language of planning. Maybe capacity is a softer sounding word than competition. Competition implies winners and losers. It can mean mass production and limited quality, all things that home owners get worried about when looking after their prime investment. 

But the concept of competitive land markets is much more than about lots of development options. So should the NPS spell out what needs to happen to foster a more competitive land market, rather than just capacity? 

The list of things that make a competitive market seem to change, but a typical list might be:

·       there are many buyers and sellers;

·       consumers have many substitutes if the good or service they wish to buy becomes too expensive or its quality begins to fall short;

·       new firms can easily enter the market, generating additional competition;

·       there is good information and buyers and sellers have equal access to this information;

·       there are no unpriced externalities;

·       transaction costs are low.

What is interesting is how quickly people point out how imperfect land markets are compared to other types of markets, and as a result the (implied at least) need for greater structure to make land markets competitive. For example, see: http://blogs.lse.ac.uk/politicsandpolicy/why-arent-we-building-enough-homes/ 

On all the above points, land markets face some issues and difficulties:

·       there are not always many sellers, and when there are sellers, they are often in a position of some strength. Cities tend to grow along logical corridors due to infrastructure and natural features, even if planning didn't exist;

·       land isn’t exchangeable —one piece of land isn’t necessarily easily exchangeable for land elsewhere, and so favoured land will always demand a premium;

·       costs of entry into the development market (ie setting up a new development company) steadily get higher and higher due to the complexity of the subdivision and development process, need for access to finance, skills and resources and so on;

·       local externalities abound;

·       information is often not equally held. It is actually quite hard to work out what the real value of a piece of land is. Each parcel of urban land is a little bit different than any other parcel, which means urban land can always sustain a mark-up of price over cost;

·       transaction costs are high – often sites need to be aggregated or access gained to network infrastructure across neighbouring sites. Holdout bargaining drives up the cost of land for development.

What is not listed, but which I also think is important to the operation of the urban land market is the number of players involved. There are:

·       landowners

·       developers

·       financiers

·       infrastructure providers

·       buyers.

These players need a degree of co-ordination and certainty to bring a project together. Otherwise, there are too many strands to tie together. Each has different risks that they wish to mitigate or control and sub optimal outcomes are rife.

These imperfections can combine so that there is a 'first mover disadvantage' to much urban development, while change can get heavily concentrated in some areas only, to the detriment of others.

The question then becomes, how do we address these imperfections? Here the debate quickly turns to how planning gets in the way of more competitive markets. To date, the emphasis has been on speeding up planning (Special Housing Areas, specific plan preparation processes like Auckland and Christchurch). Increasingly the debate is shifting from faster planning to less planning. Moves to enable competitive processes by speedier planning at least implicitly recognised the value of planning. But speedier planning doesn't seem to have lead to more competitive markets.

The current tenor of debate is that 'less' planning is needed to create more competitive markets. Planning constrains supply, which constrains competition. So less planning is needed. In simple terms, if a developer cant find a willing seller (ie willing landowner) in one area, then they should be able to go to another area to find a seller. In simple terms this may mean:

·       in a greenfields situation, the developer can go to an area where there is less incentive for hold outs, for example leap frogging existing future development areas to a true 'greenfields’ site

·       in brownfields, being able to range across the urban area and not be constrained by density or height controls.

In other words, you might say the antithesis of the structured approach to development that planning seeks to foster.

But is it just planning that constrains choices? What about topography and bulk infrastructure networks. What happens when they concentrate development in some areas but not others?

The alternative view is that the urban land market needs a degree of structure to them that is not needed in other markets, because of the prevalent imperfections listed above. The Royal Town Planning Institute Report "Delivering the Value of Planning[1]" has some really good points on the role of planning in shaping markets.

Good planning helps to 'de-risk' development by:

·       providing some certainty to buyers over what may happen in the surrounding area;

·       giving confidence to lenders over the degree of competition that a development may face;

·       managing externalities;

·       helping to co-ordinate infrastructure; and

·       reducing transaction costs by providing a mechanism to resolve disputes between parties as to how to use resources (public and private).

In this light, planning helps to stimulate development. Perhaps more development than if there was less planning and more 'open competition', especially over the longer term. In this view, planning is not just about dealing with negative externalities, or even correcting market failure; it is more about shaping and enabling markets. In other words, it is much more positive. 

But it is a fine balance. Planning can also generate monopolistic type environments if development opportunities get concentrated in some areas, leading to 'rent seeking behaviour', while a degree of certainty and order provides fertile ground for speculative behaviour.   It is these downsides that the call for less planning seeks to address. But are there better ways to manage these issues than just say:  'less must be better'?

Certainly in other areas of the economy, the government tolerates less competitive, oligopoly type arrangements, but with controls over pricing and market reach. These arrangements are tolerated because in a small country there may be only room for a few players to operate effectively. Better a few bigger, more stable, but regulated players than lots of comings and goings of smaller players?

So what to do?

1.     Capacity and competition are important concepts to take into account in growth planning

2.     But so too is some structure and certainty

3.     Where natural features and/or bulk infrastructure networks naturally concentrate growth, by being directive planning can help to make more effective use of the land available, to support the longer term growth and development of these areas

4.     When planning concentrates growth for good reasons, then the 'side' effects of reduced competition also need to be taken into account

5.     In both cases of concentration, there may be good reason to manage the consequential effects of reduced competition. The benefits of reduced competition tend to flow into land values, and so there is a basis to look at how some of that value can be captured for public benefit and to off-set the higher costs. Planning can do that also.

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[1] http://www.rtpi.org.uk/media/1915891/rtpi_delivering_the_value_of_planning_full_report_august_2016.pdf

Feasible development, intensification and the PAUP

In my blog of the 22 August 2016 I discussed the concept of feasible development capacity. This concept features in the proposed National Policy Statement on urban development capacity and the deliberations of the independent hearings panel that considered the Proposed Auckland Unitary Plan (PAUP). I questioned the use of the concept to determine zoning envelopes, especially longer term estimates of required capacity. I acknowledge the need to consider how much of the theoretical capacity enabled by zonings may be feasible or realistic, but am unsure if 'commercially feasible development capacity' is the way to go. 

In this blog I want to look at whether the idea of commercially feasible capacity may help determine what type of zoning should be applied, if not how much zoning.

The data in Table 1 is from the Auckland independent hearing panel's report on the recommended PAUP. It shows the total plan enabled capacity by the four main residential zones used by the PAUP, and the proportion of that enabled capacity, that was deemed commercially feasible by the council's model.

Table 1: Number of dwellings

Zone	Plan enabled capacity	Estimated feasible capacity	Proportion capacity "feasible"
Single House	34,445	11,259	33%
Mixed Housing Suburban	312,627	50,966	16%
Mixed Housing Urban	297,834	53,750	18%
Terrace Housing and Apartment Building	325,648	45,929	14%
Total	970,554	161,904	17%

So, not much difference in feasibility across the zones. 

If we take the land area involved in each of the 4 zones and the number of dwellings feasible per hectare of land, we start to see the efficiency of the more intensive zones.

Table 2: Feasible dwellings per ha.

	Area (ha)	Feasible dwellings per ha
Single House	8,761	1.29
Mixed Housing Suburban	12,497	4.08
Mixed Housing Urban	8,211	6.55
Terrace Housing and Apartment Building	2,384	19.27
Total	31,853	5.08

The data gives a hint of the issues at play when considering feasibility and location.

The Single House Zone feasible capacity of 33% is actually not much different to my estimates done 20 years ago for similar types of zones(as outlined in my 22 August 2016 blog), albeit by a different methodology.  Estimating realistic capacity of zoning that involves adding a further dwelling to an existing section is not too difficult to calculate. All you need to know is the number of sections above a minimum size.

Up to about the end of the 1990s, most development in Auckland was by way of greenfields expansion and urban infill.  The infill bit was mostly adding a further dwelling to a site, and was often landowner driven, or undertaken by a development-orientated builder. However, the amount of development realised per hectare of land is not that great.

Redevelopment is now the most common form of urban intensification. This is in the sense of existing housing on a section having to be demolished, removed or shifted to accommodate new housing.  This is a more complex process than infill,  requiring more skills and 'deeper pockets'.   Suitable sites are harder to find, with many sites subject to cross-lease or unit title development. Development timeframes are longer so market ups and downs are more of a risk. The resulting product may not be affordable , for the developer or the purchaser. It is the type of development undertaken by specialists rather than 'part timers'. Access to finance is critical.  These factors are not taken into account by the feasible development model, and arguably further reduce what may be 'feasible'.

Stepping away from the Single House Zone, for the other three zones, feasible capacity drops by close to half, to be in the order of 14 to 18% of total enabled capacity.  This reflects the extra 'costs' involved and the finer balance between costs and returns. This is a fairly tight band of feasibility across the three 'intensive zones'. There is no real advantage of one zoning type over another in terms of feasibility. So in the future, could we run off some sort of 15 to 20% figure to determine how much redevelopment capacity is realistic in the short term?

The number of commercially feasible dwellings per hectare of land does vary by type of zone. But while the number of feasible dwellings per ha of land zoned terrace housing and apartments is much higher than the other zones, the pool of land is much smaller. Arguably, finding development sites will be even harder in this smaller pool.

So do we focus on making the pool of potential development opportunities as big as possible? This is a pretty simple way of looking at the issue - just make the whole pie big enough so that hopefully there will be enough to satisfy everyones needs.  Ideally there would not be  a large  gap between enabled and feasible capacity. A big gap suggests room for unintended outcomes, especially if actual development patterns do not match the estimate of feasible development capacity. Development may end up concentrated in one area, rather than nicely spread around, and make it hard for infrastructure providers to work out where to put their effort. Equally though, plenty of 'slop' in the system should enable more room for market forces.

I do think the concept of development feasibility has some validity in determining where different types of intensity should be located, and hence plans being able to better correlate enabled capacity with feasible capacity.

The graph below groups the urban Wards in Auckland into three rings: Inner, middle and outer. These rings roughly accord with the growth of the city up to the mid 20th century (inner); post war to about the 1980s (middle); and last 30 years or so (outer).  The feasibility of different house types is then grouped by these three areas. The data provided is based on the zoning set out in the recommended version of the PAUP, and so the data is not a picture of what the market would do, unencumbered by zoning controls.

Also note that the three rings are not of equal size. The middle ring is by far the largest in terms of the number of existing dwellings.

Not surprisingly in the inner ring of suburbs, it is apartments that are the most viable type of development, by a long shot. In the outer suburbs, there is more of a mix. The way that the council's model is structured may mean that it chooses low rise apartments in these areas, but in reality it is quite possible that it will be terrace housing, duplexes and town houses that will be developed.

Figure 1: Feasible dwelling types by urban location 

The heavy lifting in terms of feasible capacity is undertaken by the middle ring suburbs. Not surprising given that in Auckland's case, so much of the inner ring are heritage areas. But how much capacity needs to be enabled to get to this amount of feasible development? 

At the back of all this data is some fairly simple relationships between land values, construction costs and sale prices. As those parameters change - particularly as land values rise - then the financials of development alter and shift towards apartments away from stand alone houses, even when apartments cost more on a per square metre basis.

This can be seen when feasible capacity is compared to enabled capacity, in the three rings. Using slightly different data from that in the figure above (data based on an earlier version of the PAUP), the graph below shows the existing dwellings (at 2013), the plan enabled capacity and estimated feasible development.

Figure 2: Dwellings by Urban Location 

In the middle ring, only 10% of enable dwellings are feasible, while in the inner ring, that figure is closer to 30%.

Three things spring to mind in terms of planning principles:

1. Does feasible development tend to be scattered development, rather than concentrated development?
2.  Is density around amenity a better principle that density around transport hubs? 
3. The urban system is continually  adjusting - should zoning also be able to adjust automatically as land values alter?

The first and second questions relate to a long-held planning principle that clustered intensification around a town centre or along a transport route is the way to go. There were four main reasons for this. The first relates to the amenity issues associated with intensification - 'saving the suburbs'. Intensification should be grouped or concentrated so as to not see existing suburban fabric substantially modified. The second and third relate to the transport effects of intensification. The inevitable effect of more people is more traffic - locate the people close to shops and transport hubs and hopefully that impact is lessened as rates of walking and cycling and public transport use will be higher. The extra population close to a centre would also help with sustaining the viability of that centre. More local services means a more attractive place to live and less need for travel out of the centre. Finally, infrastructure providers (particularly Watercare) had a fair idea where infrastructure upgrades are likely to be needed. All in all, a winning sounding strategy.

But consideration of feasible development has considerably diluted this strategy.  The amount of development around nodes that is 'feasible' is less than what may have been hoped for. So to find capacity, either the nodes need to be a lot bigger, or the suburbs need to be opened up for more growth. The end result is that in its search of capacity for 30 year time frame, the PAUP has tended to spread growth across the urban area and while the intensification enabled by the Terrace Housing and Apartment Buildings zone is important for capacity, it is no longer the main source of feasible capacity. You could say that this is the major change between the notified version of the PAUP and the decisions version:  concentrated versus spread development.  This is particularly so for the middle ring suburbs.

The consideration of commercially feasible capacity also tends to push consideration of upzoning to areas of higher land values - coastal areas and inner city areas. If we take the urban Wards and look at where the highest proportion of enabled dwellings are feasible dwellings, then the four top Wards are:

 

Devonport - Takapuna	36% of enabled capacity  is feasible
Waitemata	34%
Hibiscus&Bays	26%
Orakei	20%

Amenity drives land values, which in turns drives intensification. But these areas are constrained by a number of factors (not all of which are to do with the environment), and so to get the capacity figures up, the middle ring suburbs have had to 'expand'  But the middle ring is the least efficient in terms of turning enabled development into commercially feasible development.

On the last question - things change, so should zoning - how can zoning change more easily? 'Fungible' zoning (the ability for zoning to adjust automatically) is something to look at in more detail in a later blog.