By Eric Crampton, chief economist, The New Zealand Initiative.
Urban land use planning systems that load councils with the costs of urban growth while letting councils decide whether new housing can be built are a recipe for failure.
This underpins a decade of low build rates, a substantial housing shortage, and skyrocketing house prices.
We are now in a construction boom, but boom is a relative term. The build rate per head of population is only now returning to longer-term averages, and there is a substantial shortfall to make up. If everyone expects councils to return to more restrictive ways, the construction sector will not scale up for the necessary rolling maul of new building.
Realigning incentives is the only long-term solution. The level of government that bears the costs of urban growth should also share in the benefits of it and set the rules for where growth is allowed.
Letting councils veto growth because they bear the costs of urban growth, but command only a small share of the benefits, is a recipe for a housing disaster.
There is more than one way of setting things right.
The Government’s approach thus far, under the National Policy Statement, centralises. Some land use planning decisions are pulled up to the level of government that enjoys the increased income tax, company tax, and GST that results when cities can grow.
Councils will be required to zone for density near transit. At the same time, some of the costs of growth will be taken from councils, with proposed changes to the three-waters infrastructure and new ways of financing some infrastructure.
Centralisation can work.
It is easier for not-in-my-backyard (Nimby) activists to convince a local council to block a zoning change than it would be to convince central government to do the same. But the policy comes with some risk.
Local councils still need to be able to accommodate growth, and still have myriad levers to block development if they wish to.
Recently, British think tank Policy Exchange proposed an alternative. Rather than pulling decisions up to a more central level of government, it recommends pushing things right down to street-level. Samuel Hughes and Ben Southwood propose something far more local than city councils, or local wards.
Instead, they would let individual streets set their own rules. A street, for these purposes, is not the entire length of something like K Rd in Auckland or Adelaide Rd in Wellington. Instead, it is the part of the street bounded by cross-streets. So rather than all of Clyde Rd in Island Bay, for example, it would be the section between Avon St and Melbourne Rd.
How would it work?
Residents of a street could submit a new street plan to council. The proposal could allow intensification of up to five storeys in height in places that are already fairly densely populated.
Council would check that the proposal complies with the rules for street plans, then would advertise the proposal to residents of that street. Only residents would be allowed a vote, along with owners of any commercial properties on the street.
Street plans would only proceed with support of a super-majority of residents. The proposal would need the support of 60 percent of cast votes, including the support of at least one resident in half of the voting households. And, if turnout rates were too low, the plan would not go ahead.
Local councils still need to be able to accommodate
growth, and still have myriad levers to block
development if they wish to.
Super-majority requirements like this mean that the proposal really would need broad support within the affected neighbourhood. Those proposing a new street plan would need to consult with their neighbours to build consensus.
Infrastructure supporting this kind of intensification would be funded through a value-uplift charge. A street shifting from low-intensity bungalows to a more European-style set of apartments would see a phenomenal increase in property values.
Land values on the street would go up, while the cost of housing would drop. Existing residents could shift to some of the apartments, with sales to new residents covering the redevelopment costs and the necessary infrastructure.
Shifting decisions down to street level might sound like madness to anyone who has attended local town hall meetings on proposed intensification.
But it could instead provide opportunities.
Currently, a few vocal Nimbys can block development across an entire neighbourhood. Under the Policy Exchange proposal, they could only block it on their own street – and only if enough of their directly affected neighbours agreed with them.
New Zealand has a history of trying to solve problems through centralisation and amalgamation. The coming restructuring of the Resource Management Act is likely to continue with centralisation as a solution.
Pulling planning powers up to central government could indeed be one way out of our housing shortage.
But imagine if central government, as part of urban planning reform, also allowed residents to choose more liberal planning rules for their own streets. It could enable not only a lot more housing, but also a wonderful diversity of streetscapes. LG