On the housing crisis Labour and National need to grow up (and grow out)

Dr Eric Crampton
6 June, 2023

Housing crisis makes growth all about ‘up-and-out’ not ‘up-or-out’

If you want affordable housing, it isn’t a choice between whether people should be able to build townhouses and apartments downtown or subdivisions at the city’s fringes.

Cities need to be able to grow in all directions, guided by where people want to live and the cost of providing infrastructure.

“Up” without “Out” delivers severely unaffordable cities. But “Out” without “Up” means people who’d prefer to live downtown are forced to live too far from everything.

National’s proposed housing policy, released last week, gave me flashbacks to older debates where up and out were considered alternatives rather than complements.

For ages, inner-suburb opponents of density argued against intensification. They urged that cities only grow outward – or at least grow somewhere else. Some urbanists – and many environmentalists – argued only intensification should be allowed. Each seemed fully capable of vetoing the other’s preferred form of urban growth, so cities could do neither.

House prices rose instead.

But by 2017, old debates between up and out seemed to have finally ended. Auckland’s Unitary Plan enabled a lot more density. And the incoming Labour government was on record, in opposition, supporting the abolition of urban growth boundaries. They wanted infrastructure funding and financing improvements so that cities could grow up and grow out.

Allowing cities to grow up and out, rather than focusing only on one or the other, has a lot of benefits.

Growing out means making it easy to turn paddocks on the edge of town into new subdivisions. This helps keep land prices down across the entire city.

If dense urban living is your utopia, that utopia is more affordable when the land under potential apartment towers and townhouses competes with paddocks at the edge of town for developers’ attention.

Growing up and out also makes a more enduring political economy to support urban growth.

If a city cannot grow out, increased demand for housing can only be accommodated through intensification. So pressure against intensification from inner suburbs grows.

If a city can only grow out, and not up, sprawling cities make it hard to ever find the countryside. And pressure to preserve agricultural land increases.

Allowing cities to grow up and out means less pressure on either one alone.  

The recent consensus, and its breaking

Since 2017, the Labour-led government and National Party opposition achieved remarkable consensus on allowing urban intensification. The National Policy Statement on Urban Development requires cities to zone for a lot of housing close to public transit. Medium Density Residential Standards [MDRS] mean fewer restrictions and less red tape for minor development and was laudably jointly announced by Labour and National.

But there has been far less progress on enabling cities to grow out, partly because infrastructure funding and financing remain a substantial problem.

When councils cannot see easy ways to support the infrastructure needed to support growth, they block growth however they can. Suddenly, the perceived carbon costs of new subdivisions can be a reason for blocking urban expansion. Even when urban emissions are fully covered by the Emissions Trading Scheme and new subdivisions can be served by busses. Or the National Policy Statement on Highly Productive Land is used to block expansion, even though it provides some room for trade-offs.

In hindsight, failing to enable suburban growth made it harder to maintain bipartisan consensus. And getting back to consensus seems important.

It’s hard for developers and construction companies to plan if the rules change with every change in government.

Certainty that the major partner in any future coalition government wants cities to be able to grow up and out, with new developments covering their own costs, sets appropriate expectations.

If you think council will not zone much more suburban land, you can do well by waiting to develop. Prices will only go up. But there is no point in land banking if everyone expects such a flood of zoned land to enter the market that land prices can only go down.

And there is no point in waiting for council-provided infrastructure to show up if you know that new developments will have to cover the infrastructure costs over time.

National and Labour want the same thing

Minister Woods said she wants a deal with National to restore consensus. Chris Bishop invited her to adopt National’s plan. Parts of that should be easy since National’s current plan is much like what Labour wanted in 2017.

National says it would require councils to immediately release 30 years’ worth of zoned land for development and allow growth at city fringes. It would provide councils with improved infrastructure funding and financing options to enable growth while making sure new developments cover those costs over time.

In 2017, when in opposition, Labour warned that councils can easily spike the numbers on potential development capacity while drip-feeding zoned land onto the market. Land prices then go up.

David Parker put up a Supplementary Order Paper that would abolish urban growth boundaries to allow more development in growth corridors. And Phil Twyford urged that new suburban developments cover their own infrastructure costs over time.  

The two parties have a lot more in common with each other and with sound urban economics than either might want to admit during an election campaign. And both want the same thing: getting back to affordable housing.

There could be a way in there to find agreement.

National proposes releasing thirty years of zoned land at once. Councils putting up credible plans for achieving affordable housing could then be exempted from Medium Density rules.

But as jokers on Twitter teased, councils could try various stunts - like zoning for a couple of kilometre-high apartment blocks and claiming the job was done.

Policing councils’ 30-year estimates could easily turn into a nightmare.

A potential path to consensus?

Why not flip the criteria for exemptions from the Medium Density rules? Rather than exempt councils from those rules if they’ve put up difficult-to-police plans for allowing more development, let councils earn an exemption from the rules if they can prove that they have restored housing affordability.

Central government could set triggers based either on rental prices, or on house prices, or a combination of the two. Right now, the median home in Auckland sells for more than 9 times the median household income. In Wellington, the median multiple is almost 7. In Christchurch, it’s just over 6. The government could exempt councils from MDRS requirements so long as the median multiple stayed below 5.

Similarly, price triggers could help find a better balance between protecting agricultural land from development and protecting people from unaffordable housing.

The Infrastructure Commission showed that land just inside Auckland’s urban zone costs more than four times as much as adjacent rural land, after accounting for development costs. In 2010, the ratio was half as large.

Surely if rural land just outside the boundary is a quarter the price of land inside the boundary, council has not taken up other reasonably practicable and feasible options to enable urban development.

A short addition to the National Policy Statement on Highly Productive Land could require councils to enable urban rezoning whenever those price differences are too high. It would be consistent with the intentions of the Statement, with what Labour proposed in 2017 and what National is now proposing.

If housing is ever to be affordable, cities must be allowed to grow up, and grow out. Labour and National both know this. They have to be able to get back into agreement on it.

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