Auckland: A Developing Community Crisis

Take a look at this graph comparing the House Affordability Index of Auckland households with those of Canterbury, and Wellington (House Affordability Index = Median House Price/Median Household Income - like Demographia's Median Multiple). Students I’m teaching introduced me to these facts in their recent assignments (Urban Planning Policy Analysis 201 School of Planning, University of Auckland). The data is derived from the NZ Residential Property Sales datasets compiled by Property IQ and available to students, and NZ Statistics Household Income Surveys. Triggered me into this post which assesses the community cost of NZ's "rockstar" economy, and what community minded candidates need to be campaigning about in Auckland...  

According to Demographia (which is widely criticised by the way for the way it compares housing affordability between countries, but whose data for NZ is at least consistent), housing becomes unaffordable when the median multiple (housing affordability index becomes larger than 3. So you can see that using that measure housing is not affordable in any of these three regions. 

The fact is though, people are buying houses and living in them across NZ (that is quite apart from highly publicised incidents concentrated in Auckland where people are living in cars and caravans, and where social housing shortages are causing problems). 

What is interesting in this graph is that between 2010 and 2014 housing became more affordable in Wellington and Canterbury - but significantly less affordable in Auckland. The question this raises is:

given NZ’s “rockstar economy” is increasingly dependent on Auckland’s growth – who is actually benefiting and why is Auckland’s population getting poorer?

Before you read on, let me assure you I don’t have a neat answer. I just have more questions.

Take a look at this chart. It's from NZ Statistics Household datasets, and is the median household income series used to calculate the housing affordability index in the first chart above. You can see that Auckland's median household income has been surpassed by the Canterbury and Wellington. Yet a major cost (housing) is less for people who live in Canterbury and Wellington. Auckland's population is getting poorer. Now for another loaded question:

What is the role of Auckland’s inflating house prices in stimulating NZ’s rockstar economy – and what is the cost imposed on Auckland communities?

I'll come to this in a moment. It wasn’t always like this. You don’t have to look far to find headlines before 2010 suggesting that Auckland was generally regarded as an economic basket-case, that it was a drag on the country’s economy, that a disproportionate amount of central government cash got spent in Auckland. So what has changed? At a National level several changes have been significant:

-          the Christchurch earthquake recovery program was an enormous boost to national fortunes. On the back of it NZ’s construction industry expanded and boomed. And the country imported thousands of immigrant workers. Investment flowed into and across Christchurch and into community pockets. (The graph above attests to that. The earthquake drove incomes down after 2011, then the money flowed into Canterbury communities from 2012 to 2014...)

-          Post GFC, official cash rates in developed countries plummeted to ensure that the availability and cost of loans was no obstacle to development and investment (See here.). Mortgages became cheap. Buying a house very suddenly cost much less. Demand increased quickly. Prices increased. The bubble started.

-          Immigration levels have increased dramatically to levels not seen in decades (See here.). Per capita they are now about 3 x as high as in the UK (pre Brexit). In addition to permanent immigrants there are at any one time about 200,000 temporary immigrant workers (who all need to be housed), and tens of thousands of students (mainly from Asia and India) who also need to be housed. The bubble has expanded as this sharp increase in immigrant population has taken up rental capacity and unoccupied housing. The effect of this sharp increase in temporary and permanent migrant populations has been concentrated in Auckland – especially since the Christchurch rebuild effort has tailed off. (Migrant labour has shifted to Auckland).

The combined effect of these changes in Auckland has been the creation of an inflating housing economy which is highly attractive to investors (And it's planned). Investment comes from everywhere: retired mum and dad are putting their savings into investment units (you’d be mad not to with bank interest rates close to zero); investment funds are always looking for good returns; speculators with access to cheap mortgages; relentlessly mobile foreign capital attracted by websites, brokers, the feeding frenzy, and a government that has opened New Zealand for this sort of business. 

Many of these investment homes are unoccupied: why bother with the irritation of being a landlord and the risk of damage when the main objective is capital gain?

But Auckland could not become the centre of this rockstar economy without other changes.

Auckland’s economic powerhouse potential needed to be unleashed from the shackles of its existing communities, and their attachment to its sunny and relaxed attitudes and urban patterns.

Auckland’s economic powerhouse potential needed to be unleashed from the shackles of its existing communities, and their attachment to its sunny and relaxed attitudes and urban patterns. And it needed to be separated from the protection of institutions and arrangements that stood for Auckland as it once was, that stood in the way of what it could become - an economic growth machine.

Auckland supercity arrangements achieved that objective.

Now take a look at this newspaper front page.... 

Half the Timaru Herald and all of the Southland Times front pages were taken up with debates that roared all over New Zealand a few months ago as communities and their councils and their mayors spoke with one voice against central government attempts to impose the Auckland plan on the rest of the country (by changing the Local Government Act giving autonomous powers to the Local Government Commission and enabling and imposing the Council Controlled Organisation model that is central to Auckland’s new local governance structures). (BTW: I mention those specific newspapers because I was there and saw them, but I am aware the story was much the same in many other parts of New Zealand.)

While all this was going on outside Auckland (including regions where household median incomes are greater than Auckland’s don’t forget), Auckland was silent. Its Mayor didn’t join the throng of New Zealand Mayors that stormed the steps of Parliament a couple of weeks ago opposing Auckland style changes in their towns and cities. 

Why bother Auckland's mayor to attend? It’s already done in Auckland.

But is it forever?

You’d thing someone might care that household median incomes are slipping back relatively in Auckland (especially when you factor in the increasing cost of housing) when it is being opened up for development and investment, you'd think that perhaps one of the main mayoral candidates might talk about this, and use their campaign to push back and seek change in the interests of Auckland’s existing communities. Campaign talk about more housing supply is cheap, comes easy, and plays more into the hands of those whose interests lie in expanding development and construction, than addressing the concerns of those who have already made Auckland their home.

I agree with the spatial plan vision of redeveloping parts of Auckland that are low density and low urban amenity – ahead of converting rural land to urban land. 

That spatial plan was already agreed in 1998 – long before supercity reforms.

But that history is not the only thing that seems to have been forgotten, or that has been lost in the bureaucracy that passes for local government in Auckland today. What has been lost, or is not recognised, or is no longer appreciated, is the fundamental place that communities need to have in rebuilding their own urban environments when they are in need of redevelopment, and their need and right to mutually benefit from that redevelopment.

What has been lost, or is not recognised, or is no longer appreciated, is the fundamental place that communities need to have in rebuilding their own urban environments when they are in need of redevelopment, and their need and right to mutually benefit from that redevelopment.

That’s not happening in supercity Auckland now. Auckland has by-passed its community heart in its local government re-organisation, and that has a cost - an economic cost - that is being born by communities that is not reflected in the rockstar economy numbers.

A few more bits of data that add to the story...

• The 2013 census records that 9% of dwellings in Auckland were unoccupied. Up from 6% the previous census. That's a further 18,000 empty homes, many of them owned by speculators. Why incentivise more empty homes, hollowing out communities?
• In 2014 Property IQ database records that in Auckland almost 1000 residential property sales were of vacant land. Why the focus on creating more vacant lots for speculation? Surely the focus needs to be on ensuring vacant land gets developed.
• In 2014 the data shows there were 82 resales of former "state rental" houses in Auckland. Between 2010 and 2014 the median price of this type of home increased by 51% - the largest increase of any housing type. Surely this is community theft.

Despite the noise and back-slapping, the Proposed Auckland Plan by itself will achieve little for existing Auckland communities. Yes, some land-owners will be laughing all the way to the bank because of the immediate value uplift and capital gain it gives them. But without agencies and institutions at community level that gain the trust, participation and engagement of local people, there will be no urban redevelopment that results in the sort of mutual gain and community benefit that a country like New Zealand was once known for.   

Something can be done about this.

At local level, at local election time, now, candidates could make a commitment to put communities and their economies ahead of GDP growth that only seems to profit the wealthy and those in power. At the very least candidates can commit to increasing Auckland Local Board powers so they have duties and responsibilities for local area spatial plans that emphasise community development and wellbeing, and that put communities at the heart. That would be a start. Local government has taken a hammering in Auckland and it needs repair.

At national level action is also needed. I think there is a growing sense of dismay, alienation and disenfranchisment at community level, across the country - but especially in Auckland, caused by a systematic disabling of the sort of local government capability that is needed more than ever today. Changes are especially needed in Auckland, because of rapid urban changes triggered by high population growth. People will tolerate and turn a blind eye to inequality for a short while, suspend judgement while they accumulate capital, but even in Thatcher's Britain enough was enough and eventually the majority voted for a fairer and more equal society. Here in New Zealand it is time to put community wellbeing policy objectives ahead of national GDP growth objectives.     

Stop Press:  Check out Guardian article Why Auckland is hottest property market in the world