Opinion & Analysis
OPINION: Researching the housing market in New Zealand exposes you to a wide variety of ideas and different thinking.
And much like Alice in Wonderland, the deeper you go down the rabbit hole, the weirder it appears to get.
Let's take densification. It is commonly put forward that Auckland needs to increase the number of people living near the city centre if it wants to tackle the traffic congestion and avoid costly upgrades to its highway and roading network.
By extension, first-home buyers need to accept that the Kiwi dream of owning a quarter-acre house is gone, and they should instead focus their attention on the cheaper apartments that will increasingly be coming onto the market.
The upside is that by living closer to the city centre, residents in these apartment will be able to walk, cycle or take public transport to work, cutting down on the need for cars, and hence congestion.
It is a neat and simple trade-off, and one the proponents of the compact cities school of thought often put forward when discussing urban development. In fact, it is so simple and obvious that it has been widely adopted in many parts of the developed world.
The only issue is that this commonly accepted theory breaks down when you look at the data, where, much like Wonderland, what seems clear and logical at first glance is anything but.
Let's take a look at two US cases, the city of Portland and the San Francisco Bay Area (several counties around and including San Francisco). Both have chosen to pursue densification strategies for the last three decades.
These strategies imposed limits on urban growth, similar to the Auckland Metropolitan Urban Limit, and invested in public transport infrastructure such as rail to provide a substitute for cars.
Yet as of September, San Francisco was ranked 3rd most congested city in North America according to the INRIX Traffic Scorecard, topped only by Los Angeles and Honolulu, two cities that have also pursued densification.
Similarly, Portland, a city often praised as the poster child for densification, ranks 16th for congestion in North America.
Both are compact cities, with densities of 6600 people per square kilometre and 1700 per square kilometre respectively. Of note, both cities are considered to have over-priced housing markets, according to the annual Demographia survey.
Using the median multiple as a measure (a factor of how many median annual incomes it would take to pay off the median house price), San Francisco was rated at 6.7 in 2012 and Portland at 5.1, well above the multiple of 3 considered the benchmark of affordable housing.
Auckland's median multiple stands at 6.7, while Wellington's is at 5.7.
What this suggests is that there is a relationship between densification, congestion and house prices.
This is borne out in data from US cities which have constrained outward growth, such as Baltimore, Orlando, and Modesto. All of them have high population densities, significant congestion, and unaffordable housing markets.
It all seems so counterintuitive, until you consider it from the perspective of limited budgets and competition for scarce resources.
City officials only have limited funds to invest in infrastructure, so a dollar spent on a rail link is generally taken away from highway development. That is not a problem if the two are fully substitutable.
Unfortunately they are not - people generally have a preference for private over public transport.
According to a recent paper by the Cato Institute, this has seen an increase in the number of cars being driven on San Francisco's aging roading network, which is ill-equipped to handle the additional volume. In short: congestion.
Meanwhile the rail network, which consumed much of the transport infrastructure spend over the last few decades, has seen the number of passenger journeys drop.
Portland and San Francisco's constraints on how far their cities can expand have also increased the scarcity value of land. The net effect is a rise in the price of housing that has outstripped the benefits from smaller, denser housing developments.
So what does it mean for Auckland? Is density dead, or should we embrace the vision of the city as the New York of the South Pacific?
Obviously it is too early to say what shape the city will ultimately take, with the proposed Unitary Plan still in the consultation phase.
But it would be preferable, as shown above, if decision makers and the public would dine on the facts surrounding the true costs and trade-offs that come with densification, and not on ideology at the Mad Hatter's tea party.
- © Fairfax NZ News