Reform must not be undermined by flaws in NPSUD
Reform of resource management legislation rolls on. The Natural and Built Environments Act (NBA) ‘Exposure Draft’ is due soon, the Strategic Planning Act (SPA) will follow later this year. This Draft will likely mirror the NBA’s final form. Speed of process allows limited time for refinement.
Learnings from the Resource Management Act experience - encapsulated well in the insightful New Directions for Resource Management in New Zealand (chief authored by retired Justice Randerson, and aka the ‘Randerson Review’) - must not be lost.
However, tight time frames suggest high risk that the economic philosophy of the NPSUD (National Policy Statement on Urban Development) - narrowly focused on competitive land markets - will be pushed into the new Acts. That would be a major setback. The NPSUD’s limited understanding of how cities work already poses challenges in its implementation. Perpetuating these limitations would undermine the reforms.
Thankfully, Randerson’s Review offers a strong platform for urban planning, from good understanding of cities, able to deliver liveability and sustainability. Rejecting a “laissez faire regulatory approach to urban areas” and “flooding markets”, noting the NPSUD needs to be “further developed and refined”, the Review states “a competitive urban land market is a well-planned and well-regulated built environment”. This more conceptually robust view where competition is part, not the whole, of urban economies should be carried into the new Acts.
Does economics matter – isn’t it just theories best left under the radar? Unfortunately not. Poor understanding of cities means poor urban policy. Sound policy requires good knowledge of economic and social processes shaping our cities and driving efficiency, sustainability and liveability. Weak understanding of processes means mis-directed policy settings, and poor outcomes for cities and communities.
The NPSUD is a mixture. On one hand are its very positive requirements that evidence-based planning provides enough well-located capacity to deliver quality living environments, sustainability and affordability.
On the other, niche views of how housing and land markets work, with blunt ‘Directive intensification’ measures (compulsory policies), underline concerns about policy-makers’ understanding of cities. The economic philosophy for key NPSUD aspects conflicts directly with basic concepts of how cities function as spatial economies, and evidence of land markets and city development. Economic models suited to studying factories do not cope well with complex cities.
The clearest conflict is around housing affordability and a widely promoted view that housing land should cost only the same as farmland plus infrastructure costs and ‘accessibility’ values – based on a belief that neither potential use nor location affect land’s value. However, evidence is extensive that both of these do strongly influence the value of land. Decisions to purchase land, what to do with it, and what to pay for it, are influenced by how it may be used, where it is, and its characteristics.
That contrary belief of value not reflecting use or location conflicts throughout the economy – with resource and land economic concepts, central place principles of city formation and growth, property valuation’s principles of value based on land’s “highest and best use”, banks’ lending around value based on potential use, and the evidence of cities’ development and land market operation.
Despite these conflicts, that belief heavily influenced the NPSUD’s development. It remains embedded in ‘price efficiency’ tests, for councils’ assessments of land markets. The NPSUD’s expectation of bringing down urban land value as to deliver affordable housing conflicts with urbanisation’s fundamental effect of making land values higher because more intensive use means land generates higher returns. Intensification improves affordability through lower land cost per dwelling, but value per ha increases as a result. Expecting urban land values to fall as cities intensify seems mis-guided.
Further problems beset the other main ‘price efficiency’ test. The Price Cost Ratio (PCR) examines land value’s share of total property value – too high a land value seen to indicate a poorly performing market. A whole-of-city view bundling properties built on 50 years ago with those built just a year ago - in a larger market with different rules - is itself problematic. More substantial though less obvious is the PCR’s built-in flaw that all properties are already developed to their maximum, with no potential to add capacity by intensifying land use. Such potential to intensify is a core driver of city growth, and land market operation, so the method offers a distorted view. Neither test seems well suited to examining cities.
This PCR has already had major influence, through the NPSUD’s ‘Directive intensification’ policies for Tier 1 cities. These include Policy 3 requiring plan provisions to maximise development in CBDs, and enable a minimum 6-storeys in and around other main centres and rapid transit hubs. This “one-size-fits-all” approach will mean substantial increases in plan-enabled capacity, irrespective of current plans and growth capacity provided. Implications for infrastructure costs, council finances, urban growth and efficiency outcomes are yet to be discovered. These directive conditions are difficult to set aside, although some resistance may arise for places like Takapuna beach front.
The NPSUD ‘Recommendations and Decisions Report’ shows the PCR was the threshold test for intensification. If the PCR showed cities were not yet developed to sufficient intensity, the Directive intensification provisions would be applied. A high PCR threshold was chosen – land value could be no more than one-sixth of total residential property value across the city.
For Auckland that PCR threshold was impossibly high - not even the most intensively developed apartment sites in central Auckland like Aura or Metropolis come close to meeting it, and scant chance of such high intensity throughout city and suburbs.
This might suggest the choice for ‘Directive intensification’ for Tier 1 cities was a done deal. Applying even a poor tool can have major long term effects on cities and their residents.
All of this makes it especially important that the wiser heads prevail from now on, and that the forthcoming NBA and SPA be founded on science-based and evidence-based understanding of our cities, avoiding the belief-based approach.
