[+] Kiwi Density Gamble Pays Off

The world’s upzoning poster-child is now a precocious eight-year-old. As such, it is demanding an increasing amount of attention. Not least from some of its big cousins 2200km across the so-called Ditch in Australia, who are continuing to grapple with their own housing supply and affordability issues. According to the most recent survey by Demographia, three of the world’s top 10 least affordable housing markets are in Australia and New Zealand—namely Sydney, Melbourne and Auckland. But it is the latter that has opted for a radical planning response to its housing woes. And as much as it has been celebrated globally, it has also sparked considerable debate as to whether it offers a genuine remedy or is simply a snake oil elixir of bad urbanism that creates “dumb density”. Auckland’s Unitary Plan, a bold and giant zoning reform step towards densification, was implemented in 2016 across 75 per cent of New Zealand’s largest metropolis. Overnight, it effectively tripled the sprawling north island city’s housing capacity by enabling higher density housing—that is, terrace houses and apartment buildings—to be developed on suburban blocks that had long been the bastion of detached single-family homes. ▲ Homes in an Auckland suburb: In the decade to 2021, NZ’s median house price skyrocketed by 130 per cent. The basic principle behind the ambitious policy shift was that by upzoning and stimulating more multi-family “missing middle” attached homes to be built, the city could address its massive housing undersupply that was contributing to soaring property prices and affordability issues. Between 2013 and 2018, New Zealand’s population increased by 10.8 per cent but its housing stock only rose 6.6 per cent. Correspondingly, in the decade to 2021, the nation’s median house price skyrocketed by 130 per cent. Clearly, something had to be done. Research by University of Auckland Economic Policy Centre director and associate professor Ryan Greenaway-McGrevy indicates that in areas that were upzoned, the number of building permits granted more than quadrupled within five years. By 2022 an additional 27,000 consents had been issued, the equivalent of about 5 per cent of Auckland’s housing stock. And the latest data also shows that while both rents and house prices in Auckland are still climbing, they have moderated, rising at a slower rate than New Zealand’s other major cities. Six years after the policy was implemented, based on the research, rents for two and three-bedroom homes in Auckland were 14 to 35 per cent less than in other comparable urban areas. “These findings suggest that large-scale zoning reforms in Auckland enhanced affordability of family-sized housing when evaluated by rents,” Greenaway-McGrevy has concluded. “It has worked, absolutely.” Indeed, the city’s upzoning experiment has provided the blueprint not only for more recent national zoning reforms in New Zealand but it also has been adopted by other major cities around the world. So far, by comparison, Australian cities have only dabbled on the fringes of Auckland’s aggressive zoning reform model, using a more targeted approach to pulling planning levers in a bid to bolster dwindling housing stocks and drive down housing prices. ▲ Michael Storper: Blanket upzoning is a flawed model. And according to Michael Storper, a professor of regional and international development in urban planning at UCLA and the London School of Economics, that may be wise. Speaking to The Urban Developer from Los Angeles, Storper says blanket or large-scale upzoning, in particular, is a flawed model as it is “a blunt instrument, whereas peoples’ housing needs are diverse”. Another problem with many upzonings, he says, is “they’re not targeted to achieve a goal of good urbanism”. “What’s been going on here in America is that they’ve been doing these kinds of indiscriminate upzonings … and we’re getting what you might call dumb density. “By that I mean, density that is actually not clustered but kind of strung out along these vast boulevards that we have. “So you’re getting higher density but without the positive side of walkability, urban amenities and lively streets because people just drive in and out of these apartment buildings. “The big problem with upzoning policies, in my view, is that they are often sold to the public as affordability policies—that, if we upzone, we’ll get a rush of new construction that will cause the price of housing to either flatten out or decline,” Storper says. ▲ Homes in Auckland: Upzoning is unlikely to deliver affordability, Storper says. “But the truth is, when they tell us that by upzoning we’re going to get a miracle of affordability, it’s highly unlikely.” Storper cites several reasons. Firstly, he says, income inequality is a major factor that shapes the structure of demand for housing, with the market naturally responding best to areas with the greatest returns—that is, where the upper income group that make up about a third of the population want to live. And he dismisses as “a trick” any notion of a filter down effect of older housing being freed up to the rest of the population. “They’re like disconnected housing markets,” Storper says. Upzonings also invariably add a redevelopment premium to properties, inflating land values, he says. “And what that means is that when you upzone you don’t actually materially cheapen the price of the new housing. “Because what happens is the market reacts by pricing in the higher zoning, so that you might get a little bit of an effect, but actually very little.” On top of that, he says, construction costs—the more dense the housing, the more expensive it is to build—also eat into the affordability narrative that often surrounds upzoning. ▲ Storper concedes upzoning may be useful in some circumstances. Storper sides with Australian economist Cameron Murray, a specialist in property and urban development economics, whose studies have found that the market has a buit-in speed limit on the rate of new housing supply. And the loosening of planning controls will not necessarily bring down property prices and increase supply. “Developers only want to develop to the extent that they don’t tank the price of housing,” Storper says. “It’s quite logical … lets say you upzone and give them space for 100,000 new units, are they going to go out and develop those 100,000 units immediately knowing that if they do the price of that housing will decline? “No, what they do is they time the new development that they undertake to make sure that the prices don’t go down.” Nonetheless, Storper says upzoning policies “may be useful in certain circumstances”. One local example is the NSW Government’s Transit Oriented Development planning reforms to pump up housing supply across Sydney around its train stations to help deliver 170,000 new homes. “That's fine, there might be reasons we want to upzone, especially in land-constrained cities,” Storper says. “Cities need to grow and change … but it needs to be done right and even then it’s not necessarily going to solve the problem. “If we’re doing upzoning alone, without doing other policies for affordability we’re going to fail. We might get new supply but it won’t be affordable.” To a certain degree, town planner and YIMBY (Yes In My Backyard) Queensland co-founder Natalie Rayment agrees. “We have to have all the levers turned on,” she says. “It’s got to be a multi-pronged approach and it does need to be carefully dealt with in the planning scheme. ▲ Brisbane was heading in the opposite direction when Auckland undertook its density experiment. “But also you can’t do development and not have some type of impact … everything has got a consequence and you’ve just got to make sure the benefit outweighs the cost. “And there’s a benefit to unlocking housing at all different parts of the spectrum because everyone’s going to be exposed to different challenges and risks and we need to come at it from every angle.” Rayment, co-chair and executive director at Wolter Consulting Group, says there is no silver bullet to the housing issues being faced by cities around the world but the evidence from the Auckland upzoning experiment indicates it is one solution that will help to unlock a significant amount of new housing. “This is not about saying everything needs to look like New York City or Singapore,” she says. “It’s about allowing some density and diversification into low density suburbs and making more efficient use of those areas.” The irony is not lost on Rayment that around the same time Auckland and other major cities around the world were looking to implement upzoning strategies, the planning policymakers in her hometown of Brisbane were pedalling in the opposite direction. Under the city’s Future Blueprint unveiled in 2018 and adopted two years later, the city council moved to ban townhouses and apartments from being built in its low-density residential neighbourhoods, leaving detached single-family homes as the only allowable form of housing in the majority of its suburbs. “Just as other cities were getting better, we were going backwards,” a frustrated Rayment says. “And here we are four or five years later, people are now starting to try to work out what we can do to end our single-family dwelling problem.” She acknowledges there are a lot of different schools of thought out there. “But, you know, we can't continue to put our heads in the sand and create problems for every type of potential policy initiative that could open up more housing by saying that's going to displace someone, that's going to make something more expensive or that's only going to help the richest people within society. “It's still more housing and that’s what we need ... and if you don’t do anything, you can’t do anything. So we've got to do something.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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Phil Bartsch
Wed 17 Apr 24

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