Auckland at a Turning Point 1: The Coming Housing Glut

Too little – and too late

“… over the last 20 years, New Zealand has experienced faster growth in real house prices than any other OECD country. Housing has gone from being abundant and reasonably affordable to being scarce and prohibitively expensive, especially in our fast-growing cities.”

The decline of housing supply in New Zealand: Why it happened and how to reverse it, New Zealand Infrastructure Commission, March 2022

 The Infrastructure Commission concluded that faulty land use policies created a housing shortfall in Auckland over the past twenty years. It was right. The policy of rationing residential land as demand grew rapidly and became more diverse means Auckland has world-leading house prices. This has had recent spill-over effects among smaller settlements as Aucklanders look to move outside the city.

 Despite this, the Commission endorsed Auckland's Unitary Plan and the government’s Medium Density Residential Standards, supporting even more intensive development. Well, it’s too late. Two wrongs don't make a right, Piling more housing into a falling market looks like the next big blunder.

 The first blunder: a predictable housing crisis

A city on an isthmus always faced growth challenges.  When Auckland Regional Council (ARC) in the 1990s dumped policies to disperse growth among four nodal subregions (north, west, central, and south) and opted instead to intensify development focused on the CBD, the writing was on the wall. 

The 1999 Regional Growth Strategy relied on boosting density within a metropolitan fence and on blind faith in the capacity of ageing infrastructure to accommodate it. It failed to consider how much employment land to provide, and where, and relied instead on an outdated model of the centralised, white-collar commuter city.  And it paid no attention to the fiscal, commercial, and social costs.

The Chairman of the ARC at the time, Phil Warren, acknowledged the prospect that the Strategy would deliver high house prices and heavy congestion, calling it “a work in progress”. This was too subtle for the planners, who got it attached to local government legislation in 2004.

The rest is history: high house prices, big-city congestion, expensive reconfiguring of ageing infrastructure, and a growing and unfair division of wealth.

From high growth to low growth

Over-emphasising intensification ahead of selective (or, better, satellite) city expansion has been costly. It was also risky, based on the presumption that Auckland would be a long-term people magnet despite the fact that more New Zealanders were already moving out than moving in.  Its no surprise that a trickle in the 1990s is a flow today.

So, the planners had to bank on international migration to prop up their projections despite another fact: migration is cyclical (Figure 1).  The arrivals boom of the last decade was running down well before it was sunk by Covid.  Numbers peaked in 2017, then fell in 2018 and 2019, departures not so much.

Figure 1: New Zealand International Migration Movements 1991-2020

Another fact: Auckland’s much-touted dominance of national growth has been falling since 1996 (Figure 2). With Covid, it stalled completely, while the rest of the country grew. So much for the heroic planning extrapolation of continuous growth.  

Figure 2: Population gains, Auckland and the Rest of New Zealand, 1991-2021

 

This is not what we expected – or planned

It appears that the Council justified its plans and infrastructure spending on flawed expectations. Compare Auckland’s June 2021 population with two sets of Statistics NZ projections, for example (Figure 3).  The Council used the medium projection published in 2017 (based on the 2013 census) to inform its updated plan, Auckland 2050. Published in 2018, this projected 29% more growth to 2021 than actually occurred.

The next projections, published in 2021 using the 2018 Census, reduced the base figure, but still assume a medium migration gain of 12,000 a year to 2023[1]. This, already, looks unachievable.  

Figure 3: Projected and Actual Population Outcomes

What are the consequences? 

Promoting multi-unit infill housing when growth stalls raises the risk of a surplus of dwellings, particularly apartments and units. Are we looking at a housing glut?

Unders…

Between October 2014 and June 2018 Auckland Council issued 33,000 certificates of compliance for new dwellings. [2]  Yet, between 2013 and 2018, Auckland’s population grew by 161,000 people, the equivalent of 54,000 households at 3 persons per household. This suggests 21,000 too few houses built relative to population growth.

This shortfall may have led to a lift in household occupancy with more large multi-family, multi-generation and non-family households, and left more people homeless or living in institutions [3] which, incidentally, raises questions about the drive for more small dwellings. We certainly need to know more about social and demographic changes affecting housing demand before we can be confident that boosting multi-units indiscriminately across Auckland is the solution to the city's housing woes.

Overs …

Since then, measures taken to facilitate consenting have lifted construction. In the four years to December 2021 63,000 consents were issued, equivalent to around 60,000 completed dwellings. However, population growth of just 60,800 people over the four years to June 2021 would have generated demand only 21,000 new dwellings. This suggests a surplus of close to 40,000 new dwellings relative to population growth.

This is good news for new home seekers if it corrects an over-heated market, although it’s not clear that it resolves the need for well-founded and well-placed social housing.

While the figures here are estimates, the story they tell is compelling. The pendulum is swinging back, with the prospect that an emerging  housing surplus becomes a glut.  

Short-term supply constraints may defer that outcome. Yet, while house prices should fall, Auckland’s flawed growth strategy has already made life hard for young households, and less attractive for empty nesters. So, with borders reopening post-Covid, international departures may well exceed arrivals for several years. The population slump promises to be prolonged.

Stand by for a disrupted housing market

Over-supply is not good for the construction sector. Those with long memories know that a slump in housing demand packs a triple punch. It undermines many businesses committed to a key economic sector, with negative flow on effects. It slows household spending as equity falls, especially if interest rates rise. And it generates a flow of construction skills west, across the Tasman.

If the latest tranche of cookie cutter units proves too crowded and cramped, other skilled and motivated young households will be joining them. For those assigned unwillingly to “generation rent” higher wages and lower prices across the Tasman may still offer the best path to home ownership.

Where, then, will the new demand come from to pay for the council’s super-city commitments and aspirations?

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[1]         The medium projection then provides for gains of 10,000 a year from 2023 to 2048.

[2]         This was completion rate of around 95% compared with consents issued in the previous   calendar year

[3]          Census data indicated an increase of only 20,100 households.

Just Another Stake in the Sand: Planning, Demographics, and Uncertainty

Another million or another myth?

The Mayor, Len Brown, reiterated the Council view that Auckland is facing an increase of around one million people over the next 30 years, and that planning for this level of growth is the prudent thing to do.  I cannot be so sure. 

The Mayor is pretty bullish about growth, though.  He even claimed that “our actual rate of population growth has been well above the highest projection” since 1999. 

That doesn’t quite match the evidence. The actual population in 2011 was well below the high projections contained in various Statistics New Zealand projections and revisions since 2002. These include the one it prepared for the Auckland Regional Council in 2009 which suggested that under high growth assumptions Auckland could have another million people by 2051, forty years out.  

Successive Auckland Population Projections to 2011
(Source: Statistics New Zealand)

So how safe is a bet on another million in thirty years?  And incidentally, what do ratepayers and residents stand to lose from over-the-top plans and investment in infrastructure beyond what is needed if that growth doesn’t occur? Surely addressing the risks and the cost of getting it wrong is what would be really prudent.

So what do the numbers really tell us?

We can acknowledge that Auckland’s growth has exceeded Statistics New Zealand's medium projections. Perhaps more interesting, as these were updated through the decade, the medium projections became progressively more accurate (helped, of course, by the 2006 Census). This confirms that the longer the projection period, the greater the uncertainty, and the greater the risk of getting it wrong.

I draw two conclusions. First the magic million is highly arbitrary.  

Second, we need to address the inevitable uncertainty around long-term projections and develop plans that can cope with the risk that what we plan is not what we get, or takes a lot longer than we think it will.   

This uncertainty is not news. The 2009 ARC projections show a significant spread. The medium one is for growth 36% lower than the high projection.  The low projection is 52% below the high.  Incidentally, in 2011 (two years after the projections were prepared) we were already tracking on the low line.

     Source: Auckland Futures Growth Model, Auckland Council 2012

And if we were to stay with the Statistics New Zealand recommendation that planning should be based on the medium projection, we would be planning for another 800,000 people over 40 years rather than one million over 30.

Digging beneath the lines on the chart

I don’t know what the long-term future holds for Auckland and Aucklanders. No one does. However, it’s worth considering the possibilities by exploring the assumptions behind the projections. This will give us some idea of the growth drivers we need to plan for (or perhaps against).  These include assumed mortality fertility, and migration rates.

The focus here is on migration, but acknowledging that if gains from overseas continue to contribute substantially to Auckland’s growth they will also impact on mortality and fertility because of the different ages of people moving in and out of the city.

Migration: the great unknown

Although net gains from overseas are lower than Auckland’s natural increase (which is the annual excess of births over deaths), they are key drivers of population growth. Over the last twenty years net migration accounted for 30% of growth, a share ranging from 15% between 1996 and 2001 to 42% between 2001 and 2006 (and back to 30% since).

Annual Gains in Migration and Population, Auckland 1997-2012

The high population projection on which the council is placing so much store depends on substantially higher migration gains than we have sustained in the past. It’s a little difficult to envisage the conditions under which this might happen, yet it is the basis for projecting population growth of one million by 2051 (or is that 2041?), and hence an important prop for the Unitary Plan.

Actual and Assumed Net Migration Gains for Auckland

Getting past the numbers

Statistics New Zealand terms its projections “scenarios” and (wisely) not forecasts.   So what are some of the things that might influence the migration scenarios towards the higher or lower assumptions?

In fact, there are good reasons to favour lower rather than higher migration gains. For a start, a booming Asia over the coming decades should create competitive demand for skilled people, and could supplement Australia by increasing attractive opportunities for young New Zealanders. 

And an ageing and more prosperous Asian population will lower the supply of working immigrants – and increase competition for them from Australia, Canada, the US, and, increasingly, Asian countries.

Beyond that, poor housing affordability and the ambition (encapsulated in the Auckland Plan and its handmaiden, the draft Unitary Plan) of transforming Auckland from a unique South Pacific city into something resembling Vancouver, or Hong Kong, or London, or Melbourne, or Paris (exemplars cited by the Mayor and his advisers, not by me) are likely to lower Auckland’s attraction.  Somewhat perversely, the planned transformation to a higher city may also encourage older households to move out if the recent groundswell of concern is anything to go by.

Auckland –engine or anchor?

These possibilities highlight another feature of the projections.  They imply that Auckland will dominate national growth in a way that stretches recent history. While there is no denying Auckland’s primacy, there are threats to this and no reason to assume that city will – or should -- take up an ever-increasing share of New Zealand’s population growth.  .

For a start, issues around the availability and price of dwellings need to be resolved if a much larger population is to be housed.  Congestion, crowding, and associated pollution issues need to be dealt with, particularly if the Unitary Plan’s particular  penchant for lifting densities carries the day. And with little more than lip service paid to the needs of business, the Plan might make it just that much harder to do invest – or get a job -- in Auckland.  The difficulty imposed by a tight housing market might also make it difficult (and expensive) to attract and retain the right labour, so there is no guarantee that Auckland will dominate economic growth in the long-term..

The limits to primacy

So how far can we assume that Auckland will take ever increasing shares of New Zealand’s population growth?

Over the past 15 years Auckland accounted for 55% of New Zealand’s population gain. The high population projection behind the Unitary Plan, though, would see that climb to 64%.


Auckland Share of New Zealand Population Growth, 1996-2011 and Projected 2011-2031

The only way for Auckland to lift its long-term share of growth is to resolve housing problems speedily, and open up the opportunities for investing through a Unitary Plan that provides for expansive employment as well as housing.

In any case, growth may need to be more widely distributed within the country as a whole, if only to support our principle source of wealth, the primary and associated sectors.

A solution in search of a problem

The million person myth looks rather like it is being employed to support the Unitary Plan, rather than the other way round.  The planners have for searched for reasons to consolidate Auckland for well over twenty years now.  Well, so far this one’s no more convincing than the reasons that went before.  (And I suspect that a rushed job on the economic rationale for the plan will be no more convincing).

Numbers are important – but they are never definitive.  Projections are useful for what they tell us about the drivers of change as we understand them at the time we compile them. But they should be the starting point for discussion, debate, and policy development – not the end point. 

Planning is not about tracking a line (or even lines) on graph.  It is about identifying community needs and preferences, and responding to them in a way which enables citizens to get on with their lives without undue impact on the environment, or each other.  Right now, that does not seem to be the way the Council is tracking.