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Purpose
The Commission is requested to undertake an inquiry to examine and report, in a comparative sense, the by-laws, processes, and practices of local planning and development systems to identify leading practices that enable the timely delivery of housing of the type, location, and quality demanded by purchasers. The Commission should particularly focus on urban growth areas, including any early lessons from the Housing Accords and Special Housing Areas Act 2013, and consider successful international experiences with urban development.
Methodology
The Commission’s draft findings and recommendations have been informed by a comprehensive engagement process. The inquiry received 136 submissions from a diverse range of interested parties. At the same time, 115 engagement meetings were undertaken with interested parties (offering a range of perspectives) on the performance of the land supply and development system and how to improve it. Participants included councils, developers, building companies, infrastructure providers, planners, central government agencies, and housing academics (see Appendix A for a list of submission and engagement meetings).
The Terms of Reference asks the Commission to review practices of comparable overseas regimes and urban planning and development regimes and to identify lessons. In addition to desk-top research investigating overseas planning and development practices, a study tour of Australian states was undertaken. This included visits to Melbourne, Sydney and Brisbane, for meetings with relevant planning and development agencies, city councils (Brisbane/Melbourne), developers/builders, property councils, the Reserve Bank of Australia, and leading urban planning academics and experts (including the former Chair of the National Housing Supply Council).
Staff participated in a study tour of the United Kingdom (London and Manchester) organised by the New Zealand Council for Infrastructure Development and UK Trade & Investment. The aim of the study tour was to identify best practice planning, funding and delivery of infrastructure. It included sessions on urban regeneration, affordable housing, planning systems, and transport infrastructure (planning, governance and funding). Strong themes from the UK visit included the value of local and central government working together to provide certainty to investors and developers, and the importance of sophisticated infrastructure planning and delivery.
The Commission engaged the New Zealand Institute of Economic Research (NZIER) to survey the 10 high-growth local authorities to get a sense of the comparative stringency of land use regulation in New Zealand. Using a well-established survey methodology, the results were converted into an index that follows the Wharton Residential Land Use Regulatory Index methodology developed by Gyourko, Saiz & Summers (2008). This index helped to provide an initial overall picture of both the level of stringency in urban land use planning and development in New Zealand high-growth councils and some of the underlying influences and drivers.
Finally, the large volume of literature on the economics of urbanisation, economic geography, and urban planning and infrastructure was examined.
Together, this evidence has provided a rich picture of the land supply and development system in New Zealand, the barriers and blockages in this system and the key areas for improvement.
Key Results
Chapter 2 – The planning and development system
Findings
F2.1 Responsibility for land use regulation, planning and the provision of infrastructure (with the exception of main highways) in New Zealand has been devolved to local government over time.
F2.2 Successive planning frameworks have included more formal rights for the public to be consulted and/or object to plans, land use rules and proposals.
F2.3 The perceived role and scope of planning has progressively expanded from managing public health issues in the later part of the 19th century, to controlling socially problematic behaviours in the early-to-mid 20th century, to promoting a wide range of desired social, cultural, economic and environmental outcomes.
F2.4 There are longstanding concerns about the extent of constraints placed by the planning system on development.
F2.5 Central government in New Zealand plays a limited role in urban policy, regulation and the provision of infrastructure in comparison with other jurisdictions such as the UK and Australia.
F2.6 Where central government has become directly involved in planning, this has generally occurred in response to crises or specific issues (eg, the Canterbury earthquake recovery, housing supply in Auckland). It has otherwise made little use of the statutory intervention powers it has under the RMA until recently.
F2.7 The constitutional and institutional arrangements in New Zealand strengthen the role of local government in the planning and development system relative to other countries. As a result, any misalignment of incentives between local and national interests may be more pronounced in New Zealand than elsewhere.
Chapter 3 – Cities, growth, and land for housing
Findings
F3.1 New Zealand’s economy is increasingly dominated by services produced in our largest cities. Taking full advantage of agglomeration economies, or removing barriers to achieving agglomeration economies, will be important for New Zealand’s overall productivity growth.
F3.2 Poorly organised cities can lead to a loss of potential agglomeration benefits. Firms cannot take advantage of a wider pool of workers available in a big city if the costs and time of getting to work or the lack of coordinated public transport infrastructure limit the areas in which people seek work
F3.3 Capturing the productivity benefits that large and growing cities offer their residents and the wider economy puts a premium on good infrastructure planning, including the delivery of an adequate supply of development capacity for housing.
F3.4 The decisions that a city council makes about its growth may be at odds with the interests of central government in increasing the wellbeing of New Zealanders that would arise from a city of a larger size. Large cities offer more jobs, higher incomes and productivity which benefit a city’s residents and provide wider benefits to surrounding regions and the country as a whole, but the costs of growth are felt locally.
F3.5 Land values in major New Zealand cities and high-growth areas have increased significantly since the middle of the last decade, both in nominal terms and as a share of total property values.
F3.6 Restrictions on land use, and resulting high land prices, encourage the production of larger and more expensive housing.
F3.7 Although New Zealand’s housing market is moderately responsive to changes in prices compared to other countries, an increase in demand for housing leads to a proportionately larger increase in housing prices than new house construction.
F3.8 Variation in the responsiveness of housing supply between different cities is likely to be a reflection of different land-use regulatory settings.
F3.9 A fundamental disconnect exists between the demand for housing and the supply response of the planning system, which essentially is a policy and political process. Where land use regulation prevents an adequate supply response to the demand for housing, the price of housing increases.
F3.10 The planning system is not responsive to price signals that provide information about the location and type of housing that people demand, and about the available supply.
F3.11 Where demand for land exceeds the supply allocated through the planning system, landowners and developers act like local monopolists. They are able to restrict the supply of zoned and serviced land to maintain high prices.
F3.12 No consistently collected or comparable data is available on the stringency of land use regulation in New Zealand.
F3.13 A survey of fast-growing New Zealand councils found universally restrictive land use rules, but considerable variation in the overall stringency of land use regulation. This variation is due in large part to:
- differing levels of influence over planning by the courts, regional councils and community groups; and
- differences in the time taken to get approvals for development.
F3.14 Restricted housing supply will tend to inflate the value of existing homes. Existing homeowners have an incentive to be risk-averse in opposing developments that could affect the amenity of their neighbourhood and the value of their home.
F3.15 Existing homeowners have an incentive to oppose development that involves council expenditure on infrastructure that does not benefit them but will be recovered through general rates.
F3.16 Cities that are subject to geographic constraints to development (eg, near to a large body of water) show less supply responsiveness to housing demand, both because of the geographic constraints and because these constraints encourage higher land prices, strengthening the incentive for existing owners to support anti-development regulations. This is particularly true in larger and faster-growing cities.
F3.17 Groups that have high home ownership rates have higher rates of participation in local government elections. The influence of homeowners in local government elections and consultation processes promotes local regulatory and investment decisions that have the effect of reducing land supply for housing.
F3.18 Stringent land use regulations have a disproportionate impact on the less well-off and contribute to the unaffordability of housing. Demand-side assistance for homeowners and renters puts pressure on public finances. Restrictive land use regulation means that demand-side measures, such as rent and home owner subsidies, lead to increasing housing prices rather than a greater supply of housing at the low end of the housing market.
F3.19 Housing makes up a significant share of many New Zealanders’ wealth. High housing prices have implications for the ability of some groups to accumulate wealth and for the distribution of wealth across the community.
F3.20 Restrictive land use regulations limit the ability of people to seek better employment opportunities in cities, are a barrier to potential productivity gains, and may create risks to macroeconomic stability.
F3.21 A “wedge” exists between the preferences of central government around accommodating growth in our fastest growing cities and the preferences of local communities represented by local councils. Local decision making has national consequences. The balance between local and national involvement in the planning and development system needs to shift in the national interest.
Chapter 4 – Incentives on landowners and ratepayers
Findings
F4.1 The way rates are set means increases in the value of the rating base (through increasing property prices or new development) will not of itself increase rating revenue. Unlike other taxes, there is no automatic connection between the size of the revenue base or its value, and the total amount of revenue collected. This means that councils face weaker incentives to grow the underlying revenue base than central government.
F4.2 High-growth councils tend to see new housing development as a net cost. The first response should be to ensure the costs of infrastructure are allocated appropriately.
F4.3 Owners of land may choose not to develop their land for a variety of financial and non-financial reasons. Efforts to encourage the development of such land needs to acknowledge and account for these varying drivers.
F4.4 Expectations of high future demand can encourage landowners to withhold land from development.
F4.5 Expected returns from developing land in the future are increased by regulatory constraints that increase the scarcity value of land. Owners withholding land from development is a symptom, rather than a primary cause, of land supply shortages.
F4.6 Auckland has a large number of owners of bare land suitable for subdivision and the construction of dwellings. No evidence exists that a small number of owners have a dominant position in the Auckland market.
F4.7 The practice of owners withholding land from development is widespread and has many causes. Patterns differs across New Zealand cities. In some cases owners may have a strong position in the local market for greenfield land that allows them to stage releases to control supply. In other cases ownership may be dispersed, but owners may withhold land from development because they expect higher returns from developing in the future.
F4.8 The use of capital value rating systems makes it less expensive to carry undeveloped and underdeveloped land compared to land value rating systems. At the margin, the use of land value rating systems would encourage land to flow to its highest value uses, including more and denser housing.
F4.9 Both land value and capital value are strongly associated with income. National evidence shows that the relationship between land value and income is stronger; but councils should review the evidence in their own districts as an input into future local reviews of their rating policies.
F4.10 Although market transactions of unimproved land are fewer, little evidence is available of greater variance in assessed values of bare land than improved land.
F4.11 The distributional effects of a systematic incorrect valuation of land on the rating burden may be greater under a capital value rating system than a land value rating system.
F4.12 Owners of undeveloped land benefit from council services and infrastructure funded from general rates because the value of these services is capitalised into land prices.
F4.13 A good case appears to exist for setting general rates on the basis of land value rather than capital value, to encourage the development and the efficient use of land.
F4.14 The rating exemption on core Crown land does not appear to have a principled justification.