By Jason Krupp and Alex Voutratzis*
With most major political parties in favour of scrapping urban growth boundaries, land use regulations have captured a fair number of headlines over the past few weeks. And well they should. The economic literature is pretty clear on what happens when you restrict the supply of land for housing in a growing city: prices will rise.
This applies not only to rules that prevent cities from spreading outwards, but rules that stop cities from growing upwards. And we can expect the public’s focus to shift to height limits as the Independent Hearings Panel files its recommendations on the Auckland Unitary Plan later in July.
What these recommendations are, and how they will change the existing height limits that apply to Auckland inner city suburbs, is uncertain. What we can be a little more certain about is the effects of maintaining the status quo, thanks to work by the Grattan Institute.
The think tank’s research found an alarming disparity in Australia, where the bulk of job creation was happening in inner cities, but most of the housing development was taking place at the edge. The former was happening because modern economies are increasingly being dominated by the service sector, which tends to value inner city proximity. The latter was a result of restrictive land-use policies that prevented development in the inner city suburbs, instead pushing housing construction to the fringes of the city.
The effect is that people who stand to gain the greatest benefit from access to the inner city – younger generations – are moving farther out where housing is cheaper. The long commute into the city, particularly on public transport, restricts their access to economic opportunities. This is especially acute for those with young families. The Institute found that many households choose to have one parent drop out of the workforce because juggling a job and childcare commitments was too hard.
The winners in this equation are those who already own property in the inner suburbs, mostly older generations. Restrictive land-use regulations have severely constrained the supply of housing in most Australasian cities, pushing prices up.
It is, in effect, a massive wealth transfer from the young to the old. There is a generation emerging in Australia that will have less wealth than their parents once fiscal deficits and asset values are factored in, according to the Institute. This cycle is not only bad for individuals, but has broader economic and societal implications as well. It is well recognised that cities are the growth engines of modern economies, but restrictive land use policies that widen the gap between where young people live and work will cause that engine to sputter. At the same time, this poorer generation will be asked to shoulder the tax burden as the older generation moves into retirement.
Australia steals our best ideas – let’s not borrow one of their bad ones. Regulations that limit the stock of housing suitable for younger people, such as height restrictions and view shafts, need to be axed and pronto.
The Grattan Institute’s research does not diminish the need to free up land for housing at the edge of cities. It in fact necessitates it. Many people are prepared to voluntarily accept the trade-offs of living in suburbia, and eliminating the urban-rural boundary is needed to reduce the regulatory gains currently being captured by land bankers.
What it does highlight is the need to free up land markets from unnecessary regulations which limit their efficiency and impose undue costs on one generation while rewarding another. In short, cities need to be freed from rules that prevent them from growing up and out.
*Jason Krupp is a Research Fellow at The New Zealand Initiative and spokesperson on housing, Alex Voutratzis is Director of Policy and Advocacy at Property Council New Zealand.