Can an Eco-City Solve Wellington’s Housing Crisis?

Wellington Mayor Justin Lester has asked for support from central government to develop the Lincolnshire Farm “Eco-City” plan

If New Zealand embraces innovative and new urban development processes Wellington could build 10,000 houses at about $400,000 each, in a location that can access the region’s major employment markets with 30 minutes or less travel time using rapid transit.

The infrastructure that this development needs, including the rapid transit links, could be paid by the development itself so there is no additional cost to existing rate or taxpayers.

This development could be an exemplar urban development model that could achieve similar beneficial outcomes elsewhere in New Zealand.

In my opinion if this model was repeated ten or more times in Auckland and a similar number in New Zealand’s other high growth urban areas this would break the back of the nation-wide housing crisis.

The question is does this coalition government have the political will to change Wellington’s house building model?

Background

Wellington’s Major Justin Lester in 2018 stated that an Eco-City between Porirua, Lower Hutt and Wellington in the Lincolnshire farm area is a long term possibility that could gain traction when the Government sets up a national Urban Development Agency.

Earlier in 2017, in response to growing housing affordability concerns Justin Lester said the Wellington City Council was looking at ways to “encourage” development on 490 hectares of privately owned city fringe land in the residentially zoned Lincolnshire Farm area. The majority of the land is owned by Rodney Callender, who developed the Wellington suburb of Churton Park.

A life’s work. Rodney Callender overlooking Churton Park, the suburb he shaped over 50 years. Source -The Dominion Post, 19 February 2011. Article titled -”Godfather of suburb looks back”. Accessed by Pressreader.com

Wellington land owners and property developers in 2017 denied the implication they were land banking and instead blamed long consenting times for the slowness of house building.

Yet two years later public concerns about Wellington’s housing crisis are still being voiced, with increasing comments on social media and informal blog sites -such as Michael Reddell’s Wellington based Croaking Cassandra website here and here. Main stream media have reported that Wellington house prices have increased 13.5% in the last year.

There is good reason for concern, as the above tweet explains Wellington’s house building rate has not kept pace with population growth since 2014, which has led to large increases in rent.

Source: Interest.co.nz

Median rent figures confirm this pattern and indicate that rents have increased by approximately $100 a week or $5000 a year for 2-bedroom flats in Wellington since 2014/15.

These rent increases mean Jacinda Ardern’s government has not yet delivered on her 2017 Speech from the Throne promise that her government will make life better for renters.

For tenants such rent increases are likely to be the most significant financial factor they have experienced in the last five years.

Wellington rent increases will have eliminated most, if not all, of the benefits from private sector pay increases and government grants -like free tertiary education fees, winter energy payments and working for family tax credits i.e. instead of these private and public payments going to their intended recipients they are going to landlords.

Rampant rental inflation is quite common around the world -it has led to an increase in anti-landlord sentiment that is not present when rents are stable and landlords are seen as providing fair accommodation services for fair prices.

In Christchurch an increased rate of house building between 2014 and 2016 stopped it’s painful post earthquake rent increases. I am sure the same effect would occur in Wellington.

Wellington’s Eco-City plan needs to be shifted from long term possibility to fast tracked actuality. This is due to the financial pain the housing crisis is causing rental households.

What plans are there for Lincolnshire Farm?

Proposed Petone to Grenada Link Road

Lincolnshire farm is at the heart of a proposed transport corridor connecting Petone with Grenada i.e a short cut route between Lower Hutt and Porirua.

This makes Lincolnshire Farm a strategic location that is not only 15 minutes to Wellington’s commercial business district (when traffic is free flowing) while also being close to Porirua and Lower Hutt Cities.

The Petone to Grenada transport link is being reassessed because previous proposals were not as resilient to earthquakes and landslides as hoped. Also there are concerns it would cost more than the initially projected budget of $270m.

I would suggest the project urgently needs to be reassessed from an integrating housing with rapid transit perspective.

Lincolnshire Farm is not only a strategic transport location, it is one of the most important locations in Wellington for its ability to respond to housing demand.

If Lincolnshire Farm is developed as another typical Wellington suburb it is estimated that 4,500 people will live there in the future. This indicates Wellington City Council planners are expecting about 1800 houses to be built in this location (assuming 2.5 people per house).

Wellington City Council’s Senior Spatial Planner describing in the Let’s Get Wellington Moving -Baseline report: Land use and urban form document the opportunity being;

Lincolnshire Farm is a 400 hectare greenfield site zoned for future urban growth. It is located between Woodridge and Grenada North, on the eastern side of SH1. Lincolnshire Farm is Wellington City’s largest opportunity for residential and business development and one of the largest and most strategically located development sites in the whole Wellington region.
A Porirua to Hutt Valley public transport link is discussed from the 32.30 minute mark. The documentary after explaining the need for the transport link presciently discusses ‘status quo bias’ by talking about the then political difficulties of implementing innovative urban development projects.

The NZ Ministry of Works had a plan to complete an electric rail loop between the Porirua Basin and the central Hutt Valley. Linking downtown Wellington, Porirua and the coastal suburbs with the central Hutt Valley and then back to downtown Wellington again. It’s mentioned in the above 1971 documentary Notes on a New Zealand City (H/T Chris Harris -Urban Historian, author of Lost City: Forgotten Plans for an Alternative Auckland).

The Eco-City proposal -Integrating housing with rapid transit

Lincolnshire Farm could be developed as a transit oriented ‘Eco-City’. This would allow for new housing typologies to significantly increase housing density.

The Eco-City could take density done well learnings from HLC for what kinds of higher density housing typologies would be commercially viable. This will alter Lincolnshire Farm’s predominant development type from greenfield to a new type of suburban development -integrated higher density housing with rapid transit.

This new type of housing development could have five times the floor space compared to a typical New Zealand suburb. There would be more mixed use commercial and residential. Section sizes would be much smaller -about 200sqm on average and housing would be more ‘up’ than ‘out’.

Source: P.34 ‘Let’s Get Wellington Moving Baseline report: Land use and urban form’ document

The Lincolnshire Farm Eco-City could easily accommodate 25,000 people and 10,000 houses using an integrated housing with rapid transit developmental model. This would make the Eco-City the most responsive part of Wellington’s future housing supply.

Possible BRT routes in green. Approximate location of Lincolnshire Farm in blue.

In my opinion the most feasible solution to providing the transport connection between Porirua and Lower Hutt would be to use bus rapid transit (with electric buses) and congestion road pricing. This would provide rapid transit connections to Wellington, Lower Hutt and Porirua from Lincolnshire Farm, with bus journey times well under 30 minutes in all directions.

The bus rapid transit routes would either use State Highway 1 or 2 or the yet to be constructed Petone to Grenada link road.

Congestion road pricing is an imperative part of this proposal, as it would ensure the motorway network is always free flowing so bus journeys are unimpeded even at peak times.

Road pricing would improve the efficiency of the motorway network as free flowing roads can carry more people than gridlocked roads. More generally, road pricing is an efficient way to allocate the scarce resource of urban road space. It avoids the productivity losses of excessive queuing.

Road pricing at peak travel times would encourage car drivers, especially single occupant car drivers, to use alternative routes, modes and times.

For popular high occupancy bus routes the congestion charge is spread over dozens of passengers, so the charge per passenger is minimal. Thus congestion charges would gently encourage the Wellington road network to carry more people with the same number of vehicles.

There are some inequality concerns regarding congestion road pricing for cities that have high automobile dependency and poor provision of alternative congestion free transport modes. In these cities congestion road pricing may not be an initial policy option because it could price low income people off road journeys -thus increasing inequality.

In New Zealand the inequality concerns of congestion road pricing could be true for Greater Christchurch because that city has an almost one for one automobile dependency ratio (909 light vehicles per 1000 people) and the wider City does not have a rapid transit network.

Neither of these facts are true for the Wellington region -which has a much lower automobile dependency ratio (647 light vehicles per 1000 people) because its commuter train network provides genuine multi-modal transport choices. This means congestion road pricing could be introduced immediately in Wellington without causing detrimental inequality effects. Especially as the proposal improves the wider rapid transit network by providing a faster Lower Hutt to Porirua public transport connection.

How to acquire affordable land?

What about the problem that Lincolnshire Farm is owned by Rodney Callender who seems to be in no hurry to develop it for residential housing?

This is where the Ministry of Housing and Urban Development’s -Housing and Urban Development Authority will be very useful.

New legislation establishing a Housing and Urban Development Authority will be introduced by Parliament this year to replace the previous government’s Special Housing Legislation which expires in September 2019.

The first Housing and Urban Development Authority projects are expected to be up and running in early 2020. These will be in Mangere, Mt Roskill and Porirua.

This is the process the newly formed Housing and Urban Development Authority will use to develop specific developmental projects

If the government wants to tackle the housing crisis in Wellington and elsewhere then they should quickly enact this legislation and progress through the establishing specific project stages. The year 2019 to 2020 should be the period that Wellington’s Eco-City is established as a specific project i.e. it goes from conception to starting construction by the end of 2020.

For the Eco-City proposal it would be in Rodney Callender’s best interests to cooperate with a shared equity process organised by the new Housing and Urban Development Authority. An example of shared equity is land readjustment which is a proven success overseas.

Here is the UDA summary document explaining how specific development projects would be established

The Housing and Urban Development Authority in this case would be the organising agent whereby landowners, such as Rodney Callender exchange their larger blocks of land (Lincolnshire Farm) for more valuable yet smaller blocks of land.

Readjusted land for transit oriented development is more valuable because through a public process it is given residential zoning, it is fully serviced with streets, water mains, sewers, stormwater management systems, local parks and other amenities, it is within walkable distance of rapid transit and the land has been subdivided into multiple property titles.

The freed up land from land readjustment would go towards lowering the cost of public spaces -streets, parks, schools etc. And for social and affordable housing i.e. low cost land for state housing, build-to-rent schemes and Kiwibuild housing.

The transit provider -in this case the bus rapid transit entity could also get an allocation of lower cost land for build-to-rent housing (and potentially leased commercial space). These rentals could help pay the ongoing operating costs of rapid transit.

This land readjustment system would have significant environmental and social benefits whilst also aligning the various stakeholders interests in ensuring the commercial success of the Eco-City.

For Rodney Callender the bottom line for his Lincolnshire Farm property is the Eco-City land readjustment option would quickly give him something like 2,500 property titles (versus Kiwibuild, HNZ and build-to-rent providers getting 7,500 titles). It would be quick because the intent of the Housing and Urban Development Authority is to reduce development time from conception to starting construction down to as little as a year.

If Rodney Callender prefers to build another traditional subdivision like he has in nearby Churton Park, due to it being much lower density he would not create as many property titles -only about 1800 titles. Also continuing to build traditional suburbia will not be as fast, as the housing only caters for the very small high end of the market where there is very little demand.

Going forward Rodney Callender should consider there is likely to be frustration and community objections to constructing suburbs that transport-wise are completely automobile dependent and that only cater for the needs of the highest income end of the property market. These community objections are likely to be reflected in increased planning restrictions or delayed public infrastructure provision.

Large Urban Development Authority projects have economies of scale with respect to development costs, meaning the Eco-City has the potential to have higher amenity provision for lower costs per household. This is because although there is five times the number of residential dwellings in the Eco-City compared to a typical New Zealand residential development there is not five times the amount of civil works in roads and providing fresh, sewer and stormwater. Rodney Callender being a stakeholder partner with the Housing and Urban Development Authority would be one of the beneficiaries of these lower costs.

I believe the above facts indicate the most rationale course of action for land owners like Rodney Callender would be to cooperate with the Housing and Urban Development Authority to develop specific projects -in this case to develop Lincolnshire Farm into a Eco-City.

Can houses be built affordably?

The raw land costs for Kiwibuild, HNZ state houses and build-to-rent housing in this Eco-City proposal would be zero using the land readjustment option. In this case the land costs becomes the infrastructure costs of servicing the land.

Auckland Council economists estimate for their city infrastructure costs are $140,000 per developed section. Developers tell me the figure is about $90,000 but they do not include the big connecting transport infrastructure costs.

For Lincolnshire Farm implementing the Petone to Grenada link road with dedicated bus lanes for rapid transit might cost $500m (a feasibility study will give a more accurate figure), which divided by 10,000 houses is $50,000 each, that added to $90,000 also makes about $140,000.

I suspect an Urban Development Authority building at higher densities would have significant economies of scale, so the per section cost might be less. Alternatively the Development Authority may be able to provide better public amenities (for example a public library or swimming pool) for the same price.

The $140,000 land cost could be an upfront cost or it could be paid off over time by a targeted rate or fee. In which case it could pay off a municipal bond that is held by the Housing and Urban Development Authority -so not on local or central government balance sheets. This means local or central government debt limits will not restrict the provision of infrastructure for integrated housing and transport projects.

KiwiBuild prices need to be under $500,000 outside of Auckland.

Overseas it is quite easy to find newly built homes for well under $500,000.

Build prices for an Eco-City would need to be lower than Wellington’s current land and house build costs, so that the large number of houses -10,000 -can be sold or rented to middle to low income buyers who have been priced out of the Wellington property market. If prices are too high there will be insufficient demand and the development will not be a commercial success.

Lessons need to be learnt by the Urban Development Authority about Canterbury’s poor Kiwibuild sales. These first wave KiwiBuilds were high priced relative to the local market and poorly located. This shows the danger of a government backed building programme not properly assessing demand.

When former Reserve Bank economist Michael Reddell first purchased his Wellington home in Island Bay 30 years ago the value of that house once inflation and income growth was accounted for is $400,000 in today’s money.

$400,000 is probably a reasonable target for the highest priced KiwiBuilds in the proposed Wellington Eco-City. Smaller sized KiwiBuilds and build-to-rent housing should be even lower priced. The private sector can target high-end demand with higher priced larger homes.

For the Wellington Eco-City proposal land costs could be about $140,000 then house building costs would need to be $260,000 to achieve the $400,000 house price target. Given modest sizes -say a maximum of 130 sqm and build costs of $2000 per sqm, this should be achievable. Especially as 10,000 houses will be built -so there would be large economies of scale for builders.

Prefabrication and house building factories may help to keep build costs down.

The country is getting closer to importing complete prefabricated houses, as well as seeing major local and overseas companies setting up giant house-building factories in New Zealand, Housing Minister Phil Twyford says.

Phil Twyford spoke at the recent Co-Lab conference for prefabricated housing suppliers in Auckland, he acknowledged KiwiBuild mistakes but defends the plan.

“The icon of the Labour Party, Michael Joseph Savage, when attacked for building state houses in the face of the post-Depression housing crisis, said, ‘We do not claim perfection, but we do claim a considerable advance on what’s been done in the past’.”
(Phil Twyford then went on to say)
“We can not yet claim a considerable advance but we are making steady progress.”
“We all know building our way out of the housing crisis was never going to be easy, or simple.”
“We always knew it would be tough to run up against 40-odd years of housing orthodoxy, and intervene in a broken housing market to deliver affordable homes and to turn around dwindling home ownership and the obviously sub-par quality of the country’s housing stock.”

Phil Twyford outlined the Government’s plan to create a Housing and Urban Development Authority by combining KiwiBuild, Housing New Zealand and the Hobsonville Land Company (now called HLC), which had successfully developed a former air force base on the outskirts of Auckland. Phil Twyford describing this new entity will have an end-to-end grip on planning for housing in New Zealand, giving it the ability to deliver large-scale development projects like Hobsonville Point. That it’s powers will include the ability to bring together parcels of land to create large master-planned developments.

This all indicates Phil Twyford is expecting his new Housing and Urban Development Authority to be used for projects something like the proposed Wellington Eco-City development.

Would the Eco-City be politically and economically viable?

Private discussions with John Myers the organiser for London Yimby indicate the most important factor in the housing affordability debate is finding a solution that is politically palatable. He was recently interviewed by RNZ.

There are lots of economic solutions to building affordable housing ranging from highly centralised Singapore government provided housing to highly deregulated private sector solutions seen in parts of the US. The trick appears to be finding a solution that is both economically viable and addresses the particular political concerns of the towns and cities in question.

Source: Believe it or not, Britain isn’t a nation of NIMBYs by Matt Singh

Generally the three major political objections to new housing, especially from locals, are the effects on traffic congestion, concerns about increasing demand for local services and environmental damage.

In Wellington’s case the objections seem to be centred on the traffic and environmental effects, with the likes of Regional Councillor Sue Kedgley writing that Wellington should avoid the Auckland paradox of induced motorway demand, while blogger Eye of the Fish is concerned about the Eco-City proposal being environmental ‘greenwashing’ and thinks the devil is in the detail.

The devil will be in the detail but the Eco-City proposal should have significant environmental benefits. Congestion charging Wellington’s roads would eliminate the induced motorway demand problem. If buses have unimpeded travel times, as congestion ‘rush hour’ peaks are eliminated, this will increase bus transport mode share (and the mode share of other non-congesting transport modes). Buses are being electrified in Wellington so this will have significant benefits in reducing CO2 emissions.

With regard to the economic viability question Greater Wellington’s rapid transit network is two linear corridors that is only connected at Wellington Train station. Providing a fast bus rapid transit route between Lower Hutt and Porirua would make a more complete network, which should make the network more attractive to more users.

P.36 “Order without Design”, 2018, by Alain Bertaud.

Urban theorist Alain Bertaud author of Order without Design -How Markets Shape Cities describes the productivity considerations when integrating housing with transport, saying;

Large labour markets are the raison d’être of cities. Large labour markets result in higher productivity than smaller ones. However, the size of a labour market is not necessarily equal to the number of jobs in a city. If inadequate or unaffordable transport prohibit workers from accessing all of a city’s jobs, the effective size of the labour market is only a fraction of the total number of jobs in the city. The productivity of a city is proportional to the effective size of its labour market (P. 155, “Order without Design”, 2018, Alain Bertaud).

According to Alain Bertaud (P.33–34) the research on cities shows the maximum productivity benefit relates to the number of jobs within a 20 minute journey catchment and these productivity benefits reduce to zero once journey times exceed an hour.

Lincolnshire Farm Eco-City residents would be within 20 to 30 minutes from employment in Wellington, Lower Hutt and Porirua so they would be recipients of this maximum productivity benefit.

For each additional resident in the Eco-City who is able to quickly access the employment market there is a boost to Greater Wellington’s productivity according to spatial economic research.

Not only would Greater Wellington benefit from an increased workforce resulting from the 25,000 residents in the proposed well located Eco-City, but by better connecting Porirua to Lower Hutt the productivity of those parts of Greater Wellington increases too.

Ultimately it is the productivity of Greater Wellington that pays for building the bus rapid transit connections and the Eco-City, so optimising this effect is important.

In Japan, Tokyo in particular, integrating housing with rapid transit in a commercial manner has successfully unlocked these productivity benefits to pay for rapid transit. It is hoped the application of these Japanese urbanisation concepts would be successful in Wellington too.

Wellington’s housing crisis is a problem because along with other concerns it increases the entry costs for employment.

Experts are increasingly pointing out that many cities around the world with the highest incomes are no longer attractive to low and middle income people because the gains of moving to the city are lost in high housing costs. This being a change from the past and has lowered economic growth, productivity and widened inequality.

Economist Peter Nunns has modelling which shows 50 to 100% of the migration to Australia in the last generation is due to house building restrictions and a consequent lack of abundant affordable housing.

These effects can easily be seen in Wellington. Nurses for instance are speaking out about the cost of living in suburbs that have reasonable journey times to the Wellington hospitals where they work.

Incomes in Wellington are the highest in the country yet the city has low population growth. If housing was more affordable, then Wellington’s population growth may increase to above 2% like Auckland, Greater Christchurch and other high growth urban areas. This would have a positive effect on the nations income and productivity.

In conclusion

There is a lot of confusion about the housing crisis.

Some say it is a result of low global interest rates -they believe that quantitative easing is the printing of money -which they contend has lead to a speculative frenzy. Implying that interest rates should be raised or that monetary policy should in some way restrict borrowing for housing.

Others say interest rates should be lowered further so that housing infrastructure can be costlessly built.

Another group believe that New Zealand's tax and spend settings need to be relaxed -that the government should borrow more to build housing infrastructure i.e. that housing infrastructure needs to be subsidised by the taxpayer.

None of these are the best solution. Housing growth can pay for its own infrastructure.

The primary problem of the housing crisis in cities like Wellington is structural impediments to building more houses in locations that enables access to the city in a timely manner. Issues like learning how to build density well, correctly pricing roads so that new residents can use congestion free transport modes to access the parts of the city they need to access, being innovative in the way land is affordably assembled for development and the way housing infrastructure (including rapid transit) is financed and actually building houses affordable to low and middle income groups not just the wealthy.

It is to these structural impediments where ‘political will’ needs to be immediately applied.

Actually the application of ‘political will’ should have occured five years ago in 2014 (if not earlier), before the pain of rampant rent increases inflicted its damage. It is a black mark on Wellington’s governing elite that they failed to act.

Labour Leaflet №.9 printed in the 1920’s after the first world war.

Past New Zealand government’s understood the pain of high rents in Wellington. In the 1920s and 30s Wellington’s rents were the highest in the country. The first Labour government responded by building tens of thousands of affordable houses -in the form of affordable rental housing -state housing.

Many of these houses were built on affordable land close to rapid transit (commuter rail) between Wellington City, Lower Hutt and Porirua. Will future governments, councils and their civil servants learn from this experience?

Wellington has the most geographic constraints on housing supply, but even it could build affordable housing given the proper application of political will. This Eco-City proposal demonstrates this to be true.


Update 11.04.2019

NZTA by itself will not reconsider the Petone to Grenada road for at least another decade. It seems to me the only way to expedite this project is by using a integrated housing and transport approach -something like what I have outlined in this Eco-City paper.