Can Wellington Transform Itself?
Or is Wellington perpetually stuck being a sleepy government town that is incapable of being entrepreneurial in its public policy making.
In January 2018 there was a story about a young female government employee titled — I’m a civil servant and I can no longer afford to rent in Wellington.
This story was the equivalent of a canary dying in a coal mine. But the politicians, civil servants and powers that be of Wellington chose to ignore it.
Wellington has spent years dithering and arguing over the plan to better connect the city to the airport.
If the Wellington politicians had been observing the canary they would have realised they should have been working on an integrated housing and transport plan.
Part One: A Rent Busting Economic Plan
The current coalition government was elected into power based in large part on the promise to transform housing in New Zealand. Wellington is New Zealand’s capital city so obviously central government is based there. The Wellington region also has progressive local government Councilors and Mayors broadly supportive of progressive initiatives like affordable housing.
Given Wellington has this double dose of government, in theory the city should be speedily progressing towards warm, dry affordable housing. Yet the facts on the ground prove otherwise.
In my opinion transforming Wellington’s housing is an ambitious yet achievable goal. This paper outlines an economic plan that could deliver affordable housing to the capital city. The economics is doable, the difficulty is unlocking the political constraints.
There is a risk that the affordable housing goal could experience the same fate as Stats NZ online digital census goal. The various types of Government in Wellington being naively optimistic, with an insular ‘yes minister’ attitude whilst ignoring facts on ground, meaning timely decisions are not made which jeopardises the housing reform agenda.
The biggest fact on the ground which the city seems to be ignoring is its rapidly escalating rents. A two-bedroom unit costs $75/week more a week than two years ago during the election when Labour campaigned on affordable housing.
Since 2015 the median rent for a two-bedroom Wellington flat has increased from $350 to over $470 a week. That means over $6000 has been taken out of the renter’s yearly budgets in 2019 compared to 2015. On average two-bedroom rents have gone up $1500 a year for the last four years.
This is a real fact on the ground which the government promised to do something about but hasn’t.
Some rental databases are showing that Wellington’s rents in 2019 overtook Auckland’s with the overall median rent being $658 in Wellington and $627 in Auckland.
Wellington’s rent increases have cut households budgets more than the government’s free tuition fees policy, winter energy payments and the Families Package. The rent increases are also larger than the previous government’s 2009 tax cuts.
Wellington appears to be pricing itself out of the market for skilled workers, it is even struggling to recruit bus drivers. Its low-income earners are becoming increasingly impoverished. Landlords are the only group benefiting.
Bus drivers are being offered a wage of $22/hour, which works out at about $740/week in the hand for a 40 hour week. The wage is not too bad, it is above what is considered a living wage. But compared to Wellington rents the wage is measly so it is not hard to see why Wellington is chronically short of more than 50 full-time bus drivers.
The obvious thought is employers should increase wages, but public and private employers cannot afford to increase wages by $1500 every year.
Something must be done about the cost of living in Wellington.
My suggested economic plan for Wellington is that large numbers of affordable homes are built, especially rental and public housing. This would require the following intermediate steps;
- Congestion charge Wellington’s motorways to keep them free flowing at speeds of greater than 80km/hour. Congestion charging is something that the new Wellington Mayor — Andy Foster has stated he will seek legislative capability to adopt as an alternative funding tool (to rates).
- Congestion charging motorways at peak times increases the marginal cost for users of single occupant vehicles (cars) relative to multiple occupant vehicles (buses and trains). Sensibly this encourages the more spatially efficient transport modes be used to access the most congested road spaces. This plan is therefore consistent with the Lets Get Wellington Moving transport package, which has the same goal.
- Congestion charging effectively turns Wellington’s regional motorway network into another grade separated rapid transit system at minimal infrastructure cost. Congestion pricing, car parking metering, removing car parking minimums and land value based rates helps eliminate the externality costs of an otherwise overly dispersing land-use and transport system (sprawling car oriented suburbia). The revenue that congestion pricing and car parking metering generates can be used to provide concentrating land-use and transport systems (a mass transit network of passenger rail, bus rapid transit, light rail etc with supporting walking, cycling and micro-mobility master planning). A land value rating system decreases the marginal cost of building upwards and increases the holding costs for land bankers, thus helping to achieve the land-use benefits of the concentrating transport system investment.
- That means greenfields close to motorways and urban centres, like Lincolnshire Farm could be developed into medium density transit-oriented developments, where thousands of affordable medium density homes could be built. Note Lincolnshire farm is owned by Rodney Callender who over 50 years developed Churton Park into a car-oriented low density suburb on the other side of the motorway. The proposed development of Lincolnshire farm would be different as it would be based on a more ‘concentrating’ transport and land-use urban development model. Lincolnshire farm is much closer to the urban and employment markets of Wellington, Lower Hutt and Porirua than the planned regeneration of Eastern Porirua which is only close to Porirua.
- Master planning and building thousands of affordable homes with all the supporting infrastructure that entails will require the Ministry of Housing and Urban Development to be a modern version of the Ministry of Works.
- This Ministry could take a development corporation approach to funding its housing projects so that real estate development pays for the infrastructure provided in a similar way to how rail was provided to the Hutt Valley. Targeted rates and access to independent bond financing could be allowed. There are lots of successful development corporation models to follow, the Hobsonville Land Company (HLC) for instance. Best international practice is that development corporations have an independent board. A mix of state housing, affordable rental and affordable owner-occupied housing could be a required condition for each project. Homes could be built for the full housing continuum using something like the Austrian social housing model (recommendation no.7 in this paper). Central government could assist this process by providing capital grants for affordable rental housing and building energy efficient and earthquake proof homes.
- Wellington could also allocate land-use more productively. For instance by turning unwanted industrial land into residential development. It could allow neighbours to cooperate with each other to better use their desirable land close to amenities. It could encourage local governments to switch to land value rating regimes, especially in the city centre where decreasing the marginal cost of building floor space on top of floor space is the most beneficial. It could have independent hearing panels doing cost benefit analysis on planning restrictions to determine what are reasonable versus unreasonable planning restrictions.
These sort of ideas help fix Wellington, by pricing in workers, by providing affordable housing for the poor and by improving the environment (by encouraging a transport mode shift). Economic theory is quite clear that cities with more elastic housing supply where the response to greater demand is more house building rather than higher prices are more productive and successful cities.
Will Wellington make these sort of urbanisation reforms? I have my doubts, not for economic reasons but because of politics, which I will discuss in Part Two.
Part Two: Political Doubts
You can’t beat Wellington on a good day. Is this true?
In Part One I showed it is possible to devise an economic plan that can transform Wellington into a city with more affordable housing located close to urban centres.
A plan that helps fix Wellington, by pricing in workers, by providing affordable housing for the poor and by improving the environment.
But I am doubtful Wellington will implement this economic plan or any similar urbanisation reforms because Wellington doesn’t like to take political risks.
Not wanting to lay all the blame on any one person because risk aversion is a characteristic of the whole ‘Wellington’ governance ecosystem, but here is some examples of Wellington taking a risk averse approach to promoting affordable housing reform.
- Grant Robertson is a fourth term Wellington Central MP and current Minister of Finance. He is the head of Treasury, which itself is an incredibly well-resourced group of Wellington based civil servants. Yet despite these advantages (or perhaps because of them) Grant Robertson’s contribution to fixing Wellington’s housing crisis has been, to go from supporting a vacant land tax as a ‘high priority’ to it being ‘not feasible’.
- Justin Lester was Wellington’s left-wing Mayor. Two months before losing his mayoralty he publicly announced he wants “Mum-and-Dad” property investors to lease their houses to the city council so they can be turned into affordable rentals. Economists advised Justin Lester this policy would not work because it does not increase the supply of rental housing.
These examples point to the big restriction on Wellington preventing transformational change to improve the city is its interlocked nature. Decision makers need to be aligned and there is no evidence that they are.
Clearly there is no plan. Which is unfortunate because a lot of cooperation is required to provide affordable housing. For instance, quality medium density housing requires quality public transport. The Ministry of Housing and Urban Development needs to cooperate with the Ministry of Transport. Central government needs to cooperate with local government. Landowners with strategically located land that could be used for housing need to cooperate with an urban development authority to masterplan that space. And so on.
All the stakeholders need to be on the same page to progress transformational change.
No one entity can transform Wellington’s housing by itself. It requires leadership and cooperation. Given this isn’t happening. Results on ground, like rents, are getting worse. This raises the point. What are all those civil servants, the Members of Parliament, the Cabinet Ministers, the local government fiefdoms good for? What is the point of Wellington?
What is the point of New Zealand having an organisation on the scale of the ‘government’ if it isn’t used to solve the country’s big issues? What’s the point of being organised to that scale at all?
Wellington has potential, but currently it is not living up to its — you can’t beat Wellington — hype.
This two-part paper was first written in response to the Greater Auckland blog post — Notes on a New Zealand City: Wellington — which is a post about a 1971 film by that name. Talk Wellington readers back in April saw this film in Part One of my Can an Eco-City Solve Wellington’s Housing Crisis series.
A quote in the film by John Roberts, Professor of Public Administration and later a founder of Victoria University’s Institute of Policy Studies presciently explains why reforming New Zealand’s system of urbanisation is difficult, if not impossible to do.
“People are not progressive and they don’t like to disturb the status quo, because there’s too many interlocking agreements in it.”
Housing reforms will disturb many agreements and given New Zealanders ‘knocking’ tendencies it is easy to understand why a sub-optimal status quo lasts for so long.
A more optimistic view of urbanisation reforms is a ten minute video interview of Edward Glaeser, one of the world’s leading urbanist economists, where he describes the big picture advantages of reforming cities.
The interview covers most of the issues I propose in Part One; cities being attractive and affordable to new residents, housing type choice, affordable housing, congestion charging, bus rapid transit, real estate development paying for mass transit.
Glaeser discusses the benefits of land value tax, which in the New Zealand context would be rates on land value not land plus capital value. Land value taxes increase the holding costs for land bankers whilst decreasing the marginal cost of construction for building upwards.
It is my belief that Wellington in the institutional government sense, including but obviously not limited to the two individuals mentioned above, are aware of urbanisation reforms that would improve the city. The problem is that Wellington lacks the political will to reform itself. The interlocking agreements tightly lock down the city. This is bad for Wellington and bad for New Zealand.
I hope I am proved wrong about Wellington being locked down and incapable of reform. I hope that pessimists like the prescient Professor John Roberts are wrong and city optimists like Edward Glaeser are right.
For further information about how Horokiwi and Lincolnshire Farm could be developed into a Eco-city. Here are some more detailed articles.
