Wellington hopes to become a city with good quality, warm, dry affordable homes
Part One: A Rent Busting Economic Plan
The current coalition government was elected into power largely based 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 supportive of the affordable housing goal. 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 Wellington is struggling to attract newcomers. It is not a high population growth city like Auckland, Hamilton, Tauranga or Christchurch.
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 though are doing well….
Since 2015 the median rent for a two-bedroom Wellington flat has increased from $350 to over $470 a week. That means over $6000 a year has been taken out of renter’s household budgets.
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.
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. Given how measly this wage is in comparison to rents 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 $6,000 every few years.
Something must be done about the cost of living in Wellington.
My suggested economic plan for Wellington is that large numbers of affordable housing, especially rental and public housing be built. 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 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 spatially efficient transport modes to use 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.
- That means greenfields close to motorways and urban centres, like Lincolnshire Farm could be developed into medium density transit-oriented development, where thousands of affordable homes could be built.
- 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. Targeted rates and access to independent bond financing could be allowed. There are lots of successful development corporation models to follow, the London Docklands Development Corporation 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. Central government could assist this process by providing a subsidy for 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 residential neighbours to better use their desirable land close to amenities. It could encourage local governments to switch to land value rating regimes. It could have independent hearing panels doing cost benefit analysis on planning restrictions to resolve genuine neighbourhood effects vs capital gains seeking behaviour.
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).
Will Wellington make these 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 good quality, warm, dry affordable homes.
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’.
- Thomas Nash a candidate for election into the Greater Wellington Regional Council has written a useful paper titled -With NZ housing still utterly borked, some are taking matters into their own hands. In his paper Thomas wrote that “it’ll take a genuinely transformational government to put in place the rules for a fair system of housing in Aotearoa New Zealand”. Yet when Thomas produced a campaign video outlining his vision for Wellington, affordable housing was not mentioned and his reference to ‘top quality buildings for public housing’ is unconvincing due to its vagueness. Note -Thomas has since clarified by Twitter that “1. We need a major increase in public housing via government, council & community housing providers. 2. We need to see housing as a public good rather than a commodity”.
- Justin Lester is Wellington’s left-wing Mayor. He has 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 have advised Justin Lester this policy would be ineffective because it does not increase the supply of rental housing.
These examples point to the big restriction on Wellington preventing transformational change is its interlocked nature. Decision makers need to be aligned and it appears that they are not. 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 space for more housing need to cooperate with renters requiring affordable housing. And so on.
Stakeholders need to be on the same page to progress transformational change.
No one entity can transform Wellington’s housing by itself. It is therefore important that progressives like Grant Robertson, Thomas Nash and Justin Lester publicly signal a willingness to cooperate with transformational change. Public confidence needs to be built so that transformative change is possible. Then all the different stakeholders need to be brought to the table to agree on a specific change agenda.
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 biggest issues? What’s the point of being organised to that scale at all?
Even further, what’s the point of democracy? Voters in 2017 voted to fix the housing crisis. If the government -in the wider organisational sense -refuses to do what it takes, what is the point of it all?
Wellington has potential, but currently it is not living up to its -you can’t beat Wellington -hype.
This two-part paper was 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 three 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.
Wellington could look at the cooperation and alignment achieved in the Hamilton-Auckland Corridor initiative, the government’s first urban growth partnership, as an example of reform that aims to integrate warm, dry and affordable homes with upgraded transport connections to the major employment hubs of the region.
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.