Part one: The background picture

Housing exists in a framework of rules and infrastructure provision. Increasingly around the world this framework is being challenged, as the perception has developed that urban development frameworks are only benefiting the few and are detrimental to both the poor and the middle class.

New Zealand has been part of this worldwide trend, its new government in response to public opinion has prioritised housing reforms. In the Speech from the Throne, at the opening of parliament, the Governor General read out her new government’s housing plans, there was a strong commitment to removing restrictions in order to build more affordable homes.

In the US, there have been a lot of studies and economists advocating for housing reforms and a strong beginning for various housing advocacy groups, in particular YIMBY (Yes in my Backyard) groups have set up in a number of high cost cities -San Francisco, Seattle etc. A few people, such as San Francisco’s Scott Wiener and Sonja Trauss have transitioned from these advocacy groups to becoming elected politicians. So it is possible that a gradual wave of housing reforms will be enacted in the US in the near future. The following article gives a good description of how the liberal left may be reconsidering some aspects of zoning, for example.

A changing attitude to zoning restrictions is also affecting the epicentre of restrictive zoning for the last 70 years -London.

The UK 1947 Town and Country Act in a sense nationalised developmental rights from all landowners by the then Labour government. This urban development system was reformed, but not abolished, by the Conservative government led by an elderly Winston Churchill in 1951, by removing the accompanying betterment tax (which due to its high rate had virtually stopped all urban development). This ensured the developmental capital gain benefit went to a tightly rationed group of localised landowners, who were fortunate enough to gain developmental rights with monopolistic pricing power from the Town and Country regulatory system.

The wider urban land owning group also benefited from large increases in property values as a result of land supply for new housing being more restricted than it could have been. Since the 1950s, house and land prices in England and Wales have boomed and busted, with the overall trend being a rapid escalation of property prices in real (inflation adjusted) terms.

The ‘broken planning system’ part of the UK housing story is told by the Financial Times in the following article. I think it misses the point that urban land can be more competitively priced depending on how restrictive or not the planning and infrastructure provision system is, but it is useful to know the historic timeline for how the UK’s urban development system evolved.

The benefits accruing to the relatively small group of land bankers over time has become quite significant. The Conservative UK Chancellor (Finance Minister) Phillip Hammond in a recent budget speech threatened to compulsory purchase land to build 300,000 homes a year. This caused the shares of Britain’s main urban land bankers and housebuilders to fall 3% during his half-hour speech.

The nine housebuilders in the FTSE 100 and FTSE 250 hold 615,152 housing plots in their landbank, according to financial disclosures. This is four times the total number of homes built in Britain in the past year. Source; The Guardian, Dec 2015

At the local level in London, a ‘Yes in my Backyard’ organisation has formed with the purpose of finding a culturally acceptable formula for removing restrictions on building affordable homes. London Yimby have a well researched report detailing their proposals, titled -Yes in my Backyard, How to end the crisis, boost the economy and win more votes.

London Yimby’s main proposal is that individual streets, given a two-thirds majority, should have the automatic right to negotiate themselves the ability to upzone, up to 5–6 stories high, or perhaps an additional 2–3 stories above existing structures, whichever is lower. The resulting street development needing to adhere to a uniform building style also negotiated at the street level.

Obviously, London Yimby are strong advocates for removing restrictions on building up. They note that half of London homes are one or two storied housing and they therefore believe that adding more floors is one of the best and most acceptable ways to improve housing supply for the city. London Yimby are active on twitter and often use photos of London’s streets and houses to make their point.

London Yimby state the UK 1947 urban development reforms;

were never intended to provide a mechanism for large-scale densification of low-rise streets in good condition and with fragmented ownership, for quite understandable reasons: London’s population was declining and such densification would have been uneconomic then. Things have changed, and it is time to create that mechanism. (1)

Tokyo another big metropolis city has managed to nearly triple its residential built space by intensification since 1963, so London lacking an effective intensification mechanism is a significant flaw in its urban development regulatory system.

It is debateable whether the ability of whole streets to add more floors, under some circumstances, will add enough competition to remove landbankers monopolistic pricing power. Will large numbers of landowners on a street really agree on a single course of densification action? Even if they do, many serious urban planning theorists such as Alain Bertaud, indicate a city's competitive land supply needs to include mechanisms for making room -both up and out. So London’s Yimby’s proposed new housing supply mechanism may prove insufficient, although in my opinion it is a significant step in the right direction, as it provides London with a intensification mechanism which has been a major flaw in its planning system for long time. A try and see approach is probably the right way to proceed.

Part Two: A discussion of intensification mechanisms

The ‘for the many not the few’ concept could also indicate what an effective intensification mechanism might be.

I quite like London Yimby’s street by street proposal because it gives upzoning potential to many landowners not just a few. This widespread dispersal of upzoning rights should reduce the ability of individual landowners in desirable locations to extort maximum monopolistic pricing, because neighbouring streets might provide better intensification housing at a lower price.

London Yimby’s proposal where streets cooperate to give themselves upzoning rights has some similarities to a proposal of mine where neighbouring landowners are given the right to build up to a common firewall if both parties agree. I called my idea reciprocal intensification. A number of people have discussed this proposal and it has received some legislative backing. Peter Nunns an economist who writes for Greater Auckland most recently reviewed the idea and described it as legalising perimeter block development. YIMBYwiki have classified mine and London Yimby’s proposal as Hyperlocalism.

In Auckland there has been a new development utilising the many not the few concept to intensify a 1.3 hectare inner city site which use to be a vinegar factory. The development has been subdivided into 30 frehold lots, with the buyers free to develop the lots to meet their own needs. For several years I have watched and admired this Auckland development. I especially like that it was inspired by the impressive Dutch development Borneo Sporenburg, which has triggered my thinking on reciprocal intensification.

one urban design framework, many architects

Vinegar Lane was master planned by Isthmus, owners of the 30 freehold lots have been free to select their own architects to design buildings that slot into the urban design framework. Designs are informed by the Vinegar Lane Design Manual which seeks to provide variety within the whole. Each lot is permitted 100% site coverage and a 4 storey (15m) height limit. Resource consents for each lot were pre-approved; leaving detailed designs to pass through the Vinegar Lane Design Review Panel and ACs’ building consent process…. When fully built-out the site will yield a density of 190 dwellings per ha gross (including lanes within the site), or 280 dwellings per ha net. High density mixed-use achieved within a mostly 4-storey height envelope. We believe this ‘kiwi urbanism’ approach can be adopted elsewhere across the city. Such development could increase the density of the inner suburbs massively while maintaining the fine-grained variety that feels right for Auckland. Choosing the right sites, without resorting to bulk and height, and dividing them up into small and affordable parcels, puts development in the hands of small-scale private investors. Most of the lots will be owner-occupied, while also generating an income from commercial and residential rents. At Vinegar Lane baby boomer savings are being used to build a new Auckland.

Chris Moller who hosts New Zealand’s Grand Design programme called the Vinegar Lane program -’pioneers of urban farming’ in a show dedicated to following the development of one of the sites. This intensification mechanism has had a fair number of pitfalls (hence the pioneers term) -there were many delays and cost overruns in Vinegar Lane, yet the system clearly has potential to be more widely applied.

I think reciprocal intensification which focuses on neighbours co-operating versus London Yimby’s proposal which focuses on streets cooperating is a reflection of the different streetscapes, histories and cultures of New Zealand versus England. London’s suburban streets are mainly made up of terraced housing, with a strong degree of uniformity. New Zealand’s suburban streets are mostly non-uniform standalone housing.

The first intensification step a city should allow, in my opinion, is to use the ‘unwanted’ space between the houses on a street. This allows a gradual evolution of residential city plots, to go from stand alone housing, to full width of the site town or terrace housing, to small apartment buildings and then to larger apartment buildings, as supply and demand for the space interact with each other. If mix-use developments are allowed, like in Japan, then a further evolution between industrial, residential and commercial developments can occur in response to changing economic conditions. This evolution can be seen in the centre of most cities -with many plots being at different stages of this evolutionary path.

Due to New Zealand’s longer history of non-uniform standalone housing. I think there will be greater cultural tolerance for a ‘messy’, non-uniform approach to intensification. Something akin to what Tokyo has achieved, which I wrote about in my article;

Both mine and London Yimby’s proposal takes advantage of the fact that upzoning adds value to the properties concerned. Giving this benefit to the many not the few means the potential supply is greater. Not all property owners with developmental permission want to build on their property immediately, even without considering capital gain speculation. They may prefer their current property as it is and interfering with that might disturb a range of networks (employment, social connections, family supports etc) they are part of and the benefits they get from living in their current location (2). So the advantage of giving upzoning potential to the many not the few, is that the smaller subset which prefers to develop immediately is larger and competition from up-zoned land supply is greater. Greater competition means the monopolistic pricing power benefit is reduced and the supply response will be more elastic (larger quantity provided, smaller price increase).

A recent empirical data study on Auckland’s planning system by economist Ryan Greenaway-McGrevy indicates increasing the intensification potential of a city by regulatory/planning rule changes may split the urban property market. Some existing landowners with newly permitted intensification rights benefit more than others from their properties increasing in monetary value. How large this benefit will be, will depend on how much competition the planning/ regulatory/ infrastructure provision system allows.

I think it is reasonable to speculate that affordable housing reforms coming from allowing an urban area to build up and out will have two effects on existing homeowners. The value of existing homes may decrease over time as more competitive and affordable homes come onto the market. The second effect is that existing homeowners with property that is in desirable locations and that have the potential to take advantage of newly permitted up-zoning may find their land goes up in value i.e for these properties the value is not on what is currently on the site but on what could be.

The location specific and heterogeneous nature of urban property markets means even within the existing home owning cohort there will be beneficiaries from increasing the potential supply of more competitive land. This is an important point as often in housing affordability debates the dividing line is characterised as between generation rent and existing homeowners. But really the dividing line is between those with an inclusive mindset to expanding their community versus those who hold exclusionary attitudes.

Proposals such as my reciprocal intensification idea and London Yimby’s proposed street by street intensification mechanism are part of a wider movement trying to create a more inclusive, equitable and affordable housing market. This constructive and positive movement is growing and gradually the best ideas for achieving its goals will be implemented.

In my report Downsizing Auckland’s Unitary Plan there is further discussion of some specific intensification mechanisms which may benefit Auckland.

References

(1) Page 13, Yes in my Backyard, How to end the crisis, boost the economy and win more votes, 2017

(2) Chapter 7, The supply of land for a particular use: Occupier preferences and residential Attachment, in Economics, Real Estate & the Supply of Land, by Alan W. Evans, 2004