Category Archives: Economics

Limiting land supply refer from DC policy

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This post focuses on “failure by stakeholders, such as the Council, to provide adequate land” from the DC report

Likely developer reactions to increased DC charges by Insight Economics LTD – page28 (my emphasis)

“According to MBIE, a price-cost ratio of less than 1.5 indicates that land markets are operating well, but higher values indicate the likelihood that developable land supply is scarce relative to demand. The price-cost ratio for Hamilton stayed below 1.5 for most of the past 20 years, but rose sharply between 2014 and 2016. In 2017, the price-cost ratio was 1.66, which suggests that a shortage of suitable land is having an inflationary effect on dwelling prices. More importantly, these high land prices are likely to be reducing the supply of new dwellings coming onto the market.

Unfortunately, the price-cost ratio does not identify the cause of land shortages, and instead provides only a blunt indicator of likely scarcity. Accordingly, it should not be interpreted as a failure by stakeholders, such as the Council, to provide adequate land.

Conversely, land shortages are just as likely – if not more likely – to reflect strategic behaviour by major land owners, with new supply slowly drip-fed to maximise returns. In addition, some land parcels are bought and sold several times before development even occurs, because of speculative “flipping.” Using Council-supplied data, we found more than 1,000 vacant residential sections that have been bought and sold multiple times prior to development occurring. Coupled with strategic land-banking, this speculative behaviour is likely to be a driver of perceived current land shortages.

Two key numbers above

  1. “A price-cost ratio of less than 1.5 reflects that land markets are operating well”
  2. “1,000 vacant residential sections”

Here the 1.5 value for the ratio is the point of under-supply and a buffer of 1,000 vacant residential sections maybe too small a number to meet demand.

The rules for supply of land come first from the District Plan (DP), which limits the size of sections to 400m2  ‘permitted’ for most of the city. In the DP 2012 submissions from the Property Council NZ, PRS Planning Services Ltd, and in the 1990 review of the District Scheme, the Waikato Master Builders Association, the NZ Institute of Architects, and the NZ Institute of Surveyors (Waikato Branch), asked for a reduction in the minimum site area from 400m2 to between 350m2 and 375m2. As an example, dividing a 6,000m2 parcel of land by 400m2 gives 15 sections; if this is changed to 375m2 or 350m2 the 6,000m2 parcel of land allows for 16 or 17 dwellings respectively, giving a 6% to 13% larger buffer.

Third key statement

  1.  “Speculative behaviour is likely to be a driver of perceived current land shortages.”

This could be largely about the number of players in the property market. Again this stems from a political decision to reduce the areas zoned for higher density housing in each review of the DP. In the 1960s, 10% (278ha) of Hamilton city was zoned Residential High Density.

Hamilton District Scheme 1960s

The latest DP has it down to 2% (208ha), which means the number of smaller infill developments is reduced, leaving growth provision to major land owner-developers, and the city at the mercy of a reduced number of land owners/speculators. The outcome is totally predictable.

To conclude, it is fair to say the price-cost ratio graph above does show the rapid pace of change. In hindsight the spikes are predictable. The council’s focus on numbers of sections missed the question of how many land owners are in the land supply market. This means you could have a buffer of 2,000 sections, but if the number of speculators doesn’t increase and the influence of controlling major land owners/speculators doesn’t reduce, the price-cost ratio is not owned by the city council.

Category: Economics, Planning

Development Contributions (DC) higher density traffic bonus

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Looking at the statement in the Outline of significant changes to the Development Contribution Policy 2018/19 – Page 5

“Under the existing policy some high-density developments received a discount for placing lesser demand on the Council’s services – but in fact placed demand equivalent to those of larger dwellings”

Note the key word change here is “high-density” in the proposed DC policy reports, whereas it was “higher density” in previous DC policy. When it comes to traffic in Hamilton, increasing (higher) density cannot be said to place equivalent demands on roading infrastructure as lower density areas. The graph below shows the wider Nawton area population trend line increasing at a steeper angle than the local traffic trends line.

What is being suggested in the new DC policy is that the location of a suburban stand-alone 3-bedroom dwelling on a 650m2 section places an equivalent demand on services as a 3-bedroom dwelling in a higher-density urban area. This is where the definition of “high-density” may be clouding assumptions. It is possible that high-density (such as High Rise) has greater costs than suburban density, but urban density is debatable.

The traditional traffic assumption is that a new suburban “3-bedroom dwelling equals 10 traffic movements per day”. The proposed 2018 DC policy (p42) for 2-bedroom and 1-bedroom dwellings uses “Residential Conversion Factors – Two Bedroom – Factor = 0.689 & One Bedroom – Factor = 0.477” (p41), which rounds up to 7 and 5 traffic movements per day respectively.

This next graph measures, as percentages, the wider Hamilton East area population growth vs traffic actual vs traffic predicted.

The above graph includes the actual and predicted Ruakura/Peachgrove intersection counts. We should note that the development of Hilda Ross retirement village occurred around 2002, quickly followed by Ruakura/Peachgrove/Wairere road building. Once the construction work force left this area, traffic movements evaporated to a level below that in 2002, despite the 200-plus dwellings having been built at Hilda Ross village for about 450 people (census mesh block 0896002 & 0896402). Yet at its gate is an oversized road designed to cater for predicted phantom trips (see below for predicted traffic), which by design has a negative/deadly impact on safety for weaker road users in the area.

To Summarise: the wider Hamilton east area’s density increased from around 1,900 people per km2 (ppkm2) in 2001 to 2,200 ppkm2 in 2013. For Hilda Ross village, which is dominated by smaller dwellings, there is a population density of over 5,000 ppkm2. However, a negative effect on traffic movements appears to be measureable. Like the assumptions used to predict the 80,000 vpd for 2026, the 0.477 factor for 1 bedroom homes is an assumption, not a fact.

For more on one-bedroom dwellings, Hamilton City Library has Kol Peterson’s book Backdoor Revolution: The Definitive Guide to [Accessory Dwelling Unit] ADU Development

The following excerpt is from Chapter 9: Impacts on a City

“Space efficiency and location efficiency – In general … neighbourhoods that are walk-able, bike-able, or transit oriented … Residents in such neighbourhoods will tend to have dramatically fewer vehicle miles travelled in a year than US residents living elsewhere.”

Reference: Ruakura Peachgrove Noise AECOM Nov 2009 – page 84 – Table 9: Predicted 2026 Upgraded Traffic Volumes