Poor understanding of cities hits policy
Reform of resource management legislation rolls on. The Natural and Built Environments Act (NBA) “exposure draft” is due soon and the Strategic Planning Act (SPA) will follow this year.
This draft will likely mirror the NBA’s final form. Speed of process allows limited time for refinement.
Lessons from the Resource Management Act experience — encapsulated well in the insightful New Directions for Resource Management in New Zealand (chief-authored by retired Justice Randerson, known as the “Randerson review”) — must not be lost.
However, tight timeframes suggest high risk that the economic philosophy of the NPSUD (National Policy Statement on Urban Development) — narrowly focused on competitive land markets — will be pushed into the new Acts. That would be a major setback.
The NPSUD’s limited understanding of how cities work already poses challenges in its implementation. Perpetuating these limitations would undermine the reforms.
But Randerson’s review offers a platform for urban planning, from understanding of cities, able to deliver liveability and sustainability. Rejecting a “laissezfaire regulatory approach to urban areas” and “flooding markets”, noting the NPSUD must be “further developed and refined”, the review says “a competitive urban land market is a well-planned and wellregulated built environment”.
This view — where competition is part, not the whole — of urban economies should be carried into the new Acts.
Poor understanding of cities means poor urban policy. Sound policy requires knowledge of economic and social processes shaping our cities and driving efficiency, sustainability and liveability. Weak understanding of processes means misdirected policy settings, and poor outcomes for cities and communities.
The NPSUD is a mixture. On one hand are its very positive requirements that evidence-based planning provides enough well-located capacity to deliver quality living environments, sustainability and affordability. On the other, niche views of how housing and land markets work, with blunt “directive intensification” measures, underline concerns about policy-makers’ understanding of cities.
The economic philosophy for key NPSUD aspects conflicts with basic concepts of how cities function as spatial economies, and evidence of land markets and city development. Economic models suited to studying factories do not cope well with complex cities.
The clearest conflict is around housing affordability and the view that housing land should cost only the same as farmland plus infrastructure costs and “accessibility” values — based on a belief that neither potential use nor location affect land’s value.
However, this is wrong. The belief of value not reflecting use or location conflicts throughout the economy — with resource and land economic concepts, central place principles of city formation and growth, property valuation’s principles of value based on land’s “highest and best use”, banks’ lending around value based on potential use, and the evidence of cities’ development and land market operation.
Despite these conflicts, that belief heavily influenced the NPSUD’s development. It remains embedded in “price efficiency” tests for councils’ assessments of land markets.
The NPSUD’s expectation of reducing urban land value to deliver affordable housing conflicts with urbanisation’s effect of making land values higher, because more intensive use means land generates higher returns. Intensification improves affordability through lower land cost per dwelling, but value per ha rises. Expecting urban land values to fall as cities intensify seems misguided.
Further problems beset the other main “price efficiency” test. The Price Cost Ratio (PCR) examines land value’s share of total property value — too high a land value seems to indicate a poorly performing market. A whole-of-city view bundling properties built on 50 years ago with those built just a year ago is problematic.
Less obvious is the ratio’s built-in flaw that all properties are already developed to their maximum, with no potential to add capacity by intensifying land use. Potential to intensify is a core driver of city growth and land market operation.