Foundations for the future

Tim McCready talks to Auckland Council’s new chief economist Gary Blick about the city’s long-term prospects as it covers from the economic impact of the pandemic

As Auckland Council’s chief economist, Gary Blick assists council staff and elected officials to evaluate the economic implications of policy and infrastructure proposals.

This means assessing the likely impacts on society’s resources and wellbeing over time — financial, social, environmental and cultural.

Originally from Southland, Blick has been in the role since late last year and has lived in Auckland for the past decade.

He is particularly focused on the long-term performance and trends of the Auckland region and thinks a lot about the wellbeing of Aucklanders and the legacy we will leave them.

This includes not only those who migrate to the city, but the children and future generations that do not have a voice here yet.

“I often think about the generation I am from — what did we inherit? A lot of great things. But then you think about missed opportunities,” Blick says. “It is very easy to get caught up with where we are now in the economic cycle and what is happening with housing this month or this quarter.

“But I am particularly interested in where we have come from, and where we are heading over the long run.”

Getting the foundations right

Blick says for Auckland to be successful in enhancing living standards for residents, including future generations, the city needs to get a couple of foundations right.

“For me it is about using our land efficiently and improving accessibility in terms of how we get around,” he says.

This means enabling more people to live in locations with good proximity to job opportunities, transport links and amenities. “Many other things matter too, but getting those things right matters a lot because they are the foundations for everything else.”

The Unitary Plan, implemented in 2016, has helped Auckland take important steps forward with its land use and transport links, including enabling more opportunities to build multi-unit dwellings such as townhouses and apartments.

“All else being equal, having more development opportunities enabled and a more responsive supply of dwellings is supportive of improved affordability over time,” Blick says.

He points to econometric research into construction activity trends that shows, relative to plausible counterfactuals, there was a material boost to supply following the introduction of the Unitary Plan. He says this likely contributed to the stabilisation of Auckland house prices from 2017 to 2019.

He says housing affordability took several steps forward with the Unitary Plan, but a step or two back recently with house prices increasing approximately 40 per cent over the past two years.

“The pandemic crisis caused central banks everywhere to head off a drop off in demand and introduce low interest rates to try and stimulate activity and maintain employment. That enabled people to bid a bit more for houses,” says Blick.

“Then with rising case numbers and public health restrictions, we have seen disruptions to supply chains globally, as well as the closing of the borders and a reduction in cross-border labour flows.”

This is problematic because even before the pandemic began, Auckland has been losing more residents to elsewhere in New Zealand than it has gained. There were net losses in internal migration in 2019 (11,400 people), 2020 (11,100) and 2021 (13,500), showing that plenty of people judged they would be better off living in other regions, raising a question about Auckland’s overall liveability.

Blick expects the reopening of New Zealand’s border will result in population growth resuming as migrants and New Zealanders with needed skills arrive or return to the city. But he cautions that if Auckland isn’t doing as well as it could be, then the city may miss out as those with needed skills compare Auckland to other places.

“Liveability and productivity depend on many factors, but it is reasonable to ask whether Auckland can do better on the fundamentals of land use and transport networks.”

Covid-19 hangover in the city centre

The impact of the pandemic has been uneven across businesses.

Blick says the city centre is home to many large professional services and financial services firms that have big office-based workforces with more flexibility to adapt and adopt remote working practices.

“Often their customer base is not foot traffic on the street,” he says.

“It is with other businesses and may involve exporting services to elsewhere in New Zealand.”

Even so, GDP — as the measure of the economic output of all businesses in the city centre — decreased by 4.6 per cent for the year to March 2021 — more than the decrease of 2.8 per cent for Auckland as a whole.

It is the hospitality, retail and events-focused businesses that have borne the brunt of the loss of visitors to the city centre.

Heart of the City ( HOTC) data showed that city centre spending in March was down more than 40 per cent on the same time last year, and pedestrian counts were almost 50 per cent down.

“Household spending has held up well, but the city centre has lost out as spending has been reoriented to other locations, whether that is online or other centres of Auckland,” says Blick.

While employers and workers have become more comfortable with remote working, he doesn’t expect this to have a permanent devastating impact on the city centre.

“Having that choice may suit some workers and it may mean there are fewer visits on a daily basis from people in the near term relative to before.

“But not all jobs lend themselves to being done remotely on a permanent basis, and people joining the workforce and those starting in new roles may seek in-person collaboration and opportunities to build up their connections.”

The city centre is comparatively very accessible, Blick says, and the concentration of people and businesses in proximity can deliver productivity gains known as agglomeration benefits.

Proximity promotes ease of access, lower transport costs, and knowledge sharing, and a higher population density enhances proximity benefits by supporting deeper labour pools and specialisation among suppliers. As a result, cities can offer higher-paying jobs, as well as more choices in consumption and leisure.

It is this that Blick says will stand Auckland in good stead for the economic recovery post-Covid.

“There’s a good case that the reduction in visits to the city centre will be made back over time, because of its long-run trend growth in density, economic activity and jobs.”

We need to enable more people to live in locations with good proximity to job opportunities, transport links and amenities. Many other things matter too, but getting those things right matters a lot because they are the foundations for everything else. Gary Blick