Do urban boundaries hold up prices?

Among his proposals to ‘fix’ the Auckland housing market, Housing Minister Phil Twyford talked about removing the ‘urban growth boundary’ as a way to bring down the cost of land.

Auckland isn’t the only city to have such a boundary ( now known as the Rural Urban Boundary — or RUB — in the Auckland Unitary Plan), but it’s the city in which the difference between land prices in urban and non-urban areas is most pronounced.

According to property data company Valocitys Director of Valuation Innovation, James Wilson, land 10 years ago accounted for 60 per cent of the cost of an Auckland property, compared to around 40 per cent for the rest of the country. That figure has headed north since then (excuse the pun). The reason — so the theory goes — is if there’s a limited supply of something, it will generally cost more.

The numbers certainly seem to bear this out. Last week, in a OneRoof article, Valocity produced figures showing suburbs where the value of the land overwhelmingly outweighs that of the houses on it, noting that, of the more than 1700 New Zealand suburbs examined, there are 43 where the average value of the land represented 80 per cent or more of the total council valuation.

All bar one (Wellington's Oriental Bay) were in Auckland. Admittedly, none of these suburbs were anywhere near the Auckland RUB — but you could argue that they’re the result of a ‘knock-on’ effect from the urban boundary where land prices escalate as you get closer to the CBD.

Indeed, it’s worth noting that even 10 years ago the price of land inside the Auckland boundary was nearly 10 times higher than land outside the boundary.

So should we just abolish urban boundaries in the cities and towns where they exist? Would this simple act bring down land prices, as Twyford believed it would?

Perhaps, but it’s not quite as simple as it appears. Firstly, enforced urban boundaries — such as the Auckland RUB — provide certainty around which areas should remain rural; they allow infrastructure providers to plan for growth ( roads, pipes and utilities, etc); and they constrain the environmental impact of urban sprawl.

So removing them altogether might help to reduce land prices on the fringes, but only at the expense of rural and environmental certainty. It would also create a nightmare for infrastructure development.

The reason is if there’s a limited supply of something, it will generally cost more

But what about expanding rural boundaries rather than removing them?

This would address issues raised by infrastructure developers but would probably upset rural communities and environmentalists — both groups seeing further incursion into rural areas as something to be resisted.

Even in Auckland, there’s a strongly held view that expanding the growth boundary would mean the land within the new boundary would quickly increase in value to match that within the old boundary.

For me, however, the most compelling argument against removing or expanding the Auckland RUB is the reality of just how much land is still available for development within the current boundary.

Right now, there is still capacity for up to 137,000 additional dwellings in areas within the RUB, as identified in the Unitary Plan. — Ashley Church is the former CEO of the Property Institute of New Zealand and is now a property commentator for Oneroof.co.nz. Email him at ashley@nzemail.com