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Open Letter to Mayor Phil Goff

Wednesday, 19 October 2016

His Worship the Mayor of Auckland Phil Goff

Dear Phil:
Congratulations on winning the Auckland mayoralty. Its a massive job
and there are plenty of challenges ahead for you and the new council.
Amongst the most pressing challenges is the need for the Auckland
Council to free up enough land to bring the out of control housing inflation
under control. Coincidently, it is your former colleague, Phil Twyford who
has been leading the charge on this in Parliament. He has declared that it
is the restriction on land supply through the urban growth boundary that
has created the rampant house price inflation. Numerous reports by New
Zealand and overseas planners and economists have arrived at the same
conclusion. Bureaucrats at the council have chosen to ignore that
evidence and continue to follow their own misguided agenda that has
seen the price of housing rise from 6 times the median Auckland
household income when Len Brown took office in 2010 to close to 12
times the median household income today.
There will be many seemingly plausible reasons as to why this has
occurred, low interest rates, high immigration, high building costs, and
land banking and so on. All are true to some extent but it is undeniable
that land makes up the majority of the cost of building a house and that
portion continues to grow. The council has no control over interest
charged by banks or immigration or building costs. However, you can
make land speculation less attractive by the simple act of providing a
competitive market for land. The Independent Hearings Panel which sat
in judgement of the Unitary Plan has addressed this but not to the extent
that is needed to make a meaningful difference. Phil McDermotts blog,
Cities Matter states; But it is too little, too late; so Auckland remains
consigned to increasing social division fashioned around a new poverty, a
poverty rooted in the failure of the housing market.

Your officials will argue that the redevelopment of existing built locations
with higher density housing will enable supply to meet the shortfall. The
evidence is however, that the assumed supply always falls short. Former
Reserve Bank chairman, Arthur Grimes and Andrew Aitken (2010)
Housing Supply, Land Costs and Price Adjustment, concludes all the
profit potential from redevelopment is impounded in rising site values.
When you address the housing affordability crisis you will be able to make
a real difference to the lives of Aucklanders. High housing costs are
responsible for a number of socials ills you are confronted with on a daily
basis. Homelessness was almost nonexistent when the amalgamation of
Auckland occurred six years ago. Today, people walking up Queen Street
run a gauntlet of homeless beggars. Household overcrowding in South
Auckland was considered a problem in 2013 when some local board areas
such as Mangere-Otahuhu and Otara-Papatotetoe had more than four
people per dwelling. Today it is likely that the overcrowding is much
worse given the population increase and lack of housing construction.
Poverty and high housing costs are closely related as are poor health and
education outcomes. If you want to do something about poverty Mr
Mayor, start with housing. And while youre fixing housing lets tackle
traffic congestion. Its hardly surprising that daily commutes take more
and more of our precious time. Since 2000 the population of Auckland has
increased from 1 million to 1.5 million or 50 per cent while the urban area
has increased by just 8 per cent. Unsurprisingly, this has created the
congestion which comes at the estimated cost of about $1 billion a year in
lost productivity.
When Auckland was first amalgamated 13,000 new dwellings a year were
required to maintain pace with population growth. At that time Auckland
already had a housing shortage. Estimates varied but the Reserve Bank
put the shortfall at about 15,000. Some commentators put the figure
much higher. Whatever it was at the time pales into insignificance on
what it is today. According to figures from Statistics NZ the annual
average number of new dwellings consented in Auckland since 2011 is
just 6,300. We have fallen short on average by 7,000 dwellings a year.
That would make a short fall today of about 35,000 dwellings. This is bad
enough! But the required build since 2013, given the strong inward
migration into Auckland, means that the required build since then is more
like 20,000 dwelling per year not 13,000. This would mean that the
shortfall is about 55 60,000 dwellings. (Ellis, 2016) This is probably the
most conservative figure; some industry insiders have cited numbers

significantly higher. Lets assume that the shortfall is 60,000 that would
mean that the Auckland Council is foregoing about $210m a year in rates.
That raises another issue for you to face (Im sure you knew the job
would not be easy) financing infrastructure. Youll be aware there a
tsunami of infrastructure costs heading our way. Council has borrowed
about as much as it can; youve promised to hold rate increases at 2.5
per cent. The government has already stated that a fuel tax, or any other
tax it seems, is off the table. You really need to consider a new way to
raise the necessary funding.
I am aware that council officials are looking at infrastructure bonds as a
mechanism for funding. Clearly, for bonds to be different from borrowing
it will need to be serviced from a completely new source of revenue. In
my view you should be considering Texas style municipal utilities districts
(MUD) which have been in existence there and elsewhere where there has
been rapid population growth. The purpose of a MUD is to fund
infrastructure such as water, wastewater, storm water and other essential
infrastructure. In Texas MUDs are created under Texas law and require
the majority of the property owners in the proposed district to petition the
Texas Commission for Environmental Quality (TCEQ) which evaluates and
consults the public on the petition. A key requirement is for the developer
to pay for at least 30 per cent of the development cost. This provides
greater assurance to future residents that the development will be
Once the MUD receives approval a Board of Directors consisting of land
owners within the district is elected. Developers are not permitted to be
board members. Elections are held periodically to elect or to re-elect
board members. The board has authority to authorise bonds, set rates
and levy taxes to pay off debt.
I realise this will require government legislation to set up but it seems
that there will be greater appetite for this than a fuel tax.
Auckland should spread to the south, thats where the jobs are, thats
where our power comes from and so does the rock needed to build
infrastructure. You need to move away from the CBD centric vision of
your predecessor. This centralisation/compact city model will fail. It
guarantees congestion, older infrastructure is at risk of failure, focus on
rail transit commits us to developing unattractive brown-field sites, the
market does not favour high density living unless it is well located in a
high amenity community and is well appointed and therefore will be

priced out of reach for most. (Back to Basics: Planning, Housing Markets,
and the Cost of Ignoring Economics, 2016)
You are in a great position to be remembered as the mayor who brought
affordability back to Auckland housing and the mayor who made a
difference in the lives of working poor.

Dick Quax - Councillor