Costs, benefits, and apartments

By Eric Crampton 27/01/2015

Yes, the Motu report on the costs of Auckland’s urban planning regulations does not include a measure of the benefits. In some cases this will not matter much; in others, it might.

Andrew Geddis focuses on building height limits which impose about $18-32k per apartment and chides me for ignoring the benefits of those for the potentially otherwise shaded. But look at the main cost categories in the list. Floor-to-ceiling height limits impose $21-$36k per apartment. There is absolutely no offsetting benefit of floor-to-ceiling height limits that is not fully incorporated into the price of the apartment. Sure, the eventual residents will get some value out of the higher ceilings, but there will be plenty of buyers who’d have wanted to save money and to have a lower ceiling. The costs have to be in excess of the benefits for these things. There is no external benefit that comes into play.

And same for balcony area regs that tally $40-$70k per apartment. The only people benefited by these regs are the ones buying the apartments. In the absence of this regulation, they could either buy an apartment with no or small balcony, and save $40-$70k, or one with a big balcony and pay the extra. Some people will be made no worse off due to the reg, as they’d have bought a big balcony anyway; others are being forced to buy a Mercedes when they really wanted a Toyota.

These were two of the biggest per-apartment cost items, and there is no way that benefits can possibly exceed costs unless we think people buying apartments systematically err on the side of buying ones that are shorter than they really want and with less balcony than they really want.

In all these cases, the ideal measure would be a net cost one that said “Ok, so we forced you to buy a Mercedes instead of a Toyota and so you’re going to be paying a pile more in mortgage interest than you otherwise wanted, and it’s going to cost you more in fuel too. But let’s think about how much more fun you’ll have driving that Mercedes and count that against the extra price we forced you to pay. And let’s think too about how much nicer the place looks when we don’t have a bunch of Toyotas driving around.”

And sure, you can get some non-crazy benefits from things like viewshafts that wind up putting in height limits. But prior to the Motu report, planners were operating in absolute ignorance of the costs these things imposed. Nobody had any clue; the Auckland stories I’ve heard suggested that they then didn’t put much weight on that there could be any cost. Now they can at least look at the existing viewshafts, tally up the costs they impose, and start thinking about whether it’s really worth tens or hundreds of millions of dollars to maintain particular views from particular places.

Geddis is right on this though:

Because irrespective of its source, the value conferred on a property by restrictive planning rules is perceived by the home owner as being “theirs”, which then creates the problem for RMA reform that Rob Salmond outlines here:
Per unit apartment costs in high-demand areas line (sic) Parnell would certainly be lower if the developer could build 30 or 40 stories of apartments there, right. And the homeowners of Parnell hate the RMA and its requirements for consent before making a greenhouse, right? But I’m willing to bet the homeowners of Parnell aren’t at all in favour of having their tomatoes’ sun blocked by a series of large apartment blocks. Dilemma, dilemma.
Which actually is a part of a wider dilemma. Because everyone wants “affordable housing”, so long as it doesn’t cause the current value of their home to go down. Which, in a housing market that in Auckland is looking more and more like a bubble, poses a real problem for policies that are aimed at increasing housing affordability. 

There is a way around this. Upzone EVERYTHING, make everything tall be subject to notified consent, but restrict standing for objection to directly affected neighbours. And, make it easy for developers to buy options from neighbours saying “Ok, I don’t know whether I want to put an apartment building here. I’m paying you $1000 now for the following deal: if I build it, I pay you $50k compensation and you don’t object; if I don’t, you keep the $1000.”

If standing for objection is limited to those directly shaded and incurring real effects rather than made-up stuff, this can work.