Sunday, 13 November 2016

The NPS-UDC: could it lead to higher house prices?

The heart of the National Policy Statement on Urban Development Capacity is the requirement for every council to maintain a buffer of three-four years of developable land at any one time. While my gut feeling is that this won't do much for improving the supply of land for development and, therefore, getting house prices to where they should be in Auckland, I still want to dig a little deeper and see what the outcome could be. My preferred place to start when thinking about how this will play out in real life is to think about what it will take for a council to actually do this; the mechanics, if you like.

Councils are going to have bring together two groups, engineers and planners, who not only operate under completely different statutes but who, culturally, are planets apart. When they develop or revise a District Plan, planners are basically creating a design for a district to evolve into. These designs contain next to no idea of the sequencing that may occur for that design to become reality. So you can read a District Plan but it will not tell you which specific places will grow first, second or third. As you would expect, the engineers are almost the exact opposite. They have inherited infrastructure that has already been around in one form or another for more than a hundred years. Their job is to maintain and grow that infrastructure as required. They do not have a target design or end point in mind. The engineers' asset management plans set out their intentions for the next ten years or so. They include the specific projects year by year that will underpin growth and development.

Although it sounds as though the engineers are deciding on the sequencing its not quite true at the moment. The Local Government Act makes councils write Ten Year Plans in which the first three years are supposed to be reasonably firm. Councils can, quite reasonably, change their minds according to what happens in the real world. In years two and three of a Ten Year Plan councils can present a revised plan as long as they clearly explain what they are doing and why. 

The point is that the current system allows councils some flexibility to adjust their development plans in line with external events and market demand. Although you might expect to see councils adopt a specific growth strategy detailing exactly where and how their district will grow it turns out they don't. The planners create a hierarchy of plans with non-statutory structure and outline development plans providing more detailed guidance as to how they see a specific area being developed. But these have no time-frames attached to them. The engineers - as I noted above - do put a stake in the ground as to sequencing of growth-related projects but those projects can be rescheduled year by year so they should always be read as indicative.

The NPS pretty much removes all that flexibility. The council process for taking a bright idea for a new asset through to physical completion is generally about three years. Having to deliver a three year buffer of developable land means that councils will have to be continuously planning six years ahead. Although it only adds three years (closer to four in Auckland) to the development cycle it's enough to tip councils over to a very rigid approach.

Councils really don't want to carry the costs of all that idle infrastructure any longer than they have to so I expect that some councils will opt to make the developable zones fewer in number and possibly smaller in size. As these zones fill up they will then start to open up new zones and begin servicing them. If it turns out that councils decrease the quota of places where building dwellings is permitted at any one time that may have the result of sustaining prices at current levels or even squeezing them higher.

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