Tuesday, August 12, 2014

Whither Now Local Government?

Centrally driven growth OR Locally planned development?

State policy settings in New Zealand have emphasized national economic growth rather than local economic development since the 2007 Global Financial Crisis. Headline examples of this strategy include regulatory support for massive increases in irrigation and dairy farming, for mining, and for red-tape-free redevelopment of Auckland’s built fabric.

Territorial authorities have been made pawns in this game by local government legislation changes that drive institutional changes locally and ensure consistency with central government’s short-term emphasis. But there is a growing risk that the baby of good local government will be thrown out in reform bathwater.

I explore some of these recent reforms in this article, including the Auckland Supercity reform and its Unitary Plan. But first, because this is an election year, I start by canvassing the local government policies published by the main parties.
Labour says that it will:

·    Restore the four well-beings – the cornerstone of the Local Government Act 2002 - and the powers of general competence.
·    Establish a Central & Local Government Cooperation Unit dedicated to the development, promotion, monitoring and sustaining of partnership.
·    Restore the right of citizens to have the final say by way of a referendum on whether their Council is included in any proposed amalgamation.
The Green Party says that it will:
·    Reinstate the four wellbeings (social, environmental, cultural and economic) into the purpose of local government as originally specified in the 2002 Local Government Act.
·    Retain the power of general competence conferred to local government in the 2002 Local Government Act.
·    Develop national policy statements and national environmental standards under the Resource Management Act to provide better policy guidance to local government, promote national consistency and help reduce plan preparation costs.
·    Identify ways to guarantee greater protection and independence for local government within New Zealand's legal and constitutional framework.

More similarities than differences, but very different from National's policy. 

The National Party’s local government policy was the subject of PM John Key’s speech to the Local Government conference in July this year. He reminded delegates:
 “Our changes to the RMA will tackle housing affordability by freeing-up land supply…”,
National’s overall approach is summed up by this remark: “…we’ll be crowd-sourcing ways to reduce the rules and regulations that stop people doing sensible things with their own properties…”,
and by his announcement that his incoming government would: “…establish a Central Government and Local Government review group known as the Rules Reduction Taskforce….  will listen to local concerns and find opportunities to reduce and improve local regulation…. will root out local regulation that could be improved.”

The central point of this speech is the clarion call to: “reduce the rules and regulations that stop people doing sensible things with their own properties.” This is a classic plea and appeal to the idea of common sense.

But the longer I live the more I see - and the more I understand that common sense is not at all common.

Economics and Land Regulation

The right of individuals to control their property has long been recognised, but that autonomy is counterbalanced by the fact that property use sometimes must be regulated for the common good. The common method of land use control in New Zealand is zoning, which allows local government to divide territory into districts or zones where particular uses or activities are permitted or prohibited. Zoning, which became common in the early 20th century, is the foundation of the modern local system of land use control.

Any decision to regulate, not to regulate, to regulate less, has an economic effect. There are winners and there are losers. Regulation can increase property values, and it can decrease property values.

If Auckland's residential development market was operating as a truly free market, then it would typically be argued by economists that no local government intervention or regulation would be required. The basic presumption is that market processes work best to allocate scarce resources (eg land) in the most efficient way.

But that when competition is imperfect, the consequent “market failures” can and must be corrected by local government (or central government). Market failure is the standard justification for local government action in welfare economics. Economists generally use the term market failure to describe a situation in which the invisible hand (Adam Smith's "invisible hand of the market") fails to allocate resources in a socially desirable manner, so as to maximize aggregate economic well-being (another phrase for “common good”). Market failure arises when economic agents face incentives that are distorted leading to economic outcomes that are bad from society’s point of view.

So let’s look at National’s policy emphasis on freeing up land supply as a preferred intervention. It wants local government to release more greenfield land for urban development. It says that this is to address the issue of housing affordability. But is that the only reason?

According to a recent OECD study of 78 OECD metropolitan regions, Auckland had the third highest average annual population growth rate. And Auckland had one of the highest proportions of its population comprised of overseas-born residents, just behind Toronto and Vancouver. Auckland’s exploding population – from immigration and from internal migration - is the real pressure for greenfield development.

But this is not only a concern and policy priority for central government. Auckland Council has adopted a Spatial Plan named “The Auckland Plan” whose central economic target is: “to increase annual average real GDP growth from 3% p.a. in the last decade to 5% p.a. for the next 30 years…”.

That’s a huge increase.

Auckland Council is a Creature of Central Government

There have been many institutional and legislation changes since the GFC that affect the role of local government in New Zealand. The most significant of these was the amalgamation of Auckland’s local bodies into Auckland Council which was required to prepare a Spatial Plan. Legislation states that the plan:
79 (4) (a) must recognise and describe Auckland's role in New Zealand;
Which is not something local government had been required by statute to think about much before.

After all we’re Jafa’s aren’t we?

The spatial plan has adopted a target of 5% GDP growth for Auckland (recognising Auckland’s role in delivering Central Government’s economic strategy), that is largely to be achieved through high population growth and associated building development. It is a target that is to be delivered and implemented by other tools under council’s control including the Proposed Unitary Plan.

Ambitious growth targets like these that might not be a problem for existing residents if they didn’t have to suffer the consequences, or to subsidise the costs of that growth. But just as the deterioration of New Zealand’s rivers is apparently accepted as the cost of growth in dairy production, deteriorating urban neighbourhood amenity and increased rates to subsidise growth infrastructure will be a consequence for citizens of Auckland Council’s urban growth plans.

While I appreciate the concerns about amalgamation that are expressed in Green and Labour Party policies, I read nothing in there to alleviate the mess that Auckland has been legislatively levered into.

Getting Auckland out of the Mess

In 2006 McKinlay Douglas Limited undertook a major project for Local Government New Zealand. It advised:
“An extensive review of the experience of local government amalgamation, whether sector wide as with recent New Zealand, English, Australian State and Canadian provincial experience, or focused on individual authorities as with Halifax, is at best equivocal on the proposition that amalgamation will produce benefits in terms of reduced costs and/or improved services. The reasons include the normally unanticipated but common impacts of factors such as alignment of salary scales, incompatibility of systems or the need to upscale, staff morale, and the disturbance associated with major organisational change.”

How prescient. Auckland media is awash with reports about salaries, systems change costs, further organisational change costs etc.

The mess for existing residents includes dealing with the fallout from Council’s growth policies. By fallout I mean that the common good will be reduced. This is because Auckland Council’s Central Government inspired policies for more greenfield sprawl (to accommodate high population growth) will themselves cause market failure for at least two reasons:
1.      Infrastructure Subsidy Market Failure

When a new housing development is built, roads and sewers must be constructed, and facilities such as schools, parks, and community facilities. The market failure arises because, under current financing arrangements (which will be exacerbated by central government proposals to reduce development levies), the infrastructure-related developer levy burden on new homeowners will be less than the actual infrastructure costs they generate. The rest of the cost is shared among all of the city’s residents rather than charged directly to those who require the new infrastructure. And developers pocket higher profits. Thus, by undercharging new homeowners for the infrastructure costs they generate, the current Auckland Council plan to subsidise growth related infrastructure will inevitably incentivise more urban sprawl.

2.    Excessive Road Commuting Market Failure

Commuters incur substantial costs, which include the out-of-pocket expenses of vehicle operation as well as the “time cost” of commuting. Together, these out-of-pocket and time costs represent the “private cost” of commuting, the cost that the commuter himself bears. And when the commuter drives on congested roadways to get to work, another cost is generated above and beyond the private cost. This cost is due to the extra congestion caused by the commuter’s presence on the road - which everyone else has to "pay". We face this problem in Auckland now. Some traffic could be diverted to off-peak hours (like heavy freight), when roads are less congested. Some car commuters would switch to public transport if it met their needs. The problem with these solutions is that they encourage people to commute long distances, the solutions effectively say "what you're doing's OK", and unless there are congestion charges or some sort of toll, road users never have to face the true costs of excessive road use leading directly to market failure, and indirectly to more urban sprawl.

To finish - some numbers. Auckland’s Proposed Unitary Plan generated 93,600 primary submission points. These have generated a further 400,000 secondary submission points. With all the good will and competence in the world, how will the independent commissioners manage the process?

Thousands of submissions have come from residents and individual property owners concerned at what might happen to their asset. They are worrying about what they might lose, if someone is permitted (by the Unitary Plan) to do “sensible things” next door. This worry is human. But it is not taken account of in Auckland’s Unitary Plan. This assumes all that’s needed is a few rule changes and the market will sort things out. There is no implementation strategy, master plan, structure plan or any other process available for whole communities to be able to have a say and a role in how their community develops and changes, and what infrastructure will be needed.

Christchurch is an exemplar. Maybe it took a real earthquake (rather than a political one), but in that city Master Plans for whole communities are being carefully used with communities and residents and commercial property owners to redevelop, intensify and regenerate mixed use urban landscapes in Lyttleton, Sydenham, Linwood Village, Ferry Road, Sumner Village, New Brighton and Edgeware Village.

There the emphasis is on local development rather than economic growth.

That’s what is needed in Auckland.

That’s the local governance we need.

No comments:

Tuesday, August 12, 2014

Whither Now Local Government?

Centrally driven growth OR Locally planned development?

State policy settings in New Zealand have emphasized national economic growth rather than local economic development since the 2007 Global Financial Crisis. Headline examples of this strategy include regulatory support for massive increases in irrigation and dairy farming, for mining, and for red-tape-free redevelopment of Auckland’s built fabric.

Territorial authorities have been made pawns in this game by local government legislation changes that drive institutional changes locally and ensure consistency with central government’s short-term emphasis. But there is a growing risk that the baby of good local government will be thrown out in reform bathwater.

I explore some of these recent reforms in this article, including the Auckland Supercity reform and its Unitary Plan. But first, because this is an election year, I start by canvassing the local government policies published by the main parties.
Labour says that it will:

·    Restore the four well-beings – the cornerstone of the Local Government Act 2002 - and the powers of general competence.
·    Establish a Central & Local Government Cooperation Unit dedicated to the development, promotion, monitoring and sustaining of partnership.
·    Restore the right of citizens to have the final say by way of a referendum on whether their Council is included in any proposed amalgamation.
The Green Party says that it will:
·    Reinstate the four wellbeings (social, environmental, cultural and economic) into the purpose of local government as originally specified in the 2002 Local Government Act.
·    Retain the power of general competence conferred to local government in the 2002 Local Government Act.
·    Develop national policy statements and national environmental standards under the Resource Management Act to provide better policy guidance to local government, promote national consistency and help reduce plan preparation costs.
·    Identify ways to guarantee greater protection and independence for local government within New Zealand's legal and constitutional framework.

More similarities than differences, but very different from National's policy. 

The National Party’s local government policy was the subject of PM John Key’s speech to the Local Government conference in July this year. He reminded delegates:
 “Our changes to the RMA will tackle housing affordability by freeing-up land supply…”,
National’s overall approach is summed up by this remark: “…we’ll be crowd-sourcing ways to reduce the rules and regulations that stop people doing sensible things with their own properties…”,
and by his announcement that his incoming government would: “…establish a Central Government and Local Government review group known as the Rules Reduction Taskforce….  will listen to local concerns and find opportunities to reduce and improve local regulation…. will root out local regulation that could be improved.”

The central point of this speech is the clarion call to: “reduce the rules and regulations that stop people doing sensible things with their own properties.” This is a classic plea and appeal to the idea of common sense.

But the longer I live the more I see - and the more I understand that common sense is not at all common.

Economics and Land Regulation

The right of individuals to control their property has long been recognised, but that autonomy is counterbalanced by the fact that property use sometimes must be regulated for the common good. The common method of land use control in New Zealand is zoning, which allows local government to divide territory into districts or zones where particular uses or activities are permitted or prohibited. Zoning, which became common in the early 20th century, is the foundation of the modern local system of land use control.

Any decision to regulate, not to regulate, to regulate less, has an economic effect. There are winners and there are losers. Regulation can increase property values, and it can decrease property values.

If Auckland's residential development market was operating as a truly free market, then it would typically be argued by economists that no local government intervention or regulation would be required. The basic presumption is that market processes work best to allocate scarce resources (eg land) in the most efficient way.

But that when competition is imperfect, the consequent “market failures” can and must be corrected by local government (or central government). Market failure is the standard justification for local government action in welfare economics. Economists generally use the term market failure to describe a situation in which the invisible hand (Adam Smith's "invisible hand of the market") fails to allocate resources in a socially desirable manner, so as to maximize aggregate economic well-being (another phrase for “common good”). Market failure arises when economic agents face incentives that are distorted leading to economic outcomes that are bad from society’s point of view.

So let’s look at National’s policy emphasis on freeing up land supply as a preferred intervention. It wants local government to release more greenfield land for urban development. It says that this is to address the issue of housing affordability. But is that the only reason?

According to a recent OECD study of 78 OECD metropolitan regions, Auckland had the third highest average annual population growth rate. And Auckland had one of the highest proportions of its population comprised of overseas-born residents, just behind Toronto and Vancouver. Auckland’s exploding population – from immigration and from internal migration - is the real pressure for greenfield development.

But this is not only a concern and policy priority for central government. Auckland Council has adopted a Spatial Plan named “The Auckland Plan” whose central economic target is: “to increase annual average real GDP growth from 3% p.a. in the last decade to 5% p.a. for the next 30 years…”.

That’s a huge increase.

Auckland Council is a Creature of Central Government

There have been many institutional and legislation changes since the GFC that affect the role of local government in New Zealand. The most significant of these was the amalgamation of Auckland’s local bodies into Auckland Council which was required to prepare a Spatial Plan. Legislation states that the plan:
79 (4) (a) must recognise and describe Auckland's role in New Zealand;
Which is not something local government had been required by statute to think about much before.

After all we’re Jafa’s aren’t we?

The spatial plan has adopted a target of 5% GDP growth for Auckland (recognising Auckland’s role in delivering Central Government’s economic strategy), that is largely to be achieved through high population growth and associated building development. It is a target that is to be delivered and implemented by other tools under council’s control including the Proposed Unitary Plan.

Ambitious growth targets like these that might not be a problem for existing residents if they didn’t have to suffer the consequences, or to subsidise the costs of that growth. But just as the deterioration of New Zealand’s rivers is apparently accepted as the cost of growth in dairy production, deteriorating urban neighbourhood amenity and increased rates to subsidise growth infrastructure will be a consequence for citizens of Auckland Council’s urban growth plans.

While I appreciate the concerns about amalgamation that are expressed in Green and Labour Party policies, I read nothing in there to alleviate the mess that Auckland has been legislatively levered into.

Getting Auckland out of the Mess

In 2006 McKinlay Douglas Limited undertook a major project for Local Government New Zealand. It advised:
“An extensive review of the experience of local government amalgamation, whether sector wide as with recent New Zealand, English, Australian State and Canadian provincial experience, or focused on individual authorities as with Halifax, is at best equivocal on the proposition that amalgamation will produce benefits in terms of reduced costs and/or improved services. The reasons include the normally unanticipated but common impacts of factors such as alignment of salary scales, incompatibility of systems or the need to upscale, staff morale, and the disturbance associated with major organisational change.”

How prescient. Auckland media is awash with reports about salaries, systems change costs, further organisational change costs etc.

The mess for existing residents includes dealing with the fallout from Council’s growth policies. By fallout I mean that the common good will be reduced. This is because Auckland Council’s Central Government inspired policies for more greenfield sprawl (to accommodate high population growth) will themselves cause market failure for at least two reasons:
1.      Infrastructure Subsidy Market Failure

When a new housing development is built, roads and sewers must be constructed, and facilities such as schools, parks, and community facilities. The market failure arises because, under current financing arrangements (which will be exacerbated by central government proposals to reduce development levies), the infrastructure-related developer levy burden on new homeowners will be less than the actual infrastructure costs they generate. The rest of the cost is shared among all of the city’s residents rather than charged directly to those who require the new infrastructure. And developers pocket higher profits. Thus, by undercharging new homeowners for the infrastructure costs they generate, the current Auckland Council plan to subsidise growth related infrastructure will inevitably incentivise more urban sprawl.

2.    Excessive Road Commuting Market Failure

Commuters incur substantial costs, which include the out-of-pocket expenses of vehicle operation as well as the “time cost” of commuting. Together, these out-of-pocket and time costs represent the “private cost” of commuting, the cost that the commuter himself bears. And when the commuter drives on congested roadways to get to work, another cost is generated above and beyond the private cost. This cost is due to the extra congestion caused by the commuter’s presence on the road - which everyone else has to "pay". We face this problem in Auckland now. Some traffic could be diverted to off-peak hours (like heavy freight), when roads are less congested. Some car commuters would switch to public transport if it met their needs. The problem with these solutions is that they encourage people to commute long distances, the solutions effectively say "what you're doing's OK", and unless there are congestion charges or some sort of toll, road users never have to face the true costs of excessive road use leading directly to market failure, and indirectly to more urban sprawl.

To finish - some numbers. Auckland’s Proposed Unitary Plan generated 93,600 primary submission points. These have generated a further 400,000 secondary submission points. With all the good will and competence in the world, how will the independent commissioners manage the process?

Thousands of submissions have come from residents and individual property owners concerned at what might happen to their asset. They are worrying about what they might lose, if someone is permitted (by the Unitary Plan) to do “sensible things” next door. This worry is human. But it is not taken account of in Auckland’s Unitary Plan. This assumes all that’s needed is a few rule changes and the market will sort things out. There is no implementation strategy, master plan, structure plan or any other process available for whole communities to be able to have a say and a role in how their community develops and changes, and what infrastructure will be needed.

Christchurch is an exemplar. Maybe it took a real earthquake (rather than a political one), but in that city Master Plans for whole communities are being carefully used with communities and residents and commercial property owners to redevelop, intensify and regenerate mixed use urban landscapes in Lyttleton, Sydenham, Linwood Village, Ferry Road, Sumner Village, New Brighton and Edgeware Village.

There the emphasis is on local development rather than economic growth.

That’s what is needed in Auckland.

That’s the local governance we need.

No comments: