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OPINIONPoliticsFebruary 15, 2024

Opinion: Wellington’s housing panel is out of step with the economic evidence


The independent hearings panel for Wellington’s District Plan claims upzoning won’t enable more housing or improve affordability. Economist Stu Donovan takes a critical look at the evidence.

Little Wellington is facing big decisions about whether to embrace more apartments and townhouses. The hot question is: will upzoning lead to more houses and improve affordability? According to the independent hearings panel making recommendations on Wellington’s proposed District Plan, the answer is no. In its first report, the panel decided “enabling intensification does not, of itself, improve or even address affordability”.

These views are – to put it politely – wildly out of step with the economic evidence. To understand why, we only need to look at Auckland, where the Unitary Plan enabled widespread upzoning from circa 2013 onwards. 

The number of building consents issued per 1,000 people annually fell after downzoning in 2005 and remained low until the Auckland Unitary Plan began to be adopted from 2013 onwards – after which consents surged to all-time highs. 

In the eight years since Auckland upzoned, 112,000 new consents – one for every five existing homes – have been issued. Around 90% of these consents turn into new houses, so it’s fair to say housing supply in Auckland is booming.

That doesn’t necessarily prove that those new houses were built because of upzoning. To figure that out, we need to account for the hypothetical scenario (or, “counterfactual”) where Auckland hadn’t upzoned. Thankfully, researchers have been working hard on these gnarly questions. This study compares consents in upzoned residential areas to non-upzoned residential areas within Auckland and finds upzoning caused an extra 22,000 consents over five years. Another study compares consents in Auckland to other similar cities in New Zealand and finds that upzoning caused an additional 43,500 consents. These are big, chonky causal effects. 

What about prices? Well, a third study finds that rents for two- and three-bedroom dwellings in Auckland declined by around 20-30% in real terms after upzoning. Together, these three studies find upzoning in Auckland caused the supply of housing to increase and the price of housing to fall.

Submissions from several people and groups, like Generation Zero, pointed to the Auckland experience as evidence of the benefits of upzoning, but the panel was not convinced, writing that the submitters “provided no details or analysis that might have demonstrated either that there was a causal relationship between these changes or that the same result would likely follow in Wellington.” 

The most serious problem here is that the panel was directed to detailed economic evidence that analysed the effects of upzoning in Auckland. This evidence found that upzoning had increased supply and reduced prices in Auckland, and that the same could be expected to occur in Wellington. 

The panel is meant to be full of planning experts. That’s why they’re appointed to the role. Yet, they seemed unfamiliar with evidence on the AUP, which is surprising because the AUP is probably the biggest thing to happen to planning in New Zealand in recent decades. I’m very serious when I say that Auckland is home to the most rigorously studied upzoning the world has ever seen, and it’s right in the panel’s backyard. 

As far as I can find there exists no counter-evidence to the submitters’ claims. There are zero published economic studies (at least that I have found) that concluded upzoning has no causal effects on housing supply in Auckland. In fact, the best evidence the panel can muster is a submission that references a blog post.

Indeed, most of the panel’s positions and recommendations relied heavily on evidence submitted by Dr Tim Helm, who acted as an expert witness for the Newtown Residents Association. In his evidence, Dr Helm cited a blog post that he had co-authored (“published”), which critiqued one of the three studies on Auckland’s upzoning that we discussed above. To start, I’d suggest that a blog post is a fairly weak piece of evidence to rely too heavily on. Even more problematic, however, is Dr Helm’s failure to mention that the criticisms in his blog post and testimony have, themselves, been strongly critiqued – and in my view, comprehensively debunked – in a blog post written by another economist. I suggest the failure to provide a balanced view of this evidence raises serious questions about Dr Helm’s conduct as an expert witness and, by extension, the panel’s reliance on his testimony to inform its own positions.

That said, Dr Helm’s evidence does provide some useful theoretical insights into housing dynamics. The problem is, he uses this theory to draw an extreme conclusion: “zoning rules just shape where housing goes and what it looks like – not how much is built”. This is the opposite conclusion to the Auckland research, which shows clear causal links between upzoning and building. 

Now, Dr Helm might try to argue that differences in the rate of supply between cities over time are due to differences in demand, such as population growth. For this to be a strong argument, however, Dr Helm would need to provide empirical evidence to support his theoretical claims, but he does not – or, at least not to a level that I find convincing. When I do try and test the implications of his theory, for example, by comparing the rate of supply with the change in the population, like I start to do here, then I find the housing supply gap between Auckland and Wellington widens. So, Helm’s relatively extreme theory isn’t supported by evidence or data. And keep in mind it’s Dr Helm’s job to make that case, not mine. 

What about the second part of the IHP’s argument, which questions whether these effects are “likely to follow in Wellington”? This hot take is deeply problematic for four cold, hard reasons.

First, the effects of upzoning on housing supply (higher) and prices (lower) follow directly from basic economic theories. While there certainly are some exceptions, submitters should not be expected to provide evidence that basic economic theory was likely to apply in Wellington. If the panel considers that this theory does not apply, then the onus and responsibility is on them to make the case. As it is the panel that is making the extraordinary claims, it is the panel that needs to supply the extraordinary evidence. In my view, the panel doesn’t make this case because it can’t: The vast majority of evidence doesn’t support the panel’s positions, even when one takes Dr Helm’s submission at face value.

Second, and building on this theme, the effects of upzoning have been documented in many studies and places globally. From Mumbai to California to Atlanta, Austin, Chicago, Denver, Los Angeles, New York City, Philadelphia, Portland, San Francisco, Seattle, and Washington DC, studies consistently find that upzoning boosts housing supply and reduces prices. Another recent study from renowned researchers went further and used global data to show taller buildings lead to lower rents, less sprawl, higher wages, and lower commuting costs. Given the voluminous evidence, I’d again suggest that the onus is on the panel to justify its position that upzoning wouldn’t have similar effects in Wellington to elsewhere.

Third, the panel’s implicit assumption that upzoning wouldn’t have similar effects in Wellington isn’t supported by data. Housing supply in Wellington has lagged behind Auckland for most of the last three decades, with the gap narrowing and widening following downzoning and upzoning, respectively – precisely as you would predict based on the economic evidence. 

Similarly, since 2016, rents in Wellington have increased faster than Auckland. Importantly, the detailed economic evidence submitted to the panel specifically modelled the effects of upzoning on Wellington and found it was of a similar magnitude to other cities in New Zealand. Just to the north, meanwhile, the small but mighty Hutt City has seen consents surge to record highs after upzoning. The panel’s unusual views on upzoning and its implicit, unsubstantiated assumption of Wellington exceptionalism sits horribly out-of-step with this evidence and the data.

The fact is that simple analyses of publicly-available data show that the rate of housing supply falls after downzoning and grows after upzoning. Boring old conventional economics carries the day again, pulling the rug out from under the panel’s recommendations.

So why do we care? Well, the panel’s position on the effects of upzoning and its relevance to Wellington have underpinned their many recommendations to reduce housing capacity. The panel concluded, again pointing to evidence from Dr Helm, that the proposed plan has “sufficient capacity” to meet “expected demand” – therefore, there was no problem with reducing housing capacity. This assumption that downzoning is costless does not stand up to economic scrutiny.

The panel does not consider, for example, whether the capacity that they recommend retaining is a substitute for the many locations where they recommend downzoning, such as the inner city character areas. Different locations can vary enormously in terms of their accessibility and amenities – even over relatively short distances. For this reason, policies that reduce supply in some locations but increase it in others can still have large and tangible economic costs.

Where to next? I suspect that both Wellington City Council and central government are taking legal advice on whether these apparent errors of economic fact constitute errors of law. Spicy!

Stepping back, however, this episode highlights deeper, more structural problems with the role of economic evidence in planning processes in New Zealand. The law that governs the District Plan process, the NPS-UD, has the objective to “improve housing affordability by supporting competitive land and development markets,” which in my view the panel does not take sufficiently seriously. 

The law also says that any move to restrict housing below that required by the NPS-UD and MDRS must “assess the costs and broader impacts of imposing those limits”. Wellington’s panel dismissed the latter requirement and recommended strict limits on development below those required by law without assessing their costs or quantifying their impacts. In New Zealand, our planning processes somehow manage to be both totally costless and yet extremely costly, all at the same time.

The good news for Wellington is the panel’s recommendations have been criticised by politicians of all stripes. Many people seem to clearly think that New Zealand would benefit from enabling more housing. And with some political leadership from central and local government, I get the sense that this is still possible to achieve. For its part, Wellington City Council now has the chance to reject the panel’s recommendations for downzoning, while ministers could also end up weighing in. In general, I remain optimistic that New Zealand will continue to adopt evidence-based housing policies that help more people get into better and more affordable homes. 

Stuart Donovan is a senior fellow for Motu Economic and Public Policy Research in Wellington. Stuart currently resides in Brisbane with his family and three worm farms. Stuart does not own property in Wellington, but he would consider doing so if prices were to fall.

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