Saturday, July 31, 2010

Housing Affordability and Urban Density

I came across an interesting paper the other day, when I was preparing a presentation for a conference on the same subject. It's worth sharing...


There has been increasing interest and research into house prices in New Zealand. Recent work has focused on the movements in market prices for houses, for land, and for house construction costs especially as these price movements affect consumer inflation, and housing affordability. To date the work released has not directly addressed the role of resource pricing in the allocation of urban land, and other matters affecting affordability with increasing urban density....

...paper discusses the issues around housing affordability in the context of increases in urban density, with consequent effects on resource pricing of land, industry profiles, residential density, employment participation and incomes.

The paper is written in reseanably dry academic tones and notes previous work in relation to housing affordability by one Arthur Grimes et al, known for their strident criticism of controls like the Metropolitan Urban Limit, and their economic arguments that the MUL is one of the single most influential causes of housing unaffordabiliy, by constraining the supply of land.

Sanderson's research looks at the effect on housing affordability - particularly medium density housing provision in town centre environments - of the fact that medium density homes use less land/home than the more life style homes seen at the edge (and of less expensive homes in new subdivision at the edge which nonetheless are representative of the the 1/4 acre pavlova paradise "ideal", and of the fact that people who live close to, or in town centres benefit economically from agglomeration benefits and reduced network costs (including travel).

Key quotes include:

These observations do not provide incontrovertible proof that in these areas of higher density housing is more affordable, but they do indicate that there is a need to investigate further these behaviour phenomena, in the interests both of housing affordability and of urban and economic development in a broad range of our urban centres.

Thoughts raised in the paper include these:


1. The land price per resident is generally lower because the density increase is greater than the land price increase.
2. Household income opportunities are greater because, firstly with agglomeration,
industry includes a broad range of business services producing higher incomes for employees, rather than low density, lower income ‘bulky’ industries like manufacturing and warehousing. (The average GDP/FTE in the industry profile of inner Wellington is over 10% higher than for the City as a whole. It is likely that incomes reflect the GDP/FTE.) Secondly the range of employment opportunities is wider, and consequently labour force participation is very high, allowing higher
household incomes. Of the total population in the inner Wellington city, 68% are in the labour force, whereas for the country as a whole, there are 47% employed.)
3. Some other basic living costs are lower because e.g. the costs of providing
networked infrastructure declines per person; and the opportunity for using active transport modes (walk, jog, cycle) in a range of journey purposes increases. (In most urban areas about 6% of the travel-to-work journeys are by active modes whereas in inner Wellington and Auckland the figures in 2001 were 50%-62%.) For other journeys, public transport is more likely to be a viable option in the more-dense areas.

I hope that more research is done exploring these matters further. It is essential that the narrowly focussed economic analysis of the Grimes, Wendell-Cox, Pavletich, is set aside through broader based analysis that takes account of all costs and benefits of different housing options and alternatives.

You can download the paper from: Kelvin Sanderson Paper

No comments:

Saturday, July 31, 2010

Housing Affordability and Urban Density

I came across an interesting paper the other day, when I was preparing a presentation for a conference on the same subject. It's worth sharing...


There has been increasing interest and research into house prices in New Zealand. Recent work has focused on the movements in market prices for houses, for land, and for house construction costs especially as these price movements affect consumer inflation, and housing affordability. To date the work released has not directly addressed the role of resource pricing in the allocation of urban land, and other matters affecting affordability with increasing urban density....

...paper discusses the issues around housing affordability in the context of increases in urban density, with consequent effects on resource pricing of land, industry profiles, residential density, employment participation and incomes.

The paper is written in reseanably dry academic tones and notes previous work in relation to housing affordability by one Arthur Grimes et al, known for their strident criticism of controls like the Metropolitan Urban Limit, and their economic arguments that the MUL is one of the single most influential causes of housing unaffordabiliy, by constraining the supply of land.

Sanderson's research looks at the effect on housing affordability - particularly medium density housing provision in town centre environments - of the fact that medium density homes use less land/home than the more life style homes seen at the edge (and of less expensive homes in new subdivision at the edge which nonetheless are representative of the the 1/4 acre pavlova paradise "ideal", and of the fact that people who live close to, or in town centres benefit economically from agglomeration benefits and reduced network costs (including travel).

Key quotes include:

These observations do not provide incontrovertible proof that in these areas of higher density housing is more affordable, but they do indicate that there is a need to investigate further these behaviour phenomena, in the interests both of housing affordability and of urban and economic development in a broad range of our urban centres.

Thoughts raised in the paper include these:


1. The land price per resident is generally lower because the density increase is greater than the land price increase.
2. Household income opportunities are greater because, firstly with agglomeration,
industry includes a broad range of business services producing higher incomes for employees, rather than low density, lower income ‘bulky’ industries like manufacturing and warehousing. (The average GDP/FTE in the industry profile of inner Wellington is over 10% higher than for the City as a whole. It is likely that incomes reflect the GDP/FTE.) Secondly the range of employment opportunities is wider, and consequently labour force participation is very high, allowing higher
household incomes. Of the total population in the inner Wellington city, 68% are in the labour force, whereas for the country as a whole, there are 47% employed.)
3. Some other basic living costs are lower because e.g. the costs of providing
networked infrastructure declines per person; and the opportunity for using active transport modes (walk, jog, cycle) in a range of journey purposes increases. (In most urban areas about 6% of the travel-to-work journeys are by active modes whereas in inner Wellington and Auckland the figures in 2001 were 50%-62%.) For other journeys, public transport is more likely to be a viable option in the more-dense areas.

I hope that more research is done exploring these matters further. It is essential that the narrowly focussed economic analysis of the Grimes, Wendell-Cox, Pavletich, is set aside through broader based analysis that takes account of all costs and benefits of different housing options and alternatives.

You can download the paper from: Kelvin Sanderson Paper

No comments: