Episode 45: What Happened When Auckland Upzoned Everywhere with Ryan Greenaway-McGrevy

Shane Phillips 0:04
Hello, this is the UCLA Housing Voice podcast, and I'm your host, Shane Phillips. This week's episode is with Professor Ryan Greenaway McGrevy, and our subject is one that is definitely going to be of great interest to our listeners. In 2016, the city of Auckland, New Zealand up zoned the vast majority of its land. And unlike some US cities that have in recent years eliminated single family zoning, but still only allow two or three units on each parcel, Auckland went big - allowing multifamily buildings of anywhere from three to seven stories in about three quarters of the city. To date, and to my knowledge, it's the biggest real world test of the theory that not only will upzoning result in more housing but more importantly, that it will help with housing affordability. The good but somewhat unsurprising news is that the up zoning pretty much worked as intended, and as economic theory would predict. I won't spoil the results too much here in the intro but what I will say is that the results aren't as simple as up zone, build more housing and prices go down. But they're also not too much more complicated than that. We dig into the details of what Auckland actually did the results with respectable housing production and housing prices, and what lessons this holds for other cities around the world. I really want to underscore how important and valuable it is to finally have a city that's tried the kinds of reforms people like us at the Lewis Center have been advocating for, for a long time, and it's really encouraging to see such positive results. The Housing Voice Podcast is a production of the UCLA Lewis Center for Regional Policy Studies with production support from Claudia Bustamante and Jason Sutedja. Divine Mutoni has also been helping us out by updating our backlog of transcripts, starting with the most recent episodes, so feel free to check those out. You can email me at Shanephillips@ucla.edu, and please take a moment if you could give us a five star rating or review or tell a friend or colleague to check out the show. Now let's get to our conversation with Professor Ryan Greenaway in agreement. Ryan Greenaway McGrevy is Associate Professor of Economics and Director of the Economic Policy Center at the University of Auckland, and he's here with us today to talk about what happened in Auckland after three quarters of the city was upzoned, and upzoned quite significantly in 2016. Ryan, thanks for being here, and welcome to the Housing Voice podcast.

Ryan Greenaway-McGrevy 2:41
Thank you for having me. Great to be here, guys.

Shane Phillips 2:43
Paavo, you are my co host today, welcome!

Paavo Monkkonen 2:46
Thanks, Shane. Hi, Brian, Kia ora,

Ryan Greenaway-McGrevy 2:48
Kia Ora to you too.

Shane Phillips 2:50
Paavo always got the culturally appropriate introduction.

Ryan Greenaway-McGrevy 2:54
Yep, yep, I appreciate it.

Paavo Monkkonen 2:56
I've been with people who live in Auckland lately, so yeah.

Shane Phillips 3:01
So we'll start as we always do with a tour from our guest. Ryan, I believe you will be our second guest to talk about Auckland, but I'm sure you'll have some different places to share. So if you were taking us around, (and) wanted us to see some things, where would you take us?

Ryan Greenaway-McGrevy 3:16
Cool. Cool. Cool. So firstly, welcome to Auckland City. I'm taking you two guys around, right?

Shane Phillips 3:22
Sure.

Ryan Greenaway-McGrevy 3:23
Can you swim?

Shane Phillips 3:24
Yes.

Ryan Greenaway-McGrevy 3:25
Yes.

Shane Phillips 3:26
Yes. I'm afraid of jellyfish. But yeah, all right.

Ryan Greenaway-McGrevy 3:30
Excellent, got the right to be afraid of jellyfish it's not good most of the time. All right, so we are going to, if I was going to show you around Auckland, we're gonna go to place called Goat Island, okay? But before we get there, I'll just provide a little bit of context for the listeners about Auckland itself. So Auckland is the largest city in New Zealand, about 1.7 million people now; we're located on a large island and we're on an estimus between two harbors - we have the Watch Matar to the North and Monaco to the South, and so water, and the sea plays a prominent role in a lot of people's lives and how they enjoy their lives in Auckland, and I'm one of them as well. If you're into hiking and greenery and parks and forests, we've got that stuff too but I'm in charge of this trip so sorry, we won't we won't be seeing that today. So once you come to Auckland, we have very temperate climate; you don't have to worry too much about what you're wearing day to day. You' ll arrive, I'll show you around the CBD, I'll show you the restaurants and so forth but really, I'm hanging out and waiting for that first sunny day when there's no clouds in the sky, when there's no wind, and water visibility is good. Because then we're going to jump in the car, we're going to drive about an hour and a quarter North of Auckland, to this marine reserve called Goat island. So it's marine reserve, you can't fish there, you can't take anything from there. If it's a weekend though, it's going to be packed. You're going to see a huge cross-section of Auckland society there, and if it's high tide, it's going to be standing room only. There's no room on the beach. Parking is going to be a pain but it's all worthwhile in the end. I'll lend you go some snorkeling gear, we'll jump in the water, and then once we're in the sea, you're gonna see all kinds of amazing fish. You're gonna see what the marine ecosystem was like before people arrived in mass numbers under colonization. So you're gonna see lots of new fish, our most favorite fish to eat the snapper, you'll see plenty of those; you'll see the blue mawmaw which is electric blue; you'll see stingrays maybe some jellyfish, maybe not - they're usually quite small, maybe an octopus or two, if we're lucky. If we put our heads under the water, you're going to hear the sea urchins, Kenna, as they are known here, munching away at old kelp, and it's gonna be a totally immersive, you know, sensory experience. There's going to be no time for thinking about housing,

Paavo Monkkonen 5:44
... talking about differences in differences underwater

Ryan Greenaway-McGrevy 5:49
Gosling for it, it's going to be totally immersive, you're going to be right there in that space at the time.

Paavo Monkkonen 5:55
I'm worried though, are these the same merchants that are eating all the kelp in California?

Ryan Greenaway-McGrevy 5:58
Yeah, there'll be a different species, but we have the same problem. So outside of the marine reserve, you have referred to them as kind of barons, where they're munching all the kelp away, and why they're doing that in great numbers because of overfishing, their natural predators are gone. So if you want to see that we can go out and see that as well. But, you know, to bring this back to, to Auckland, and the topic of today's conversation, you know, what this shows is that when you plan to have a more compact city, greater population density towards the CBD River and works, you can preserve, you know, these natural amenities and locations that are easily accessible to everybody. You know, it's an hour and a quarter north. Okay? If the traffic's bad, it'll take a bit longer if it's a nice day. But, you know, imagine if I was in LA, obviously, it's a much larger city. But if I drive for an hour and a half, I'm still probably looking at houses, right. So you know, all those natural amenities, all the things that people really enjoy about living in Auckland, I think upzoning as a way or greater population density as a way to preserve all those amenities while allowing a greater number of people to enjoy them. I'm looking forward to hosting you guys.

Paavo Monkkonen 7:08
Fantastic! I'm ready to go.

Shane Phillips 7:10
Yeah, I have to ask, are there goats on Goat Island?

Paavo Monkkonen 7:13
Yeah yeah

Ryan Greenaway-McGrevy 7:14
There are no... well, there might be, I've never seen one. But I believe it's called Goat Island because in earlier times when you had to be worried about food, sailors would drop off goats on these islands, and know that they could come back to them and you know, get a quick feed.

Paavo Monkkonen 7:32
Yeah, yeah, this is a big problem I think it's the Galapagos right where they they left goats there and then they ate all the plants that the turtles used as habitat and then they had to go shoot all the goats.

Ryan Greenaway-McGrevy 7:44
Yeah, I mean, to be honest, when there's I guess the Galapagos is protected as well and I assume in large parts, but back in the day, of course, it was all this food, or Kai Moana as in the native Maori language, was all available, right, just under the surface.

Shane Phillips 8:02
All right, so there are two articles we're discussing today; the first one in urban studies in which Ryan is joined by co authors, Gail Pacheco, and Cade Sorenson; that one was published in 2020, and it's titled 'The effect of upzoning on house prices and redevelopment premiums in Auckland, New Zealand'. The second one has yet to be published in a peer-reviewed journal but there's a discussion paper version from 2022 with co-author Peter CB Phillips, and that one's titled 'The impact of upzoning on housing construction in Auckland'. As the titles I think make pretty clear, we're going to be talking about an upzoning that took place in Auckland, New Zealand, and the impacts that had on housing, construction, and housing crisis. I was originally going to spoil this, but Pavo told me I should actually let Ryan spoil the results for both of these two papers. So Ryan, take it away. What's the headline results for both of these papers?

Ryan Greenaway-McGrevy 8:58
Yeah, so for the the second paper that looks at housing construction, basically the punchline of that paper is that upzoning works to the extent that we see an increase in the number of permits being issued for housing units, after the policy takes place. And these permits are predominantly occurring or for the vast majority in the UP zoned areas of the city. So on the paper itself, we get a bit more technical and the econometrics and, and so forth. But that's that's the punchline, the takeaway from it, that it can at least in the case of Auckland, that up zoning appears to have or has encouraged an increase in the number of housing units being constructed. But earlier paper with Gail and Cade, this is looking at sort of the immediate or short term price impacts relative price impacts from the upside in policy. So what we find there is that when you look at houses that or existing properties, I should say that are relatively underdeveloped. You might think of an old house Sitting on a big piece of land, when houses like that were up zoned, you saw a big increase in the value. And we attribute that to the value of the underlying land, you can now fit more floor space on it. So that makes a certain amount of economic sense. But also, what's interesting is that what we found is that when already intensively developed properties were up zoned, we actually saw those fall in value relative to similar properties and non up zoned areas. So you know, if you go back far enough and Auckland's timeline, we did allow more intensive forms of development. But then we went through a sort of a downzoning that prevented that from happening anymore. So there are pockets, where you do see more intensive forms

Shane Phillips 10:38
Not unusual in that it's not unusual in that history by any stretch.

Ryan Greenaway-McGrevy 10:43
Yes. But both of these results, I think, make a certain amount of economic sense. Regarding the upzoning of already intensively developed properties, well, these the kinds of properties and the kinds of housing forms that upzoning supposed to encourage. So seeing the price of those fall and neighborhoods where there's going to be a lot more of them in the future, if the policy is successful, makes a certain amount of sense.

Shane Phillips 11:07
Yeah, I think it's important to note and we'll get much more into the details here. But as intuitive as these results are, there is not a lot of evidence for the impacts of these kinds of policies, because very few places have up zoned very significantly, and particularly to the extent that Auckland did in 2016. So we'll we'll get to that. But before we talk about the upzoning itself in more detail, let's talk about what motivated it. Some very important context here is that housing crisis in New Zealand had been kind of out of control for at least the past decade, and the problem has been especially acute in Auckland. By some measures, Auckland is one of the least affordable cities in the world. And since most of our listeners won't be too familiar with Auckland's housing market, or maybe anything about Auckland, could you say a bit about where things stood in terms of housing scarcity and housing affordability before this upzoning took place?

Ryan Greenaway-McGrevy 12:04
Yes, absolutely. So we haven't really built enough to keep up with our population growth in New Zealand so there's been restricted supply and growing demand, and unsurprisingly, this has led to, you know, increasingly unaffordable housing. I think currently, although this might have changed more recently, but you know, if you compare the median house price to median household income in Auckland, we're at about 10. They might have come down more recently, because the bubble is beginning to burst a little bit but that gives you an idea. So that's incredibly unaffordable, if you follow the Demographia reports that are put out there that they usually record those ratios; Auckland, (and) some other cities in New Zealand and Australia always rank really highly. In terms of the scarcity to give you an example, you know, between 2013 and 2018, our population (those are the census years; we have a census every five years so that's when we get the more most accurate information on our population and our housing stock), the population grew by about 10% over that five year period, but the number of occupied dwellings only grew by 5% right? So it's really a picture of we're not keeping up and not providing enough housing to support our growing population.

Shane Phillips 13:17
And that might actually kind of understate the restrictions on housing or the scarcity of housing because, you know at some level, when you have less housing, when people have to overcrowd into it, people might have less children, you know, population growth tends to slow. So it's not, they're not totally independent of each other.

Ryan Greenaway-McGrevy 13:35
Yes, absolutely, and there's, I'm not sure if we want to get too much into it, but the sort of the broader ramifications for society, I think are far reaching. Housing unaffordability, I think, is the number one, or close to being the number one local problem that New Zealand faces. I mean, there are global problems like climate change, and so forth but, you know, the high cost of housing eats away at people's real incomes, (and) inflation is going up everywhere currently, as well so budgets are further under pressure from that side of things. When you're spending a large proportion of your take home income on the roof of your head, that's bad for welfare, and it has these longer term problems as you've touched on.

Shane Phillips 14:15
So let's get into what Auckland actually did, which was to upzone about three-quarters of the city in one fell swoop. And I should note that there are other places, Minneapolis would be an example, that upzoned effectively the whole city, you know, allowing for three units.

Paavo Monkkonen 14:33
California upzoned the whole state

Shane Phillips 14:35
California upzoned the whole state allowing for technically four units on most, at least single families, parcels but these are really kind of modest up zones where what is allowed now versus what was allowed before, it's not that big a change. And in Auckland, that's just not really the case to the same extent. So in Auckland, the city now has four main residential zones, the overwhelming majority of zones at least, with single house zoning being the most restrictive, and the terrace houses and apartments zone being the least restrictive, meaning it allows the tallest and most dense buildings. A bit over 7% of the city is in that highest density zone after the adoption of what is called the Auckland Unitary Plan, which doesn't sound like too much, but now only 23% of land is zoned for single houses. And it maybe goes without saying it was a lot more than that before.

Paavo Monkkonen 15:31
It was like three quarters before, right?

Shane Phillips 15:33
But now only about 23% of the land is zoned for single houses, and pretty much all the rest is in those middle zones, which do allow for multifamily housing of varying densities or intensities. In virtually every US city, the vast majority of land zoned for residential uses is reserved for single-unit detached houses only. I think in San Jose, just as a kind of extreme example, it's around 90%, and that's a city of over a million people in the most economically productive region in the world. Ryan, could you share some more details on what Auckland zoning looked like prior to 2016, and how big a change this was? One thing that stood out to me is that this change increased the city's capacity for new homes by over 300%, at least on paper, which is just an astounding figure to me. Give us some more background on what they did to achieve that, what changes were made.

Ryan Greenaway-McGrevy 16:28
Yeah, so the Auckland up zoning came about when Auckland Council, as it's currently known, was formed. So prior to 2010, the Auckland metropolitan region, if you will, was comprised of seven different city and district councils. And Auckland City Council as it was known it was really restricted to this central isthmus that I mentioned earlier. So each one of those seven areas, district councils, had their own land use planning laws that they enacted. And when you go back and look at them, although they did allow for, you know let's say some amounts of medium density, they were really restricted to very small areas of the city and particular neighborhoods. They weren't blanket zones, they were special zones. And when you go back and look at, you know, the amount of land that had this higher zoning, my estimates are that in terms of say, terraced housing and apartments, what we now know is terraced housing and apartments, about, you know, smaller than 2% of that, was already zoned for this higher density level. So it was really a picture of 'Yeah, we do allow high density, but it's not happening across the city; it's really highly planned and restricted to these very small locations'. In 2010, the central government passes legislation that says Auckland is going to amalgamate; the metro region is going to amalgamate and become the Auckland Council - this is much larger spans; I think about 4000 plus square kilometers of land area, most of it rural. So it's a huge area now. And they would have to come up with a spatial plan and a uniform set of land use regulations set of zones. And so out of that process, the council was quite ambitious, and as I understand it, without too much encouragement from the central government really wanted to plan for a more compact population growth going forward. Not yet motivated by housing affordability, but motivated more by issues like climate change, congestion planning, that's more suitable for an urban typology that has, you know, surrounded by two harbors. We're not on a flat plane, like say Atlanta where there's plenty of space. This occurred at a time though, when house prices were just, you know, appreciating by astounding amounts each year - 20%, 25% was not uncommon. Over several years, you know, house prices have doubled very quickly. And so out of that process in 2013, the first version of this plan was put to the public. There was some backlash, a lot of people were not happy, and seeing how the neighborhoods would change

Shane Phillips 19:07
Always, always is.

Ryan Greenaway-McGrevy 19:09
Yeah, there's some quite frankly, terrible behavior at public meetings that occurred. But, yeah from 2013, there was sort of this review process, the plan went through several revisions because housing affordability became more of a concern. We saw the central government get involved, and there was a sort of overview from the central government then ensured that the final version of the plan ended up being quite ambitious. That did go back to the Auckland Council, but you know, they could only, my understanding is that they could only query the points made by all the changes made by the government based on points of law. And so basically, the unitary plan went through with the council's approval, and this form that allowed for, as you say if you look at these, I don't know how much trust I put in these capacity sasessment numbers because, you know, ignores the economics and I'm an economist, you know; these Kenway dwellings, are they feasible or not? Are they in places that people want to live and so forth? You can always game these things but this massive increase, at least in terms of planned capacity, came about through it. And subsequently, we've seen, you know, the beginnings of not only an increase in the number of housing permits being issued, but, you know, big increase in the number of multifamily attached units being built, all of which I think suggests that it's really been successful, and at least encouraging supply.

Paavo Monkkonen 20:36
I was really struck by the the fact that the plan became more ambitious in subsequent iterations. I guess you're saying that that was mostly because of the central government's input?

Ryan Greenaway-McGrevy 20:46
Yes, my understanding is that the first version of it was quite ambitious; there was a council and the Mayor realized that, you know, they might not be around for much longer, and so it's pulled back slightly, but then the final version came through. One of the big things the final version did was abolish minimum lot sizes, for example.

Paavo Monkkonen 21:05
And so that's, that plays a big part in these townhouses that I've seen a lot of cool pictures of. I was, I was hoping you could speak more to that because there's a lot of the new zones; there's two these two new zones called the multi-house suburban and multi-house urban, do you know, like, how those were developed, in terms of the specific standards that they impose on housing? Because one thing that's, you know, the big difference between the Auckland Unitary Plan and the Minneapolis rezoning and California's SB 9 is that it was done in a way that was clearly effective in allowing developers to use the new rules, right? So we just had this report in California that nobody's using this law we passed a year ago that would allow in theory, two duplexes on every lot. So I guess the question is, how were these two townhouse producing zones developed? And I guess is the minimum lot size issue there a big factor?

Ryan Greenaway-McGrevy 22:00
Do you mean, when you say developed, do you mean, how did they come about or how are they being developed?

Paavo Monkkonen 22:05
How did they create the new rules that that actually led to so much production?

Ryan Greenaway-McGrevy 22:10
I don't have big insight into why those MHS and MHU - Mixed Housing Suburban and Mixed Housing Urban, were specified the way they are. It's clear that there's sort of aggradation in terms of intensity between the single-house zone and the terraced housing zone. And if you look at the planning maps, what you'll typically see is that certain areas have been targeted for that terraced housing zone where there's going to be creative density, and it'll be surrounded by Mixed Housing Urban, which is slightly more restrictive, and then Mixed Housing Suburban, and then Single house. So there's kind of a gradual transition, that I believe is to preserve some sort of visual amenity, but mixed housing suburban, I can say, as well, you know. In practice, these lots are being developed to a higher standard or allowing fitting more than if you are just looking at the land use regulation that you'd expect, right.

Paavo Monkkonen 23:02
Because these are, these are minimum density thresholds, but developers can get consent to build more, right?

Ryan Greenaway-McGrevy 23:08
Non no, there's a maximum in the sense. On paper, there's a maximum effectively floor to area ratio if you take the building envelopes, and so forth, but if you just imagine you had a nice square piece of land, the site coverage ratio and the number of storeys are going to determine how much floor space, you're, you're, as of right allowed to put on that piece of land. Now you can apply for exemptions from as "of right" development, and so that's where I believe a lot of developers are coming in to the MHS sign and exceeding it. Just one more thing I should mention, Mixed Housing Suburban has now gone because of national level up zoning policies..

Paavo Monkkonen 23:08
So the famous 2021...

Ryan Greenaway-McGrevy 23:10
.. medium density residential standard, which was a central government initiative that we can perhaps talk about a bit later. But so Mixed Housing Suburban, as you know, it was in effect from November 2016 through to very recently and now those most of those Mixed Housing Suburban zones are now the equivalent of Mixed Housing Urban right - three storeys, 45% site coverage ratio as of right.

Shane Phillips 24:23
Okay, that's helpful, I was gonna ask just for a quick clarification, so we've got when Mixed Housing Suburban existed it was two stories, 40% lot coverage meaning you can only build a structure on up to 40% of the parcel area. Mixed Housing Urban is this three storythree-story, 45% lot coverage and then Terrace Houses and Apartments is quite a bit bigger - this is five to seven stories 50% lot coverage. So but I think that's important to know like even the highest density, we're talking five to seven storeys at least by right, you could presumably go higher if you request special permissions but we're not talking about you know, requiring skyscraper development here to achieve the things that we're going to talk about were achieved. I also just want to make one last point here which is that you kind of talked about this, Ryan a little bit, but this is not like past upzonings, or past zoning practices where this density is really concentrated in a few places. If you look at a map, and we will include one, a link to one in the show notes, this is really all of these zones are found kind of throughout the city, and they're certainly concentrated more toward the center but it covers, you know, we're talking three quarters of the city, it covers most of it. And so this is not something where it's just a few neighborhoods getting all the change, all of the housing being built in them.

Ryan Greenaway-McGrevy 25:39
For the most part, we'll just move quickly into...

Paavo Monkkonen 25:44
special character areas,

Ryan Greenaway-McGrevy 25:45
yes yes special character areas, where the character is most special. So this is a kind of a Heritage Preservation zone, and so a lot of the single house zoning that exists in Auckland; it's in two places, one, either around the CBD and the neighborhoods immediately around the CBD, or further away as you get to the semi rural areas. And the reason why there's a lot of single house zoning in those central areas is that there's also an additional layer of regulation that's an official overlay that's designed to encourage preservation of these homes that were built now prior to the 1940s. So there's a very distinctive style of architecture that was predominant in Auckland through this time, we refer to them as villas, and you know, they are pleasing to the eye, I can understand why people want to have these neighborhoods preserved. You know, that policy is all about trade offs, right? And so there is a trade off in the sense that all of this land that's located very close to where the jobs are, is not zoned for higher-density housing. So grappling with that, you know who benefits from this visual amenity?

Paavo Monkkonen 27:00
Presumably, these villas are quite expensive relative today.

Ryan Greenaway-McGrevy 27:06
Yes, they are expensive, you know that they occur all over the country and in Auckland, you know, they're very much prized because a lot of money has been poured back into them. As you can imagine, construction technology has, the potential for construction technology, has only gotten better over time. Back in the 19, you know turn of the previous century, once you look under these houses, you sort of (are) astounded that they're still standing up unless they've been repaired, very, unless they've been insulated properly, they're very cold and damp, (and) they can be colder inside and outside somehow on a cold day. In other parts of the country, because the haven't been kept up very frequently, they're not viewed as high status and consequently, are cheaper.

Paavo Monkkonen 27:57
Right, but yeah, I mean, I'm doing some research with William Chung, a previous guest and Edward Yu at the University of Auckland, and we're building off your work, Ryan. And one of the things, we're looking at is probability of a single house neighborhood getting upzoned under the AUP, and you might not be surprised to learn that higher income neighborhoods were much less likely to have their zoning changed, right? So a lot of the single house zones didn't have their zoning changed, and those were richer.

Ryan Greenaway-McGrevy 28:23
Yep, that's absolutely the case. To be fair, there are some wealthy areas of Auckland that still receive up zoning sort of the eastern suburbs. But sort of the history of Auckland is quite interesting in the sense that, you know, for a period of time, these neighborhoods that had these old homes were not where wealthy people lived. If you go back to, let's say the 70s,

Paavo Monkkonen 28:46
Right right

Ryan Greenaway-McGrevy 28:46
Some of these neighborhoods were where lower income families lived, and because of that, they were kind of preserved. Not because of zoning, but because no one had the money to put back into them.lower-incom, and it was, you know, were high status people that have done newer homes. Subsequent to that, they sort of were gentrified, and they gentrified at a time when we were having more downzoning. And so yeah, a lot of these inner city areas, Ponsonby (and) Gralen, I'm mentioning these areas since you're doing research on them. Whereas they were sort of very much working class suburbs back in the day, and now incredibly expensive, and for the higher income groups.

Shane Phillips 29:23
Alright, so I think that's a good amount of context for how this came about, (and) what was actually done. So now we can get into the findings of these articles. And I think the first one we should discuss is the one on housing production with your co author Peter Phillips because it's a little more straightforward. There are people out there who will say that upzoning won't lower housing prices or can't lower housing prices because developers would never build so much housing that property values or rents would fall or significantly slow down. And implicit in that argument is this idea that the amount of housing being built today is pretty much exactly the amount the developers want to build therefore upzoning is essentially unnecessary; it won't achieve anything. I don't want to give that perspective, too much credit, because I do think it's a pretty marginal one. But it's definitely out there. it's something you will hear. And your research I think refutes that pretty decisively, at least in the context of Auckland. So to set this up for this study, you looked at two sets of parcels, those that were upzoned in 2016, and those that were not, and you compare the housing production trends before and after 2016, for those upzoned parcels, and those non upzoned areas. If I were a betting man, I would expect production to increase in the upzoned areas as new development opportunities were created, and actually, maybe to decrease in the non upzoned areas as development shifted elsewhere, at least relative to kind of where the trend lines were headed. But for overall production to rise, you actually need the increase in production in upzoned areas to be larger than the decrease in non-upzoned areas. Again, all of this is relative to the trends up until 2016, so what did you actually find?

Ryan Greenaway-McGrevy 31:10
A story very similar to the one that you described there, Shane.

Shane Phillips 31:14
It works

Ryan Greenaway-McGrevy 31:14
It works, absolutely. So I mean, are you going to show some of the graphics from the paper? Earlier, you mentioned, you're going to show some maps.

Shane Phillips 31:23
Yes, we will the map of the up zone parcels, and I will also be sure to add the very dramatic chart showing, you know, before and after the meteoric rise of attached dwellings, in particular that took place after 2016 - we'll link to that for sure.

Ryan Greenaway-McGrevy 31:40
Yes, so if you look at a simple time series plot of the number of permits occurring in these upzoned areas, they track along, they (are) tracking up slightly until 2016 when the policy occurs, and then there's sort of a meteoric rise each year that it's trending up. And, you know, five years on, they're still trending up. So to be clear, we're not sure what the total impact is going to be, it's still happening as we speak. Yeah. Then if we look at those, those non up zoned areas, you know, they are trending up as well, over time, they get to about 2015, and then there's a slight decrease, right? But that slight decrease relative to trend is far smaller than the massive increase that we're seeing in these upzoned areas of the city. So the paper gets into the weeds a bit more, it's a bit more technical but that's the summary of it. And, you know, in order to break that result, you really have to be trying to find some other policy or some other events that occurred right in 2016 that could account for this huge rise over a short period of time and building permits. And look building is not a terribly volatile industry, right. and if you look at a longer time series, you don't see such a fast and swift change in the trend, at least in New Zealand.

Shane Phillips 32:59
Can you talk about the numbers a little bit here, just in terms of, you know, especially in the zoned areas, and particularly for attached dwellings, meaning basically multifamily housing? Where was it at, you know in 2015 or 2016, and where has it gotten to or where is it headed to up to 2021?

Ryan Greenaway-McGrevy 33:19
Yep. So I'll quote directly from Latvia, because I was looking at the visual, but I know we talk about these numbers specifically. And if we just look at attached dwellings, you know, in 2016, there were about 1000 permitted attached dwellings in Auckland. By 2021, we've got about 10,000 right, so that's, over a five-year period, a 10-fold increase.

Shane Phillips 33:44
Wow

Ryan Greenaway-McGrevy 33:45
If we look at the total number of dwellings and upzoned areas, it's gone from about two and a half thousands right in 2016, (and) now we're building close to 14,000, that's 2021. And very shortly, my good friends at Auckland Council will have the data for 2022 soon so I'm looking forward to updating these. And that's just, yeah, in the upzoned areas. In terms of non-upzoned areas, there is a slight decrease roughly from, well out to 2020, it's probably flat, sorry 2022.

Paavo Monkkonen 34:16
Ryan, I don't remember whether you're able to distinguish between townhouses - townhouses would be considered attached as would apartment buildings, are you able to distinguish between those two building types? And then are you able to distinguish between different zones, the multi-house versus the terraced housing zones?

Ryan Greenaway-McGrevy 34:33
So we can't, none the data set that I have access to, it's either attached or detache, and that's as close as we can get. A lot of the detached housing that we see being built, particularly in that mixed housing suburban area, you know, you've got a couple of meters between the walls if that. So it's often very close to being attached but no, we can't, at least in the data sets that I have access to, and I'm not sure we'd have access to this distinguisher, a terraced house from an apartment block.

Paavo Monkkonen 35:03
Right, but you haven't separated between the MH and the TH zones in terms of ..

Ryan Greenaway-McGrevy 35:08
We can do that. Yup, yup, we can separate between those two yup, absolutely.

Paavo Monkkonen 35:11
It would be interestingto see where it's happening.

Ryan Greenaway-McGrevy 35:14
Yes, yes. The paper does get into that towards the end, and yeah from memory, the majority of the construction is happening in the MHS zone...

Paavo Monkkonen 35:25
Right.

Ryan Greenaway-McGrevy 35:25
And that's by by virtue of the larger land area right, but relative to land area, a disproportionate amount is still happening in the terraced housing areas right.

Shane Phillips 35:36
Right. One figure that really stood out to me was, you know, you're attributing about 5% growth in the housing stock, above what you would have expected without this upzoning, because of the zoning during over basically a five or six year period. And so almost like an additional 1% growth in the housing stock per year, again in addition to where the trends were already headed, is that right? It was something like 26 - 27,000 additional homes that would not have existed presumably or as far as we can tell would not have been built if not for this up zoning

Ryan Greenaway-McGrevy 36:11
Close, there's about 27,000 additional permits.

Shane Phillips 36:16
Ok

Ryan Greenaway-McGrevy 36:16
What we don't have good data on are the number of demolitions. And we won't, census years are what we have to wait for to get the best, most accurate measure of the housing stock. Because Auckland Council does not require a permit to demolish a home, unless it's over three storeys - most homes are not over three storeys, it's not going to show up in the data. And so that's the that's the caveat that we have to add to that 5% figure - it gives you an idea of the size of the effect right, relative to the dwelling stock, but we can't tell how many of those older homes were torn down and replaced. We make some assumptions, wave our hands in the paper and say, "under these various assumptions, you might think that we can expect a 4% increase in the dwelling stock". Basically, from recollection of the pay-if-we-save,if we've got a permit that has more than one dwelling on it, and so you can have a single permit that has say 10 units or one unit, and there was a happening within the urban extent of Auckland, then we'll assume that one house was demolished and in order to make way for those 10, so nine additional permits. Anything outside the urban extenders' greenfield development and an increase. Doing that. I think we come back to a figure of 4% ish, maybe high 3s but yeah, we can't be sure. And that's an important point to make clear.

Shane Phillips 37:42
Yeah, and I think given the results of your other paper, which we're going to discuss, and how redevelopment premiums were greater for less intensively developed properties that were upzoned, we might expect properties with fewer homes on them or smaller homes on them to have been the ones that were demolished in favor of redevelopment. But we'll get to that. As I'm listening to both of your backgrounds, too, it's striking me as funny that Ryan is the one in Auckland, a kind of more, at least from my perspective, exotic location, but it sounds like Paavo is the one in the rainforest with all the birds. A budget. But that's fine. It makes me feel like I'm there. So that is the more straightforward paper I think on on housing production. And I think we can leave it at that for now. Auckland up zoned a lot housing production shifted toward the up sound areas and overall production increased pretty dramatically. That's that story. Your other article is about the impact of the zoning on house prices and the price of land basically through redevelopment premiums. And this is a bit more complicated. In previous episodes, we have talked about how when new housing is built, there's sort of a tug of war that occurs between supply effects, and demand effects. Demand effects are sometimes also called many of the effects. Episode Five with Evan Mast does a really good conversation on this. The supply effect is this idea that if you increase the supply of homes, landlords have to compete harder to get tenants and that will tend to push prices down. This is oversimplifying but just high level. The amenity or demand effect posits that new housing may increase the aesthetic appeal or add new amenities to a neighborhood like restaurants or retail or whatever. And that would tend to push and

Paavo Monkkonen 39:36
Unless it destroys the character of the neighborhood. Lower the prices nearby.

Shane Phillips 39:42
But other than that, if that doesn't happen, which many people are afraid of that would tend to push prices and rents up for nearby homes. Most research today again pointing back to Evan Mast and others has found that the supply effect dominates; compared to a scenario where new housing hadn't been built or less housing had been built, building more helps lower the price of nearby homes. That body of research is focused on the value of housing to the people who want to live in it but that's not the only interest people have in buying real estate, and in some cases real estate that has housing on it. Some people, namely developers, want to buy real estate so they can redevelop it to a higher intensity or another use. And because they have very different intentions for the property, they assign it value in a very different way than a homebuyer or a renter might. That value is heavily determined by zoning and other regulations. And that's where we come to the concepts of real options, and redevelopment premiums, which you talk about in this other paper. Could you say a bit about the difference between how a homebuyer assesses the value of a property compared to a developer, and what role zoning plays in that assessment? What do real options and redevelopment premiums mean or why do they matter in that context?

Ryan Greenaway-McGrevy 41:05
As you mentioned Shane, yeah, for an owner occupier, obviously, it's going to view purchasing a given property through a very different lens than a developer, although there'll be some overlap with regards to the desirability of the neighborhood and so forth. A developer is looking at the potential for that site right, typically whereas a homeowner or a prospective homeowners is not, although you know, we do have homeowners that pull down houses and rebuild, of course. But by and large, a developer's more concerned with, well if I tear this down, how much housing can I fit on this place, and what price does that new housing fetch. And so, you know, various economic models would predict that those properties that suddenly had their zoning restrictions relaxed, to allow much greater density, are going to receive high demand from developers, and that they're going to bid the price of those parcels up as they compete with one another to purchase that place and ultimately to redevelop it. Now, I think it conforms with economic intuition that when you've been in a regime where the zoning regime where zoning regulations have really restricted how a parcel or a given neighborhood can be developed, and those restrictions are suddenly relaxed provided that neighborhoods in a desirable area perhaps close to where the jobs are so forth or close to some natural amenities that there's a lot of latent demand from potential homebuyers to live in that area, that we'd see increase in the property values and increase in the value of the land in particular underlying those properties when those regulations are relaxed, right. But that doesn't necessarily mean that erodes housing affordability, right. Land is an input to housing supply, right, and land costs are what we should be worried about overall. Land costs are really the quantity of land that you need to purchase times the price, and really, we should be thinking about how much land do I have to purchase to produce a given dwelling or given amount of floor space. So even though the land price goes up, because those regulations have allowed developers to purchase much less land per unit, land costs can still fall overall.

Shane Phillips 43:18
Right

Ryan Greenaway-McGrevy 43:18
So a working example, you know, maybe a given areas' up zone, the value of the property doubles as a result. But if you can fit eight units on there now instead of the one that's currently sitting there, you've still got a fourfold reduction and land costs

The per unit land costs.

That's right, exactly! And so we did see those price effects in Auckland when given you know, particularly homes that had a low improvement value, maybe they're small - improvements value being the sort of the value of the physical capital, the House structure itself perhaps is small or perhaps old, and run down. If that capital value was low relative to the land value, when those properties were upzoned, we saw an increase and price, and that conforms with our economic intuitions On average, across all upzoned areas of Auckland, latest version of construction paper has a little robustness check, suggests about a 25% increase on average in land prices across all those three zones we mentioned. The flip side is of course, you can fit many more dwellings onto that piece of land. In that paper with Gail and Cade, we talk about the the redevelopment option to sort of reflect this, the fact that developers are looking at the potential of the site. So an option, a real option is, you know, the right to change the structure of the dwelling that sits on the house, the right to redevelop it. You don't have to do it right but you still have, you still retain the legal right to do that at a future point in time. And so the point you're making is that once you implement that up zoning policy, you inflate the value of that, you create the real option, I should really be saying, because you couldn't develop it to a higher standard before, and that's going to be reflected in the price that those properties ultimately sell for once developers get involved, and put up the prices. And that there's nothing to be too worried about provided you're not seeing a massive increase in land price, right, that's all part of the process that we should expect.

Paavo Monkkonen 45:16
Yeah, I think this paper is such an important contribution to this growing literature, because you know, there have been other papers that show that upzoning had an impact, for no apparent reason right. So I'm thinking about this Yonah Freemark paper, which was a nice paper and has been discussed at length but you know, there are some cases where it was these condo buildings that didn't really have redevelopment potential where the prices were going up, and that doesn't really make economic sense, because actually, the only impact of upzoning that should increase value is the option to redevelop right.

Ryan Greenaway-McGrevy 45:50
And it's once that option to redevelop as exercised. That's the point in time when we should be looking for the price effects right - once the developer pulls down that house, replaces them with four housing units, and that's happening on mass across the city and all these different locations, what are the prices that those units are selling for or renting for? We don't really want to focus on the price appreciation and these underdeveloped upzoned properties, right? We want to focus on the price of the forms of housing that the policies designed to encourage, because really, it's a policy that's changing the urban structure from, you know, single family detached housing on 600 square meters of land to multifamily housing, sitting on perhaps 100 to 200 square meters of land per dwelling.

Paavo Monkkonen 46:42
Yup!

Shane Phillips 46:42
I write about this concept in different contexts, because it really interests me, and I don't really have the appropriate terminology for it. But, you know, I think what's happening here is basically, there's the value to someone who wants to essentially maintain what is there. So we can imagine, say, here in Los Angeles, like a duplex that might be value to someone who wants to buy it and rent it out or live in one unit and rent out the other, they might value that at say, $800,000, depending where it's at. That would be unfortunately, a pretty cheap duplex in Los Angeles at this point. So if you can't build more than two units, or maybe you can only build three units on there, and the value kind of in the neighborhood, or the general area is about $100,000 per developable unit, per unit that you can build, then the value to someone who wants to buy that property for $800,000, and just kind of keep it at what it is, is much higher than what a developer is going to value it at. Because again, if you can only build three units, every kind of potential unit is worth about $100,000, they're only going to valued about $300,000, they're just not going to be interested in buying that because the person who wants to maintain it is going to win that bid basically. If suddenly, you can build 15 units on that parcel, now that property is worth one and a half million dollars to the developer, but the value to the person who wants to buy and maintain the duplex is still $800,000. So you shifted who is willing to pay more for that, and suddenly, what was clearly just going to stay a duplex now is very likely to eventually sell to a developer and become 15 units. And so I think that distinction is really important, and it's something we've talked about before, but I just want to really drive that home for the listeners. You started to get at this a little bit but I think the core finding of this article is summarized in these three sentences near the conclusion, "A consistent pattern emerges, the impact of zoning on prices diminishes, as intensity increases, beyond a sufficiently high intensity, the up zoned property depreciates relative to similar properties that were not up zoned". That's maybe a little hard for non-economists to parse so elaborate on that for us if you could. What are you saying there? And what does it mean, in practical terms for people who are concerned about housing abundance, and consequently, housing affordability?

Ryan Greenaway-McGrevy 49:09
Yeah, so the is a key word, and then it'll clarify, we talk about intensity. And that's a measure of the degree to which a given parcel has been developed right? So it's a measure that lies between zero and one, but basically, if you have vacant land, the site intensity is zero, right, and you might have a parcel with an old house on it that's equivalent to vacant land in the sense that the structure on that is worthless, it's just the land

Paavo Monkkonen 49:34
It may be worse than vacant land.

Ryan Greenaway-McGrevy 49:36
It could be yes. Yeah, exactly. And so what we started saying that statement is, although we've got this continuous measure of intensity that we apply to all properties, to explain what's going on, I'm gonna pivot to two specific examples. So on the one hand, you could imagine a small house, very old, sitting on a big plot of land has a very low site intensity in the sense most of the value of of that property is in the land. When that property is up zoned, we see that it appreciates in price, there's tracking sales data and that particular paper, it appreciates relative to a similar house that was not upzoned right. So that perfectly conforms with our economic intuition, the value of that land has gone up because the potential to redevelop it and to more than what it currently is, you might have eight housing units there in the future. Right. At the other end of the scale, we've got those already highly developed parcels, perhaps they have, you know, it's possibly land that has eight units on it. Units or something we use the New Zealand might be a unique terminology, but we also call them granny flats - they're sort of attached housing with two bedrooms, a kitchen, a bathroom and a living space for retired people. They're quite common law, and increasingly, we're seeing families trying to fit into them because we've got a housing problem.

We also say granny flats, although I'm not sure they have exactly the same meaning. Paavo oo you know? I mean it sounds pretty similar.

Paavo Monkkonen 51:04
Yeah, I think ours will be smaller.

Shane Phillips 51:06
They're Accessory Dwelling Units is the sort of technical name we give them here.

Ryan Greenaway-McGrevy 51:10
Okay. Yep. So those already existing, you know, relatively high intensity properties were upzoned, they fell in value relative to similar properties, similar granny flats in non-upzoned areas. How does this relate to housing affordability, and abundance observing these phenomenon? Well, first point is to say that we should expect price appreciation and those parcels that are have a large land endowment when they're upzoned, that's part of the process (and) it's nothing to be too worried about. And on the flip side, we've seen that these already intensively developed properties were depreciated in relative value once they were upside. And that's kind of interesting, because if you think of sort of demand for housing being highly segmented by suburb, which you know, there is some integration across the city, but I think to some degree, you will see demand very specific to different suburbs. That observation that the value of those units has depreciated, is consistent with the view that the market is expecting more supply. And those areas, or those kinds of units high intensity, and consequently, we're seeing a fall in their price. Now, it's consistent with other stories as well, right, so I'm not laying a claim to causality here, I'm just saying that's one way to interpret that finding. And, again, these two patterns that we observed, another way that it's important for people concerned with housing affordability, just coming back to that idea that when you're concerned with housing affordability, you should be tracking the price of those more intensive housing forms, apartments, units, terraced housing, tracking their prices over time, not paying attention to the price of housing that still has a rather large land endowment where the value of the properties is in the land. Those are going to appreciate, right, reflecting that redevelopment option, and that's fine. It's those housing forms that we should be focusing on, seeing if those are falling and absolute price after the policies policies implemented

Shane Phillips 53:12
Yeah, yeah. I think another way to look at this is, it would be bad if prices increased as a result of the upzoning, but development didn't. Since at some level, the benefit of up zoning leading to increased prices is it's inducing more sales and sales specifically to developers to increase the supply of housing, which then, you know, the hope and expectation, and most research points that this is actually happening, would lower prices market wide. And so I think that's an important point to make here, too.

Paavo Monkkonen 53:43
Ryan, I wonder if you've thought about an additional research project focusing on certain neighborhoods. One of the things about, you know, allowing more intensive forms of development on single house zones in places in California is I think there are still some neighborhoods where if you allowed for fourplexes, or fiveplexes, extremely rich people want mansions to a price tag that's higher than five families condos would be right. So I wonder if in different neighborhoods, you're not seeing the redevelopment premium have as big of an effect; ike you could even test that using the same framework, right?

Ryan Greenaway-McGrevy 54:21
That's a really interesting point. And it's something I hadn't thought of, I think would be hard to disentangle that from, there's a counteracting effect in the sense that a lot of these wealthy neighborhoods are places that people would like to live, and if you have a really, if you've just zoned a corner off, right in one of these character neighborhoods, you kind of get the benefits of living in a new apartment but you're still surrounded by this visual amenity.

Paavo Monkkonen 54:47
You're a parasite on this.

Ryan Greenaway-McGrevy 54:50
That's right, you will not be popular in the local lobby groups. You're gonna have to work harder to integrate.

Paavo Monkkonen 54:57
Social factories will be interesting to look at in particular, right, those edge roads

Shane Phillips 55:03
I can imagine even there's probably some neighborhood that did get rezoned to multihouse where there's not a lot of development happening because the people that want mansions have more money than the developers. Maybe there's not as bad of an income inequality in Auckland as we have in California but we definitely have neighborhoods in LA where you know, you would have to allow 10 units in order for them to outcompete a mansion.

Ryan Greenaway-McGrevy 55:29
Yeah, I'll take your point I think you have had on, we do have an equality. And I don't think it's as comparable as in the US. But it is there. And it has been growing over time. Anecdotally I'm thinking about, but I don't drive through the very wealthy neighborhoods that much.

Shane Phillips 55:47
We have to get to UCLA because there's every day is

Ryan Greenaway-McGrevy 55:51
terrible. The one of the way this, you know, this whole research project that ultimately where I want to take it when we get some more data, is to see how upzoning has changed the socioeconomic demographic of the of the neighborhoods that were most affected. Because there are areas, notwithstanding what you've said about, you know, character areas, and that this is indeed where the very wealthy live, at least, in terms of high schools, you know, their catchment zones are quite large, and New Zealand, I believe it will be similar to the US, you know, your address determines your access to public schooling. And, you know, unsurprisingly, the more wealthier neighborhoods tend to have better outcomes at high school. But you know, even within these, some of the most prestigious public schools in Auckland, their catchment zones, there's been a lot of upzoning occurring. So we're really interested to see whether or not upzoning has encouraged greater social mobility. If you see, I'm not expecting massive things out of this, but do you see a bit more of a tendency back towards the mean, in terms of the household incomes of the families living in these neighborhoods that had greater amounts of upzoning? Or not? You know, like a lot of people are worried about zoning and gentrification, like, maybe we see an exacerbation of geographic inequality as a result, I don't know. But it's something that I'm definitely interested in pursuing.

Shane Phillips 57:20
I feel like there's an opportunity here for a research project that's basically looking at the potential for degentrification, which is something we don't talk about at all of us, because it's, you know, we haven't created the conditions almost anywhere for that to happen.

Ryan Greenaway-McGrevy 57:33
Yeah.

Shane Phillips 57:34
But this kind of upzoning does seem to at least pose that possibility. I did want to talk quickly here about when you have these dynamics happening, where these lower value lower intensity properties are appreciating more quickly because of an upzoning, it seems like there's a potential for a kind of win-win in which homeowners with these low intensity and ultimately kind of lower quality lower value homes see their property values go up, which is good for economic equity. They're kind of catching up to other homeowners at least. And at the same time, I think the hope at least, is we would also expect rents to go down relative to if these new homes hadn't been built. And that's good for economic equity for renters vis-a-vis homeowners. And so I'm curious, if you have any thoughts on that or what your what your views are on?

Ryan Greenaway-McGrevy 58:27
Oh, I totally agree on the win-win. And in fact, maybe 2015/2016, I wrote an op-ed in our national paper that was trying to make that case, with reference to the unitary plan, saying that, you know, we've got a housing problem, might call it a crisis. And at the same time, we've also got, you know, many middle-class households that have saved through their property, right. Like it's not uncommon in New Zealand for a family's retirement plan or a person's retirement plan or a couple's retirement plan to be their house.

Shane Phillips 59:00
Yeah

Ryan Greenaway-McGrevy 59:00
You know, and they want to sell it and then move to the countryside, and have some disposable income as a result. We're very much a property obsessed nation

Shane Phillips 59:11
It's not a great way to structure an economy, but it is the way that we have set things up and a lot of people have become reliant on it. And if we can help people kind of at the bottom of that spectrum, you know, better than doing nothing.

Ryan Greenaway-McGrevy 59:23
Absolutely, yeah. So that's the only way to achieve housing affordability and allow younger New Zealanders and families to have access to housing, that's good quality, close to where they work, etc. That would be great, but you know, if it comes at the cost of people losing their retirement plan, you know, I can see how that's going to be a political problem. So at least for those people who have saved by owning that single house on a plot of land, up zoning you know in terms of pure monetary self interest, it's a good thing. Now, ironically, you know, once this upzoning occured, you know there are plenty of stories that sort of tugged at the heartstrings of readership and got all the clicks and, and got the newspapers more money. But you know, we're saying things like, you know, a young family that saved up just bought this house and a developer's bought the section next to them. And then they bought the section behind them, and they're going to redevelop into terraced housing. You're a millionaire, you've just, why aren't you selling to them? They'll want to buy it off if you increase the size footprint, parcel the land together, and you can go off and buy that same house elsewhere.

Shane Phillips 1:00:32
I can have a tiny amount of sympathy that like, you had these plans, this is where you wanted to live, and so forth but like, as far as compensation goes for, you know, your plans not coming to fruition, suddenly, your home you bought for $600,000, or a million dollars is worth twice that, like, that's a pretty good payoff. And I think compared to all the challenges that anyone who hasn't bought a home yet, renters have faced in New Zealand in the US like it just doesn't rate.

Exactly

I do, while we're on the subject of rents, I want to acknowledge and make clear that we haven't talked much about how this upzoning affected housing prices for the typical homebuyer and especially the impact on rents. We've kind of focused on these upstream prices which mostly only have an impact on prices for homebuyers and rents for renters depending on how those upstream changes in land prices affect housing production down the road. Redevelopment premiums, and especially construction levels are super important. But for me, and I think all of us here, they're really just a means to an end. And that end is to make housing more affordable as well as the other benefits that come with increasing housing density in urban transit-rich, job rich areas, and particularly kind of wealthier and higher opportunity locations. To the extent that you or other researchers are already looking into this, what are you seeing in terms of housing prices kind of writ large end rents since the adoption of this Auckland unitary plan up zoning, and maybe also the federal or the central government changes that have been made more recently? Should we expect some forthcoming research on this?

Ryan Greenaway-McGrevy 1:02:14
Yeah, it's certainly an area that we're continuing to look at. And yeah, we will have, hopefully this year, we'll put out some, at least one paper on house prices, or possibly rents on those absolute terms. But it's, you know, within a policy evaluation exercise, it's difficult to articulate the counterfactual. I think particularly hard when it comes to house prices, because I've seen this argument put forth a lot. And it's not an argument against upzoning, I'd say, but like many other places around the world, house prices went bananas in Auckland in the COVID period; even accounting, you know, with your price indices that account for compositional shifts, which is what we'd want to account for sort of the...

What do you mean by compositional shifts?

So, you know, if you just paid attention to median house prices, or average house sales prices, you don't know if a fall and house prices in a given quarter is due to the fact that house prices are really fallen, or it's the fact that you just had more apartments being sold that period, and apartments tend to sell for less than detached single-family housing. So price indices that can account for those kind of shifts are a better measure of what the average house price is doing. So house prices in Auckland were flat kind of through from 2017 through to, the ticked up a little bit before COVID, and then COVID hit, and the interest rates fell through the floor, our government came through with wage subsidies to make sure people don't lose the sources of income and maintain their jobs. And our central bank, for some strange reason, decided this will be a good time to relax macro-prudential regulations on new mortgages. This means that they, you know, there are restrictions there to ensure that you're not borrowing too much, and I thought this was a good time to remove those, that was a big head-scratcher. From my perspective, you know, right on the eve of a 1 in 100-year pandemic, this is the time that you decide to encourage more risky lending? Right, so you know, the pandemic wasn't as bad economically, in the sense that everyone kept the jobs, kept their income, well, we borrowed against the future, future generations will have to pay this off. But economically, at least, things weren't that bad. But interest rates went through the floor and these restrictions that really weren't binding were removed and, house prices took off again. But, you know, this is a lesson that when people find this out, I say, well, whenever you're evaluating policy, you know, the state of the world immediately prior to the policy is not a useful counterfactual at all. You have a whole array of confounding events and factors like a 1 in 100-year pandemic and the response to it, It means you can't attribute causality at all right? So that's the first argument we shoot down. We haven't seen an absolute fall in house prices when we add a bunch of other events that I think are quite credible at explaining what happened there. Sorry, and on top of this, I should say that we've got the problem of how do we account for the value of land and the fact that upzoning inflates the value of land, as we mentioned before that sort of conflates these average measures.

Shane Phillips 1:05:27
In the short term, you might have seen these prices go up, and that would be reflected as like an increase in house prices but it's actually the sort of precursor to increase production and the downward pressure that would put on rents and home prices.

Ryan Greenaway-McGrevy 1:05:40
Exactly, yeah, exactly. And because of that, how do you account for the value of land? You know, you can do something complicated, like we did in that second Urban Studies paper that I mentioned, you'd bring in this measure of site intensity, or you could just look at rents, right? Because rents don't reflect, you know, they might reflect the sort of amenities associated with a given location that are embodied in the value of land, right, but they don't change slowly over time, I guess. But they certainly don't lay claim to the redevelopment option which is substantial in terms of its value.

Shane Phillips 1:06:13
We've talked about this, I think, in particular, in our episode with Dan Coleman, Episode 10. But yeah, so there's the land aspect of things but there's also just with buying a home, even if you're not really concerned about the land, there are these expectations that get capitalized into the price. So if you expect that prices are gonna keep going up 10% a year, you're gonna be willing to pay more. Whereas as a renter, the rent you're paying is really just based on like, what is the value to me as a person right now, maybe there's some a little bit of expectation about like this new light rail line is going to open up soon, and I want to be like in place before that, but for the most part, it's just like, what is this worth right now, (and) nothing else really matters. And so in that sense, it's a great measure, if you can get the data.

Ryan Greenaway-McGrevy 1:06:58
Yep, absolutely. So we do have rental data, we can, you know, in terms of coming back to this policy evaluation exercise, what's articulating the counterfactual in this case, you know, what would have happened in Auckland and the absence of the policy. On social media, people are comparing Auckland to rental price appreciation in other nearby cities, Wellington, which is our capital could compare to some Australasian cities, perhaps as well. So that's one way you could think about evaluating the impact on rents and there are some nifty causal inferential techniques that one can deploy. If you're a nerd, and into those kinds of things like me.

Shane Phillips 1:07:38
Are you able to say anything about the comparison of you know, where Auckland has gone since 2016, compared to Wellington and Christchurch and these other cities that didn't make those same reforms, either on home prices or rents?

Ryan Greenaway-McGrevy 1:07:50
Yeah, nominal prices. I think I'll focus on rents, because I think they're the best give us the most accurate picture of how housing costs and housing affordability are being affected. But rents have been going up steadily in Auckland but at a much slower rate than in other large cities like Wellington, the need in Christchurch, and in these other places. And that's a nominal terms, in real terms, they've been falling, right, because we're now on this high inflationary period. In terms of housing affordability, of course, what really matters is not nominal price inflation, but wage inflation. And so, you know, if wages if people's incomes keep up with inflation, which yet to be seen, that would equate to a fall in housing costs when measured by rents. So I think those observations are encouraging but you know, in future work, I hope we can bring a bit more, take a more technical approach to that same basic idea, and sort of use methods to pick out what are the cities most similar to Auckland, and the most useful as a counterfactual to evaluate it?

Shane Phillips 1:08:53
Yeah, that is really promising though. So for our last question here, there's really, as I've said almost no precedent for this kind of thing, at least that I'm aware of in the English speaking world. And since Auckland did this large upzoning in 2016, the entire country of New Zealand has since passed its own version of the Auckland Unitary Plan, even kind of like going further. What made this AUP upzoning and the national reform possible? Are there any lessons for those of us who would love to see this happen where they live? One thing I feel like I've heard from you here is that this sort of consolidation, agglomeration, the role of a central government seems really important, and it's something we've heard in other contexts as well. Our recent episode with Justin Kotti on social housing and how Vienna kind of had a unitary, at least provincial government to push for Red Vienna and building tons of housing. Singapore is a really good example of this where it's been one government for 60 years or whatever. They've been able to do this. It seems like that was part of the story in Auckland, but what other thoughts you have about how this came about and what other places can learn from it?

Ryan Greenaway-McGrevy 1:10:06
In terms of the unitary plan, I think it was a really a unique set of conditions that are hard to replicate. You know, the genesis (od) all it was tied to this creation of a new local government that due to its spatial planning, wanting to have a more compact city, and you know that that large event of the council forming perhaps allowed them some, some leeway to propose something that was fairly radical and ambitious. And of course, once it was announced, there was very much a public backlash against not from everybody, but it's certainly the case that a lot of people were unhappy what was being proposed there. So I think that's difficult to replicate. It's more the centralization, where a higher government up the food chain is really pushing for and incentivizing upzoning to occur. And so that's what's happened with this second, national actually, that's our third, I guess, significant upzoning event in New Zealand. The so called medium, the Medium Density Residential Standard as its technical term, but basically that said that the norm for planning and our six largest metropolitan areas, cities should be three dwellings per site and three stories, so Auckland has taken that and made Mixed Housing Urban that zone we're talking about earlier the norm right? And so councils can work back from that and have, you know, lower density zones, but they have to justify, you know, like, coastal inundation or a floodplain or there are allowances for special character. And there, but at least the message is the normal, you know, most of your residential areas should be allowing three stories.

Shane Phillips 1:10:21
It matters where you set the default.

Ryan Greenaway-McGrevy 1:11:45
Exactly, and so that that's recently come in, and that was a bipartisan effort. (For) Both, the center left Labor government wasn't charged but the announcement was made by leaders of both the Center Left Labor Party and the Center Right National Party. And that political commitment really signals to the population that this is happening, right? You can imagine that if a one-party announces and it's highly unpopular, and the other party sees a pathway back to power, that maybe I don't find this policy credible, so I'm not going to adjust my behavior now. And that credibility, I think, is really important. You know, businesses hate uncertainty. Developers really want to know, you know, imagine being a developer, you buy this plot of land, because you're going to redevelop and then you find the government's changed, and, well, the value of it's dropped significantly. You know, I understand that centralization, , you know, the decisions being made by a central government, or state government, rather by local government is unappealing to a lot of people. But I think there's an analogy here to be made with issues like climate change, you know, the future generations don't get a vote, right? The unborn don't get a vote, just like with how cities develop - our younger generation, you know, if they're under 18, they don't get a vote, and all those people that those potential future residents of Auckland don't get a vote either, right? And so the decisions we're making today really have to take into account the well being and the welfare of those, the people not here yet. It's a bit more acute in the case of housing affordability, because you know, you have millennials that are priced out of the market. So a lot of us here already. But in those instances, I think there is an ethical argument for government to be making centralized governments we need to be taking that into account and how they make decisions. Because otherwise we're just stuck in this collective action problem, a prisoner's dilemma, whether the outcome if we all act in our own narrow self interest is the worst outcome.

Shane Phillips 1:13:44
Well, I like that as a closing message. It's yet another argument against our system of local control and everyone getting to do whatever they want, regardless of the consequences for everyone else, and the future. So, Ryan Greenaway McGreevy, thank you so much for coming on the housing boys podcast.

Ryan Greenaway-McGrevy 1:14:03
Oh, this is this has been terrific. Thank you so much, guys for having me on. Great to to meet you and to chat with you about what's been happening here in Auckland.

Shane Phillips 1:14:15
You can read more about Ryan's research on our website lewis.ucla.edu. Show Notes and a transcript of the interview are there too. The UCLA Lewis Center is on Facebook and Twitter. I'm on Twitter at ShaneDPhillips, and Pavo is at elpaavo. Thanks for listening. We'll see you next time.