The Delusions of Aucklanders

by Graham Adams / 19 October, 2016
Illustrations by Daron Parton

With a new mayor and council in place, it’s time Aucklanders looked in the mirror and admitted that soaring house prices and a tidal wave of immigrants won’t make the city an “economic powerhouse” or a “world centre”. The rest of the country – diligently producing exports that keep us in the First World –would welcome the acknowledgment, writes Graham Adams.

James K. Baxter opened his “Ode to Auckland” with the arresting lines: “Auckland, you great arsehole/Some things I like about you/Some things I cannot like.”

It’s not a great poem (Baxter goes on to compare Auckland to an elephant with haemorrhoids), but when he wrote his ode in 1972, Auckland wasn’t a world city that might inspire a great poem. It was a collection of suburbs that had expanded as widespread car ownership made commuting to outer areas dotted with stand-alone houses a viable proposition.

Unfortunately, Auckland is still a collection of suburbs, even though its downtown waterfront area now features expensive restaurants and luxury shops, and a handful of inner-city streets have been pedestrianised.

The tragedy is that, in the past decade, Aucklanders have been persuaded their city is a world centre. There is very little evidence for this apart from two interrelated factors: the number of foreigners enticed by the government to settle in the city and the attendant dramatic rise in its population and house prices.

New York! London! Sydney! Melbourne! Los Angeles! Dubai! Auckland!… you don’t have to be too clued up to work out which one of those names doesn’t belong.

Aucklanders – including the Prime Minister, who is an Aucklander when he’s not a Wellingtonian or a Hawaiian – often talk of Sydney, Melbourne, London and Auckland in the same breath. John Key frequently uses the comparison to justify a housing market where prices are out of control, and a surprising number of people who should know better believe him.

Last year, Key said: “If you look around the world at those big places – London, New York, Sydney, Melbourne, you name them – they’ve all got high house prices going up and more rapidly than New Zealand. It’s unfortunately a function of what we see around the world, which is gravitational pull towards big cities.”

Even more astonishing, when being interviewed in July, Key added Los Angeles and Dubai to the list.

New York! London! Sydney! Melbourne! Los Angeles! Dubai! Auckland!… you don’t have to be too clued up to work out which one of those names doesn’t belong.

Unfortunately for the boosters – and there are many – Auckland should more properly be compared to Brisbane than the world’s great centres, but that would hardly flatter Aucklanders’ sense of self-importance. At 2.3 million, Brisbane’s metropolitan area has many more people than Auckland’s 1.5 million but is still within our ball park (unlike Sydney, at 4.9 million, and Melbourne, 4.5 million).

Brisbane is less densely populated than Auckland, but it also has much lower house prices in relation to incomes. In Demographia’s latest annual international survey of median house prices as a multiple of median income, published in January, Brisbane stood at 6.1 ($480,000); Auckland at 9.7 ($748,000). Since January, Auckland’s ratio has climbed to 10.4, according to Demographia’s spokesman Hugh Pavletich, while Brisbane’s has remained subdued.

Yet, no matter how far-fetched it may seem, in the popular mind Sydney, New York, Los Angeles and London are Auckland’s direct competitors. The comparisons are ludicrous but, when the money’s gushing and the value of your house is rising by $3000 a week, people hear only what they want to hear.

In 2008, business promoters Heart of the City launched a campaign to encourage people to shop in Auckland’s central city. The campaign centred on the slogan “The big little city”. It was a big flop, no doubt partly because it didn’t please those Aucklanders who like to imagine they live in a big, big city of world stature.

There’s no real excuse for this belief when so many Aucklanders have travelled to the great cities often used as comparisons. I have never heard a young person say, “If I can make it in Auckland, I can make it anywhere,” but plenty think that about the world’s truly great centres.

I know young Aucklanders who have decamped to work in Sydney, Melbourne, Singapore, New York… and, yes, Brisbane. Not one has done it as a way of getting the experience necessary to get a job some day in Auckland, where wages are significantly lower than in our trans-Tasman neighbour. If they plan to return to Auckland, it is when they have saved money, intend to have children and want a simpler, less frantic life.

As a commentator on a blog site amusingly put it: “The irony is that, by most international standards, Auckland is practically a seaside holiday town. And an off-season one at that. People move to Auckland for the quiet life.”

Key himself must know the comparisons with the world’s great cities cannot be true, not least because he has worked in Sydney, Singapore and London.

Key himself must know the comparisons with the world’s great cities cannot be true, not least because he has worked in Sydney, Singapore and London.

Once people start thinking of Auckland as a major world city, it’s inevitable they will imagine it needs and deserves a much bigger population to make it even more like the great metropolises. We are often told that big cities are the future for any economy and, in New Zealand, that role naturally falls to Auckland, as our only city with a population of more than a million.

In July, Rod Snodgrass, then CEO of Spark Ventures, put the case for a bigger Auckland in The Spinoff: “Auckland is New Zealand’s only city of international scale, in a world where global ‘city-states’ increasingly dominate, particularly in the war for talent. Given global urbanisation trends and Auckland’s projected growth, it will become even more important as the economic centre of gravity for our nation.”

In May, radio host Rachel Smalley described Auckland as “our economic powerhouse” that is “trying to morph into a truly international city”.

Given that the overwhelming bulk of the nation’s wealth is produced in the provinces by exporting primary products, it is highly debatable that Auckland is (or soon will be) the nation’s “economic centre of gravity”. It’s also highly debatable whether it qualifies as a “powerhouse”, no matter how hard it is trying.

Economist and company director Kerry McDonald has described Auckland as an economic “millstone” around the nation’s neck and suggested that a capital gains tax on the city’s house sales should be used for regional development and to “partly compensate the regions for their export-based subsidy to Auckland”.

And if Auckland is going to “scale up” to compete on the world stage, it is starting with a considerable handicap. McDonald points to The Auckland Plan – expressing the council’s vision for transforming the city into the world’s most liveable – as evidence. It describes the city as “inwardly-focused, with an economy driven by consumption, real estate, and domestically-focused services”, and acknowledges that “Auckland has not established itself as a centre of excellence or innovation regarding the development of export products”.

The plan also admits, “Measured internationally, Auckland’s performance is relatively poor: it is ranked 69th out of 85 metro regions in the OECD in terms of GDP per capita” – and notes it has a 40 per cent lower GDP per capita than Sydney and Melbourne.

And it’s not only failing to catch up with our rivals in Australia; Auckland is going backwards compared to the rest of the country. Despite the city’s population having ballooned by 30 per cent in the past 15 years, it hasn’t brought the city substantial riches.

Economist Michael Reddell pointed out to North & South, “Auckland’s GDP per capita has been falling, relative to the national average, for the past 15 years – as far back as the regional data go. And even 15 years ago it was low relative to what one would expect from a successful ‘powerhouse’. The biggest cities in most OECD countries have much higher GDP per capita relative to the rest of their own countries than Auckland does.”

Reddell, who featured in an extensive interview in North & South’s September issue, acknowledges the education sector as one of the city’s significant export earners. Nevertheless, he says, “It would be more encouraging if it were Auckland University – and even better if Auckland University were a world top-20 university – not third-tier Private Training Establishments, with the suspicion that many students are (a) paying their fees by working a low-end job in New Zealand, and (b) here mostly to try to get residency.

“Of course, there are other exports: a little bit of tourism – although no one comes to New Zealand on holiday for its cities – and a few really positive stories like F&P Healthcare. But there aren’t many of that type of company, the number of such companies isn’t growing, and the evidence is pretty clear that if such companies are built up here they will typically be worth more in the long run if relocated to London, San Francisco, Shanghai – nearer markets, competitors, key input services and so on. Auckland hosts Fonterra but, as we all know, the wealth generation is down on the farm.”

And whether Auckland can make itself irresistible to the world’s brightest entrepreneurs by a mass immigration programme that is projected to add a million inhabitants in the next 25 years is even less certain.

Reddell: “Big, successful cities draw people to them because there are profitable, outward-oriented opportunities that develop there. You could think of New York, London, San Francisco, or Shenzhen for that matter. But it doesn’t work the other way round; you can’t create a top-tier city in income terms because some bureaucrats decided to dump a million people somewhere. ‘Build it and they will come’ just doesn’t work in that context.”

What is certain, however, is that many Aucklanders seem to accept that their city’s growth is as unstoppable as the weather, even though the government policy that aims to bring in 45,000-50,000 foreigners as new residents each year – most of whom settle in Auckland – could be curtailed very rapidly.

To have a contrary opinion about headlong growth, however, is to invite howls of outrage and accusations of Nimbyism from those who see a big Auckland as the only way forward. It would be a brave person who put their real name to the following sentiment of one anonymous National Business Review correspondent, who responded to the grandiose Unitary Plan that allows 422,000 more dwellings to be built in Auckland by 2040: “Maybe the residents of Auckland don’t actually want another million people living in a city that doesn’t have the infrastructure to cope with its current population. Maybe people don’t want intensive housing; apartments the size of cupboards; gridlocked traffic; green spaces gone; houses replaced with concrete blocks. Maybe the reason that Aucklanders like living in Auckland is because it is like it is now.”

Reddell compares this era’s push for a bigger Auckland – via an expansive immigration programme – to Muldoon’s disastrous Think Big programme in the 1980s. He argues that we should lower the annual target to around 15,000 really able people. “That change alone would largely end the craziness of Auckland house prices. But it would also put an end to us having persistently higher interest rates than the rest of the world. And our real exchange rate would fall materially.”

 

In a nation like New Zealand with a low savings rate, the cost of the infrastructure to accommodate the influx of immigrants – mainly into Auckland – has to be borrowed. Borrowing to pay for new roads, schools and houses pushes up interest rates relative to those in the rest of the world, which in turn pushes up the exchange rate. The benefits of lowering both would stimulate the productive sector in the provinces, making them more competitive, which would give New Zealand a real chance to halt its relative decline and catch up economically with our more successful rivals. And of course it would also give businesses in Auckland a better chance of gearing up to export.

McDonald, who chaired the Savings Working Group that in 2011 reviewed New Zealand’s economic performance and prospects, in June described the current immigration policy as a “national disaster”.

“Auckland’s population growth is increasing the negatives: more spending on infrastructure and government services; eating up more agricultural land for housing; a less attractive living environment for existing residents; more demand for urban water use at the expense of more productive uses; greater population pressure on the environment generally; and an increasing dependence on the rest of New Zealand to subsidise its weak export performance – which reduces the living standards of everyone else.”

McDonald emphasised to North & South that unlike the US, which can manufacture a big proportion of what it needs within its own borders, New Zealand can’t and has to have a large export base to fund its imports – whether oil, cars, medicines or appliances. So exports are the vital component of our wealth and Auckland, with its low share of national exports, is a laggard in that respect.

“The critical issue for New Zealand,” McDonald says, “is the very large subsidy Auckland receives from the rest of New Zealand because of its low exports per capita. Its living standards are heavily underwritten by the provinces.”

Given that the overwhelming bulk of the nation’s wealth is produced in the provinces by exporting primary products, it is highly debatable that Auckland will be the nation’s economic centre of gravity

The more-the-merrier brigade rarely seem to concern themselves with the cost to the nation of a bloated, struggling Auckland. The economic argument never gets far beyond asserting that a declining birth rate means we need more newcomers to pay taxes to support our elderly as that cohort balloons. It’s only recently that commentators have pointed out that we are getting an astonishing number of low-paid chefs, retail workers and aged-care workers and not the high-earning immigrants Key tells us we’re importing, who might actually lift our productivity and wealth.

The boosters mostly argue for a larger population to enable the city to have a better public transport system, cheaper housing close to the CBD and a more vibrant, innovative city.

There’s little evidence that cramming more and more people into Auckland will make any of those things likely. Population density doesn’t determine whether a public transport system is viable; Auckland had extremely high levels of public transport use in 1955 – around 100 million trips a year for a city with a population of less than 400,000.

Last year, Aucklanders – with a population nearly four times bigger and with a much higher density than in the 1950s – made 81 million public transport trips.

The Unitary Plan has also been hailed as a circuit-breaker for stratospheric inner-city house prices, by allowing denser housing in many parts of the city and opening up the city boundaries. But unless mortgage credit is severely crimped, or immigration and foreign buying slashed, land anywhere near the city centre will remain expensive, and no developer is going to put truly affordable dwellings on sites that cost more than a million dollars.

A more vibrant city? More crammed, more likely. The mania for jamming more and more houses into Auckland has seen even its golf courses being targeted in the media as areas for more dwellings. Whatever happened to eco-sensibilities about green spaces being the lungs of a city? Turning them into public parks might make sense, but more housing? Why not turn down the immigration tap instead?

Until that happens, Auckland will be chasing its own tail as it inevitably fails to build enough new dwellings – no matter whether they are apartments, stand-alone or terraced houses – to cope with its surging population.

In fact, the rhetoric and hysteria around enlarging Auckland no matter the cost is beginning to sound like a version of the Vietnam War cry: “This village will have to be destroyed in order to save it.”

And no one seems to worry about the cost of retrofitting the city with better sewage pipes, oxidation ponds, roads, parks and schools, and expanding hospitals. Some reckon this could be as much as $17 billion over the next decade alone. Who is going to pay for it all – and how – doesn’t seem to enter the debate. If the government has to stump up, it’s effectively another tax on the rest of New Zealand, including the provinces which generate so much of our export wealth.

Meanwhile, the spin goes on. John Key repeatedly says the fact so many migrants want to settle in the Queen City proves how successful our economy is. In reality, entry into Auckland – and New Zealand generally – is a runner’s-up prize for those who can’t get into the US, the UK, Canada or Australia.

Key even spins traffic jams as a sign of success. In May, he told a business gathering in Auckland that rising house prices and congestion are evidence of how well the city is doing. “If you look at cities doing badly, they may not have the housing [shortage] and traffic jams, but what would you rather have?” he asked.

Personally, I’d rather have a city that was growing at a rate it could absorb without ruining life for its present inhabitants, where the traffic runs smoothly and the hospitals and schools aren’t jammed to the gunwales – and where per capita income is rising strongly. I’d also rather have a city that took better care of its own, where the poor didn’t have to live in cars and garages, and a city that didn’t have such high house prices that young people have to submit to a lifetime of debt peonage if they can buy at all.

A headlong rush to cram another million people into Auckland in 25 years without adequate infrastructure will not help. It will only make things much worse.

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