Glaeser on Christchurch

Ed Glaeser's Condliffe Memorial Lecture is now up at the University's "What If?" site. I've embedded it below.

 

I tell my students of the Pantheon of the Econ-Gods. Ed Glaeser is one of our Elder Gods - fueled not by the apples of the Hesperides but rather by Diet Coke.

Ed had a ridiculously busy day prior to his talk at Canterbury. He started with a tour of downtown with CERA, chipped in for a documentary somebody was making, lunched with a bunch of architects, provided a seminar for the Department, gave an interview for a freelancer for The Listener at the Staff Club, then the Condliffe. Then off for breakfast with Roger Sutton in the morning.

There are a lot of fans of Glaeser's approach to urbanism around the country. Let's hope it's done some good!

Housing daily: LVR, NIMBYs, and congestion charging

The RBNZ will soon announce its Loan-to-Value rules. Matt Nolan makes a few reasonable points (all my paraphrasing):

• If the policy is targeted at financial stability, then it has to bite on high-leverage first home loans as those are the most likely to wind up in positions of default. 
• I'm still a bit sceptical here as the OBR rules mean that the banks have to burn their equity holders and unsecured creditors before touching depositors if they make a bunch of really risky loans: I'm just not convinced that the banks here are really imposing systematic risk by allowing highly leveraged loans. But maybe the RBNZ has insider information suggesting that the government is way more likely than anybody thinks to start stomping on Councils' NIMBY regs currently preventing new building and so property prices are set for an unexpected fall.
• Further, the choice of "speed limit" will matter. Suppose we've had a road with no speed limit and we're promised one will soon be implemented to stop speeding-related risks. If they then announce a highway speed limit of 100 or 110 kph, that's all fine. If they announce a highway speed limit of 25 kph, not so much. I don't know what fraction of normal-conditions first home loans would be blocked under the new rules, so I don't know whether we're setting a 100 or 25 kph speed limit.
• Politicians mucking about with what the RBNZ is proposing risks undermining the whole purpose of the thing.
• I expect here that Matt's alluding to some of John Key's comments suggesting that first-home buyers be exempted.
• Politicians seem to see LVR as a way of fixing housing affordability; it's not well-suited to that end. 

  At the moment political parties want to loosen financial conditions for home owners, and introduce all sorts of schemes that will get capitalised into house prices.  Instead, the politicians should be looking at it as a distributional issue – it isn’t about giving young households cheap large houses that only exist in fantasy, it is about being realistic about any intergenerational distribution issues that we believe exist due to the inherent “cause” of the current “bubble” or a broader “misalignment” – this has to be relative to what we think is “fair” around the distribution of lifetime resources.  We can’t just “pop” a bubble, but if we understand the causes we can deal with the distributional issues associated with it.  Looking at supply side constraints (which both parties are) makes sense – good to see that.

  But what about the near term?  Worst case scenario, one-off tax all property, given money to group who is “hard done by” – if you aren’t willing to do that, you are faking your belief in a distribution issue. 

  Indeed.
• Matt's sick of Gen X / Gen Y whinging about house prices and wanting transfers. 

I agree with Matt that most of the demand side schemes are horribly misguided. But current housing policy prevents substantial expansion of current supply, inducing large regulatory transfers to those who bought houses when supply was less constrained. In a world where supply could expand (both with increased density and expansion in the suburbs), we wouldn't get the kinds of price run-ups now being experienced in Auckland. Matt's right that more people, and especially young mobile people, should rent rather than buy.

What we really need to figure out are policies that pay off the losers while expanding supply. We have something of a transitional gains trap in housing policy. Current homeowners do get some direct benefits from regulations preventing both them and their neighbours from developing: NIMBY is NIMBY for a reason. But another large effect is that the NIMBY regs keep up house prices as a whole. Sufficiently expansionary housing policy would impose capital losses on homeowners. And we tend not to have easy ways of implementing those kinds of policy changes without compensating those adversely affected so that we can move towards the more efficient equilibrium.

And so I was really disappointed to hear Gerry Brownlee on the radio this morning. One thing that could help Auckland move toward expanding on the fringes would be allowing the use of congestion charging to both internalise the consequent externalities and to help defray the costs of any new roading necessary to service the new communities. It's the kind of policy that compensates the losers (at the margin) while taxing the winners (at the margin). Gerry Brownlee on Radio New Zealand this morning suggested that Auckland wouldn't be allowed to implement congestion charging. Gerry should remember that it's socialists, not free-marketers, that usually recommend that scarce resources be allocated by queuing rather than by prices. If Auckland's willing to move toward sensible road pricing, and they're blocked by central government, we're in rather a bad spot.

Bland by design

I could grok changed building rules in Christchurch post-quake. Earthquake and liquifaction changed what we might want from foundations.

But the percentage of building frontage that must be in windows, no matter what? That car parking be hidden?

For example, the rules requiring buildings facing a road or public space to be between 60 and 90 per cent windows would not suit many businesses.

"Such blanket provisioning ignores that such a percentage of glazing may be inappropriate for the retailer, who may need more security, such as a jeweller or a bank; whose security requirements must take a higher priority than urban design,'' the submission said.

"Furthermore, it ignores the needs of department stores or larger stores who may need to place stock on shelving attached to solid walls around the perimeter of building."

The Property Council said that, because glazing was so expensive, the rule would boost the cost of new shops.

"We are strongly opposed to any provisions in the plan change that call for an increase in development costs without sufficient justification."

The submission criticised the requirement for car parking to be hidden from view, saying visible parking was a principle marketing attraction for retailers.

"This is completely impractical for many retail activities, which rely on visible parking to attract sufficient customers in order to remain viable,'' it said.

Prescriptive zoning rules are what deliver boring, expensive cities. Get a long enough list of "every building must", and you'll get a pretty short menu of options that can fit the bill.

I just don't get why we have to be so prescriptive about things that are orthogonal to "risk this building causes to others that are avoidable at reasonable cost." Minimum engineering standards that keep buildings from falling onto passers-by make sense. Council failed to do anything about this prior to the quakes, and even hindered owners who had wanted to tear down buildings that wound up falling down and killing people in February's quake. Even if we take a hard econ line on that individuals should be free to live or work in a dodgy building and trade safety for money, risk imposed on passers by seem sufficient to require either strictly enforced minimum standards or liability rules with compulsory insurance.

I wonder how much intersection there is between the kinds of people who think prescriptive town planning rules are great things and the kinds of people who don't like the tilt-slab construction that's been the consequence of trying to tick all the planning boxes on a budget.

Meanwhile, in America, Matt Yglesias has taken up Donald Schoup's banner on the high cost of free parking. Parking minimums are pretty common in the States: developers then have to put in more parking than they'd like to. Other places have parking maxima, preventing developers from providing as much parking as they think appropriate.

What happens when you stop being so prescriptive around parking?

Michael Manville of UCLA studied a liberalization of parking regulations in one section of Los Angeles and found that deregulation leads to the construction of more housing units and fewer parking spaces. Conversely, tighter regulation leads to a lack of affordable housing and a surplus of parking spaces. That might make sense if parking spaces were a public good, like clean air. But they’re closer to being a public bad. When Chicago mandates the creation of ahigh number of parking spaces per square foot of downtown office building, it reduces the price of parking, but it has a number of negative consequences. Cheaper parking means more traffic congestion on the streets. It also means lower ridership for Chicago mass transit. Perversely, cheaper parking offers a subsidy to commuters from outside the city limits at the expense of Chicago residents living within walking or biking distance of the central business district. And, of course, it leads to dirtier air, not cleaner.

Yglesias recommends abolishing requirements that buildings have parking spaces; I'll also recommend abolishing requirements that they have maximum numbers of parking spaces. If the highest valued use of a piece of land, as seen by the person with skin in the game, is a parking space, why need Council get involved?

Maybe, just maybe, if Christchurch Council focused really hard on a small number of rules around building safety, and dropped the other stuff, they'd be able to competently administer a set of useful rules instead of, well, what we have instead.

Coming to the nuisance

John Walley has a point. He worries that commercial encroachment on industrial zones is not being treated as a coming to the nuisance but rather could push out the prior industrial firms.

The mobile Nimbys are motivated to perceive these residual problems as significant, using every opportunity to whip up opinion against any previously acceptable use as unacceptable.

In normal times this creates problems, in a disaster recovery situation it becomes a more serious issue. Industry and manufacturing has been a lifeline for our city through our disaster, the sector kept going and, through the efforts of many, maintained activity.

Our disaster has forced our city to become more diverse, more mixed. Different sensitivities have been pushed together and sadly, we have not seen an expansion in the tolerance of established use.

Minor problems become significant when more sensitive people are present to witness them. We all know that dealing with problems becomes all the more challenging when earthquake damage insurance difficulties and weather extremes are in the mix.

The reverse sensitivities in Woolston are not new; noise and smell have always been potential issues, however these existing uses need to be tolerated as many jobs are threatened, being replaced by a handful of hospitality and retail jobs. Does that make any sense? How would you feel if your job was threatened in this way?

The Woolston gelatine plant has generated a gawdawful stench for at least the decade I've lived here.* Rolling up the windows while driving past is pretty standard drill. And it's been worse since the earthquakes.

A few short months after the earthquakes, Cassels & Sons opened their excellent brewpub close to the Woolston plant. It is a glorious place to spend the afternoon when the sun is out and the wind is coming from the right direction; we were there on Sunday. But when the wind isn't right... well, they have a phone number displayed prominently for patrons to call Environment Canterbury with complaints. Cassels are expanding with a large section of retail shops soon to open beside the brewpub.

The gelatine plant clearly pre-dated the retail development. It's also very likely that the gelatine stench predated most of the current owners of the houses just up the road from the plant; they would have bought their properties at a substantial discount reflecting the disamenity. Anyone who bought a house there after the plant was established came to the nuisance as much as did Cassels.

So, it's almost a classic coming-to-the-nuisance case. And, it's also one where there's a strong residual claimant on most of the abatement benefits: the Cassels family. Their brewpub and assorted retail holdings will do rather better when the foul winds cease to blow. In this kind of case, we expect bargaining to efficiency: if it's cheaper for the gelatine plant to change their operations or to move than it is for Cassels to bear the stench, then they can pay the plant to do it. It might have been too hard for the dispersed homeowners to pay the gelatine plant for abatement, but Cassels could pretty easily coordinate things if they wanted a Coasean solution.

But it's a bit more complicated. The gelatin plant may have been breaching some of its emissions consents:

As one of the three air monitoring stations set up in Christchurch by Environment Canterbury (ECan) is directly across the river from Cassels, ECan is well aware of the problem too. As ECan monitoring officer Chris Elsmore explains, there is the odour from gelatine production and there have also been breaches from sulphuric acid production - that would account for the sulphur smell.

"It's at a difficult stage at the moment," Elsmore says.

"Gelita certainly comprehend the problem and are taking significant steps."

But Gelita is working at a different speed to Cassels and others in Woolston, Elsmore says.

But if Cassels aims to have his Tannery complex open in six months, which is his ambition, will the smell have been minimised by then?

"Most likely," Elsmore says. "We're pushing them all the time."

That said, Woolston has long been an industrial area and is where such businesses have traditionally been. Besides Gelita, there is Independent Fisheries, a tannery and, until recently, rubber curing.

"If it was smelling, it was in that area," Elsmore says. "Alasdair's right in that things needed to improve."

So if Gelita is emitting more noxious fumes than they have the right to emit, and if it is more expensive for them to abate down to Code than for Cassels to bear the stench, they could pay Cassels to stop complaining. Cassels is pushing their customers to notify ECan whenever things are too smelly; some of this will be a push for enforcement of existing code while some of it would be to build pressure for reducing the permissible amount of emission.

John Walley has a point where changed neighbouring uses lead to lobbying for changed rules in cases where it would be really simple for the aggrieved neighbours to buy abatement if abatement could efficiently be provided. But where they're instead lobbying for the enforcement of existing standards, and where you can make a pretty reasonable case that any de facto easement existed only because of strong coordination problems among the residential neighbours, perhaps Gelita should be the ones purchasing abatement from Cassels.

* If you're from Winnipeg, think about the Saint Boniface yards from two decades ago.

Affordable City

Like Canada, New Zealand doesn't really have political parties at the local level. There are city-by-city loose affiliations that can be viewed as Labour-linked or National-linked, but they're not all that obvious.

While it's nice to avoid party politicking, it does make it harder for voters trying to figure out which candidates they should support for particular policy bundles. To the extent that local politics is mostly about constituency work rather than policy, this can make sense. But local government policy issues are getting to be rather pressing; failures in local politics seem to be driving housing price inflation and are starting to have macroeconomic consequence. 

And so it's great to see the launch of a new local-politics political party: Affordable City. Their policy objectives:

The national Affordable City umbrella has five policies which all local Affordable parties will have in common.

• Lower rates
• Balanced budgets
• Making housing affordable
• Spending only on the basics
• Restoring private property rights

The individual local Affordable parties may also have other policies which are specific to the issues in their region.

If any readers are sufficiently masochistic to wish to stand for local government, they might wish to get in touch with the folks at Affordable City. Getting local government right is rather important. I worry that it will be a tough slog: homeowners vote far more regularly than do renters, and policies that make cities affordable aren't in the short-term interest of current homeowners.

Oh Christchurch

It didn't have to be like this.

784 days after the February 22, 2011 earthquake. There's a draft plan for downtown, but nothing's yet certain except for that the CCDU and CERA are pursuing compulsory acquisition for some land where they think they're likely to build a convention centre and stadium. We don't know when access to downtown's Cathedral Square will be restored, we don't know whether Town Hall (a performing arts venue) will be restored, rebuilt, or scrapped; what an Arts Precinct will look like will depend on what happens with Town Hall, and continued uncertainty about the Arts Precinct is messing things up for those wanting there to rebuild. We don't know when they'll finalise the city plans for downtown living zones. We don't know whether land acquired by compulsory acquisition will be used for public purpose or flipped at a profit by some later government. We do know that a reasonable burden is being borne by those having land taken by compulsory acquisition.

We have a great big mess of interconnected problems. The root of most of them is a fundamental lack of respect for individual property rights. Why do we have a housing crisis? People can't do innovative things to increase housing supply. Why do we have downtown property owners deciding to cut their losses and escape? Because the planners are giving us the worst of all worlds: a determination to pursue a central plan and cast aside the plans that individual property owners might have, but a seeming inability to just set the darned thing so that individual property owners can re-optimise and get building. There are good arguments to be had about whether it's better to have a fixed city plan with a designed vision for the city or whether we should let the city's vision emerge more organically from the decentralised projects each owner might seek to undertake. I prefer the latter. But surely either of those has to be better than putting town on hold for this long while deciding just what the perfect city plan might be.

It's tragic that most people don't understand the term "leave well enough alone". "Well enough" isn't a compound adverb describing how thoroughly one ought to leave something along, it's a compound noun saying that if things are good enough, we shouldn't screw with it. Read it as "Leave alone that which is 'well-enough'." It's the better English translation of laissez-faire. We've made the quest for the best city plan the enemy of getting anything done.

Let's recap a bit.

January 2011 it was pretty clear that there were already substantial zoning rents built into Christchurch property prices.

March 2011: Businessmen with critical records behind the red zone cordon were still barred access. But if your wedding dress was on the other side of the line, you could likely convince a policeman to let you through. All kinds of other nonsense around the cordon. .

We could see that heritage rules were working in opposition to earthquake preparedness and that we needed to fix things if we wanted to keep and strengthen our best heritage amenities. There's now a pretty good chance we'll lose the old Trinity Congregational Church entirely, and the intransigence of the heritage board after the September 2010 quakes is largely to blame. I do appreciate how Council is simply putting up $1m towards the restoration for anybody who is willing to do it - it's an amenity that seems worth it. I wish that we could have protected it three years ago by paying the providers of heritage amenities for their provision rather than making it really hard for them to do any earthquake strengthening.

April 2011: Central government and Hon Gerry Brownlee get more power over the earthquake rebuild. I'd hoped he'd use his powers for good and help us to get an IKEA. But it looked like a high variance play: an appointed Czar might sweep aside the regs that were holding things back, or might impose a central plan heavy on expropriation. Meanwhile, the Greens push for an earthquake levy; optimal tax policy dictates instead a mix of spending cuts and future tax increases.

May 2011: We start hearing suggestions that Council sell assets to pay for reconstruction. There's an economic case for it, especially where some of those assets weren't great candidates for public ownership to begin with.

July 2011 we start seeing problems where the insurer says a property can be repaired and so will pay out based only on the repair cost, but the government declares that you can't rebuild on that land. This is the kind of thing where either Council or central government should have funded a test case or sought a declaratory judgement. We still don't know what a high court appeal would say about it.

August 2011: the first cut City Plan comes out. It's vaporware.

September 2011: I get more worried about downtown. RBNZ starts pushing back its expectations of when things might start happening in Christchurch. They then expected rebuilding of severely damaged properties might start happening mid-2012. The downtown demolition job remains unfinished as of April 2013.

October 2011: Downtown developers (rightly) start getting stroppy about Council's planning approach. RBNZ reveals what it was up to during the quakes and their preparations in case things go badly in a Wellington quake.

November 2011: Bomber Bradbury says that the Libertarianz paid political ad highlighting bureaucratic and regulatory failure in Christchurch was "intellectually skanky". Clearly he doesn't live here.

February 2012: Council is still very slow in approving new subdivisions outside of town; too many veto points for getting things done. We also start seeing how the combination of lax building codes, heritage regs against building strengthening, and the abolition of liability under ACC caused substantial problems; I suggest liability insurance might be appropriate.

March 2012: Outside of downtown, away from the bureaucrats, Christchurch is coming back.

April 2012: Rental prices are soaring; demands for price controls. Central government throws out the Council city plan, promises a new and feasible one. I'd hoped that the new agency would take a light touch on eminent domain and that it might fund some declaratory judgments on insurance issues. Alas. At least the light rail scheme hasn't resurfaced. Bill Kaye-Blake reckons Christchurch is screwed. Too much focus on shiny stadium dreams, too little attention to helping folks wade through insurance messes. The housing shortage gets messy; bureaucratic failure abounds.

May 2012: CERA head Roger Sutton demonstrates a surprising lack of familiarity with zoning issues. I had hoped that CERA's job was to have been sorting out the tangled bureaucratic mess facing homeowners. Yeah, no. More pressure for Council to sell assets; I worry they might sell things like the Port to buy things like stadiums. Meanwhile, people who aren't owners of the downtown Anglican cathedral start protesting that it be rebuilt; its owners, the Anglican Church, seemed less than keen. I suggested they try Kickstarter to show us whether the notional demand was effective demand. None of that's yet sorted out as of April 2013.

June 2012: consents and planning are still stuck in pre-quake mode: the grey men had to make sure that the wheelchair ramps for a new temporary bar had a 1:12 slope rather than a 1:10 and that the handrails were just right. In the midst of a housing shortage, Christchurch is exporting houses from condemned sections; our zoning rules ensure that they can't really be used in-town. And Christchurch City only approved 1271 new dwelling units from April 2011 through April 2012.

Meanwhile, John Fountain figures out a ridiculously simple move to start easing Christchurch's housing shortage: allow people to build flats inside their existing homes. City Council zoning rules don't allow it if the flat has a kitchen, though they make provision for flats of this sort under rules ensuring that few people will really do it. The only explanation I have ever heard as to why Council wants to ban this simple way of easing the housing shortage is that they're scared that the area around the University will turn into student flats of the Dunedin type. If that's the case, they could have banned it in the area around the University, or they could have considered that it just might also be important that we get some cheap student flats if we want to keep having a University.

Gerry Brownlee claims there's no housing crisis in Christchurch. I suggested he's missing what's going on at the bottom end of the market. Ahem.

I suggested scrapping plans for a big expensive convention centre and instead have Council coordinate with the big hotels for a smaller facility linked directly to the hotels. Regime uncertainty gets worse with warnings about forced acquisition for the new city plan.

July 2012: We get the new city plan. I didn't know then, and I think that nobody knows now, just how any of the proposed anchor projects are to be funded. EQC makes it harder to avoid using their preferred project manager. Pressure for a broader national push to relax land use planning builds; I point out that it's also good earthquake-preparedness.

August 2012: Seamus notes that the anchor projects in the city plan might not pass a normal cost-benefit analysis but could help anchor expectations around a good rather than a bad new equilibrium in a multiple-equilibrium world. I wondered whether the expensive stadium plan was a poison pill. We started getting hints about what the anchor projects might cost. As of April 2013, CCDU is getting tenders for a convention centre but I'm not sure they've sorted out who will pay for it; they're saying construction on a stadium might start in 2015. We don't know what's going on with Town Hall.

December 2012: It's looking like insurers are deliberately dragging their feet so that policy holders take lowballed indemnity payments. We still haven't had reasonable test cases. EQC is pushing everybody to their preferred contractor. Gerry Brownlee scales back a proposed insurance advocacy service, reckoning that it isn't much needed. The service was supposed to help people figure out when their homes might possibly be repaired. Turns out Brownlee was right - we didn't need the advocacy service. We just needed EQC to leak the big spreadsheet containing all the details on most of the repair jobs and for somebody to stick it up on the internet so that folks could find out where their claims stood.

And remember how the convention centre was an anchor project in the big central plan of July 2012? December they're shortlisting developers for the convention centre while hiring somebody to make a business case for it. Also, you probably can't finance the big shiny stadium on bake-sales.

January 2013: Christchurch Council's record on building consents remains full of fail.

February 2013: Continued regime uncertainty. That shiny city plan from July 2012? Yeah, we don't really know what's going on with that. And it's starting to matter for those with properties zoned into one of the special precincts. The Insurance Council says that it's not their fault that 70% of major claims have yet to be dealt with; I'm not so sure. Insurance here feels more and more like a scam.

March 2013: Regime uncertainty continues.

It's mid-April 2013, 784 days after the earthquake. My builder is still squabbling with EQC about the quote to get the job done at our house. AMI/SR has yet to come to our house to assess our out-of-scope claims. SCIRT is just about done with what I think is the fourth tear-up-and-rebuild on our street; they all blur into a single two-year-long project interspersed with a few two-month stretches where the street is in one piece. The barricades around downtown block off less than they did two years ago, but they're still there.

The CCDU decided that some downtown areas had to have a minimum project size; property owners now are scrapping with each other trying to accumulate titles to get to the minimum size rather than building on the land they own. The planners' grand visions may be nice, but they're driving out the investors who should be rebuilding town.

Contrary to Gerry Brownlee's claims of there being no housing shortage in Christchurch, we see a 60% drop in affordable rentals relative to pre-quake baseline. Now some of this will just be an artifact of the baseline chosen for affordable rentals, and Auckland remains more expensive. But as of last month, the price of the median 2-bedroom rental in Christchurch was $365 per week and the price at the 25th percentile was $300. And Christchurch Council still effectively bans building self-contained flats in houses - removing that ban remains the single simplest and cheapest thing they could do to increase low-end supply.

The University has hemorrhaged students as housing is expensive and town is rather less attractive than it once was. It will not be easy for the University to recover until Christchurch is a place that students again want to live; costs of student housing have to come down into line with the amenities here provided, or the amenities have to improve. Neither of those are easy given the current Christchurch bureaucratic regime.

Winter is coming.

SimCity

As SimCity seems a training ground for future urban planners, here are a few features I'd love to see incorporated in the new edition.

• Real-time play with an unstoppable clock. You could wind it down to be as slow as the real world, but never pause it. Dithering over zoning decisions interferes with the simulated individuals' plans and has them leave in frustration. The clock should keep running, at real-world-time, even during saved games. 
• Bulldozing houses without above-market-value compensation makes residents unhappy. You should have to weigh these costs against whatever it is you're trying to bulldoze into existence.
• Inertia costs: building up a tighter regulatory structure and more prescriptive zoning rules causes delayed implementation of future changes. So if an earthquake hits and you were running a tight smart growth policy ex-ante, it takes you longer to change any of your zoning. If you've only been running the policy for a couple of years, maybe you get a month's delay. If you've been running it long enough that that's the only thing your bureaucrats know, change is almost impossible unless you fire them all.
• The new edition embeds intercity effects, at least according to the reviews. I'm really curious to see how they handle investment and mobility flows. Are simulated residents homogeneous in amenity preferences? How does Tiebout work in this world?
• I really hope that the new edition doesn't assume that stadiums could never exist but for local government financing.

The reviews of the new SimCity look great. Once they've added enough servers or added an offline mode to make the thing playable, or maybe once a cracked version without the mandatory-online-DRM-downgrade is widely available, I'll likely give it a shot. I hope at least a couple of these are in there.

Previously:

• For a Hayekian game
• Gaming the socialist calculation debate
• Gaming the socialist calculation debate: update
• Is the game rigged? Or is the world?

Poison pill

Imagine that you're in NZ Central Government. And imagine that you believe that local government in Christchurch is kinda hopeless. You know local government has had an odd fascination with expensive legacy projects. The mayor wants a light rail system with his name on it. And Council, rather than being satisfied with a perfectly functional temporary stadium, wants to hike rates or go into debt to throw money at a bigger one.

You know the literature showing that light rail in a city like Christchurch isn't particularly viable. You know the literature showing that stadiums provide no real economic benefit and that Dunedin's has almost bankrupted the town. Moreover, you know that most people in Christchurch strongly resent that big spending on stadiums be put ahead of other priorities (at least if whatever polling National's doing roughly matches what shows up in the Press's polling).

So, what do you do? Put the stadium into the big central plan. Not just any stadium: the most expensive option of those under discussion - a huge covered venue able to seat just under 10% of the total city population. Say Council has to come up with the funding. Then lean on Christchurch that it cover its share of the overall rebuild costs (stadium and convention centre, among other things) by selling other assets rather than by just issuing debt or raising taxes. You know there isn't much that Christchurch Council hates more than the suggestion that it sell Council-held assets. Finally, put the stadium in a spot where you're guaranteed to get substantial local opposition because it'll mean tearing down a heritage building that a local couple have just re-opened after investing substantial amounts of time, effort and money: a couple that are clearly willing to fight hard to keep it because they love it. And not just any heritage building: an art gallery venue that only just finished hosting a pretty popular exhibit. Arts aficionados will overlap substantially with heritage buffs. We all found out in the last month that the city's main art gallery will be out of commission 'till the end of 2013 because they're entirely redoing the foundations to add in earthquake shock absorbers; the proposal would have one of the few galleries left torn down before the main one is back online. The kinds of art folks whose approbation the Mayor, and the Mayor's wife, might seek may not be entirely pleased with him for tearing down a heritage building art gallery in favour of a covered stadium.

Am I crazy for putting maybe a chance in 5 that this isn't National trying to force a stadium on Christchurch but is rather the dad coming across the 8 year old with a cigarette and forcing him to finish the pack to see how well he likes it?

So you think the stadium at Addington that you can't fill isn't good enough, eh? You want a bigger more expensive one? Sure. Have a really big and really expensive one. But you're going to pay for it. Not the easy way with debt that could add to the country's systemic risk. But by selling the things you seem to hold most dear and by earning the shame of those whose approbation you value. Go ahead. Have it. Go on. 

It's likely entirely too subtle a potential play.

As for compulsory acquisition of the Ng Gallery: you can make a decent argument in favour of compulsory acquisition in the face of strategic hold-out problems where individual owners might try to extract the value of the project by refusing to sell except at a high premium. It's not a great argument because buying options can do the same job without coercion, but it's defensible.

Maybe I'm easily duped, or maybe the owners are some of country's better actors, but I can't watch the Campbell Live interview and believe that they're doing any of this to try to force the government into paying them some exorbitant premium for the place. They seem rather to put very real and very high value on it. It's hard to imagine anybody putting that kind of work into an old building in Christchurch just for expected financial returns; it's a labour of love. Compulsory acquisition to get around owners who place real high personal value on a property isn't a fix to a strategic hold-out problem - it's more like theft. And a city that's rebuilt on theft hasn't very sound foundations.

Update: And see Sam Richardson on the stadium and convention centre.

Update 1.5: The Stadium also would knock out one of the new Casels & Sons bars.

Update2: NotPC's linking to a clip from The Castle is apposite. I'm going to steal his work in finding the clip and embed here, but do click back to Peter there.

The Plan

The Christchurch Grand Plan is now out. I'm going to have to sit and think about this a while longer. But some initial thoughts:

• I had a call from one of the radio stations asking if I'd come onto an afternoon show; they wanted to know how the plan was to be funded. Told them that I hoped they could figure it out because I haven't much clue. Some bits are explained in the planning documents. But it looks like Christchurch Council would have to find the funding for a big covered stadium that Prime Minister John Key thinks is a great idea (Dunedin?!). I support Council asset sales in general. But selling something useful to fund the building of a stadium that, in all likelihood, will not cover its costs and will fail to bring any substantial real economic benefit, is a remarkably bad idea. Should an individual sell off part of his retirement portfolio to buy something really immediately necessary - maybe to cover a medical bill that would otherwise attract large late fees? Of course. Should he sell it off to fund a vacation to the Caribbean? Not likely.
• There's a big path from here to there. If we were there, it would be a nice place. But I'm not sure whether there is possible from here. There's more than a whiff of "if you build it they will come", though some projects, like the EPIC tech hub, seem very solid. 
• I had understood that the massive secrecy around the plan and the siting of anchor projects was mostly to facilitate negotiations with property owners. In short, it's a remarkably bad idea to tell any individual land owner whose land you're trying to build into a larger package just why you're doing it. Otherwise, each owner might try to extract the entire surplus that the project might bring: the classic hold-out problem. There's a way around this using the purchase of options as a form of dominant assurance contract, but that can be more expensive than compelled sale: the Government's had the Public Works Act in its back pocket to encourage negotiation. I could understand the secrecy. Turns out now that the plan has all the sites listed with what they want on them, but they've not concluded negotiations with the many owners of the underlying land. So I'm a bit perplexed about the reasons for the initial secrecy. 
• Pinning hopes on a convention centre seems a bit risky. The things tend to be dead zones when not in use. And, it's not clear that whatever benefits you get from having a convention centre couldn't be gotten by having hotels site themselves in the same spot with skywalks between them allowing larger conventions to span multiple hotels' facilities. Sure, the hotels would prefer having a free convention centre. But, like one wag on Twitter, I'd like a free helicopter service to Pomeroy's Pub as part of the Transport Plan; doesn't mean it's a good idea.
• Nobody's yet saying what's going on with Town Hall - the venue previously used by the Symphony, among others. Presumably that's because nobody yet knows. 
• Most buildings are subject to a seven-story height limit. I expect this is being done not for earthquake risk (as tall buildings can afford to have very very good foundations and, as I understand things, are often less risky than mid-height buildings) but rather to avoid there being an oversupply of downtown office space. The same goal motivates the green belt around the south and east of downtown: fill up downtown space with parks until things are busy enough to justify expansion and, by so doing, force things to concentrate in a smaller space. There's at least one problem with this. A whole pile of the businesses that formerly operated along Manchester Street, among others, were cool but low-rent kinds of operations: second hand bookshops and the like that ran out of very old brick buildings. They never could generate the cashflow to replace the capital stock, but they were awfully fun. Getting a more compact downtown by pulling land out of use keeps that sort of business from coming back downtown in cheaper buildings - the tilt-slab stuff everyone here seems to love to hate. The plan suggests a covered market somewhere downtown to give space to that kind of low-rent business; Victoria Market in Melbourne is nice, but it provides a very different kind of amenity. 
• If I were a property owner who had wanted to rebuild a business in what's now supposed to be a park, and if I were getting the big push to sell out to turn the land into a park, and the compensation weren't enough to buy another site in the new-and-compact downtown, I'm rather sure I would not take it very well. And if I'd just spent a ton of money fixing up a heritage building because I loved heritage buildings only to be told it would be stolen from me acquired at a price less than that which I'd be willing to accept were it not for the threat of compulsory acquisition under the Public Works Act and bulldozed to make way for a stadium...  
• The designated precincts sound very nice, but I share Project Free Range's concerns about the dearth of mixed use. 
• The planned stadium will block what was one of the main east-west corridors at the south side of downtown: Lichfield Street. There's always been talk of getting rid of those one-way streets in hopes of encouraging people to slow down and stick around downtown. But if there isn't a widening of Moorhouse Ave, folks on the east side of town just won't have good ways of getting to employment on the west side of town (or vice versa). The east then becomes less viable. Let's hope Council's quest to push people out of cars doesn't further isolate the east side of town. 

Small fixes for Christchurch

Without a time machine, we can't go back and revisit Christchurch Council's complete and utter failure after the September 2010 earthquake to ease up on land supply constraints so that the market could have responded after the February quakes by supplying places for people to live. It is completely nuts that Christchurch property values are now above their pre-quake 2007 peak given the massive reduction in the amenity value of living in Christchurch; it reflects that demand wasn't cut by nearly as much as supply and that the combination of regulatory barriers to supply and real time-to-build problems have more people left homeless by the quakes who want houses than there are available houses in Christchurch.

What can we do in the interim, given the very real world constraints of:

• Very limited Council capacity;
• Very real infrastructure constraints that can put limits on extensive brownfield densification;
• Time to build even if we moved right now to whatever the perfect zoning rules might be?

John Fountain, my colleague here at Canterbury, has been trying to help square the circle. How? John has a house in Governor's Bay that's larger than he needs. He wants to build a flat into the house. But it is against Council regulations to put in a flat. Christchurch Council has made it illegal for John, and people like him, to help to make more housing available quickly. Yes I am shouting. More people should be shouting. I'm surprised we haven't seen bricks going through planner windows. I'd certainly never condone such behaviour, but I'd understand.

Here's John, who's more typically Canadian in tone:

There are a few nice features of the new Christchurch City temporary accommodation scheme that permits the construction of an “accommodation unit”. An accommodation unit is  “a structure of no more than 150m² in gross floor area for the purpose of providing temporary residential accommodation. The unit may include facilities normally associated with residential accommodation such as a kitchen, living area, bathroom, toilet and bedrooms. Accommodation unit may also include a campervan or caravan.” There is a fast tracking system for getting pre construction advice and approval in 3 to 5 days  – for free. Of course all building consents need to be in place…but this isn’t necessarily a big hurdle for a well designed and well constructed unit.

The problem is that  “earthquake related” accommodation units are surrounded by a host of ancillary use constraints and regulations that strangle the (apparent)  intentions behind the scheme …: eg whatever faciltiies are constructed  must be temporary,  one-storey,  relocateable,  used only for accommodation by and for   households directly dislocated by the earthquake, and removed when their temporary need has dissipated or when CERA instructions say so or when CERA is disbanded four years away in April 2016.

John then slowly walks through how it's unlikely to be in any property owner's financial interest to build a flat into their existing property if it has to be pulled out four years later.

And, worse, the regulations require that the units accommodate specific persons who are earthquake-displaced. The thing about housing is that even if you accommodate somebody who isn't specifically earthquake-displaced, you're still making room for the displaced person to go where that newly accommodated person otherwise would have been. The first big tick-box on the Council consenting check-list requires you to indicate whether your flat would accommodate somebody whose house was destroyed, who's displaced because of reconstruction, who's displaced because of land remediation, or who's displaced because of risks posed by adjacent structures. You can't use it to accommodate somebody who's moved into town to run a big construction crane even though building something to accommodate that guy frees up a space for an earthquake-affected person elsewhere.

So John reckons he could, for about $110k of his own money, put in a 70 square meter 2-bedroom unit at his place that would rent out for about $300 per week. That makes sense if he can pay off the investment over a term longer than 4 years, and if he doesn't have to pre-specify, before he even builds the freaking thing, who'd live there and guarantee it would be an earthquake-affected person.

It would be very easy for Council to ease up on the current draconian regulations to let people permanently build self-contained flats into their existing properties. These would be dispersed around the city; you wouldn't expect to have large effects on trunk infrastructure. Council wouldn't have to spend anything - just get out of the way. Here's John again:

So…what do we conclude: willing buyers , willing seller but the transactions that would help alleviate accommodation shortages for the next few years are effectively stymied by inadequate regulations . Multiply this 1000 fold and you’ll see why “temporary”  inadequate approaches to zoning regulations – ones that don’t challenge the existing order – are a real bottleneck for dealing with rental accommodation shortages.

The plain fact is that the new  temporary accommodation orders, while well intentioned, simply avoid the underlying regulatory problems that limit the development of small scale private investments that could do plenty to alleviate our city’s accommodation problems. It’s just old wine in a new wineskin  – CERA and the city managers say we’ll facilitate something for you but then enclose it in a shrink wrap agreement that precludes it being used!

The temporary accommodation order itself would have been redundant had the zoning and development regulations been tweaked to permit residential activities to have secondary suites, as in Vancouver and many other Canadian municipalities – something that I am arguing in my other posts..

Here's John on how this kind of solution works in Vancouver. Here's more from John on secondary suites. Here's where John hit the kitchen "stumbling block" for developing a flat on his property.

Is there any plausible negative effect of allowing this kind of subdividing that outweighs the benefits? Why does Christchurch Council make it illegal for my colleague to help ease Christchurch's very real housing shortage? We have an earthquake-Czar who's supposed to be able to ride roughshod over Council stupidity to get things done. This is worth getting done. It would open up a pile of new rental properties that are currently in scarce supply, and it would do it faster than building new.

Every other city in the country should be looking hard at its existing set of regulations and weighing up just how much fragility they've built into their systems in case of sudden and devastating reductions in housing supply.

Update: See also John's post here that points to a City of Vancouver study on secondary suites.

Oh, Christchurch

As of November last year, more than 6,500 residential properties in Christchurch were in the red zone, indicating the land is not suitable for rebuilding. Residents have to move elsewhere. More sections in Southshore were red-zoned last month. Other properties have been red-stickered, indicating that the building itself is dangerous and not suitable for current habitation; some of those will be in the red zone, but others can be repaired or rebuilt on-site. Some of the red-stickered properties will be multioccupancy units, like the downtown apartment buildings now coming down.

We need a lot of new houses in Christchurch.

But, we're still exporting houses:

This red-zoned Burwood house will be the first of 50 an Auckland businessman will roll out of Christchurch on a truck from this weekend.

Quake Proof Solutions director Gary Muir is recycling and relocating red-zoned homes to minimise demolition waste and fill housing shortages in the South Island. 

He is moving his first two to Gore, but anywhere is possible. In the next year, he plans to move at least 50 houses. 

''Wherever someone wants a house, that's where we'll put it, " he said. "We're looking to move as many as we can."

Insurers and the Earthquake Commission have deemed at least 6000 homes too costly to repair.

Insurance companies needed the land cleared for rebuilding but instead of demolishing, sold them to Mr Muir to take away.

"This is mutually beneficial, " Mr Muir said. "We can recycle about 90 per cent of a house, for half the cost of rebuilding.

"It's either this, or we put a bulldozer through the middle of it." 

Cheap land, resource consents and stable sections were easier to find outside Christchurch. But Mr Muir would try and make any site work, even in the city.

..."We've had a lot of paperwork stoppages, " he said. "Every day they're changing the documents."

...He was one of the lucky few to gain accreditation for red-zone house removals. It took him 13 months to get the tick of approval for his first project. [emphasis added]

And, we've hardly started building replacements:

The first three months of this year saw local councils issue consents for just 60 new homes in the region, double the 30 issued in the last quarter of 2011, according to Statistics New Zealand.

Between the first quakes in September 2010 and the end of April this year, consents for 152 quake-related rebuilds were issued in Canterbury, as well as 149 consents for portable homes in temporary villages.

...The total number of homes needing to be rebuilt in Canterbury will depend on how many insurers deem uneconomic to repair, and these will join red- zoned homes and dangerous dwellings already brought down on the rebuild list.

Breaking down the consent data for permanent earthquake rebuilds month by month does show a shaky but upward trend:

2011 May 5 June 8 July 8 August 5 September 4 October 13 November 10 December 6 2012 January 17 February 24 March 16 April 17

We have to be careful to distinguish between the Stats NZ series on earthquake-related new building, cited above, with the total number of new dwelling units approved: Christchurch City had 1271 new dwelling units approved in total from April 2011 through April 2012, the most recent available stats. But it can take a while for approvals to turn into houses.

It really isn't hard to connect the dots from Council taking way too long to allow more subdivisions to current housing shortages.

Meanwhile, Environment Canterbury is barring people from installing logburners in rebuilt homes. ECan has been moving for a while to reduce the number of logburners in town in order to reduce the smoky smog that can sit over town in winter; you're not allowed to put logburners in new houses, but houses with existing logburners can keep and update them. Newer low-emission burners are supposed to be only a few years away; ECan might let people start putting those in when they're available. But, until then, you're barred.

I can understand ECan worrying that manufacturers might not be in a hurry to release worse-performing but lower emission logburners if they can still sell the old ones. But I would have thought the better way to keep the incentives straight would be to mandate the stricter standard only when some manufacturer brought a new compliant burner to market. That manufacturer, or importer, would then have a temporary monopoly. It would take a little while longer for older burners to cycle out of use and for emission levels to drop off, but we need also to put some value on the security of supply a logburner provides when earthquakes or heavy snow can knock the power out.

The Press's editorial nails this one:

The earthquakes have provided an opportunity to hasten the phasing out of inefficient woodburners which ECan has taken by sticking to the policy it has had since 2002 of not permitting woodburners in new homes.

This means that ECan is refusing to allow homeowners who had a woodburner and whose homes have been destroyed by the quakes to install another one in any new home they build. For many with access to a supply of cheap woodfuel the policy risks adding additional financial hardship to the many others they are already facing.

ECan said last week that its policy could change in future but this would not be until ultra-low emission woodburners were developed. That is not likely to happen for several years. As a practical concession to present problems it is useless.

Even the Parliamentary Commissioner for the Environment, Dr Jan Wright, recognises the inadequacy of ECan's response.

...Something other than continuing the ban adopted before the earthquakes would show that ECan truly understands that circumstances have changed.

Why not just deem on-site earthquake rebuilds to be a continuation of the existing consent for ECan purposes?

People with destroyed houses are caught by pre-quake regs that sought to slow any urban expansion; those able to rebuild are caught between pre-quake regs designed to slowly phase out logburners and power prices that keep ramping up as building new hydroelectric power dams for lower cost power supply seems effectively banned. It'll be interesting to see what power prices look like in a dry winter after everyone's switched to heat pumps if we've not increased supply.