West and Garlick: Upzoning New Zealand

A history of New Zealand's land-use reforms, with potential lessons for BC

Upzoning New Zealand, by Eleanor West and Marko Garlick, former members of the Generation Zero advocacy group. Via Michael Wiebe.

I’ve talked before about Auckland’s 2016 upzoning and New Zealand’s national reforms. West and Garlick provide a detailed explanation of the political history: the housing shortage, the reforms, the political consensus on which the reforms were based, and the breakdown of that consensus.

This history is of particular interest in BC, since the BC NDP government has just introduced province-wide reforms to legalize three- and four-plexes in residential neighbourhoods and apartment buildings near rapid transit and major bus exchanges. The BC NDP have a majority in the provincial legislature, but what happens in the fall 2024 provincial election?

New Zealand’s housing deficit

New Zealand faces one of the worst housing shortages in the world. As in many countries, this stems from local governments having the power to control development, but no incentive to encourage it. Since the 1970s, housebuilding in New Zealand has been tightly restricted. Consequently, in Auckland, the largest city [with one-third of New Zealand’s population], the house-price-to-income ratio had reached 10.8 by 2022. To put that in perspective, it was 8.7 in Greater London and 7.1 in New York.

Corresponding figures for BC in 2018, from Statistics Canada. This was pre-Covid, so with the sudden surge in remote work, prices would have been higher in 2022.

• The median price-to-income ratio in British Columbia was 5.4, more than double that of Nova Scotia and New Brunswick.

• Properties purchased in the largest cities had the highest price-to-income ratios. This was most pronounced in the Vancouver census metropolitan area, where the median price-to-income ratio was 7.4.

History of the housing shortage

Following the postwar housing boom:

Everything changed in the 1970s. Like many other Western countries, New Zealand began to give local communities more power to control development in their own areas. New district plans started prioritizing preserving amenity for existing homeowners over new development. Local governments established metropolitan urban limits … to contain growth ‘out’, applied stricter citywide density limits to restrict growth ‘up’, and protected historic-character areas in inner-city suburbs via development controls.  

This shift culminated in an update to the Town and Country Planning Act in 1977 that significantly increased consultation requirements for plan-making and made it easier to appeal planning decisions in the courts. The result: a great down-zoning, akin to what was happening in the UK and the US. In the center of Auckland, zoned capacity for new housing was cut in half. Home-building collapsed. 

This is similar to what happened in BC in the 1970s.

Paying for infrastructure upgrades

New Zealand has a large infrastructure deficit:

Areas without sufficient infrastructure tend to be especially reluctant to allow new housing, and New Zealand already has a significant infrastructure deficit thanks to decades of underinvestment: the Infrastructure Commission estimates the country needs to spend approximately NZ$31 billion (US$18.5 billion) per year over the next 30 years to dig itself out of this hole, unless it substantially reduces costs.

New Zealand has a mill-rate system, similar to BC’s. Your property tax is based on your share of total property value. So new development doesn’t generate much new revenue. If you added 10% more housing overnight, what would happen is that everyone else’s taxes would go down (because their property is now a smaller share of total property value).

Unlike local governments in the US, Denmark, and Australia, which tax a fixed percentage of a property’s value, New Zealand councils tax via a rating system. Councils determine the total amount of revenue to collect each year, and then each homeowner pays in proportion to their share of total property value. In other countries, more housing automatically brings in more revenue; in New Zealand, new housing only slightly reduces the burden on existing properties.

This was aggravated by reforms in 1989 that made it harder to finance infrastructure through long-term borrowing.

Reforms under the National Party

After the 2011 earthquake in Christchurch, the centre-right National government used emergency powers to provide more agricultural land for housing and to make townhouses legal in more areas. There was little opposition: this was clearly a special situation that only affected one city.

The National government then brought in Special Housing Areas, which didn’t do much.

After forcing Christchurch to rezone to build back from the earthquake, the government turned to nationwide housing issues. In 2013 it launched Special Housing Areas: designated areas where planning approval would be fast-tracked and public appeals limited. Consequently, with support from the courts, developers were often able to build at higher densities in Special Housing Areas, and they enabled some extra homes, especially in Auckland. 

But this new approach did not make a massive difference, because councils ultimately had the power to say no, and little extra reason to say yes.

Next was the Auckland Unitary Plan, which came into effect in 2016, making townhouses legal by right across most of Auckland, and apartment buildings in some areas.

Reforms under the Labour Party

The centre-left Labour Party formed government in 2017. They started with a plan to build housing directly:

Labour’s flagship policy was Kiwibuild, in which it promised to partner with developers to build 100,000 homes in a decade. Despite winning fewer seats than the National Party, Labour eked its way into leading a coalition government. 

But though it started in 2018 with a bang, Kiwibuild quickly fizzled. The goal was ambitious, but the government immediately butted against the same constraints as any private developer: a lack of residential land, zoned for sufficient density, serviced by sufficient infrastructure. As a result, it took until 2021 to build its first 1,000 homes, two years late and 15,000 homes short of what had been promised by that point. (As of June 2023, Kiwibuild had delivered a reported 1,700 homes.)

The failure of Kiwibuild gave the Labour government an entirely new perspective on housing – that of a property developer. Armed with the many recommendations of the Productivity Commission, they set out to fix these constraints.

The first step was the National Policy Statement in 2020, which legalized transit-oriented development (legalizing six-storey buildings within 800 metres of rapid transit and city centres, removing minimum parking requirements). The political reaction:

The public was distracted by the onset of the global Covid-19 pandemic that had plunged New Zealanders into hard lockdowns. Meanwhile house prices were rising – they rose about 40 percent over the pandemic in total – and the pressure to do something (anything!) had never been stronger. In the wake of the political and economic success of the Auckland Unitary Plan, the popular case for upzoning was building up higher than ever. 

The National Party decided to support the reform:

There were obvious reasons to oppose it, as many voters still opposed upzoning. But while the Labour Party may have put its own spin on upzoning by emphasizing how it could help to address inequality and poverty, it was building on the groundwork of what the previous government had done with the Christchurch rebuild and the Auckland Unitary Plan. And if National opposed this policy now, it might become very difficult (or embarrassing) for them to propose or introduce something similar in the future. 

Still, National’s eventual decision to support this first upzoning policy was brave and forward-thinking. It would have been easy, and likely politically expedient, to let the Labour government suffer all of the pushback alone. By supporting the reforms it traded short-term political gains for an improvement to New Zealand’s long-term problems. 

The battles happened at the local level:

Though the new upzoning policy avoided public scrutiny to begin with, it attracted plenty in late 2020 when the capital, Wellington – a city where historic-character areas protected 88 percent of land parcels in the inner-residential zone – began updating its zoning plan to reflect the new policy. Wellington was the first city to test the implementation of the new policy, as it was already in the process of writing a new plan when the policy was published, whereas other councils would be affected only steadily over coming years.

Generation Zero kicked off a new campaign: A City for People, to try to make sure the capital’s new plan kept with the spirit of the National Policy Statement because councils still had some discretion when applying the new rules. For instance, councils still had the power to exempt character areas from intensification, so long as they could justify them on a case-by-case basis; as well as the power to define ‘walking distance’. So volunteers went and spoke at every council meeting, organized panel events, lobbied every councilor personally, and streamlined pro-housing submissions during the plan’s consultation.

Medium Density Residential Standards

The most recent reform, Medium Density Residential Standards, were initially based on consensus between Labour and National. But eventually this consensus broke down, in part due to pressure from ACT, a small party in the National coalition. (New Zealand has proportional representation, which facilitates smaller parties which negotiate to form a coalition, as opposed to negotiation happening within a single larger party.)

Labour and National drafted the second upzoning policy together: the Medium Density Residential Standards. This sweeping new policy was even bolder than the first, directing councils to set a new default minimum residential zone in the five largest cities of three dwellings, up to three stories. Essentially, both major parties wanted to permit townhouses and walk-up apartments almost everywhere.

This policy would go much further than the earlier National Policy Statement, covering nearly every suburb in the country, rather than just constrained areas in city centers and around rapid transit stops. It threatened to provoke backlash from suburban homeowners, the core supporters of both parties, who tended to oppose upzoning. Essentially, it was the opposite of the Christchurch rebuild, which had succeeded by singling out a special situation for upzoning. Instead, it encouraged every possible opponent of development across New Zealand to work together to stop it.

Infrastructure was a particular problem:

Councils still face large up-front financial burdens for the infrastructure that would support development, which they often cannot afford to shoulder, even if they wanted to (which they largely do not). Labour proposed centralizing water infrastructure, to relieve the burden on councils, in the Three Waters proposals, but these reforms have been extremely fraught and slow to progress.

There was a backlash in local elections in October 2022:

Implementation delays gave opponents of the upzoning policies, such as Auckland Council, time to regroup. These opponents stressed that the upzoning policies would add pressure to existing infrastructure and raised doubts that the central government could address the problem. A wave of conservative and anti-development politicians were elected to councils around the country in October 2022 amid growing dissatisfaction with the prospect of densification.

Pressure from ACT led National to defect by replacing their leader. With housing policy now being set at the national level, opponents of new housing were voting accordingly at the national level.

Up until now, the National Party had largely refrained from fanning the flames of this local backlash, sticking to their side of the bipartisan deal. But their usual minor party ally, ACT, had made no such commitments. Though the party is ostensibly libertarian, it leapt at the chance to siphon votes from National by campaigning against upzoning.

As Noah Smith points out, people hate inflation: rising inflation typically means that people’s real incomes are falling. With the return of inflation for the first time since the 1970s, people are not happy, and inclined to replace the incumbent government at the next opportunity. (This is certainly the case with the Liberals in Canada, but it’s also true with the Democrats in the US and the Conservatives in the UK. Interestingly, it’s not the case with the BC NDP.)

In the October 2023 election, the National Party defeated Labour and formed government. It seems likely that the National Policy Statement upzoning (allowing six storeys near rapid transit and city centres) will remain in place, but the Medium Density Residential Standards will not:

Though the first wave of upzoning will likely remain in place, the much more comprehensive Medium Density Residential Standards are in a perilous position. Centralizing planning power up to a higher level of government has proved to be politically difficult to defend, even with a grand bargain between the major parties in favor, as the incentives for the opposition to defect eventually won out. The disgruntled voters got their way, one way or another.