Improving our resource management system: A discussion document1

This document may be cited as: Ministry for the Environment, 2016. How Councils Estimate Demand and Supply of Development Capacity for Housing and Business. Ministry for the Environment: Wellington

Published in July 2016 by the
Ministry for the Environment
ManatūMōTeTaiao
PO Box 10362, Wellington 6143, New Zealand

ISBN: 978-0-908339-46-4
Publication number: ME 1249

© Crown copyright New Zealand 2016

This document is available on the Ministry for the Environment’s website:

Improving our resource management system: A discussion document1

Contents

1.Executive summary

2.Introduction

2.1Information sources and attribution

3.Definitions

4.Role of information in council decision-making

4.1.Purpose of forecasting demand and capacity for residential and business land

4.2Quality of information translated into decisions

4.3Collaboration between councils that share jurisdiction over an urban area

5.Residential demand forecasting

5.1Outputs

5.2Residential demand methodology flow chart

5.3Inputs: population and household growth projections

5.4Estimating demands for different types of dwellings

5.5Residential demand in existing urban areas

6.Residential development capacity analysis

6.1Outputs

6.2Residential development capacity methodology flowchart

6.3Estimating capacity for greenfield development

6.4Estimating capacity for infill or redevelopment in existing urban areas

6.5Development feasibility and likelihood

7.Business land analysis

7.1Outputs and impact on decisions

7.2Estimating demand for business space

7.3Measuring business land development capacity

8.Monitoring

8.1Monitoring residential development capacity

8.2Monitoring business development capacity

9.Costs to councils

9.1Costs associated with assessing residential development capacity

9.2Business forecasting and monitoring costs

10.Peer review and transparency of information

10.1Transparency of process and reporting

11.Suggestions for the national policy statement

12.Conclusions

Appendix 1: Key informants

References

How councils estimate demand and supply of development capacity for housing and business1

1.Executive summary

This report provides information about the way that nine ‘high growth’ councils in New Zealand estimate demand for housing and business land, and how they measure the development capacity available to meet that demand. The report summarises information provided by council officers and publicly available council reports and plans on the work carried out by councils to date. It also reflects the views of some participants about the adequacy of the information or how it is used; these are the personal views of interviewees, who are generally technical experts engaged in growth modelling at the moment, and do not necessarily represent the views of the councils they are employed by.

The work was undertaken to support the proposed National Policy Statement on Urban Development Capacity (NPS-UDC). Development capacity means the capacity of land available for development, that is, or is likely to be, supported by infrastructure, and taking account of all of objectives, policies and rules that constrain or enable its use.

Estimates of demand for, and supply of, development capacity are very important inputs to planning decisions, especially in high growth urban areas. This appears to be recognised by the planners and elected members of the councils reviewed. The resources applied, methods used and the uses of the information vary across different councils.

All of the councils surveyed use the information first and foremost for long-term strategic and infrastructure planning. The information is also an input to resource management planning decisions but the extent and way that this happens varies. The strength of connection between technical experts, planners and decision-makers affects how they use and understand the information.

Auckland Council invests the most, and undertakes the most complex and comprehensive modelling to forecast demand and supply of development capacity. This reflects its much larger size, and the scale and complexity of long-standing growth pressures. All of the councils surveyed use external consultants to varying degrees to assist them in doing this work.

The data inputs and methods used to estimate demand for housing at the aggregate level are similar across councils. Population and household projections are used to forecast the total number of dwellings required over given periods of time. Councils outside Auckland have concerns with Statistics New Zealand projections, and commission additional work to modify these or generate additional projections.

Most councils surveyed estimate how demand for housing might be distributed spatially within their jurisdiction, although the focus for most is on estimating demand for dwellings in greenfield areas. The urban councils analysed are now beginning to follow Auckland’s established practice of estimating the demand for new dwellings in existing urban areas. These councils also estimate demand for different types of dwellings (eg, standalone houses versus apartments). Currently only Auckland Council is modelling market demand in different price brackets, however. All of the councils surveyed calculate the capacity for future development usually in terms of the number of dwellings that could be developed, or number of years of demand that could be met. There is diverse practice, however, in how they do this. Some councils only calculate ‘theoretical’ capacity enabled in resource management plans and serviced with infrastructure. Others apply discount factors to take account of the fact that not all plan-enabled, serviced land will be developed. Recently, Auckland Council, Tauranga City Council, Wellington City Council and Queenstown-Lakes District Council have also begun to factor in how much plan-enabled capacity is commercially feasible to develop, to varying degrees. Christchurch City Council does this on an ad hoc basis.

Several of the councils surveyed invest in cross-boundary evidence to support joint strategic planning (such as SmartGrowth, FutureProof and the Greater Christchurch Urban Development Strategy). These do not however necessarily produce single forecasts for demand and capacity that are agreed by councils and infrastructure providers and subsequently reflected in resource management plans.

The councils surveyed place much less emphasis on forecasting business land demand and capacity than housing, and tend to rely on external consultants for this work. Forecasting business land demand and capacity is very challenging because of the diversity of demands for business space, the difficulty of forecasting local economic development, and poor data.

Councilsalso tend to devote less resource to monitoring what is happening on the ground, as well as reporting this, than to forecasting the future.

While there are good practices to build on, there is certainly scope to improve the information underpinning planning decisions about development capacity in urban areas. The NPS-UDC could encourage or require councils to:

  • improve their understanding of land and development markets and how planning decisions affect them
  • estimate current market demand for different locations and types of property (including business land), and the commercial feasibility of development ( as well as estimating projected future demand)
  • use information provided by price signals to undertake frequent monitoring to gain a better understanding of development and land market conditions

It could also provide more common terms used to describe the availability of development capacity. These requirements would be most effective if the NPS-UDC was supported by an implementation programme, including guidance developed with councils.

2.Introduction

This report summarises the findings of research commissioned by the Ministry for the Environment (MfE) and the Ministry of Business, Innovation and Employment (MBIE) to support the development of a National Policy Statement on Urban Development Capacity (NPS-UDC).

The report describes how councils estimate demand for housing and business land and how they measure the capacity available in their areas for meeting that demand, or development capacity (refer to section 3 for a definition of development capacity). It also provides a broad evaluation of how this information is used in resource management decision-making. In general, it is a key part of the evidence base used by councils when they make resource management planning decisions that affect development capacity.

The research describes, at a high level, the following attributes of the work of councils to estimate demand and capacity:

  • data inputs
  • methodologies (ranging from one-off pieces of research, through to sophisticated models that can be used to test the outcomes of different planning rules and development controls)
  • the extent to which councils do work to understand the interaction between planning and the market (and if so, what and how)
  • the extent to which councils monitor the market, and the impact of their plans
  • the level of integration between different experts within councils (technical experts and strategic, regulatory and infrastructure planners)
  • the extent of any collaboration between councils
  • resources applied
  • the way that councils use the information, and the impact it has on planning decisions.

The research focuses on the similarities and differences in practice of nine ‘high growth’ councils and groupings of councils in New Zealand. These are the regional councils and territorial authorities that are currently projected to experience higher than average population growth[1]: Auckland Council, Hamilton City, Tauranga City, Greater Wellington, Wellington City, Christchurch City, Selwyn District, Greater Christchurch[2] and Queenstown-Lakes District. MfE and MBIE also contacted the Bay of Plenty Regional Council, Waimakariri District and Waikato Regional Council who were either unable to participate or considered that other councils were better placed to do so.

2.1Information sources and attribution

The report summarises and evaluates the practices of councils based on information provided by interviewees, and publicly available council reports and plans. The report contains statements which are the views of MfEand MBIE based on an interpretation of publicly available information and the views shared by interviewees. None of the interviewees have been asked to endorse the statements in the report.

Several of the interviewees offered useful perspectives on areas where the national policy statement could improve or build on existing practice. It is important to note that the interviewees are a mixture of technical experts and planners involved in growth modelling at the moment, and the views they expressed do not necessarily represent the views of the councils they are employed by. A full list of people interviewed for this report is attached at Appendix 1, while a list of reports is listed in the References. MBIE and MfE thank the individuals and organisations who provided information and their views.

3.Definitions

Development capacity

Development capacity is the quantitative capacity for development on land, including the capacity to build ‘up’ as well as ‘out’. Residential development capacity can be expressed in a variety of different ways, including:

  • the total number of dwellings
  • hectares of land
  • the number of years of estimated demand that can be accommodated.

Not all of these are comparable or are interpreted the same way. Business development capacity is often expressed in gross floor area (GFA) of vacant business land.

Beyond this, there is considerable variation in how councils define and calculate development capacity, and how this relates to development on the ground.The following diagram provides a notional illustration of:

  • ‘plan-enabled’ capacity
  • capacity that is serviced with infrastructure
  • ‘commercially feasible’ development capacity
  • development that actually occurs.

The ‘likelihood’ of development is another concept used to understand development capacity.

‘Plan-enabled’ development capacity

Plan-enabled development capacity is the amount of development capacity allowed by resource management plans within a council area, once all of the rules and development controls are taken into account (eg, overlays, zones, growth limits, height limits, etc). Plan-7enabled capacity may include:

  • zoned, undeveloped land in green fields areas that is not yet serviced with infrastructure
  • zoned, undeveloped land that is serviced with infrastructure
  • zoned land in existing urban areas that already developed, but could be redeveloped to a greater height/density or for a different use under the rules.

Land that is serviced with infrastructure

This is land that is connected to the transport and water, wastewater and stormwater networks. Some councils specify certain standards of service that must be met, and/or other infrastructure. Existing infrastructure might theoretically support development (eg, such as 30-storey buildings) that is not permitted by the resource management plan.

‘Commercially feasible’ development capacity

Commercially feasible development capacity is plan-enabled capacity that developers could make a commercial return on at a particular point in time, given a certain set of assumptions about the costs of development and the necessary return.it is usually assessed at the current time or in the short-term; assumptions about commercial feasibility in the medium and long-term necessarily become less certain and more speculative in nature.Commercial feasibility takes into account likely market demand and therefore sales revenue, and costs, of building properties of particular types and scales in particular locations. Commercial feasibility is not a universally applicable concept, as social housing providers, for example, will have quite different development drivers.

Business land

Business land is land that is specifically zoned for productive economic uses.Every councilhas a distinct zoning typology, but ‘heavy industrial’, ‘light industrial’, ‘business park’ and ‘retail’ zones are common. Many councils have ‘mixed use’ zones that allow a mix of different types of businesses and often also residential development. Some productive economic uses take place in areas that are not specifically zoned for it eg, home childcare.

Greenfield land

Greenfield land is undeveloped land that is or has been used for agricultural or similar uses, but is zoned or will be zoned for development in future. Greenfield land is often located on the periphery of an established urban area and not necessarily yet served with infrastructure.

Existing urban land

Existing urban land is developed land in an existing urban area that has some potential for redevelopment.

4.Role of information in council decision-making

4.1.Purpose of forecasting demand and capacity for residential and business land

Good information is essential for good decisions, especially decisions that are long-lasting and can impact living standards and shape behaviour and investment decisions.

Councils in New Zealand make such decisions in relation to their most significant functions:

  • the provision of infrastructure, and the ongoing maintenance and operation of it, which falls under the Local Government Act 2002 (LGA)
  • land use regulation under the Resource Management Act 1991 (RMA).

Land is a scarce resource and in growing urban areas increasingly so. On behalf of their citizens, councils have a long-term interest in land being used efficiently, and being allocated in a way that best meets social, economic, cultural and environmental well-being. Councils balance these objectives against their imperatives to minimise the infrastructure costs and negative impacts that development and land use can create.

In this context, all councilssurveyed do appear to devote resourcesto information about demand for and supply of land and development capacity, through council officer time and funding for external consultants.Those with the highest growth pressures appear to allocate the most resources to it.

Most of the people interviewed for this report are technical experts involved in producing the information. Some interviewees expressed their view that other council officers (including planners) and elected decision-makers may place less value on the information and weigh it up against other matters.

All of the interviewees considered that the primary use of the information is for long-term strategic planning, and the preparation of infrastructure plans and budgets under the LGA. Infrastructure is the main driver of local government expenditure. The information may also be used to calculate development contributions to help fund infrastructure.

The information can also be used as an input to joint strategic planning processes with other councils. Some interviewees considered that joint forecasting and analysis has led to a greater degree of ‘buy in’ from decision-makers at the local territorial authority level to the wider strategic direction and outcomes of joint strategic planning processes.

While all of the councils surveyed use the information to help develop and review resource management plans, the way this happens varies. For example, some of the interviewees noted that the information may not always show up in section 32 reports, although it was not within

the scope of this research to review section 32 reports[3]. It is possible that this reflects a view that information about the environmental impacts of development is more important than information about demand and supply of development capacity. It may also indicate that some section 32 reports do not provide sufficient information fordecision-makers to understand the full costs and benefits of proposed regulations.

In Auckland, forecasting of future demand and development capacity informed the Proposed Auckland Unitary Plan (PAUP) as documented in the relevant section 32 report. It appears that the modelling approaches (and in particular the commercial feasibility of development capacity) developed significantly after notification of the PAUP, following the direction of the Independent Hearings Panel for submitters to undertake expert conferencing.

Modelling undertaken before the PAUP was publicly notified estimated that it would be sufficient to meet demand and achieve the desired urban form. However, the additional expert conferencing directed by the AUPIHP on the analysis led to further work to estimate the commercial feasibility of available development opportunities. Thisexpert conferencing assessed different PAUP provisions using several iterations of a model developed in collaboration with property development experts. The expert conferencing and modelling provided a wealth of information about the development capacity enabled by the PAUP, but it did not result in a single view of the expert conferencing group on whether the residential development capacity enabled was adequate, or an agreed set of assumptions for further modelling.