The Secretary,
Local Government and Environment Select Committee
Parliament Buildings
WELLINGTON

Submission by Centre for Resource Management Studies on:

RESOURCE MANAGEMENT AND ELECTRICITY LEGISLATION

AMENDMENT BILL

1. Introduction

The Centre for Resource Management Studies is a "think tank' financed by a Charitable Trust.

The main objectives of the Trust (which are set out in full on the Centre web page, are to promote better understanding and implementation of the Resource Management Act and to promote enhanced decision making and plan preparation and implementation.

2 Proposed Amendments to the RMA turn over the Fundamental Principle of "Enablement" in favour of "Central Planning."

2.1 Process Changes or Substantive Changes

Many of us have been concerned that the proposed amendments to the RMA focused on process and failed to address any of the fundamental flaws in the Act. The press releases from the Government have tended to confirm this view. This led many of us to believe that the proposed amendments would indeed focus on process and administration and leave the principles of Section 5 intact. Unfortunately this has proved to be quite contrary to the reality of the proposed changes, as they have emerged.

For example, the proposed bill changes the general direction of the Act from promoting subsidiarity to central direction and control. The role of regional policy statements has been strengthened. Section 33 requires that district and regional plans will now have to "give effect' to the regional policy statement (instead of being "not inconsistent with' it). This means all plans in the region will have to align more closely with the regional policies. Regional councils will have a greater role in strategic planning through their regional policy statements.

The Town and Country Planning Act promoted the direction and control of the use of land. The RMA was intended to turn that on its head and focus on managing the environmental effects of the use of land.

Section 5, which states the purpose of the Act, says that "people and communities" are to be enabled to provide for their own economic, social and cultural wellbeing, while managing their adverse effects on the environment. Many (sadly, not all) decisions of the Environment Court do accept that councils no longer have any business directing and controlling the use of private land.

2.2 Changing the Hierarchy

Another principle of the RMA is that Regional and District Councils are equal in the hierarchy of sustainable management - they just have different functions and focuses. Hence, District Plans were required to be "not inconsistent" with Regional Policy Statements.

The proposed Amendment makes it clear that Regional Councils are now above District Councils in the hierarchy of the implementation of the RMA. District Councils will have to give effect to Regional Policy statements even when those policy statements are demonstrably flawed as they frequently are. (A good example is the recent contaminated soils scare.)

2.3 Promoting Smart Growth

More importantly, the proposed amendment now requires Regional Councils to promote "sustainable urban form".

The promotion of sustainable urban form is the key plank of Smart Growth, which should by now be a totally discredited idea. Smart Growth, or the management of urban form, necessarily requires the direction and control of the use of land.

Promoting the timely and effective provision of infrastructure sounds like good sense, but within the Smart Growth framework this strategy is also used to direct and control where we live work and play. Smart Growth advocates simply hate on-site treatment of wastewater etc. They want us all living behind an urban fence connected to reticulated services, which they, and only they, provide.

So this reform has been perfectly happy to address fundamental principles of the RMA provided the reforms promote central planning and place more power in the hands of bureaucrats.

The problem is that the planning profession, and those who continue to believe in central planning, have never accepted the enabling provisions of the RMA and have consistently, and with great determination, worked to overturn these enabling provisions in favour of their commitment to the direction and control of the actual use of land - as opposed to the environmental effects of the use of land.

In the lead up to the passing of the Act in 1991we were consistently told that the RMA spelled the end of the days of direction and control of land use.

The dedicated planners will have none of it and have developed their own codified language which enables them to appear to uphold Part II while systematically undermining it.

For anyone who understands the planners' private code the proposed changes to the role of the Regional Councils is a major assault on Part II of the Act.

Some of our largest Regional Councils are our most enthusiastic directors and controllers of land use - using the principles of Growth Management, Smart Growth and Metropolitan Urban Limits to determine where the people subject to their rule should live, work and play.

The proposed reforms play right into their hands by granting Regional Councils:

An explicit ability to develop and implement policies on:

- Promoting sustainable urban form.

- Timely and effective provision of infrastructure and its integration with land use policies.

- Allocation of natural resources.

To someone unfamiliar with the planners' code these may seem to be reasonable tasks and in keeping with Part II of the Act. They are actually planners' code for the power to direct and control the use of land.

Many have interpreted "promoting sustainable urban form" to mean having regard for the form and design of buildings. This belief may have been encouraged by the proposed guidelines on urban form and design.

But promoting "sustainable urban form" is planners' code for Smart Growth and Smart Growth is explicitly about direction and control of land use. The Americans who invented it make no bones about it because they have no need to speak in code.

The same applies to the second and third activities - they appear reasonable but are code for implementing Smart Growth theory and practice.

I also suspect that many believe that "allocation of natural resources" refers to the allocation of water rights, which is generating much debate. However, the Centre has good reason to believe that the funtionaries will immediately define "land" as a "natural resource" which they will now have the power to "allocate" - in case there was any doubt about their claim to be land use planners until now.

Part II of the Act intended to disempower the planners and their claimed ability to allocate land use, and to plan whole regions the way architects plan houses. This was the fundamental premise behind Part II of the Act.

The proposed reforms are a triumph of our central planners. They now rule and we must do as they say.

No doubt many will have been persuaded that consultation will hold the rulers in check.

Anyone involved in consultation regarding Smart Growth knows that the end result is always the same. Whether the consultation takes place in Tauranga, Auckland, Canterbury, or in Portland, South Carolina or Colorado, it turns out that "everyone" wants high densities, more congestion, no more roads, more trains, cycling and walking, and no one living in the countryside.

The trouble is that people who make decisions with their own money in the market place reject all these preferences.

- "Everyone" is against urban sprawl but everyone wants to retire to the countryside.

- "Everyone" wants trains but everyone wants open roads and convenient parking.

- "Everyone" wants high density but everyone hates it when it pops up next door.

Finally, these Smart Growth policies hugely increase the cost of housing while lowing the quality (Hence the leaky buildings syndrome) over time. I shall table the most up to date evidence when presenting this submission.

Smart Growth can never survive any genuine section 32 analysis but of course it has never been subject to any proper section 32 analysis. The end result is that Auckland region now has one of the most severely unaffordable housing markets in the New World. Section 32 needs to be amended to require the analysis of costs and benefits to consider the impact of land rationing policies on the cost of land and housing.

3 The Centre Supports the Hurdle Approach to the RMA.

3.1 The two approaches to decision making

In simple terms, there are two alternative views of how the RMA should operate:

- As a see-saw exercise, in which attempts are made to balance conflicting objectives according to the current preferences of decision-makers; or

- A hurdle-crossing exercise, in which consents are granted subject to environmental requirements being met.

Planners and local government politicians tend to assume that the see-saw balancing approach is necessary and inevitable. Indeed, that is the philosophical basis of most of the changes being promoted to the RMA in the current Bill.

On the other hand, the hurdle-based approach is much simpler and more straightforward to administer, offers greater certainty to investors, and provides a transparent basis for protecting the environment.

The Centre believes the hurdle-based approach should be striven for in the Act as far as possible, and that consistently following this approach offers the best chance of reducing the costs, delays and uncertainties which currently plague many resource management processes.

The hurdle-based approach is superior for four reasons:

- It keeps the focus of the Act, and of council regulators, on the task of managing environmental effects, leaving infrastructure and other development to others who have those roles;

- It requires appropriate environmental objectives and standards to be specified and then followed with consistent integrity, rather than traded off for politically favoured developments;

- It reduces the need for discretionary, politicized and uncertain decision-making, which discourages investment;

- It provides a clear direction, and basis for accountability, for the Act's decision-makers.

The Centre acknowledges of course that some balancing judgments are inevitably required, particularly when it comes to relatively subjective matters like landscape. Nonetheless we believe the RMA will work best if its processes are designed to keep the scope for such discretionary judgments to a minimum. This philosophical approach has guided the Centre's comments on the present Amendment Bill.

3.2 Overview of concerns

Much of the thinking behind the Bill appears to be based on the see-saw model, with a consequently enhanced role for discretionary political decision-making. This emphasis risks defeating the purpose of achieving simpler, quicker and more certain processes, and it will continue to frustrate those who want to see the environment actually cleaned up.

Several aspects of the Bill reinforce the discretionary, see-saw approach to resource management decision-making, notably:

- empowering regional councils, and thereby also national policy statements, to allocate resources to politically preferred categories of activities;

- empowering regional councils, and thereby also national policy statements, with a mandate to provide for infrastructure development (eg energy and transport), and to comprehensively control urban activities, rather than to manage the effects of development;

- removing the requirement for councils to specify objectives and monitoring requirements in their plans, thereby expanding their political discretion and diminishing their accountability;

- entrenching existing patterns of land and resource use against the sort of changes that achieving the purpose of the Act would require, through creating a privileged status for existing investment;

- empowering political appointees to make final decisions on matters of fact, without right of appeal to a judicial body;

- providing the Minister with arbitrary powers of political intervention.

These also overturn the general promotion of subsidiarity which prevails in the RMA.

3.3 Main Causes of Concern

The Centre generally supports the submissions of the BlueGreens on these matters and directs your attention to those submissions. However we particularly support their rejection of the sustainable urban form power which they present as follows:

- (2) The sustainable urban form power: The insertion of para (gb) into the functions of regional councils, in conjunction with the broad definition of urban form matters in clause 5, would empower councils and the Minister with a mandate, far beyond the avoidance of adverse effects, for comprehensive planning of socio-economic matters within cities. Meanwhile, the idea that a development might be turned down because it is contrary to the promotion of a sustainable urban form is a woolly notion that can only increase the politicisation and reduce the certainty about what the RMA's legislative powers are being used to achieve. (The Centre simply asks: How does one determine if the urban form of Wellington is more sustainable than the urban form of Christchurch or of Auckland or of Te Puke? The question is meaningless.)

- (3) The promotion of infrastructure power: More than any other change proposed to the RMA in this Bill, the proposed insertion of para (gc) into the functions of regional councils, would change the thrust of the Act away from managing adverse effects, toward promoting development. Infrastructure is defined in clause 5 to mean almost any development activity. (The Centre points out that the Oxford dictionary includes housing as an example of infrastructure). The potential effect of the change is to transform both national policy statements and regional plans into instruments for pushing through politically favoured development projects, rather than managing their effects. With this new mandate, the main focus of the governance of regional councils is bound to shift from environmental management to regional development promotion. The proposed change corrupts the environmental integrity of the Act, and should be abandoned.

4 Changing the Relationship Between local Hearings and the Environment Court.

Quite simply the Centre argues that "If it ain't broke don't fix it". We believe that these amendments were drafted in response to the situation which prevailed some time ago when the backlog of cases waiting to be heard in the Environment Court was quite excessive. Better case management and further allocation of resources is making rapid inroads into the case load. The Centre also believes that the certification of Hearings Commissioners will further reduce the number of appeals.

But the proposals will hugely add to the cost and risks associated with local hearings. At present hearings are a judicial process which can properly ignore petitions etc for the same reason as a judge in a criminal court. The decision is based on the provisions of the plan and the Act. But petitions can become a potent weapon if an applicant is required to distribute evidence to all the parties. Cross examination of large numbers of objectors (which can run into the hundreds can be used to send any applicant effectively bankrupted by proceedings.

The Centre strongly submits that these proposals should be abandoned until we have had time to allow the existing reforms and certifications to bed in.

5 Preventing Delays and Abuses.

5.1 Use of Certified Panels of Commissioners

Some councils increase costs and frustrate applicants be refusing to process applications in time and by abusing their powers under section 92.

The Centre submits that once a panel of certified commissioners is in place then an applicant should be free to apply to the Minister to appoint a panel to hear the application. In all probability the threat of this power would mean that it would never be drawn on. Such latent powers are often the most cost effective.

5.2 Proposed Plans should be "Weightless' until Operative

Another source of abuse is the proliferation of planning documents. Councils have little incentive to make their proposed plans operative because they make a habit of treating them as operative as soon as they are published. It is not uncommon for applicants to have to check out applications against three sets of planning documents.

Councils would have a strong incentive to produce well-focused plans if proposed plans had absolutely no weight until made operative. The legislation could contain an exception clause to allow a proposed part of a plan to carry weight if urgency could be proved by direction to the Court. But the general presumption would be that a proposed plan carried no weight and need not be even considered until operative. Such a regime would see the end of massive plans which attract tens of thousands of objections and which sit like a dead weight over communities for years and years and years.

6 Consultation with Maori.

6.1 The boundaries of consultation

The fact sheet "Improving the RMA - Improving certainty for iwi consultation and iwi resource planning" acknowledged that " there are practical problems with the administration of the iwi provisions contained in the Resource Management Act, especially a lack of clarity about consultation" and this is repeated in the lead up to the proposed Bill.

The RMA does emphasise consultation with iwi during the preparation of plans and policy statements, but does not demand of applicants for resource consents any special consultation with Maori in relation to applications. If an application for resource consent requires special consideration of Maori issues then the duty to consult with Maori falls on councils - not on the applicant.

However, most councils find it convenient to put this obligation back on to the applicant, and consequently many people find themselves having to decide who to consult with and what to consult about and of course expose themselves to all manner of objections and references to the Court because of the "understanding" that such consultation is compulsory, even though it is not.

Section 36a of the proposed amendment to the Act appears to seek to set this right and

makes it clear that the primary obligation to consult with iwi should relate to local plans, while for resource consents, iwi would be treated like any other potentially affected party.

This has been well received. On the other hand this only clarifies the present situation by most readings of the Act.

All looks well until we read in the fact sheet dealing with iwi consultation that:

A transition period will be needed, so that requirements to consult iwi on consents reduce only when consultation has been undertaken during plan making.

This means, of course, that the present misinterpretation of the Act, which requires applicants to consult with Maori, is now legitimized until councils have prepared another round of plans.

Many councils have not yet got their first plan operative and have no legal requirement to produce a second plan for ten years after the first plan becomes operative. It will then take several years to get the second plan operative.

In other words this amendment would mean that Maori will retain a new "legitimate" claim to special treatment on resource consents for a futher ten to twenty years or more, depending on the Council and the state of its planning process.

Now Section 36A has, I believe, been drafted to address this problem but I believe it does not go far enough. It seems that Iwi can only object to an application if it includes a matter on which they were not consulted during preparation of a plan.

Most disputes in this area related to applications to subdivide or development, which are then subject to objection on the grounds that the site contains a waahi tapu site or that the whole site is waahi tapu. I presume that the iwi can argue that they were not consulted about the proposed subdivision or development during preparation of the plan.

I believe this section should be redrafted to endorse those environment court judgments which point out that once a plan is in place then it is too late to come forward with "new discoveries". In other words the new Act should make it clear that if local iwi have been consulted about the location of waahi tapu then they have had the opportunity to identify them wherever they may be. It is the consultation on the Maori issue that counts - not consultation on the subject matter of any particular application.

Otherwise, the Centre believes this amendment will do little to remedy the present situation.

6.2 Treaty Settlements and Consultation

While there is plentiful case law which insists that councils are not required to consult with iwi on every application and even more case law which insists that applicants cannot be required to consult with iwi (or with anyone else for that matter) on each and every application, many councils have entered into contractual arrangements which make such notification and consultation mandatory and require those doing the consulting to pay the iwi for their involvement.

These practices have been developed from the principles of the Treaty and from "partnerships" put in place between councils and iwi, which would probably survive even in the event of a complete repeal of the RMA.

An example of such a "partnership" between a council and iwi is the Memorandum of Understanding between Kaipara District Council and Te Uri o Hau.

This memorandum is not a product of the RMA, and certainly did not go through the RMA process of proposed plan, hearings, decisions and references. The agreement was negotiated between Council and representatives of the iwi involved and with little or no input from any of the other communities of the District.

The memorandum is the result of a Treaty Settlement which included a requirement that the councils of the region negotiate such agreements with the relevant iwi.

After some preamble describing the makeup of the two parties and their intentions and visions the substance of the memorandum sets out all manner of obligations between the citizens and iwi.

6.3 Notification of non-notified Applications.

Later sections of the Memorandum then require that Te Uri o Hau be involved in the processing of non-notified applications in ways which are not directed or implied by the RMA itself, and indeed are probably ultra vires. For example:

4. Shared Decision Making

In non-notified resource applications the following steps will be undertaken.

Acknowledgement of Area Of Interest:

Kaipara District acknowledges the Mana of Te Uri o Hau as an affected party to resource consents within their Area of Interest as defined by the Deed of Settlement.

Notification of Culturally Significant Areas of Consent Applications:

Te Uri o Hau will outline to Kaipara District areas where non-notified resources consent applications are culturally significant.

Applicant to consult with Te Uri o Hau:

The applicant will be required to consult with Te Uri o Hau and have the application signed with any comments prior to the Resource Consent application being lodged as a non-notified application.

Decisions notified:

The decisions on these non-notified applications with comments will be forwarded to Te Uri o Hau.

District Plan Change Initiated

If the resource consent process identifies recurring issues which impacts on Te Uri o Hau, a change to the District Plan would be considered.

The Centre asks "How can a non notifiable application be notified and to one party only?" And where did iwi gain the right to co-governance or "shared decision making".

6.4 Payments to Iwi.

The matter of payment is not addressed directly but section 8 of the Memorandum refers to resources and suggests that Council or someone will be paying the costs of consultation. It reads:

8. Resources

The resources (provision of skills/funding/other) that both parties have available for maintaining the partnership process is a matter to be resolved on a continuing basis, the appropriate level for this is at a Governance level, this will initially be undertaken between Kaipara District with Te Uri o Hau, Ngati Whatua by those who have been allocated the responsibility.

6.5 The End Result

The end result is that when anyone in Kaipara District (and many other districts throughout New Zealand) submits a non-notified application for a resource consent, the Council passes this application, in full, along to the iwi representative who then visits the site. After reporting back to Council the iwi then sends the account to the applicant, even though the Council has negotiated the agreement which gives rise to the provision of this "service". If anyone should pay this account it is the Council, but applicants pay up because they do not want to delay the process or cause any problems at the time or in the future. The amounts are not normally large so these payments are regarded as "grease on the bureaucratic wheel".

6.6 Recommendation

The Centre submits that the amended Act should include a section which makes it clear that RMA applicants can not be bound by side agreements which subvert the intentions and processes of the RMA itself.

7. Why Smart Growth has no place in New Zealand and the RMA should prevail.

7.1 The 1196 Report to the Reserve Bank by

In 1996 the Governor of the Reserve Bank commissioned , now director of the Centre for Resource Management Studies, to report to the Bank on The impact of the Resource Management Act on the Housing and Construction component of the Consumer Price Index.

The key findings of the report are contained within the Executive Summary as follows:

EXECUTIVE SUMMARY

Auckland has recently experienced a property boom, especially in the residential market. This boom has been driven by an increase in demand, which has led to a rapid and significant increase in housing prices. Changes in housing group prices are a significant component of the Consumer Price Index (the CPI) at 19.5 percent, just ahead of the whole food group at 17.8 percent. For the two quarters preceding July 1996, the housing group made the largest contribution to the underlying rate of inflation (0.60 percentage points). New housing costs, which are a subset of the housing group, contributed 0.38 percentage points to underlying inflation over the same period.

This report examines the supply side of the residential property market in the Auckland region and attempts to establish whether this recent increase in prices represents a single 'one-off' aberration, or whether any and every future increase in demand will lead to similar price increases and hence another round of inflation followed by an anti-inflationary response from the Reserve Bank. In particular the report examines the impact of the Resource Management Act and its implementation on the residential property market in the Auckland Region.

The Principle Findings of this Report Are:

General Principles

* General economic theory, and international experience, strongly indicate that the regulation of the supply of land should be light-handed, for reasons of both equity and efficiency.

* Policy makers must recognize, and must explain to their constituencies, that heavy-handed regulation of the supply of residential land carries a burden of significant economic and social costs. Such over-regulation affects prices, construction output and finally employment.

* In New Zealand those same price rises make a significant contribution to the CPI, which, in turn, forces a response from the Reserve Bank, which means that these distortions impact on the competitive performance of New Zealand's trading sector.

* Many of these costs fall most heavily on those least able to deal with them. Those already comfortably settled, benefit from the increased capital value of their properties. Those struggling to become established, find themselves paying higher prices for housing, or are priced out of the market altogether. A large percentage of the population who have a mortgage on their home or who have borrowed to finance their business or other activities are paying higher interest rates that necessary.

* Some increased costs associated with protection or enhancement of the environment are to be expected. As populations become wealthier, they demand higher environmental standards.

Local Government and the Supply, Demand and Regulation of Land

* Local government has a responsibility to ensure that an adequate land-bank is available to meet rapid and unforeseen increases in demand.

* Unless sufficient sections are available and ready for occupancy, an increase in demand can lead to a vicious cycle, whereby, at the end of the cycle, the land-bank is no better supplied than at the beginning.

* Pressure on rural fringe land will increase rather than decrease over the next decade. Contrary to much planning mythology, economic efficiency and the need to make the best use of rural land, demand that the 'lifestylers' should be allowed to have their way. There is no shortage of agricultural land.

The Impact of the Resource Management Act

* The major change in the economic environment surrounding the residential property market in recent years has been the passing of the Resource Management Act in 1991.

* The Act was genuinely intended to be light handed and to increase the individual choice in land use and resource allocation, provided there was no adverse impact on the natural and physical environment.

* Most local bodies have been determined to add the control of environmental effects to their long standing right to control land-use, and to allocate resources. They have shown considerable ingenuity in using the new Act to make the allocation of resources a necessary means of controlling effects.

* The RMA, as it has been, and is being, implemented, has imposed massive extra costs on the residential housing market in the Auckland Region, in terms of both time and money. These costs could be greatly reduced without diluting the environmental objectives of the Act.

Specific Centres of Increased Costs -

* Subdivision is now subject to a more complex process, and is more frequently subject to notification, with associated increases in costs, delays and risks.

* Applicants are required to pay both for the work of their own consultants and then again for checks carried out by the Councils' own consultants.

* Unexpected and broad definitions of terms such as "environment" and "heritage" have led to an explosion of controls and costs which impact on areas such as building design, colour, clearance of vegetation, choice of planting, and even the right to occupy land at all, without first gaining a Resource Management consent. Many owners have lost any clearly defined 'right to use, and yet are not eligible for compensation. Such properties are increasingly difficult to value.

Performance of the Private Sector

* The land development/subdivision industry has been able to deliver the increased environmental standards demanded by the Act without increasing its own costs of construction. The industry has been aided by increased productivity, and the benefits of deregulated capital and labour markets.

The High Cost of "Providing for Growth by Containment"

The ARC policies of containing growth

The major cause of ongoing increases in housing costs is the ARC's policy that Auckland's growth should be managed by a policy of containment which restrains growth outside the present urban limits, while concentrating development within the present urban limits. These policies rest on the unfounded assumption that the present city form is "unsustainable'. These arguments are without foundation both in fact and probably in terms of the Act. Opinion surveys and Census Data, indicate that the Regional Policy Statement seeks outcomes which the majority of Aucklanders do not want, and are likely to resist, and are contrary to present practice. Such a massive re-direction of preferences must introduce high costs with downstream effects on the whole economy.

The Concluding Paragraph

The Executive Summary concluded with:

Unless changes are made, the shortage of residential land in Auckland seems set to continue and new housing prices will continue to escalate, with a consequent impact on the CPI and monetary policy.

7.2 The Predictions Come True

Sadly these findings were ignored and the Councils of the Auckland Region continued to implement Smart Growth strategies. The end result is a dysfunctional housing market, which has now earned the Auckland Metropolitan Region the dubious distinction of being sixteenth in the list of the 26 most "severely unaffordable" housing markets in the markets of the United States, Canada, Australia and New Zealand. (See the recently published findings of a report by Wendell Cox of Demographia )

Remarkably, 23 of these 26 severely unaffordable markets have adopted "Smart Growth" planning strategies. None of the "affordable" markets identified in the Demographia report have adopted "Smart Growth" strategies.

Housing affordability is calculated using an index jointly developed over several years by Wendell Cox, The Centre for Resource Management Studies, and Hugh Pavletich of Christchurch.

The index is the ratio of the median house price for any bounded area over the median household income within that bounded area. The bounded area can be a city block, a region, or a whole country. The boundary area used in the current study is the Metropolitan Urban Area. So the term "Auckland" or "Houston" refers to the Metropolitan Urban Area. (Making sure this measure was reasonably consistent took up most of the research behind this current report.)

All major Australian markets are "severely unaffordable", while only Auckland is "severely unaffordable" in New Zealand. "Severely unaffordable" markets have an affordability index of 5.1 or greater. (Auckland is 5.9, Sydney is 8.8)

Affordable markets have indices of 3.0 or less. These include some of the largest and most rapidly growing cities of the United States such as Houston (2.7) Atlanta (2.6), and Calgary (3.0) in Canada. Wellington at 4.1 is ranked "seriously unaffordable", while New Orleans and Memphis are ranked "affordable".

The conclusion is clear. "Smart Growth" policies (no matter what their name) generate unaffordable housing markets. Other work by Wendell Cox and others (including myself) demonstrates that "Smart Growth" also fails to deliver any of its claimed benefits. Those States in America with the most stringent anti-sprawl rules have the highest rates of urban sprawl.

This should not surprise us. For example the rationed land in Rodney means that many migrants leapfrog over Rodney to settle in the Kaipara District, because it is out of range of the ARC.

Also, large minimum lot sizes are a standard tool of those "Smart Growth" planners who seek to reduce sprawl and save productive rural land. Yet if four households want to move into the countryside they may typically only want a 1/2 hectare lot each, which means they use only 2 ha of rural land. But if your rural zone has a 20 ha minimum lot size then those four households use up 80 hectares of rural land. How do such large lot sizes reduce the "loss" of rural land.

"Smart Growth" has made the Auckland Metropolitan Urban Area one of the least affordable housing markets in the New World. The news media have generally alerted us all to the fact that this makes it difficult for young families and low income households to enter the housing market. So I shall not dwell on those costs - which are both economic and social.

There are other equally serious costs. While "Smart Growth" is normally introduced to manage rapid urban growth the "Smart Growth" policies soon reduce fertility rates (because young couples cannot afford to house their children) and reduce immigration rates (as potential immigrants find cheaper housing markets elsewhere.) Hence these rapid growth cities soon go into population and economic decline and aging households come to dominate their population. Schools and shops close and a vicious cycle sets in. Suddenly land and house prices collapse in the face of falling demand and thousands of families lose their life savings or retirement funds.

Also the general philosophy of "Smart Growth" is hostile to change and development, so new business start-ups migrate to more "aspirational" markets where new citizens are seen as a benefit rather than a cost. "Aspirational" markets do not fine their new citizens with "development levies" - which are actually "anti-development" levies. They welcome them as wealth producers rather than dead-weight costs. Only "Smart Growth" councils regard new customers as a costly problem.

The current house-price-driven property boom has meant that the Reserve Bank has had to increase interest rates to probably double what would prevail in an economy with an "affordable" housing market. These high interest rates drive up the value of the New Zealand dollar with a negative impact on our export sector. These costs are massive and impact on every part and on every member of the New Zealand economy.

The current so-called economic boom has not been fuelled by investment in productive plant and hence is not driven by increased productivity. The boom is driven by borrowing against inflated house prices and valuations and is used to fund consumer spending.

When this current business cycle enters its inevitable downturn we shall not find a reservoir of investment in plant and equipment or human capital. We shall find a housing market suffering collapsing prices, forced mortgagee sales and diminishing savings.

Asking well-established decision makers to make an affordability index of 3.0 their goal (as it used to be in the eighties) may seem like asking turkeys to vote for an early Christmas. After all they are the ones benefiting the most from inflated house values.

But we have to remember that the index is a ratio of house value over household income. If we reduce spending on mortgages (and the excess is almost entirely funded by offshore borrowing) then we shall all have extra money to spend in our pockets and we will invest some of that in productive enterprises and equipment and our household incomes will increase. Hence, we can manage a situation where affordability is improved by keeping house prices stable household income increases. So if median house prices in Auckland are $300,000 and median household incomes are $60,000 we have a high index of 5.0. If we let things drift this will eventually correct to three by a collapse of house prices to $180,000. A much better way is to steadily increase the supply of affordable land, and promote economic growth, so that we end up with house prices of $300,000 and household incomes of $100,000 which gives us an index of 3.0,

This is perfectly feasible if we abandon "Smart Growth".

Surely we should pursue the "win-win" game.

On the other hand, if we continue to pursue Smart Growth the bubble will finally burst and the social and economic costs will be massive.

Smart Growth is a "lose-lose" game.

8 Final Submission

Acknowledge that unaffordable housing is now a serious issue and that the Government should set an affordability index of 3.0 or less as a goal to be achieved within five years over all the housing markets of New Zealand.

Director, Centre for Resource Management Studies

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