Room to build: The zoned capacity question

How much housing development capacity is enough, and how will we know?

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How much capacity is enough?

The claim is always “more”.

Auckland’s 2016 upzoning tripled zoned capacity. Yet, when not being lauded as proof upzoning boosts supply, it is also being criticised for not going far enough.

Wellington City Council has recently updated its town plan for major upzoning, causing quite a stir.

An Independent Hearing Panel (IHP) reviewed Wellington’s proposed new plan and recommended minor changes to accommodate local concerns about character buildings and the suitability of different areas for development.

Even though the IHP’s recommended upzoning was a massive change, many thought it was not enough.

The story we now hear is that if the upzoning medicine isn’t working, take a bigger dose. Some say we must keep upzoning and removing every planning and building regulation until the land is worth nothing.

But none of these claims are grounded in reality.

To try and link such claims to the reality of planning systems, New Zealand has developed guidelines and capacity requirements for town plans. Australian states might do the same soon. It’s a global trend. California’s Regional Housing Need Allocation (RHNA) process has for decades required jurisdictions to make assessments of zoned and feasible capacity as well.

However, all these systems rely on measurement procedures that lack a coherent theoretical basis in economics about what determines the rate of new housing production in a market.

How can we know how much is enough without these crucial theoretical insights?

Wellington zoning example

Before getting into the deep theoretical and conceptual questions, let’s start with the expert advice provided to the IHP on housing capacity in Wellington’s Proposed District Plan (PDP).

The diagram below summarises this independent analysis of the capacity for new homes within the Wellington City Council area under the Operative District Plan (ODP), the Proposed District Plan (PDP), and the PDP after the IHP recommendations to modify the plan to address community concerns about character and other matters.

This consultant assessed that the IHP-recommended plan change would increase the allowable density of development such that the number of homes able to be built without further planning review would increase by a factor of four (from 102,000 to 433,000).

This is a bigger relative change than the famed Auckland 2016 Unitary Plan, which was assessed to increase zoned capacity by a factor of three (from 345,000 to 1.1 million), as shown below. These are huge numbers. So let’s dive into the details.