What Can We Learn From What New Zealand Just Did?

Auckland, New Zealand. (Source: Wikimedia Commons.)

We never publish new content here at Strong Towns from mid-December through the start of the new year, so we missed the opportunity to update our readers on a story that broke out of New Zealand in December. I'm also not sure New Zealand is a place we've ever covered here at Strong Towns. But if you're interested in housing or zoning reform, you're going to want to know about this one. 

Every wealthy English-speaking country is dealing with an acute housing crisis, but our Kiwi friends just leapfrogged the rest of us by passing a set of national reforms in 2021 that will:

• End parking minimums nationwide.

• Effectively eliminate minimum lot sizes in cities representing most of the country's population.

• Effectively end exclusive single-family zoning in those same cities, requiring virtually all residential lots to allow townhomes with up to three units per lot, and up to three stories.

• Allow six-story development near major transit and job centers.

An independent cost-benefit analysis by PwC and Sense Partners concludes that these reforms will allow an estimated 75,000 new homes nationwide, and produce a net benefit of $14.5 billion.

The law is the first national* policy to hit these multiple points on the Strong Towns wish list: end parking requirements and allow the next increment of (residential, anyway) development everywhere, so that neighborhoods can evolve with feedback over time.

(*”National,” of course, comes with an asterisk, because the population of New Zealand is about five million, just a little more than Alabama's and barely one-eighth of California's. So when you have the thought, "This seems awfully top-down," keep that in mind.)

The most comprehensive news reporting on the new law can be found here in this piece by Henry Cooke. New Zealand's planning system is quite unlike that of the U.S. and Canada, so some concepts such as "resource consents" (comparable to a mandatory environmental impact statement here, but required in different contexts) may require decoding.

Given that, what's so relevant about this story? New Zealand, on this issue, is a microcosm of the housing problems plaguing much larger countries and economies, and now may be a natural experiment in one set of responses, as well.

There are lots of ways to approach a national or state housing policy. But we know what doesn't work. New Zealand seems to have reached a point where the contradictions created by the county's cultural housing consensus—the same consensus present in the United States and Canada—became so severe that they were untenable.

What is that failed consensus? Simply put, that housing should be a vehicle for investment and homeowner wealth accumulation, and that neighborhoods should be kept unchanging to (supposedly) protect the value of that investment.

What have underbuilding, restrictive zoning, and very loose mortgage finance wrought in New Zealand? A staggering inflation of housing costs in a single generation, according to a detailed analysis by the Sightline Institute, to the point where housing costs surged from two years worth of household earnings in the 1970s to over nine years' worth today, a price-to-income ratio as high as almost any in the world. (And even worse than that in Auckland.)

According to Sightline's Alan Durning:

The country’s poorest fifth of households spends almost 45 percent of their income on rent. That’s more than their counterparts in all but one of the 34 countries in the Organization for Economic Cooperation and Development (OECD). Consequently, by one measure at least, homelessness and extreme housing deprivation are more common in New Zealand than in any other OECD country—roughly four times the same metric for the United States.

Political paradigm shifts, like bankruptcies, happen very slowly and then all at once. When even the banks are no longer on team Rising Prices, you know you've reached one. In 2020, New Zealand's largest bank issued a report calling for housing policy changes to produce a "sustained stabilisation or even gradual decline in real house prices." Their reasoning is the fear of a disruptive correction—that is, a devastating housing market crash like the one much of the world experienced in 2008.

Say it with me: Housing cannot be both a good financial investment and broadly affordable. If housing appreciates faster than incomes, sooner or later you will have a big problem.

New Zealand's blanket upzoning has drawn bipartian support, passing parliament 110–10. The housing crisis is an issue that transcends typical left-right divides. Where there's been progress on similar legislation in the U.S., such as in Oregon, we see that as well.

The specific shape the reform took depends on New Zealand's planning system. But we face many of the same economic problems for the same reasons in the U.S. and Canada, and we should pay attention.

Perhaps the most promising way these lessons translate to North America is through the idea I've advocated before of top-down government as referee. Zoning is inherently local, but that doesn’t mean there is no place for telling cities, "Here's a short list of things your local zoning must not do." No parking mandates, and no total bans on all growth or intensification in established neighborhoods, are two reasonable rules. We’ll see how they play out in New Zealand.

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