It’s no surprise that Auckland is more competitive and its companies are more productive than in other regions. Gary Blick, chief economist for Auckland Council, says the 15% premium reflects Auckland’s density and scale as the country’s largest urban area.
Auckland has grown in people and economic activity at a faster rate than the country as a whole because of employment opportunities, higher incomes and attractive natural amenities such as the harbours, gulf islands, ranges and volcanic cones.
But Auckland’s productivity growth has been low, as is the case nationally, Blick says. The 15% premium on GDP per capita is no higher than at the turn of the century.
Auckland’s GDP per capita was $60,000 in 2000 compared with about $52,000 for the remainder of the country and grew to $86,700 and $75,300 respectively in 2023.
The gap closed between 2010 and 2014 – in 2012 Auckland GDP per capita was $65,000 compared with the national average of $60,000 – and the premium has wavered between 13% and 15% since 2000.
Blick says “primary cities in prosperous economies typically have a premium that is a quarter to a third higher than their national average, raising the question of whether Auckland, with a large chunk of the national economy, should be doing better.
Auckland Council tracks productivity in comparable cities overseas. Based on 2022 statistics, Stockholm has a 37% premium for GDP per capita, Copenhagen 32%, Oslo 29%, Helsinki 27%, Seoul 27%, Brussels 25%, and Dublin 24%.
The Treasury in the past has noted New Zealand’s small domestic market, low capital intensity, the slow diffusion of innovation, low savings, and high exchange rate as reasons for the low productivity growth. Addressing this is critical to improving living standards.
The Treasury has commented that Auckland’s performance requires attention, as a boost to national productivity seems unlikely unless Auckland improves too.
Blick says cities tend to be more productive when urbanisation enables ease of access (shorter distances), easier knowledge sharing, business specialisation and economies of scale in infrastructure.
“If Auckland’s GDP per capita premium could be lifted from 10-15% to 25-35% in line with comparable international cities, the region and the country overall would be better off.
“A more productive Auckland would drive higher wages, business investment and specialisation. And a more prosperous Auckland would generate higher tax revenues, and provide greater resources for nationwide public infrastructure and services,” he says.
Blick’s cure for improving Auckland’s productivity includes:
• Adjusting the Unitary Plan to enable more flexible use of existing urban land, thus creating more new homes, and greater choices, especially in high-demand locations near transport hubs. The intensification, using less land for more homes, can help improve housing affordability.
• Price public infrastructure to better reflect costs and charge those who benefit. For example, congestion charges for the use of road capacity at peak times can reduce travel times and improve certainty for higher-value trips. The power of rapid transit and connectivity can make the transport network and people movement more efficient.
• Prioritise limited public funds to their highest-value use on evidence from cost-benefit analysis and thus make informed decisions.
• Provide as much information as possible to developers on the cost of development contributions (for pipes, roads and lighting) before they are triggered. As the regulator of land, council can do better in signalling the costs and risks for new subdivisions based on the distance from existing networks and infrastructure.
Blick says restrictive urban land-use policies in Auckland had reduced national GDP by 0.9% to 1.8%, while congestion costs – estimated at $1.1b annually – are equivalent to 1% of regional GDP.
Housing affordability is also a productivity issue. The median house price to median household income was five times in Auckland in 1996, and for the country 4.2 times. This rose to 7.4 times in Auckland in 2023 and 6.4 times in New Zealand.
The ownership rate has dropped from 69.2% in 1996 to 59.5% in 2023, impacting retention and attraction of skilled people.
Blick says the present median house price in Auckland is $1 million. “If the ratio was still five times, the median price would be $680,000.”
Auckland’s relatively poor housing affordability makes it harder to retain skilled people, with large outflows internationally and a net loss to other regions, he says. A lower skill base inhibits take-up and diffusion of innovation, with business surveys identifying human capability as a key constraint.
Blick says the Auckland Unitary Plan, enacted in 2016, was a huge step forward in influencing where households and businesses are located – more homes in existing urban areas having access to transport networks and jobs, and how goods are moved around the region.
The distribution of new homes within 14km of the city centre increased to 51% from 46% before the introduction of the Unitary Plan. That radius now contains 61,000 of the 119,000 new homes, and before the Unitary Plan it was 21,000 of 46,000.
Blick says the rising house prices incentivised people to put more of their savings into the property market in the hope that prices will keep increasing.
“No wonder New Zealand has a low savings rate with the rising house prices caused by land constraints that are not good for productivity.
“Auckland Council is a big leader in land use and transport – making people more mobile and houses a bit cheaper – and taking the heat out of the housing market is good for capital allocation into more productive assets,” says Blick.
“But taking the heat out of the property market has yet to be seen, and housing affordability is still not great. The Government wants to see more intensification around transport modes.
“The council is now in the middle of a programme about how to manage this,” he says. “It is taking another look at land use settings and how to expand and capture more value out of the existing (transport) network rather than building a new one.
“There is a choice over how we grow and we have to respect the preferences of the private sector and households,” Blick says.
He says investment in rapid transit such as the City Rail Link will improve access to employment in the city centre, increase service frequencies and move more people around faster.
Auckland has lost out on some outputs in terms of productivity while people sit in traffic, says Blick.
The mid-town Te Waihorotiu on the City Rail Link is poised to become the busiest station in the country. And within 10 minutes of the station 18 projects worth billions of dollars have been consented. There will be new apartments, hotels, offices and retail stores.
“The Unitary Plan is a gift that keeps giving and runs are being added to the board,” says Blick. “We are still better off with the number of new consents. The more new homes per people have gone from 5.9 between 1996 and 2016 to 9.5 between 2017 and 2013.
“Local government is an enabler to create opportunity. It can make specific interventions to address fundamental issues around land use and infrastructure such as greater mobility and charges.
“The council needs to work closely with the private sector which has the capital and innovation to get things done and increase productivity.”
Blick says Auckland has been growing over time and is relatively prosperous, but there’s a question about whether the region is fulfilling its role in the national economy.
“A more productive Auckland would drive higher wages, business investment, and specialisation. It would support and grow the chain supply and high-value services, and make their delivery more efficient,” he says.
“A more prosperous Auckland would generate higher tax revenues, providing greater resources and distribution for nationwide public infrastructure and services.
“That’s the role Auckland should be playing. Auckland, and the country, benefits from more profitability,” says Blick.
- Auckland Council is an advertising sponsor of the Herald’s Project Auckland report.
