The Disappearance of the Next Middle Class


Every week we read that yet another major housing project has been turned down by the Courts here in New Zealand because of the need to protect "rural character" or "natural landscapes". This may well have profound short and long-term consequences for the future of our middle class, as it does for the same class in countries around the advanced world.

Every week a multitude of smaller developers abandon their projects because Councils’ compliance costs and development contributions make the projects unviable – even if the land were free. And it’s not.

The New Zealand Institute of Economic Research says the ten-year norm for New Zealand is 26,000 new dwellings built per year. Statistics New Zealand reported only 16,000 dwelling consents issued in 2009. The NZ Property Investors Federation says we are building only 7,000 dwellings a year.

Some say the Property Investors Federation figures are too low given that Statistics New Zealand’s figures for the year to date suggest we shall issue between 13,000 and 11,000 consents this year, and that the “slippage” between consents and finished dwellings cannot be that great.

However, this is rather like wondering whether you are driving towards a concrete wall at 100 mph or only 80 mph.

Any current year estimates confirm we are on a slippery slope to catastrophe.

Unemployment, especially among young unskilled males is on the rise. Given these dreadful build-rates, should we be surprised, since these workers depend on construction for economic opportunity?

And why don’t we recognize the cause and do something about it?

First let’s look at the statistics. A Google search under “construction multipliers” turns up statements such as “building 1,000 houses generates 2,300 permanent full time jobs”. Another will say “Every dollar spent in the sector has a multiplier effect between 2.1 and 2.8.” These “low multiplier” statistics seldom spell out what is meant by “the construction sector”, and most are annual figures, and focus on “permanent full time jobs”. But the construction sector generates a multitude of short-term contracts that presumably slip through the net.

These low “construction” multipliers are reinforced by a post-modernist ideology that tries to persuade us that housing is an unproductive activity that takes productive rural land out of production and hence undermines the economy. This is the old “primary” industry myth, further reinforced by the quaint animist notion that subdivision causes “death by a thousand cuts”. The surveyors are out there wielding their long knives and watching the Earth Mother bleed to death.

Smart Growth planners claim the “urban sprawl” that grew around our cities during the post-war decades was the terrible price paid for housing the baby boomers and must be replaced with Smart Growth (or perhaps more accurately, Dense Thinking).

We have lost sight of the fact that those prosperous decades were actually in large part the result of those large-scale suburban developments.

US economists generally explain the post-war boom as being driven by the work force switching from weapons to washing machines.

In New Zealand we used to attribute those golden years to micro-management of the economy, and to import licensing in particular. In reality, our real genius was probably introducing the capitalized family benefit which led to our own “Levittown builders” such as Fletcher Construction and Neil Housing.

Back in the late sixties, while reading for my thesis in urban development economics, I read a report on the drivers of the post-war boom in America, during the twenty years from 1945 – 1965. Wildavsky’s Oakland Project focused on behavioural analysis rather than econometrics.

The authors concluded that the suburban development boom laid the foundations for the long-term development of the post-war American middle class.

An equivalent thought experiment would now read something like this:

  • We begin with a clean greenfields site, presumably being farmed, or just open space of some kind.
  • A developer decides the land is well located for a new 1,000 lot residential development and hires consultants or staff to prepare an application. The process alone takes five to six years and provides unproductive employment for a host of highly paid professionals.
  • The project is then killed off by either the Council or the Courts.

In a sensible world, as prevailed in the post war years, the project would move on to the next stage:

  • The land development teams move onto the site and start the final surveys, road-building, drainage and stormwater schemes, landscaping, and street-crossings, all required before the builders drive their first profile-pegs into the ground.
  • Then teams of contractors start building the houses, which will have been designed by architects, draughtsmen or architectural designers, and then processed through a simple consenting procedure.
  • The teams of carpenters, glaziers, plumbers, painters, roofers, stoppers, electricians and plumbers all move in to finish the houses ready for occupancy. A gang of maybe ten drain-layers could lay the drains for the 1,000 houses over a five year sales-and-build period – say 20 contracts a year.
  • These teams use products and materials cut from forests, mined from quarries, processed in mills, or produced in factories, or recycled products, all requiring employed labour.

So after a few years the 1,000 homes may be built and occupied. The analysts in the sixties suggested the 1,000 houses would generate say 5,000 direct contract-jobs over those early years.

However, they recognized that the real economic activity would continue for another fifteen years or more. The same happens today.

  • As the families move into the houses they buy kitchen equipment, drapes and light fittings, bookshelves, plasma TVs, computers, artworks and wine cellars and so on.
  • The owners lay paving, build decks, plant gardens, and landscape the property.
  • The gardens require lawn mowers, chain saws, hedge trimmers, nursery plants, and barbecues.
  • Then up go the Gazebos, the dog kennels, the play houses, the extra rooms, and so on.
  • And then come the swimming pools, spa pools, home offices, sleep-outs, and solar heaters.

Many of these improvements are produced by the “sweat-equity” of the DIY owners and are a major means of increasing household wealth and well-being. They arealso a potent form of saving, provided the owners are investing in tangible improvements and not over-priced land.

These suburban on-site improvements go on forever. Consequently, even today there are about 80,000 certified “alterations” a year in New Zealand – and many more that don’t get near a permit.

All these activities create jobs for the people who make the spa pools, the plasma TVs, the gardening tools, the cars, and the Gazebos.

After several years from start up the properties are likely to require a gardener once a week, and maybe a housekeeper one or two days a week, and baby sitters, and whatever else the modern family needs to manage its work-life balance. These are the on-site ‘jobs’, but the families also need teachers, doctors, day-care providers, retail staff and so on and so on.

The sixties report concluded that every 1000 houses would generate a total of 40,000 contracts and jobs. Which seems outrageous until you divide the 40,000 by the fifteen to twenty years, which comes back to the multipliers of 2.0 to 2.6.

The sixties thought-experiment reminds us that by driving our residential build-rate from 24,000 a year to a no more than 13,000 a year, and probably much fewer, we are turning off the boiler that regenerates our middle class.

It also explains why an economy with a low “build-rate” is unlikely to enjoy full employment.
Those suburbs were not “a sad price to pay for our post war housing” but were the economic driver of “the long summer of content” so well described by Bill Bryson in “The Thunderbird Kid.”

So why are we allowing our institutions to destroy the ability to regenerate our own suburban middle class?

Whatever happened to genuine sustainable development? Sustainable for middle class people and families too.

Owen McShane is Director of the Centre for Resource Management Studies, New Zealand.

Photo by pie4dan

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Facts about NZ.

Tim Robinson shows many of the prejudices of the Smart Growth planning fraternity.
He is fixated on Auckland and seems to believe that there are huge numbers of middle class families waiting to migrate into the inner suburbs of Auckland.

I live in rural northland and possibly because of this most of my connections are with other property developers and home builders in other rural and regional areas. The Court cases killing major projects, and the Councils killing off smaller ones, that I am aware of, are all in rural or regional centres and none have anything to do with Auckland fringe development. At the top of my mind are developments in Orewa, Clevedon, (satellites of Auckland maybe but not in the commuter catchment) Taupo in the middle of the North Island, and Tauranga on the East Coast, another in the Far North, and another in the Waikato. I could go on.

These developments are targeting migrants into these regional or rural areas who are typically retirees, pre-retirees, or divorced women with their children, or skilled people migrating out of Auckland and major centres seeking a more "natural" lifestyle.

I left Auckland 15 years ago and I think I knew what I was doing. I enjoy my olive groves, and orchards and ducks and chickens and three dogs and fresh vegetables from the garden - and hopefully my own truffles in a few years time.

Actually Auckland has already densified and its urban area is currently the densest in Australasia and is even more dense that urban New York.
THis is because, back in the mid sixties a group of us in Auckland City Council freed up the land use regulations to allow a wide range of densities throughout the Auckland area. I introduced the word Town House into the Auckland planning lexicon along with infill housing etc. Since then medium density housing (and a scattering of high rise apartments) have been a commonplace throughout Auckland.
IT was to improve choice and had no "planning" objectives and consequently this densificiation drew no great opposition, if any. But then the Smart Growth planners came to town and began to force higher densities onto neighbourhoods and they don't like it. Also Auckland is a city on hills and valleys and because the early roads were built with shovels and wheelbarrows they are narrow.
In the sixties we predicted that densities of over two storeys would overload the street network and that is now the case. Every part of Auckland suffers traffic congestion - not just the motorways and as we have only built 40% of the network that was supposed to have been built by 1985 the motorways are naturally congested too.
Finally, Tim acknowledges the ongoing employment from residential development but does not recognise that apartment buildings with shared walls and no land do not provide the opportunities of the suburban lot or the rural lot.
Planning fads come and go. When I returned from Berkeley in the early seventies it was still ILLEGAL to live in the CBD.
And cheap credit did not drive the Auckland bubble. There was easy credit but it was never below 8% during the boom years.

Maybe people can not buy these houses if they were built today - but these ones I mention are gone for ever the developers are saying "never again".

So how do we turn the tap on when the market recovers? It is going to be a long wait.

Owen McShane, Kaiwaka, New Zealand.
Director, Centre for Resource Management Studies.

And the real interest is...?

Owen -

I'm confused - is it me or you that is fixated with Auckland?

You chose to include a picture of Auckland in your original article.

You refer to Orewa and Clevedon as foremost in your mind, and suggest they are not part of the Auckland commuter belt, when anyone familiar with the region will suggest otherwise.

You're very quick to quote some density facts on Auckland, albeit ones that are plainly misguided. More dense than NY? I think you are stretching the bounds of believability here, and anyone with eyes can spot the difference. Whatever manipulated statistics you have assembled are out of sync with reality.

Are you quite sure that Auckland is not your real area of interest, rather than rural northland and comparable areas?

As a child I grew up amongst the chickens and cows and orchards, living the back to the land thing nearly twenty years before yourself. I love it, I get it 100%, and I think more people truly doing that sort of thing is something we need more of - ultimately it is potentially much more 'sustainable' than urban living. I don't dogmatically believe in the Smart Growth product as you suggest - I think we need to be smarter than formulaic answers.

That said, cities exist as a result of society leaving subsistence farming behind. I don't think you would be living in Kaiwaka if it were not for the benefits you gain from services and products flowing through Auckland. Most wealth and culture has emanated from cities, and continues to do so, and that is why cities are where the real attention needs to be focussed. Cities and rural hinterlands are symbiotic, and always have been. Issues arise when we confuse the two - intense development in the wrong place is ultimately fruitless, but certain landowning interests don't want to hear that.

As you say, I acknowledge the value of employment and wealth created through the building industry. However, an economy built on development alone is doomed to fail. Witness the tracts of ghost towns consisting of unsold homes in parts of America right now. Not everyone in a local community can build houses - that would be absurd! The question for areas well beyond the major urban centres in New Zealand is - what, and where are the jobs? If the developments you are concerned about are all about "The Good Life" that's great - but I seriously doubt it.

The example you give of Northland is a classic. Much though I wish this region was more wealthy, the present facts are that strong economic activity is just not there, and there are no strong contenders for the future. Building new homes in a weak economic area is not going to solve that. Becoming a low-density retirement destination is not what I would call a balanced, thriving future for Northland, unless you truly develop a low-impact eco-based philosophy. Not easy to do in the later years of life.

So what to make of your issues and agenda? It sounds awfully like all those landowner interests being pushed to the fore, trying to liberate planning rules in the interest of their own short term gain. Your reference to Orewa and Clevedon kinda give the game away.

You just don't like rules. The problem for you, which you fail to see, is that in trying to turn the tap back on we need to develop a better system of rules, one that facilitates development, the kind of development that returns the best value for society in the long run. The fact that a system has to be in place is something you can't avoid. It's not going to happen.

Just as a return to building McMansions out of cheap materials in sprawling estates on the edge of town is not the way of the future - not as a result of planners, but as a result of market preferences. Witness this article in yesterday's NZHerald, written by the Chief Exec of a housebuilding firm, for a faint hint of where a bigger shift is heading to:

The one big area that I fully agree with you on is that the RMA is a mess. It's focussed on denying opportunities, rather than facilitating. Too much stick, not enough carrot, not enough attention paid to encouraging the outcomes we really want as a society. The built results bear little resemblence to society's expectations. And to add insult to injury the costs of operating the RMA system appear to be way in excess of international comparisons.

Tim Robinson
Architect & Urban Designer, Auckland, NZ