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

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

And the real interest is ?

My interest is in the whole economy but with a natural concern for my own back yard - and our District has not seen a title issued for the last twelve months.

First, I don't select the pictures. The editors do that. And they have a good Auckland Gallery.

You claim my density figures are nonsense. Well. Wendell Cox of Demographia, the original source of the data has responded thus:

"I presume that the density figures you refer to are from our "Demographia World Urban Areas".

"The issue appears to be one of definitions. Our data is for urban areas, which are also called urban agglomerations or urban footprints. These are areas of continuous urban development and do not include areas of economic influence (or labor markets) that extend beyond the physical limits of development. These larger areas are called metropolitan areas. We use national census authority data where it is reasonably consisted with the urban area definitions used in the US, UK, Canada and France. Where there is no such data (such as in New Zealand), we estimate the land area from satellite photography. A complicating fact is that Statistics New Zealand defines an urban area to include areas beyond the urban development, in effect labeling something more akin to a metropolitan organism as an urban area.

"Metropolitan areas thus include "commuter belts," but commuter belts are not included in urban areas because of their physical separation from the urban footprint. Thus Orewa (at least 8 km beyond the northern fringe of the Auckland urban area) and Clevedon (8 km beyond the southeastern urban fringe) could be considered a part of the metropolitan area (labor market area), but not the urban area as it is understood in international parlance.

"Our Auckland urban area is included in a tightly drawn line around the continuous urban development, which we estimate to incorporate approximately 530 square kms. We are using a 2006 population estimate of 1,185,000, which yields a density of 2,200.

"The New York urban area (the official US term is "urbanized area") had a population of 17,800,000 in 2000 (the last year for which data is available. New data will come out of the 2010 census) in a land area of 8,683 square kms, for a density of approximately 2,050 per square km. We use a larger urban area definition, that includes adjacent urban areas (not physically separated) that are within the same "combined statistical area" (combined metropolitan area). The addition of these areas (Bridgeport, CT, New Haven, CT, Hightstown, NJ, Trenton, NJ and Danbury, CT) raises the population to 19,712,000 in an area of 11,264 square miles, for a density of 1,750.

"As a side note, it is always shocking to people, even in the US, to find out that our densest large urban area is Los Angeles, which has a density 30% greater than that of NY... or that San Jose, an automobile oriented urban area that hardly existed in 1950, is 10% more dense. What most people miss (especially visitors who see little beyond Manhattan) is the huge suburban house lots that surround NYC and account for most of the population.

"I hasten to add that, while there is a developing international consensus on the definition of urban areas, no such definition exists with respect to metropolitan areas, which are usually made up of larger legal jurisdictions (such as the ARC, or counties in the US, prefectures in Japan or regencies in Jakarta).
Please let me know if you have any questions.


My point too is that Auckland's regular street network is already overloaded by these existing densities. We have to remember that Auckland City is built on hills and valleys and because the roads were built with shovels and wheelbarrows they tend to be narrow when compared to flat cities like Melbourne or Minneapolis.

So if we increase Auckland's density even more, congestion will further increase. No new commuter rail system has ever reduced congestion in any New World city and has frequently made congestion worse by the high costs forcing major reductions in the level of bus services.

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

The big picture, not warm fuzzy anecdotes

Some quick points.

Restricting urban sprawl might result in apparent improvement in some carefully selected factors, and some encouraging anecdotal evidence. But in the long term, here is why it is doomed to failure.

1) Land prices are driven up to such an extent that increasing proportions of the population ultimately cannot afford to live anywhere, (and take on subprime mortgage debt as the only means of coping); but especially not in costlier convenient locations where the planners hoped they would live. Land is demonstrably driven up 20 times, 50 times, and more, in "value". The fact that inner area land is a "factor" higher in price than fringe land, means that 7-figure lots become the norm in the inner area. This REMOVES the "choice" of living in these areas for MOST people.

2) Congestion is increased simply because the greater majority of people still use cars to travel, even if they live at higher densities. Manhattan has one of the highest rates of public transport use in the world, yet they still have far more "vehicle trips" per square mile than any other city. Adding people ALWAYS ADDS vehicle trips to the total, it NEVER subtracts them.

3) The cost of upgrading old infrastructure to cope with the increased numbers of people, is very much higher because of the need for massive disruption of existing activity, and complex access problems for the engineers. Greenfields is actually much cheaper. (It is cheap to build "walkable" "edge cities", but it is prohibitively expensive to buy a home in an inner area walkable community where all land values have been forced up by urban planning).

4) These effects, cumulatively, but especially the "bubble" consequences of land price escalation; can easily be observed today destroying city economies all over the OECD - while the only economic bright spots are in the remaining areas of the USA (God bless 'em) that still have NOT succumbed to the worst ideas of "smart growth". Perhaps much of Canada too, although Vancouver is Smart Growth's new bubble poster child now that all the US bubbles have burst.

There is also a very strong intergenerational equity issue and a very strong social mobility issue. It is deeply ironic that leftwing politicians and activists who claim to care about poorer people and the young, are the most guilty of depriving these people of housing options and placing them under unprecedented financial stress. This certainly includes the cost of longer commutes than they would have had if land values had remained cheap enough for them to locate conveniently rather than according to "Hobson's Choice" "most affordable" - but still severely unaffordable by historical standards - "choices".

It is all very well for smarter buyers to wait for a periodic crash in which to buy their first home, but the problem is that these periodic crashes will be accompanied by recession and unemployment and tightened credit. By the way, Britain, since its Town and Country Planning Act in 1947, is a working illustration of this cycle, which has happened every 12 to 16 years for decades now.

It is a question whether the world economy can stand this happening again and again in the entire OECD simultaneously, as the OECD states in a recent report "A Bird's-Eye View of OECD Housing Markets". Most of the OECD nations have had simultaneous housing bubbles this time around. Blaming it on Wall Street/Fannie Mae/Freddie Mac/Alan Greenspan/Tax laws etc etc etc just does not work. This was "the urban planners housing bubble" - they just haven't been made to wear it yet.

It is also the height of folly for NZ and Australia, who are under 2% urbanised, to have engineered their own participation in these bubbles.

I grew up in the

I grew up in the Southeastern United States where until maybe 20 years ago it was still largely a region ( with the exception of Florida) that was deemed "un-desirable" by many in the country for a host of reasons I won't go into. Back then you could buy a house for $20,000 or less. My parents bought a house above theirs for $15,000 in fact, and this was in the 90's.

I moved out of the region around 15 years ago. I first lived on the East Coast ( New York, New Jersey) for around 3-4 years. The region is heavily populated and full of denser, older housing stock. The difference in the cost of living for me- a country boy- was enormous. The costs I'd say at that time were a good 5 or 6 times higher. I later moved to California where the cost difference was even higher.

But in the meantime a lot of people were starting to move to the Southeast. Every time I visited my family back home there was a whole slew of new housing developments that had seemingly appeared overnight. Many being inhabited by "refugees" from the coasts. BIG houses all stacked on top of one another for $250,000 or so. Chump change if you happen to be from New York but high if you were a local. What used to be fields got filled with gigantic shopping malls, fast food restaurants and chain eateries. New freeways were built.

This rapid development is still happening. The rest of the country frowns on it because they see it as "sprawl". In other words- it doesn't look like their ideal of what a town or city "should" be. Ironic since in most cases such ideal places cost a pretty penny, which is why such sprawl exists in the first place- because the many who can't afford to live in urban utopia move to such sprawly landscapes.

I'm not sure where I'm going with this. I guess from what I've experienced is nothing short of irony. The so-called ideal places people who typically have money seem to adore are usually places that at one time housed mill workers, shipyard dock workers, factory workers, and so on. They lived in the row houses, smaller housing complexes and lofts now being bought for a million dollars in places like San Francisco, New York, and Chicago. Ironically the very people who would have lived in such places in the past have been priced out and are moving to new locations- primarily sprawly places- where they can afford to live as they want to. The irony is that cities in many ways were never meant to be places of beauty. They were simply places to work. Look at any grubby coat-dust polluted picture from the 1890's of most any US city and I fail to see beauty. But now that people are moving to places deemed as "urban sprawl", isn't it funny that now these areas too are given such negative attention? Is it possible that in another 100 years these so-called urban sprawl areas will be the ideal vision of future Utopian urban planners?

Well spotted, TX1234

".....Look at any grubby coat-dust polluted picture from the 1890's of most any US city and I fail to see beauty. But now that people are moving to places deemed as "urban sprawl", isn't it funny that now these areas too are given such negative attention? Is it possible that in another 100 years these so-called urban sprawl areas will be the ideal vision of future Utopian urban planners?"

The planners of a few decades ago couldn't wait to get the families OUT of the filthy inner cities. "Sprawl" is as much a "planned" phenomenon as it is a popularly demanded one. European cities retained a lot more of their inner city living because their traditions and the antiquity of their "heritage" was so much stronger, the "planners" ideas for urban renewal encountered far stronger resistance than anything Jane Jacobs ever put up in New York.

Now the planning classes of the USA want to repudiate what their forebears did, and point to old European cities as some sort of ideal to emulate. Alain Bertaud's "Clearing the Air In Atlanta" is essential reading on this - the sprawled US city is like a genie out of its bottle. It would cost far too much (in capital consumed) to "densify" any sprawled city by force on any time frame shorter than than of many decades, if not more than a century.

Regarding a possible reversal of planners beliefs, I have posed the following question on New Geography before:

In this brave new world of depleted resources, what makes sense? Living in a wholly separate house with its own plot of surrounding land, where you can burn biomass to heat your home, cook on a barbecue, hang washing on a line, grow your own vegetables and fruit trees, collect rainwater, compost your own waste and recycle "grey water", keep fowls or even a sheep or two, and have solar panels all over your roof and a wind turbine in the back yard? Or living in Green utopians high density inner city blocks of flats? This is a such a no-brainer, that these Green utopians very motives and honesty are very much in question.

Fuzzy facts

Personally I don't think the amount of land available for sale at present, as quoted, is a fuzzy anecdote. It's a hard economic fact which contradicts the idea that there is a shortage of developable land.

In terms of New Zealand, I think the restriction of urban areas has caused a problem over the last decade, but it is only part of the picture. Credit was a far larger element than land restrictions, allied to the many and varied aspects of demographics.

My point is that liberating further land on the fringes is a solution that has had its day. The problem to be solved is how society and institutions can facilitate centre-based regeneration rather than trying to turn a blind eye to where the market is heading, and seeking to move the solution to an area that people are not going to want to live in in the future as much as they did in the past.

There is no avoiding institutional planning when the population gets over a certain size - power and interests have to be brokered, by whatever set of values can be established - unless you want anarchy. If you want to avoid institutional governance, move to Stewart Island or somewhere similar.

The challenge remains the same as ever - how to make human settlements and society as enjoyable and efficient as we can. The younger generation look back at the post-war experiment with different eyes to the older generation. The credit crunch will only increase the disparity of views, and accelerate the move towards a future which is different from the past.

Tim Robinson
Architect & Urban Designer, Auckland, NZ

new tricks, old dog?

Ah. Build it and they will come. To a field a long way from anywhere desirable.

As someone who works in the development field, I agree with the identification of the flow-on benefits from development. As someone who is prepared to acknowledge the failures of the past I could not disagree more.

A clue to the fundamental flaw is given away in the penultimate paragraph:
"So why are we allowing our institutions to destroy the ability to regenerate our own suburban middle class?"

Greenfield development regenerates nothing, only consumes. We should be looking to truly regenerate, not grow artificial limbs The issue in New Zealand, as with many countries, is how institutions can encourage regeneration - primarily within the existing settlements where people get access to the services they want - rather than putting up road blocks rather than enabling centre-based regeneration.

There are plenty of quiet towns around New Zealand which were bustling urban places in the past, where you can live the semi-rural dream.

The online auction site in NZ has 14,166 sections for sale across the country at this moment. That is a whole lotta land sitting ready to develop. More than enough choice for builders.

See, the catch is at least two-fold against Owen's argument: first, no-one is buying. It's not about the zoning or land development constraints right now. The dollar ain't spent when the Dollar ain't there ... or when spending that Dollar is an unwise investment. People just find other ways to live, rather than indulging in the 'dream' oversized houses on the far removed edge of town.

Second, given the choice people don't want to live on the far removed edge as much as they used to. We're not talking about building a few km's out from Auckland (or most other cities') employment areas any more. New subdivision is not in convenient reach of the real attractors, like it was when we built Mount Roskill and all those other wonderful post-war car-based utopias. Double whammy - you don't just get to show your car off when you live in Rodney or Kumeu, you have to. And everyone loves sitting for hours on the Northern Motorway at peak hour right?

When it comes down to it, the house-buying public are beginning to see the future for what it will be. They face a choice - live centrally and have time for your family and pay less to get around daily, or live further out and squander time and money using inefficient & expensive forms of transport, in the era of increasingly expensive fuel. There is a good reason why rail ridership in Auckland has increased by 97% over the last five years, why Aucklanders made 7.7% more public transport trips in 2008-9 as opposed to the previous year, and why cycle counts went up 34% from last year to this (source: Auckland Regional Transport Authority).

And that's before you even get to the question of whether buying an 'asset' that will depreciate in real terms over at least the next decade comes into the question. Why buy when renting gives a better return in Auckland for the foreseeable future? Lots of babyboomers offloading property for the next twenty years ('realising the savings made through investing in property') is hardly going to push prices up is it, especially when immigration is at an all-time low?

Your question about addressing institutional behaviour is the right question Owen. You just have the blinkers still on, and can't see that the demand and problem is not at the fringe of the city. The problem is with the hopeless misunderstanding of how to make change happen in an existing centre. Still, the release of properties by all those babyboomers who bought in the central and post-war suburbs should see the opposition to development ease over the next few years.

Development and urban morphology is cyclical and organic. Areas grow, pass through middle age and then fade. Where has faded, and where is right for attention now? It ain't the greenfields. The market - ie the consumers - will see to the future shape of the city, and it will only buy in distant locations for as long as the lobbyists and media try to prop up the post-war world order....

Tim Robinson

Then Why Urban Containment?


If your last paragraph were true, then compact city policies would not need urban containment devices, such as urban growth boundaries. People's preferences would block development on the urban fringe.

Best regards,
Wendell Cox

...and if land and housing

...and if land and housing markets operated as 'normal' markets then MUL's would not be necessary. I don't like them.

But they are one of the only tools that levels the imbalance created by hidden subsidies associated with greenfield urban fringe development, and the manipulation of land supply exercised by strategic investors. These are supply-side issues, not demand side, which deform the market out of line with purchaser's preferences, resulting in reduced choice. Your suggestion that demand leads supply in the housing market is something that I am quite sure you know is not entirely true.

Tim Robinson
Architect & Urban Designer, Auckland, NZ



Levels the imbalances? Does it really cost around the $200k mark to bring a section online when all 'artifical' imbalances are removed?

Andrew Atkin

Smart growth

Wendell Cox,

EXACTLY! That is the heart of it. If urban intensification is really what everyone wants then councils should have to explain why, exactly, they need to break the competitions ("spawl") legs to actualise that high-density utopia that they keep telling us we want.

I believe the central debate on this topic needs the new definition: "Forced intensification versus individual choice" because that is where we are really at. Otherwise, it tends to get too confused by arguments that are ultimately beside the point, and people end up not knowing what to think.

Andrew Atkin

ps. I have a lot of respect for your (and Owen McShanes') efforts on this issue. But to be politically effective I think multi-media investment is required. The voting masses just don't read much anymore.
Just a suggestion - sorry if it's a bit 'ranty'.