Here’s the key news in Aotearoa’s political economy over the last day or so around housing, climate and poverty, along with analysis and detail in the video and podcast above, and in the PDF of the presentation attached below, for paying subscribers:

* The Lead: Watercare published new maps this morning detailing where new housing can’t be built in and around Auckland because of staged investment plans, soon after hiking its development contributions and network connection charges. The maps, fees and charges impose the ultimate limits on real housing capacity in Aotearoa’s fastest-growing city, above and beyond the district plans fought over between the Beehive and councils.

* The Sidebar: These maps and fees set the marginal cost of new housing and control the supply of housing coming onto the market, effectively setting a floor that elevate under prices right across the market. They are the mechanism setting the economic growth rate of New Zealand Inc and determine both who pays for infrastructure and who captures the land valuation upgrades from development.

* The Bottom Line: The shift to front-loading the capital costs of new development onto the marginal buyer of homes, rather than spreading it across existing taxpayers and ratepayers, has massively increased the marginal cost of new housing over the last 30 years, which in effect has increased the cost of all new houses. This shift in infrastructure funding onto future generations has delivered a $1 trillion windfall capital gain that was not taxed into the laps of landowners. The ongoing lack of value capture rates also means the private beneficiaries of land up-zoning don’t pay for the capital costs that enable that new development.

* The Quote of the day is from Auckland Mayor Wayne Brown, who engaged in some light trolling this week when suggesting the location for some high-rise apartments in the Epsom electorate: “Just next door to where Mr Seymour lives would be a really good one. I’m thinking of a 10-storey building there.”

* The Scoops of the day are from Kate Newton at RNZ, who reported this morning on how official advice that the Government’s plan for an LNG import terminal was ‘low value’ was redacted, and that Treasury had estimated it could cost up to $6.5 billion to pay for the overseas carbon credits New Zealand needs to honour its Paris Agreement commitments.

* The Chart du Jour shows how Watercare is expecting to increase its capital expenditure by around 60% in the next five years to over $1.6 billion a year, with more than half of that funded from profits and infrastructure growth charges front-loaded into the prices of new homes, rather than through debt paid for by all of Auckland’s residents. (See chart below and in the video above.)

Paying subscribers get the full Picks n’ Mixes below and access to Substack Live Chorus sessions, along with the PDF of the presentation used in the Substack Live attached below. If we get more than 100 likes I’ll open it up for the public.

NZ Inc’s growth limit and windfall capital gains in map form

It is the chart that shows the scene of an intergenerational wealth crime.

This map is arguably the most important tool for understanding how fast New Zealand can grow, who is about to make massive (tax-free) windfall capital gains on land values, and why New Zealand housing will remain among the most expensive in the world. In effect, it explains why a collective decision to shift capital investment costs for new public water, transport and power networks to new generations of home buyers, rather than spread it across all taxpayers and network users, has unleashed over $1 trillion worth of tax-free capital gains onto the generations that owned residential land since 1990.

It is the chart that shows the scene of an intergenerational wealth crime. The lines on the map are in effect the chalk outlines of the body of the New Zealand economy’s productive potential.

Too much sprawl and not enough densification

Stepping back, it’s worth explaining how this map came to be and what it shows. The red and orange bits are the places Watercare has determined, sensibly, that are too expensive to provide drinking, waste and storm water networks for. It means those landowners can’t expect zoning upgrades any time soon that would deliver spectacular capital gains.

The dark green areas are also limited. Surprisingly, the ‘hole in the donut’ of the 10km radius around the CBD is listed as for limited development, in part because of the restrictions imposed on development in the Auckland Unitary Plan and the soon-to-be-passed Plan Change 120. Ideally, most housing development would be in intense apartment developments closest to the CBD, and in particular the City Rail Link stations and key bus routes.

The lines on the map are in effect the chalk outlines of the body of the New Zealand economy’s productive potential.

Yet, as this chart showed in the Plan Change 120 debates earlier this week, barely 25% of Auckland’s new housing capacity is expected to be within that 10 km radius because of the limits on multi-story developments in the leafy suburbs of Ponsonby, Grey Lynn, Herne Bay, Mt Eden, Epsom, Parnell and Remuera. Development has instead been forced outside the ‘donut’ into places such as Avondale, Onehunga, Glen Innes and the Te Atatu Peninsular.

Landbankers and Landlords have captured NZ Inc.

Developers and land owners pore over these maps to work out where they can capture the windfall gains in land values, which are still not taxed from a capital gains point of view or a value capture rating point of view. Landbankers and Landlords have captured NZ Inc. They are aided and abetted by owner-occupiers who don’t like to be taxed to pay for new infrastructure, but are happy to benefit from land value appreciation caused by restricting investment and pumping up the population.

How could it be done differently?

There used to be another way water infrastructure was funded and rolled out, which allowed new housing (and therefore all housing) to be cheaper. Existing landowners paid high income taxes to pay for the interest costs on the public debt taken on to fund the new suburbs and motorways and schools and hospitals funded by councils and the Government.

That changed in the reforms of the late 1980s, which took the view that either there wouldn’t be new population growth to build new infrastructure and housing for, or the costs should be borne by new residents (ie someone else). It was the ultimate choice of a selfish generation who engineered a wealth windfall double whammy: low taxes because they didn’t pay for new infrastructure, and high land price appreciation because the high cost of new infrastructure inflated the marginal cost of each new home, which translated into higher housing costs.

I’d recommend the interview below and Katie’s deep-dive for more information on how Watercare funds, plans and limits the growth of Auckland. To be clear, I’m not suggesting Watercare is doing anything wrong in its own right. It is working within the frameworks set by the last 30 years-worth of politicians and voters who have accidentally-on-purpose engineered the wealth transfer, and who now don’t know how to reverse it without damaging the untaxed capital gains they’re now relying on to fund their retirements and their childrens’ deposits.

Chart du Jour: Profits and charges to fund the investment

Today’s Top Six Pick ‘n Mix

* Scoop by Michael Morrah for NZ Herald: Watch: Inside the ‘chronically full’ neonatal ward where babies fight for life

* Deep-dive by Katie Bradford for NZ Herald: Why some Auckland suburbs are now ‘closely monitored’ for development

* Scoops by Kate Newton for RNZ: Officials redacted advice showing ‘low need’ for LNG imports; Government facing up to $5 billion bill over carbon credits, Treasury reveals

* Scoop by Jenee Tibshraeny for NZ Herald-$: NZ’s largest insurer exposes new customers to bluntest risk-based pricing

* Hayden Donnell for The Spinoff: A battle over the bare minimum at Auckland Council

* Op-Ed by Rosie Gallen on her substack: Emergency housing and the politics of disappearance. Fewer motels, but where did the insecurity go?

Scoops & Breaking News

* Alice Peacock for Newsroom Pro-$: