With a touch of your finger, you could cause new housing to emerge in places with housing shortages. It would cost you next to nothing. You could just do it.
Imagine further that, for decades, you had not had a real job and depended on cash handouts from your increasingly-annoyed parents. With your superpower, you could change all that and deliver housing for people who need it into the bargain.
Not using your superpower would seem incredibly bad. People need housing. Your long-suffering parents need a break.
In 2020, central government gave KiwiRail a superpower. Or something very close to one.
The National Policy Statement on Urban Development requires councils to upzone land near mass transit.
Land zoned for more housing is scarce. That scarcity is obvious if you look at land prices on either side of zoning boundaries. In 2023, the Infrastructure Commission showed that land in Tauranga zoned for housing was worth $1,100 more per square metre than comparable land where housing is not allowed. In Auckland, the urban-zoning premium is about $1,300 per square metre relative to nearby rural land.
Upzoning a single four-hectare block at Auckland’s boundary to allow housing creates $52 million in land value. Upzoning it to allow apartment towers with easy rail access to downtown would be worth a lot more.
Auckland defines walkable catchments as being about an 800-metre radius around a train station entrance. That circle would encompass about 200 hectares. At $1,300 per square metre, the implied value is measured in the billions. But take that as an illustrative benchmark rather than a literal forecast.
Converting land to urban use is not free. Infrastructure is expensive. And some of the land would need to be used for roads, footpaths, and parks. But the Infrastructure Commission’s figures are intended to net off the cost of converting rural land for urban use. And upzoning to at least six storeys adds more value than just allowing a few more houses.
A new train station in the right place could easily create billions of dollars of valuable development opportunities.
As Matthew Bornholt and Benedict Springbett explain at the excellent Works in Progress magazine, the Tokyu corporation is not just a private railway in southern Tokyo. It also runs a local bus network, builds housing, rents out office space, owns a hospital, built its own supermarkets, has a museum-theatre-cinema complex, an amusement park, and a retirement home.
They quote the President of Tokyu as saying, “I think that though we are a railway company, we consider ourselves a city-shaping company. In Europe for instance, railway companies simply connect cities through their terminals. That is a pretty normal way of operating in this industry, whereas what we do is completely different: we create cities and then, as a utility facility, we add the stations and the railways to connect them one with another.”
Rail companies in Japan make a large part of their money from the increase in land value around new stations. Being close to rail is valuable. Capturing that value can help fund the network. London’s underground did the same thing. And Hong Kong’s MTR provides another example.
But if a rail company is missing the ambition, or the competence, or the perceived authorisation to do that kind of work, it isn’t really a constraint. Not if that rail company has an upzoning superpower in a place where far too little land is zoned for housing.
All that the rail company needs to do is partner with developers who can do the rest of the work. Place new stations where it is possible to buy or option land, or to set partnerships and joint ventures with existing landowners. The increases in land value that come with new development opportunities could cover the cost of the new station.
Transit-oriented development is underway in parts of Greater Wellington, but largely at the instigation of regional council rather than KiwiRail. Auckland Transport works with council, Kāinga Ora and Eke Panuku on redevelopment around stations. The Maungawhau station precinct in Auckland is being developed around rail, because the land around the station is jointly owned by council and central government.
But nobody seems to have tried the real superpower: using rail investment to create development rights where those rights are scarce, then capturing part of the uplift in land value.
State-owned enterprises are supposed to provide a return to their owner, the Crown. Instead, KiwiRail drew about half a billion dollars in operating subsidies from the government this fiscal year – and is unlikely to ever provide a return on Crown investment in the network.
I think there is an obvious solution.
Tell Japan’s rail companies that they can bid for all or some of Kiwirail’s network.
Show them the upzoning provisions in the National Policy Statement on Urban Development.
And let them demonstrate the appropriate use of a superpower.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
In 2020, central government gave KiwiRail a superpower. Or something very close to one.
The National Policy Statement on Urban Development requires councils to upzone land near mass transit.
Land zoned for more housing is scarce. That scarcity is obvious if you look at land prices on either side of zoning boundaries. In 2023, the Infrastructure Commission showed that land in Tauranga zoned for housing was worth $1,100 more per square metre than comparable land where housing is not allowed. In Auckland, the urban-zoning premium is about $1,300 per square metre relative to nearby rural land.
Upzoning a single four-hectare block at Auckland’s boundary to allow housing creates $52 million in land value. Upzoning it to allow apartment towers with easy rail access to downtown would be worth a lot more.
Auckland defines walkable catchments as being about an 800-metre radius around a train station entrance. That circle would encompass about 200 hectares. At $1,300 per square metre, the implied value is measured in the billions. But take that as an illustrative benchmark rather than a literal forecast.
Converting land to urban use is not free. Infrastructure is expensive. And some of the land would need to be used for roads, footpaths, and parks. But the Infrastructure Commission’s figures are intended to net off the cost of converting rural land for urban use. And upzoning to at least six storeys adds more value than just allowing a few more houses.
A new train station in the right place could easily create billions of dollars of valuable development opportunities.
As Matthew Bornholt and Benedict Springbett explain at the excellent Works in Progress magazine, the Tokyu corporation is not just a private railway in southern Tokyo. It also runs a local bus network, builds housing, rents out office space, owns a hospital, built its own supermarkets, has a museum-theatre-cinema complex, an amusement park, and a retirement home.
They quote the President of Tokyu as saying, “I think that though we are a railway company, we consider ourselves a city-shaping company. In Europe for instance, railway companies simply connect cities through their terminals. That is a pretty normal way of operating in this industry, whereas what we do is completely different: we create cities and then, as a utility facility, we add the stations and the railways to connect them one with another.”
Rail companies in Japan make a large part of their money from the increase in land value around new stations. Being close to rail is valuable. Capturing that value can help fund the network. London’s underground did the same thing. And Hong Kong’s MTR provides another example.
But if a rail company is missing the ambition, or the competence, or the perceived authorisation to do that kind of work, it isn’t really a constraint. Not if that rail company has an upzoning superpower in a place where far too little land is zoned for housing.
All that the rail company needs to do is partner with developers who can do the rest of the work. Place new stations where it is possible to buy or option land, or to set partnerships and joint ventures with existing landowners. The increases in land value that come with new development opportunities could cover the cost of the new station.
Transit-oriented development is underway in parts of Greater Wellington, but largely at the instigation of regional council rather than KiwiRail. Auckland Transport works with council, Kāinga Ora and Eke Panuku on redevelopment around stations. The Maungawhau station precinct in Auckland is being developed around rail, because the land around the station is jointly owned by council and central government.
But nobody seems to have tried the real superpower: using rail investment to create development rights where those rights are scarce, then capturing part of the uplift in land value.
State-owned enterprises are supposed to provide a return to their owner, the Crown. Instead, KiwiRail drew about half a billion dollars in operating subsidies from the government this fiscal year – and is unlikely to ever provide a return on Crown investment in the network.
I think there is an obvious solution.
Tell Japan’s rail companies that they can bid for all or some of Kiwirail’s network.
Show them the upzoning provisions in the National Policy Statement on Urban Development.
And let them demonstrate the appropriate use of a superpower.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
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