David Norman says the economic hit to Auckland was smaller than many anticipated during the first nationwide Covid-19 lockdown. However, since then, he says Auckland hasn’t received its fair share of funding from central government as part of the Covid-19 response.
Norman says when Covid was a New Zealand-wide problem and cases were spread across the country, the level of wage subsidy support was phenomenal. “But when Auckland went into its second lockdown in August, the level of support was about a quarter of that provided in terms of wage subsidy.”
He points out that this is reflected in the unemployment rate in Auckland versus the rest of the country. “Pre-Covid we had almost identical unemployment to the rest of the country, we now have significantly higher unemployment rates,” he says.
“Auckland is 40 per cent of New Zealand’s tax take. Auckland subsidises the west coast of the South Island to pay for roads, doctors, nurses, police officers.”
He uses the Canterbury earthquake as an example to prove his point. “Aucklanders put some $15 billion into the Canterbury rebuild through our share of the tax take,” he says.
“But now it is our time of risk and exposure, and this is the time we need to be given a share of wage subsidy and infrastructure support commensurate to our level of risk being the major gateway into the country at the moment.”
Herald: More than $5 billion is being injected into transforming the centre of Auckland’s transport and city infrastructure. What economic benefit will this have for the city?
Norman: The City Rail Link (CRL) is a good example — big money, but massive benefits. The most obvious is massive travel time savings, typically it will shorten a train trip by 10 minutes. It effectively brings people and jobs (and the businesses that have those jobs) closer together.
You suddenly have far more access to workers and jobs closer together (not in distance but in travel time). You get all the benefits that come with that. Agglomeration benefits see businesses become far more productive because they are surrounded by other businesses that do similar types of things. This is why your big banks and accounting firms are all in the same proximity, because there are huge benefits that come from being co-located.
The ferry terminal redevelopment will allow for a lot more use of our waterways. Similarly to the CRL, it will get cars off our roads and bring more people in more quickly — creating better economic outcomes.
Some people question why we’re spending all these billions in the city centre when foot traffic is reduced due to Covid.
We don’t want to be guilty of the same short-termism that we had during the 50s to the 70s when we ripped out our tram networks. Covid is temporary. We will likely be a prized destination when borders open, and we want a city centre that is ready to deal with that capacity.
Herald: New dwelling consent numbers are up — December’s numbers alone were the strongest December on record. This is putting pressure on Auckland Council to provide the infrastructure needed to meet the growth in housing yet finances are constrained due to Covid-19. What is the solution?
Norman: Infrastructure is eye-wateringly expensive. In greenfield areas there is a minimum cost of $100,000-$150,000 per dwelling just for the bulk infrastructure. At the moment, developers pay about $40,000 through their development contributions — the rest comes from ratepayers.
The landowner at the top of the chain wins because they get overpaid for raw land by developers who assume they will continue to receive a large subsidy on infrastructure.
The way that things will change is if we signal to developers that they will need to pay for the full cost of development.
If we signal a movement toward full cost recovery, that will very quickly solve the problem of infrastructure provision and you would suddenly see even more development happen where infrastructure provision is cheapest — where there is already existing capacity in brownfields.
Herald: During Auckland’s second lockdown, you estimated we were losing 250 jobs and up to $75m a day in economic activity. Six months on, how is the wider Auckland region faring?
Norman: Like the rest of New Zealand, we are doing massively better than we thought. It turns out the number of job losses was ~200 a day. I was delighted to have overestimated that, but the reality is that over 20,000 Aucklanders have still lost their jobs.
But we are encouraged by a couple of things. Not a single indicator in the last six months at the Auckland or New Zealand level has turned out worse than we anticipated back in April or May.
Secondly, we have seen remarkable resilience — and the incredible bounce back from business. Construction has been unbelievable, which will remain a key driver over the next few years.
Herald: How about central Auckland in particular? What is your perspective on this and what does it mean for the city centre?
Norman: The city centre has been hit by at least four things: 1: No international tourists — all those cruise ships have gone. 2: Most foreign students actually made it into New Zealand before the borders closed, but as they have finished their study and left, they cannot be replaced. 3: There is more working from home. 4: Higher unemployment generally.
Almost every town centre around Auckland is down in terms of foot traffic. But town centres outside the city centre have not been hit by the international tourist and foreign student downturn as much as the city centre. And yet, total spending by New Zealanders is back where it was pre-Covid. The problem is that it is being spent from the couch — there has been a huge reduction in spending on hospitality (hotels and restaurants) but a boost in supermarkets, liquor stores and online retailers.
This means people are not going into their local town centre or city centre. We don’t get an even local spread of economic activity. Town centres and the city centre are battling.
Herald: What does this mean for commercial property? Even just from walking around the city centre, it seems that there have been considerable retail closures and that office space is untenanted.
Norman: The top end commercial buildings are actually doing okay. When the economy is weaker, people are moving to from lower-grade buildings to higher-grade for the same amount of rent.
The worry is not so much the better grade buildings — they may reduce rent a little but they will be okay. The C- and D-grade buildings down the end of the queue are going to probably going to be challenged.
Herald: How important is economic activity in Auckland to New Zealand’s nationwide recovery of Covid?
Norman: Auckland is more than a third of the population of New Zealand, we’re 40 per cent of the tax take, we’re the gateway city for 70 per cent of arrivals into NZ in normal times, we have the second biggest sea port in the country, the largest manufacturing base in the country, the headquarters for practically every major corporate in the country. If you consider just the city centre, almost all those things are still true.
It is also the place where the highest productivity workers work. Auckland provides services not just for Auckland but for all of New Zealand — if Auckland doesn’t have those services then probably New Zealand doesn’t have those services. That is why it is important we make sure we keep the city centre an attractive place to bring those skills to.
David Norman is Auckland Council’s chief economist. His job is to provide an independent contestable economics voice at Auckland Council to staff, project teams, elected members and the mayor on economic issues — looking at spending and considering whether an initiative is good value for money.
“We want to use resources to maximise wellbeing, happiness, quality of life,” Norman says. “Governments don’t exist to make money; they exist to do things that the private sector doesn’t do on its own.”
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